Internal Audit Department Financial Condition Report Fiscal Year 2001 Special Executive Edition (Without Comparative Benchmarks) County Auditor Ross L. Tate, CMA, CIA, CGFM Project Team D. Eve Murillo, CPA, MBA, CFE Audit Manager Richard L. Chard, CPA Senior Auditor John Schulz, MPA Senior Auditor Kimmie Wong Associate Auditor Internal Audit Department 301 W Jefferson 10th Floor Phx AZ 85003 (602) 506-1585 Fax (602) 506-8957 February 8, 2002 Don Stapley, Chairman, District II Fulton Brock, Supervisor, District I Andrew Kunasek, Supervisor, District III Janice K. Brewer, Supervisor, District IV Mary Rose Wilcox, Supervisor, District V Internal Audit has completed this special edition report on the financial condition of Maricopa County as of June 30, 2001. A more comprehensive report, that includes benchmark information, will be issued later this year when all comparative data is received. This work, which was part of our Board-approved audit plan, provides important information on County financial conditions and trends over the past five to ten years. Overall, the County’s financial condition and trends were favorable through the end of fiscal year 2001. The Board of Supervisors, Elected Officials, and County management should be commended for the many actions taken to achieve these results. Maintaining a balance between fiscal health and maximum service provision is a difficult task. We acknowledge that evaluating a jurisdiction’s financial condition is a complex process, especially during uncertain economic times; many variables are difficult to isolate and quantify. I believe, however, that a routine assessment of the past heightens awareness and provides insight for the future, allowing us to make informed decisions in critical times. Additionally, a comparison to benchmarks broadens our perspective. This type of financial analysis alerts County officials to potential concerns, and facilitates the Board’s governance of Maricopa County. If you have any questions or wish to discuss anything presented in this report, please contact me at your convenience. Sincerely, Ross L. Tate County Auditor Table of Contents General Fund 1 Revenue Size & Composition 2 General Fund Revenue Forecasting 4 Countywide Expenditures 5 Integrated Health System 6 General Fund General Fund Balance Fund Balance as % of Revenues 25% Millions - FY92 FY93 Not Adjusted for Inflation FY94 20% FY95 15% FY96 FY97 10% FY98 FY99 5% FY00 FY01 0 25 50 75 100 125 150 175 The FY01 General Fund balance is three times larger than it was in FY96. 0% FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 This trend enables the County to complete major projects without incurring debt, and provides a reserve for the unexpected. Maricopa’s unreserved General Fund balance has grown because financing sources favorably exceeded financing uses (see page 4) and County leaders budgeted reserves for future capital outlay. Liquidity Trend Long Term Debt 4 $160 Ratio - $140 Cash to Bills $120 Liquidity ratio means cash available compared to current bills. Maricopa’s favorable “3.6-to-1” ratio exceeds the recommended “1-to-1” standard but if County hospital “IOU’s” were deducted from General Fund assets, the ratio would be significantly less. FY01 FY00 FY99 FY98 FY97 FY96 FY01 Standard 1:1 Ratio $0 FY92 General Fund FY00 $20 FY99 $40 0 FY98 0.5 FY97 $60 FY96 1 FY95 $80 FY94 1.5 FY93 $100 FY92 2 FY95 2.5 FY94 3 Per Person - Adjusted for Inflation Per Capita FY93 3.5 Maricopa’s low debt promotes favorable bond ratings. Debt is useful for capital projects but shouldn’t be used to balance the budget. In FY01, new bonds were issued for building construction and estimated claims/ judgments increased. The increase for construction was offset by a hard cash reserve. Internal Audit — FY01 Financial Condition Report February 2002 page 1 Revenue Size & Composition Governmental Revenues Three Largest County Revenues Per Person - Adjusted for Inflation $450 $430 $2000 M illions - A djusted for $1600 Inflation $1200 $410 $800 $390 $370 $400 $350 $0 FY1992 FY2001 Inter-governm ental 511,632,882 812,206,978 S ervice C harges 505,500,185 648,187,170 P rop T axes 311,420,166 316,624,353 FY01 FY00 FY99 FY98 FY97 FY96 FY95 FY94 FY93 FY92 $330 Governmental Revenues (non Health System) FY94 low point ($375 per person) coincided with County fiscal troubles. Revenues reached a high point ($442 per person) in FY00, and dipped slightly to $420 per person in FY01. Intergovernmental revenues (see page 3) increased by $300 million, Charges for Services (see page 3) by $143 million, and Property Tax by $5 million, between FY92 and FY01. Revenue Relative Size (Percentages) FY1992 Service Charges 38% FY2001 Prop Taxes 23% Service Charges 36% Intergovernmental 39% Prop Taxes 18% Intergovernmental 46% Property tax revenues made up 1/4th of the FY92 revenue base and only 1/5th of the FY02 base. Intergovermental tax revenues (see page 3) increased from 2/5th of the FY92 revenue base to almost half of the FY02 base. Charges for Services (see page 3) remained static. Sales Tax revenue (the bulk of Intergovernmental) volatility may impact future County operations. page 2 Internal Audit — FY01 Financial Condition Report February 2002 Revenue Size and Composition Charges for Services Street Lighting Car Rental Probation Assess Surcharge Svc Fees 5% 9% 12% Intergovernmental Revenue Sales Tax 40% Grants 26% Special Law Enforcemt 4% Recording Fees 18% Other 33% Jail Tax 12% Highway Vehicle User License Tax 10% 12% Court Fees 19% Governmental funds (non Health System) Charges for Services composition. Some classify car rental surcharge as a tax. Governmental funds (non Health System) Intergovernmental Revenue composition. Some consider the Jail Tax a local tax, although the State is the collecting agent. Sales vs. Property Taxes Property Tax Millions - Adjusted for Inflation Assessed Value $30 $330 $310 Property Tax Revenue Market$175 Value $165 Property Market Value $155 $145 $25 $290 $135 $270 $125 $20 $115 $250 $105 $15 FY00 FY01 FY98 FY99 FY96 FY97 FY94 FY95 FY92 FY93 The chart shows the growing size of, and County reliance upon, sales tax revenues. $85 FY 01 $75 FY 00 $10 FY 97 $190 Assessed Property Value FY 99 Sales Tax Revenue $210 $95 FY 98 $230 Billions - Adjusted for Inflation When assessed property values, which are used for tax calculations, lag behind market values, lower property tax revenues result. Internal Audit — FY01 Financial Condition Report February 2002 page 3 General Fund Revenue Forecasting Revenues exceed budget Millions -$20 Deficits FY01 FY00 FY99 FY01 FY00 FY99 FY98 FY97 FY96 FY95 FY94 FY93 -$10 FY92 $0 Revenues Fell Short of Budget FY98 $10 FY97 $20 FY96 $30 FY95 Surpluses $40 Revenues Exceeded Budget FY94 $35 $30 $25 $20 $15 $10 $5 $0 ($5) ($10) ($15) FY92 Millions $50 FY93 Sources Vs. Uses: Surpluses After FY94, conservative budgeting techniques produced healthy revenue surpluses until the FY01 economic downturn decreased this margin. Excess revenues were reserved for future capital outlay needs. The chart shows that FY95—FY00 actual inflows favorably exceeded actual outflows. In FY01, surpluses were transferred to a separate capital outlay fund. The variance between budget estimates and actual receipts for two Major General Fund Revenues: Property and Sales Tax Sales Tax (Millions) Property Tax (Millions) -$15 -$10 FY01 Revenues fell short of budget FY00 FY99 FY98 FY97 FY96 FY95 -$5 FY94 Revenues fell short of budget FY01 FY00 $0 FY92 -$10 FY99 $5 FY98 $0 FY97 $10 FY96 $5 FY95 $15 FY94 $10 FY93 $20 FY92 $15 -$5 Revenues exceeded budget $25 FY93 Revenues exceeded budget $20 Property tax receipts closely resembled estimates during the last five fiscal years. Sales Taxes were conservatively budgeted and produced surplus revenues. Sales tax revenue growth began to decline during FY01 which narrowed the gap between estimates and actual receipts. page 