A Report
to the
Board of
Supervisors

Financial Condition Report
Fiscal Year 2005

June

Maricopa County
Internal Audit
Department
Ross L. Tate
County Auditor

2007

The County Auditor is appointed by the Board of Supervisors. The mission of the
Internal Audit Department is to provide objective, accurate, and meaningful information
about County operations so the Board of Supervisors can make
informed decisions to better serve County citizens.

The mission of Maricopa County is to provide
regional leadership and fiscally responsible,
necessary public services so that residents can
enjoy living in a healthy and safe community.

Audit Team Members
Eve Murillo, CPA, CFE, MBA, Deputy County Auditor
Carla Harris, CPA, CIA, CFE, Audit Supervisor
Kimmie Wong, Senior Auditor
Janet Secor, CIA, CGFM
Kevin Bach, Audit Intern
Special Thanks to John Lewis, Financial Reporting Manager, Department of Finance

Copies of the County Auditor’s reports are available by request.
Please contact us at:
Maricopa County Internal Audit
301 W. Jefferson, Suite 660
Phoenix, AZ 85003

(602) 506-1585

Many of our reports can be found in electronic format at:
www.maricopa.gov/internal_audit

Maricopa County
Internal Audit Department

301 West Jefferson St
Suite 660
Phx, AZ 85003-2143
Phone: 602-506-1585
Fax: 602-506-8957
www.maricopa.gov

June 7, 2007
Fulton Brock, Chairman, Board of Supervisors
Don Stapley, Supervisor, District II
Andrew Kunasek, Supervisor, District III
Max Wilson, Supervisor, District IV
Mary Rose Wilcox, Supervisor, District V
We have completed the Fiscal Year (FY) 2005 edition of the Maricopa County
Financial Condition Report. This work, which is part of our Board-approved
audit plan, provides information on current and historical County financial
trends.
This year, we again highlight the financial strength of the County’s General
Fund within the context of population growth that led the nation. The General
Fund unreserved fund balance continued to grow, and long-term debt levels
have decreased. Key financial indicators compare very favorably to national
benchmarks, and to local benchmarks, which were included for the first time this
year. The County’s most recent bond ratings were on April 25, 2007, and
April 26, 2007 from Fitch Ratings and Moody’s Investors Service, where
Maricopa County received a bond rating upgrade on its General Obligation
bonds (issuer rating) to AAA and Aa1, respectively. Fitch Ratings assigned an
AA+ rating to the County’s Lease Revenue Bonds, while Moody’s assigned the
bonds an Aa2 rating.
The County’s financial condition improved significantly with the transfer of the
Medical Center to the Maricopa County Special Health Care District, a separate
legal entity, in January 2005. County management has effectively limited health
care cost exposure to the ten-year, $15 million loan from the General Fund
approved in 2005. Related reporting issues delayed distribution of the County
financial statements until December 2006, which in turn delayed issuance of this
report.
We also provide information about County employee pension plans due to
deteriorating financial trends being experienced locally and nationally. While
there is a lack of consensus among experts regarding the long-term outlook for
the growing number of underfunded pension plans, we will continue to follow
this issue closely.
Sincerely,

Ross L. Tate
County Auditor

Maricopa County Basics
“Maricopa County is meeting the challenges of rapid
population growth and increasing demand for services
with a careful allocation of funding to meet public
service needs. The County must plan ahead to make
the best possible business decisions concerning future
use of limited resources. Good decisions produce
results that make a difference in people’s lives and give
taxpayers the most value for their money.”
David Smith, County Manager
Managing for Results Annual Report FY2006

Population
3.64 Million - Fourth largest in nation behind Los Angeles County (California),
Cook County (Chicago, Illinois), and Harris County (Houston,
Texas)
137 Thousand - Largest numerical increase in nation from July 2004 to July 2005
563 Thousand - Five-year population increase (July 2000 to July 2005)

Size
9,222 Square Miles - Larger than Connecticut, Delaware, Hawaii, Massachusetts, New
Hampshire, New Jersey, Rhode Island, and the District of
Columbia, individually

Financial
$ 3.1 Billion - Cash and investments held by County Treasurer at 6/30/06.
Includes special districts and school districts. County portion
totals $945 million. (Source: Unaudited FY06 CAFR)
$428 Million - General Fund Unreserved Fund Balance (Source: FY05 CAFR)

Events
Medical Center Transition - Medical Center Transferred to the Maricopa County Special Health
Care District, a separate legal entity, January 2005

