STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2014 Douglas A. Ducey 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 9 10 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 131 141 142 145 149 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 ........................................................................ 200 202 Agency Funds: Combining Statement of Assets and Liabilities ........................................................................................... Combining Statement of Changes in Assets and Liabilities.......................................................................... 207 208 Non-major Component Units: Combining Statement of Net Position ................................................................................................................. Combining Statement of Activities ..................................................................................................................... 212 214 Non-major Universities –Affiliated Component Units: Combining Statement of Financial Position ........................................................................................................ Combining Statement of Activities ..................................................................................................................... 218 220 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 226 228 232 234 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 2011 and 2004 ........ 238 241 242 244 244 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 Nine Fiscal Years ................. Schedule 13 –Legal Debt Margin Information, University of Arizona, for the Last Eight Fiscal Years.................... Schedule 14 –Legal Debt Margin Information, Northern Arizona University, for the Last Eight 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 Four 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 ........................................................................................................... 246 248 248 249 249 250 250 251 251 252 252 253 253 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 .................................................................... 255 255 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 ..................................................... 256 258 260 iii INTRODUCTORY SECTION INTRODUCTORY SECTION Douglas A. Ducey Kathy Peckardt Governor Interim Director ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH FIFTEENTH AVENUE i SUITE 401 PHOENIX, ARIZONA 85007 (602) 542-1500 March 9, 2015 The Honorable Douglas A. Ducey, Governor of the State of Arizona; Members of the Legislature; Scott Bales, 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, 2014. 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 2010 2011 2012 Revenues 2013 2014 Expenditures The General Fund ended the June 30, 2014 fiscal year with a total fund balance of $24.6 million. This compares to the previous year’s total fund balance of $423.2 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) $600 $400 $200 $0 ($200) ($400) ($600) ($800) 2010 2011 2012 -3- 2013 2014 ECONOMIC CONDITION AND OUTLOOK The following economic summary is based on the Forecast Report issued by the Office of Employment and Population Statistics (EPS) within the Arizona Department of Administration, for calendar years 2015-2016, released on February 26, 2015. Overview The overall employment situation in Arizona continues to improve. This is consistent with improvement seen in many economic indicators including population growth. Compared to 2013, population grew faster in 2014 at 1.31 percent based on the EPS’internal preliminary numbers. Population is projected to grow at 1.65 percent in 2015 and 1.99 percent in 2016. Although Arizona economy continues to have some after effects of various policies that were enacted post-recession (sequestration cuts in 2011 and payroll tax increase in 2013), the major impacts of these policies are behind us and the federal government does not appear to be a strong drag on the economy. Compared to prior recessions, the weak employment recovery is in large part due to lack of new construction. However, the economic fundamentals continue to improve. Both, the U.S. and Arizona’s unemployment rate continue to decline. Two economic changes worth noting are the lower oil prices and the rising dollar. The U.S. and Arizona households are expected to receive the benefits of a higher disposable income resulting from lower oil prices. On the negative side, the rising dollar could hurt exports. On the positive side, it is expected to make imports cheaper and help control inflation. A higher dollar effectively transfers demand from the U.S. economy to economies around the world. Economies such as Japan, emerging Asia, and Europe could benefit with a boost to their exports. In the long run, this should lead to a healthier and more balanced global economy. Arizona’s nonfarm employment is forecast for modest growth in 2015 with mild acceleration in 2016. An over-theyear gain of 56,600 nonfarm jobs is expected in 2015 and 63,100 in 2016. In the current forecast, the rate of growth projected for total nonfarm employment is 2.2 percent in 2015 and 2.4 percent in 2016. A total of 119,700 nonfarm jobs are forecast to be gained over the two projected years (2015 and 2016). All eleven major sectors are expected to grow in 2015 and 2016. However, Arizona has historically seen stronger nonfarm employment growth rate than what has been observed in recent years. The following factors support Arizona’s economic growth: i i i i i Continued improvement in real Gross Domestic Product, real personal income, employment, and retail sales at the state and national levels. Continued private sector employment gains, increasing private domestic investment, increases 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. In 2015, the increase in domestic investment spending is anticipated to begin reducing the amounts of accumulated corporate cash holdings. Household net worth and U.S. exports continue to increase. Residential real estate market in Arizona and Phoenix metropolitan area has shown improvement. Home prices have improved but are still way off peak. Increase in the construction of primarily apartments, office buildings, and limited single family homes have been observed. Commercial real estate is gradually improving with lower vacancy rates, higher rental rates and lower rates of default and delinquency in mortgage loans. Growth in non-revolving consumer credit levels have been serving as an impetus to expanding economic activity. Consumer sentiment and consumer spending have improved. Banks are gradually loosening up their lending requirements. Mortgage rates are low. Bank delinquency and default rates on consumer credit are declining. Some factors that could further dampen the growth of the local economy are given below. However, the positive factors listed above outweigh the uncertainties in the sections described below in support of the EPS’forecast: i i Despite some increase in disposable income from lower gas prices, constrained budgets persist for a large majority of households. Real median household income in the U.S. and Arizona is below the peak level prior to the 2007 recession. Population growth in the State (1.3 percent in 2014) has been below the growth rate observed historically, limiting the additional demand for goods and services. Arizona’s annualized population growth rate for the decade of 1980 was 3.0 percent. This rate increased to 3.4 percent for the decade of the 1990’s and then -4- i i i i decreased to 2.2 percent for the first decade of the 21st century. In-migration, both domestic and international to the State has declined over time. Although there has been some improvement in the residential real estate market, up to 20.0 percent of potential buyers are unable to enter the housing market because of negative or low home equity. Reduction in FHA loan limit, higher FICO score requirement, prior home foreclosure or short sales, and millennials living at home has further inhibited potential buyers from entering the housing market. Although real business investment continues to grow, the rate of growth has slowed as a consequence of demand uncertainty. However, the rate of growth of business investment is expected to increase in 2015 and 2016. In the public sector, cuts in the federal, state and local budgets would require spending cuts, tax increases, or a mixture of the two which could slow the growth in aggregate demand in the U.S. and Arizona economy, thus limiting employment growth. Arizona is vulnerable to federal government expenditure changes due to a larger share of military spending in the State’s economy. Real federal, civilian, and military expenditures continued to decline in 2014. Operating at a lower level of federal government expenditures is projected to impact some industry sectors more than others: Manufacturing; Retail Trade; Professional and Business Services; and Government. In addition to the factors aforementioned, there are some grounds for limited optimism and concern on the international front: i i i Although Arizona exports could have a slight stimulating effect with a gradual improvement in the overall world economy, a rising dollar could negatively hurt exports. China’s deceleration in growth could impact other regions. China's national economy grew an annual 7.4 percent in 2014, the slowest since 1990. It is unclear as to how China will extricate itself from its debt induced housing bubble and industrial capacity glut. The global economy continues to be in low gear, and hope that the tailwinds of lower oil prices and international monetary stimulus would provide a modest boost to growth this year. Individual Sectors The Educational and Health Services sector is forecast to gain 13,800 jobs (3.5 percent) in 2015 and 16,100 jobs (4.0 percent) in 2016 for a total of 29,900 jobs over two years. Increases are expected in all subsectors of Health Care and Social Assistance with the largest projected employment increase in Ambulatory Health Care Services. With the Affordable Care Act (ACA) expansion, both Medicaid and Medicare enrollment has increased. Population growth coupled with state and federal spending associated with the ACA is likely to increase employment growth in these subsectors. Private Educational Services are expected to slow as the economy improves and people re-enter the workforce foregoing higher education and the accumulation of student debt. The Leisure and Hospitality sector is projected to gain 11,100 jobs (3.9 percent) in 2015 and 12,100 jobs (4.1 percent) in 2016 for a total of 23,200 jobs over two years. The largest projected job gain is expected in the Food Services and Drinking Places sub-sector. Fewer gains are forecast in the sub-sectors of Accommodations and Arts, Entertainment, and Recreation. An improving economy, tourism, and population increases are expected to bolster employment in the Leisure and Hospitality sector. The Trade, Transportation, and Utilities sector is forecast to gain 10,000 jobs (2.1 percent) in 2015 and 11,100 jobs (2.2 percent) in 2016 for a total of 21,100 jobs over two years. Retail Trade is expected to have the most employment gains with all subsectors forecasting gains. Fewer gains are forecast in Wholesale Trade, Transportation, Warehousing, and Utilities. Utilities is expected to remain flat over the two-year period and Transportation and Warehousing is forecast to gain jobs as a result of overall economic growth. The Professional and Business Services sector is projected to have an increase of 9,600 jobs (2.5 percent) in 2015 and 8,900 jobs (2.3 percent) in 2016 for a total of 18,500 jobs over two years. The Administrative and Waste Services sub-sectors are expected to have the largest job gains over the projection period which includes Employment Services, Business Support Services, and Services to Buildings and Dwellings. Employment Services growth is expected to slow over the two-year period as firms move away from lower-cost contingent labor to more stable hires with an improving economy. Job gains are forecast in the subsectors of Professional, Scientific, and Technical Services and Management of Companies and Enterprises. -5- The Financial Activities sector’s projected employment growth over the two-year period is expected to slow to an increase of 6,400 jobs (3.3 percent) in 2015 and 5,900 jobs (3.0 percent) in 2016 for a total of 12,400 jobs over two years. Gradual rise in interest rates and a slow growing Construction sector could hinder employment growth in this sector. Securities, Commodities Contracts, Investments, Credit Intermediation and Monetary Authorities, Real Estate, Rental, and Leasing, are forecast to gain jobs with the largest gains projected in Insurance, Funds, and Trusts. The Manufacturing sector is projected to have an employment increase of 1,600 jobs (1.1 percent) in 2015 and 2,900 jobs (1.8 percent) in 2016 for a total of 4,500 jobs over two years. Growth is forecast in both Durable Goods and Nondurable Goods. Gains in Durable Goods are expected from Fabricated Metal Products and other unreported sectors; Aerospace Products and Parts and Computer and Electronic Products are forecast to shed jobs. The U.S. production index has expanded for eleven consecutive months. New orders index also indicates forward momentum in the economy. However, with Arizona’s dependence on defense related industries, staffing levels for defense related manufacturing industries in Arizona are expected to decline due to reduced civilian and military funding. The Government sector is forecast to have a small gain of 1,300 jobs (0.3 percent) in 2015 and 1,500 jobs (0.4 percent) in 2016 for a total of 2,800 jobs over two years. All subsectors (Federal, State, and Local Government) are expected to have gains over the two-year period. All gains in State and Local Government are expected in Education related subsectors. The Construction sector is forecast to gain 600 jobs (0.5 percent) in 2015 and 2,200 jobs (1.8 percent) in 2016 for a total of 2,800 jobs over the two years. Heavy Construction is expected to have the largest employment gain. Specialty Trade is expected to increase but could be dampened until housing overall makes a meaningful recovery. Multi-family private residence construction has grown in the State. Home repair and maintenance activities and population growth are factors that support some growth in this sector. Building Construction is the only Construction sub-sector with projected job losses from 2014 to 2016. The Information sector is projected to have a gain in employment of 400 jobs in both 2015 (0.9 percent) and 2016 (1.0 percent) for a total of 800 jobs over two years. Job gains are forecast in the Telecommunications and NonTelecommunications sub-sectors of Information. The Natural Resources and Mining sector is forecast to gain 200 jobs (1.3 percent) in 2015 and 200 jobs (1.8 percent) in 2016 for a total of 400 jobs over two years. The Other Services sector is forecast to gain 1,600 jobs (1.8 percent) in 2015 and 1,700 jobs (1.9 percent) in 2016 for a total of 3,300 jobs over two years. An improving economy with gradually rising levels of business and consumer spending is forecast to bolster the demand and employment for the services provided by this sector. MAJOR INITIATIVES The Major Initiatives for the year ended June 30, 2014, were as follows: i i i i i The Legislature restored Medicaid eligibility for childless adults and expanded coverage to 133 percent of the federal poverty level in fiscal year 2014. The federal government provides between 85 percent and 100 percent of the cost of the Medicaid restoration, depending on the population, and the remaining cost is funded by an assessment on hospitals. The majority of the Medicaid expansion had been approved by voters in two previous ballot initiatives. Fiscal year 2014 saw approximately $67 million set aside for several statewide IT projects, including the second year of the four-year project to replace Arizona’s financial and accounting system, a new inmate database, a new statewide e-licensing platform, a new student learning and accountability system, and to update tax collection and reporting systems. Arizona State University received $24 million and Northern Arizona University $6 million to align their per pupil funding with that of the University of Arizona. Another notable investment in higher education was an increase of $8 million to University of Arizona Phoenix Medical School to complete the establishment of the 320-student medical school. The fiscal year 2014 budget also included $5 million to activate 500 medium-security private prison beds to address the State’s growing prison population. -6- 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 DEPARTMENT OF CHILD SAFETY OTHER BOARDS, COMMISSIONS, AND AGENCIES BOARD OF REGENTS ARIZONA STATE UNIVERSITY NORTHERN ARIZONA UNIVERSITY * ELECTED OFFICIALS -9- UNIVERSITY OF ARIZONA STATE OF ARIZONA PRINCIPAL STATE OFFICIALS JUNE 30, 2014 ELECTED OFFICIALS –as of June 30, 2014 Janice K. Brewer, Governor Senator Andy Biggs, President of the Senate Representative Andy Tobin, Speaker of the House Ken Bennett, Secretary of State Tom Horne, Attorney General Joe Hart, State Mine Inspector Douglas A. Ducey, State Treasurer John Huppenthal, Superintendent of Public Instruction Bob Stump, Chairman –Corporation Commission Bob Burns, Commissioner –Corporation Commission Brenda Burns, Commissioner –Corporation Commission Gary Pierce, Commissioner –Corporation Commission Susan Bitter Smith, Commissioner –Corporation Commission APPOINTED OFFICIALS –as of June 30, 2014 Executive Officials Brian C. McNeil, Director –Department of Administration Charles L. Ryan, Director –Department of Corrections Clarence H. Carter, Director –Department of Economic Security Charles Flanagan, Director –Department of Child Safety David Raber, Director –Department of Revenue Robert Halliday, Director –Department of Public Safety Will Humble, Director –Department of Health Services Tom Betlach, Director –Arizona Health Care Cost Containment System John Halikowski, Director –Department of Transportation Judicial Officials Rebecca White Berch, Chief Justice – Supreme Court Legislative Officials Michael E. Braun, Executive Director –Legislative Council Richard Stavneak, Director –Joint Legislative Budget Committee Debra K. Davenport, CPA, Auditor General –Office of the Auditor General University Officials Dr. Michael M. Crow, President –Arizona State University Dr. John D. Haeger, President –Northern Arizona University Dr. Ann W. Hart, President –University of Arizona ELECTED OFFICIALS –as of March 9, 2015 Douglas A. Ducey, Governor Senator Andy Biggs, President of the Senate Representative David M. Gowan Sr., Speaker of the House Michele Reagan, Secretary of State Mark Brnovich, Attorney General Joe Hart, State Mine Inspector Jeff DeWit, State Treasurer Diane Douglas, Superintendent of Public Instruction Susan Bitter Smith, Chairman –Corporation Commission Tom Forese, Commissioner –Corporation Commission Doug Little, Commissioner –Corporation Commission Bob Stump, Commissioner –Corporation Commission Bob Burns, Commissioner –Corporation Commission APPOINTED OFFICIALS –as of March 9, 2015 Executive Officials Kathy Peckardt, Interim Director –Department of Administration Charles L. Ryan, Director –Department of Corrections Timothy Jeffries, Director –Department of Economic Security Greg McKay, Director –Department of Child Safety David Raber, Director –Department of Revenue Frank Milstead, Director –Department of Public Safety Cory Nelson, Interim Director –Department of Health Services Tom Betlach, Director –Arizona Health Care Cost Containment System John Halikowski, Director –Department of Transportation Judicial Officials Scott Bales, Chief Justice – Supreme Court Legislative Officials Michael E. Braun, Executive Director –Legislative Council Richard Stavneak, Director –Joint Legislative Budget Committee Debra K. Davenport, CPA, Auditor General –Office of the Auditor General University Officials Dr. Michael M. Crow, President –Arizona State University Dr. Rita Cheng, President –Northern Arizona University Dr. Ann W. Hart, President –University of Arizona - 10 - FINANCIAL SECTION FINANCIAL SECTION INDEPENDENT AUDITORS’REPORT INDEPENDENT AUDITORS’REPORT Independent Auditors’ Report The Honorable Doug Ducey, Governor State of Arizona The Honorable Andy Biggs, President Arizona State Senate The Honorable David Gowan, Speaker Arizona House of Representatives The Honorable Scott Bales, 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, 2014, 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 deferred outflows of resources and revenues, additions, and other financing sources, as applicable, of the opinion units affected: Opinion Unit/Department Assets/Deferred Outflows of Resources 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 44 th STREET • SUITE 410 • PHOENIX, ARIZONA Revenues/Additions/ Other Financing Sources 63.34% 3.45% 1.21% 11.08% 18.93% 0.51% 0.23% 1.05% 0.68% 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/Deferred Outflows of Resources Revenues/Additions/ Other Financing Sources 0.09% 0.92% 100.00% 0.21% 12.92% 100.00% 33.65% 21.08% 100.00% 100.00% 0.03% 0.85% 0.11% 0.13% 66.56% 3.16% 0.75% 0.67% 12.36% 0.27% 2.52% 2.02% 5.07% 55.40% 2.32% 0.94% 0.57% 9.40% 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, the University of Arizona Health Network and Subsidiaries, and the Universities—Affiliated Component Units, except for those of the ASU Preparatory Academy, 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, 2014, 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 131 through 144, the Infrastructure Assets information on pages 145 through 148, and Agent Benefit Plans’ Funding Progress on page 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 by us and the other auditors. 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 March 9, 2015 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, 2014. 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 outflows of resources of the State exceeded liabilities at the close of the fiscal year by $25.7 billion (reported as net position). Of this amount, a deficit of $1.4 billion exists for unrestricted net position, $7.5 billion is restricted for specific purposes (restricted net position), and $19.6 billion is net investment in capital assets. i The State’s total net position increased in fiscal year 2014 by $1.6 billion. Net position of governmental activities increased by $1.2 billion, while net position of the business-type activities increased by $361.0 million. Fund Level: i As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $7.3 billion, an increase of $270.2 million from the beginning of the year. After accounting for non-spendable, restricted, and committed fund balances of $4.9 billion, $1.9 billion, and $814.3 million, respectively, the State’s unassigned fund balance had a deficit of $219.0 million, or (3%) of combined fund balances. i As of the close of the fiscal year, unassigned fund balance for the General Fund had a deficit of $189.2 million, which is approximately (1%) of total General Fund expenditures. i The Land Endowments Fund reported fund balance at fiscal year-end of $4.8 billion, an increase of $715.1 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 $3.4 billion, an increase of $341.4 million during the year. Long-term Debt: i The State’s total long-term primary government debt decreased during the fiscal year to $10.1 billion, a decrease of $353.9 million or (3%). Changes during the year included the addition of revenue bonds, certificates of participation, and capital leases of $144.9 million, $305.8 million, and $115.8 million, respectively. Also, the State retired $281.1 million of revenue bonds and $504.1 million of certificates of participation. Included in the decrease in long-term primary government debt is a decrease in net issuance premiums of $64.2 million. 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 118-128 for more information on discretely presented component units. Fund Financial Statements (Reporting the State’s Major Funds) The fund financial statements begin on page 45 and provide detailed information about the major individual funds. A fund is a fiscal and accounting entity with a self-balancing set of accounts that the State uses to keep track of specific sources of funding and spending for a particular purpose. In addition to the major funds, page 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 131 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, 2014 and 2013 (expressed in thousands) Governmental Activities Current assets Capital assets Other non-current assets Total Assets Deferred outflows of resources Current liabilities Non-current liabilities Total Liabilities Net position: Net investment in capital assets Restricted Unrestricted Total Net Position 2014 $ 5,746,818 21,624,109 6,339,643 33,710,570 $ 2013 6,450,486 20,993,786 5,699,132 33,143,404 Business-type Activities 2013, as 2014 restated $ 1,317,866 $ 1,358,352 4,493,718 4,327,392 2,005,169 1,771,658 7,816,753 7,457,402 Primary Government Total 2013, as 2014 restated $ 7,064,684 $ 7,808,838 26,117,827 25,321,178 8,344,812 7,470,790 41,527,323 40,600,806 26,361 * 19,945 51,779 58,361 78,140 78,306 4,598,785 6,944,022 11,542,807 * 4,846,629 * 7,318,023 12,164,652 694,889 3,704,494 4,399,383 756,253 3,651,370 4,407,623 5,293,674 10,648,516 15,942,190 5,602,882 10,969,393 16,572,275 18,027,844 6,829,299 (2,663,019) $ 22,194,124 17,410,055 6,116,083 (2,527,441) $ 20,998,697 1,581,436 660,480 1,227,233 $ 3,469,149 1,524,964 531,972 1,051,204 $ 3,108,140 19,609,280 7,489,779 (1,435,786) $ 25,663,273 18,935,019 6,648,055 (1,476,237) $ 24,106,837 * The fiscal year 2013 amounts have been reclassified for comparison with fiscal year 2014 amounts due to the implementation of GASB Statement No. 65. For the year ended June 30, 2014, the State’s combined net position totaled $25.7 billion, reflecting an increase of $1.6 billion during the current fiscal year. The largest portion of the State’s net position (77%) represents net investment in capital assets of $19.6 billion. Additions to roads and bridges provided the majority of the governmental activities increase in net investment in capital assets of $617.8 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 $7.5 billion (29%) of resources that are subject to external restrictions on how they may be used. The governmental activities increase in restricted net position of $713.2 million is primarily the result of an increase of $723.4 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 $1.4 billion (6%) reported as unrestricted net position. More detailed information regarding beginning net position restatements is on page 112. - 24 - State of Arizona-Primary Government Changes in Net Position for Fiscal Years June 30, 2014 and 2013 (expressed in thousands) Governmental Activities 2014 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 Industrial Commission Special Fund Other business-type activities Total Expenses Excess (deficiency) before contributions, extraordinary item, and transfers Contributions to permanent endowments Extraordinary item: Insurance recovery Transfers Change in Net Position Net Position - Beginning, as restated Net Position - Ending $ Business-type Activities 2013, as 2014 restated 2013 936,923 $ 850,869 $ 3,381,353 $ Primary Government Total 2013, as 2014 restated 3,181,812 $ 4,318,276 $ 4,032,681 12,172,836 546,680 11,588,834 651,999 1,343,922 41,250 1,570,854 15,210 13,516,758 587,930 13,159,688 667,209 5,948,055 3,963,197 314,313 41,215 1,650,579 547,481 79,215 6,518,480 3,974,998 316,050 27,429 1,592,911 531,186 18,705 63,669 108,296 57,490 62,017 6,011,724 3,963,197 314,313 41,215 1,650,579 547,481 187,511 6,575,970 3,974,998 316,050 27,429 1,592,911 531,186 80,722 37,926 83,695 176,035 26,498,150 45,746 174,095 144,403 26,435,705 107 78,837 5,017,434 5 148,743 5,036,131 38,033 83,695 254,872 31,515,584 45,751 174,095 293,146 31,471,836 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 836,431 12,168,426 161,480 5,372,267 1,400,413 754,510 204,179 - - 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 836,431 12,168,426 161,480 5,372,267 1,400,413 754,510 204,179 2,778,299 279,525 - 2,685,378 355,975 - 4,078,053 3,888,145 2,778,299 279,525 4,078,053 2,685,378 355,975 3,888,145 24,724,362 23,939,059 36,895 1,130,299 5,245,247 38,614 1,329,816 5,256,575 36,895 1,130,299 29,969,609 38,614 1,329,816 29,195,634 1,773,788 2,496,646 (227,813) (220,444) 1,545,975 2,276,202 - - 6,561 3,192 6,561 3,192 (578,361) 1,195,427 20,998,697 (534,722) 1,961,924 19,036,773 3,900 578,361 361,009 3,108,140 534,722 317,470 2,790,670 3,900 1,556,436 24,106,837 2,279,394 21,827,443 22,194,124 $ 20,998,697 - 25 - $ 3,469,149 $ 3,108,140 $ 25,663,273 $ 24,106,837 Change in Net Position Governmental Activities – Net Position increased by $1.2 billion from fiscal year 2013, or a 6% increase from fiscal year 2013. Although net position increased, the amount of the increase was not as large as the prior fiscal year increase of $2.0 billion. Reported sales tax revenues decreased by $570.4 million, or 9%, from fiscal year 2013. The decrease in sales tax collections reflects the expiration of the 1% additional sales tax in May 2013. This decrease was partially offset by an increase in net taxable sales of approximately 6% from fiscal year 2013. The largest increases in net taxable sales during fiscal year 2014 were in retail sales, restaurants and bars, and contracting. During fiscal year 2014, operating grants and contributions increased by $584.0 million (5%) over fiscal year 2013. This increase primarily results from enhanced federal financial participation matching rates for increased enrollment in Arizona Health Care Cost Containment System (AHCCCS) programs due to implementation of the Patient Protection and Affordable Care Act of 2010 (ACA) beginning January 1, 2014. AHCCCS experienced an increase of 190,040 members (14.4%) over fiscal year 2013 as a result of ACA expansion and the simultaneous ending of the Childless Adult program enrollment freeze beginning January 1, 2014. Operating grants and contributions also increased because the fair market value of the Permanent Fund investment portfolio increased during fiscal year 2014. Furthermore, there were increases in health and welfare and education expenses of $599.9 million and $201.4 million, respectively. The increase in health and welfare expenses resulted primarily from the implementation of the ACA by AHCCCS, as discussed above. The increase in education expense generally reflects increases in Department of Education’s expenses due to increased enrollment growth and inflation. A comparison of the net cost (income) of services by function for the State’s governmental activities is shown below for fiscal years 2013 and 2014. 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 2014 2013 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 $ 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 2,778,299 279,525 $ 24,724,362 - 26 - $ 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 Net Cost (Income) of Services 2014 2013 $ 482,170 2,640,807 (17,184) 3,723,347 1,121,604 (26,646) 86,001 2,778,299 279,525 $ 11,067,923 $ 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 Expenses and Program Revenues Governmental Activities for Fiscal Year 2014 (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 $361.0 million from fiscal year 2013, or 12%. This increase is primarily due to increases in net position for the Universities and the Unemployment Compensation Fund of $186.7 million and $90.3 million, respectively. Non-operating revenues and transfers from the General Fund more than offset the Universities’operating loss of $1.2 billion. The Universities’operating revenues increased by $118.9 million over - 27 - fiscal year 2013 primarily due to approved student tuition and fee increases, increased enrollment, and increased auxiliary enterprise revenues. Also, State appropriation transfers to the Universities from the General Fund increased by $38.1 million over fiscal year 2013. This increase resulted primarily from increased parity funding to the Arizona State University and additional appropriations for expansion of the University of Arizona College of Medicine-Phoenix Campus. These increases were offset by increases in expenses for instruction, academic support, and scholarships and fellowships. Also, the Unemployment Compensation Fund’s cost of sales and benefits and intergovernmental revenue decreased $220.2 million and $185.7 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 2013 and 2014. 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, as 2014 restated Functions/Programs: Universities Industrial Commission Special Fund Other Total Business-type Activities Net Cost (Income) of Services 2013, as 2014 restated $ 4,078,053 $ 3,888,145 $ 722,356 $ 679,497 36,895 1,130,299 $ 5,245,247 38,614 1,329,816 $ 5,256,575 8,434 (252,068) $ 478,722 13,453 (204,251) $ 488,699 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, 2014, unassigned fund balance of the General Fund had a deficit of $189.2 million, while total fund balance closed the year at $24.6 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 a negative 1% of total expenditures and other financing uses, while total fund balance is less than 1% of the same amount. The fund balance of the State’s General Fund decreased $398.6 million during the fiscal year. Revenues exceeded expenditures by $51.9 million, before other financing sources and uses. However, other financing sources and uses more than offset this excess by $450.5 million which 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 decreased by $339.9 million (2%) and expenditures increased by $737.8 million (4%) from fiscal year 2013. Primary reasons for decreases in fund balance during the fiscal year are the expiration of the 1% additional sales tax in May 2013, increased health and welfare expenditures, and increased education expenditures. A primary reason for increases in fund balance during the year is increased intergovernmental revenue, including federal funding received as a result of the AHCCCS implementation of the ACA. 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 $95.2 million during fiscal year 2014. Although revenues exceeded expenditures by $354.0 million, transfers to non-major governmental funds of $303.0 million to primarily pay debt service largely offset this excess. Overall revenue remained stable, 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 $715.1 million during fiscal year 2014. Endowment investments increased $744.5 million, at fiscal year-end, primarily due to receipts from land sales of $86.3 million and a net increase in the fair value of investments of $598.6 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 $1.6 billion net increase in appropriations for the General Fund, before adjustments. Some of the significant changes in the General Fund appropriations were: 1. $311.3 million increase due to prior fiscal year obligations that were paid in the current fiscal year per A.R.S. § 35-191. 2. $727.0 million increase to the AHCCCS’ original budget is primarily due to supplemental appropriation increases for payments to specified hospitals funded by voluntary intergovernmental agreements with political subdivisions and to fund payments for the Medicaid restoration and ACA expansion populations. 3. $234.0 million increase to the Universities’original budget is primarily due to payment deferrals from fiscal year 2013, which were budgeted in fiscal year 2014, and for lease purchase capital financing for research infrastructure facilities. 4. $169.4 million increase to the Department of Health Services’original budget is primarily due a supplemental appropriation increase for Title XIX. 5. $47.5 million increase to the Department of Education’s original budget is primarily due to a supplemental appropriation increase for basic State aid entitlement. 6. $46.0 million increase to the Department of Economic Security’s original budget is primarily due to payment deferrals from fiscal year 2013, which were appropriated as a supplemental appropriation in the fiscal year 2014 budget. The actual expenditures were less than the final budget by $1.2 billion, after adjustments. Of this amount, $65.8 million will continue as legislative multiple fiscal year spending authority for fiscal years 2015 and beyond, depending upon the budgetary guidelines of the Legislature. The remaining $1.1 billion represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 131-144 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, 2014 totaled $26.1 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 4% increase for businesstype activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $392.1 million. Major capital asset activity during the current fiscal year included the following: i The Universities’additions to capital assets totaled $487.6 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, 2014 are presented below (expressed in thousands): Governmental Activities 2014 $ 3,046,110 2,315,821 Land Buildings Improvements other than buildings 172,687 Equipment 826,478 Software and other intangibles 251,407 Collections (non-depreciable) Infrastructure 13,801,205 Construction in progress 2,916,383 Development in progress 58,567 Less: accumulated depreciation (1,764,549) Total $ 21,624,109 2013 $ 2,967,822 2,161,715 Business-type Activities 2013, as 2014 restated $ 229,637 $ 210,037 5,321,874 5,027,319 159,899 811,035 * 219,616 12,973,088 3,369,060 * 27,155 (1,695,604) $ 20,993,786 5,727 1,553,841 125,957 20,114 478,015 299,160 (3,540,607) $ 4,493,718 4,853 1,505,988 120,736 19,738 460,711 288,755 (3,310,745) $ 4,327,392 Total 2014 3,275,747 7,637,695 2013, as restated $ 3,177,859 7,189,034 178,414 2,380,319 377,364 20,114 14,279,220 3,215,543 58,567 (5,305,156) $ 26,117,827 164,752 2,317,023 340,352 19,738 13,433,799 3,657,815 27,155 (5,006,349) $ 25,321,178 $ * The fiscal year 2013 amounts have been reclassified for comparison with fiscal year 2014 amounts. As provided by GASB Statement No. 34, the State has elected to record its infrastructure assets, which the ADOT is responsible for maintaining, using the modified approach as described in Note 1G. Assets accounted for under the modified approach include 6,800 center lane miles of roads (21,390 travel lane miles) and 4,787 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 3.69 was achieved for fiscal year 2014. 