Internal
Audit
Department
Financial Condition Report
Fiscal Year 2004
July 2005

County Auditor
Ross L. Tate, CMA, CIA, CGFM

Project Team Members
Eve Murillo CPA, MBA, Audit Manager
Richard Chard CPA, Senior Auditor

Maricopa County Internal Audit

“Do the Right Things Right!”

Maricopa County
Internal Audit Department

301 West Jefferson St
Suite 1090
Phx, AZ 85003-2143
Phone: 602-506-1585
Fax: 602-506-8957
www.maricopa.gov

July 6, 2005
Max W. Wilson, Chairman, Board of Supervisors
Fulton Brock, Supervisor, District I
Don Stapley, Supervisor, District II
Andrew Kunasek, Supervisor, District III
Mary Rose Wilcox, Supervisor, District V
We have completed the FY 2004 edition of the Maricopa County
Financial Condition Report.
This year we highlight the financial strength of the County’s General
Fund, Transportation Fund, and Flood Control District within the context
of exceptional population growth. Maricopa County has accommodated
this growth while maintaining very low levels of debt. As noted in
previous Financial Condition Report issues, the health delivery system
and AHCCCS health plans pose significant offsets to otherwise positive
trends in the County.
Evaluating a jurisdiction’s financial condition is a complex process,
especially in a dynamic economy. Many variables are difficult to isolate
and quantify. We believe, however, that a routine assessment of the
past 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.
Sincerely,

Ross L. Tate
County Auditor

Maricopa County Basics
•

Population: 3.5 Million — 4th largest in nation
July 2004

•

One-Year Population Increase : 112 Thousand — Fastest numerical growth in nation
July 2003—July 2004

•

Population Increase Since 2000 Census— 429 Thousand
April 2000—July 2004

•

Area: 9,222 Square Miles— 20th largest in nation

•

Cash and Investments Managed by County Treasurer: $2.5 Billion
April 2005

•

General Fund Unreserved Balance: $318 Million
June 2004

•

Healthy Key Financial Indicators—General Fund, Transportation Fund, Flood Control Fund
Multi-Year Trend

•

Unhealthy Key Financial Indicators — Maricopa Integrated Health Care System
Multi-Year Trend

•

Medical Center Transition — Medical Center Transferred to Special Health Care District
January 2005

•

Health Plans Transition— Transfer to Special Health Care District or Closure
Planned FY 2006

“Maricopa County is balancing the challenges of rapid population

growth and new mandates for service with careful allocation of
revenues to meet public service needs. The County does so on
the basis of a Five-Year Plan.”
David Smith, County Manager

Maricopa County Internal Audit

FY04 Financial Condition Report — July 2005

Contents

General Fund Key Financial Indicators

1

Maricopa Integrated Health System

6

$2.5 Billion Managed by County Treasurer

9

Transportation Department Financial Indicators

10

Flood Control District Financial Indicators

11

Population & Growth

12

Report Methodology

13

Maricopa County Internal Audit

FY04 Financial Condition Report — July 2005

General Fund Key Financial Indicators

The General Fund is the County’s primary operating fund. Conservative fiscal policies led to
strong financial positions in equity, liquidity (ability to pay current obligations), and general
long term debt. The following pages demonstrate strong General Fund positions. However,
health system financial problems pose a potential drain on General Fund resources.
Several years ago, symptoms of health system financial problems began to surface. The first
symptom noted was a steep decline in health system cash balances. Until a complete
analysis of health system finances and operations could be achieved, County administrators
scaled back on large capital projects, including a new administration building, in order to
reserve General Fund resources for potential health system shortfalls.
Conservative budget strategies have
resulted in healthy General Fund balance
increases. The fund balance did not grow
in FY 2001 because the County set
money aside to fully fund several
construction projects.