4 Internal Audit — FY01 Financial Condition Report February 2002 Countywide Expenditures How Resources Are Spent Hywys, Culture, Rec, Educ, Debt Svc, Cap't Projects 19.5% General Gov't 5.5% FY01 Expenditures (Millions) Percent of Total Expenditures Health & Welfare $907 50% $459.5 25% Capital Projects $230 12.5% General Government $98 5.5% Highways, Streets $60 3% Debt Service $32 2% Education $16.5 1% Culture, Recreation $16 1% $1,819 100% Public Safety Health & Welfare 50% Public Safety 25% Category The majority of County expenditures are for Health and Welfare, including the County’s Medical Center, 4 health plans, Public Health dept., Human Services, and Health Care Mandates (County responsible health costs). TOTAL Total County Revenues Compared to Expenditures Millions Revenues Exceeded Expenditures $150 $130 $110 $90 $70 $50 $30 $10 01 FY 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY -$50 93 FY -$30 92 FY -$10 Expenditures Exceeded Revenues Annual revenues exceeded expenditures by a healthy margin since FY95, except for large planned FY97 capital project expenditures (including Stadium). In the early 1990’s, expenditures unfavorably exceeded revenues and resulted in fiscal difficulties. Internal Audit — FY01 Financial Condition Report February 2002 page 5 Integrated Health System Combined Unreserved Equity $60 Millions - Not Adjusted for Inflation Fund Equity Components $55 Millions - Not Adjusted for Inflation $40 $35 $20 ($40) ($25) ($60) ($45) AHCCCS ALTCS FY01 FY00 FY99 FY98 FY97 FY96 FY95 FY94 ($5) FY93 FY01 FY00 FY99 FY98 FY97 FY96 FY95 FY94 FY93 FY92 ($20) FY92 $15 $0 Medical Center Health System fund equity improved by $46M during FY92 to FY01, and by $5M during FY00 to FY01. The Health Plans generated the increases (see chart at right). Medical Center fund equity benefited from periodic cash transfers including $50M in FY95, $34M in FY00, and $15M in FY01. Combined Net Income Component Net Income $24 $30 Millions - Not Adjusted for Inflation Millions - Not Adjustedfor Inflation Per Capita $25 $20 $20 $16 $15 $12 $10 $8 $5 FY01 FY00 FY99 FY98 FY97 FY96 Combined net income showed a $1.5M increase in FY01. The ALTCS plan generates the majority of the net income: approximately 100% in FY00 and 80% in FY01. page 6 FY01 FY00 FY99 ($10) FY98 $0 FY97 ($5) FY96 $0 $4 ($15) Health Plan Medical Center ALTCS Although total system net income increased slightly in FY01, ALTCS net income decreased significantly ($9.8 million or 38%). Internal Audit — FY01 Financial Condition Report February 2002 Integrated Health System ALTCS Market Share ALTCS Enrollment Numbers 100% 12,000 80% 10,000 60% 8,000 40% 6,000 20% 4,000 0% 2,000 09/01 07/01 05/01 03/01 01/01 Mercy Care MIHS ALTCS Plan Enrollment 0 09/0 0 10/0 0 11/0 0 12/0 0 01/0 1 02/0 1 03/0 1 04/0 1 05/0 1 06/0 1 07/0 1 08/0 1 09/0 1 MLTCP 11/00 09/00 Total Enrollment (all 3 plans) Life Mark MIHS’ ALTCS plan (MLTCP) lost 24% of its market share (9/00 to 9/01) because AZ opened the ALTCS contract to competition. MIHS’ ALTCS Health Plan lost 16% or 1,600 of its members during 9/00 to 9/01 while its two competitors grew by 2,600 members. MIHS Combined Cash Medical Center A/R & Cash $120 $100 $80 $60 Millions - M illions - Not Adjusted for Inflation $60 Per Capita Not Adjusted for Inflation $40 (Financial Statements) $20 $40 $0 $20 -$20 FY96 $0 A/R (from Financial Statements) FY97 FY98 FY99 FY00 FY01 -$40 FY96 FY97 FY98 FY99 FY00 FY01 -$60 The Health Plans positive cash balances ($125M in FY01) offset Medical Center negative cash balances (-$76M in FY01). Hospital campus capital expenditures account for a significant part of the FY01 cash decline. Cash (from Treasurer Reports) -$80 -$100 Two trends are a concern, increasing A/R and decreasing cash. Internal Audit — FY01 Financial Condition Report February 2002 page 7 301 W. Jefferson Suite 1090 Phoenix, AZ 85003 Telephone: (602)506-1585 Facsimile: (602)506-8957 E-Mail: jsimpson@maricopa.gov