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 2014, a CRI of 93.8% 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 2014 (expressed in thousands): Description Capacity additions-major widening at US 93 at Antelope Wash Capacity additions-major widening on Interstate 10 at Perryville Road traffic interchange System preservation-reconstruction at US 89 and State Route 64, Little Colorado River System preservation-reconstruction at Deep Well Ranch Road at South Chino Valley limits System preservation-restoration/rehab/resurface at Rattlesnake Wash at Junction 93 Capacity additions-reconstruction on State Route 101L at Maryland Avenue HOV ramps Capacity additions (major bridge rehabilitation) on Interstate 15 Virgin River Bridge, structure #1619 Contract Start Date 12/8/2013 Contract Amount $ 19,395 Current Year Expenditures $ 4,562 11/8/2013 18,798 13,002 10/11/2013 36,669 7,103 2/14/2014 17,358 3,529 4/11/2014 11,249 1,113 9/13/2013 11,725 11,697 1/17/2014 27,183 7,463 Furthermore, the following major highway construction projects had expenditures in excess of $15.0 million in fiscal year 2014. These project expenditures include payments made to construction contractors (as shown below) as well as utility, design, right-of-way, and landscaping costs (expressed in thousands): Location Description State Route 202L; Santan to Ellsworth Road in Maricopa County Traffic Interchange between Interstate 10 and State Route 303L in Maricopa County State Route 303L; Camelback Road to Glendale Avenue in Maricopa County Salt River to Baseline Road in Maricopa County Ruthrauff to Prince Road in Pima County Interstate 10; Sarival to State Route 101L in Maricopa County US 89 to State Route 98 in Coconino County Interstate 10; Perryville Road traffic interchange in Maricopa County Contract Start Date 2/17/2012 9/16/2011 2/8/2013 NA 7/15/2011 12/24/2007 5/9/2013 11/8/2013 Project Expenditures $ 65,400 47,281 30,917 23,528 22,578 18,900 18,371 15,384 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 School Facilities Board issued certificates of participation totaling $305.7 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 $144.9 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. i The State entered into lease-purchase contracts totaling $115.8 million primarily to acquire the Department of Corrections’Red Rock facility. - 31 - State of Arizona-Primary Government Outstanding Major Long-Term Debt as of June 30, 2014 (expressed in thousands) Revenue bonds Grant anticipation notes Certificates of participation Capital leases Total Governmental Activities 2014 2013 $ 3,406,195 $ 3,606,720 247,710 296,240 2,200,675 2,360,595 449,209 360,316 $ 6,303,789 $ 6,623,871 Business-type Activities 2014 2013 $ 2,302,035 $ 2,237,710 676,345 714,735 132,957 135,519 $ 3,111,337 $ 3,087,964 Total 2014 $ 5,708,230 247,710 2,877,020 582,166 $ 9,415,126 2013 $ 5,844,430 296,240 3,075,330 495,835 $ 9,711,835 More detailed information regarding long-term debt begins on page 99. ECONOMIC CONDITION AND OUTLOOK The Office of Employment and Population Statistics within the Department of Administration is forecasting the State to gain a projected 119,700 nonfarm jobs, representing a growth rate of 4.6%, over the two projected calendar years of 2015 and 2016. An over-the-year gain of 56,600 jobs is projected in 2015 and 63,100 jobs in 2016. The rate of growth projected for nonfarm employment is 2.2% in 2015 and 2.4% in 2016. Arizona’s nonfarm employment is forecast for modest growth in 2015 with mild acceleration in 2016. This is consistent with improvements seen in many economic indicators. The State’s fiscal year 2015 General Fund budget reflects projected growth in base revenues of 5.3%. The net ongoing revenues are projected to decrease from $9.5 billion in fiscal year 2014 to $9.4 billion in fiscal year 2015. General Fund spending is projected to increase from $8.9 billion in fiscal year 2014 to $9.3 billion in fiscal year 2015. The budget includes increased spending for the Department of Education K-12 formula changes (which includes statutorilymandated inflation increase of 1.4%) and the Department of Child Safety for new caseworkers, Office of Child Welfare Investigations, and to eliminate a backlog of inactive cases. The General Fund fiscal year 2015 ending balance is projected to be $130 million. Legislative discussions on the fiscal year 2015 General Fund budget also included analyzing the impact of budget decisions on estimated fiscal year 2016 and 2017 spending. The fiscal year 2016 General Fund budget is forecasted to have revenues of $9.2 billion and expenditures of $9.4 billion, with a $221 million shortfall. After accounting for legislation enacted separately from the budget and technical adjustments, the fiscal year 2016 shortfall is estimated to be $237 million. The spending includes statutory formula caseload growth. The fiscal year 2016 ongoing revenues are primarily based on a 4-sector consensus growth rate of 5.2%, but also incorporate separately enacted tax law changes. The fiscal year 2017 General Fund budget is forecasted to have revenues of $9.2 billion and expenditures of $9.7 billion, with a $477 million shortfall. After accounting for legislation enacted separately from the budget and technical adjustments, the fiscal year 2017 balance is estimated to have a $489 million shortfall, including the fiscal year 2016 estimated $237 million shortfall. The ongoing spending includes caseload growth. The revenues reflect base growth of 5.6%. Those revenues also incorporate separately enacted tax law changes. The Budget Stabilization Fund is expected to have a balance of $459 million at the end of fiscal year 2015, which could be used to offset any shortfall in fiscal year 2016 or 2017. - 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 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, 2014 (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 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 DEFERRED OUTFLOWS OF RESOURCES $ 3,261 - BUSINESS-TYPE ACTIVITIES $ 291,291 8,244 PRIMARY GOVERNMENT $ 294,552 8,244 COMPONENT UNITS $ 70,574 - 2,933,750 71,195 3,004,945 324,568 395,099 469,947 - 77,833 44,899 173,922 - 472,932 514,846 173,922 - 11,533 3,488 111,290 28,017 96,088 2,419 4,171 167,864 250,045 86,935 22,144 20,816 1,317,866 519,976 217,137 293,315 306,180 901,957 150,564 132,680 46,974 26,460 7,064,684 2,672 8,561 1,673 161,330 89,703 21,171 2,394 836,974 27 23,317 23,344 - 1,360,273 27,151 3,274 - 254,390 81,360 1,360,273 281,541 3,274 81,360 11,965 17,342 153,342 35,881 36,808 54,087 4,858,023 - 33,071 10,411 1,155,357 429,865 17,398 69,879 10,411 54,087 1,155,357 5,287,888 17,398 1,117,445 7,512 28,280 2,852 19,799,389 548,911 20,348,300 39,167 1,824,720 27,963,752 3,944,807 6,498,887 5,769,527 34,462,639 416,149 1,829,935 33,710,570 7,816,753 41,527,323 2,666,909 26,361 51,779 78,140 59,699 423,888 214,718 289,144 138,316 (250,045) 815,022 150,564 132,680 24,830 5,644 5,746,818 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET POSITION JUNE 30, 2014 (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 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 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 Unemployment Compensation Capital projects Debt service Permanent funds and University funds: Expendable Nonexpendable Loans and other financial assistance: Expendable Other purposes Unrestricted (deficit) Total Net Position 598,034 1,044,797 469,947 2,442 7,482 1,249,019 387,999 94,773 59,786 509,647 174,859 4,598,785 $ 149,621 3,472 67,049 44,899 13,025 72,345 260 173,916 25,501 124,308 20,493 694,889 $ 747,655 3,472 1,111,846 514,846 2,442 20,507 1,249,019 460,344 260 268,689 85,287 633,955 195,352 5,293,674 COMPONENT UNITS $ 109,782 108,693 3,488 9,710 84,136 30,359 346,168 93,061 369,543 6,311,872 169,546 6,944,022 458,643 47,290 3,121,442 14,135 62,984 3,704,494 93,061 828,186 47,290 9,433,314 14,135 232,530 10,648,516 2,033 21,553 1,299,065 4,255 1,326,906 11,542,807 4,399,383 15,942,190 1,673,074 18,027,844 1,581,436 19,609,280 106,715 82,282 70,233 5,539 496,130 23,447 12,706 805,890 3 57,585 17,505 12,964 82,282 70,233 5,539 496,130 23,447 12,706 57,585 823,395 12,967 131,510 174,823 5,158,246 274,835 219,758 449,658 5,378,004 - (2,663,019) $ TOTAL PRIMARY GOVERNMENT BUSINESS-TYPE ACTIVITIES 22,194,124 77,833 1,227,233 $ The Notes to the Financial Statements are an integral part of this statement. - 39 - 3,469,149 77,833 (1,435,786) $ 25,663,273 529,164 40,308 245,837 $ 1,053,534 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2014 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables 121,870 23,980 145,850 Investments: Investments in securities Other investments Total investments 1,688,006 58,755 1,746,761 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets 74,960 324,059 56,154 Total Assets 2,401,651 LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long-term debt Deferred revenue Other liabilities 35,009 355,801 516,021 25,964 52,682 Total Liabilities 985,477 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 53,867 928,428 464,511 23,235 $ 1,416,174 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, 2014 (Expressed in Thousands) PROGRAM REVENUES OPERATING CAPITAL CHARGES FOR GRANTS AND GRANTS AND SERVICES CONTRIBUTIONS CONTRIBUTIONS 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 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 2,778,299 279,525 24,724,362 $ 4,078,053 36,895 1,130,299 5,245,247 188,943 222,173 157,149 60,981 128,814 113,267 65,596 936,923 $ 2,056,307 28,461 1,296,585 3,381,353 92,717 9,905,352 20,832 1,789,328 157,631 157,705 49,271 12,172,836 1,258,140 85,782 1,343,922 $ 29,969,609 $ 4,318,276 $ 13,516,758 $ 41,528 1,364,116 60,147 1,465,791 $ 35,929 1,295,884 29,964 1,361,777 $ 36,371 8,072 44,443 $ $ $ $ 41,250 41,250 $ 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 Extraordinary Items: Insurance recovery Transfers Total General Revenues, Contributions, Extraordinary Items, 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 - 546,680 546,680 587,930 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (482,170) (2,640,807) 17,184 (3,723,347) (1,121,604) 26,646 (86,001) (2,778,299) (279,525) (11,067,923) $ $ (11,067,923) (482,170) (2,640,807) 17,184 (3,723,347) (1,121,604) 26,646 (86,001) (2,778,299) (279,525) (11,067,923) (722,356) (8,434) 252,068 (478,722) (722,356) (8,434) 252,068 (478,722) (478,722) (11,546,645) $ 5,948,055 3,963,197 314,313 41,215 1,650,579 547,481 79,215 37,926 83,695 176,035 (578,361) 12,263,350 1,195,427 20,998,697 $ 22,194,124 $ 30,772 (68,232) (22,111) (59,571) 63,669 108,296 107 78,837 6,561 6,011,724 3,963,197 314,313 41,215 1,650,579 547,481 187,511 38,033 83,695 254,872 6,561 9,117 12,637 26,021 57 36,924 17 - 3,900 578,361 3,900 - - 839,731 361,009 3,108,140 13,103,081 1,556,436 24,106,837 84,773 25,202 1,028,332 3,469,149 $ 25,663,273 $ 1,053,534 - 43 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) UNRESTRICTED REVENUES Contributions Rental revenue Sales and services Net investment income Grants and aid Other revenues Net assets released from restrictions $ Total Revenues 23,812 46,289 36,698 31,603 11,846 33,912 181,176 TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED $ 134,613 $ 130 75,162 4,169 (160,735) TOTAL 37,890 $ 63,062 354 (20,441) 196,315 46,289 36,828 169,827 11,846 38,435 - 365,336 53,339 80,865 499,540 157,779 10,330 20,163 7,178 66,923 11,621 22,804 19,848 16,085 - - 157,779 10,330 20,163 7,178 66,923 11,621 22,804 19,848 16,085 Total Expenses 332,731 - - 332,731 Increase in Net Assets, before extraordinary items 32,605 53,339 80,865 166,809 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) - (472) - (472) Increase in Net Assets, after extraordinary items 32,605 52,867 80,865 166,337 Net Assets - Beginning, as restated Transfers (9,637) 267 411,987 (343) 847,487 76 1,249,837 - Net Assets - Ending $ 23,235 $ 464,511 The Notes to the Financial Statements are an integral part of this statement. - 44 - $ 928,428 $ 1,416,174 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2014 (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, DEFERRED INFLOWS OF RESOURCES, 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 Unearned revenue Total Liabilities Deferred Inflows of Resources Fund Balances: Nonspendable Restricted Committed Unassigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,856 $ - LAND ENDOWMENTS FUND OTHER GOVERNMENTAL FUNDS $ $ 28 1,377 TOTAL $ 3,261 1,515,259 22,897 83,448 1,733 92,737 430,419 816,195 14,898 2,507,639 469,947 288,192 39 35,783 79,550 720,481 150,564 132,680 36,093 14,824 62,117 3,772 16,070 80,236 6,833 214,679 286,397 5,526 190 - 73,579 25,949 10,705 25,513 - 423,888 214,718 325,952 127,095 811,422 150,564 132,680 61,796 21,657 27 - - - 27 28,000 15,580 3,274 54,087 112 3,099,298 978,359 1,232,568 4,858,023 5,887,999 748,038 11,571 1,727,825 1,754,397 27,151 3,274 54,087 4,858,023 112 11,947,690 297,988 667,749 $ $ 120,081 6,883 $ $ 5,864 - $ $ 37,698 47,555 $ $ 461,631 722,187 22,897 2,442 7,482 1,046,272 377,562 212,375 75,857 2,710,624 1,733 125,313 7,287 261,297 430,419 1 7,050 111,596 554,930 14,898 77,434 10,436 26,945 381 215,347 469,947 2,442 7,482 1,249,019 387,999 253,657 187,834 3,742,198 364,085 - 490,964 796 855,845 9,600 124,390 79,837 (189,238) 24,589 6,833 793,713 170,725 971,271 4,871,849 (29,744) 4,842,105 947,961 563,721 1,511,682 4,888,282 1,866,064 814,283 (218,982) 7,349,647 . $ 3,099,298 $ 1,232,568 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ 5,887,999 $ 1,727,825 $ 11,947,690 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2014 (Expressed in Thousands) Total fund balances - governmental funds $ 7,349,647 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. 21,541,821 Certain receivables are not available to pay for current period expenditures and, therefore, are deferred inflows of resources in the governmental funds. 855,845 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. (189,888) 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. (61,001) Deferred outflows of resources for the loss on refunding of debt are not reported in the governmental funds. 26,361 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 (3,406,195) (247,710) (2,200,675) (449,209) (89,865) (427,865) (6,821,519) 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. (293,349) Accrued interest on long-term obligations is not due and payable from current financial resources and, therefore, is not reported in the governmental funds. (28,389) 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 (164,883) (20,521) Net position of governmental activities (185,404) $ The Notes to the Financial Statements are an integral part of this statement. - 46 - 22,194,124 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) TRANSPORTATION & GENERAL FUND REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Hospital and nursing facility assessments 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 Payment to refunded certificates of participation escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 5,156,987 4,012,562 68,043 26,240 8,534 439,703 10,952,638 89,352 22,979 100,409 24,999 6,131 100,765 163,193 21,172,535 AVIATION PLANNING, HIGHWAY MAINTENANCE & SAFETY FUND $ 243,786 12,975 1,487,934 704,408 98,402 6,226 1,170 17,745 2,572,646 LAND ENDOWMENTS FUND $ 3,182 660,778 60,793 86,319 9,386 820,458 OTHER GOVERNMENTAL FUNDS $ 533,051 41 246,270 2,000 154,111 107,778 95,665 284,897 91,578 49,876 23,310 146,162 80,195 18,534 1,833,468 TOTAL $ 5,933,824 4,012,603 314,313 41,215 1,650,579 547,481 11,752,711 475,833 91,578 739,859 185,682 171,161 86,326 100,765 86,319 208,858 26,399,107 618,964 12,290,325 42,635 4,828,811 1,108,806 4 80,237 1,712,501 672,485 1,065,798 5,401 47,419 2,351 941 - 131,199 347,729 118,683 696,184 249,230 15,309 111,865 - 750,163 12,643,455 161,318 5,572,414 1,360,387 687,798 193,043 2,778,299 131,033 62,749 244,589 21,120,654 51,264 520 428,545 2,218,612 12 56,124 311,295 248,755 156,484 2,386,733 493,592 312,024 829,630 25,782,123 51,881 354,034 764,334 (553,265) 328,678 (882,237) 100,678 305,675 - 911 (303,030) 900 13,236 29,130 31 (49,272) - 574,641 (162,793) - 904,261 (1,397,332) 900 113,914 305,675 29,130 (310,059) 6,770 (450,495) (398,614) 423,203 (258,853) 95,181 876,090 (49,241) 715,093 4,127,012 411,848 (141,417) 1,653,099 (310,059) 6,770 (346,741) 270,243 7,079,404 24,589 $ 971,271 The Notes to the Financial Statements are an integral part of this statement. - 47 - $ 4,842,105 $ 1,511,682 616,984 $ 7,349,647 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, 2014 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 270,243 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 829,630 Infrastructure adjustment (94,559) Depreciation expense (112,565) 622,506 The net expense of the internal service funds is included with governmental activities in the Statement of Activities. (36,467) Net change in certain revenues reported in the Statement of Activities do not provide current financial resources and, therefore, are reported as deferred inflows in the governmental funds. Sales taxes 14,231 Income taxes (49,406) Operating grants 118,712 Right-of-way lease revenue (1,026) Other revenue 2 82,513 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 2014, mortgage payments received 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 (2,624) Accrued interest on land sales' contracts 11,958 9,334 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 (122,266) Compensated absences (8,503) Pollution remediation obligations 1,562 Interest on long-term obligations 6,536 Adjustment for deferred amounts (19,240) The Notes to the Financial Statements are an integral part of this statement. (141,911) (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, 2014 (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: Refunding certificates of participation issued (305,675) Proceeds from notes and loans (29,130) Premium on debt issued (6,770) (341,575) Repayment of long-term debt is reported as an expenditure in the governmental funds, but the repayment reduces long-term liabilities and deferred outflows of resources in the Statement of Net Position. In the current year, these amounts consist of: Debt service principal 493,592 Payment to refunded certificates of participation escrow agent 310,059 Debt premium/discount amortization 44,243 Amortization of deferred losses on refundings (3,196) 844,698 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. (113,914) Change in net position of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 1,195,427 STATE OF ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2014 (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 OUTFLOWS OF RESOURCES $ 173,156 1,789 $ 113,842 888 $ 4,293 8,244 68,518 $ 291,291 8,244 71,195 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 426,111 173,922 44,899 - 77,833 - 77,833 44,899 173,922 - 429 4,171 136,250 86,862 218,059 8,542 20,156 823,336 4,182 1,990 1,260 3 167,064 91,906 30,354 73 144 13,602 660 295,627 96,088 2,419 4,171 167,864 86,935 218,206 22,144 20,816 1,286,027 11,221 3,600 2,831 3,173 5,532 452,468 23,317 - - 23,317 - 254,390 81,360 - - 254,390 81,360 975 - 33,071 10,411 754,386 429,865 7,536 400,971 - 9,862 33,071 10,411 1,155,357 429,865 17,398 - 543,030 2,997 2,884 548,911 76 3,911,111 6,048,477 6,871,813 9,843 413,811 580,875 23,853 36,599 332,226 3,944,807 6,498,887 7,784,914 82,212 83,263 535,731 51,779 - - 51,779 - 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, 2014 (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 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: 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: Unemployment Compensation Capital projects Debt service Universities fund: Expendable Nonexpendable Loans and other financial assistance: Expendable Unrestricted (deficit) Total Net Position $ 139,826 37,110 29,685 171,631 124,308 18,620 521,180 $ 4,506 3,472 44,899 133 25,501 78,511 $ 5,289 $ 29,939 13,025 42,660 260 29,162 2,152 1,873 124,360 149,621 3,472 67,049 44,899 13,025 72,345 260 29,162 173,916 25,501 124,308 20,493 724,051 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 136,410 865 14 59,786 10,172 207,247 47,290 3,121,442 14,135 62,911 3,245,778 3,766,958 458,643 458,643 537,154 73 73 124,433 458,643 47,290 3,121,442 14,135 62,984 3,704,494 4,428,545 369,543 148,829 518,372 725,619 1,541,859 12,840 26,737 1,581,436 82,288 17,505 12,964 - 57,585 - 57,585 17,505 12,964 - 274,835 219,758 - - 274,835 219,758 - 1,089,713 30,881 77,833 45,638 77,833 1,166,232 3,156,634 $ 43,721 $ 207,793 $ 3,408,148 $ 3,469,149 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 - 61,001 (272,176) $ (189,888) STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (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 $483,109 Auxiliary enterprises, net of scholarship allowances of $21,531 Educational department Other Unemployment assessments Workers' compensation assessments Intergovernmental Nongovernmental grants and contracts 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, Extraordinary Items, and Transfers Capital grants and contributions Contributions to permanent endowments Extraordinary Items: Insurance recovery Transfers in Transfers out Change in Net Position Total Net Position - Beginning, as restated Total Net Position - Ending 1,570,546 $ $ - $ 1,570,546 $ - 382,991 102,770 556,539 127,500 45,082 2,785,428 22,391 6,070 28,461 838,728 455,979 84,094 1,878 7,800 1,388,479 382,991 102,770 838,728 455,979 22,391 640,633 127,500 1,878 6,070 52,882 4,202,368 1,094,086 232,278 2,372,383 262,307 3,961,054 (1,175,626) 31,176 1,338 32,514 (4,053) 1,032,842 42,109 26,083 2,232 726 8,950 1,112,942 275,537 2,158,104 232,278 2,414,492 26,083 265,877 726 8,950 5,106,510 (904,142) 795,129 39,371 22,679 13,673 82,940 5,445 959,237 47,323 63,669 291,951 248,845 (755) 48,356 33,305 24,510 (126,966) (9,642) 573,273 (7) 59,020 2,154 (4,381) 56,786 (9) 2,608 62 (14,763) (2,538) (56) (14,696) 63,669 291,951 248,845 (771) 109,984 33,305 26,726 (14,763) (129,504) (14,079) 615,363 36 4 312 352 (602,353) 41,250 6,561 52,733 - 260,841 107 - (288,779) 41,357 6,561 47,675 20,757 - 3,900 737,316 - 8,000 - (166,955) 3,900 745,316 (166,955) (85,290) 60,733 (17,012) 93,993 113,800 186,674 2,969,960 $ - GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 3,156,634 $ 43,721 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 - $ 207,793 1,006,504 56 1,006,560 341,400 3,066,748 $ 3,408,148 $ 341,400 19,609 $ 361,009 (16,858) (173,030) $ (189,888) (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (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 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 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 $ 1,553,824 $ 23,137 - $ 445,267 458,133 - $ 445,267 481,270 1,553,824 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 382,808 - - 382,808 - 104,497 680,943 5,696 - 6,070 84,095 62 104,497 765,038 5,696 6,132 1,007,797 - (1,088,613) (2,334,239) (235,656) (7,529) 72,512 (865,757) (27,388) 2,154 3,973 (679,431) (57,045) 17,345 (94,376) 174,050 (1,795,432) (2,391,284) (235,656) (7,529) 92,011 (94,376) (687,734) (853,863) (38,851) (12,172) 275 103,186 410,166 65,856 1,412,506 685,082 (410,902) (847,439) 12,354 8,000 - (14,763) (7,751) (190,755) - 410,166 65,856 1,412,506 693,082 (410,902) (847,439) (14,763) (7,751) (190,755) 12,354 (85,290) - 1,327,623 8,000 (213,269) 1,122,354 (85,290) 360 - 30 - (132,152) - - (132,152) - (108,286) - - (108,286) - (434,271) - (1,313) 145,697 15,874 51,960 34,312 (443,379) 1,345 145,697 15,874 51,960 34,312 (442,036) The Notes to the Financial Statements are an integral part of this statement. (1,343) 390 (435,584) 90 (2,043) (608) (Continued) - 54 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (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 244,441 38,092 328,796 13,389 - 19 Purchase of investments Net Cash Provided (Used) by Investing Activities (322,085) (39,552) (300,760) 41,444 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning (11,957) 464,609 53,417 106,212 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 Decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase in accrued liabilities (Decrease) in due to U.S. Government (Decrease) in due to other Funds (Decrease) in due to others Increase (decrease) in unearned revenue Increase in accrued insurance losses Increase in other liabilities Net Cash Provided (Used) by Operating Activities 2,596 $ 452,652 $ $ (1,175,626) $ 159,629 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 573,237 54,077 (44) 2,552 (37,980) 196,868 6 (25) - (622,845) 4,444 6 3,480 767,689 $ 158,888 $ (4,053) $ 275,537 $ 771,169 17,294 409,792 $ 427,086 (904,142) $ 47,323 262,307 25,279 1,338 (189) 2,232 13 62 265,877 13 25,152 13,673 221 (32,106) 870 20 18,193 8,731 26,575 - 734 (182) 28 6,297 - 8,051 1 43 (2,485) (644) (3,450) 2,919 (98,444) (2) (7,271) (2,982) 470 (23,321) 1 43 (1,615) (624) 14,561 11,650 (98,444) (2) (7,271) 23,621 6,297 470 (558) 1,800 62 549 39 18,483 157 (15,476) (13) 33,714 3,212 $ (865,757) $ 3,973 SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds $ Gifts and conveyances of capital assets (Loss) on disposal of capital assets, net Increase in fair value of investments Amortization of bond discount Amortization of bond premium Amortization of unearned rent Refinancing long-term debt Total Noncash Investing, Capital and Non-capital Financing Activities $ - $ 882 (1,319) 19,982 (2,400) 9,953 4,900 16,315 - $ (7) 44,450 - 48,313 44,443 $ The Notes to the Financial Statements are an integral part of this statement. - 55 - $ $ 174,050 $ (687,734) $ 103,186 107 $ (9) - 107 $ 882 (1,335) 64,432 (2,400) 9,953 4,900 16,315 20,757 - 92,854 20,757 98 $ $ STATE OF ARIZONA STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2014 (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 $ 355,172 $ - $ 50,315 - 21,000 - 69,880 8,236 Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contracts receivable Contributions Court fees Due from other Funds Other Total receivables 70,529 87,478 438,188 94,532 683 9,760 39,842 741,012 3,037 3,037 1 2 3 Investments, at fair value: Temporary investments Fixed income securities Corporate stocks Global tactical asset allocation Real assets Real estate Private equity Opportunistic investments Collateral investment pool Other investments Total investments 1,749,791 7,790,204 23,653,151 4,212,886 555,868 2,969,305 1,081,812 714,557 601,169 713,214 44,041,957 2,720,310 16,715 2,737,025 - - - 82,589 3,846,490 1,658 4,355 - - 45,142,496 2,761,062 4,059,171 81,582 335,571 - 137 - 601,169 416,884 9,760 16,715 - 1,012 4,058,159 - Total Liabilities 1,444,966 16,852 4,059,171 NET POSITION Held in trust for: Pension benefits Other post-employment benefits Pool participants 41,440,778 2,256,752 - 2,744,210 - 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 $ 43,697,530 $ 2,744,210 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, 2014 (Expressed in Thousands) PENSION AND OTHER ADDITIONS: Member contributions Employer contributions Non-employer entity contributions Member purchase of service credit Court fees EMPLOYEE BENEFIT INVESTMENT TRUST FUNDS TRUSTS $ 1,218,175 1,576,220 5,000 43,915 8,541 $ - Investment income: Net increase in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income 6,394,466 202,978 410,304 94,498 4,949 7,107,195 3,018 14,476 187 17,681 Less investment expenses: Investment activity expenses Securities lending expenses Net investment income 313,515 681 6,792,999 1,639 93 15,949 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions Other additions 4,353,027 11,831 (4,589,103) - (224,245) 32,080 Total Additions - 9,676,930 DEDUCTIONS: Retirement, disability, and survivor benefits Health insurance subsidy 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 Net Position - Ending - (208,296) 3,503,338 17,566 - 291,238 37,365 2,847 14,198 - 3,852,354 14,198 5,522,970 301,606 37,872,954 $ 43,697,530 (222,494) 2,966,704 $ 2,744,210 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, 2014 WATER (Expressed in Thousands) INFRASTRUCTURE UNIVERSITY OF ARIZONA HEALTH NETWORK & SUBSIDIARIES 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 Inventories, at cost Other current assets Total Current Assets $ 196,574 11,533 1,036 - $ OTHER COMPONENT UNITS 46,703 111,290 22,674 $ 23,871 127,994 2,452 5,343 TOTAL $ 70,574 324,568 11,533 3,488 111,290 28,017 8,546 8,558 226,247 161,330 77,062 21,171 440,230 2,672 15 1,673 4,083 2,394 170,497 2,672 8,561 1,673 161,330 89,703 21,171 2,394 836,974 85,996 1,094,306 28,280 - 67,346 28,124 7,512 2,246 11,965 17,342 7,757 23,139 606 11,965 17,342 153,342 35,881 1,117,445 7,512 28,280 2,852 - 27,890 11,277 39,167 18 1,208,600 390,125 523,243 26,006 98,092 416,149 1,829,935 1,434,847 963,473 268,589 2,666,909 DEFERRED OUTFLOWS OF RESOURCES 25,908 - 33,791 59,699 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 9,479 1,036 46,495 104 57,114 98,136 98,564 9,710 27,481 30,255 264,146 11,646 650 2,452 10,160 24,908 109,782 108,693 3,488 9,710 84,136 30,359 346,168 Noncurrent Liabilities: Unearned revenue Accrued insurance losses Long-term debt Other long-term liabilities Total Noncurrent Liabilities 2,033 846,252 848,285 21,553 335,805 4,255 361,613 117,008 117,008 2,033 21,553 1,299,065 4,255 1,326,906 Total Liabilities 905,399 625,759 141,916 1,673,074 18 72,668 34,029 106,715 10,195 17,712 237,139 35,319 58,593 22,596 9,927 131,510 529,164 40,308 245,837 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, net of accumulated depreciation Total Noncurrent Assets Total Assets NET POSITION Net investment in capital assets Restricted for: Debt service Loans and other financial assistance Other Unrestricted Total Net Position 85,996 470,571 (1,229) $ 555,356 The Notes to the Financial Statements are an integral part of this statement. - 58 - $ 337,714 $ 160,464 $ 1,053,534 (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Water Infrastructure Finance Authority $ University of Arizona Health Network & Subsidiaries Other Component Units Total $ 41,528 CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS $ 35,929 $ 36,371 1,364,116 1,295,884 - 60,147 29,964 8,072 1,465,791 $ 1,361,777 $ 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 - 44,443 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION UNIVERSITY WATER $ OF ARIZONA INFRASTRUCTURE HEALTH OTHER FINANCE NETWORK & COMPONENT AUTHORITY SUBSIDIARIES UNITS 30,772 $ - 555,356 $ 337,714 $ (22,111) 9,117 12,637 1,269 57 36,924 17 37,910 122,554 $ 160,464 - 61 - 30,772 (68,232) (22,111) 18,754 (49,478) 387,192 $ - - 5,998 36,770 518,586 $ (68,232) TOTAL 9,117 12,637 26,021 57 36,924 17 25,202 1,028,332 $ 1,053,534 STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2014 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ 9,326 UNIVERSITY OF ARIZONA FOUNDATION $ 22,798 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION $ 3,157 OTHER COMPONENT UNITS $ 18,586 TOTAL $ 53,867 Receivables: Pledges receivable Other receivables Total receivables 105,524 3,125 108,649 3,651 3,651 101 101 12,695 20,754 33,449 121,870 23,980 145,850 Investments: Investments in securities Other investments Total investments 714,592 45,838 760,430 768,158 768,158 16,426 16,426 188,830 12,917 201,747 1,688,006 58,755 1,746,761 24,545 - 43,040 7,375 74,960 14,059 25,248 12,415 10,776 175,424 4,189 122,161 15,941 324,059 56,154 942,257 817,798 242,337 399,259 2,401,651 5,768 2,378 7,688 19,175 35,009 114,146 73,290 35,584 214,110 6,302 289,085 - 27,545 153,646 25,964 10,796 355,801 516,021 25,964 52,682 228,788 222,790 296,773 237,126 985,477 398,876 278,169 36,424 463,772 120,883 10,353 (54,436) 65,780 65,459 30,894 928,428 464,511 23,235 Net direct financing leases Property and equipment, net of accumulated depreciation 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 $ 713,469 $ 595,008 The Notes to the Financial Statements are an integral part of this statement. - 62 - $ (54,436) $ 162,133 $ 1,416,174 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income Grants and aid 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 $ 59,971 1,036 21,276 77,321 11,190 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION UNIVERSITY OF ARIZONA FOUNDATION $ 98,685 70,937 10,255 $ 14,701 9,470 1 8,642 OTHER COMPONENT UNITS $ 37,659 30,552 6,082 21,568 11,846 8,348 TOTAL $ 196,315 46,289 36,828 169,827 11,846 38,435 170,794 179,877 32,814 116,055 499,540 71,263 25,520 1,970 867 13,519 73,409 14,829 4,227 8,269 - 24 9,070 13,098 12,587 61 13,083 10,330 5,334 7,178 28,106 3,352 7,736 6,394 2,505 157,779 10,330 20,163 7,178 66,923 11,621 22,804 19,848 16,085 113,139 100,734 34,840 84,018 332,731 57,655 79,143 (2,026) 32,037 166,809 - - 57,655 79,143 (2,026) 31,565 166,337 655,814 515,865 (52,410) 130,568 1,249,837 (54,436) $ 162,133 713,469 $ 595,008 The Notes to the Financial Statements are an integral part of this statement. - 63 - - $ (472) (472) $ 1,416,174 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-------------------------------- 70 C. Measurement Focus and Basis of Accounting ----------------------------------------- 71 D. Deposits and Investments -------------------------- 72 E. Taxes Receivable ------------------------------------ 73 F. Inventories ------------------------------------------- 73 G. Capital Assets---------------------------------------- 73 H. Deferred Outflows of Resources ------------------ 74 I. Investment Earnings -------------------------------- 74 J. Scholarship Allowances ---------------------------- 74 K. Unearned Revenue ---------------------------------- 75 L. Compensated Absences ---------------------------- 75 M. Long-Term Obligations ---------------------------- 75 N. Deferred Inflows of Resources -------------------- 75 O. Net Position/Fund Balances------------------------ 75 P. New Accounting Pronouncements --------------- 77 Note 2. Deposits and Investments -------------------------------- 77 A. Deposits and Investment Policies ----------------- 77 B. Custodial Credit Risk – Deposits and Investments ------------------------ 79 C. Interest Rate Risk ----------------------------------- 79 D. Credit Risk ------------------------------------------- 82 E. Concentration of Credit Risk ---------------------- 83 F. Foreign Currency Risk ----------------------------- 83 G. Securities Lending ---------------------------------- 84 H. Derivatives ------------------------------------------ 86 I. State Treasurer’s Separately Issued Financial Statements ------------------------------ 90 Page B. Contributions, Benefits, and Refund Payments -------------------------------------- 97 C. Funding Policy ---------------------------------- 97 D. Annual OPEB Cost ----------------------------- 97 E. Funded Status and Funding Progress -------- 98 F. Actuarial Methods and Assumptions -------- 98 Note 7. Long-Term Obligations------------------------------ 99 A. Revenue Bonds --------------------------------- 99 B. Grant Anticipation Notes --------------------- 104 C. Certificates of Participation ------------------ 105 D. Leases ------------------------------------------- 109 E. Compensated Absences ----------------------- 110 F. Changes in Long-Term Obligations--------- 110 Note 8. Interfund Transactions ----------------------------- 111 Note 9. Accounting Changes ------------------------------- 112 A. Fund Financial Statements ------------------- 112 B. Government-wide Financial Statements ---- 112 Note 10. Governmental Fund Balances --------------------- 113 Note 11. Fund Deficit ----------------------------------------- 113 A. Risk Management Fund (RMF) ------------- 113 B. Retiree Accumulated Sick Leave Fund (RASL) ------------------ 113 Note 12. Joint Ventures --------------------------------------- 114 A. Large Binocular Telescope Corporation ---- 114 B. Giant Magellan Telescope Organization --- 114 Note 3. Receivables/Deferred Outflows and Inflows of Resources/Unearned Revenue----------- 90 A. Taxes Receivable ----------------------------------- 90 B. Deferred Outflows of Resources and Deferred Inflows of Resources ----------------------------- 90 C. Unearned Revenue ---------------------------------- 91 Note 13. Commitments, Contingencies, and Compliance ---------------------------------- 114 A. Insurance Losses ------------------------------- 114 B. Litigation --------------------------------------- 116 C. Accumulated Sick Leave --------------------- 116 D. Unclaimed Property --------------------------- 117 E. Construction Commitments ------------------ 117 F. Arizona State Lottery ------------------------- 117 Note 4. Capital Assets --------------------------------------------- 92 Note 14. Tobacco Settlement-------------------------------- 117 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 ------------- 95 F. Actuarial Methods and Assumptions ------------- 95 G. Universities’Retirement Plans -------------------- 95 Note 15. Subsequent Events --------------------------------- 118 Note 6. Other Post-Employment Benefits----------------------- 96 A. Plan Description------------------------------------- 96 - 64 - Note 16. Discretely Presented Component Unit Disclosures ---------------------------------------- 118 A. Summary of Significant Accounting Policies ---------------------------------------- 118 B. Deposits and Investments -------------------- 120 C. Program Loans --------------------------------- 122 D. Pledges Receivable ---------------------------- 122 E. Direct Financing Lease Agreements -------- 123 F. Capital Assets ---------------------------------- 124 G. Long-Term Obligations----------------------- 124 H. Conduit Debt ----------------------------------- 127 I. Subsequent Events ---------------------------- 128 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 Northern Arizona University’s (NAU) students. The NACFFC Board of Directors is appointed by the NAU, the NACFFC is controlled and operated by the NAU personnel, and the NACFFC’s debt outstanding is expected to be repaid entirely or almost entirely with resources from the 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 (A.R.S.) 