General Fund Balance (Millions)
Not Adjusted for Inflation
$350

$318

$300

The fund balance rose sharply in FY 2002
because additional money budgeted to
fund construction projects was kept in the
General Fund. County management
determined that such funds may be
needed for worsening economic
conditions, potential cost shifting by the
state, and deteriorating financial trends in
the County’s healthcare system.

$250
$200
$150
$100
$50

$16

FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04

$-

Maricopa County Internal Audit

1

FY04 Financial Condition Report — July 2005

Comparisons with Other Counties
Since FY 1996, Maricopa’s General
Fund has achieved a healthy fund
balance in relation to its revenues.

Benchmark Counties:
General Fund Balance
as a Percent of Revenues
40%
35%

Since FY 1997, Maricopa has significantly
surpassed the average of ten benchmark
counties for this financial measure.

30%
25%
20%
15%

Strong General Fund equity will serve the
County’s citizens during current and
future financial challenges.

10%
5%

FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04

0%

Maricopa

Avg of 10 Other Counties

Although the General Fund shows a strong
liquidity ratio (ability to pay current
obligations, measured by fund assets
divided by fund liabilities), the General Fund
may face fiscal challenges from troubled
heath system financial conditions.

General Fund Liquidity Ratio
(Excluding Due From/To Other Funds)
10
9
8
7
6

Maricopa County’s conservative fiscal policy
places it in a better position to meet these
challenges. These policies contributed to a
significant turnaround from troubled financial
conditions in FY01 to the current position of
strength. Maricopa County’s strong liquidity
far exceeds the benchmark counties.

5
4
3
2
1
0
FY00

FY01

FY02

Maricopa

Maricopa County Internal Audit

2

FY03

FY04

Benchmarks

FY04 Financial Condition Report — July 2005

General Obligation Bond Ratings are Strong
Highest

AAA
Aaa
Aa1
Aa2

FITCH

A3
Baa

MOODY’S

Investment

Aa3
A1
A2

AA+
AA
AAA+
A
ABBB

Financial Strength is Reflected in the County’s General Obligation Bond Ratings:
The County has fully rebounded from a financial decline in the early 1990’s by restructuring its
finances. Recent ratings by Moody’s and Fitch are considered investment grade.
Moody’s — Aa3
The chart at the top of the page shows that Maricopa County’s long-term bonds, rated Aa3 by
Moody’s, are considered high-grade bonds. The graph below shows that Maricopa County’s
trend since June 1994 has been one of improving ratings. In announcing its rating upgrade,
Moody’s referred to improvement in the County’s financial condition, conservative fiscal
strategies, and the County’s low debt position.

Moody's Bond Ratings
Aa3

Aa3

F Y0 3

F Y0 1

F Y9 9

F Y9 7

F Y9 5

Fitch — AA+

F Y9 3

A3

A1

A2

In November 2003, Fitch upgraded the County’s general obligation bond rating from AA to
AA+. The upgrade was based in part on the planned transfer of the healthcare delivery system to a separate voter-approved health district with its own property tax levy. Fitch also
viewed favorably the County’s successful fiscal reforms, modest debt profile, and continued
economic diversification.

Maricopa County Internal Audit

3

FY04 Financial Condition Report — July 2005

Low Long Term Debt
Long Term Debt Per Person
Maricopa County vs. Benchmarks
Adjusted for Inflation

Maricopa County has very low debt
levels compared with the average of
benchmark counties.
$700

$596

Maricopa’s low debt level has resulted
from a conservative, “pay as you go”
approach to financing new capital
assets/projects.