Maricopa County Internal Audit

FY05 Financial Condition Report — June 2007

Table of Contents

Population Growth & Unemployment Rates................. 1
Net Assets...................................................................... 3
General Fund Key Financial Indicators ......................... 5
General Fund Revenue Sources................................... 8
Long-Term Debt............................................................. 8
Governmental Funds .................................................... 9
Governmental Funds Tax Revenues ............................ 13
Tax Revenue Budget-to-Actual Variances .................... 14
County Treasurer.......................................................... 15
Arizona County Benchmarks ........................................ 17
Maricopa County Retirement Plans.............................. 21
Report Methodology ..................................................... 27

Maricopa County Internal Audit

FY05 Financial Condition Report — June 2007

Maricopa County Internal Audit

FY05 Financial Condition Report — June 2007

Population Growth
&
Unemployment Rates

Maricopa County Internal Audit

1

FY05 Financial Condition Report — June 2007

Population Growth & Unemployment Rates
Top Five Counties by Total Population

In 2005, Maricopa
County was ranked the
fourth most populous of
all 3,141 counties in the
nation.

July 2005

12,000,000

9,935,475

10,000,000
8,000,000
5,303,683

6,000,000

3,693,050

4,000,000

3,635,528

2,988,072

Maricopa
County

Orange
County, CA

2,000,000
0
Los Angeles
County, CA

Cook County, Harris County,
IL
TX

Top Five Counties with Largest Numerical Increase in Population
July 2004 to July 2005

160,000

Maricopa County’s
population increased in
number more than any
other county in the
nation from July 2004 to
July 2005.

140,000

136,941

120,000
100,000
76,954

80,000

62,027

60,000

51,936

47,117

40,000
20,000
0
Maricopa
County

Clark County,
NV

Harris County, San Bernardino
TX
County, CA

Unemployment Rate History

7.0%

Maricopa County
continues to enjoy
unemployment
rates below national
and State averages.

Riverside
County, CA

6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1996

1997

1998

1999

County

Maricopa County Internal Audit

2000

2001

State

2

2002

2003

2004

2005

United States

FY05 Financial Condition Report — June 2007

Net Assets

Maricopa County Internal Audit

3

FY05 Financial Condition Report — June 2007

Net Assets
The County’s assets for governmental and business-type activities exceeded liabilities at
year end by over $3 billion (net assets). This is a 3% increase from FY04.
Over time, total net assets serve as a useful indicator of whether the financial condition of the
County is improving or deteriorating. Total net assets increased 86% from FY01 to FY05.
The total increase in FY05 was $96 million.
Total Net Assets
(in millions)

$3,500

$2,942

$3,000

$3,038

$2,302

$2,500

$2,042
$2,000

$1,631

$1,500
$1,000
$500
$0
FY01*

FY02

FY03

FY04

FY05

*NOTE: In FY01, net assets were restated due to the implementation of GASB Statement #34.

Net assets are divided into three components: (1) Investments in capital assets, net of
related debt (such as land, building, machinery, and equipment); (2) Restricted Net Assets
(assets that are subject to external restrictions on how they may be used); and (3)
Unrestricted Net Assets (assets not subject to external restrictions on how they may be
used).
Over 75% of net assets are invested in capital assets, 8% are restricted (primarily for public
safety and highways and streets functions), and 15% are unrestricted (these assets can be
used to meet the County’s ongoing obligations).
FY05 Composition of Net Assets
(in millions)
Invested In Capital
Assets
$2,347 (77%)

Restricted
$260.5 (8%)

Unrestricted
$430.5 (15%)
Invested In Capital Assets

Maricopa County Internal Audit

4

Restricted

Unrestricted

FY05 Financial Condition Report — June 2007

General Fund Key
Financial Indicators

The General Fund is the County’s primary operating fund.
The General Fund accounts for all financial resources
of the general government, except for those required to be
accounted for separately in a different fund (such as
transportation and jail operations). The use of separate
funds may be used for generally accepted accounting
principles requirements, legal requirements, and for financial
administration purposes.

Maricopa County Internal Audit

5

FY05 Financial Condition Report — June 2007

General Fund Key Financial Indicators
Unreserved General Fund Balance
The unreserved fund balance represents the funds available to meet the County’s current
and future financial needs. It is a useful measure of a government’s liquidity. Conservative
budget strategies, combined with conservative revenue estimates, have resulted in large
General Fund balance increases. The County is setting aside resources to fund several
large construction projects under a “pay as you go” policy.