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 A.R.S. § 38-721, the State Legislature appropriates monies to pay for the administrative expenses of the ASRS. Complete financial statements may be - 65 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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. 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 A.R.S. 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 A.R.S. 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 a multiple-employer public employee retirement plan that benefits prison and jail employees of certain state, county and local governments. CORP includes a cost-sharing multiple-employer plan for Administrative Office of the Courts (AOC) probation officers and an agent multiple-employer plan for all other members. The Board of Trustees (formerly Fund Manager) of the PSPRS, 26 local boards of the CORP, and 15 local boards of the AOC administer the plans according to the provisions of A.R.S. Title 38, Chapter 5, Article 6. The State has the ability to impose its will on the CORP and AOC as the State Legislature can modify the plans’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. - 66 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 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 A.R.S., 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 Rio Nuevo’s administrative office at 400 West Congress, Suite 152, Tucson, AZ 85701, (520) 623-7336, or its website at rionuevo.org. 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 A.R.S. § 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 Downtown Phoenix Student Housing, LLC, the ASU Preparatory Academy, Inc. (ASU Prep) –formerly known as the University Public Schools, Inc., and Campus Research Corporation (CRC). The Downtown Phoenix Student Housing, LLC is included due to the nature and significance of the financial arrangement that it has with the State and that the State believes would be misleading to exclude. The ASU Prep is included because of its close affiliation to the State and that the State believes it would be misleading to exclude. The CRC is included because the U of A approves the budget and can access its resources. - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 ASU Foundation’s business affairs, including distributions made to the ASU. The economic resources held by the ASU Foundation are significant to the ASU and are entirely for the benefit of the ASU. Arizona Capital Facilities Finance Corporation (ACFFC) – The ACFFC provides facilities for use by students of ASU or ASU itself. A fiscal dependency and financial benefit/burden relationship exists between the ACFFC and the ASU. 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. 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. The economic resources held by these three component units are significant to the ASU and are entirely for the benefit of the ASU. 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. A fiscal dependency and financial benefit/burden relationship exists between the ASU Research Park and the ASU. Downtown Phoenix Student Housing, LLC – This component unit of the State affiliated with the Universities provides housing facilities for use by students of the ASU. ASU Prep – The ASU Prep prepares Arizona K-12 students for success with a university-embedded academic program that empowers them to complete college, compete globally, and contribute to their communities. 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 - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 of A president appoints all EEE board members and can remove any member at will; thus, the U of A can impose its will on the EEE. 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 as follows: ASU Foundation, ACFFC, ASU Alumni Association, Sun Angel Foundation, Sun Angel Endowment, ASU Research Park, LLC, Downtown Phoenix Student Housing, LLC, and the ASU Prep –contact ASU Financial Services at (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, 9070 South Rita Road, Suite 1750, Tucson, AZ 85747 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 85719-0521. 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) – A.R.S. § 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) – A.R.S. § 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) – A.R.S. § 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. - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 Arizona Housing Finance Authority (the Authority) – A.R.S. § 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 A.R.S. § 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. 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. - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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: 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, and property collected by the State. 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. - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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. 1. DEPOSITS AND INVESTMENTS 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 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 State Street 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. All bonds are priced using an evaluated bid, except securities with a remaining maturity of 90 days or less are priced at amortized cost (amortizing premium/accreting discount on a straight-line to maturity method). The evaluated bid is based on a compilation of primary observable market information or a broker quote in a non-active market. 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 - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 investments. The fair value of limited partnership investments are based on estimated current values and 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. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. Security transactions and any resulting gains or losses are accounted for on a trade date basis. 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. 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 inflows of resources. 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, 2014. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2014, 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. CAPITAL ASSETS Capital assets are stated at cost at the date of acquisition or, if donated, at the appraised or 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 the 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. - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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. 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. H. DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources represent a consumption of net position by the government that applies to a future period and so will not be recognized as an outflow of resources (expense) until then. Deferred outflows of resources increase net position, similar to assets. 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. - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 K. UNEARNED REVENUE In the government-wide, governmental fund, and proprietary fund financial statements, unearned revenue is recorded when cash, receivables, or other assets are received prior to their being earned. 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 hours 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. 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. 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. DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources represent an acquisition of fund balance that applies to a future period, and so will not be recognized as an inflow of resources (revenue) until that time. Deferred inflows of resources decrease fund balance, similar to liabilities. O. 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 (a) fund assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources is “Fund Balance”on the governmental fund financial statements. - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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. 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 A.R.S. § 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 - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014, was $455.3 million. P. NEW ACCOUNTING PRONOUNCEMENTS GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. This statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. The provisions of this Statement are effective for periods beginning after December 15, 2012. The State has implemented the requirements of this standard and, as a result, beginning net position was restated for the business-type activities and component units. GASB Statement No. 66, Technical Corrections – 2012 – an amendment of GASB Statements No. 10 and No. 62. The requirements of this Statement resolve conflicting accounting and financial reporting guidance that could diminish the consistency of financial reporting and thereby enhance the usefulness of the financial reports. The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2012. The State has implemented the requirements of this standard but they had no effect on the financial statements. GASB Statement No. 67, Financial Reporting for Pension Plans –an amendment of GASB Statements No. 25. The objective of this Statement is to improve financial reporting by state and local governmental pension plans. This Statement replaces the requirements of Statements No. 25 and No. 50 as they relate to pension plans that are administered through trusts or equivalent arrangements that meet certain criteria. This Statement is effective for financial statements for fiscal years beginning after June 15, 2013. The State has implemented the requirements of this standard but they had no effect on the financial statements. GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. The requirements of this Statement will enhance comparability of financial statements among governments by requiring consistent reporting by those governments that extend nonexchange financial guarantees and by those governments that receive nonexchange financial guarantees. The provisions of this Statement are effective for reporting periods beginning after June 15, 2013. The State has implemented the requirements of this standard but they had no effect on the financial statements. 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. A.R.S. § 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 - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 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 A.R.S. § 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 $4.8 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, 2014, the carry or cost basis and the fair value for the Lehman Brothers Pool were $28.8 million and $5.4 million, respectively. There was a distribution in October 2014, 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 circumstances then prevailing, that a “prudent person”acting in a like capacity and familiar with the same matters would use in the conduct of an enterprise of a like character and with like aims as that of the system. 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 debt and equity investments. Per A.R.S. § 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 A.R.S. § 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 - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 A.R.S. § 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 A.R.S. § 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 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, 2014, the State had uninsured and uncollateralized deposits in the amount of $62.7 million and $14.9 million in deposits that were uninsured with collateral 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, 2014, the State had $117.4 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. - 79 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 The State Treasurer manages interest rate risk by incorporating A.R.S. 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 endowment funds portfolio has no such limitations. 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. 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, 2014 (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 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 $ 614,520 207,661 104,095 1,067,517 1,899,909 188,817 339,336 189,580 1,925,000 1,310,155 500,867 1,151,936 60,316 1,500,637 160 Weighted Average Maturity (in years) 1.95 0.05 28.21 0.10 3.26 0.13 4.05 0.07 0.00 21.22 19.29 2.49 2.96 2.19 32.00 $ 11,060,506 5.03 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 utilizes 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. - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 The following table presents ASRS’effective duration by investment type as of June 30, 2014 (expressed in thousands): Investment Type Asset backed securities Commercial mortgage backed securities Corporate bonds Emerging market debt Fixed income mutual funds Government agency CMOs Government bonds Government mortgage backed securities Government related bonds Opportunistic debt Private debt U.S. Treasury securities Total Fair Value 5,363 67,075 1,563,343 417,186 735,857 785,487 1,103,905 76,120 256,568 930,906 1,201,508 760,704 $ 7,904,022 $ Effective Duration (in years) 1.60 1.50 4.60 * * 2.80 6.30 3.80 5.40 * * 0.30 3.97 * Duration calculations for some securities are not available. The PSPRS, the EORP, and the CORP do not have a formal policy in regards to interest rate risk. The NAU’s and the U of A’s investment policies for their operating funds limit the maximum maturity of any fixed-rate or variable-rate security to five years from the settlement date of purchase. The NAU’s and the U of A’s endowment funds have no such limitation. The following table presents the interest rate risk for the PSPRS, the EORP, the CORP, the NAU, the U of A, and other State agencies utilizing the segmented time distribution as of June 30, 2014 (expressed in thousands): Investment Type Certificates of deposit (negotiable) Collateralized bond obligations (CBOs) Corporate notes & bonds Fixed income mutual funds Government bonds Money market mutual funds U.S. agency securities U.S. Treasury securities Total Fair Value $ 27,691 Less than 1 $ 6,878 1-5 $ 20,813 22,093 880,240 15,256 3,649 155,534 253,844 31,420 13,147 5,316 1,100 155,534 143,444 - 12,350 198,704 3,791 2,549 81,107 31,347 $ 1,389,727 $ 325,419 $ 350,661 - 81 - Investment Maturities (in years) 6-10 11-15 16-20 $ $ - $ 17,932 5,999 189 73 $ 24,193 12,979 150 $ 13,129 More than 20 $ - 3,858 10,531 $ 14,389 9,743 633,620 18,573 $ 661,936 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014 (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 D. Corporate Notes & Securities U.S. Agency Securities $ 567,937 $ Other 207,321 $ Total 29,558 $ 804,816 196,802 - - 196,802 97,343 - 1,811,022 150,348 64,999 1,908,365 215,347 94,557 $ 3,125,330 $ 862,082 $ 2,168,691 $ 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 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 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). - 82 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014. 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 Emerging market debt Fixed income mutual funds Government agency CMOs Government bonds Government mortgage backed securities Government related bonds Money market mutual funds Opportunistic debt Private debt Repurchase agreements U.S. agency mortgage backed securities U.S. agency securities Other Total E. Fair Value $ 568,249 22,093 AAA $ 441,208 - AA $ 1,564 - BBB A-1 $ 106,869 - Not Rated $ 4,584 22,093 217,911 - 28,237 20,921 - - - - 158,503 10,250 171,065 1,067,517 160,844 - - 5,391 - 4,024 - - - - 1,067,517 806 - 4,343,492 417,186 69,962 - 509,428 - 1,278,776 - 712,425 - 329,215 - 541,184 - 222,628 - - 679,874 417,186 751,113 - - - - - - - - 751,113 785,487 1,433,996 36,786 785,487 1,021,088 92,140 203,233 14,931 - - 24,034 41,784 76,120 - 76,120 - - - - - - - 256,568 26,025 221,217 9,326 - - - - - - 345,114 930,906 1,201,508 600,000 345,114 - 600,000 - - - - - - 930,906 1,201,508 - 1,288,801 1,376,676 113,919 19,986 - 1,285,489 1,356,690 - - - - - - - 3,312 113,919 $15,967,721 $1,099,925 $5,885,320 $1,420,578 $919,682 $344,146 $541,184 $222,628 $1,356,923 $4,177,335 $ BB CCC Thru D - $ A 14,024 - - $ B - $ - $ 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 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 issued as direct obligations of, and fully guaranteed by, the U.S. Government. At June 30, 2014, 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 $683.6 million, or 5.6%) and (ii) Federal National Mortgage Association (fair value of $924.0 million, or 7.6%). 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 A.R.S. § 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 - 83 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014 (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 Romanian Leu 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 G. Foreign Currency Risk by Investment Type at Fair Value Other Short Term Fixed Income Equities Investments Total $ 14 $ $ 74,954 $ $ 74,968 186 53,587 27,975 81,748 1,646 540,463 40,731 582,840 (5,716) 108,344 102,628 67 17,951 4,172 22,190 163 30,168 30,331 59,219 647,753 344,628 1,051,600 552 80,769 81,321 6,421 6,421 127 22,071 6,602 28,800 87 7,500 7,587 4,046 432,529 436,575 13 23,344 6,409 29,766 10 30,504 9,954 104,057 144,525 79 4,337 4,416 26,409 26,409 426 21,420 21,846 34 3,586 3,620 228 6,192 6,420 256 12,954 13,210 5,609 5,609 1,991 1,621 3,612 14 25,507 2,765 28,286 417 24,121 24,538 45 36,909 12,461 49,415 37 40,900 40,937 95 41,928 42,023 272 161,714 161,986 6,873 2,481 9,354 58 27,436 2,773 30,267 $ 62,375 $ 295,141 $ 2,306,316 $ 489,416 $ 3,153,248 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, 2014. 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 - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 for collateral that may include cash, U.S. Government securities, and irrevocable letters of credit. U.S. securities are loaned for collateral valued at 102% of the market value of securities plus any accrued interest. International securities are loaned for collateral valued at 105% of the market value of securities plus any accrued interest. The market value at June 30, 2014 for loaned securities collateralized by cash and non-cash collateral was $44.0 million and $28 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 $29 thousand, respectively, at June 30, 2014. 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 although the average term of the Commission’s loans was approximately 55 days as of June 30, 2014. Cash open collateral is invested in a short-term investment pool, the Core USA Collateral Section, which had an interest sensitivity of 37 days as of June 30, 2014. There are no dividends or coupon payments owing on securities lent. Securities lending earnings are credited to the Commission 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, 2014, 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 A.R.S. § 38-718(G) to enter into securities lending transactions. The ASRS’custodial bank enters into agreements with borrowers 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, 2014, the fair value of securities on loan was $95.8 million; of which $15.0 million were cash collateralized loans. Cash of $15.4 million received as collateral for securities loaned was reinvested and had a net position value of $15.0 million, as of June 30, 2014. The securities lending payable at June 30, 2014 was $15.4 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 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. 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 A.R.S. 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, 2014, the fair values of securities on loan for the PSPRS, the EORP, and the CORP were $433.8 million, $23.4 million, and $112.0 million, respectively. At June 30, 2014, the fair value of the associated collateral for the PSPRS, the EORP, and the CORP were $446.4 million, $24.1 million, and $115.3 million, respectively. The PSPRS, the EORP, and the CORP are - 85 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 A.R.S. § 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. currency), U.S. and international equities, and other assets permissible under Rule 15c3-3 under the Securities Exchange Act of 1934. Securities are loaned for collateral valued at not less than 102% of the market value of the securities loaned at the close of trading on the preceding business day. 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, and b) 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. 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, 2014, the fair value of securities on loan was $819.0 million. The associated fair value of the invested collateral was $853.4 million, of which $490.1 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 one day. 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, 2014, the State Treasurer had $490.1 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: Corporate notes Equities U.S. Treasury securities Total Fair Value H. $ 2,775,351 99,111,998 236,451,992 $ 338,339,341 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. - 86 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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. The fair value balances and notional amounts of derivative instruments outstanding at June 30, 2014, classified by type, and the changes in fair value of derivative instruments for the year then ended as reported in the June 30, 2014 financial statements are as follows (expressed in thousands): Investment Derivatives by Type Investment Derivatives Changes in Fair Value (1) Classification Amount (2) Fair Value at June 30, 2014 Classification Amount (3) Notional (4) Index futures long 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 6,314 Not applicable - 11 Pay fixed interest rate swaps Net increase (decrease) in fair value of investments (419) Not applicable - - Receive fixed interest rate swaps Net increase (decrease) in fair value of investments (406) Fixed income securities (62) 9,645 Rights Net increase (decrease) in fair value of investments 556 Equity securities - - 2,061 86,603 Equity securities 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 written Foreign currency options bought Foreign currency options written Foreign currency forwards Futures options written Warrants Total $ 83,877 Not applicable (1,924) Not applicable - (50) (993) Not applicable - - 70 Not applicable - - 602 Not applicable - - (926) Not applicable - (11,300) 629 Not applicable - - 25 Fixed income securities - 650 241 Fixed income securities Forward contracts receivable (29) (10,678) 857 239,400 (3,176) Net increase (decrease) in fair value of investments $ $ $ 262,560 72 Not applicable - - $ (1) Excludes futures margin payments. (2) Negative values 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. - 87 - - 766 $ 490,238 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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. The credit quality ratings of counterparties as described by NRSROs and the counterparties’related risk concentration, as of June 30, 2014, are as follows (expressed in thousands): Counterparty Name 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. Societe Generale Standard Chartered Bank USB AG Total Counterparty Risk and Ratings Total Risk Net Exposure Concentration $ 188 8.08% 18 0.76% 58 2.47% 351 15.09% 71 3.03% 4 0.19% 51 2.18% 927 39.84% 27 1.17% 27 1.16% 279 11.99% 327 14.04% $ 2,328 S&P A A+ A A A AAAA+ A A AAA Ratings Fitch A A+ A A A+ A AAA+ A A+ AAA Moody's A2 A1 A2 A1 A3 Baa1 A1 Aa3 A3 A2 A1 A2 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 aggregate fair value of investment derivative instruments in asset positions at June 30, 2014 was $2.3 million. This represents the maximum amount of loss in case of default of all counterparties of over-the-counter positions as of June 30, 2014. There was no collateral received or netting arrangements in place at June 30, 2014 with counterparties that would reduce this exposure. - 88 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014, for the year then ended, as reported in the June 30, 2014 financial statements are as follows (expressed in thousands): Investment Type Derivative Instruments Subject to Interest Rate Risk Investment Maturities Investment Maturities (in years) Fair Value Less Than 1 1-5 6-10 10+ Receive fixed interest rate swaps $ (62) $ - $ (41) $ (21) $ - Total $ (62) $ - $ (41) $ (21) $ - Derivative Instruments Highly Sensitive to Interest Rate Changes Asset ID Asset Description Interest Rate Fair Value Notional PAY FIXED INTEREST RATE SWAPS ADI07VSP2 0.00% US 10YR NOTE (CBT) SEP 14 Total Pay Fixed Interest Rate Swaps RECEIVE FIXED INTEREST RATE SWAPS 99S0EIJN8/ SWU002S11 IRS ZAR R F 6.50000 / 99S0EIJO6 SWU002S11 IRS ZAR P V 03MJHBRG 99S0EM2K3/ SWU023WC8 IRS BRL R F 8.65000 / 99S0EM2L1 SWU023WC8 IRS BRL P V 00MCETIP 99S0FZ5T1/ SWU004PQ5 IRS BRL R F 10.91000 / 99S0FZ5U8 SWU004PQ5 IRS BRL P V 00MBRCDI 99S0HFQQ6/ SWU005W76 IRS BRL R F 11.32000 / 99S0HFQR4 SWU005W76 IRS BRL P V 00MCETIP 99S0HQRT5/ SWU006FE8 IRS THB R F 3.34000 / 99S0HQRU2 SWU006FE8 IRS THB P V 06MLIBOR 99S0IA423/ SWU006VU4 IRS THB R F 3.41000 / 99S0IA431 SWU006VU4 IRS THB P V 06MTHFX 99S0IAEK2/ SWU006X81 IRS THB R F 3.42000 / 99S0IAEL0 SWU006X81 IRS THB P V 06MTHFX 99S0IAWE6/ SWU006XQ1 IRS THB R F 3.41500 / 99S0IAWF3 SWU006XQ1 IRS THB P V 06MTHFX 99S0IAWN6/ SWU006XR9 IRS THB R F 3.41000 / 99S0IAWO4 SWU006XR9 IRS THB P V 06MTHFX 99S0IXAH3/ SWU007VO6 IRS COP R F 6.20000 / 99S0IXAI1 SWU007VO6 IRS COP P V 00MCOOVI 99S0IXAT7/ SWU007VN8 IRS COP R F 6.20000 / 99S0IXAU4 SWU007VN8 IRS COP P V 00MCOOVI 6.50% $ - $ (11,300) $ - $ (11,300) $ (51) 931 8.65% (46) 817 10.91% (4) 4,356 11.32% 6 544 3.34% 3 123 3.41% 3 259 3.42% 10 759 3.42% 5 381 3.41% 5 380 6.20% 4 558 6.20% 3 537 $ Total Receive Fixed Interest Rate Swaps $ (62) $ 9,645 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, 2014 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.aztreasurer.gov. NOTE 3. RECEIVABLES/DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES/UNEARNED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2014 (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 B. General Fund $ 524,895 116,318 6,777 647,990 (359,798) $ 288,192 Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 62,117 62,117 $ 62,117 Industrial Commission Special Fund $ 4,182 4,182 $ 4,182 Non-major Governmental Funds $ 52,335 18,045 3,199 73,579 $ 73,579 Non-major Enterprise Funds $ $ 91,906 91,906 91,906 Government-wide Total $ 577,230 116,318 62,117 24,822 91,906 7,381 879,774 (359,798) $ 519,976 DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES At June 30, 2014, the components of deferred outflows of resources were as follows (expressed in thousands): Deferred Outflows of Resources Interest rate swap Loss on debt refundings Total Deferred Outflows of Resources Governmental Activities Business-type Activities $ $ $ 26,361 26,361 $ 14,135 37,644 51,779 Primary Government $ $ 14,135 64,005 78,140 At June 30, 2014, the components of deferred inflows of resources were as follows (expressed in thousands): General Fund Governmental funds: Deferred Inflows of Resources: Unavailable Revenues: Delinquent sales and income tax Tobacco settlement Child support administrative reimbursements Federal grants Drug Rebates Land sales receivable Land leases receivable Other Total Deferred Inflows of Resources $ $ 29,780 50,000 4,347 182,209 93,826 3,923 364,085 - 90 - Land Endowments Fund Other Governmental Funds Total Governmental Funds $ $ $ $ 487,552 3,412 490,964 $ 796 796 $ 29,780 50,000 4,347 182,209 93,826 487,552 3,412 4,719 855,845 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 C. UNEARNED REVENUE At June 30, 2014, the components of unearned revenue were as follows (expressed in thousands): Unearned Revenue for Governmental Funds: General Fund: Advance insurance premium taxes Advance land lease payments Advance county acute and long term care payments Vaccine and commodity food supplement Land Endowments Fund: Advance land lease payments Non-Major Funds: Advance payments for Hawaii/Arizona PMMIS Alliance Total Unearned Revenue for Governmental Funds Current $ 45,407 291 21,256 5,224 Noncurrent $ 22,214 $ Unearned 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: Magazine subscriptions Other Total Unearned Revenue for Proprietary Funds 381 94,773 Current $ 57,815 6,960 470 95,837 1,103 9,446 133 2,040 112 $ 173,916 - 91 - 3,679 - Total Unearned Revenue $ 89,382 $ 93,061 45,407 3,970 21,256 5,224 111,596 $ 381 187,834 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2014 were as follows (expressed in thousands): Primary Government Beginning Balance Adjustments & Ending Additions Retirements Reclassifications Balance $ $ $ Governmental Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Infrastructure Total Non-depreciable Capital Assets $ 2,967,822 3,369,060 27,155 12,951,192 19,315,229 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets 2,161,715 159,899 811,035 219,616 21,896 3,374,161 116,722 3,446 63,804 30,998 302 215,272 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation (778,628) (93,642) (616,132) (195,169) (12,033) (1,695,604) 176 (43,801) (1) (43,626) $ 3,046,110 2,916,383 58,567 13,778,329 19,799,389 (263) (58,257) (86) (58,606) 37,647 9,342 9,896 879 678 58,442 2,315,821 172,687 826,478 251,407 22,876 3,589,269 (56,157) (4,647) (58,158) (6,685) (591) (126,238) 224 56,661 86 56,971 13 308 1 322 (834,561) (98,276) (617,321) (201,768) (12,623) (1,764,549) 1,678,557 89,034 (1,635) 58,764 1,824,720 $ 20,993,786 Beginning Balance (as restated) $ 1,558,393 $ (943,208) 15,138 $ 21,624,109 Additions Retirements $ $ $ Total Depreciable Capital Assets, Net Total Governmental Activities Capital Assets, Net Business-type Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Collections Total Non-depreciable Capital Assets 210,037 288,755 19,738 518,530 81,412 498,155 62,057 827,735 1,469,359 19,600 205,220 397 225,217 (3,300) (907,031) (30,644) (598) (941,573) (53,649) (21) (53,670) $ Adjustments & Reclassifications $ Ending Balance (141,166) (141,166) $ 229,637 299,160 20,114 548,911 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets 5,027,319 4,853 1,505,988 120,736 460,711 7,119,607 170,359 874 86,040 7,458 264,731 (1,902) (38,187) (3) (40,092) 126,098 5,221 9,849 141,168 5,321,874 5,727 1,553,841 125,957 478,015 7,485,414 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation (1,950,014) (3,450) (1,111,266) (61,230) (184,785) (3,310,745) (152,781) (192) (86,299) (11,168) (15,437) (265,877) 966 35,045 1 36,012 3 3 (2,101,826) (3,642) (1,162,520) (72,398) (200,221) (3,540,607) Total Depreciable Capital Assets, Net 3,808,862 Total Business-type Activities Capital Assets, Net $ 4,327,392 * For beginning balance restatement detail, see Note 9.B. (1,146) $ 224,071 - 92 - (4,080) $ (57,750) $ 141,171 3,944,807 5 $ 4,493,718 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 Depreciation expense was charged to governmental functions as follows (expressed in thousands): General government $ 20,901 Health and welfare 19,382 Inspection and regulation Education 875 2,257 Protection and safety 56,101 Transportation 18,344 Natural resources 8,378 Total Governmental Activities $ 126,238 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Industrial Commission Special Fund Universities $ 1,338 262,307 Other 2,232 Total Business-type Activities $ 265,877 NOTE 5. PENSION BENEFITS The State participates in the ASRS, the PSPRS, the EORP, and the CORP’s agent plan. 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. The State does not participate in the AOC and, therefore, is not further described in these notes. A. PARTICIPATING EMPLOYERS The number of participating government employer groups as of June 30, 2014 for each pension plan is shown below: ASRS 585 B. PSPRS 237 EORP 38 CORP 26 CONTRIBUTIONS, BENEFITS, AND REFUND PAYMENTS For the ASRS, contributions are recognized as revenues when due, pursuant to statutory and contractual requirements. Pension benefits and refunds are recognized when due and payable and expenses are recorded when the corresponding liabilities are incurred, regardless of when contributions are received or payments is made. 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 A.R.S. These contribution requirements may be amended by the Arizona State Legislature. Cost-sharing plans For the year ended June 30, 2014, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 11.30% and 10.70% of the members' annual covered payroll, respectively. The State's contributions to the ASRS for the years ended June 30, 2014, 2013, and 2012 were $202.0 million, $185.5 million, and $180.8 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, 2014 As part of 2013 Fifty-first legislature, House Bill 2608 effectively closed EORP and created the Elected Officials' Defined Contribution Retirement System (EODCRS), with an effective date of January 1, 2014. Elected Officials who are elected, appointed, or hired on or after January 1, 2014, have one of three different paths that may be available to them: If a person has EORP time on account or is elected, appointed, or hired on or before December 31, 2013, they are required to be in EORP; If a person is elected, appointed, or hired on or after January 1, 2014, and does not have prior EORP time, but has ASRS time, that person has the option to either return to ASRS by electing to do so within 30 days or participate in the EODCRS; or, if a person is elected, appointed, or hired on or after January 1, 2014, does not have time on account with EORP, and does not timely opt out of EODCRS to return to ASRS, they’re automatically enrolled in EODCRS. Active EORP members were required by statute to contribute 13% 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 38.06% of the members' annual covered payroll, as determined by actuarial valuation until December 31, 2013. Beginning January 1, 2014 employer contributions are 23.50% with an additional $5.0 million appropriated from the Arizona State Budget (Section 133 of fiscal year General Appropriations Act). The $5.0 million from the State is considered a non-employer entity and is listed separately on the Statement of Changes in Fiduciary Net Position. The State's contributions to EORP for the years ended June 30, 2014, 2013, and 2012 were $3.1 million, $2.5 million, and $2.2 million, respectively, which were equal to the required contributions for these years. Agent plans For the year ended June 30, 2014, active PSPRS members were required by statute to contribute 10.35% of the members' annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 21.79 – 107.07%. Active CORP members were required by statute to contribute 7.96% (Dispatchers) and 8.41% (Non-Dispatchers) of the members' annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 12.07 –13.87%. D. ANNUAL PENSION COST The State’s annual pension costs and required contributions made to each of the agent, multiple-employer defined benefit pension plans for the year ended June 30, 2014, is as follows (expressed in thousands): PSPRS CORP Annual Pension Costs $ 43,200 50,860 Required Contributions $ 43,200 50,860 The State's annual pension costs, the percentage of annual pension cost contributed to the plan, and the net pension (refer to Note 6.A. for explanation) 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 6/30/2014 6/30/2013 6/30/2012 Annual Pension Costs $ 43,200 36,833 31,253 Percentage of Annual Cost Contributed 100% 101% 102% Net Pension $ 3,175 2,627 6/30/2014 6/30/2013 6/30/2012 50,860 39,537 32,058 100% 108% 109% 15,874 12,854 - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 6/30/2014 6/30/2014 Actuarial Value of Plan Assets $ 450,284 852,041 Actuarial Accrued Liability (AAL) $ 1,240,343 1,520,026 (Unfunded) AAL $ (790,059) (667,985) Funded Ratio 36.3% 56.1% Annual Covered Payroll $ 85,973 350,313 (Unfunded) AAL as a Percentage of Covered Payroll (919.0)% (190.7)% The required schedule of funding progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. F. ACTUARIAL METHODS AND ASSUMPTIONS The State’s actuarial methods and significant assumptions for each of the agent, multiple-employer defined benefit pension plans for the most recent actuarial valuation as of 6/30/2014 and actuarial valuation as of 6/30/2012 that was used to determine the fiscal year 2014 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 Permanent Benefit Increases (PBI) PSPRS 6/30/2012 entry age normal CORP 6/30/2012 entry age normal PSPRS 6/30/2014 entry age normal CORP 6/30/2014 entry age normal 8.0% 5.0 –9.0% 5.0% none level percent-of-pay closed 24 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market n/a 8.0% 5.0 –8.25% 5.0% none level percent-of-pay closed 24 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market n/a 7.85% 4.0 –8.0% 4.0% n/a level percent-of-pay closed 22 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market (2) 7.85% 4.0 –7.25% 4.0% (1) level percent-ofpay closed 22 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market n/a (1) Members Retired on or before July 1, 2011: 2.25% of benefit. Members Retired on or after August 1, 2011: 0.5% of benefit. (2) Members Retired on or before July 1, 2011: 2.0% compounded on average. Members Retired on or after August 1, 2011: 0.5% compounded on average. Since all current retirees receive the same dollar increase amount, approximation techniques were used to develop the assumed PBI for each member. 