$630

$598

$581

$600

$593

$500
$400
$300
$200

FY 2004 is the last year of the County’s
1986 voter-approved general obligation
debt financing for capital projects. As of
July 2005, Maricopa County will be
considered free of general obligation

$150

$147

$109

$92

$100

$74

$0
FY00

FY01

FY02

Maricopa

FY03

FY04

Avg. 10 Benchmarks

Tax Revenues
Governmental Funds
FY 2004 Tax Revenue by Source
Millions
$358

$500
$412
$400
$300
$200

$124

$107

$87

$100

$6

$3
As
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Ta
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Li
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Ta
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Ta
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Maricopa County Internal Audit

Ve
hi
cl
e

al
es
S
Sh
ar
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St
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G

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P

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$-

FY04 Financial Condition Report — July 2005

General Fund Tax Revenues
Property vs. Sales Tax Revenues
Adjusted for Inflation (Millions)
Property Tax Revenue
$390
$370

$358

Although sales tax revenues have
become relatively more important in
recent years, the upward trend of
inflation-adjusted sales tax reversed
in FY 2002.

$350
$330

Sales Tax Revenue

As Maricopa County has increased
its reliance on sales taxes to support
services, it has been more directly
affected by economic trends.

$310
$290
$270
$250
$230
$210
FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY95

$190

Governmental Funds Tax Revenues
Per Person
Adjusted for Inflation

Governmental Funds Tax Revenues
Per Person
Not Adjusted for Inflation
$350

$360

$352

$300

$350

$311
$250

$340

$257
$200

$330

$150

$320

$100

$310

$50

$300

$0

$290
FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY95

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY95

$311

General Government revenues have not kept up with population growth and inflation. Even
though governmental revenues may increase in dollars, revenues (adjusted for inflation
and population) actually declined. However, the County fund balance is healthy, which
indicates that although revenues are down, spending is under control.

Maricopa County Internal Audit

5

FY04 Financial Condition Report — July 2005

Maricopa Integrated Health System
At the end of FY 2004, Maricopa Integrated Health System included the following:
• Maricopa Medical Center (hospital / delivery system)
• Maricopa Health Plan (ambulatory managed care)
• Maricopa Long - Term Care Program (MLTCP / ALTCS)
• Health Select (managed employee care)
• Senior Select (Medicare plan)

Because final FY 2004 financial statements for the health plans are not expected to be
completed by the end of FY 2005 (June 30), this section is limited to:
• Describing general events from FY 2004 and subsequent periods
• Reporting cash trends for the delivery system and health plans derived from

Maricopa County Treasurer records

General Events:
In November 2003, Maricopa County voters authorized the formation of a separate
health care district. In January 2005, the Medical Center moved to the new Special
Health Care District. The health plans remained with Maricopa County in order to
resolve significant financial and information system problems. The County plans to
close or transfer the health plans to the Special Health Care District in FY2006.

Citizens Approve
Formation of
Health Care District

Med Center Moved to
Special District

FY 2004

Maricopa County Internal Audit

Transition Timeline

Health Plans
Remain with County

FY 2005

6

County Plans to Close
or Transfer Health
Plans to New District
County Provided
$15 Million Credit

FY 2006

FY04 Financial Condition Report — July 2005

Health System Cash

•

In January 2005, the General Fund extended a $15 million credit line to the new
Special Health Care District.

•

In May 2005, the General Fund extended the $15 million loan for a period of 10 years,
interest-free for the first five years.

•

Declining health plans’ cash in FY 2004 and subsequent periods is attributed to
settlements with the Medical Center and with claims payment systems that led to
advance payments and potential duplicate payments to health care providers.

Cash at Year-End (Millions)
Health Plans and Medical Center

$200

$150

$140

$128
$89

$100

$49

$47

$50

$-

FY00
$(50)

$(100)

FY01

FY02

$(28)

$(55)

$(28)

FY04
$(22)

$(76)
Health Plans

Maricopa County Internal Audit

FY03

7

Medical Center

FY04 Financial Condition Report — July 2005

FY05 Period Health System Cash
Combined Health Plans Average Cash (Millions)
Maricopa Health Plan, Long Term Care Plan, and Senior Select
$100
$77

$80
$60
$40

Average Balance

$20

Lowest Daily Balance

$(40)