Unreserved General Fund Balance
Not Adjusted for Inflation (in millions)
$428

$450
$400
$350
$300
$250
$200
$150
$100

$52

$50

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

$-

The General Fund unreserved fund balance rose sharply from FY04 to FY05 by $112
million or 35%. During this period, revenue from all sources increased from the prior year
by $91 million and expenditures increased by $58 million, for a net increase of $33 million.
Additionally, other financing sources increased from the prior year by $52 million.
Approximately $41 million of the increase from other financing sources is attributed to a
transfer from a Debt Service Fund to the General Fund of $33 million and a transfer from a
Capital Projects Fund to the General Fund of $8 million.
The General Fund unreserved fund balance increased from FY01 to FY02 by $92 million
or 59%. During this period, revenue from all sources increased from the prior year by
$37 million and expenditures increased by $9 million, for a net increase of $28 million.
Additionally, other financing sources increased from the prior year by $75 million,
consisting of proceeds from capital leases ($9 million net increase) and transfers of
financial resources ($66 million net increase). Significant changes for transfers of financial
resources include a one-time operating transfer of $80 million from the General Fund to a
Debt Service Fund in FY01.
Maricopa County Internal Audit

6

FY05 Financial Condition Report — June 2007

General Fund Key Financial Indicators - con’t.
Since FY97, Maricopa County’s General Fund has achieved a healthy fund balance in
relation to its revenues. Maricopa has significantly surpassed the national benchmark
average for this financial measure for the past eight years.

Unreserved General Fund Balance
as a Percent of Revenues

This measure
reflects the
availability of
financial reserves to
meet unforeseen
needs.

45%
40%
35%
30%
25%
20%
15%
10%
5%

41%

21%

A ratio of 15% or
more is generally
considered strong.

12%
10%

Maricopa

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

0%

Avg of 10 Benchmark Counties

General Fund Liquidity Ratio
(excluding "Due To/From" other funds)
15.0

The liquidity ratio is a measure of the
County’s ability to pay current
obligations, and is measured by dividing
fund assets by fund liabilities.

13.0
12.5
11.0
9.0

Maricopa continues to significantly
outperform the national benchmark
average with a strong General Fund
liquidity ratio of 12.5-to-1. This means
that there were ample funds ($12.50)
available in cash or equivalents to pay
every $1 in current liabilities.

7.0
5.0
3.0
1.0
-1.0

2.0

1.8
1.2
FY00

FY01
Maricopa

Maricopa County Internal Audit

7

FY02

FY03

FY04

FY05

Avg of 10 Benchmark Counties

FY05 Financial Condition Report — June 2007

General Fund Revenue Sources
Intergovernmental revenues accounted for 60% of General Fund revenues, while taxes
accounted for 35%. Intergovernmental revenues are funds received from federal, state and
other local government sources in the form of grants, shared revenues, and payments in lieu
of taxes. (For a breakdown of the composition of Intergovernmental and Tax
Revenue sources, please refer to the
Governmental Funds section, page 11.)
General Fund Revenue Sources for FY04 & FY05

In FY05, General Fund revenues
increased by $174 million, or 20%, to
$1,034 million. This is attributed largely
($83.5 million) to a change in accounting
for certain State-shared sales taxes
(indigent patient care related to the
transfer of the Medical Center).
The increase was also attributable to an
increase in the sales tax apportionment of
$40 million and the vehicle license tax
apportionment of $7 million. In addition,
property tax revenues increased by $18
million (due to an increase in assessed
values and new housing). These
increases can be attributed to the
County’s increasing economic vitality.

(in millions)

$700

$615

$600
$482
$500
$360

$327

$400
$300
$200

$50 $58

$100
$0
Intergovernmental

FY04

Taxes

Charges for
Service and Others

FY05

Long-Term Debt
Long-Term Debt Per Person

Maricopa County’s long-term debt per person
has decreased 52% since FY02. The County
has extremely low debt levels compared to the
national benchmark average.
The County’s low debt level has resulted from a
conservative “pay as you go” policy.
FY04 was the last year of the County’s 1986
voter-approved General Obligation debt
financing for capital projects. On July 1, 2004,
Maricopa County paid off the remaining $20.2
million of General Obligation debt.