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 two 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 - 95 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014, 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 7.59% University contribution for the ASRS defined contribution plan. Contributions to these plans for the year ended June 30, 2014, were as follows (expressed in thousands): Plan TIAA/CREF Fidelity ASRS University Contributions $ 31,590 22,550 13 Employee Contributions $ 31,590 22,550 12 Total Contributions $ 63,180 45,100 25 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 A.R.S. 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. In addition to the pension benefits described, the EORP provides health insurance premium subsidy benefits to retired members, which is a cost-sharing, multiple employer defined benefit post-employment plan. Title 38, Chapter 5 of the A.R.S. assigns the authority to establish and amend the health insurance subsidy benefit provisions to the Arizona State Legislature. As of July 1, 2013, the EORP administers a separate healthcare plan as defined under IRC § 401(h). In addition, the EORP is statutorily authorized, by A.R.S. § 38-817, to maintain a separate account for the health insurance subsidy assets and benefit payments. The health insurance subsidy assets are accounted for by employer and are available to pay only the health insurance benefit. Information on how to obtain the EORP's publicly available financial report is included in Note 1.A. However, the EORP OPEB benefit is relatively insignificant to the State's financial statements and, therefore, is not further described in these notes. Agent plans In addition to pension benefits described, the PSPRS and the CORP each provide 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 A.R.S. assigns the authority to establish and amend the health insurance premium subsidy benefit provisions to the Arizona State Legislature. As of July 1, 2013, the PSPRS and the CORP each administers a separate healthcare plan as defined under IRC § 401(h). In addition, the PSPRS and the CORP are statutorily authorized, by A.R.S. § 38-857 and A.R.S. § 38-906, respectively, to maintain a separate account for the health insurance premium subsidy assets and benefit payments. The health insurance premium subsidy assets are accounted for by employer and are available to pay only the health insurance premium benefit. In prior fiscal years, the health insurance premium subsidy benefit was not administered as a trust or equivalent arrangement and in accordance with GASB Statement No. 43, was reported as an agency fund. As a result of this treatment, contributions in excess of the health insurance subsidy benefit payments were reported as an OPEB obligation and as excess pension contributions in the pension benefit plan. In fiscal year 2014, the plans transferred prior year health insurance premium subsidy contributions that exceeded benefit payments from each plan’s pension fund to the new health insurance fund. 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. - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 B. CONTRIBUTIONS, BENEFITS, AND REFUND PAYMENTS Cost-sharing plan The ASRS recognition of contributions, benefits, and refund payments for the HBS plan and the LTD plan are the same as the pension benefit in Note 5.B. 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. 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 A.R.S. These contribution requirements are established and may be amended by the Arizona State Legislature. Cost-sharing plan For the year ended June 30, 2014, 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 0.60% for the HBS. The State's contributions for LTD to the ASRS for the years ended June 30, 2014, 2013, and 2012 were $4.5 million, $4.3 million, and $4.4 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, 2014, 2013, and 2012 were $11.3 million, $11.8 million, and $11.5 million, respectively, for the primary government which were equal to the required contributions for these years. Agent plans For the year ended June 30, 2014, the PSPRS participating State agencies were required to contribute at actuarially determined rates of 1.28 – 4.60% of covered payroll. The CORP participating State agencies were required to contribute at actuarially determined rates of 0.92 –1.52% of covered payroll. D. ANNUAL OPEB COST The State's annual OPEB cost and OPEB contributions made to each of the agent, multiple-employer defined benefit postemployment plans for the year ended June 30, 2014, is as follows (expressed in thousands): PSPRS CORP Annual OPEB Costs $ 2,070 4,838 OPEB Contributions Made $ 2,070 4,838 The State's annual OPEB costs, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation (refer to Note 6.A. for explanation) for the current and preceding year for each of the agent, multiple-employer defined benefit postemployment plans, is as follows (expressed in thousands): PSPRS CORP Fiscal Year Ended 6/30/2014 6/30/2013 6/30/2012 Annual OPEB Costs $ 2,070 2,158 2,225 Percentage of Annual Cost Contributed 100.0% 74.6% 77.6% 6/30/2014 6/30/2013 6/30/2012 4,838 5,179 5,213 100.0% 41.7% 42.7% - 97 - Net OPEB Obligation $ 3,175 2,627 15,874 12,854 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014, is as follows (expressed in thousands): Plan PSPRS CORP Actuarial Valuation Date 6/30/2014 6/30/2014 Actuarial Value of Plan Assets $ 35,607 72,713 Actuarial Accrued Liability (AAL) $ 29,668 62,623 Funded AAL $ 5,939 10,090 Funded Ratio 120.0% 116.1% Annual Covered Payroll $ 85,973 350,313 Funded AAL as a Percentage of Covered Payroll 6.9% 2.9% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare cost trends. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The required schedule of funding progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. F. ACTUARIAL METHODS AND ASSUMPTIONS Projections of benefits for financial reporting purposes are based on the plan and include the types of benefits provided at the time of each valuation. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The State’s actuarial methods and significant assumptions for each of the agent, multiple-employer defined benefit postemployment plans for the most recent actuarial valuation as of 6/30/2014 and actuarial valuation as of 6/30/2012 that was used to determine the fiscal year 2014 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 Permanent Benefit Increases PSPRS 6/30/2012 entry age normal CORP 6/30/2012 entry age normal PSPRS 6/30/2014 entry age normal CORP 6/30/2014 entry age normal 8.0% 5.0 –9.0% 5.0% none level percent-of-pay closed 24 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market n/a 8.0% 5.0 –8.25% 5.0% none level percent-of-pay closed 24 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market n/a 7.85% 4.0 –8.0% 4.0% n/a level percent-of-pay closed 22 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market (2) 7.85% 4.0 –7.25% 4.0% (1) level percent-ofpay closed 22 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market n/a (1) Members Retired on or before July 1, 2011: 2.25% of benefit Members Retired on or after August 1, 2011: 0.5% of benefit. (2) Members Retired on or before July 1, 2011: 2.0% compounded on average Members Retired on or after August 1, 2011: 0.5% compounded on average. Since all current retirees receive the same dollar increase amount, approximation techniques were used to develop the assumed PBI for each member. - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014, 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 $562.5 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 $1.7 billion. During the year, no new Highway Revenue Bonds were issued. 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 $2.6 billion. Principal and interest paid for the current year and total pledged revenues were $139.0 million and $537.8 million, respectively. The annual principal and interest payments on the bonds required 25.8% 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 $926.0 million. The ADOT has pledged future transportation excise taxes to repay $867.4 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 $1.1 billion. Principal and interest paid for the current year and total pledged revenues were $103.6 million and $243.8 million, respectively. The annual principal and interest payments on the bonds required 42.5% of the pledged revenues. In prior fiscal years, the ADOT refinanced various bond issues through advance-refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal, redemption premium, if any, and interest on the refunded bond issues have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of these trust accounts and the liability for the defeased bonds are not reflected in the accompanying financial statements. Refunded bonds for the ADOT at June 30, 2014 totaled $709.3 million. - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 3. School Facilities Board In prior fiscal years, the School Facilities Board (SFB) refinanced various bond issues through advance-refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal, redemption premium, if any, and interest on the refunded bond issues have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of these trust accounts and the liability for 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, 2014. 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, 2014, pledged revenues totaled $659.2 million, of which 12.2% ($80.5 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 $504.6 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. In fiscal year 2013, the U of A refunded, in advance of maturity, a portion of the outstanding System Revenue Bonds Series 2005A. At June 30, 2014, the outstanding principal balance on the refunded bonds was $26.5 million, which will be paid by investments held in an irrevocable trust with a fair value of $27.7 million. Accordingly, the trust account assets and liability for the defeased bonds are not included in the accompanying financial statements. 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 a 7.2% reduction (totaling $116 thousand) in the federal interest subsidy for the August 1, 2014 debt service payment. There is no guidance from the Internal Revenue Service on sequestration reductions for February 1 and August 1, 2015 debt service payments. - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014. 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. For fiscal year 2014, pledged revenues totaled $1.0 billion, of which 5.9% ($60.8 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 $1.4 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 May 8, 2014, the NAU sold $67.3 million of Systems Revenue and Refunding Bonds Series 2014 (2014 Bonds) for the purpose of the construction and equipping approximately 120,000 square feet of regulation indoor aquatic and tennis spaces for athletic and intramural activities, 90,000 square feet of regulation outdoor tennis courts and a recreation field, renovation of approximately 254,000 gross square feet of existing residential units containing five residential properties to current fire codes, and improvements to infrastructure, including installation of new water supply piping through rock, roads, and existing landscaping. The 2014 Bonds include serial bonds of $43.0 million, with interest rates ranging from 3.00% to 5.00%. The 2014 Bonds also include two term bonds that are subject to annual sinking fund contributions. The first term bond is for $14.9 million with an interest rate of 5.00% that matures June 1, 2040. The second term bond is for $9.4 million with an interest rate of 5.00% that matures June 1, 2044. Refunded were $6.9 million of the 2004 Systems Revenue Bonds for maturities from June 1, 2018 to June 1, 2031, and $9.4 million from the Systems Revenue Bonds Series 2005 for maturities from June 1, 2016 through June 1, 2029 and June 1, 2036 through June 1, 2040. The refunding set aside $17.4 million into escrow that purchased SLGS Certificates with maturities between June 1, 2014 and June 1, 2015. The present value of the refunded debt prior to May 8, 2014 was $18.6 million and the net present value savings was $938 thousand. The advance refunding decreases the NAU’s debt service by $377 thousand in year one. In addition, annual debt service decreases by an average of $33 thousand in years two through twentyseven. In the current and 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, 2014, $24.6 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. During fiscal year 2014, the Federal government reduced federal direct payment claims filed between December 1, 2013 and September 1, 2014 by 7.2% due to the federal budget sequestration resulting in a $271 thousand reduction in direct payments to the NAU. For accounting purposes, any direct payments received from the U.S. Treasury Department are recorded as nonoperating revenue. 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. - 101 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014. 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 revenues have averaged $214.1 million for the prior five years. For fiscal year 2014, pledged revenues totaled $252.2 million, of which 10.1% ($25.4 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 12% of pledged revenues. Future pledged revenues required to pay all remaining related debt service for the bonds through final maturity of June 1, 2044 are $904.5 million. c. Arizona State University At June 30, 2014, 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, 2014 totaled $16.5 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, 2014. These related system 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, 2014, pledged revenues totaled $1.2 billion, of which 7.3% ($84.4 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 senior and subordinate revenue bonds through final maturity of August 1, 2044 is $1.6 billion. In addition to a senior pledge of revenues for the ASU system revenue bonds, the ASU has pledged the same revenues on a subordinated basis to secure the ASU SPEED revenue bonds and the Series 2006 Arizona State University Research Park, Inc. Development Refunding Bonds. Research Park bonds outstanding at June 30, 2014 were $7.0 million with annual debt service payments of approximately $1.2 million through July 1, 2021. In June 2008, the Legislature approved the SPEED which provides the ASU with 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. In April 2014, the ASU issued $77.6 million in SPEED revenue bonds, Series 2014, with an average maturity of 13.9 years and an average interest rate of 3.72%. The bonds were issued to fund classroom and laboratory renovations, building and infrastructure enhancements and modifications, and a portion of the construction costs for the College Avenue Commons, a new Tempe campus mixed-use facility. 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 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 2014, the Federal government reduced federal direct payment claims by 7.2% due to federal budget sequestration resulting in a $300 thousand reduction in direct payments to the ASU. 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 $94.3 million with final maturities of July 1, 2034. The interest rate in effect on June 30, 2014 was 0.04% 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 $47.14 - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 million Series 2008A and $47.14 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, 2014 totaled $63.6 million. The ASU presently plans to issue up to $170.4 million in system revenue bonds prior to calendar year end 2015. 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 is 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, 2014 was 0.06%. At June 30, 2014, 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, 2014, 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 become 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 A2 by Moody's as of June 30, 2014. 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, 2014, the swap had a fair value of $(14.1) million, which represents the cost to the ASU to terminate the swap. The June 30, 2013 fair value was $(14.1) 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. 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). - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2014 (expressed in thousands): Revenue Bonds Outstanding Governmental Activities: Department of Transportation School Facilities Board Department of Administration Business-type Activities: University Revenue Bonds Dates Issued Maturity Dates Interest Rates 2001-2013 2002-2013 2010 2015-2038 2015-2020 2015-2029 .60-5.25% .14-5.00% 3.00-5.00% 1992-2014 2015-2049 .06-6.64% Outstanding Balance at June 30, 2014 $ 2,542,175 472,835 391,185 2,302,035 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2014 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 2040-2044 2045-2049 Total Principal $ 217,970 240,260 242,020 271,085 236,790 1,067,185 707,660 323,075 100,150 - Total $ 3,406,195 B. $ $ Total Interest 149,585 140,677 132,565 123,493 114,411 432,378 200,615 66,608 11,649 1,371,981 Business-type Activities $ Total 367,555 380,937 374,585 394,578 351,201 1,499,563 908,275 389,683 111,799 - $ 4,778,176 Total Principal $ 75,010 76,730 90,440 83,945 85,180 454,945 501,360 412,420 314,605 167,275 40,125 $ 2,302,035 Total Interest $ 108,916 105,791 102,352 99,137 95,610 416,911 298,184 185,088 95,400 27,782 3,586 $ 1,538,757 Net Payments (Receipts) on Swap Agreement $ 3,507 3,401 3,290 3,173 3,050 13,181 9,048 3,773 $ 42,423 $ $ Total 187,433 185,922 196,082 186,255 183,840 885,037 808,592 601,281 410,005 195,057 43,711 3,883,215 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 $296.2 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, 2014 totaled $25.7 million. The ADOT has pledged federal revenues to repay $247.7 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 paid on the GANs is $313.4 million. Principal and interest paid for the current year and total pledged revenues were $64.9 million and $688.1 million, respectively. The annual principal and interest payments on the GANs required 9.4% of the pledged revenues. - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 2015-2026 3.00-5.25% Outstanding Balance at June 30, 2014 $ 247,710 Future debt service principal and interest payments on Grant Anticipation Notes issues for fiscal years ended June 30 are summarized below (expressed in thousands): Annual Debt Service Governmental Activities Total Total Principal Interest Fiscal Year 2015 $ 2016 $ 47,350 11,855 $ 64,895 9,552 56,902 2017 11,770 7,393 19,163 2018 12,325 6,838 19,163 2019 12,925 6,240 19,165 2020-2024 74,785 21,035 95,820 2025-2026 35,515 2,816 Total C. 53,040 Total Debt Service $ 247,710 $ 65,729 38,331 $ 313,439 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. In prior fiscal years, the State 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. - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 2. School Facilities Board On December 19, 2013, the SFB issued Refunding Certificates of Participation Series 2013A-1 and 2013A-2 (2013A-1 COPs and 2013A-2 COPs) for $29.9 million and $49.6 million, respectively. The 2013A-1 COPs include $29.9 million of serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2015 to 2020. The 2013A-1 COPs are not subject to optional redemption prior to maturity, however, these COPs are subject to defeasance pursuant to the debt documents. The SFB realized net proceeds from the 2013A-1 COPs of $32.5 million, after receipt of $2.8 million issue premium and payment of $173 thousand for underwriters’discount and issuance costs. The net proceeds of the 2013A-1 COPs were used to advancerefund the Series 2003B COPs with an outstanding principal balance of $15.2 million, and to advance-refund $16.3 million of the Series 2004A COPs with an outstanding principal balance of $19.9 million. The advance-refundings resulted in combined debt service savings of $1.3 million and a combined net present value economic gain of $1.6 million (difference between the present values of the old debt and new debt service payments). The advance-refundings also resulted in an immaterial difference between the reacquisition price and the net carrying amount of the old debt of $162 thousand. This difference is reported as a reduction of interest expense in the accompanying financial statements. The refunded Series 2003B COPs were redeemed on January 21, 2014. The refunded Series 2004A COPs will be redeemed on September 1, 2014 by investments in United States government obligations held in an irrevocable trust. The 2013A-2 COPs include $49.6 million of serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2015 to 2019. The 2013A-2 COPs are not subject to optional redemption prior to maturity; however, these COPs are subject to defeasance pursuant to the debt documents. The SFB realized net proceeds from the 2013A-2 COPs of $53.3 million, after receipt of $4.0 million issue premium and payment of $273 thousand for underwriters’discount and issuance costs. The net proceeds of the 2013A-2 COPs were used to advance-refund $29.5 million of the Series 2004B COPs with an outstanding principal balance of $43.2 million, and to advance-refund $21.3 million of the Series 2004C COPs with an outstanding principal balance of $24.9 million. The advance-refunding resulted in a debt service savings of $3.9 million and a net present value economic gain of $3.6 million (difference between the present values of the old debt and new debt service payments). The advance-refunding resulted in an immaterial difference between the reacquisition price and the net carrying amount of the old debt of $40 thousand. This difference was charged to interest expense in the accompanying financial statements. The refunded Series 2004B and 2004C COPs will be redeemed on September 1, 2014 by investments in United States government obligations held in an irrevocable trust. On June 19, 2014, the SFB issued Taxable Refunding Certificates of Participation Series 2014A-1, 2014A-2, and 2014A-3 (2014 COPs) for a combined total of $226.1 million. The 2014 COPs include $226.1 million of serial certificates with interest rates ranging from .32% to 2.38% and maturity dates ranging from 2016 to 2020. The 2014 COPs are subject to optional prepayment prior to maturity pursuant to the debt documents. The SFB realized net proceeds from the 2014 COPs of $224.2 million, after payment of $767 thousand for underwriters’discount and issuance costs and payment of $1.1 million for accrued interest. The net proceeds of the 2014 COPs were used to advance-refund $208.9 million of the Series 2005A-1, 2005A-2, and 2005A-3 COPs with a combined outstanding principal balance of $320.0 million. The advance-refunding resulted in a combined debt service savings of $8.3 million and a combined net present value economic gain of $8.2 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 $9.6 million. This difference, reported as a deferred outflow of resources in the accompanying financial statements, is being amortized to interest expense on a straight-line basis through fiscal year 2020. The refunded Series 2005A-1, 2005A-2, and 2005A-3 COPs will be redeemed on September 1, 2015 by investments in United States government obligations held in an irrevocable trust. 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. The SFB Series 2010 COPs are subject to extraordinary mandatory prepayment from unexpended proceeds pursuant to the debt documents. On February 6, 2014, the SFB redeemed $9.5 million of the Series 2010 COPs pursuant to the extraordinary mandatory prepayment provisions in the debt documents. Beginning August 15, 2012, annual deposits to the sinking fund were 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. The sinking fund deposit requirements were adjusted to reflect the extraordinary mandatory prepayment redemption which occurred on February 6, 2014. In current and 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, - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 are subject to prepayment. 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. In 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, 2014, $46.0 million of such outstanding COPs are considered defeased. c. Arizona State University At June 30, 2014, 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, 2014 was $67.4 million. Securities and cash restricted for COP debt service held by the trustee at June 30, 2014 totaled $7.2 million. A summary of the COPs issued as of June 30, 2014 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 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 Refunding Certificates of 2003B and 2004A Refunding Certificates of 2004B and 2004C Refunding Certificates of 2005A-1 Refunding Certificates of 2005A-2 Refunding Certificates of 2005A-3 Total Governmental Activities Issue Date Final Maturity Date 2008 2010 2010 2013 2028 2030 2030 2029 2004 2005 2005 2005 2005 2005 2009 2011 2011 2011 2011 2014 2014 2014 2014 2014 2015 2015 2015 2016 2016 2016 2024 2020 2020 2020 2028 2020 2020 2018 2019 2020 Original Amount Issued $ $ - 107 - 238,990 709,090 289,705 62,630 47,160 190,040 47,585 201,125 80,055 53,045 580,035 11,100 10,000 37,685 91,325 29,945 49,605 110,695 60,390 55,040 2,955,245 Outstanding Balance $ $ Interest Rates 190,345 657,545 268,070 51,585 3.75 –5.00 3.00 –5.25 3.00 –5.00 2.00 –5.00 3,585 13,680 3,600 92,885 17,795 435 454,870 11,100 10,000 37,685 81,820 29,945 49,605 110,695 60,390 55,040 2,200,675 5.00 4.25 –5.25 5.00 5.00 3.50 –5.00 3.50 –3.63 4.00 –5.75 3.00 –3.50 3.00 –5.00 3.00 –5.00 6.00 2.00 –5.00 2.00 –5.00 .32 –1.47 .95 –2.08 .95 –2.38 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 Project Issue Date Final Maturity Date 2002 2005 2005 2006 2007 2011 2013 2019 2031 2031 2031 2027 2025 2027 1999 2004 2005 2005 2005 2020 2015 2024 2024 2022 2006 Original Amount Issued Outstanding Balance Interest Rates 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 Chem.Bldg./Res.Life/Highland Pkg.Garage/Rfnd. COPS 1994A Refund COPs 1999A Refund COPs 1999 Refund COPs 2001A Refund COPs 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 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 $ 935 23,330 63,430 12,525 64,580 7,365 63,340 4.76 4.89 4.36 4.53 4.15 4.27 3.09 21,607 42,020 12,660 14,825 16,330 2,305 275 12,660 14,825 14,715 5.13 –5.30 5.25 4.00 –5.00 5.00 4.13 –5.00 2025 25,905 14,405 4.00 –4.50 2006 2006 2007 2012 2012 2012 2025 2031 2031 2022 2023 2031 58,650 18,240 105,080 10,190 20,600 124,940 53,460 14,655 96,030 9,380 20,340 124,940 4.13 –5.00 4.00 –5.00 4.00 –4.50 1.71 –3.42 3.00 –5.00 3.00 –5.00 2005 2006 2006 2013 2031 2031 2018 2031 37,585 40,255 12,445 36,005 1,046,472 2,425 23,145 1,275 36,005 676,345 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, 2014 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2015 Total Principal $ 169,870 Total Interest $ 96,652 Business-type Activities Total Amount Required $ 266,522 Total Principal $ 32,234 Total Amount Required Total Interest $ 31,687 $ 63,921 2016 188,955 89,273 278,228 36,795 28,468 65,263 2017 196,540 81,620 278,160 42,820 27,822 70,642 2018 203,090 74,891 277,981 48,265 25,858 74,123 2019 174,635 67,946 242,581 50,870 23,755 74,625 2020-2024 682,045 235,703 917,748 239,926 82,629 322,555 2025-2029 503,490 91,819 595,309 161,060 34,334 195,394 2030-2031 82,050 2,049 84,099 64,375 3,186 67,561 739,953 $ 2,940,628 Total $ 2,200,675 $ - 108 - $ 676,345 $ 257,739 $ 934,084 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 D. 1. LEASES 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, 2014 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 $ 56,295 $ 11,423 56,476 11,129 54,493 10,764 52,930 10,333 50,198 10,200 241,105 51,359 125,883 49,667 31,240 43,025 8,522 2,191 668,620 208,613 (170,291) (75,656) (49,120) - Present Value of Net Minimum Lease Payments $ Fiscal Year 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 2040-2072 2. 449,209 $ 132,957 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 $ 445 463,650 40,607 504,702 (73,626) Carrying Value $ Land Buildings Equipment - 109 - 431,076 $ $ Business-type Activities 5,175 156,620 1,857 163,652 (36,369) 127,283 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 2014, the State paid for compensated absences as follows: 74.53% from the General Fund, 18.49% from other funds, and 6.98% from other major funds. F. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-term Obligations (expressed in thousands): Balance July 1, 2013, as restated Increases Balance June 30, 2014 Decreases Due Within One Year Due Thereafter Governmental Activities: Long-term Debt: Revenue bonds $ Grant anticipation notes Certificates of participation 3,606,720 $ - $ (200,525) $ 3,406,195 $ 217,970 $ 3,188,225 296,240 - (48,530) 247,710 53,040 194,670 2,360,595 305,675 (465,595) 2,200,675 169,870 2,030,805 Capital leases 360,316 113,914 (25,021) 449,209 30,332 418,877 Notes payable 105,817 29,130 (45,082) 89,865 - 89,865 Premiums and discounts on debt 474,747 6,770 (53,652) 427,865 38,435 389,430 7,204,435 455,489 (838,405) 6,821,519 509,647 6,311,872 311,850 216,533 (204,499) 323,884 169,663 154,221 Total Long-term Debt Other Long-term Liabilities: Compensated absences Pollution remediation obligations Total Other Long-term Liabilities Total Long-term Obligations 22,083 - (1,562) 20,521 5,196 15,325 333,933 216,533 (206,061) 344,405 174,859 169,546 $ 7,538,368 $ 672,022 $ (1,044,466) $ 7,165,924 $ 684,506 $ 6,481,418 $ 2,237,710 $ 144,880 $ $ 2,302,035 $ 75,010 $ 2,227,025 Business-type Activities: Long-term Debt: Revenue bonds (80,555) Certificates of participation 714,735 145 (38,535) 676,345 32,234 644,111 Capital leases 135,519 1,847 (4,409) 132,957 5,142 127,815 5,758 - (1,660) 4,098 1,292 2,806 123,014 17,801 (10,500) 130,315 10,630 119,685 3,216,736 164,673 (135,659) 3,245,750 124,308 3,121,442 78,293 93,203 (88,019) 83,477 20,493 62,984 78,293 93,203 (88,019) 83,477 20,493 62,984 Installment purchase contracts Premiums and discounts on debt Total Long-term Debt Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations $ 3,295,029 $ 257,876 $ (223,678) $ 3,329,227 $ 144,801 $ 3,184,426 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 $159.001 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. - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 The beginning balance for long-term debt has been restated due to the implementation of GASB Statement No. 65, which requires deferred losses on refundings to be reclassified from long-term liabilities to deferred outflows of resources (Note 3.B.). NOTE 8. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances as of June 30, 2014 are as follows (expressed in thousands): Due 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 Due From Due To Industrial Universities Commission Fund Special Fund $ 200,486 $ - General Fund $ - Land Endowments Fund $ 190 Non-Major Governmental Funds $ 9,309 4,040 - - 3,113 7,038 - 24,848 - 1,663 7,199 6 $ 36,093 190 4,390 25,513 $ $ $ Non-Major Enterprise Funds $ 10 Internal Service Funds $ 2,380 Total Due To $ 212,375 - 134 - 12 7,287 7,050 - 3 - 431 26,945 17,573 218,059 3 144 8 2,831 29,162 14 282,833 $ $ $ $ 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, 2014 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 $ - 2,205 146,423 94,760 85,290 $ 328,678 $ 516 $ 395 911 Land Endowments Funds $ Non-Major Industrial Governmental Universities Commission Funds Fund Special Fund 31 $ 161,947 $ 303,030 47,067 7,975 54,622 17,573 574,641 $ 737,316 $ 31 $ 719,743 $ $ Total Transfers Out - $ 882,237 303,030 49,272 8,000 162,793 166,955 85,290 8,000 $ 1,649,577 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. - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 9. ACCOUNTING CHANGES A. FUND FINANCIAL STATEMENTS Net Position has been restated as follows (expressed in thousands): Proprietary Funds Universities $ 2,991,239 (21,279) $ 2,969,960 Net Position, as previously reported Prior period adjustment Net Position, as restated B. GOVERNMENT-WIDE FINANCIAL STATEMENTS Government-wide Net Position has been restated as follows (expressed in thousands): Net Position, as previously reported Prior period adjustment Net Position, as restated Business-type Activities $ 3,129,419 (21,279) $ 3,108,140 Prior Period Adjustment In fiscal year 2014, the State implemented GASB Statement No. 65. This Statement required debt issuance costs, except any portion related to prepaid insurance costs, to be expensed in the period incurred rather than amortized annually. Additionally, for ASU, the capital assets were restated as a result of the write-off of debt issuance costs that had been previously capitalized and depreciated. - 112 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014 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 $ 9,600 - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 6,833 - Land Endowments Fund $ Non-Major Governmental Funds 4,871,849 $ - Total $ 16,433 4,871,849 16,565 57,204 5,539 3,761 23,447 3,615 14,259 793,713 - - 65,717 13,029 491,771 9,091 57,342 311,011 - 82,282 70,233 5,539 495,532 23,447 12,706 57,342 1,104,724 14,259 21,982 2,204 14,047 11,155 13,716 16,733 (189,238) 24,589 170,725 971,271 (29,744) 4,842,105 134,861 149,773 118,023 89,921 71,143 1,511,682 134,861 171,755 120,227 14,047 101,076 170,725 84,859 16,733 (218,982) 7,349,647 $ $ $ $ NOTE 11. FUND DEFICIT A. RISK MANAGEMENT FUND (RMF) The RMF, an internal service fund, had a deficit of $353.9 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 ACCUMULATED 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 the balance sheet date; however, State agencies pay for only one year based on a 0.40% charge on gross payroll. The $153.9 million fund deficit is primarily due to the above funding mechanism. - 113 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014, the U of A has made cash contributions of $18.2 million toward the project’s construction costs, which were recorded as noncurrent 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, $815 thousand in calendar year 2013, as a reduction in its investment. At June 30, 2014, the investment totaled $12.8 million. According to the most recent draft financial statements of the LBT for the year ended December 31, 2013, assets, liabilities, revenues, and expenses totaled $125.0 million, $3.0 million, $13.0 million, and $16.0 million, respectively. Information regarding the LBT’s 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, 2014, 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, 2014, the U of A has received payment on nine contracts related to the project: $24.3 million from Observatories of the Carnegie Institution of Washington for mirror construction and process development; $13.5 million from the GMTO for mirror construction; $8.6 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; $1.7 million from the GMTO for acquisition of glass; $371 thousand from the GMTO to develop mirror testing systems; $270 thousand from the GMTO for design study; and $37 thousand from the GMTO for engineering support. 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 Special Fund provides payment of workers’ compensation benefits in the following areas: claims against uninsured employers; continuing benefits in claims against insolvent workers compensation insurance carriers and bankrupt self-insured - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 employers; payment for vocational rehabilitation; continuing medical benefits for pre-1973 workers compensation claims; and, partial coverage of benefits for second injury claims (apportionment claims). 