Jan 2
005
Feb
2005
Ma r
2005
Ap r 2
005
Ma y
200 5

$(20)

$Jul 2
00 4
Au g
2 004
Se p
2 004
Oct 2
004
Nov
2 004
Dec
2 004

$-

May Ave. $(15)
May Low $(26)

Special Health Care District
Average Cash in Millions
(Data Source: Maricopa County Treasurer)
20
10

$10

0

$ 1

(10)
(20)

J
Fe
Ma
A
Ju
Au
S
Oc
No
De
Ma
l2
b2
g 2 ep 2
t2
v2
c 2 an 2
r 2 pr 2
y2
00
0
0
0
0
0
00
00
00
00
00
05
05
04
05
05
4
4
4
4
4
5

(30)
(40)

Medical Center With Line of Credit Borrowing
Medical Center Without Line of Credit Borrowing

Maricopa County closed the Senior Select plan in FY2005 and plans to close or
transfer the Maricopa Health Plan and Long Term Care Plan to the Special Health
Care District by September 2006.
In June 30, 2005, Maricopa County plans to transfer approximately $26 million from
its General Fund to eliminate May 2005 cash deficits of the Maricopa Health Plan,
Long Term Care and Senior Select health plans. Final accountings of the health
plans are pending the completion of annual financial audits, including FY2004 and
applicable future periods. Future cash transfers to the health plans may occur until
all obligations are settled.
Maricopa County Internal Audit

8

FY04 Financial Condition Report — July 2005

$2.5 Billion Managed by County Treasurer
Maricopa County Treasurer Investment Summary
(Source: Maricopa County Treasurer)

$3.0

$2.5
$2.5
$2.0

$1.9

$2.0

$1.9

FY2000

FY2001

FY2002

$2.3

$2.1

$1.7

$1.5
$1.0
$0.5
$FY1999

FY2003

FY2004

FY2005
Projected

The County Treasurer pools deposits of the County, school districts, and
special districts. Cash not required for liquidity is invested in accordance with
state law and under a strategy that gives highest priority to 1) safety of
principal, 2) sufficient liquidity to meet the needs of the County and its
subdivisions, and 3) return on investment. Investments may include U.S.
Treasury Bills and Bonds, U. S. Agency Notes and Bonds, Commercial Paper,
Corporate Bonds, and Repurchase Agreements.
Who Does the Money Belong to?
( April 30,2005)
Clearing
3%

NonCounty
Funds
68%

Comparative Investment Yields
State Treasurer Local Government Investment
Pool
vs. Maricopa County

County
General
Fund
12%

7%
6%
Other
County
Funds
17%

Maricopa County

5%
4%
3%
2%

State Investment Pool

1%
0%
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004

YTD
4/30/05
State Treasurer Local Government Investment Pool
Maricopa County Treasurer

Maricopa County Internal Audit

9

FY04 Financial Condition Report — July 2005

Transportation Department

Transportation Department
Special Revenue and Capital Projects Funds
Cash and Fund Balance (Millions)

Unreserved Fund Balance

FY

20
04

20
03
FY

20
02
FY

20
01
FY

20
00
FY

19
99
FY

FY

19
98

$70
$60
$50
$40
$30
$20
$10
$0

Cash

State shared Highway Users Revenue (fuel tax) is the
primary revenue source for the Transportation Fund. Other
revenues include state shared Vehicle License Tax and
other intergovernmental revenues.
The Arizona Constitution and statutes restrict how
Transportation funds may be spent. Expenditure levels may
vary from year to year based upon the timing of specific
capital projects.
Transportation Department
Special Revenue and Capital Projects Funds
Revenues and Expenditures (Millions)
$140
$120
$100
$80
$60
$40
$20
$0
FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Total Revenues

Maricopa County Internal Audit

Total Expend.