Maricopa County vs. Benchmarks
(Adjusted for Inflation)
$700
$600

$643
$585

8

$564

$500
$400
$300
$200 $144

$151
$94

$100

$76

$72

$0
FY01
Maricopa

Maricopa County Internal Audit

$608

$583

FY02

FY03

FY04

FY05

Avg of 10 Benchmark Counties

FY05 Financial Condition Report — June 2007

Governmental Funds

The focus of the preceding pages was on the County’s
primary operating fund, the General Fund. The following
pages provide a more comprehensive look at County
financial trends, by focusing on all Governmental Funds,
which include the:
•

General Fund

•

Special Revenue Funds ( e.g. Jail Operations, Flood,
Animal Care & Control)

•

Debt Service Funds

•

Capital Projects Funds

Governmental funds are used to account for activities that
are principally supported by taxes and intergovernmental
revenues (governmental activities), as opposed to other
business-type activities that are supported primarily by user
fees, such as fee-based departments like the County’s
Health Plans.

Maricopa County Internal Audit

9

FY05 Financial Condition Report — June 2007

Governmental Funds - Revenues & Expenditures

Revenue by Source

Revenues

Governmental Funds
(in millions)

$1,000

55%
53%

$800

34%

$600

35%

FY04

Total Governmental Funds
revenues increased 12% in
FY05 to $1.653 billion. This
is attributed to the increases
to General Fund revenues
discussed on page 8.

FY05

$400
12%

$200

Intergovernmental revenues
comprised 55% of total
revenues, taxes comprised
34%, and other revenues
comprised 11%.

11%

$0
Intergovernmental

Taxes

Other

Expenditures by Function
Governmental Funds
(in millions)

$700
$600

41%

$500
$400

Expenditures

42%

FY05 expenditures totaled
$1.524 billion, a 10% increase
from FY04.

29%
24%

$300
$200

18%
14%
9%

9%

9%

7%

$100
$0
y
ty
ion
ent
utl a
af e
ita t
nm
S
r
O
n
l
e
a
c
i
a
l
S
ov
pi t
nd
Pub
Ca
al G
re a
ner
a
f
e
l
e
G
,W
al th
He

Maricopa County Internal Audit

er
O th

Seventy-one percent of
expenditures were for Public
Safety (42%) and Health,
Welfare and Sanitation (29%).

FY04
FY05

10

FY05 Financial Condition Report — June 2007

Governmental Funds - Revenues by Source
FY05 Tax Revenues by Source

FY05 Intergovernmental Revenue

(excluding Intergovernmental Revenues)

by Source
Governmental Funds (in millions)
Disproportionate
Share
$84 (9%)

Other
$93 (10%)

Highw ay
User Fund
$91 (10%)

Grants
$108 (12%)

Governmental Funds (in millions)

StateShared
Sales Tax
$398
(44%)

General
Property
Tax $432
(78%)

Vehicle
License Tax
$131
(15%)

Rental Car
Surcharge
$6 (1%)

Jail Tax
$119
(21%)

Intergovernmental revenues accounted for 55% of all governmental funds revenue.
State-shared sales tax is the County’s largest source of intergovernmental revenue, as shown
on the top left, followed by vehicle license tax revenue, grants, and the highway user fund.
Additionally, disproportionate share revenue was received from the Maricopa County Special
Health Care District, a separate legal entity, to reimburse the County for the disproportionate
share of State sales taxes that were withheld by the State for indigent patient care.
Tax revenues accounted for 34% of all governmental funds revenue. The composition of these
revenues is shown on the top right. General property tax is the County’s largest source of tax
revenue. The composition of all taxes revenues is shown below.
FY05 Total Tax Revenues by Source

Total Tax Revenues - Governmental Funds
General property tax and State-shared sales
tax are the two largest sources of tax
revenue, accounting for roughly 70% of all
tax revenue.
Tax revenues increased primarily due to
increases in property tax revenue of $18
million and jail excise tax revenue of $12.6
million.

Governmental Funds
(in millions)

General
Property
Tax $432
(37%)

Rental Car
Surcharge
$6 (1%)

Although the County decreased the property
tax levy rate, an increase in assessed values
and new housing resulted in an additional
$18 million in revenue.

Maricopa County Internal Audit

11

Highw ay
User Fuel
Tax
$91 (8%)

StateShared
Sales Tax
$398
(34%)

Vehicle
License Tax
$131 (11%)
Jail Excise
Tax
$119 (10%)

FY05 Financial Condition Report — June 2007

Revenues & Expenditures Per Person

Revenues Per Person

Revenues Per Person

Governmental Funds

Revenues per person have
increased 9% since FY96, and
were 4% higher than the
10-year average of $434
(adjusted for inflation).