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 the payment of these workers’compensation benefits, the Special Fund may direct the payment of assessments into the State Treasury under A.R.S. § 23-1065(A) (general liability assessment – not to exceed 1.5%), A.R.S. § 23-1065(F) (apportionment assessment - not to exceed .5%), and A.R.S. § 23-966(D) (insolvency assessment - not to exceed .5%), in a total amount not to exceed 2.5% of all premiums received by private insurance carriers and what would have been paid by self-insured employers if they had been fully insured by an insurance carrier authorized to transact workers compensation insurance during the immediately preceding calendar year. The Special Fund levied the following assessment taxes for calendar year 2014: 1.14% assessment under A.R.S. § 23-1065(A), .25% assessment under A.R.S. § 23-1065(F), and .36% assessment under A.R.S. § 23-966(D). AMI Risk Consultants, Inc. was retained to evaluate the medical and compensation related liabilities of the Special Fund as of June 30, 2014. The total estimated loss reserve of $484.1 million increased by less than 2%, or $6.3 million, over the prior year estimated loss reserve of $477.8 million. Reserves were strengthened for uninsured claims in the amount of $6.6 million, but otherwise 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 .64% for the compensation benefits and zero percent for the medical benefits. 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. During fiscal year 2014, the Legislature passed Senate Bill 1181 (S. B. 1181), which will transfer all insolvent workers’ compensation insurance carrier administration and related liabilities from the Special Fund to the Arizona Property and Casualty Guaranty Fund managed by the Department of Insurance effective July 1, 2015. The liability for bankrupt self-insured employers will remain a liability of the Special Fund. Additionally, as a result of the passage of S. B. 1181, the assessment authority for the Special Fund liability was reduced by 1%. Effective July 1, 2015, the Special Fund assessment that can be levied may not exceed 1.5%, which is allocated as follows: 1% under A.R.S. § 23-1065(A) (reduced from 1.5%) and .5% percent under A.R.S. § 231065(F). The A.R.S. § 23-966(D) assessment was eliminated. The Special Fund has filed proofs of claim with ancillary receivers and liquidators regarding the recovery of statutory deposits and other monies for insolvencies. Since the actual amount that will ultimately be received cannot be determined, the Special Fund will continue to recognize receipt of insolvent carrier deposits 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. - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 The following table presents the changes in claims liabilities balances (short- and long-term combined) during fiscal years ended June 30, 2013 and June 30, 2014 (expressed in thousands): Fiscal Year Risk Management Fund: 2013 2014 Industrial Commission Special Fund: 2013 2014 B. Current Year Claims and Changes in Estimates Beginning Balance $ 364,763 395,615 $ 468,933 477,847 80,719 92,284 33,555 31,177 Claims Payments $ 49,867 58,570 24,641 24,880 Ending Balance $ 395,615 429,329 477,847 484,144 LITIGATION In Cave Creek Unified School District vs. State of Arizona, plaintiffs claimed that A.R.S. § 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 A.R.S. § 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 A.R.S. § 15901.01. The Supreme Court remanded the case to Superior Court for further proceedings. The Superior Court then bi-furcated the post-judgment proceedings and has determined that the base level should be recalculated as though the Legislature had never stopped funding the inflation adjustments. This decision is now on appeal by the State. The State’s opening brief has been stayed pending court-supervised mediation that began in February, 2015. The Superior Court also set a one week evidentiary hearing to determine whether the State should or could retroactively pay schools for the inflationary increases that it did not make. The Superior Court has stayed issuance of a decision on this issue pending court-supervised mediation. If the appellate court affirms the Superior Court’s declaration that the Legislature must recalculate the revenue control limit by compounding the inflation increases that were not made in the past, it is possible that the State would have to appropriate approximately $320.0 million more in educational spending for fiscal year 2014-2015 to pay the cost of increasing inflation adjustments to the base level. The potential outcome of retroactive payment of unpaid past inflationary increase is uncertain at this time, but if there were an unfavorable outcome, it is possible that the State could incur losses of approximately $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 - 116 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 $156.7 million at June 30, 2014. 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 $1.1 billion (net of refunds issued) has been collected since the inception of the fund. The State is also holding securities valued at $44.0 million and mutual funds valued at $10.1 million. In accordance with A.R.S. § 44-313 and A.R.S. § 44-314, for fiscal year 2014, $24.5 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, $49.2 million was deposited in the General Fund, and $1.2 million 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, 2014, $373.7 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 $632.2 million at June 30, 2014. (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 F. $ $ 366,707 72,543 127,473 156,870 109,946 833,539 346,306 347,787 1,527,632 $ $ 167,821 20,656 51,015 123,207 64,614 427,313 89,679 115,179 632,171 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. The 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. Purchases of annuities transfer liabilities for prizes to the insurance company. However, the Lottery may incur liabilities for prizes in the event of a default of an insurance company. Aggregate future payments to prize winners on existing annuities totaled $42.5 million at June 30, 2014. Approximately $38.2 million of the total aggregate future payments at June 30, 2014 relate to annuities purchased from five separate insurance companies, of which approximately $12.4 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 - 117 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 $100.8 million in the fund statements and the government-wide statements in fiscal year 2014. Future settlement payments are subject to several adjustments, but the amounts are not presently determinable. These adjustments include a volume adjustment, which could reflect any decreasing cigarette production under a formula that also takes into account increased operating income from sales. Other factors that might affect the amounts of future payments include ongoing and future litigation against the tobacco industry and the future financial health of the tobacco manufacturers. Because the net realizable value of the future settlement payments is not measurable and there is no obligation for the tobacco companies to make settlement payments until cigarettes are shipped, the State did not record a receivable for the future payments related to cigarette sales after June 30, 2014. NOTE 15. SUBSEQUENT EVENTS In December 2014, the ADOT issued $376.8 million in Transportation Excise Tax Revenue Refunding Bonds (Maricopa County Regional Area Road Fund) 2014 Series (2014 Bonds) to: (1) refund, in advance of maturity, the 2007 Series, 2009 Series, and 2010 Series, and (2) pay the costs of issuance. The 2014 Bonds include serial bonds with interest rates ranging from 4.00% to 5.00%, and maturity dates ranging from July 1, 2015 to July 1, 2025. The 2014 Bonds are subject to optional redemption prior to their respective maturity dates. The bonds being refunded will be paid by investments held in a trust account with U.S. Bank National Association. In December 2014, the U of A issued $129.2 million in SPEED Revenue Bonds, Series 2014 (2014 Bonds), to: (1) acquire, construct, equip and improve the Bioscience Partnership Building project and the Bioscience Research Laboratories project, and (2) pay costs of issuance. The 2014 Bonds include both serial and term bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2017 to 2045. The 2014 Bonds are subject to optional and mandatory redemption prior to their stated maturity dates pursuant to the debt documents. The sources for payment of the 2014 Bonds debt service will be derived from certain revenues of the State Lottery and monies of the U of A. In January 2015, the ADOT issued $377.5 million in Highway Revenue Refunding Bonds, Series 2015 (2015 Bonds), to: (1) refund, in advance of maturity, the Series 2005B, Series 2006, Series 2008A, and Series 2008B, and (2) pay costs of issuance. The 2015 Bonds include serial bonds with interest rates ranging from 2.00% to 5.00%, and maturity dates ranging from July 1, 2015 to July 1, 2033. The 2015 Bonds are subject to optional redemption prior to maturity pursuant to the debt documents. The bonds being refunded will be paid by investments held in a trust account with U.S. Bank National Association. 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. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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: - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 3. i Unrestricted net assets include assets and contributions that are not restricted by donors or for which such restrictions have expired. i Temporarily restricted net assets include contributions for which donor imposed restrictions have not been met (either by the passage of time or by actions of the Foundations), charitable remainder unitrusts, pooled income funds, gift annuities, and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted. Donorrestricted contributions are classified as temporarily restricted 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. 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. 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 $335.4 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. Deferred Outflows of Resources Deferred outflows of resources represent a consumption of net position by the component units that applies to a future period and so will not be recognized as an outflow of resources (expense) until then. Deferred outflows of resources increase net position, similar to assets. The component units’deferred outflows of resources represent losses resulting from debt refundings. - 119 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 9. Endowments The management of the ASU Foundation and the U of A Foundation endowments is governed by laws in the State of Arizona created under the Arizona Management of Charitable Funds Act. The ASU Foundation has interpreted State statute as requiring the preservation of the fair value of the original gifts at the gift date of the donor restricted endowment funds. As a result of this interpretation, the ASU Foundation classifies as permanently restricted net assets: (a) the original value of gifts donated to the permanent endowment; (b) the original value of subsequent gifts to the permanent endowment; and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The ASU Foundation's investment policies are reviewed periodically. The long-term financial objectives are to produce a relatively predictable and stable payout stream that increases over time at least as fast as the general rate of inflation and to preserve intergenerational equity by achieving growth of the investments at a rate that at least keeps pace with the general rate of inflation, net of spending. The U of A Foundation endowment payout rate is a percentage (4% of the average fair value at the three previous calendar yearends) of the fair value of each endowment account, as determined from time to time by the U of A Foundation’s Board. The U of A Foundation considers the following factors in making a determination to appropriate donor-restricted endowment funds: the net rate of return earned by each endowment account in each of the five most recent fiscal years; the net real rate of return (as measured by the Higher Education Price Index) earned by the endowment in each of the five most recent fiscal years (i.e., the duration and preservation of the endowment fund); payout rates established by other university endowments as published in the Commonfund and National Association of College and University Business Officers survey; any unusual or extraordinary circumstances impacting the U of A flow of funds from other sources (i.e., tuition revenues, State appropriations, etc.); the extent to which programs benefiting from the payout rate rely on these funds to achieve their goals and objectives; general economic conditions; the possible effect of inflation or deflation; and the expected total return from income and appreciation of investments per the most recent asset allocation study. The U of A Foundation’s goal is to manage endowment assets such that the annual nominal return exceeds the annual “hurdle rate” (the sum of the payout and the cost recovery fee) so the endowment principal is able to grow and continue to fund in perpetuity the set of activities envisioned by the donor at the time of the gift. The U of A Foundation expects its endowment funds to provide an annual average rate of return of 8.9% with a standard deviation of 8.8%. 10. 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. 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. - 120 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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, 2014 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. agency securities U.S. Treasury securities Fair Value $ 80,104 11,533 33,928 244 Less than 1 $ 2,109 11,533 - Investment Maturities (in years) 1-5 6-10 More than 10 $ 38,477 $ - $ 39,518 23,977 9,951 244 - $ $ $ Total 125,809 13,642 62,698 $ - $ 49,469 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, 2014 (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 2,782 40,577 39,044 6,208 Less than 1 $ 4,013 502 40,577 3,551 6,208 $ $ 92,624 Investment Maturities (in years) 1-5 6-10 More than 10 $ - $ - $ 1,673 607 20,684 5,463 9,346 - 54,851 $ 22,357 $ 6,070 $ 9,346 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, 2014 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. agency securities Fair Value $ 80,104 11,533 33,928 Total $ 125,565 $ AAA 40,586 11,533 - $ 52,119 $ AA 39,518 33,928 $ 73,446 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, 2014 (expressed in thousands): Investment Type Commercial paper Global fixed income debt securities Money market mutual funds U.S. fixed income debt securities Total Fair Value $ 4,013 2,782 40,577 39,044 $ 86,416 $ 16,410 $ 1,752 7,257 $ 807 5,390 $ 223 8,130 CCC Thru D $ 4 $ 16,410 $ 9,009 $ 6,197 $ 8,353 $ AAA AA - 121 - A BBB 4 $ $ A-1 4,013 4,013 Not Rated $ 40,577 1,853 $ 42,430 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 e. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The WIFA’s investment policy contains no limitations on the amount that can be invested in any one issuer. At June 30, 2014, 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 12.6%), (ii) Royal Bank of Canada (fair value of $31.4 million, or 9.7%), and (iii) Federal Home Loan (fair value of $33.9 million, or 10.5%). 2. Universities-Affiliated Component Units Investments of the Universities-affiliated component units include the following amounts at June 30, 2014. Investments are stated at fair value (expressed in thousands): Money market funds and cash equivalents Domestic/international equity securities and mutual funds U.S. fixed income obligations and mutual funds Absolute return limited partnerships and funds Other investments Total Investments C. ASU Foundation $ 40,526 542,429 107,687 69,788 $ 760,430 U of A Foundation $ 256,670 135,719 213,644 162,125 $ 768,158 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 2014 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 769,097 346,215 $ 1,115,312 Increases $ 25,611 34,497 $ 60,108 Decreases $ (47,099) (34,015) $ (81,114) Ending Balance $ 747,609 346,697 $ 1,094,306 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. When loans have been repaid, the principal and interest for the pledged loans are placed in restricted accounts used to make bond payments. For loans that are not pledged, the money is placed in a fund from which additional loans are made. 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, 2014, the debt service reserve was $69 thousand and $2.0 million for the Clean Water and Drinking Water funds, respectively, and no allowance for loan loss was recorded. 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. - 122 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 Pledges receivable, as of June 30, 2014, include the following (expressed in thousands): Gross pledges receivable Present value discount Allowance for uncollectible pledges Net Pledges Receivable E. DIRECT FINANCING LEASE AGREEMENTS 1. ASU Foundation ASU Foundation $ 155,621 (10,289) (39,808) $ 105,524 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, 2014 is $24.5 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 the 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. The ACFFC's net investment in the Nanotechnology facility direct financing lease is $31.0 million at June 30, 2014. Pursuant to the ASU Lease Agreement, dated July 1, 2005, McAllister Academic Village, LLC, a wholly-owned subsidiary of the 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. The ACFFC's net investment in the McAllister (HAV) direct financing lease is $12.1 million at June 30, 2014. - 123 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 F. CAPITAL ASSETS Capital asset activity for the UAHN for the fiscal year ended June 30, 2014 was as follows (expressed in thousands): University of Arizona Health Network and Subsidiaries Beginning Balance Non-depreciable capital assets: Land Construction in progress Total Non-depreciable Capital Assets $ Additions 14,819 43,942 58,761 $ Adjustments & Reclassifications Retirements 58,275 58,275 $ - $ Ending Balance (16) (89,130) (89,146) $ 14,803 13,087 27,890 Depreciable capital assets: Buildings Improvements other than buildings Equipment Total Depreciable Capital Assets 455,456 1,210 314,872 771,538 13 13 (852) (852) 6,125 16 83,005 89,146 461,594 1,226 397,025 859,845 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Total Accumulated Depreciation (185,869) (997) (236,959) (423,825) (14,562) (120) (31,855) (46,537) 642 642 - (200,431) (1,117) (268,172) (469,720) 347,713 (46,524) (210) 89,146 390,125 Total Depreciable Capital Assets, Net Total UAHN Capital Assets, Net $ 406,474 $ 11,751 $ (210) $ - $ 418,015 Capital assets for the Universities-affiliated component units for the fiscal year ended June 30, 2014 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 G. LONG-TERM OBLIGATIONS 1. Component Units a. Water Infrastructure Finance Authority $ $ ACFFC 185,011 80,768 265,779 (90,355) 175,424 CRC $ $ 22,279 5,272 27,551 (8,931) 18,620 Downtown Phoenix Student Housing $ 114,091 10,447 124,538 (26,375) $ 98,163 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 - 124 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 the accompanying financial statements. The amount outstanding on the refunded bonds for the WIFA at June 30, 2014 totaled $271.7 million. During fiscal year 2014, 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. In fiscal year 2014, the remaining balance of the deferred bond issuance costs of $4.2 million was written off per GASB 65. Amortization expense as of June 30, 2014 for bond issuance premiums and deferred losses on refunding of bonds was $7.7 million and $3.5 million, respectively. The security for the bonds includes a pledge of monies and investments in the accounts held by the Trustee and the Financial Assistance accounts held for the WIFA by the State Treasurer and all pledged loans. At the end of fiscal year 2014, the amount of money and investments held by the Trustee and the monies held by the State Treasurer was $323.6 million. The principal and interest repayments received on pledged loans in fiscal year 2014 were $103.7 million. The principal and interest paid on the outstanding bonds in fiscal year 2014 was $84.0 million. 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 of the UMC. For the year ended June 30, 2014, the UMC violated the debt service coverage ratio covenant included in the Indenture. The Indenture requires management to perform certain actions during the year immediately following the year of violation. If management performs these actions, an event of default is avoided. Management intends to fulfill these actions. At June 30, 2014, the bonds subject to the Indenture are not in default; accordingly, their maturities have not been adjusted from the original maturities. The UPH is also subject to certain financial and nonfinancial covenants under its bond agreements. The UPH was in violation of certain covenants as of June 30, 2014; however, these covenant violations have been waived by the holder of the debt; accordingly, their maturities have not been adjusted from the original maturities. The UAHN has established and maintains separate funds as a bond reserve fund on outstanding bonds payable. These funds, which totaled $24.9 million at June 30, 2014, are held by the trustee and are reflected in assets 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, 2014 (expressed in thousands): Revenue Bonds Outstanding Component Units: Water Infrastructure Finance Authority University of Arizona Health Network and Subsidiaries Dates Issued Maturity Dates 2004-2012 2015-2031 .2-5.00% 2004-2014 2015-2042 4.08-6.48% - 125 - Interest Rates Outstanding Balance at June 30, 2014 $ 818,750 336,597 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2014 are as follows (expressed in thousands): Fiscal Year 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2031 Total c. Annual Debt Service Water Infrastructure Finance Authority Principal Interest Total $ 46,495 $ 36,742 $ 83,237 49,990 34,695 84,685 49,110 32,881 81,991 52,300 31,077 83,377 53,045 29,014 82,059 289,365 104,797 394,162 234,550 37,374 271,924 43,895 1,924 45,819 $ 818,750 $ 308,504 $ 1,127,254 Annual Debt Service University of Arizona Health Network and Subsidiaries Principal Interest Total $ 6,947 $ 17,921 $ 24,868 7,295 17,572 24,867 7,670 17,195 24,865 8,070 16,794 24,864 8,490 16,374 24,864 49,635 74,687 124,322 64,210 60,115 124,325 83,515 40,815 124,330 85,005 16,551 101,556 15,760 485 16,245 $ 336,597 $ 278,509 $ 615,106 Fiscal Year 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 2040-2042 Total 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, 2013 as restated Water Infrastructure Finance Authority: Long-term Debt: Revenue bonds Revenue bond premium Total Long-term Debt Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities $ 863,900 81,071 944,971 Increases $ 93 93 Decreases - $ (45,150) (7,074) (52,224) 96 96 (85) (85) 96 $ (52,309) Total Long-term Obligations $ 945,064 $ 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 $ 310,128 (2,201) 9,737 640 19,734 338,038 $ 32,808 155 20,000 52,963 $ (6,339) (129) (873) (640) (19,734) (27,715) 27,916 281 28,197 33,862 1,487 35,349 (27,916) (1,120) (29,036) $ 366,235 $ 88,312 $ (56,751) Other Long-term Liabilities: Compensated absences Other Total Other Long-term Liabilities Total Long-term Obligations - 126 - Balance June 30, 2014 Due Within One Year Due Thereafter $ 818,750 73,997 892,747 $ 46,495 46,495 $ 772,255 73,997 846,252 104 104 104 104 - $ 892,851 $ 46,599 $ 846,252 $ 336,597 (2,175) 8,864 20,000 363,286 $ 6,947 534 20,000 27,481 $ 329,650 (2,175) 8,330 335,805 33,862 648 34,510 30,255 30,255 3,607 648 4,255 397,796 $ 57,736 $ $ 340,060 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 2. Universities-Affiliated Component Units A summary of bonds payable as of June 30, 2014 include the following (expressed in thousands): Final Maturity Amount ASU Foundation: Series 2014A Revenue Refunding Bonds 2034 Series 2014B Revenue Refunding Bonds 2016 $ 39,050 4,360 Series 2004A Variable Rate Revenue Bonds 2034 22,420 Series 2004B Variable Rate Revenue Bonds 2022 7,460 Series 2011 Tax-Exempt Revenue Refunding Bonds 2018 13,475 Series 2009 Revenue Bonds 2024 34,475 Series 2009A Lease Revenue Refunding Bonds 2034 22,955 Series 2009B Lease Revenue Refunding Bonds 2022 8,310 Series 2008 Revenue Bonds 2028 14,010 Series 2008 Revenue Refunding Bonds 2039 142,125 Series 2008 Variable Rate Demand Revenue Refunding Bonds 2030 37,095 Series 2005 Tax-Exempt Refunding Bonds 2035 15,580 ACFFC: Deferred Cost of Refunding (299) Unamortized Bond Premium 1,359 Downtown Phoenix Student Housing: Series 2007A&C Revenue Bonds 2042 Series 2007D Tax-Exempt Revenue Bonds 2042 118,140 22,700 Unamortized Bond Discount (1,057) Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal Year 2015 ASU Foundation $ 2,600 ACFFC $ 9,300 Downtown Phoenix Student Housing $ 610 2016 2,195 9,865 810 2017 2,275 10,555 1,025 2018 2,365 11,275 1,245 2019 2,480 12,040 1,480 Thereafter 61,375 236,050 134,613 Total $ 73,290 $ 289,085 $ 139,783 H. 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 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 A.R.S. § 41-2259, the GADA’s bonds - 127 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2014 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 $12.0 million in the Pledged Collateral Reserve Fund. At June 30, 2014, the total outstanding face value of all bonds issued by the GADA was $408.4 million. I. SUBSEQUENT EVENTS In June 2014, the UAHN and the U of A executed a Principles of Agreement document with Banner Health, to create a statewide health care organization and a comprehensive new model for academic medicine. This merger is expected to close on February 27, 2015. In December 2014, the WIFA issued $342.6 million of Water Quality Revenue Refunding Bonds, Series 2014A (2014A Bonds) to refund portions of the WIFA’s outstanding bonds and to pay costs of issuance. The 2014A Bonds include serial bonds with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2016 to 2031. The 2014A Bonds are subject to optional redemption prior to their stated maturity dates pursuant to the debt documents. The bonds being refunded will be paid by investments held in an irrevocable trust. - 128 - REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ADMINISTRATION, ARIZONA DEPARTMENT OF 500 BED MAXIMUM SECURITY FY12-13 500 BED MAXIMUM SECURITY FY13-14 ADMINISTRATIVE ADJUSTMENTS ADULT INFORMATION MANAGEMENT SYSTEM AFIS REPLACEMENT ERP ANNUAL REV PERSONNEL DIV FUND ARS41-764C AUTOMATION AND INFORMATION TECH PROJECTS AUTOMATION PROJECTS GF BUILDING RENEWAL FY09-10 BUILDING RENEWAL FY10-11 BUILDING RENEWAL FY11-12 BUILDING RENEWAL FY12-13 BUILDING RENEWAL FY13-14 CAPITOL MALL FIRE SYSTEM REPLACE FY08-09 CAPITOL MALL SECURITY SYSTEM CASH TRANSFER BETWEEN FUNDS CASH TRANSFER TO AUTOMATION PROJECTS FUND 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 FY12-13 COUNTY ATTORNEYS IMMIGRATION ENFORCEMENT FY13-14 COUNTY SERVICES DISTRIBUTION DATA SECURITY AND ENCRYPTION DOR E LICENSING DEQ HB1464 PERSONNEL REFORM FY98-99 IMPLEMENT UPGRADE TAXPAYER ACCTG SYSTEM OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION - ST BD PUBLIC SAFETY COMMUNICATIONS RELIEF BILL CASH TRANSFER FY14 RELOCATION FY99-00 RELOCATION FY00-01 RELOCATION FY01-02 RELOCATION FY02-03 STATE SURPLUS PROPERTY SALES PROCEEDS STATEWIDE INFO SECURITY AND PRIVACY OFC STUDENT LONGITUDINAL DATA SYSTEM UTILITIES WHITE MOUNTAIN APACHE TRIBES WATER RIGHT ADMINISTRATIVE HEARINGS, OFFICE OF OPERATING LUMP SUM APPROPRIATION AGRICULTURE, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS 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 ACA ADULT EXPANSION ADMINISTRATIVE ADJUSTMENTS ALTCS SERVICES CHILDREN'S REHABILITATIVE SERVICES CHIP - SERVICES DES ELIGIBILITY DISPROPORTIONATE SHARE PAYMENTS ORIGINAL BUDGET (Appropriations) $ The Notes to Required Supplementary Information are an integral part of this schedule. -131 - 18,942,751 30,000,000 8,000,000 28,638,000 11,500,000 18,400,000 15,568 1,142,917 8,657,616 9,000,000 6,764 2,000,000 2,400 11,530,700 60,107,800 24,012,000 1,630,500 60,981 1,213,200 7,150,500 4,900,000 5,000,000 273,045 1,700,000 39,986,900 212,500 549,700 4,520 55,301 59,026 58,149 1,260,000 857,800 7,000,000 8,275,600 2,000,000 FINAL BUDGET (Appropriations) $ 18,942,751 30,000,000 994,697 8,000,000 28,638,000 2,037,041 11,500,000 18,400,000 1,321 15,568 1,142,917 8,657,616 9,000,000 6,764 2,000,000 2,400 11,530,700 60,107,800 24,012,000 2,066,906 60,981 1,213,200 7,150,500 4,900,000 5,000,000 45 1,700,000 40,853,400 231,000 549,700 1,430 4,520 55,301 59,026 58,149 1,835,000 857,800 7,000,000 8,275,600 2,000,000 ACTUAL EXPENDITURE AMOUNTS $ 14,904,399 16,607,301 994,697 15,999,187 2,037,041 5,523,643 18,400,000 200 1,129,487 5,057,944 1,066,172 231,339 2,400 11,530,700 60,107,800 24,012,000 973,719 7,150,500 253,489 4,483,524 1,071,329 35,467,006 228,743 261,243 1,430 1,734,925 784,044 7,000,000 7,554,795 - 821,400 874,500 874,500 23,300 128,500 65,000 7,595,000 23,200 12,443 23,300 128,500 65,000 198,434 7,881,800 23,200 12,443 23,300 128,500 47,814 198,434 7,878,499 23,200 1,220,006,600 111,736,400 12,081,300 53,799,300 13,487,100 65,931,900 160,641,023 1,220,006,600 159,150,000 12,081,300 120,774,100 13,487,100 40,385,589 160,641,023 1,192,101,604 156,367,982 9,469,104 88,533,292 4,202,300 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) DSH - VOLUNTARY GRADUATE MEDICAL EDUCATION KIDSCARE II FED KIDSCARE II LOCAL GOVT MATCH OPERATING LUMP SUM APPROPRIATION PROP 204 AHCCCS ADMINISTRATION PROP 204 DES ELIGIBILITY PROPOSITION 204 SERVICES RURAL HOSPITAL REIMBURSEMENT SAFETY NET CARE POOL 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 PARITY FUNDING POLY PARITY FUNDING TEMPE RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT-POLY ATTORNEY GENERAL - DEPARTMENT OF LAW ADMINISTRATIVE ADJUSTMENTS CAPITAL POSTCONVICTION PROSECUTION LEGAL ARIZONA WORKERS ACT FY07-08 MILITARY INSTALLATION/PLANNING FY11-12 MILITARY INSTALLATION/PLANNING FY12-13 MILITARY INSTALLATION/PLANNING FY13-14 OPERATING LUMP SUM APPROPRIATION STATE GRAND JURY AUDITOR GENERAL OPERATING LUMP SUM APPROPRIATION FY10-11 OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 CHARTER SCHOOLS, STATE BOARD FOR ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION COMMISSION ON UNIFORM STATE LAWS DUES AND TRAVEL EXPENSES CORPORATION COMMISSION OPERATING LUMP SUM APPROPRIATION RAILROAD WARNING SYSTEMS FY00-01 CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ASPC YUMA CHEYENNE REPAIRS BUILDING RENEWAL FUND EXPENDITURES FY11-12 BUILDING RENEWAL FUND EXPENDITURES FY12-13 BUILDING RENEWAL FUND EXPENDITURES FY13-14 CASH TRANSFER TO AUTOMATION PROJECTS FUND INMATE HEALTH CARE CONTRACTED SERVICES OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM COURT OF APPEALS DIVISION I ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION - DIVISION I COURT OF APPEALS DIVISION II OPERATING LUMP SUM APPROPRIATION - DIVISION II The Notes to Required Supplementary Information are an integral part of this schedule. -132 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 28,457,100 160,184,900 20,924,000 5,901,700 75,747,800 6,635,800 37,793,600 1,029,647,500 13,858,100 166,000,000 3,593,266,500 43,318,000 186,490,100 37,772,000 10,450,700 91,696,600 8,831,800 26,393,100 1,331,828,200 13,858,100 487,953,400 3,446,490,100 25,806,951 159,376,439 36,263,719 9,835,449 82,821,585 8,080,305 24,106,805 1,272,319,321 13,008,100 476,367,179 3,152,899,036 1,955,200 15,661,000 12,511,400 143,370,400 23,224,600 3,497,800 20,444,400 - 1,955,200 22,445,000 18,289,400 211,828,600 33,328,100 3,497,800 20,444,400 13,555,000 917,000 1,955,200 22,445,000 18,289,400 211,828,600 33,328,100 3,497,800 20,444,400 13,553,615 917,000 500,000 100,000 206 316 36,730,400 177,500 26,230 500,000 100,000 206 316 85,800 37,814,200 177,500 26,230 488,099 85,800 36,909,181 177,344 425,540 1,821,473 3,597,444 17,240,100 425,540 1,821,473 3,597,444 17,989,700 141,934 1,727,043 15,264,933 748,100 5,185 822,400 5,185 787,798 75,000 75,000 75,000 639,350 47,510 659,800 47,510 560,407 - 8,000,000 490,044 2,248,495 5,000,000 28,800 115,274,900 745,641,700 106,884,100 852,713 8,000,000 490,044 2,248,495 5,000,000 28,800 116,274,900 751,586,100 106,884,100 852,713 791,475 490,044 1,574,510 888,673 28,800 116,239,900 749,744,286 106,843,959 9,640,000 15,689 9,896,900 15,689 9,875,070 4,227,600 4,289,800 4,289,797 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) 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 TUCSON CAMPUS DORM RENOVATIONS ECONOMIC SECURITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ADOPTION SERVICES ADULT SERVICES AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL LEGAL SERVICES AZ TRAINING PROGRAM COOLIDGE-TITLE XIX CASE MANAGEMENT-STATE ONLY CASE MANAGEMENT-TITLE XIX CHILDREN SUPPORT SERVICES COMMUNITY AND EMERGENCY SERVICES CONTINGENCY FUNDING COORDINATED HOMELESS PROGRAM COORDINATED HUNGER COUNTY PARTICIPATION CPS EMERGENCY AND RESIDENTIAL PLACEMENT DAY CARE SUBSIDY DCYF ATTORNEY GENERAL LEGAL SERVICES DCYF OPERATING LUMP SUM DOMESTIC VIOLENCE PREVENTION FOSTER CARE PLACEMENT GRANDPARENT STIPENDS HOME AND COMMUNITY BASED SERVICES-STATE ONLY HOME AND COMMUNITY BASED SERVICES-TITLE XIX INDEPENDENT LIVING MAINTENANCE INDEPENDENT LIVING REHABILITATION SERVICES INSTITUTIONAL SERVICES-TITLE XIX INTENSIVE FAMILY SERVICES JOBS MEDICAL CLAWBACK MEDICAL SERVICES-TITLE XIX PERMANENT GUARDIAN SUBSIDY REHABILITATION SERVICES SPECIAL SUPPLEMENTAL APPROPRIATION STATE FUNDED LONG-TERM CARE SERVICES TANF CASH BENEFITS TRIBAL PASS-THRU FUNDING WORKFORCE INVESTMENT ACT SERVICES EDUCATION, DEPARTMENT OF ACHIEVEMENT TESTING ADDITIONAL STATE AID TO SCHOOLS ADMINISTRATIVE ADJUSTMENTS ADULT EDUCATION ARIZONA STRUCTURED ENGLISH IMMERSION BASIC STATE AID DEFERRED PAYMENT FY13 BASIC STATE AID ENTITLEMENT CASH TRANSFER TO AUTOMATION PROJECTS FUND EMPOWERMENT SCHOLARSHIP ACCOUNT ENGLISH LANGUAGE ACQUISITION FY06-07 ENGLISH LEARNER ADMINISTRATION The Notes to Required Supplementary Information are an integral part of this schedule. -133 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 3,591,400 3,503,700 1,845,900 798,600 738,000 10,108,500 1,000,000 4,926,480 1,248,795 3,648,142 1,978,776 832,400 738,000 9,671,503 1,000,000 4,682,272 1,248,795 3,316,447 1,900,137 832,400 737,915 8,700,591 1,000,000 177,554,600 6,924,100 215,622,000 10,830,500 20,327,100 3,846,000 49,143,800 143,293,700 3,724,000 10,500,000 2,522,600 1,754,600 8,600,200 84,219,300 130,396,600 20,068,700 165,648,500 9,903,700 50,351,200 1,000,000 33,443,400 982,631,300 3,469,300 166,000 25,712,300 5,000,000 11,894,700 3,072,000 188,890,200 11,215,300 3,594,400 28,500,000 26,528,100 44,999,400 4,680,300 51,654,600 128,840,142 177,554,600 7,924,100 231,026,100 10,867,300 22,302,000 3,926,600 61,900,800 159,852,200 3,724,000 10,500,000 2,522,600 1,754,600 8,600,200 81,869,300 126,396,600 20,446,700 179,890,800 9,903,700 50,351,200 1,000,000 19,343,200 964,697,500 2,969,300 116,000 28,795,500 5,000,000 11,924,700 3,072,000 176,460,500 11,715,300 2,594,400 63,500,000 28,328,100 40,499,400 4,680,300 51,654,600 128,840,142 76,960,934 7,540,474 194,308,944 9,006,503 19,486,974 3,798,089 54,806,949 84,614,748 3,018,028 10,500,000 2,121,230 1,164,095 5,347,854 37,394,335 110,191,082 12,684,400 121,874,487 8,637,695 25,651,430 339,978 12,568,399 887,592,888 2,219,300 116,000 24,688,694 5,000,000 9,865,098 3,072,000 169,053,244 10,330,943 2,594,400 63,500,000 25,012,206 40,467,478 4,680,300 39,130,167 3,218,400 339,269,300 4,500,000 8,791,400 952,627,700 2,228,951,900 1,998,242 137,843 2,827 3,967,700 3,223,600 339,269,300 15,591,276 4,500,000 8,791,400 952,627,700 2,275,951,900 1,998,242 137,843 2,827 4,016,200 3,223,600 336,776,400 15,591,276 4,500,000 8,791,400 929,332,067 2,275,464,511 1,982,176 36,857 4,016,200 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ENGLISH LEARNER TEACHER FY04-05 K-3 READING OPERATING LUMP SUM APPROPRIATION-ADMINISTRATION OPERATING LUMP SUM APPROPRIATION-STATE BOARD OTHER STATE AID TO DISTRICTS FY07 PERFORMANCE INCENTIVE FUND DEPOSIT READING FIRST INITIATIVE FY07-08 SCHOOL SAFETY PROGRAM SPECIAL EDUCATION FUND STATE BLOCK GRANT FOR VOCATIONAL EDUCATION EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF ADMINISTRATION COCONINO COUNTY CAMPBELL FLOOD FY11-12 DISASTER DECLARATION EMERGENCY MANAGEMENT EUZ701 SEARCH AND RESCUE FY11-12 EUZ701 SEARCH AND RESCUE FY12-13 FEBRUARY 2005 WINTER STORMS FY07-08 FEBRUARY 2005 WINTER STORMS FY10-11 GREENLEE COUNTY FLOODING HAZARD MATERIALS CONTINGENCY FY03-04 HAZARD MATERIALS CONTINGENCY FY07-08 JANUARY 2010 WINTER STORM FY09-10 MILITARY AFFAIRS MILITARY AFFAIRS COMMISSION FY10-11 MILITARY AFFAIRS COMMISSION FY11-12 MILITARY AFFAIRS COMMISSION FY12-13 MILITARY AFFAIRS COMMISSION FY13-14 NORTHERN ARIZONA WINTER STORM FY10-11 NORTHERN GREENLEE COUNTY FLOODING FY11-12 NORTHERN GREENLEE COUNTY FLOODING FY12-13 NUCLEAR