10

FY04 Financial Condition Report — July 2005

Flood Control District

Flood Control District
Special Revenue and Capital Projects Funds
Cash and Fund Balance (Millions)
$50
$40
$30
$20
$10

Unreserved Fund Balance

20
04
FY

FY

20
03

20
02
FY

20
01
FY

19
99

20
00
FY

FY

FY

19
98

$0

Cash

Flood Control’s primary funding comes from property taxes.
Another significant revenue source comes from
intergovernmental agreements with cities and towns.
The District’s mission is to provide flood hazard identification,
regulation, remediation, and education to Maricopa County
citizens. Expenditures may vary from year to year based upon
the timing of specific capital projects.

Flood Control District
Special Revenue and Capital Projects Funds
Revenues and Expenditures (Millions)
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Total Revenues

Maricopa County Internal Audit

11

Total Expenditures

FY04 Financial Condition Report — July 2005

Population & Growth 2003 to 2004
From 2003 to 2004, Maricopa County’s population increased more than any other
county in the nation, and is currently the fourth most populous county.

Top Five Counties Total Population
July 2004 Per U.S. Census Bureau

12,000,000
9,937,739
10,000,000
8,000,000
5,327,777

6,000,000

3,644,285 3,501,001

4,000,000

2,987,591

2,000,000
Los Angeles
Cook
County,CA County, IL

Harris
County, TX

Maricopa
County

Orange
County, CA

Top Five Counties Numerical Growth
July 2003 to July 2004 Per U.S. Census Bureau
(Growth Rate Noted)
120,000

112,233

100,000

89,128
77,357

80,000

75,285
58,936

60,000
40,000
20,000
Maricopa
County
(3.3%)

Maricopa County Internal Audit

Riverside
County, CA
(5.0%)

12

Los Angeles Clark County,
San
County, CA
NV (4.8%)
Bernardino
(0.8%)
County, CA
(3.2%)

FY04 Financial Condition Report — July 2005

Report Methodology
Definition
Financial Condition is defined as a local government’s ability to finance services on a
continuing basis. A county in good financial condition can sustain existing services to the
public, withstand economic slumps, and meet the demands of changing service needs.
Objectives, Scope, and Methodology
The objective of this report is to evaluate Maricopa County’s financial condition using key
financial indicators. Indicators were selected from authoritative sources on evaluating
governmental entity financial condition and judged to be the most indicative of a county’s
overall financial health.
Our primary information sources were published Comprehensive Annual Financial
Reports (CAFR) and Maricopa County Treasurer cash reports.
Ten benchmark counties’ and Maricopa County’s audited financial statements were used
as primary sources for comparing selected General Fund trends. The benchmark
counties are:
Population

Major Metro Area

•

Clark

1.6 million

Las Vegas, NV

•

Harris

3.6

Houston, TX

•

King

1.8

Seattle, WA

•

Los Angeles

9.9

Los Angeles, CA

•

Multnomah

0.7

Portland, OR

•

Orange

3.0

Santa Ana / Anaheim, CA

•

Pima

0.9

Tucson, AZ

•

Salt Lake

0.9

Salt Lake City, UT

•

San Diego

2.9

San Diego, CA

•

Santa Clara

1.7

San Jose, CA

Other sources include the Governmental Accounting Standards Board, the International
City/County Managers Association, ASU Center for Business Research, Arizona
Department of Economic Security Research Administration, Arizona Department of
Revenue Econometrics Unit, Maricopa County’s Strategic Plans (budgetary documents),
and Auditor General Reports. Trend analysis is used in this report. Trend analysis
involves examining financial indicators’ historical data over several years. Adjustments for
inflation were made according to the “U.S. Consumer Price Index—All Items.”

Maricopa County Internal Audit

13

FY04 Financial Condition Report — July 2005

Maricopa County Internal Audit
301 W. Jefferson, Suite 1090
Phoenix, AZ 85003
Telephone: (602) 506-1585
Facsimile: (602) 506-8957
E-Mail: jsimpson@maricopa.gov