(adjusted for inflation)
$500

$450

$453

$447

$441

$400

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

$350

This includes all Governmental
Funds revenues (including
taxes, intergovernmental
revenues, and other sources).

Expenditures Per Person
Governmental Funds

Expenditures Per Person

(adjusted for inflation)
$500

$434

$450

$418
$400

Expenditures per person have
decreased 2% since FY96, and
were down from the 10-year
average of $423 (adjusted for
inflation).
The downward trend reversed
with a 4% increase in FY05.

$399

Maricopa County Internal Audit

12

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

$350

FY05 Financial Condition Report — June 2007

Governmental Funds Tax Revenues

State-shared Sales Tax and Property
Tax as a % of Total Tax Revenues

Sales Tax and Property Tax
as a Percent of Total Revenues

39%

In FY05, property tax revenues accounted
for roughly 37% of all tax revenues. These
revenues are considered to be a more
secure revenue source than sales taxes.

37%

Sales tax revenues, which have been more
affected by economic trends, accounted for
34% of all tax revenues.

29%

Property Tax

35%
33%

Sales Tax

31%

27%

FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05

25%

Tax Revenues Per Person
Governmental Funds

Tax Revenues Per Person

(NOT Adjusted for Inflation)

While total revenues per person have
increased 9% since FY96 (as discussed on
the previous page), tax revenues per person
have declined by 3% during this period, after
adjusting for inflation. The negative trend
reversed slightly in FY05, and was within
4% of the ten-year average of $311.

$345
$323

$325
$305
$285
$265 $252
$245
$241

Maricopa County Internal Audit

13

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

$225

FY05 Financial Condition Report — June 2007

Tax Revenue Budget-to-Actual Variances
State-Shared Sales Tax
Variance Between Original Budget and Actual

$15
$10
$5
FY05

FY04

-$5

FY03

$0
FY02

In FY05, actual sales tax
revenues exceeded the original
budget by $22.8 million, or 6%.

$20

FY01

Sales tax revenues can be
difficult to predict; they are
subject to economic forces.

(in millions)

$25

FY00

State-Shared Sales Tax

-$10
-$15
-$20

Vehicle License Tax

Vehicle License Tax

$20

Variance Between Original Budget and Actual

$18

(in millions)

$16

Vehicle license tax revenues can
be difficult to predict; citizens can
prepay for one or two years.

$14
$12
$10
$8
$6
$4
$2
FY05

FY04

FY03

FY02

FY01

$0
FY00

In FY05, actual vehicle license
tax revenues exceeded the
original budget by $4.9 million, or
4%.

Property Tax
Variance Between Original Budget and Actual

$25

Property Tax

$10
$5

Maricopa County Internal Audit

14

FY05

FY04

FY03

-$5

FY02

$0
FY01

In FY05, actual property tax
revenues were below original
budget by $1.6 million, or less
than 1%.

$15

FY00

Property tax revenues are more
predictable and are therefore
easier to budget.

(in millions)

$20

FY05 Financial Condition Report — June 2007

County Treasurer

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:
•

Safety of principal

•

Sufficient liquidity to meet the needs of the County and
its subdivisions

•

Return on investment

Maricopa County Internal Audit

15

FY05 Financial Condition Report — June 2007

$3.1 Billion Managed by County Treasurer
Total cash and investments held by the Treasurer increased to $3.1 billion in FY06, as shown
below.
Cash and Investments Held by the County Treasurer (in billions)
$3.5
$3.1
$3.0
$2.7
$2.5
$2.0

$2.2

$2.0

$1.9

$1.5
$1.0
$0.5
$FY02

FY03

FY04

FY05

FY06

SOURCE: Comprehensive Annual Financial Reports (CAFRs) - FY06 unaudited

County funds totaled $945 million, or
30% of the total, as shown below.

Investment yields have improved over the
past two fiscal years, as shown below.

Who The Money Belongs To

Comparative Investment Yields
State Treasurer Local Government

County
General Fund
$464 million
(15%)

Non-County Funds
$2,158 million
(70%)

Other County
Funds
$481 million
(15%)

7%

Investment Pool vs. Maricopa County

6%
5%
4%
3%
2%
1%
0%
FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

State Treasurer Local Government Investment Pool
Maricopa County Treasurer

SOURCE: FY06 CAFR (unaudited)

Maricopa County Internal Audit

SOURCE: State Treasurer website & County Treasurer staff

16

FY05 Financial Condition Report — June 2007

Arizona County
Benchmarks

For the first time, this year’s Financial Condition Report
includes comparisons to six Arizona County benchmarks.
This information is presented on the following three pages.
(National benchmark comparisons were presented earlier
in this report.)