EMERGENCY MANAGEMENT FUND-BUCKEYE GF TRF NUCLEAR EMERGENCY MANAGEMENT FUND-GF TSF NUCLEAR EMERGENCY MANAGEMENT FUND-MARICOPA-GF TRF POST-GLADIATOR FIRE FLOODING SCHULTZ FIRE POST-FIRE FLOOD FY10-11 SERVICE CONTRACTS FY12-13 SERVICE CONTRACTS FY13-14 SUMMER 2006 MONSOONS AND FLOODING FY07-08 SUMMER 2006 MONSOONS AND FLOODING FY11-12 ENVIRONMENTAL QUALITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND 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 OPERATING LUMP SUM APPROPRIATION FINANCIAL INSTITUTIONS, DEPARTMENT OF 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 The Notes to Required Supplementary Information are an integral part of this schedule. -134 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 477,154 40,000,000 8,163,800 1,213,600 983,900 2,400,000 97,003 3,646,400 33,242,100 11,494,500 477,154 40,007,600 8,461,000 1,234,700 983,900 2,400,000 97,003 3,646,400 33,242,100 11,575,400 40,007,600 8,459,599 1,234,700 56,440 2,400,000 97,003 2,972,278 33,242,100 11,575,400 1,706,000 25,358 709,900 7,220 4,022 92,475 34,039 58,451 3,539 48,358 3,452 1,199,500 39,649 23,218 38,605 261,084 24,752 100,000 36,243 1 642,098 1,215,000 3,539 166,035 1,822,900 25,358 4,000,000 729,900 7,220 4,022 92,475 34,039 58,451 3,539 48,358 3,452 1,194,800 39,649 23,218 38,605 90,000 261,084 24,752 100,000 69,909 524,008 665,916 36,243 1 642,098 1,215,000 3,539 166,035 1,814,754 25,358 4,000,000 729,329 7,219 4,022 62,379 1,067 58,450 3,539 46,461 3,452 1,183,808 90,000 8,207 24,752 100,000 69,909 524,008 665,916 36,242 (69,460) 407,744 578,495 3,539 6,271 93,700 13,008,700 59,555 93,700 13,308,500 59,555 93,700 2,958,305 187,100 41 188,500 41 188,423 629,500 742 639,500 742 520,422 821,500 838,400 824,733 2,912,800 3,019,100 3,011,159 1,969,100 2,026,000 1,945,413 175,000 169,532 175,000 169,532 175,000 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FIRE SUPPRESSION SLI GENERAL FUND TRANSFER TO FIRE SUPPRESSION INMATE FIRE CREWS OPERATING LUMP SUM APPROPRIATION RESOURCE MANAGEMENT PLAN GRANTS GENERAL ACCOUNTING OFFICE CAPITAL OUTLAY STATE AID COCHISE CAPITAL OUTLAY STATE AID COCONINO CAPITAL OUTLAY STATE AID GILA CAPITAL OUTLAY STATE AID GRAHAM CAPITAL OUTLAY STATE AID MOHAVE CAPITAL OUTLAY STATE AID NAVAJO CAPITAL OUTLAY STATE AID PINAL CAPITAL OUTLAY STATE AID SANTA CRUZ CAPITAL OUTLAY STATE AID YAVAPAI CAPITAL OUTLAY STATE AID YUMA LA PAZ EQUALIZATION AID - COCHISE EQUALIZATION AID - GRAHAM EQUALIZATION AID - NAVAJO HR PRORATA ADJUSTMENTS LEASE PURCHASE ADJUSTMENTS NAMED CLAIMANTS BILL OPERATING STATE AID - COCHISE OPERATING STATE AID - COCONINO OPERATING STATE AID - GILA OPERATING STATE AID - GRAHAM OPERATING STATE AID - MARICOPA OPERATING STATE AID - MOHAVE OPERATING STATE AID - NAVAJO OPERATING STATE AID - PIMA OPERATING STATE AID - PINAL OPERATING STATE AID - SANTA CRUZ OPERATING STATE AID - YAVAPAI OPERATING STATE AID - YUMA LA PAZ RETENTION PAYMENT ADJUSTMENTS RISK MANAGEMENT ADJUSTMENTS RURAL COUNTY REIMBURSEMENT SUBSIDY WOOLSEY FLOOD DISTRICT GEOLOGICAL SURVEY, ARIZONA OPERATING LUMP SUM APPROPRIATION GOVERNOR, OFFICE OF THE OPERATING LUMP SUM APPROPRIATION FY10-11 OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 OPERATING LUMP SUM APPROPRIATION-OSPB FY10-11 OPERATING LUMP SUM APPROPRIATION-OSPB FY11-12 OPERATING LUMP SUM APPROPRIATION-OSPB FY12-13 OPERATING LUMP SUM APPROPRIATION-OSPB FY13-14 HEALTH SERVICES, DEPARTMENT OF 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 CASH TRANSFER TO AUTOMATION PROJECTS FUND COMMUNITY PLACEMENT TREATMENT The Notes to Required Supplementary Information are an integral part of this schedule. -135 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,000,000 695,700 2,291,700 100,000 1,000,000 3,000,000 695,700 2,365,700 100,000 1,000,000 3,000,000 669,899 2,334,670 - 450,400 147,500 50,000 218,100 211,700 122,600 257,700 16,700 248,600 276,700 4,712,400 16,075,100 5,514,200 1,605,400 67,800 5,710,100 1,840,400 370,700 2,345,700 7,913,300 1,659,400 1,646,600 7,136,600 2,135,000 58,700 893,900 2,754,400 23,500,000 327,100 848,800 - 450,400 147,500 50,000 218,100 211,700 122,600 257,700 16,700 248,600 276,700 4,712,400 16,075,100 5,514,200 71,300 193,632 5,710,100 1,840,400 370,700 2,345,700 7,913,300 1,659,400 1,646,600 7,136,600 2,135,000 58,700 893,900 2,754,400 119,200 5,400 848,800 117,597 450,400 147,500 50,000 218,100 211,700 122,600 257,700 16,700 248,600 276,700 4,712,400 16,075,100 5,514,200 193,632 5,710,100 1,840,400 370,700 2,345,700 7,913,300 1,659,400 1,646,600 7,136,600 2,135,000 58,700 893,900 2,754,400 848,800 117,597 853,600 941,400 941,400 110,493 747,616 3,137,461 6,586,600 1,251,613 124,535 38,412 1,871,700 110,493 747,616 3,137,461 6,926,000 1,251,613 124,535 38,412 1,993,200 110,493 747,616 1,071,345 4,673,019 281,839 22,418 1,919,976 105,200 115,612,200 1,000,000 125,000 398,060 1,346,700 64,000 1,130,700 934,727 105,200 117,586,700 1,000,000 125,000 398,060 1,346,700 64,000 1,130,700 934,727 78,900 102,362,761 902,745 125,000 844,167 64,000 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) COUNTY TUBERCULOSIS PROVIDER CARE AND CONTROL CRISIS SERVICES HIGH RISK PERINATAL SERVICES MEDICAID BEHAVIORAL HEALTH - PROP 204 MEDICAID BEHAVIORAL HEALTH - TRADITIONAL MEDICAID BEHAVIORAL HEALTH COMPREHENSIVE AND DENTAL MEDICAID INSURANCE PREMIUM PAYMENTS MEDICARE CLAWBACK PAYMENTS MENTAL HEALTH FIRST AID NON MEDICAID SERIOUSLY MENTAL ILL SVS NON RENAL DISEASE MANAGEMENT ONE TIME ELECTRONIC MED RECORDS START UP POISON CONTROL CENTER FUNDING PROP 204 ADMINISTRATION TITLE XIX MATCH REG HA DISPENSERS-AUDIOL PATHOL FY03-04 RURAL HOSPITAL EMERGENCY AND TRAUMA SVS SUPPORTED HOUSING TANF PERINATAL SERVICES FY99-00 TITLE XIX SUPPLEMENTAL 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 FY09-10 OPERATING LUMP SUM APPROPRIATION FY10-11 OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 INDEPENDENT REDISTRICTING COMMISSION OPERATING EXPENDITURES OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 INDIAN AFFAIRS, ARIZONA COMMISSION OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION INSURANCE, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION JOINT LEGISLATIVE BUDGET COMMITTEE OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 JUVENILE CORRECTIONS, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE CAP USER FEES CASH TRANSFER TO AUTOMATION PROJECTS FUND DUE DILIGENCE FUND NATURAL RESOURCE CONSERVATION DISTRICTS OPERATING LUMP SUM APPROPRIATION LEGISLATIVE COUNCIL OMBUDSMAN-CITIZENS AID OFFICE FY09-10 OMBUDSMAN-CITIZENS AID OFFICE FY10-11 The Notes to Required Supplementary Information are an integral part of this schedule. -136 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 590,700 14,141,100 2,093,400 105,251,500 843,287,300 140,896,200 22,487,100 14,925,100 250,000 78,846,900 198,000 3,850,000 990,000 6,446,700 62,243 300,000 5,324,800 47,270 - 590,700 14,141,100 2,093,400 255,251,500 693,287,300 140,896,200 22,487,100 14,925,100 250,000 78,846,900 198,000 3,850,000 990,000 6,446,700 62,243 300,000 5,324,800 47,270 167,439,300 522,297 14,132,767 1,487,870 84,573,800 206,465,900 46,684,300 7,450,800 14,925,100 167,214 76,261,062 44,322 742,500 2,131,400 300,000 5,249,535 28,636,191 804,200 42,567 826,000 42,567 751,824 410,500 65,100 2,033,800 532,700 428,300 66,000 2,116,500 544,200 428,300 66,000 2,116,500 544,200 2,778,308 1,353,951 1,087,704 1,285,746 13,067,100 2,778,308 1,353,951 1,087,704 1,285,746 13,422,200 124,243 12,376,524 60 1,100,000 1,462,701 60 1,115,100 279,173 60 1,115,100 53,700 91 56,900 91 53,992 5,169,600 5,364,900 5,334,710 676,598 2,455,474 2,418,800 676,598 2,455,474 2,492,000 676,598 1,348,165 905 16,300 46,084,400 66,796 16,300 46,118,900 66,796 16,300 41,683,683 513,300 3,600 500,000 390,000 11,134,800 641,600 3,600 500,000 390,000 11,442,100 641,520 3,600 7,339 377,000 11,407,384 17 6,241 17 6,241 6,188 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) OMBUDSMAN-CITIZENS AID OFFICE FY11-12 OMBUDSMAN-CITIZENS AID OFFICE FY12-13 OMBUDSMAN-CITIZENS AID OFFICE FY13-14 OPERATING LUMP SUM APPROPRIATION FY09-10 OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 LIBRARY, ARCHIVES, AND PUBLIC RECORDS, ARIZONA STATE GRANTS-IN-AID FY09-10 LIQUOR, LICENSES, AND CONTROL, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND 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 LEGAL EXPENSES SUPPLEMENTAL OPERATING LUMP SUM APPROPRIATION NORTHERN ARIZONA UNIVERSITY NAU - YUMA OPERATING LUMP SUM APPROPRIATION PARITY FUNDING RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT TEACHER TRAINING NURSING, STATE BOARD OF GF SUPPLEMENTAL APPROPRIATION FOR CNA PROGRAM OCCUPATIONAL SAFETY AND HEALTH REVIEW BOARD OPERATING LUMP SUM APPROPRIATION PARKS BOARD, ARIZONA STATE ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND GF C/O YARNELL HILL MEMORIAL SITE ACQUIS KARTCHNER CAVERNS STATE PARK OPERATING LUMP SUM APPROPRIATION SPRF BSF STATE PARKS CAPITAL IMPROVEMENT PERSONNEL BOARD ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION 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 CASH TRANSFER TO AUTOMATION PROJECTS FUND GIITEM GIITEM IMPACT APPROPRIATION FY11-12 GIITEM IMPACT APPROPRIATION FY12-13 GIITEM IMPACT APPROPRIATION FY13-14 GIITEM SUBACCOUNT The Notes to Required Supplementary Information are an integral part of this schedule. -137 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 61,487 41,262 608,000 1 28 2,358,644 7,276,700 61,487 41,262 629,034 1 28 2,358,644 7,417,466 61,428 14,358 522,041 21 1,927,702 3,825,327 31,309 31,309 31,309 20,500 98,265 2,850,400 3,115 20,500 98,265 2,932,300 3,115 20,500 18,539 2,932,179 346,555 309,800 346,555 309,800 - 189,000 994,600 194,700 4,394 1,028,600 175,978 4,394 1,016,563 126,200 701 150,000 129,200 701 82,334 124,127 3,066,700 60,887,700 6,605,200 2,290,600 3,066,700 91,382,500 6,605,200 5,900,000 2,290,600 3,066,700 91,382,500 6,605,200 5,900,000 2,290,600 - 150,000 150,000 13,989 13,989 2,292 91,100 2,197,700 10,451,800 - 200,790 91,100 500,000 2,228,700 10,592,400 1,000,000 200,790 91,100 2,098,862 10,099,880 190,144 2,600 364,500 281 2,600 374,900 281 2,600 311,933 1,604,800 2,296 1,602,800 2,296 1,602,799 1,220,800 176,000 1,220,800 176,000 1,220,800 176,000 25,500 21,303,600 1,142 365,489 2,603,400 2,390,000 25,500 21,304,100 1,142 365,489 2,603,400 2,390,000 25,500 20,560,792 362,115 2,165,512 2,240,912 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) GITTEM-GANG INTELLIGENCE TEAM ENFORCEMENT FY09-10 MICROWAVE COMMUNICATION SYSTEM FY06-07 MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION RACING, ARIZONA DEPARTMENT OF ARIZONA BREEDERS AWARD COUNTY FAIR LIVESTOCK AND AGRICULTURAL RADIATION REGULATORY AGENCY CASH TRANSFER TO AUTOMATION PROJECTS FUND 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 OPERATING LUMP SUM APPROPRIATION PERFORMANCE FUNDING STUDENT FINANCIAL ASSISTANCE WESTERN INTERSTATE COMMISSION OFFICE WICHE STUDENT SUBSIDIES REVENUE, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS BRITS OPERATIONAL SUPPORT CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION UNCLAIMED PROPERTY ADMINISTRATION/AUDIT SCHOOL FACILITIES BOARD ADMINISTRATIVE ADJUSTMENTS BUILDING RENEWAL GRANT NEW SCHOOL CONSTRUCTION NEW SCHOOL FACILITIES DEBT SERVICE OPERATING LUMP SUM APPROPRIATION SECRETARY OF STATE BUILDING RENOVATION AND CODE COMPLIANCE CASH TRANSFER TO AUTOMATION PROJECTS FUND ELECTION SERVICES HELP AMERICA VOTE ACT FY12-13 HELP AMERICA VOTE ACT FY13-14 LIBRARY GRANTS-IN-AID FY11-12 LIBRARY GRANTS-IN-AID FY12-13 LIBRARY GRANTS-IN-AID FY13-14 OPERATING LUMP SUM APPROPRIATION STATEWIDE RADIO READING SERVICE FOR BLIND SENATE BORDER SECURITY TRUST FUND OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 SUPREME COURT ADMINISTRATIVE ADJUSTMENTS ADOA BUILDING RENEWAL FUND FY09-10 ADULT INTENSIVE PROBATION ADULT STANDARD PROBATION AUTOMATION CASE AND CASH MANAGEMENT SYSTEM CASH TRANSFER BETWEEN FUNDS COMMISSION ON JUDICIAL CONDUCT The Notes to Required Supplementary Information are an integral part of this schedule. -138 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 15 265,760 3,704,200 28,336,100 15 265,760 3,704,200 28,048,600 168,364 3,688,758 28,048,175 250,000 1,779,500 250,000 1,779,500 250,000 1,779,500 4,100 1,308,600 4,100 695,250 1,352,900 4,100 695,250 1,352,153 2,902,200 4,188 2,988,700 4,188 2,608,281 90,000 213,700 2,350,300 5,000,000 10,041,200 125,000 4,106,000 90,000 213,700 2,349,300 5,000,000 10,041,200 131,000 4,100,000 90,000 213,700 2,349,300 5,000,000 10,041,200 131,000 4,077,394 7,452,200 187,700 62,358,500 1,770,000 282,002 7,452,200 187,700 63,870,500 1,770,000 282,002 7,426,563 187,700 62,337,626 1,497,068 16,667,900 672,000 174,165,000 1,610,700 477 16,667,900 672,000 172,719,800 1,676,500 477 16,667,900 672,000 172,719,800 1,598,936 4,100 1,000,000 877,521 2,934,500 3,438 121,400 651,400 10,450,500 97,000 228,700 4,100 1,000,000 877,521 2,941,000 3,438 121,400 651,400 10,628,100 97,000 106,882 4,100 997,208 (356) 2,697,876 85,900 531,691 10,574,278 97,000 263,667 784,184 206,625 8,036,300 263,667 784,184 206,625 8,333,800 76,061 8,254,217 1,321 10,741,200 13,526,700 3,332,600 139,400 11,700 506,800 6,103 1,321 10,654,500 13,443,200 3,352,800 139,400 11,700 522,300 6,103 1,321 10,649,447 13,420,985 2,955,806 11,700 521,981 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) 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 MENTAL HEALTH COURT REPORT MODEL COURT OPERATING LUMP SUM APPROPRIATION SPECIAL WATER MASTER TAX APPEALS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION TOURISM, OFFICE OF ADMINISTRATIVE ADJUSTMENTS TOURISM FUND DEPOSIT TRANSPORTATION, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION TREASURER, STATE ADMINISTRATIVE ADJUSTMENTS BUDGET STABILIZATION INTEREST TRANSFERS CASH TRANSFER TO AUTOMATION PROJECTS FUND 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 FREEDOM CENTER 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 ADMINISTRATIVE ADJUSTMENTS ASSURED AND ADEQUATE WATER SUPPLY ADMIN AUTOMATED GROUNDWATER MONITORING The Notes to Required Supplementary Information are an integral part of this schedule. -139 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 187,900 102,000 640,300 1,013,600 61,322 3,532,000 641,800 7,488,200 417,200 9,024,900 660,400 9,166,500 4,600,500 22,314,900 90,000 447,600 10,695,700 94,000 187,900 102,000 655,400 1,013,600 61,322 3,617,100 648,000 8,199,500 428,400 9,024,900 660,400 8,858,600 4,606,200 22,341,400 90,000 447,600 10,761,500 94,000 187,900 102,000 634,076 1,013,599 3,616,999 647,616 8,180,120 427,566 9,024,900 653,416 8,809,251 4,574,951 22,245,005 18,724 447,429 10,532,208 94,000 254,800 213 264,700 213 262,809 7,000,000 1,010,268 7,102,600 1,010,268 7,102,600 50,500 50,400 4,137 19,300 1,205,100 2,731,000 269,595 2,000,000 19,300 3,273,119 7,000,000 1,205,100 2,820,900 269,595 2,000,000 19,300 3,273,119 7,000,000 937,912 2,714,896 28,540,300 11,079,800 357,600 8,587,000 500,000 458,500 90,254,200 18,860,500 22,691,100 2,858,100 1,853,900 30,608,300 11,268,200 362,600 8,587,000 500,000 448,900 142,745,400 40,468,200 23,475,300 14,253,000 3,515,000 1,854,400 30,608,300 11,268,200 362,600 8,587,000 500,000 448,900 142,745,400 40,468,200 23,475,300 14,253,000 3,515,000 1,854,400 15,291 2,089,100 275,600 37,858 2,848,100 9,265 15,291 2,177,662 288,162 37,858 2,970,476 9,265 2,128,260 288,160 10,000 2,712,445 1,212,900 1,662,700 401,100 1,256,700 4,338 1,723,100 410,200 1,208,949 4,338 1,722,433 403,546 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) CONSERVATION AND DROUGHT PROGRAM LOWER COLORADO RIVER LITIGATION EXPENSES 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' Medicaid Behavioral Health appropriations for Insurance Premium Payments, Comprehensive and Dental, Prop 204 Administration Title XIX Match, Prop 204, Traditional, Title XIX Supplemental, and other appropriations that were duplicate expenditure authorizations TOTAL GENERAL FUND BUDGETARY EXPENDITURES AFTER ADJUSTMENTS FINAL BUDGET (Appropriations) 395,700 500,000 6,721,300 1,139,600 410,000 500,000 6,858,700 1,167,700 405,383 330,900 6,740,987 1,152,519 1,284,000 1,609 1,325,800 1,609 1,324,452 16,746,011,398 18,300,356,592 16,165,157,991 (782,624,100) $ The Notes to Required Supplementary Information are an integral part of this schedule. -140 - ACTUAL EXPENDITURE AMOUNTS 15,963,387,298 (921,630,709) $ 17,378,725,883 - $ 16,165,157,991 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, 2014 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) TRANSPORTATION, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AIRPORT PLANNING AND DEVELOPMENT FY07-08 AIRPORT PLANNING AND DEVELOPMENT FY09-10 AIRPORT PLANNING AND DEVELOPMENT FY10-11 AIRPORT PLANNING AND DEVELOPMENT FY11-12 AIRPORT PLANNING AND DEVELOPMENT FY12-13 AIRPORT PLANNING AND DEVELOPMENT FY13-14 ASBESTOS AND LEAD INSPECTIONS FY01-02 ASBESTOS AND LEAD INSPECTIONS FY02-03 ATTORNEY GENERAL LEGAL SERVICES BUILDING RENEWAL FY11-12 BUILDING RENEWAL FY12-13 BUILDING RENEWAL FY13-14 CASH TRANSFER TO AUTOMATION PROJECTS FUND DE ICER BUILDINGS FRAUD INVESTIGATION HIGHWAY MAINTENANCE FY12-13 HIGHWAY MAINTENANCE FY13-14 HIGHWAY TO DPS TRANSFER - DOUBLE LOAD HURF TO DPS TRANSFER - DOUBLE LOAD LIE TO WMA TRANSFER MOTOR CARRIER TOWING REGULATION FY04-05 MVD SECURITY ENHANCEMENT ISSUES FY02-03 NEW THIRD PARTY FUNDING OPERATING LUMP SUM APPROPRIATION SEF TO DPS TRANSFER - DOUBLE LOAD STATEWIDE HIGHWAY CONSTRUCTION FY09-10 STATEWIDE HIGHWAY CONSTRUCTION FY10-11 STATEWIDE HIGHWAY CONSTRUCTION FY11-12 STATEWIDE HIGHWAY CONSTRUCTION FY12-13 STATEWIDE HIGHWAY CONSTRUCTION FY13-14 VEHICLE WASH SYSTEMS TOTAL TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND BUDGETARY EXPENDITURES FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS $ 8,665,445 17,671,756 10,765,318 13,097,765 6,555,574 21,123,700 94,798 589,466 2,895,600 33,931 930,784 3,188,200 2,397,400 2,280,000 755,400 2,926,663 131,195,400 6,780,000 119,961,000 319,200 11,108 715,687 943,700 203,223,500 1,574,700 75,207,460 510,131 40,590,578 65,367,932 220,293,000 3,000,000 $ 798,524 8,665,445 17,671,756 10,765,318 13,097,765 6,555,574 36,123,700 94,798 589,466 2,895,600 33,931 930,784 3,188,200 2,397,400 2,280,000 773,300 2,926,663 132,716,500 6,743,800 119,247,100 330,000 11,108 715,687 971,100 206,902,200 1,566,300 75,207,460 510,131 40,590,578 65,367,932 220,293,000 3,000,000 $ 798,524 14,667,836 2,895,600 33,931 800,730 867,974 2,397,400 538,731 770,477 2,920,866 127,133,228 6,743,800 119,247,100 330,000 965,551 203,548,180 1,566,300 141,918,862 85,467 $ 963,665,196 $ 983,961,120 $ 628,230,557 The Notes to Required Supplementary Information are an integral part of this schedule -141 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION –BUDGETARY COMPARISON SCHEDULES JUNE 30, 2014 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, 2013 that affect available appropriations during fiscal year 2014. The final budget represents any appropriation bills passed during fiscal year 2014 for fiscal year 2014 plus the original budget. Appropriation bills passed after the end of fiscal year 2014 for fiscal year 2014 would also be included in the final budget. The Budgetary Comparison Schedules present actual amounts on the State’s budgetary basis for expenditures only. The Schedules include appropriations authorized in one fund and transferred, by legislation, to another fund. The State does not have a legally adopted budget for revenues; therefore, only expenditures are presented on the Budgetary Comparison Schedule, Expenditures for the General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund. As the budgetary and GAAP presentations of actual data differ, a reconciliation of the two follows (amounts expressed in thousands): General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Uses/outflows of resources Actual expenditure amounts (budgetary basis) “total charges to appropriations”from the budgetary comparison schedule $ 16,165,158 $ 628,231 Differences –budget to GAAP: Increase in unpaid incurred expenditures from fiscal year end 2013 to fiscal year end 2014. 3,200 468,776 Increase in unpaid payroll expenditures from fiscal year end 2013 to fiscal year end 2014. For budgetary reporting, final June 2013 payroll expenditures were charged to fiscal year 2014 budget and final June 2014 payroll expenditures were charged to fiscal year 2015 budget. 4,940 - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 1,120,000 - 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. 592,501 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. 100,678 13,236 Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2014. 4,016,414 1,411,399 Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. (882,237) (303,030) Total expenditures, as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances $ 21,120,654 $ 2,218,612 There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 142 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION –BUDGETARY COMPARISON SCHEDULES JUNE 30, 2014 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 (OSPB), unless an extension is granted for up to an additional 30 days by the OSPB Director. 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, $1.6 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 $20.3 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. - 143 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION –BUDGETARY COMPARISON SCHEDULES JUNE 30, 2014 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 $693.3 million for the Department of Health Services’ Medicaid Behavioral Health - Traditional on page 136, which includes $486.8 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 140. - 144 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2014 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), as amended, the State of Arizona reports its roads and bridges using the modified approach. Assets accounted for under the modified approach include 6,800 center lane miles (21,390 travel lane miles) of roads and 4,787 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 2014 and beyond was adopted by the Transportation Board on June 25, 2013. 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: - 145 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2014 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 2014, an overall rating of 3.69 was achieved, as shown in the following graph: Condition Levels - Roads 5 PSR 4 3 Actual 2 Goal 1 0 2010 2011 2012 Fiscal Year 2013 2014 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 2010 through 2014 were as follows: Fiscal Year 2010 2011 2012 2013 2014 Estimated Expenditures (in millions) $227.4 $265.7 $261.9 $276.3 $271.2 - 146 - Actual Expenditures (in millions) $220.9 $373.4 $373.6 $291.3 $287.2 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2014 Bridges The State’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2014, the State owned and maintained 4,787 bridges with an approximate total deck area of 49,066,801 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 other three 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 2014, the CRI was computed at 93.8%. Condition Levels - Bridges 95% CRI 94% 93% Actual 92% Goal 91% 90% 2010 2011 2012 Fiscal Year Figure 2 - 147 - 2013 2014 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2014 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 56% 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 2010 through 2014 were as follows: Fiscal Year 2010 2011 2012 2013 2014 Estimated Expenditures (in millions) $16.1 $11.8 $12.5 $14.7 $21.2 - 148 - Actual Expenditures (in millions) $22.4 $26.0 $20.6 $10.7 $20.5 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION AGENT BENEFIT PLANS’FUNDING PROGRESS JUNE 30, 2014 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 6/30/2014 6/30/2013 6/30/2012 Actuarial Value of Plan Assets $ 450,284 505,249 522,980 6/30/2014 6/30/2013 6/30/2012 852,041 900,160 888,879 Actuarial Accrued Liability (AAL) $ 1,240,343 1,067,721 1,043,064 (Unfunded) AAL $ (790,059) (562,472) (520,084) Funded Ratio 36.3% 47.3% 50.1% Annual Covered Payroll $ 85,973 82,363 82,352 (Unfunded) AAL as a Percentage of Covered Payroll (919.0)% (682.9)% (631.5)% 1,520,026 1,289,715 1,244,672 (667,985) (389,555) (355,793) 56.1% 69.8% 71.4% 350,313 346,980 370,041 (190.7)% (112.3)% (96.1)% 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 6/30/2014 6/30/2013 6/30/2012 Actuarial Value of Plan Assets $ 35,607 - Actuarial Accrued Liability (AAL) $ 29,668 29,165 29,183 Funded/ (Unfunded) AAL $ 5,939 (29,165) (29,183) Funded Ratio 120.0% 0.0% 0.0% Annual Covered Payroll $ 85,973 82,363 82,352 Funded/ (Unfunded) AAL as a Percentage of Covered Payroll 6.9% (35.4)% (35.4)% 6/30/2014 6/30/2013 6/30/2012 72,713 - 62,623 59,723 58,596 10,090 (59,723) (58,596) 116.1% 0.0% 0.0% 350,313 346,980 370,041 2.9% (17.2)% (15.8)% As described in Note 6.A., due to a change in statute, the PSPRS and CORP established separate funds for the health insurance premium subsidy benefit contributions. As a result, the plans transferred prior year health insurance premium subsidy benefit contributions that exceeded benefit payments from each plan’s pension fund to the new health insurance fund. - 149 - 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, 2014 (Expressed in Thousands) SPECIAL REVENUE FUNDS ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Other Due from U.S. Government Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Due to local governments Due to others Due to other Funds Unearned revenue Total Liabilities $ $ CAPITAL PROJECTS FUNDS - $ TOTAL - $ 1,377 814,913 14,898 1,282 - - 816,195 14,898 73,579 25,949 10,705 21,763 3,750 - 73,579 25,949 10,705 25,513 395,962 - 41,065 11,571 311,011 - 748,038 11,571 $ 1,359,146 $ 57,668 $ 311,011 $ 1,727,825 $ 37,372 47,555 $ 326 - $ - $ 37,698 47,555 Deferred Inflows of Resources Fund Balances: Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,377 DEBT SERVICE FUNDS $ 14,898 77,434 10,436 26,945 381 215,021 326 - 14,898 77,434 10,436 26,945 381 215,347 796 - - 796 579,608 563,721 1,143,329 57,342 57,342 311,011 311,011 947,961 563,721 1,511,682 1,359,146 $ 57,668 - 154 - $ 311,011 $ 1,727,825 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) SPECIAL REVENUE FUNDS REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Hospital and nursing facility assessments 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 $ 56,225 1,752 21 57,998 $ 3,831 3,831 TOTAL $ 533,051 41 246,270 2,000 154,111 107,778 95,665 284,897 91,578 49,876 23,310 146,162 80,195 18,534 1,833,468 - 15,309 - 131,199 347,729 118,683 696,184 249,230 15,309 111,865 9,795 15,918 21,589 1,702,192 301,500 232,837 534,337 134,895 150,204 311,295 248,755 156,484 2,386,733 (476,339) (146,373) (553,265) 484,367 (10,680) 473,687 (2,652) 59,994 (266) (266) (146,639) 457,650 574,641 (162,793) 411,848 (141,417) 1,653,099 90,274 (151,847) (61,573) 7,874 1,135,455 $ CAPITAL PROJECTS FUNDS 131,199 347,729 118,683 696,184 249,230 111,865 69,447 OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending 476,826 41 246,270 2,000 154,111 107,778 95,665 284,897 91,578 44,293 23,310 146,162 80,195 18,513 1,771,639 DEBT SERVICE FUNDS 1,143,329 $ - 155 - 57,342 $ 311,011 $ 1,511,682 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, 2014 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROGRAMS PROTECTION ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Other Due from U.S. Government Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Due to local governments Due to others Due to other Funds Unearned revenue Total Liabilities $ $ - $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ REGULATING & LICENSING - $ 18 125,938 - 103,608 - 79,373 - 20,221 13,239 139,536 1,659 129,295 - 4,732 2 4,366 5,121 4,091 7,127 10,702 1,939 14,308 1,317 3 870 7 1,599 3,154 272 - - 863 395,099 - - $ 136,367 $ 108,729 $ 104,095 $ 445,057 $ 142,801 $ 132,739 $ 21,119 4,724 $ 3,992 444 $ 2,244 37,951 $ 1,180 345 $ 3,303 595 $ 2,217 2,038 Deferred Inflows of Resources Fund Balances: Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,329 HEALTHCARE & SOCIAL SERVICES $ 669 26,512 93 4,529 1,303 381 41,879 13,239 10,237 14,398 39,399 1,659 7 5,564 199 10,262 14,716 - - 796 - - - 109,855 109,855 104,200 104,200 13,029 48,391 61,420 405,658 405,658 41,313 95,924 137,237 118,023 118,023 136,367 $ 108,729 - 158 - $ 104,095 $ 445,057 $ 142,801 $ 132,739 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION GAME & FISH $ 30 $ - $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 1,377 46,054 - 12,239 - 22,073 - 94,008 - 19,103 - 23,465 - 814,913 14,898 2,047 207 351 7 - 50,448 12,288 7,038 - - 73,579 25,949 10,705 21,763 - - - - - - 395,962 $ 48,338 $ 12,590 $ 22,080 $ 163,782 $ 19,103 $ 23,465 $ 1,359,146 $ 2,870 1,110 $ 301 87 $ 4 95 $ 95 139 $ 17 $ 47 10 $ 37,372 47,555 $ 205 4,185 6 394 1 100 77,434 1 77,669 17 57 14,898 77,434 10,436 26,945 381 215,021 - - - - - - 796 9,091 35,062 44,153 12,196 12,196 996 20,984 21,980 86,113 86,113 19,086 19,086 23,408 23,408 579,608 563,721 1,143,329 48,338 $ 12,590 $ 22,080 $ 163,782 $ - 159 - 19,103 $ 23,465 $ 1,359,146 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (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 Hospital and nursing facility assessments 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 $ $ 4,903 7,953 2,000 41,700 18,237 91,578 116 3,337 10,845 21,455 2,710 204,834 $ 232,386 2,263 9,343 827 244,819 JUDICIAL & LEGAL SERVICES $ 1,443 25,965 1,414 491 50,782 2,707 82,802 REGULATING & LICENSING $ 330 51,636 174 95,734 130 2,540 2,176 9,698 2,115 164,533 1,217 77,401 1,504 358 3,131 193,226 - 575 69,187 158,906 - 77,780 31 - 1,750 7,915 117,148 - 9,235 15,150 13,200 341,405 132 80,612 496 196,853 28 228,696 479 78,290 756 127,569 8,083 7,981 16,123 4,512 36,964 7,000 (4,387) 2,613 10,696 93,504 6,822 (2,595) 4,227 12,208 49,212 1,418 (37,045) (35,627) (19,504) 425,162 37,249 (27,638) 9,611 1,410 108,445 $ 16,441 2,428 68,912 519 395 88,695 TOBACCO TAX & HEALTHCARE 27,471 249,230 27,119 (8,201) OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending 17,105 5,931 127,568 53,714 19,863 21,024 269 11,470 73,625 2,635 333,204 HEALTHCARE & SOCIAL SERVICES 109,855 $ 104,200 - 160 - $ 61,420 $ 405,658 3,107 (58,904) (55,797) (51,285) 188,522 $ 137,237 2,592 (16,497) (13,905) 23,059 94,964 $ 118,023 GAME & FISH $ 900 27,223 37,977 342 3,039 131 6,131 1,271 77,014 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION $ $ 1,907 4,181 185 301 3,086 9,660 $ 454,818 41 292 1,092 2,836 31,759 2,124 42,911 87 535,960 $ 6,850 129 8 10 2,447 9,444 $ 8,593 233 8,826 TOTAL $ 476,826 41 246,270 2,000 154,111 107,778 95,665 284,897 91,578 44,293 23,310 146,162 80,195 18,513 1,771,639 70,516 1,932 7,143 10,661 14 - 537,264 - 6,729 6,682 - 131,199 347,729 118,683 696,184 249,230 111,865 560 768 4,798 76,642 1,033 10,108 11 10,686 621 537,885 6,729 35 6,717 9,795 15,918 21,589 1,702,192 372 1,740 (1,026) (1,925) 2,715 2,109 69,447 (62) (62) 1,678 10,518 212 (586) (374) (1,400) 23,380 21,516 (151) 21,365 19,440 66,673 300 (64) 236 2,951 16,135 (99) (99) 2,010 21,398 10,058 (3,819) 6,239 6,611 37,542 $ 8,580 3,181 87 11,848 CLEAN ELECTIONS SYSTEM 44,153 $ 12,196 $ 21,980 $ 86,113 $ - 161 - 19,086 $ 23,408 90,274 (151,847) (61,573) 7,874 1,135,455 $ 1,143,329 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) ACCOUNTANCY, ARIZONA STATE BOARD OF OPERATING LUMP SUM APPROPRIATION ACUPUNCTURE BOARD OF EXAMINERS ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ADMINISTRATION, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ALTCS SERVICES PROPOSITION 204 SERVICES TRADITIONAL MEDICAID SERVICES APPRAISAL, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION REGISTERED TRAINEE AND SUPERVISORY APPRAISALS ATHLETIC TRAINING, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL - DEPARTMENT OF LAW ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION PAD NATIONAL MORTGAGE SETTLEMENT VICTIMS RIGHTS AUTOMOBILE THEFT AUTHORITY AUTOMOBILE THEFT AUTHORITY GRANTS CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION REIMBURSABLE PROGRAMS BARBERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION BEHAVIORAL HEALTH EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION BOARD OF MASSAGE THERAPY OPERATING LUMP SUM APPROPRIATION CHIROPRACTIC EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CONTRACTORS, REGISTRAR OF OFFICE OF ADMINISTRATIVE HEARINGS COSTS OPERATING LUMP SUM APPROPRIATION RESIDENTIAL CONTRACTOR'S RECOVERY FUND CORPORATION COMMISSION ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND CORPORATION FILINGS, SAME DAY SERVICE OPERATING LUMP SUM APPROPRIATION UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY09-10 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY10-11 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY11-12 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY12-13 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY13-14 CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND FINAL BUDGET (Appropriations) $ 1,933,700 ACTUAL EXPENDITURE AMOUNTS $ 1,522,758 262 150,200 262 143,137 65,977 9,100 1,500,000 65,977 9,100 1,146,229 51,567,500 93,284,500 37,389,300 49,771,727 93,284,500 32,864,685 38,027 808,700 42,880 38,027 777,093 - 297 118,200 297 118,200 74,935 117,200 9,738,200 47,762,938 3,997,800 74,935 117,200 9,386,773 7,610,577 3,971,552 4,607,700 30,800 639,900 50,000 4,567,361 30,800 530,306 15,000 4,495 333,800 4,495 316,112 7,190 1,758,100 7,190 1,447,232 457,200 451,240 1,682 469,400 1,682 362,664 1,017,600 11,175,700 2,700,000 221,200 7,746,895 2,700,000 128,606 179,300 400,400 25,452,000 380,000 380,000 380,000 380,000 380,000 128,606 179,300 24,962,041 336,050 40 - 26,408 284,900 26,408 284,900 (continued) -162 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) CASH TRANSFER TO BUILDING RENEWAL FUND INMATE HEALTH CARE CONTRACTED SERVICES OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM COSMETOLOGY, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CRIMINAL JUSTICE COMMISSION, ARIZONA CASH TRANSFER BETWEEN FUNDS CASH TRANSFER TO ATTORNEY GENERAL CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION STATE AID TO COUNTY ATTORNEYS VICTIM COMPENSATION AND ASSISTANCE DEAF AND HARD OF HEARING, COMMISSION FOR THE ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND 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 CASH TRANSFER TO AUTOMATION PROJECTS FUND CHILDREN SUPPORT SERVICES DCYF OPERATING LUMP SUM DOMESTIC VIOLENCE PREVENTION INDEPENDENT LIVING REHABILITATION SERVICES JOBS REHABILITATION SERVICES EDUCATION, DEPARTMENT OF ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 FY11-12 ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 FY12-13 ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 FY13-14 ACHIEVEMENT TESTING-PROP 301 FY10-11 ACHIEVEMENT TESTING-PROP 301 FY11-12 ACHIEVEMENT TESTING-PROP 301 FY12-13 ACHIEVEMENT TESTING-PROP 301 FY13-14 ADDITIONAL SCHOOL DAYS-PROP 301 FY12-13 ADDITIONAL SCHOOL DAYS-PROP 301 FY13-14 CHARACTER EDUCATION-PROP 301 FY11-12 CHARACTER EDUCATION-PROP 301 FY12-13 CHARACTER EDUCATION-PROP 301 FY13-14 FAILING SCHOOL TUTORING-PROP 301 FY12-13 FAILING SCHOOL TUTORING-PROP 301 FY13-14 OPERATING LUMP SUM APPROPRIATION-ADMINISTRATION OPERATING LUMP SUM APPROPRIATION-STATE BOARD SCHOOL ACCOUNTABILITY-PROP 301 FY08-09 SCHOOL ACCOUNTABILITY-PROP 301 FY09-10 TEACHER CERTIFICATION EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF CASH TRANSFER TO AUTOMATION PROJECTS FUND EMERGENCY MANAGEMENT ENVIRONMENTAL QUALITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AIR QUALITY FEE FUND STATE TRANSFERS AIR QUALITY PROGRAM - CONTINUING FY01-02 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 9,250,000 10,000,000 6,054,400 24,517,000 9,250,000 9,930,242 4,793,303 23,631,873 680 1,784,500 680 1,701,319 83,500 500,000 83,500 888,100 973,600 4,092,500 83,500 500,000 83,500 676,137 973,600 3,478,992 14,984 27,000 255,313 3,776,400 14,984 27,000 3,462,912 1,214,800 1,114,805 1,411,217 2,601,000 91,600 39,000 1,459,100 207,700 2,220,000 1,123,400 1,110,900 204,700 1,411,217 441,975 2,628 39,000 55,997 2,220,000 1,088,647 10,368 7,716 7,800,000 693,131 3,089,185 6,999,871 7,000,000 1 86,280,500 30 85,853 200,000 211,024 1,500,000 138,100 379,700 8,881 121,803 1,841,900 (3,400) 7,716 7,739,956 693,130 1,367,944 1,424,458 1 86,280,500 30 85,853 108,994 211,025 1,306,335 134,705 307,362 8,882 1,691,742 1,000 132,700 1,000 111,507 1,112,142 400,000 186,035 1,112,142 400,000 (continued) -163 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) AIR QUALITY PROGRAM - CONTINUING FY02-03 CASH TRANSFER TO AUTOMATION PROJECTS FUND EMISSIONS CAP AND TRADING PROGRAM FY01-02 EMISSIONS CAP AND TRADING PROGRAM FY02-03 EMISSIONS CONTROL - CONTRACTOR PAYMENTS 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 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 BLACK CANYON DAM MODIFICATIONS FY13-14 BOAT SHADE CANOPIES FY07-08 BOAT SHADE CANOPIES FY08-09 BUILDING RENEWAL FY12-13 BUILDING RENEWAL FY13-14 CASH TRANSFER TO AUTOMATION PROJECTS FUND DAM MAINTENANCE FY11-12 DAM MAINTENANCE FY12-13 FLAGSTAFF SHOOTING RANGE PLANNING FY02-03 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 FY10-11 OPERATING LUMP SUM APPROPRIATION PERFORMANCE INCENTIVE PAY FY12-13 PERFORMANCE INCENTIVE PAY FY13-14 PITTMAN-ROBERTSON/DINGELL-JOHNSON ACT PROPERTY MAINTENANCE FY11-12 PROPERTY MAINTENANCE FY12-13 RADIO TOWER FY09-10 RADIO TOWER FY10-11 REGIONAL KINGMAN OFFICE REMODEL FY09-10 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 FY09-10 STATEWIDE PREVENTATIVE MAINTENANCE FY11-12 STATEWIDE PREVENTATIVE MAINTENANCE FY12-13 TRI-STATE SHOOTING RANGE DEVELOPMENT FY04-05 WATERCRAFT GRANT PROGRAM WATERCRAFT SAFETY EDUCATION PROGRAM FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 182,451 5,386,200 70,576 266,582 21,919,500 32,106,000 18,500 200,000 7,500 80,589 5,386,200 21,500,204 22,229,926 - 936,700 882,508 717 353,600 717 327,766 1,135 9,094 191 1 77,026 579,181 183,613 327,200 8,947 58,458 523,300 547,600 39,900 434,294 500,000 2,673 1 4,722 350,000 151 6,426 16,715 65,505 33,927,800 346,100 346,100 3,808,000 131,261 326,412 250,000 250,000 885,736 1 1 1,650,933 1,000,000 1 1 1 112,606 1,000,000 250,000 1,135 75,000 210,860 183,612 327,200 8,947 1,923 446,557 39,900 350,000 500 19,500 30,460,668 2,558,000 287,637 62,550 17,221 241,003 (continued) -164 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) GAMING, DEPARTMENT OF ADDITIONAL OPERATING EXPENSES 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 CASH TRANSFER BETWEEN FUNDS CASH TRANSFER TO AUTOMATION PROJECTS FUND CRISIS SERVICES FOLIC ACID HIGH RISK PERINATAL SERVICES MEDICAID BEHAVIORAL HEALTH - TRADITIONAL NEWBORN SCREENING PROGRAM NURSING FACILITY STUDY RENAL DENTAL CARE AND NUTRITION SUPPLEMT HOMEOPATHIC AND INTEGRATED MEDICINE EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION HOUSING, ARIZONA DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION INDUSTRIAL COMMISSION OF ARIZONA ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION JUVENILE CORRECTIONS, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE NATURAL RESOURCE CONSERVATION DISTRICTS MEDICAL EXAMINERS BOARD ADMINISTRATIVE ADJUSTMENTS CREDENTIALS VERIFICATION CONTRACT OPERATING LUMP SUM APPROPRIATION PERFORMANCE BASED INCENTIVE PROGRAM MINE INSPECTOR, STATE ADMINISTRATIVE ADJUSTMENTS AGGREGATE MINED LAND RECLAMATION CASH TRANSFER BETWEEN FUNDS CASH TRANSFER TO AUTOMATION PROJECTS FUND NATUROPATHIC PHYSICIANS MEDICAL BOARD ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION NURSING CARE INSTITUTION ADMINISTRATORS AND ASSISTED LIVING FACILITY MANAGERS, BOARD OF EXAMINERS OF OPERATING LUMP SUM APPROPRIATION NURSING, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OCCUPATIONAL THERAPY EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OPTICIANS, STATE BOARD OF DISPENSING ADMINISTRATIVE ADJUSTMENTS FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 800,400 2,104,000 8,329,900 2,262,700 1,938,715 7,944,658 1,990,564 192,300 - 179,951 18,640,300 1,000,000 300 165,200 2,250,000 400,000 450,000 34,767,000 6,307,000 90,000 300,000 179,951 15,717,942 1,000,000 300 165,200 2,250,000 379,824 341,382 34,767,000 5,785,331 58,725 975 219 102,100 219 81,058 313,800 313,800 53,110 142,500 19,989,500 53,110 142,500 19,421,487 3,003 3,800 530,600 3,003 3,800 332,296 260,000 173,669 6,273 855,000 5,738,700 150,000 6,273 5,654,161 86,782 62 112,500 600 800 62 28,805 600 800 14,478 174,700 14,478 152,706 420,200 345,538 17,207 4,275,600 17,207 4,269,690 1,016 172,500 1,016 172,413 297 297 (continued) -165 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) OPERATING LUMP SUM APPROPRIATION OPTOMETRY, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OSTEOPATHIC EXAMINERS, ARIZONA BOARD OF 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 ADMINISTRATIVE ADJUSTMENTS ARIZONA COLLEGE AND CAREER GUIDE AZ MINORITY ED POLICY ANALYSIS CENTER LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP OPERATING LUMP SUM APPROPRIATION FY08-09 OPERATING LUMP SUM APPROPRIATION FY13-14 TWELVE PLUS PARTNERSHIP PRIVATE POSTSECONDARY EDUCATION, STATE BOARD FOR OPERATING LUMP SUM APPROPRIATION PSYCHOLOGIST EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PUBLIC SAFETY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND DNA TESTING DNA TESTING FY02-03 DNA TESTING FY03-04 DNA TESTING FY07-08 MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION PUBLIC SAFETY EQUIPMENT FY09-10 PUBLIC SAFETY EQUIPMENT FY11-12 PUBLIC SAFETY EQUIPMENT FY12-13 PUBLIC SAFETY EQUIPMENT FY13-14 PUBLIC SAFETY EQUIPMENT SURCHARGE RACING, ARIZONA DEPARTMENT OF CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION RADIATION REGULATORY AGENCY CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION RESIDENTIAL UTILITY CONSUMER OFFICE ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION PROFESSIONAL WITNESSES FY08-09 PROFESSIONAL WITNESSES FY09-10 PROFESSIONAL WITNESSES FY10-11 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 135,800 131,454 760 206,000 760 199,373 775,500 744,202 2,039,000 1,264,740 1,694 200,000 350,000 2,103,700 1,694 200,000 350,000 1,901,485 2,469 432,600 2,469 411,375 181 147,300 181 124,871 3,915 21,300 100,000 1,098,700 184,800 130,500 3,915 16,145 18,996 1,098,700 (143,635) 104,784 44,037 641,200 616,373 3,998 375,500 3,998 359,970 5,708 1,296,600 38,680 1,258,331 678,704 938,531 231,300 176,867,600 2,728,719 244,856 277,463 1,200,000 2,390,000 5,708 1,296,600 231,300 174,827,073 192,895 1,123,615 2,086,210 20,400 2,895,900 20,400 2,815,860 1,900 273,300 1,900 235,993 727 9,400 1,189,400 234 2,625 57,817 727 9,400 1,000,716 234 2,625 57,622 (continued) -166 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) FINAL BUDGET (Appropriations) PROFESSIONAL WITNESSES FY11-12 PROFESSIONAL WITNESSES FY12-13 PROFESSIONAL WITNESSES FY13-14 RESPIRATORY CARE EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION REVENUE, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION SUPREME COURT AUTOMATION CASE AND CASH MANAGEMENT SYSTEM CASH TRANSFER BETWEEN FUNDS CASH TRANSFER TO AUTOMATION PROJECTS FUND 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 OPERATING LUMP SUM APPROPRIATION TREASURER, STATE LAW ENFORCEMENT AND BOATING SAFETY DIST VETERANS' SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION VETERINARY MEDICAL EXAMINING BOARD, ARIZONA STATE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION WATER RESOURCES, DEPARTMENT OF ASSURED AND ADEQUATE WATER SUPPLY ADMIN CASH TRANSFER TO AUTOMATION PROJECTS FUND OPERATING LUMP SUM APPROPRIATION WEIGHTS AND MEASURES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND GENERAL SERVICES OXYGENATED FUEL VAPOR RECOVERY TOTAL NON-MAJOR SPECIAL REVENUE FUNDS BUDGETARY EXPENDITURES -167 - $ ACTUAL EXPENDITURE AMOUNTS 125,871 134,923 145,000 81,075 31,274 1,243 297,100 1,243 294,934 1,048 679,300 1,048 574,345 7,991,800 3,187,100 171,900 283,700 675,000 2,310,100 2,940,900 5,192,100 3,311,100 6,029,200 5,949,100 6,432,217 2,501,691 171,900 283,700 675,000 1,451,393 2,550,706 3,883,257 2,620,021 6,019,161 4,653,657 2,908 2,119,500 2,908 1,774,737 2,183,800 1,931,590 1,484 906,300 1,484 526,709 7,459 483,400 7,459 435,810 266,400 2,900 640,400 5,076 2,900 82,779 67,582 12,500 330,000 845,200 618,600 67,582 12,500 329,999 845,043 616,951 963,005,010 $ 832,855,897 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES LAND ENDOWMENTS FUND FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Dollars) CORRECTIONS, STATE DEPARTMENT OF CASH TRANSFER TO BUILDING RENEWAL FUND OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM DEAF AND BLIND, ARIZONA SCHOOLS FOR THE CASH TRANSFER TO AUTOMATION PROJECTS FUND 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 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 - $ 1,250,000 360,000 979,200 ACTUAL EXPENDITURE AMOUNTS $ 1,250,000 359,880 892,271 97,800 5,700,000 3,575,500 4,020,600 289,400 97,800 5,700,000 2,173,363 4,020,600 275,093 46,475,500 46,475,500 396,000 650,000 396,000 623,680 1,098,600 1,098,600 3,174,500 1,155,588 6 4,456,600 200,000 6 4,254,911 139,239 72,723,706 $ 68,912,531 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, 2014 (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 $ $ - - 179 - 1,002 - SCHOOL FACILITIES DEBT INSTRUMENT $ 155 TOTAL 280 - $ 40,886 11,416 1,282 3,750 41,065 11,571 $ 3,750 $ 179 $ 1,157 $ 52,582 $ 57,668 $ - $ - $ 326 326 $ - $ 326 326 Fund Balances: Restricted $ 3,750 $ 179 $ 831 $ 52,582 $ 57,342 Total Liabilities and Fund Balances $ 3,750 $ 179 $ 1,157 $ 52,582 $ 57,668 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current 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, 2014 (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 Transfers out Total Other Financing Sources Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ SCHOOL FACILITIES DEBT INSTRUMENT - $ 868 868 $ 21 21 $ 56,225 884 57,109 TOTAL $ 56,225 1,752 21 57,998 17,445 20,055 37,500 165,615 139,805 305,420 52,445 58,429 110,874 65,995 14,548 80,543 301,500 232,837 534,337 (37,500) (304,552) (110,853) (23,434) (476,339) 37,500 37,500 3,750 303,030 303,030 (1,522) 1,701 112,275 (10,680) 101,595 (9,258) 10,089 31,562 31,562 8,128 44,454 484,367 (10,680) 473,687 (2,652) 59,994 3,750 $ 179 - 171 - $ 831 $ 52,582 $ 57,342 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, 2014 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION FINANCED ASSETS Restricted assets: Cash and pooled investments with State Treasurer Total Assets FUND BALANCES Fund Balances: Restricted Total Fund Balances Total Fund Balances $ 311,011 $ 311,011 $ 311,011 311,011 $ 311,011 - 174 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) REVENUES Earnings on investments Total Revenues DEPARTMENT OF TRANSPORTATION FINANCED CERTIFICATES OF PARTICIPATION FINANCED $ $ 3,830 3,830 1 1 TOTAL $ 3,831 3,831 EXPENDITURES Current: Transportation Capital outlay Total Expenditures (Deficiency) of Revenues Over Expenditures 15,309 134,883 150,192 12 12 15,309 134,895 150,204 (146,362) (11) (146,373) OTHER FINANCING (USES) Transfers out Total Other Financing (Uses) Net Change in Fund Balances Fund Balances - Beginning (146,362) 457,373 (266) (266) (277) 277 (266) (266) (146,639) 457,650 Fund Balances - Ending $ 311,011 $ - - 175 - $ 311,011 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, 2014 (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 Other Due from U.S. Government Due from other Funds Inventories, at cost Other current assets Total Current Assets $ 4,173 - LOTTERY $ - $ 60 - $ - $ 60 - 2 44,979 5,306 3,292 3,102 - - - - - 2,329 73 10 2,372 106 9,065 7,623 5,957 58,559 3,551 4,987 136 14,040 156 33 286 302 4,069 65 116 3,343 - 9,862 - - - 182 951 693 8 70 1,779 1,961 11,026 2,748 13,561 72,120 3,293 3,986 18,026 16 24 4,093 9,182 9,252 12,595 416 229 29 223 897 3,429 28,678 260 28,813 322 61,502 853 298 474 1,625 53 36 2,040 153 2,282 50 68 83 173 374 73 73 970 61,502 1,625 2,282 374 1,961 3,699 3,986 24 9,252 - - - - - 8,095 6,919 12,415 1,787 2,969 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 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: Unemployment Compensation Loans and other financial assistance: Expendable Unrestricted Total Net Position $ 10,056 $ 10,618 - 178 - $ 16,401 $ 1,811 $ 12,221 HIGHWAY EXPANSION HEALTHCARE UNEMPLOYMENT & EXTENSION GROUP OF COMPENSATION LOAN PROGRAM ARIZONA $ $ 8,244 $ - $ OTHER - TOTAL $ - $ 4,293 8,244 - - 7,257 4,580 68,518 - 77,833 - - 77,833 91,906 13,684 113,834 77,833 7,257 2,946 101 7,627 91,906 30,354 73 144 13,602 660 295,627 - - - - 9,862 - - - 980 2,884 113,834 77,833 7,257 6,835 7,815 15,442 23,853 36,599 332,226 19 28,874 13,025 13,982 349 56,249 - 3 1 4 466 433 528 1,427 5,289 29,939 13,025 42,660 260 29,162 2,152 1,873 124,360 56,249 - 4 1,427 73 73 124,433 - - - 7,815 26,737 57,585 - - - 57,585 - 77,833 - 7,253 6,200 77,833 45,638 57,585 $ 77,833 $ 7,253 $ 14,015 - 179 - $ 207,793 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (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 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 $ 723,955 340 724,295 8,411 6,200 2,236 355 877 18,079 1 NON-OPERATING REVENUES (EXPENSES) (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 Before Contributions and Transfers Capital grants and contributions Transfers out Change in Net Position Total Net Position - Beginning Total Net Position - Ending 17,820 260 18,080 LOTTERY $ $ 525,492 5,890 15,594 275 40 1,488 548,779 175,516 9 9 104 (14,763) (14,659) 10 37,997 37,997 $ 32,135 4,064 623 36,822 1,175 4,507 657 5,164 $ 2,511 1,563 618 7 86 4,785 379 (9) 36 27 11,050 963 12,013 1,827 4,251 3,729 633 276 1,275 11,991 22 27 (3) 24 11 11 160,857 1,202 403 33 - (160,858) (1,303) (34) 107 (80) 10 10,046 (1) 10,619 (101) 16,502 10,056 $ 10,618 - 180 - $ 16,401 369 1,442 $ 1,811 60 12,161 $ 12,221 HIGHWAY EXPANSION HEALTHCARE UNEMPLOYMENT & EXTENSION GROUP OF COMPENSATION LOAN PROGRAM ARIZONA $ 455,979 84,094 1,878 5,507 547,458 $ 452,025 452,025 95,433 $ - $ - OTHER 11,747 11,747 10,396 586 79 1 107 11,169 578 1,688 (2,538) (850) 664 (46) 618 59 62 (7) 114 94,583 618 692 (4,279) - - 90,304 (32,719) 618 77,215 692 6,561 57,585 $ 77,833 $ $ 7,253 TOTAL 31,652 73 31,725 $ 45 19,555 3,827 338 410 5,117 29,292 2,433 1,032,842 42,109 26,083 2,232 726 8,950 1,112,942 275,537 10 10 (9) 2,608 62 (14,763) (2,538) (56) (14,696) 2,443 260,841 (401) 107 (166,955) 2,042 11,973 $ 14,015 - 181 - 838,728 455,979 84,094 1,878 7,800 1,388,479 93,993 113,800 $ 207,793 STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (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 settlement income Payments to suppliers, prize winners, claimants, or insurance companies Payments to employees Other receipts Other payments Net Cash Provided (Used) by Operating Activities $ 17,862 1 - ARIZONA CORRECTIONAL INDUSTRIES LOTTERY $ (7,906) (6,189) 258 (3,114) 912 333,644 - $ 38,094 - ARIZONA HIGHWAYS MAGAZINE $ 4,486 - COLISEUM & EXPOSITION CENTER $ 11,050 - (174,741) (5,906) 15,394 168,391 (19,028) (19,568) (502) (3,135) (1,565) 657 443 (7,084) (4,233) 963 696 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Distributions Interest paid on loan due to U.S. Government Transfers to other Funds Net Cash (Used) by Non-capital Financing Activities - (14,763) (184,683) (1,303) (34) (80) - (199,446) (1,303) (34) (80) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Acquisition and construction of capital assets Net Cash (Used) by Capital and Related Financing Activities - (61) 30 (799) - (370) - (61) (769) - (370) 10 94 35 25 11 10 94 35 25 11 434 2,858 257 2,905 CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Change in cash collateral received from securities lending transactions Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Cash and Cash Equivalents - Ending Reconciliation of operating income to net cash provided (used) by operating activities: Operating income Adjustments to reconcile operating income 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) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to U.S. Government (Decrease) in due to other Funds (Decrease) in due to others Increase (decrease) in unearned revenue Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds (Loss) on disposal of capital assets, net Total Noncash Investing, Capital and Non-capital Financing Activities 922 3,253 (31,022) 76,001 (2,539) 7,905 $ 4,175 $ 44,979 $ 5,366 $ 3,292 $ 3,162 $ 1 $ 175,516 $ 1,175 $ 379 $ 22 355 - 275 - 12 1 (1) 572 (94) 61 (22) 29 (2) 623 13 - (1,227) (2,009) (558) (2,193) (1,413) - 90 (1,110) (7) (1,369) 82 1 7 - 633 - 22 62 42 (24) 6 (43) (8) (31) (27) 50 11 31 7 $ 912 $ 168,391 $ (502) $ 443 $ 696 $ - $ - $ - $ (9) - $ 107 - $ - $ - $ (9) $ - $ 107 - 182 - HIGHWAY EXPANSION HEALTHCARE & EXTENSION GROUP OF LOAN PROGRAM ARIZONA UNEMPLOYMENT COMPENSATION $ 458,133 84,094 - $ - (447,350) (91,262) 3,615 - (7,751) (4,254) - (12,005) $ 8,748 62 OTHER $ 31,383 - $ 445,267 458,133 84,095 62 (9,351) (18,942) 73 3,163 (679,431) (57,045) 17,345 (94,376) 174,050 - (401) (14,763) (7,751) (190,755) - - (401) (213,269) - - (7) (106) 30 (1,343) - - (7) (106) (1,313) 1,690 662 59 10 2,596 1,690 (44) 618 59 10 (44) 2,552 2,666 1,914 (37,980) 196,868 (6,700) 14,944 (10,836) (642) (2,668) TOTAL 618 77,215 (2,616) 9,873 $ 8,244 $ 77,833 $ 7,257 $ 4,580 $ 158,888 $ 95,433 $ - $ 578 $ 2,433 $ 275,537 - - 9,498 4,399 (98,444) (7,271) - 1 62 - (25) (229) (2,999) (56) $ 3,615 $ - $ (2,668) $ $ - $ - $ - $ - $ - $ - 338 - 2,232 13 62 (313) 44 50 85 (2) 528 8,051 1 43 (2,485) (644) (3,450) 2,919 (98,444) (2) (7,271) (2,982) 470 3,163 $ $ - $ 107 (9) $ - $ 98 - 183 - 174,050 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 Accumulated 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, 2014 (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 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 $ 74,193 $ - $ 333,561 $ 894 40 5 4,202 78,440 3,122 3,122 9,637 3,600 1 8 346,807 149 1,043 - 975 - - - - - - 93 93 78,533 66,447 67,422 70,544 23 23 346,830 52 52 1,095 2,141 281 7 59,786 705 62,920 297 577 874 132,096 53 7 160 132,316 226 25 66 317 369,543 369,543 432,463 229 229 1,103 132,316 317 93 (354,023) 66,447 2,994 23 214,491 52 726 (353,930) $ 69,441 - 186 - $ 214,514 $ 778 RETIREE $ $ AUTOMATION ACCUMULATED MOTOR OPERATIONS SICK LEAVE POOL 14,048 $ 2,803 $ TOTAL 612 $ 426,111 970 2,155 1,307 18,480 2,803 425 670 51 15 1,773 11,221 3,600 2,831 3,173 5,532 452,468 - - - 975 76 - - 76 3,879 3,955 22,435 2,803 11,718 11,718 13,491 82,212 83,263 535,731 1,365 194 479 2,038 8,143 8,143 582 15 42 639 136,410 865 14 59,786 10,172 207,247 2,038 148,600 148,600 156,743 639 369,543 148,829 518,372 725,619 3,955 16,442 (153,940) 20,397 $ (153,940) 11,718 1,134 $ 12,852 82,288 (272,176) $ (189,888) - 187 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (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) $ 12,950 18,900 41 81,285 1,482 114,658 (10,925) NON-OPERATING REVENUES Gain on sale of capital assets Investment income Other non-operating revenue Total Non-Operating Revenues Income (Loss) Before Contributions and Transfers Capital grants and contributions Transfers out 27,326 54 27,380 $ $ 13,949 13,389 200 10,080 859 38,477 (11,097) - Change in Net Position Total Net Position - Beginning Total Net Position - Ending 103,733 103,733 823,774 823,774 $ 755,161 2,603 1,286 5 757 299 760,111 63,663 26 4 91 121 1,347 2 1,349 2 1,010 339 525 19 452 2,347 (998) - 5 5 (10,925) (2,454) (10,976) 19,121 (192) 63,663 (73,761) (993) (52) (13,379) (340,551) 7,953 61,488 (10,098) 224,612 (1,045) 1,823 (353,930) $ 69,441 - 188 - $ 214,514 $ 778 RETIREE $ AUTOMATION ACCUMULATED MOTOR OPERATIONS SICK LEAVE POOL 28,298 28,298 $ 5,975 8,472 1,802 1,531 368 1,667 19,815 8,483 - 8,488 844 (8,671) (1,918) (88) 661 19,736 20,397 $ 14,941 68 4 15,013 (1,918) 5 5 $ 13,095 13,095 $ TOTAL 8,931 8,931 $ 1,006,504 56 1,006,560 5,101 879 148 1,491 511 686 8,816 115 795,129 39,371 22,679 13,673 82,940 5,445 959,237 47,323 221 221 36 4 312 352 336 792 (72) (2,006) (151,934) 1,056 11,796 (153,940) $ 12,852 47,675 20,757 (85,290) (16,858) (173,030) $ (189,888) - 189 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (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 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 - CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Miscellaneous income 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 unearned revenues Increase in accrued insurance losses Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds Total Noncash Investing, Capital and Non-capital Financing Activities 103,737 $ (84,783) (12,470) 6,484 (2,454) (2,454) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Receipts from insurance recoveries Acquisition and construction of capital assets Net Cash Provided (Used) by Capital and Related Financing Activities Cash and Cash Equivalents - Ending TRANSPORTATION EQUIPMENT $ $ EMPLOYEE BENEFITS 27,346 $ (14,365) (13,339) 54 (304) TELECOMMUNICATION 824,336 $ (738,966) (2,642) 82,728 (192) (192) (73,761) (73,761) 968 90 (6) (10) 47 - (10) 47 - 1,052 - 6 6 - 4,030 70,163 562 413 8,957 324,604 74,193 $ (10,925) $ 41 - 975 (480) 1,374 333,561 $ 894 (11,097) $ 63,663 $ (998) 5 - 20 567 (4) 63 67 $ 6,484 $ $ - $ 19,121 $ - $ 19,121 - 190 - (52) (52) $ 10,080 - 4 (109) (1,384) 51 (15,337) 33,714 429 1,349 (827) (997) (475) 525 - (1,240) 1,800 2 4 18,529 4 (39) (304) $ 105 8 (120) 5 82,728 $ (475) $ - $ - $ - $ - RETIREE ACCUMULATED SICK LEAVE AUTOMATION OPERATIONS $ 29,045 $ (8,645) (8,444) 11,956 (8,671) (8,671) MOTOR POOL TOTAL 13,095 $ (4) (68) (12,172) 851 8,889 $ (6,273) (891) 221 1,946 1,007,797 (853,863) (38,851) (12,172) 275 103,186 (88) (88) (72) (72) (85,290) (85,290) 109 (76) - 221 (1,951) 1,345 90 (2,043) 33 - (1,730) (608) - - - 6 6 3,318 10,730 763 2,040 144 468 17,294 409,792 $ 14,048 $ $ 8,483 $ 1,531 - 2,803 $ 612 $ 427,086 (1,918) $ 115 $ 47,323 - 649 111 141 1,030 37 (4) (13) (9) 1,491 221 2,769 13,673 221 13 (55) (18) 3 207 (2) (19) (10) (558) 1,800 62 549 39 18,483 157 (15,476) (13) 33,714 3,212 $ 11,956 $ 851 $ 1,946 $ 103,186 $ 844 $ - $ 792 $ 20,757 $ 844 $ - $ 792 $ 20,757 - 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. The Administrative Office of the Courts Probation Officers (AOC) is a cost-sharing, multipleemployer pension plan within CORP that benefits county probation officers. Other Employee Benefit Trust Funds account for health insurance premium subsidies paid by the ASRS, PSPRS, EORP, CORP, and AOC, as well as long-term disability benefits paid by the ASRS to State employees and employees of other governmental entities participating in the plans. The ASRS Health Benefit Supplement Fund is a benefit cost-sharing, multiple-employer postemployment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The ASRS 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. The PSPRS Health Benefit Supplement Fund is a benefit agent multiple-employer post-employment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The EORP Health Benefit Supplement Fund is a benefit cost-sharing, multiple-employer postemployment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The CORP Health Benefit Supplement Fund is a benefit agent multiple-employer post-employment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The AOC Health Benefit Supplement Fund is a benefit cost-sharing, multiple-employer postemployment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET POSITION PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS JUNE 30, 2014 (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 assets 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 2,365 $ EORP 268,644 $ CORP 12,669 $ AOC 44,047 $ 11,834 60,474 40,792 419,880 69,136 612 545 5,397 32,652 20,001 5,147 285 1,726 664 683 1,025 1,080 6,531 1,090 10 290 1,755 849 3 591,439 63,197 4,383 8,711 2,897 1,621,617 6,671,668 20,122,143 3,327,760 1,985,698 14,784 101,399 556,947 1,793,970 538,588 403,746 634,687 785,759 519,008 425,445 435,846 29,436 94,816 28,466 21,339 33,545 41,529 27,431 22,486 23,035 111,402 358,836 107,730 80,759 126,952 157,170 103,814 85,099 87,181 29,931 96,410 28,944 21,698 34,109 42,228 27,892 22,864 23,423 33,845,069 6,093,996 322,083 1,218,943 327,499 - 3,488 245 490 132 34,438,873 6,429,325 339,380 1,272,191 342,362 27,165 293,994 47,364 20,992 1,481 1,109 3,167 4,199 851 1,128 14,784 399,465 9,760 425,445 - 22,486 - 85,099 - 22,864 - 745,168 493,801 25,076 92,465 24,843 33,693,705 - 5,935,524 - 314,304 - 1,179,726 - 317,519 - 33,693,705 $ 5,935,524 $ - 194 - 314,304 $ 1,179,726 $ 317,519 OTHER EMPLOYEE BENEFIT TRUST FUNDS ASRS ASRS PSPRS EORP CORP AOC HEALTH BENEFIT LONG-TERM HEALTH BENEFIT HEALTH BENEFIT HEALTH BENEFIT HEALTH BENEFIT SUPPLEMENT FUND DISABILITY FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND $ $ 87 $ 250 $ 10,703 $ 839 $ 3,503 $ $ 869 2,501 3,244 254 1,605 718 11 20 126 29 1 60,266 6,614 2,588 176 659 82 741,012 125,339 291,584 874,875 143,613 87,405 643 4,442 2,835 60,162 186,242 22,382 7,311 27,377 88,183 26,474 19,846 31,198 38,624 25,512 20,913 21,424 2,146 6,912 2,075 1,556 2,445 3,027 2,000 1,639 1,678 8,959 28,859 8,664 6,495 10,210 12,640 8,349 6,844 7,012 592 1,905 572 429 674 835 551 452 463 1,749,791 7,790,204 23,653,151 4,212,886 555,868 2,969,305 1,081,812 714,557 601,169 713,214 1,527,901 278,932 299,551 23,478 98,032 6,473 44,041,957 - - - - - - 4,355 1,588,254 285,796 312,842 24,493 102,194 6,786 45,142,496 1,274 12,676 280 - 1,032 81 338 22 81,582 335,571 643 17,419 - - 20,913 - 1,639 - 6,844 - 452 - 601,169 416,884 9,760 32,012 280 21,945 1,720 7,182 474 1,444,966 1,556,242 285,516 290,897 22,773 95,012 6,312 41,440,778 2,256,752 $ 285,516 $ 290,897 $ 22,773 - 195 - $ 95,012 5 35 42 - 355,172 2,641 1,731 18,308 1,087 6,647 29,852 1,556,242 83 525 47 4 231 TOTAL $ 6,312 70,529 87,478 438,188 94,532 683 9,760 39,842 $ 43,697,530 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ADDITIONS: Member contributions Employer contributions Non-employer entity contributions Member purchase of service credit Court fees $ Investment income: Net increase in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income Less investment expenses: Investment activity expenses Securities lending expenses Net investment income Other additions Total Additions DEDUCTIONS: Retirement, disability, and survivor benefits Health insurance subsidy 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 Net Position - Ending $ PSPRS 995,284 965,969 32,441 - $ EORP 141,066 413,846 10,957 - $ CORP 8,938 16,287 5,000 51 8,541 $ AOC 42,697 62,246 373 - $ 9,039 15,552 93 - 5,114,686 185,226 338,194 736,692 7,074 41,812 39,564 379 2,237 148,194 1,423 8,414 38,129 366 2,165 17,949 55,200 2,956 11,094 2,854 2,196 5,658,251 1,937 842,715 103 45,239 390 169,515 100 43,614 143,731 274 5,514,246 118,998 290 723,427 6,319 15 38,905 24,023 58 145,434 6,181 15 37,418 1,044 775 116 44 253 7,508,984 1,290,071 77,838 250,794 62,355 2,566,372 - 612,105 - 53,984 - 91,319 - 15,768 - 246,201 26,107 2,029 14,435 5,826 50 155 316 23 29,132 1,143 437 1,315 294 61 2,840,709 632,416 54,478 122,031 17,438 4,668,275 29,025,430 657,655 5,277,869 23,360 290,944 128,763 1,050,963 44,917 272,602 33,693,705 $ 5,935,524 $ - 196 - 314,304 $ 1,179,726 $ 317,519 OTHER EMPLOYEE BENEFIT TRUST FUNDS PSPRS EORP ASRS ASRS HEALTH BENEFIT LONG-TERM HEALTH BENEFIT HEALTH BENEFIT CORP AOC HEALTH BENEFIT HEALTH BENEFIT SUPPLEMENT FUND DISABILITY FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND $ $ 53,405 - $ 21,151 21,628 - $ 19,534 - $ 1,072 - $ 5,477 - $ 1,204 - TOTAL $ 1,218,175 1,576,220 5,000 43,915 8,541 223,003 8,040 14,703 45,231 - 34,372 330 1,951 2,708 26 153 11,186 107 635 701 7 40 6,394,466 202,978 410,304 779 - 2,575 202 837 52 94,498 95 246,620 45,231 90 39,318 7 3,096 29 12,794 2 802 4,949 7,107,195 6,071 11 240,538 281 44,950 5,552 13 33,753 432 1 2,663 1,813 4 10,977 114 688 313,515 681 6,792,999 29,848 - - - - - 32,080 323,791 87,729 53,287 3,735 16,454 1,892 9,676,930 101,746 - 62,044 - 13,578 951 2,728 309 3,503,338 17,566 1,137 - 2,542 247 - - - - 291,238 37,365 2,847 102,883 64,833 13,578 951 2,728 309 3,852,354 220,908 1,335,334 22,896 262,620 39,709 251,188 2,784 19,989 13,726 81,286 1,583 4,729 5,522,970 301,606 37,872,954 1,556,242 $ 285,516 $ 290,897 $ 22,773 - 197 - $ 95,012 $ 6,312 $ 43,697,530 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, 2014 (Expressed in Thousands) LOCAL CENTRAL ASSETS Cash and pooled investments with State Treasurer GOVERNMENT GOVERNMENT INVESTMENT LOCAL WATER GOVERNMENT INVESTMENT INVESTMENT POOL - CONSERVATION INVESTMENT POOL - POOL - MEDIUM-TERM DISTRICT POOL FF&C FF&C $ 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 consist of: Participant shares outstanding Participants' net position value (net position/shares outstanding) GOVERNMENT LOCAL ARIZONA Receivables, net of allowances: Accrued interest and dividends NET POSITION Held in trust for pool participants LOCAL - $ 19,000 $ - $ 2,000 $ - 1,088 453 619 519 358 301,130 5,150 306,280 1,060,944 86 1,061,030 254,201 11,479 265,680 934,704 934,704 164,856 164,856 307,368 1,080,483 266,299 937,223 165,214 13 58 11 47 8 5,150 86 11,479 - - 5,163 144 11,490 47 8 302,205 $ 299,310 $ MEDIUM-TERM 1.01 1,080,339 $ 1,080,339 $ 1.00 - 200 - 254,809 $ 246,505 $ 1.03 937,176 $ 937,176 $ 1.00 165,206 164,085 $ 1.01 LEHMAN BROTHERS POOL $ $ TOTAL - 21,000 - 3,037 4,475 4,475 2,720,310 16,715 2,737,025 4,475 2,761,062 - 137 - 16,715 - 16,852 4,475 23,735 $ $ $ 2,744,210 2,751,150 0.19 - 201 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) LOCAL LOCAL ADDITIONS: Investment income: Net increase (decrease) in fair value of investments Interest income Securities lending income Total investment income GOVERNMENT CENTRAL LOCAL GOVERNMENT LOCAL ARIZONA WATER GOVERNMENT INVESTMENT GOVERNMENT POOL - CONSERVATION INVESTMENT POOL - INVESTMENT MEDIUM-TERM DISTRICT POOL MEDIUM-TERM POOL - FF&C FF&C $ (93) $ 5,400 15 5,322 39 2,102 1 2,142 $ 982 3,548 14 4,544 $ INVESTMENT 6 979 153 1,138 $ 333 2,447 4 2,784 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 707 137 538 98 7 5,156 1,435 7 4,400 77 523 2 2,684 35,336 5,414 (25,510) - Total Additions DEDUCTIONS: Dividends to investors Total Deductions Change in net position held in trust for pool participants Net Position - Beginning Net Position - Ending 159 2,590,664 1,403 (2,678,445) 3,962 1,666,128 500 (1,818,401) - 5,582 1,648 (19,531) - 15,240 (82,416) 10,967 (151,773) (12,301) 20,396 (80,981) 15,367 (151,250) (9,617) 5,156 1,435 4,400 523 2,684 5,156 1,435 4,400 523 2,684 15,240 286,965 $ 55,317 2,866 (47,216) - 302,205 (82,416) 1,162,755 $ 1,080,339 - 202 - 10,967 243,842 $ 254,809 (151,773) 1,088,949 $ 937,176 (12,301) 177,507 $ 165,206 LEHMAN BROTHERS POOL $ TOTAL 1,751 1,751 $ - 1,639 1,751 93 15,949 (3,962) 4,353,027 11,831 (4,589,103) - (3,962) (224,245) (2,211) (208,296) - 14,198 - 14,198 (2,211) 6,686 $ 3,018 14,476 187 17,681 4,475 (222,494) 2,966,704 $ 2,744,210 - 203 - AGENCY FUNDS Agency Funds account for the receipt and disbursement of various taxes, deposits, deductions, property collected by the State, where the State acts as an agent for distribution to other governmental units or organizations. The Treasurer Custodial Securities Fund consists of securities held by the State Treasurer for various State agencies as required by statute. The Other Treasurer Funds account for other various deposits that are required to be made by other governmental units or organizations with the State Treasurer. The Other Funds consist of various funds where the State acts as an agent for distribution to other governmental units or organizations. STATE OF ARIZONA COMBINING STATEMENT OF ASSETS AND LIABILITIES AGENCY FUNDS JUNE 30, 2014 (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 - $ 50,315 TOTAL $ 50,315 - 11,685 - 58,195 8,236 69,880 8,236 3,805,147 - - 1 2 82,589 41,343 1,658 1 2 82,589 3,846,490 1,658 Total Assets $ 3,805,147 $ 11,685 $ 242,339 $ 4,059,171 LIABILITIES Due to local governments Due to others $ 3,805,147 $ 48 11,637 $ 964 241,375 $ 1,012 4,058,159 $ 3,805,147 $ 11,685 $ 242,339 $ 4,059,171 Total Liabilities - 207 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) BALANCE JULY 1, 2013 TREASURER CUSTODIAL SECURITIES FUND Assets: Custodial securities in safekeeping ADDITIONS BALANCE JUNE 30, 2014 DELETIONS $ 3,560,332 $ 6,173,677 $ 5,928,862 $ 3,805,147 $ 3,560,332 $ 6,173,677 $ 5,928,862 $ 3,805,147 $ 3,560,332 $ 6,173,677 $ 5,928,862 $ 3,805,147 $ 3,560,332 $ 6,173,677 $ 5,928,862 $ 3,805,147 $ 15,001 $ 108,586 $ 111,902 $ 11,685 Total Assets $ 15,001 $ 108,586 $ 111,902 $ 11,685 Liabilities: Due to local governments Due to others $ 48 14,953 $ 93,145 24,998 $ 93,145 28,314 $ 48 11,637 $ 15,001 $ 118,143 $ 121,459 $ 11,685 $ 53,684 213,836 3,392 $ 790,520 1,802,067 8,236 $ 793,889 1,957,708 3,392 $ 50,315 58,195 8,236 Total Assets Liabilities: Due to others Total Liabilities OTHER TREASURER FUNDS Assets: Cash and pooled investments with State Treasurer Total Liabilities OTHER FUNDS 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 Total Assets 1 2 82,552 39,905 1,782 2 82,589 41,343 1,658 2 82,552 39,905 1,782 1 2 82,589 41,343 1,658 $ 395,154 $ 2,726,415 $ 2,879,230 $ $ 153,475 $ 2,512,876 $ 2,665,387 $ 242,339 Liabilities: Due to local governments Due to others Total Liabilities 241,679 $ 395,154 1,119,762 $ 3,632,638 1,120,066 $ 3,785,453 964 241,375 $ 242,339 (Continued) - 208 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) BALANCE JULY 1, 2013 COMBINED TOTAL ALL AGENCY FUNDS 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 $ 53,684 228,837 3,392 ADDITIONS $ 1 2 82,552 3,600,237 1,782 790,520 1,910,653 8,236 BALANCE JUNE 30, 2014 DELETIONS $ 2 82,589 6,215,020 1,658 793,889 2,069,610 3,392 $ 2 82,552 5,968,767 1,782 50,315 69,880 8,236 1 2 82,589 3,846,490 1,658 Total Assets $ 3,970,487 $ 9,008,678 $ 8,919,994 $ 4,059,171 Liabilities: Due to local governments Due to others $ 153,523 3,816,964 $ 2,606,021 7,318,437 $ 2,758,532 7,077,242 $ 1,012 4,058,159 $ 3,970,487 $ 9,924,458 $ 9,835,774 $ 4,059,171 Total Liabilities - 209 - 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, 2014 (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 Other current assets Total Current Assets $ GREATER AZ DEVELOPMENT AUTHORITY RIO NUEVO 5,908 5,343 $ 13,926 - $ 1,306 - ARIZONA COMMERCE AUTHORITY $ TOTAL 9,945 120,780 2,452 - $ 23,871 127,994 2,452 5,343 3,151 922 15,324 2,672 45 1,032 17,675 15 1,321 1,673 887 440 136,177 2,672 15 1,673 4,083 2,394 170,497 7,757 599 17,342 16,482 - 11,965 - 6,657 7 11,965 17,342 7,757 23,139 606 - 11,277 - - 11,277 93 8,449 25,155 70,256 11,965 758 7,422 26,006 98,092 23,773 87,931 13,286 143,599 268,589 DEFERRED OUTFLOWS OF RESOURCES 33,791 - - - 33,791 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 2,583 613 5,330 8,526 8,332 30 4,830 13,192 7 7 731 2,452 3,183 11,646 650 2,452 10,160 24,908 Noncurrent Liabilities: Long-term debt Total Noncurrent Liabilities 44,397 44,397 72,611 72,611 - - 117,008 117,008 Total Liabilities 52,923 85,803 7 3,183 141,916 93 33,178 - 758 34,029 11,965 1,314 58,593 22,596 58,469 35,319 58,593 22,596 9,927 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, net of accumulated depreciation Total Noncurrent Assets Total Assets NET POSITION Net investment in capital assets Restricted for: Debt service Loans and other financial assistance Other Unrestricted Total Net Position 13,100 (8,552) $ 4,641 10,254 (41,304) $ - 212 - 2,128 $ 13,279 $ 140,416 $ 160,464 (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Arizona Power Authority $ Rio Nuevo Greater Arizona Development Authority Arizona Commerce Authority Total $ 28,411 $ CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS 27,744 $ - 6,687 1,376 90 - - 24,959 844 8,072 60,147 $ 29,964 - $ 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 - 214 - 8,072 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION ARIZONA GREATER AZ ARIZONA POWER DEVELOPMENT COMMERCE AUTHORITY AUTHORITY AUTHORITY $ RIO NUEVO (667) $ - - - - 8 17 (642) 5,283 $ - 4,641 $ (5,311) 2,128 $ - 210 120 13,159 13,279 $ $ - 215 - (667) (5,311) - - $ - (90) 9,117 54 3,860 (1,732) $ - TOTAL (90) (16,043) (16,043) 12,637 997 57 36,924 34,572 105,844 9,117 12,637 1,269 57 36,924 17 37,910 122,554 140,416 $ 160,464 NON-MAJOR UNIVERSITIES –AFFILIATED COMPONENT UNITS 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 Downtown Phoenix Student Housing, LLC, the ASU Preparatory Academy, Inc. (ASU Prep) –formerly known as the University Public Schools, Inc., and Campus Research Corporation (CRC). The Downtown Phoenix Student Housing, LLC is included due to the nature and significance of the financial arrangement that it has with the State and that the State believes would be misleading to exclude. The ASU Prep is included because of its close affiliation to the State and that the State believes it would be misleading to exclude. 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. 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. The Arizona State University Preparatory Academy, 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. The 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, 2014 (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 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 $ 1,290 SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. $ $ $ 2,849 396 1,817 ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ 253 7,059 537 7,596 5,025 183 5,208 - 17,535 17,535 78 108 186 129,783 12,065 141,848 - 8,545 664 9,209 1,291 1,291 16,357 16,357 7,375 - - - - 964 10 172 31 5,029 2,554 42 159,073 8,239 9,636 28,226 16,838 146 443 5 130 106 27,545 5,422 2,001 20 - 4,000 7,000 13,303 1,546 33 12 35,114 463 4,005 21,979 151 59,295 52,378 12,286 7,287 489 1,842 841 2,948 6,247 302 16,385 123,959 $ - 218 - 7,776 $ 5,631 $ 6,247 $ 16,687 DOWNTOWN PHOENIX STUDENT HOUSING $ $ 1,398 ARIZONA STATE UNIVERSITY PREPARATORY ACADEMY, INC. $ UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION 3,355 $ 804 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 4,803 1,354 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ TOTAL 267 $ 18,586 107 107 554 554 425 425 961 961 108 726 834 43 43 12,695 20,754 33,449 14,675 14,675 - 11,339 188 11,527 - 6,840 6,840 - 188,830 12,917 201,747 - - - - - - 7,375 98,163 5,761 286 17 7 18,620 6,294 53 79 20 122,161 15,941 120,104 4,212 12,763 30,678 9,160 330 399,259 16,025 859 212 1,069 180 - 19,175 139,783 11 1,961 181 1,523 500 11 6,654 3,267 765 28 2,385 - - 27,545 153,646 25,964 10,796 157,780 3,063 223 11,755 2,593 - 237,126 (37,676) 1,149 4,643 4,459 3,438 18,923 6,567 192 138 65,780 65,459 30,894 (37,676) $ 1,149 $ 12,540 $ 18,923 - 219 - $ 6,567 $ 330 $ 162,133 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income Grants and aid 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 items (Primarily equity transfers) SUN ANGEL ENDOWMENT $ $ $ 15,068 506 10 30 Net Assets - Beginning, as restated $ 655 - 8,854 5 67 ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ 2,649 2,321 2,173 71 34,007 15,614 655 8,926 7,214 7,178 517 3,074 1,176 - 10,871 1,426 1,343 113 173 - 2,046 1,023 328 411 151 5,340 194 11,945 13,640 286 3,959 5,534 22,062 1,974 369 4,967 1,680 - - - - 21,590 1,974 369 4,967 1,680 102,369 5,802 5,262 1,280 15,007 (472) Increase (decrease) in Net Assets, after extraordinary items Net Assets - Ending 13,468 16,538 4,001 SUN ANGEL FOUNDATION ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. 