Maricopa County Internal Audit

17

FY05 Financial Condition Report — June 2007

Comparison to Arizona County Benchmarks
In this year’s Financial Condition Report, Maricopa County was benchmarked against the
following six Arizona counties:
Arizona Benchmarks - Population
Cochise

132 thousand

Mohave

188

Pima

958

Pinal

247

Yavapai

205

Yuma

189

Unreserved Fund Balance
Unreserved fund balances represent the monies available to meet the County’s current and
future needs. Maricopa County significantly outperformed the Arizona benchmark average
for this financial measure in FY03 - FY05 (bottom left), as well as each of the benchmark
counties individually in FY05 (bottom right).

Unreserved General Fund Balance

Unreserved General Fund Balance

as a % of Revenues

as a % of Revenues

Three-Year Comparison to Arizona
Benchmark Average
36.76%

35%

35%

30%

30%
18.73%

20%

20%

16.82%

29%

31%

24%

25%

25%

16%

15%
16.94%

9%

10%

10%

5%

5%

5%

Maricopa County Internal Audit

AZ County Benchmark Average

18

Maricopa

Yavapai

FY05

FY04

FY03
Maricopa County

Cochise

0%

0%

Mohave

15%

41%

40%

Yuma

36.71%

41.40%

Pima

40%

45%

Pinal

45%

FY05 Comparison to Arizona Benchmarks

FY05 Financial Condition Report — June 2007

Comparison To Arizona Benchmarks - con’t.

General Fund Liquidity Ratio

In FY05, Maricopa County’s liquidity
ratio was very strong at 12.5-to-1,
meaning that there were ample funds
($12.50) in cash and equivalents for
every $1.00 in current liabilities.

(excluding "Due To/From" other funds)

Three Year Comparison to Arizona
Benchmark Averages

14

12.5
12
10.0

Maricopa’s liquidity ratio far surpassed
the benchmark average in FY03, FY04
and FY05.

10

9.1

8
6

Individual liquidity ratios for Maricopa
County and the Arizona benchmark
counties are reflected below.

5.7

5.3

4.4

4
2
0
FY03

FY04

Maricopa

FY05

AZ County Benchmark Average

General Fund Liquidity Ratio
(excluding "Due To/From" other funds)

FY05 Comparison to Arizona Benchmark Counties
14.0
12.5
12.0
9.7

10.0
8.0
6.0
6.0
4.2

4.5

Mohave

Cochise

4.0
1.7

2.0
0.5
0.0
Yavapai

Maricopa County Internal Audit

Pima

19

Yuma

Pinal

Maricopa

FY05 Financial Condition Report — June 2007

Comparison to Arizona Benchmarks - con’t.

Long-Term Debt Per Person
Maricopa County vs. Arizona Benchmarks
(Adjusted for Inflation)

$300

Maricopa County has a very low level
of debt per person.

$250

$272
$239

$236

$200

Maricopa County’s long-term debt per
person has decreased 23% during
the three years shown, while the
benchmark average increased 14%.

$150
$94

$100

$76

$72

$50
$0
FY03

FY04

AZ County Benchmark Average

FY05
Maricopa County

FY05 Long-Term Debt Per Person
Comparison to Arizona Benchmarks
$600
$491

$500

$501

Maricopa County has
the lowest level of
long-term debt per
person when
compared to the
Arizona benchmark
counties.

$400

$300
$206

$224

$200

$100

$72

$96

$117

Cochise

Yavapai

$0
Maricopa

Maricopa County Internal Audit

Mohave

Yuma

Pima

20

Pinal

FY05 Financial Condition Report — June 2007

Maricopa County
Retirement Plans

County pension plan information is included in this year’s
Financial Condition Report for the first time due to
deteriorating financial trends being experienced both
locally and nationally.
The County’s annual cost for pension plan contributions has
increased 124% over the past five years, from $15.7 million
in FY 2000 to $35.1 million in FY 2005.

Maricopa County Internal Audit

21

FY05 Financial Condition Report — June 2007

Maricopa County Retirement Plans
Plan Participation
Maricopa County employees and elected
officials participate in two State retirement plans:

County Retirement Plan Participation
November 2006

About 10,200 County employees participate in
the Arizona State Retirement System (ASRS)

Maricopa
County
ASRS
Members
10,162
(79%)

About 2,800 County employees participate in
the Public Safety Personnel Retirement
System (PSPRS), which includes:
•

Elected Officials Retirement Plan

•

Corrections Officers Retirement Plan

•

Public Safety Personnel Plan

Maricopa
County
PSPRS
Members
2,782
(21%)

Nearly 80% of all County
employees participate in ASRS.

PSPRS Contribution Rates
Employee contribution rates
are fixed by State statute
based upon a set percentage
of employee compensation.
Any changes require legislation.
Thus, employee contribution
rates for the three plans remain
relatively stable.
The current employee
contribution rates for the three
PSPRS plans are:

PSPRS Combined Contribution Rates
for Maricopa County Members
25%

20%

15%

10%

5%
2000

2001

7.00% - Elected Officials
7.65% - Public Safety Personnel
8.50% - Corrections Officers

2002

2003

2004

2005

2006

2007

Public Safety (Weighted Avg)
Elected Officials
Corrections Officers

Employer contribution rates, however, have increased significantly since 2003. The combined
contribution rates (employee + employer) are shown in the graph above.

Maricopa County Internal Audit

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FY05 Financial Condition Report — June 2007

Maricopa County Retirement Plans - con’t.
ASRS Contribution Rates
ASRS is described as a “cost sharing” plan, meaning that the employer and employee
contribute to the member’s retirement in equal percentages of compensation paid.
Employee and employer contribution rates have risen in recent years due primarily to:
•

Past increases in benefits

• Low mid-term earnings on the fund investments
•

Historically low contribution rates that were supplemented by excess investment
earnings in the late 1990s

•

Changing member demographics related to increased life expectancy

For FY07, the ASRS contribution rate for employees and employers combined is 17.2%
of payroll. Combined contribution rates are forecast to peak at 20.02% in FY12, as shown
below.

ASRS Member Pension Contribution Rates
25%
20%
15%
10%
5%
0%
14 15
10 11
16
12 13
09
05 06
02
07 08
03 04
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY

Maricopa County Internal Audit

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FY05 Financial Condition Report — June 2007

Maricopa County Retirement Plans - con’t.
Funded Status Defined
Perhaps the most recognized measure of a public retirement plan’s health is its funding ratio,
derived by dividing plan assets by accrued liabilities (projected future retirement payments).
A pension plan whose assets equal its liabilities is 100% funded, or fully funded. A plan with
assets that are less than its liabilities is considered to be underfunded. Pension plans can be
underfunded for a number of reasons, including:
• Plans may have been designed with overly generous benefits
• Retired employees may live longer than predicted
• Investment returns may have lagged expectations
The dollar difference between plan assets and accrued liabilities is the unfunded actuarial
accrued liability (UAAL), which is a common measure of a pension plan’s financial condition.
Methods used to value assets and liabilities can be complex and may vary from plan to plan,
making direct comparisons among plans difficult or impossible. This report shows the
funding ratios based on the actuarial value of assets. The amount of accrued liabilities
depends on the assumptions and cost method. Actual calculations are very technical in
nature and are outside the scope of this report. It is noted, however, that ASRS discounts
future benefits at 8.0% per year, while PSPRS discounts future benefits at 8.5%, which
precludes a direct comparison of funding ratios.
ASRS Funding Status
The funding ratio of the ASRS began to decline in FY01 and the plan became underfunded
in FY03. The unfunded liability (UAAL) grew from a surplus of $3.6 billion in FY00, to a
deficit of $4.8 billion in FY06.
ASRS Unfunded Liabilities

ASRS Funding Ratio
130%

FULLY FUNDED
(above the line) 120%

(000s)

$5,000,000
$4,000,000

120%

SURPLUS

$3,000,000
110%
100%

$2,000,000

UNDERFUNDED
(below the line)

$1,000,000
FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

($2,000,000)

80%

($3,000,000)
70%

($4,000,000)

FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06

Maricopa County Internal Audit

FY98

($1,000,000)

83.7%

FY97

$0
90%

DEFICIT

($5,000,000)

24

FY05 Financial Condition Report — June 2007

Maricopa County Retirement Plans - con’t.
Public Safety Personnel Retirement System
PSPRS Funding Status
The funding ratios of the
three PSPRS plans began
to decline in FY02.