123,959 $ 7,776 - 220 - $ 5,631 $ 6,247 $ 16,687 DOWNTOWN PHOENIX STUDENT HOUSING $ 10,017 19 153 ARIZONA STATE UNIVERSITY PREPARATORY ACADEMY, INC. $ 2,856 1,083 1 11,846 417 $ 3,372 1,374 289 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 11,681 8 646 223 1,107 785 2,474 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ TOTAL 23 1,065 200 $ 37,659 30,552 6,082 21,568 11,846 8,348 10,189 16,203 5,035 12,335 4,589 1,288 116,055 2,797 7,235 4,807 817 14,699 - 1,576 82 88 - 10,330 1,283 - 3,032 710 190 - 166 726 116 - 13,083 10,330 5,334 7,178 28,106 3,352 7,736 6,394 2,505 15,656 14,699 1,746 11,613 3,932 1,008 84,018 (5,467) 1,504 3,289 722 657 280 32,037 - - - - - 1,504 3,289 722 657 280 31,565 9,251 18,201 5,910 50 130,568 - (5,467) (32,209) $ UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION (37,676) (355) $ 1,149 $ 12,540 $ 18,923 - 221 - $ 6,567 $ 330 (472) $ 162,133 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, 2014 (Expressed in Thousands) GOVERNMENTAL ACTIVITIES: Net investment in capital assets Restricted (3) Unrestricted Total Governmental Activities Net Position BUSINESS-TYPE ACTIVITIES: Net investment in capital assets (4) Restricted Unrestricted (2,4) Total Business-type Activities Net Position PRIMARY GOVERNMENT: Net investment in capital assets (4) Restricted (3) Unrestricted (2,4) Total Primary Government Net Position Fiscal Year 2013, as 2012, as 2014 restated restated 2011 2010 $ 18,027,844 $ 6,829,299 (2,663,019) 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) $ 22,194,124 $ 20,998,697 $ 19,036,773 $ 17,208,272 $ 16,231,055 $ 1,581,436 660,480 1,227,233 $ 1,526,777 531,972 1,049,391 $ 1,483,416 496,444 810,810 $ 1,397,683 501,437 695,862 $ 1,352,658 550,102 576,426 $ 3,469,149 $ 3,108,140 $ 2,790,670 $ 2,594,982 $ 2,479,186 $ 19,609,280 $ 7,489,779 (1,435,786) 18,936,832 $ 6,648,055 (1,478,050) 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) $ 25,663,273 24,106,837 21,827,443 19,803,254 18,710,241 $ $ $ $ (1) This schedule reports using the accrual basis of accounting. (2) Fiscal year 2012 unrestricted net position was restated as a result of GASB Statement No. 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. (4) Fiscal year 2013 unrestricted net position for the Universities was restated as a result of GASB Statement No. 65 to expense debt issuance costs. - 226 - Fiscal Year 2007, as 2006, as 2005, as 2009 2008 restated restated restated $ 15,094,719 $ 3,990,594 (2,984,628) 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) $ 16,100,685 $ 18,412,986 $ 18,848,863 $ 17,172,474 $ 14,300,734 $ 1,328,658 1,085,399 376,908 $ 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 $ 2,790,965 $ 3,157,221 $ 3,057,545 $ 2,726,597 $ 2,488,877 $ 16,423,377 $ 5,075,993 (2,607,720) 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) $ 18,891,650 21,570,207 21,906,408 $ 19,899,071 $ 16,789,611 $ $ - 227 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) Fiscal Year 2014 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 (8) Unemployment Compensation (6) Industrial Commission Special Fund (3) Lottery (6) 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 (6) Other activities Operating grants and contributions Capital grants and contributions Total Business-type Activities Program Revenues Total Primary Government Program Revenues 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 2,778,299 279,525 24,724,362 $ 4,078,053 36,895 1,130,299 5,245,247 2013, as 2012, as restated restated 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 $ 3,888,145 38,614 1,329,816 5,256,575 840,189 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 3,343,377 2,103,028 67,750 432,150 126,029 6,072,334 $ 29,969,609 $ 29,195,634 $ 28,936,617 $ 30,032,054 $ 30,962,661 $ 188,943 157,149 113,267 477,564 12,172,836 546,680 $ 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 $ 13,656,439 13,091,702 12,983,544 14,163,286 15,188,803 2,056,307 1,325,046 1,343,922 41,250 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 4,766,525 4,767,876 4,742,768 4,972,588 4,765,435 18,422,964 $ 17,859,578 $ 17,726,312 $ 19,135,874 $ 19,954,238 NET (EXPENSE) REVENUE Governmental activities Business-type activities $ (11,067,923) $ (478,722) (10,847,357) $ (488,699) (10,560,507) $ (649,798) (10,097,720) $ (798,460) (9,701,524) (1,306,899) Total Primary Government Net (Expense) $ (11,546,645) $ (11,336,056) $ (11,210,305) $ (10,896,180) $ (11,008,423) - 228 - Fiscal Year 2009 $ 928,485 12,055,439 176,354 6,084,342 1,514,282 695,070 228,430 2,755,710 222,851 24,660,963 2008 $ 3,290,033 1,086,330 30,055 395,950 142,229 4,944,597 982,382 10,884,297 185,996 6,242,173 1,510,615 670,173 250,258 3,023,836 179,795 23,929,525 $ 3,227,481 356,333 14,824 372,740 162,300 4,133,678 2007, as 2006, as restated restated 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 2,864,543 191,674 21,987,059 $ 2,960,790 248,111 23,669 363,508 176,486 3,772,564 781,542 9,057,733 159,766 5,304,555 1,279,129 386,777 187,947 2,658,636 172,439 19,988,524 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 2,540,193 292,127 106,295 317,226 120,629 3,376,470 $ 29,605,560 $ 28,063,203 $ 25,759,623 $ 23,472,950 $ 21,984,348 $ 199,011 153,642 138,520 315,660 10,620,642 553,198 $ 190,374 159,857 149,560 318,776 9,190,910 523,898 $ 200,495 158,022 158,019 281,796 8,536,030 354,255 $ 161,664 146,191 134,068 279,836 7,941,223 388,646 $ 139,486 133,073 88,296 256,804 7,544,370 497,140 $ 11,980,673 10,533,375 9,688,617 9,051,628 8,659,169 1,272,694 484,486 439,010 1,243,697 14,710 1,167,696 472,937 485,242 898,441 38,029 1,069,339 462,200 518,922 883,373 27,981 962,967 468,697 474,801 852,788 30,056 863,042 397,561 440,646 834,421 19,774 3,454,597 3,062,345 2,961,815 2,789,309 2,555,444 15,435,270 $ 13,595,720 $ 12,650,432 $ 11,840,937 $ 11,214,613 $ (12,680,290) $ (1,490,000) (13,396,150) (1,071,333) $ (12,298,442) (810,749) $ (10,936,896) (695,117) $ (9,948,709) (821,026) $ (14,170,290) $ (14,467,483) $ (13,109,191) $ (11,632,013) $ (10,769,735) (Continued) - 229 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) Fiscal Year 2014 GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Sales Income Tobacco Property Motor vehicle and fuel (4) Other Unrestricted investment earnings (5) Unrestricted grants and contributions Miscellaneous general revenues (7) 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 Contributions to permanent endowments Special items Extraordinary items Transfers Total Business-type Activities 2013, as 2012, as restated restated 2011 2010 5,948,055 $ 3,963,197 314,313 41,215 1,650,579 547,481 79,215 37,926 176,035 83,695 (578,361) 12,263,350 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 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 63,669 108,296 107 78,837 6,561 3,900 578,361 839,731 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 52,318 70,766 52,072 3,020 7,080 809,864 995,120 Total Primary Government $ 13,103,081 $ 13,615,450 $ 13,233,159 $ 11,989,193 $ CHANGE IN NET POSITION Governmental activities Business-type activities $ 1,195,427 361,009 $ 1,961,924 317,470 $ 1,828,501 194,353 $ 977,217 115,796 $ 130,370 (311,779) Total Primary Government $ 1,556,436 $ 2,279,394 $ 2,022,854 $ 1,093,013 $ (181,409) (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 year 2005, insolvent carrier liability increased, primarily as the result of $67,423 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) 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. (6) For fiscal year 2013, Unemployment Compensation and Lottery changed from major to non-major funds. (7) Fiscal year 2012 miscellaneous general revenues was restated as a result of an agency fund being reclassified to a special revenue fund. (8) Fiscal year 2013 expenses for the Universities were restated as a result of GASB Statement No. 65 to expense debt issuance costs. - 230 - 10,827,014 Fiscal Year $ 2009 2008 5,442,563 $ 3,126,076 370,073 32,564 1,643,276 574,030 92,957 12,440 222,712 (165,696) (983,006) 10,367,989 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 58,528 22,450 45,786 4,014 7,240 2,720 983,006 1,123,744 $ 72,945 39,763 64,564 3,927 (20,100) 15,475 994,435 1,171,009 $ 11,491,733 $ $ (2,312,301) $ (366,256) $ (2,678,557) $ 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 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 57,584 40,311 5 26,017 2,955 707,597 834,469 $ 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 (336,201) $ 2,007,337 $ 3,109,460 $ 1,671,769 - 231 - STATE OF ARIZONA SCHEDULE 3 FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) Fiscal Year 2012, as 2014 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 Capital projects funds Nonspendable (2) Restricted (2,3) Committed (2) Unassigned (2) Total All Other Governmental Funds $ 2013 - $ 9,600 124,390 79,837 (189,238) - $ 891 246,977 109,469 (437,035) - $ 716 317,471 141,183 (1,162,531) 14,764 55,354 232 (817,348) - (79,698) $ (703,161) $ (746,998) $ 423,203 $ $ - $ - $ 7,325,058 4,160,485 1,860,872 661,110 (26,266) $ restated (2) $ 24,589 $ 2011 844 192,187 73,237 156,935 $ 4,878,682 1,741,674 734,446 (29,744) 2010, as restated 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) $ 5,189,510 821,491 $ (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 No. 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. - 232 - 809,497 45,403 2,674,953 116,350 26,389 40,327 4,534,410 Fiscal Year 2007, as 2009 2008 restated 2006 2005 $ 2,767 $ 376,993 43,091 252 (1,401,381) - 147,212 1,914 103,320 262 108,914 - $ 673,531 4,931 162,657 272 1,081,708 - $ 651,020 110,149 69,861 302 1,434,806 - $ 160,873 107,260 55,727 374 986,168 - $ (978,278) $ 361,622 $ 1,923,099 $ 2,266,138 $ 1,310,402 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 $ 1,304,781 108,129 2,196,040 212,553 27,115 7,447 $ 767,258 $ 4,623,323 919,679 $ 5,162,384 793,890 $ 4,376,955 657,371 $ 3,294,841 574,938 $ - 233 - 2,891,226 STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) Fiscal Year 2012, as 2014 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 $ 5,933,824 4,012,603 314,313 41,215 1,650,579 547,481 11,752,711 475,833 739,859 185,682 171,161 86,326 100,765 86,319 300,436 26,399,107 2013 $ 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 25,639,164 750,163 12,643,455 161,318 5,572,414 1,360,387 687,798 193,043 2,778,299 812,770 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 2,574,539 493,592 312,024 829,630 25,782,123 412,617 329,773 765,339 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 26,456,311 616,984 1,616,154 1,342,012 860,909 - 234 - (817,147) Fiscal Year 2007, as 2009 $ 2008 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 $ 2005 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 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 6,313,090 4,535,492 248,122 43,035 1,857,293 575,946 8,019,509 410,069 247,250 162,048 138,354 84,794 86,231 269,411 22,990,644 $ 5,410,383 3,528,565 237,430 46,148 1,758,950 493,501 7,714,012 335,760 190,499 154,251 121,123 67,658 93,933 430,097 20,582,310 913,266 11,959,640 174,633 6,031,605 1,460,692 608,631 220,030 2,764,776 966,512 10,874,581 184,451 6,240,862 1,447,372 630,283 242,893 3,026,563 879,519 9,679,226 173,897 5,983,513 1,358,439 524,318 185,592 2,863,218 861,373 8,995,430 157,401 5,302,942 1,247,508 373,603 178,832 2,661,894 758,149 8,419,913 146,523 4,852,099 1,132,473 564,574 175,593 2,335,828 235,971 238,430 1,295,530 25,903,204 261,228 210,856 1,106,951 25,192,552 220,473 195,317 992,000 23,055,512 261,277 176,933 1,066,815 21,284,008 381,512 200,731 710,688 19,678,083 (2,314,174) (1,037,268) 919,866 1,706,636 904,227 (Continued) - 235 - STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2014 (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 $ 2010, as 2014 2013 restated 2011 restated 904,261 (1,397,332) 900 782,420 (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) 3,088 113,914 29,130 - 15,158 51,550 837,340 (954,372) 194,295 - 8,166 9,541 455,900 (560,228) 259,460 43,825 - 305,675 62,630 (310,059) 6,770 (346,741) (42,096) 136,210 (171,637) 270,243 $ 1,444,517 3.2% 4,583 11,113 180,000 158,585 187,836 32,628 425,420 - - - 90,753 (193,474) $ 1,148,538 3.1% 150,110 42,291 (161,972) $ 698,937 3.1% (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 No. 54. (8) Fiscal year 2012 other revenues was restated as a result of an agency fund being reclassified to a special revenue fund. - 236 - 3.0% 998,795 77,709 959,514 $ 142,367 2.3% Fiscal Year 2007, as 2009 2008 restated 2006 2005 1,248,267 (2,168,964) 2,127 897,771 (1,874,084) 249,970 28,233 910,605 (1,784,833) 199,089 10,162 812,083 (1,585,754) 284,293 11,118 1,011,456 (1,714,562) 274,127 - 3,543 596,160 (646,689) 118,250 - 5,350 224,283 (247,417) 210,577 104,385 4,056 23,139 621,050 55,420 $ 23,556 19,529 82,880 (86,547) 563,950 68,000 - - 580,035 70,083 435,213 238,990 48,972 261,220 (1,878,961) $ 1.9% (776,048) $ 2.0% 132,985 325,000 - - 26,201 (180,791) 739,075 1.9% 334,225 59,711 (347,285) $ 1,359,351 (363,052) 237,625 100,509 177,506 $ 2.2% - 237 - 1,081,733 3.1% STATE OF ARIZONA SCHEDULE 5 NET TAXABLE SALES BY CLASSIFICATION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) Fiscal Year 2014 CLASSIFICATION (5) 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 Retail Hotel/motel Rental occupancy tax (7) Use tax Use tax-utilities (6) Membership camping (7) Total Direct sales tax rate (4) 2013 2012 2011 2010 2009 $ 54,981 116,678 1,047,580 9,923,490 2,965,233 5,616 101,751 321,225 11,085,652 1,096,945 2 3,355,048 11,269,503 55,257,510 2,334,373 4,749,508 62,511 - $ 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 $ 103,747,606 $ 98,276,129 $ 94,275,888 $ 89,266,927 $ 87,428,683 $ 96,321,552 5.60% 6.60% 6.60% 6.60% 5.60% 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) A significant portion of the revenue base was subject to a sales tax rate of 5.6% for fiscal years 2005 through 2010, and 2014. The sales tax rate was 6.6% for fiscal years 2011 through 2013. For fiscal years 2005 through 2014, the tax rate for non-metal mining, oil and gas was 3.125%, the mining severence 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 2005 through 2010, and 2014. The hotel/motel tax rate was 6.5% for fiscal years 2011 through 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 rate by one percentage point beginning June 1, 2010 and ending May 31, 2013, which is reflected in this table. (5) 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. (6) Use tax-utilities was not reported prior to fiscal year 2008. Fiscal years 2005 through 2008 were reported beginning in fiscal year 2008. (7) Effective November 1, 2006, membership camping and rental occupancy were repealed. Source: Arizona Department of Revenue Annual Reports for fiscal years 2014 and prior. - 238 - Fiscal Year 2008 $ $ 2007 48,713 216,675 1,752,522 9,237,779 3,669,683 16,021 122,652 391,038 9,663,959 1,146,344 (443) 3,995,697 20,156,299 52,626,993 2,405,705 (2,669) 6,837,880 12,461 52 112,297,361 5.60% $ $ 2006 43,351 255,531 1,743,361 8,609,034 3,513,667 19,679 129,681 397,802 9,619,785 1,086,364 (2) 3,927,824 22,415,051 55,009,403 2,411,634 1,065 6,091,507 12,154 12 115,286,903 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% $ 53,371 317,202 656,631 6,828,179 2,934,858 14,832 134,925 367,010 7,939,964 872,520 919 3,242,363 16,044,847 46,378,344 2,063,973 2,414 5,218,535 234 2,897 $ 93,074,018 5.60% - 239 - (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 2014 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 2,749 3,646 26,190 496,174 148,262 281 5,088 16,061 554,283 54,847 167,755 563,368 2,762,875 128,390 3,126 235,985 567 3,190 382 72 179 601,854 - $ Fiscal Year 2005 Tax 5,775,324 0.05 % 0.06 0.45 8.59 2.57 0.09 0.28 9.60 0.95 2.90 9.75 47.85 2.22 0.05 4.09 0.01 0.06 0.01 - $ 2,662 9,899 16,399 40 340,918 146,523 741 6,735 18,323 396,430 43,562 31 161,861 797,215 2,315,028 113,372 72 12 259,616 377 145 5,341 890 10 10.42 100.00 % (292) 538,346 $ 5,174,256 0.05 % 0.19 0.32 6.59 2.83 0.01 0.13 0.35 7.66 0.84 3.13 15.41 44.76 2.19 5.02 0.01 0.10 0.02 (0.01) 10.40 100.00 % (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 2014 and 2005. - 241 - STATE OF ARIZONA SCHEDULE 7 PERSONAL INCOME BY INDUSTRY (3) FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2013 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) $ $ 2012 897,344 450,381 1,445,046 1,576,226 9,667,198 13,648,768 8,564,114 12,612,930 5,264,736 3,456,440 12,413,522 5,093,673 13,522,336 2,871,785 9,976,354 2,905,732 20,797,511 1,953,388 6,369,701 $ 2011 710,024 453,713 1,376,603 1,547,513 8,969,224 13,580,518 8,748,032 12,511,242 5,188,604 3,112,924 11,320,012 4,777,863 13,032,658 2,526,166 9,245,292 2,939,848 20,206,297 1,892,513 6,148,099 $ 2010 1,131,622 440,489 1,223,284 1,581,577 8,295,293 13,032,386 8,188,350 12,316,131 4,948,388 2,926,787 10,426,744 4,111,488 12,551,710 2,291,182 8,854,837 2,745,004 19,681,806 1,694,718 5,848,103 $ 2009 677,207 437,051 996,532 1,524,831 8,404,395 12,403,418 7,861,098 11,649,145 4,563,008 2,825,917 9,884,023 3,239,757 11,801,237 2,193,738 8,522,260 2,589,823 18,964,490 1,671,411 5,569,987 $ 2008 486,248 413,290 967,718 1,552,827 9,501,698 12,357,432 7,952,813 11,542,983 4,575,730 3,047,084 9,453,310 3,100,084 12,076,361 2,462,194 8,707,357 2,333,676 18,164,486 1,619,892 5,570,360 $ 645,380 408,317 1,326,946 1,566,139 13,110,247 13,699,896 8,566,548 12,327,789 4,837,443 3,120,325 9,801,188 3,922,054 13,136,870 2,470,198 9,567,920 2,075,080 17,594,905 1,693,891 5,928,434 6,270,067 6,021,622 5,628,164 5,392,701 5,381,320 5,502,130 29,763,504 75,549,701 29,526,390 76,094,113 29,068,350 72,732,781 28,810,035 67,873,581 28,547,342 65,821,736 28,488,923 64,870,564 245,070,457 1.41% $ 239,929,270 $ 229,719,194 1.42% 1.35% $ 217,855,645 $ 215,635,941 1.32% (1) Includes dividends, interest, rental income, personal current transfer receipts, adjustment for residence, and deductions for government social insurance. (2) The total direct rate for personal income is not available. Average effective rate equals tax collections for the fiscal year, ending the following June 30, divided by personal income. (3) Personal income estimates for years 2004 through 2012 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. - 242 - 1.12% $ 224,661,187 1.15% Calendar Year Ended December 31 2007 $ $ 2006 837,363 457,453 991,202 1,455,783 15,562,946 13,674,920 8,624,381 13,128,380 5,055,292 3,067,970 10,409,468 3,858,585 12,490,540 2,426,609 9,617,313 1,844,838 16,010,696 1,659,932 6,014,942 $ 2005 709,433 461,631 854,763 1,325,521 16,395,985 13,432,145 7,718,890 12,816,987 4,797,771 3,063,223 10,282,521 4,683,954 11,469,765 2,020,026 9,208,807 1,706,338 14,677,313 1,608,229 5,624,322 $ 2004 994,693 399,051 677,482 1,150,823 13,912,787 12,365,657 6,990,167 11,678,494 4,291,039 2,900,864 9,477,950 4,388,068 9,884,137 1,650,697 8,142,287 1,565,536 13,076,104 1,409,468 5,141,305 $ 1,023,936 405,671 602,636 1,042,553 11,757,853 12,021,366 6,436,540 10,565,203 4,013,891 2,975,891 8,283,193 3,754,621 8,667,998 1,863,600 7,058,323 1,436,933 12,044,387 1,382,374 4,736,028 5,782,401 5,597,351 4,900,222 4,392,104 26,957,426 61,247,018 25,039,926 56,405,799 23,302,238 50,981,563 21,715,202 44,658,533 221,175,458 1.54% $ 209,900,700 1.75% $ 189,280,632 1.93% $ 170,838,836 1.67% - 243 - STATE OF ARIZONA SCHEDULE 8 PERSONAL INCOME TAX RATES FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2013 AVERAGE EFFECTIVE RATE (3) Personal Income Tax Revenue (1) Personal Income (2) Average Effective Rate (3) $ $ 2012 3,463,272 245,070,457 1.41% 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% $ $ 2011 3,398,902 239,929,270 1.42% $ $ 2.59% 2.88% 3.36% 4.24% 4.54% 2010 3,099,177 229,719,194 1.35% $ $ 2.59% 2.88% 3.36% 4.24% 4.54% 2009 2,870,765 217,855,645 1.32% $ $ 2,423,215 215,635,941 1.12% 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 2004 through 2012 have been revised to reflect revisions made by the U.S. Bureau of Economic Analysis. (3) The total direct rate for personal income is not available. Average effective rate equals tax collections for the fiscal year, ending the following June 30, divided by personal income. (4) Amounts shown are for single and married filing separate returns. For all other filing status returns, double the amounts for the income tax ranges. Per the Arizona Constitution, Article 9, Section 22, the Legislature can raise tax rates with a vote of two-thirds of the members of each house. Source: Arizona Department of Revenue 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 2011 AND 2004 (1) (Expressed in Thousands, Except Number of Filers) Taxable Year Ended December 31, 2011 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 1,821,103 541,104 298,888 12,025 68.13% 20.24% 11.18% 0.45% $ 426,558 690,581 1,209,916 683,357 14.18% 22.94% 40.18% 22.70% Total 2,673,120 100.00% $ 3,010,412 100.00% (1) The taxable year 2011 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 2011, filed from January 2012 forward (or 2004, filed from January 2005 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. - 244 - Calendar Year Ended December 31 2008 $ $ 2007 2,575,453 224,661,187 1.15% 2.59% 2.88% 3.36% 4.24% 4.54% $ $ 2006 3,414,304 221,175,458 1.54% $ $ 2.59% 2.88% 3.36% 4.24% 4.54% 2005 3,666,923 209,900,700 1.75% 2.73% 3.04% 3.55% 4.48% 4.79% $ $ 2004 3,651,576 189,280,632 1.93% $ $ 2.87% 3.20% 3.74% 4.72% 5.04% Taxable Year Ended December 31, 2004 Number of Percentage Filers of Total Percentage Liability (2) of Total 1,628,589 475,463 200,326 11,369 70.33% 20.53% 8.65% 0.49% $ 457,689 672,749 931,118 743,267 16.32% 23.99% 33.19% 26.50% 2,315,747 100.00% $ 2,804,823 100.00% - 245 - 2,854,009 170,838,836 1.67% 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, 2014 (Expressed in Thousands, Except Amount of Debt per Capita) Fiscal Year 2014 GOVERNMENTAL ACTIVITIES: Revenue bonds Grant anticipation notes Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amount on refundings (2) Total Governmental Activities $ BUSINESS-TYPE ACTIVITIES: Revenue bonds Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amount on refundings (2) Total Business-type Activities Total Primary Government 3,406,195 247,710 2,200,675 449,209 89,865 427,865 6,821,519 $ 2,302,035 676,345 132,957 4,098 130,315 3,245,750 $ Debt as a Percentage of Personal Income (1) Amount of Debt per Capita (1) 2013 10,067,269 $ 4.1% $ 1,519 2012 2010 2009 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 2,237,710 714,735 135,519 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 10,355,167 $ 10,206,168 4.3% $ 2011 1,581 $ 4.4% $ 1,578 10,088,915 $ 4.6% $ 1,574 9,937,266 $ 4.6% $ 1,567 3.6% $ 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 2014 contains data for the calendar year ending December 31, 2013. (2) Implementation of GASB Statement No. 65 in fiscal year 2014 required the amortization of deferred amount on refundings to be reported as deferred outflows of resources. - 246 - 8,115,545 1,292 Fiscal Year $ $ 2008 2007 2006 2005 2,759,070 $ 298,280 1,135,640 249,876 8,908 22,838 242,816 (13,145) 4,704,283 2,328,840 $ 282,860 959,865 242,209 10,644 3,309 225,071 (14,266) 4,038,532 2,106,700 $ 325,430 1,020,810 129,808 6,815 219,958 (17,832) 3,791,689 2,170,845 363,970 1,054,677 126,676 6,926 197,479 3,920,573 902,255 903,843 179,052 13,024 1,022 38,211 (27,711) 2,009,696 868,565 935,127 166,780 9,544 1,354 39,582 (29,211) 1,991,741 802,600 946,766 113,388 10,279 38,331 (21,606) 1,889,758 768,000 860,759 120,361 7,276 30 36,133 (20,821) 1,771,738 6,713,979 $ 3.0% $ 1,089 6,030,273 $ 2.9% $ 1,000 5,681,447 $ 3.0% $ 973 5,692,311 3.3% $ 1,007 - 247 - 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, 2014 (Expressed in Thousands) Total Principal Outstanding Debt Limit (1) Total Principal Total Applicable to Principal Fiscal Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Debt Limit $ - $ 1,300,000 1,300,000 the Limit as Applicable Legal Debt a Percentage to Limit Margin of Debt Limit - % 94.11 89.34 - $ 1,223,425 1,161,355 76,575 138,645 (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 A.R.S. § 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 NINE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2014 (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 2014 40,586 5.80 % 2013 $ 1,844,828 1,710,909 $ 147,586 136,873 $ 107,000 94,100 $ 42,773 5.50 % 2012 1,612,000 128,960 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 through 2014, projections are based upon the University's fiscal years 2008-2010, 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, 2015-2017, and 2016-2018 capital improvement plans, respectively. (3) Per A.R.S. § 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. - 248 - STATE OF ARIZONA SCHEDULE 13 LEGAL DEBT MARGIN INFORMATION UNIVERSITY OF ARIZONA FOR THE LAST EIGHT FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2014 (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 2014 $ 1,739,216 $ 139,137 $ 88,700 $ 50,437 5.10 % 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 through 2014, projections are based upon the University's fiscal years 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, 2015-2017, and 2016-2018 capital improvement plans, respectively. (3) Per A.R.S. § 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 EIGHT FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2014 (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 2014 14,121 5.09 % 2013 $ 485,265 453,039 $ 38,821 36,243 $ 24,700 24,600 $ 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 through 2014, projections are based upon the University's fiscal years 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, 2015-2017, and 2016-2018 capital improvement plans, respectively. (3) Per A.R.S. § 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. - 249 - 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, 2014 (Expressed in Thousands) (1), (2) Fiscal Pledged Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Revenue 537,768 512,971 392,648 504,175 502,874 509,183 658,616 635,140 624,408 461,763 $ Debt Service Principal $ 58,485 60,540 67,885 71,770 68,140 64,190 60,645 57,825 54,830 44,265 $ Interest 80,495 78,198 71,113 83,960 87,661 89,825 75,538 73,785 62,222 60,459 $ Total 138,980 138,738 138,998 155,730 155,801 154,015 136,183 131,610 117,052 104,724 Coverage 3.9 3.7 2.8 3.2 3.2 3.3 4.8 4.8 5.3 4.4 (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, 2014 (Expressed in Thousands) (1) Fiscal Pledged Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Revenue $ 243,786 227,800 216,281 206,545 199,672 219,165 253,742 262,264 316,491 316,806 Debt Service Principal $ 58,600 55,870 55,460 45,970 33,315 13,825 19,045 80,375 208,625 $ Interest 44,988 47,721 48,129 42,496 38,225 17,193 10,673 1,566 14,318 $ Total 103,588 103,591 103,589 88,466 71,540 31,018 29,718 81,941 222,943 Coverage 2.4 2.2 2.1 2.3 2.8 7.1 8.5 N/A 3.9 1.4 (1) The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. - 250 - 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, 2014 (Expressed in Thousands) (1) Fiscal Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 (2) Pledged $ Revenue 601,854 567,824 542,395 514,346 504,391 558,900 645,828 666,184 628,471 538,346 Debt Service $ Principal 46,720 43,680 41,405 39,215 37,230 35,420 33,810 31,055 34,480 28,485 Interest 9,575 13,487 22,804 25,088 27,074 28,885 30,498 31,893 30,052 36,060 $ $ Total 56,295 57,167 64,209 64,303 64,304 64,305 64,308 62,948 64,532 64,545 Coverage 10.69 9.93 8.45 8.00 7.84 8.69 10.04 10.58 9.74 8.34 (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, 2014 (Expressed in Thousands) (1) Fiscal Pledged Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Revenue $ 57,345 49,645 39,155 42,191 38,147 72,263 72,263 72,263 72,263 72,263 Debt Service Principal $ 19,275 18,315 17,400 16,535 15,710 15,105 14,470 13,980 13,440 13,740 $ Interest 4,971 5,933 6,846 7,714 8,539 9,143 8,400 11,524 12,061 11,960 $ Total 24,246 24,248 24,246 24,249 24,249 24,248 22,870 25,504 25,501 25,700 Coverage 2.37 2.05 1.61 1.74 1.57 2.98 3.16 2.83 2.83 2.81 (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. - 251 - STATE OF ARIZONA SCHEDULE 19 PLEDGED-REVENUE COVERAGE LOTTERY REVENUE BONDS FOR THE LAST FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) Debt Service (2) Fiscal Pledged Year 2014 2013 2012 2011 Revenue 174,374 174,373 96,200 96,200 $ $ Principal 17,445 16,790 - $ Interest 20,055 20,710 20,709 21,630 Total 37,500 37,500 20,709 21,630 $ Coverage 4.65 4.65 4.65 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, 2014 (Expressed in Thousands) Debt Service (1) Fiscal Pledged Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Revenue 1,161,306 1,047,661 977,828 876,770 782,727 702,797 638,707 580,102 505,890 458,177 $ Net Payments (Receipts) On $ Principal 44,770 33,965 31,215 28,595 26,975 21,555 19,135 17,125 14,625 11,205 $ Interest 43,623 41,477 39,560 35,051 33,003 21,896 16,682 21,339 17,313 16,307 Swap Agreements $ 3,507 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. - 252 - $ Total 91,900 79,073 74,387 67,437 63,694 47,143 38,265 38,650 31,938 27,512 Coverage 12.64 13.25 13.15 13.00 12.29 14.91 16.69 15.01 15.84 16.65 STATE OF ARIZONA SCHEDULE 21 PLEDGED-REVENUE COVERAGE UNIVERSITY OF ARIZONA REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2014 (Expressed in Thousands) (1) Fiscal Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 $ (1), (2) Direct Net Revenue Gross Operating Available for Revenues 1,400,095 1,356,478 1,226,227 1,215,062 1,128,091 1,044,354 1,113,954 982,559 897,706 830,077 $ Expenses 1,261,247 1,199,559 1,126,649 1,056,408 962,469 911,440 1,005,572 899,084 836,657 774,014 Debt Service $ 138,848 156,919 99,578 158,654 165,622 132,914 108,382 83,475 61,049 56,063 Debt Service $ Principal 22,600 21,895 17,375 24,720 23,860 22,725 21,235 17,440 12,355 11,815 $ Interest 38,250 34,556 31,480 28,571 24,593 15,437 14,978 14,166 13,433 11,817 $ (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, 2014 (Expressed in Thousands) (1), (2), (3) Fiscal Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Gross $ Revenues 283,468 263,733 246,098 220,538 198,197 164,877 143,733 136,100 129,608 110,981 Debt Service $ Principal 6,615 6,610 5,835 24,310 6,545 6,570 10,455 9,610 10,310 10,065 $ Interest 17,305 15,474 15,028 14,712 10,912 7,383 6,628 5,943 6,603 6,060 $ Total 23,920 22,084 20,863 39,022 17,457 13,953 17,083 15,553 16,913 16,125 Coverage 11.85 11.94 11.80 5.65 11.35 11.82 8.41 8.75 7.66 6.88 (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. (2) Fiscal year 2013 gross revenue was revised by NAU in fiscal year 2014. - 253 - Total 60,850 56,451 48,855 53,291 48,453 38,162 36,213 31,606 25,788 23,632 Coverage 2.28 2.78 2.04 2.98 3.42 3.48 2.99 2.64 2.37 2.37 (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 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Population (1,3) 6,626,624 6,551,149 6,468,796 6,408,790 6,343,154 6,280,362 6,167,681 6,029,141 5,839,077 5,652,404 Personal Income (3) (in thousands) $ 245,070,457 239,929,270 229,719,194 217,855,645 215,635,941 224,661,187 221,175,458 209,900,700 189,280,632 170,838,836 Per Capita Personal (2) Income $ 36,983 36,624 35,512 33,993 33,995 35,772 35,860 34,814 32,416 30,224 Unemployment Rate (4) 7.3 8.0 8.6 9.7 10.5 7.8 4.1 3.6 4.2 4.2 (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 at Arizona Department of Administration (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 Arizona State University Intel Corp. JP Morgan Chase & Co. Bank of America Honeywell International U.S. Postal Service Raytheon Co. Total Source: Calendar Year Ended December 31, 2013 Full-Time Percentage Equivalent of Total State Employees Rank Employment 49,278 1 1.64 % 32,169 2 1.06 25,270 3 0.84 14,983 4 0.50 14,713 5 0.49 12,698 6 0.42 12,222 7 0.40 11,900 8 0.39 11,042 9 0.37 11,000 10 0.37 195,275 6.48 Arizona State University CAFR 2014. - 255 - % Calendar Year Ended December 31, 2004 Full-Time Percentage Equivalent of Total State Employees Rank Employment 49,147 1 1.76 % 19,510 2 0.70 14,447 4 0.52 13,617 5 0.49 11,000 8 0.39 15,218 3 0.55 10,530 9 0.38 12,000 6 0.43 11,406 7 0.41 10,300 10 0.37 167,175 6.00 % STATE OF ARIZONA SCHEDULE 25 STATE EMPLOYEES BY FUNCTION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2014 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 2014 2013 2012 2011 2010 2009 98.8 246.9 861.8 2,229.6 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 5,654.1 2,217.3 1,176.7 946.6 1,643.9 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 15,607.7 838.9 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 9,384.0 738.5 1,904.7 95.6 4,548.0 716.5 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 48,909.6 49,278.4 49,847.1 48,698.0 49,126.7 52,420.2 (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. - 256 - Fiscal Year 2008 2007 2006 2005 110.0 235.0 1,164.0 2,999.2 110.0 231.0 1,148.0 2,957.5 110.0 221.0 1,146.0 2,898.6 110.0 199.0 1,024.0 2,944.3 4,099.2 1,629.0 1,702.1 981.5 1,930.1 3,874.4 1,617.3 1,680.4 859.9 1,853.7 3,953.7 1,583.5 1,735.5 858.5 1,827.3 3,902.7 1,574.5 1,734.5 924.2 1,818.5 17,138.8 1,001.4 16,975.0 969.0 16,419.5 913.8 16,027.5 949.5 9,755.9 1,163.7 2,108.8 133.9 4,744.0 1,007.7 9,726.9 1,195.7 2,065.8 125.4 4,703.5 967.3 9,726.9 1,160.5 1,901.8 127.4 4,649.0 926.9 10,322.4 1,151.5 1,872.0 120.6 4,626.0 903.2 51,904.3 51,060.8 50,159.9 50,204.4 - 257 - STATE OF ARIZONA SCHEDULE 26 OPERATING INDICATORS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2014 2014 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) 2013 2010 2009 2008 5.7 5.5 5.4 5.4 5.2 5.7 5.6 1,508,690 1,318,650 1,314,210 1,392,810 1,392,420 1,282,910 1,136,585 N/A 38,353 39,194 44,842 82,127 83,969 80,221 N/A 1,100,920 1,123,068 1,049,522 986,413 752,772 600,549 67.9 3.5 66.4 3.5 75.2 3.7 84.0 3.9 101.8 4.6 N/A N/A N/A N/A 1,084,276 1,077,703 1,066,740 1,062,200 1,068,987 1,062,618 1,132,963 19,321,168 41,773 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 7,453,046 1,188,903 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 1,200,227 848,617 815,488 826,385 874,442 874,363 896,143 141,264 136,884 134,051 129,653 122,734 118,743 113,092 257,951 261,418 288,097 311,472 363,189 396,755 226,772 1,303 170 1,618 136 1,365 125 882 132 1,781 128 2,244 103 2,748 118 N/A $ Fiscal Year 2011 2012 723.9 - $ 692.9 6,370 $ 646.7 7,080 $ 583.5 8,260 $ 551.5 $ 10,760 N/A = Not available (1) 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 2014 contains data from the October 1, 2013 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 2014 total is as of June 30. (6) Count represents the total number of vehicles registered as of the end of the fiscal year. (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 2014 contains data for the calendar year ending December 31, 2013. (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 2014 contains data for the fall 2013 semester. These figures are generated by calculating one full-time equivalent student for each 15 student credit hours produced in lower-division undergraduate courses, each 12 student credit hours produced in upper-division undergraduate courses, and each 10 student credit hours produced in graduate courses. (10) Approximate number of members enrolled as of June 1. Healthcare Group ceased operations on December 31, 2013. 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. - 258 - 484.5 14,560 $ 472.9 21,646 Fiscal Year 2006 2007 $ 2005 5.5 5.5 6.0 1,075,125 1,065,444 1,075,873 82,408 93,553 105,517 537,072 546,424 546,369 99.4 4.6 97.0 4.9 87.1 4.7 1,106,207 1,084,247 1,043,704 20,282,212 37,088 19,703,282 34,864 19,922,704 32,710 6,608,726 1,266,973 6,318,402 1,205,068 5,945,131 1,158,223 940,223 897,159 808,055 110,580 107,765 104,685 185,397 161,869 200,282 3,265 133 2,744 124 3,281 102 462.2 26,914 $ 468.7 21,600 $ 397.6 14,626 - 259 - STATE OF ARIZONA SCHEDULE 27 CAPITAL ASSET STATISTICS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2014 Fiscal Year 2014 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) 2013 2012 2011 2010 2009 2008 10 10 10 10 10 10 10 6,800 4,787 6,751 4,754 6,751 4,754 6,722 4,741 6,789 4,700 6,753 4,648 6,785 4,637 9,223,617 9,223,873 9,302,256 9,252,495 9,258,071 9,259,296 9,260,253 1,212 44,658 1,705 41,141 1,711 39,933 1,740 37,967 1,737 37,589 1,670 37,186 1,669 36,000 N/A = Not available Note: No capital asset indicators are available for the general government, health and welfare, inspection and regulation, education, Industrial Commission special fund, 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, Corrections, and the Universities. - 260 - Fiscal Year 2007 2006 2005 10 10 10 6,817 4,648 6,922 4,676 6,816 4,608 9,262,781 9,267,377 9,269,723 1,663 34,946 1,002 20,154 N/A N/A - 261 - 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 Tami Schuler, MEd Marjorie Wakefield, MBA Special acknowledgment goes to: All fiscal and accounting personnel throughout the Arizona State government, whose dedicated efforts and cooperation contributed to the compilation of financial information that appears in the report.