PSPRS - Historical Funding Ratios
150%
140%
130%

Funding ratios as of
6/30/06 were:

120%

77% - Public Safety

100%

94% - Corrections Officers

FULLY FUNDED
(above the line)

UNDERFUNDED
(below the line)

110%

90%

90% - Elected Officials
80%
70%
FY97

FY98

FY99

FY00

Public Safety

FY01

FY02

Corrections Officers

FY03

FY04

FY05

FY06

Elected Officials

PSPRS Unfunded Liabilities
(000s)

$1,250,000

The UAAL (unfunded
liability) for each of the
three PSPRS plans as of
6/30/06 was:
(000’s)

$1,000,000
$750,000
$500,000
$250,000
$0
$250,000

$1,495,101 - Public Safety
$

61,340 - Corrections
Officers

$

39,702 - Elected
Officials

SURPLUS

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

$500,000
$750,000
$1,000,000
$1,250,000

DEFICIT

$1,500,000
$1,750,000
Public Safety
Correction Officers
Elected Official

There is a lack of consensus among experts regarding the long-term outlook for the growing
number of underfunded pension plans. A major credit ratings firm ranked the public pension
funds in all 50 states. Arizona is at the midpoint based on the 2005 funding status.
Maricopa County Internal Audit

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FY05 Financial Condition Report — June 2007

Maricopa County Retirement Plans - con’t.
Investment Returns
ASRS planners assume an earnings rate on investments of 8%. PSPRS planners assumed an
earnings rate of 9% through FY04, when they decided to reduce the rate to 8% by FY08, by
reducing the assumed rate in .25% increments from FY05 to FY08. However, in FY06 PSPRS
decided to remain at 8.5% for FY07 and FY08, and a decision has not yet been made as to
whether or not the rate will be further reduced. Some pension experts believe that an 8%
investment return is optimistic. Actual investment returns and the assumed rates of return since
1998 appear below.
PSPRS Investment Return

ASRS Investment Return

FY06

FY05

FY04

FY03

FY02

FY00

FY99

FY98

FY06

FY05

FY04

0%
FY03

0%
FY02

10%

FY01

10%

FY00

20%

FY99

20%

FY98

Actual vs. Assumed

30%

FY01

Actual vs. Assumed

30%

-10%

-10%

-20%

-20%
Actual Investment Return

Public Safety
Elected Officials

Investment Assumption

Corrections Officers
Investment Assumption

Reporting Health Care Costs
Under a new accounting rule effective in FY07, governmental employers that offer “other
postemployment benefits” (comprised primarily of retiree health care) are required to
disclose the value of the health care benefits promised to retired workers. These benefits
have traditionally been accounted for on a pay-as-you-go basis. Under new accounting rules,
the value of these promised benefits must be actuarially calculated and disclosed in the
financial statements.
Some governments are finding these figures to be alarmingly high, angering taxpayer groups
and posing a potential threat to government bond ratings. Maricopa County provides other
postemployment benefits to retirees; however, there is no financial or reporting impact to the
County as retiree premiums are “rated” outside of all other County employees. Therefore, the
County does not provide or subsidize retirees’ other postemployment benefits. Other
postemployment benefits are available to County retirees through the ASRS. ASRS is a
cost-sharing defined benefit pension plan available to political subdivisions of the state.
ASRS calculates annual health care benefit costs on an actuarially determined basis of which
Maricopa County pays 100% of the cost.
Maricopa County Internal Audit

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FY05 Financial Condition Report — June 2007

Report Methodology

Maricopa County Internal Audit

27

FY05 Financial Condition Report — June 2007

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 were judged to be the most indicative of a
county’s overall financial health.
Our primary information sources were the audited Comprehensive Annual Financial
Reports (CAFR) issued by the Arizona State Retirement System, Public Safety Personnel
Retirement System, ten national benchmark counties, six Arizona counties, and Maricopa
County. Maricopa County’s unaudited FY06 CAFR was the source for County Treasurer
FY06 portfolio totals. The benchmark counties are:
Arizona Benchmarks

National Benchmarks
County

Population Major Metro Area

Multnomah
Orange
Pima
Salt Lake
San Diego

1.7 million
3.7
1.8
9.9
0.7
3.0
0.9
0.9
2.9

Las Vegas, NV
Houston, TX
Seattle, WA
Los Angeles, CA
Portland, OR
Santa Ana/Anaheim, CA
Tucson, AZ
Salt Lake City, UT
San Diego, CA

Santa Clara

1.7

San Jose, CA

Clark
Harris
King
Los Angeles

County

Cochise
Mohave
Pima
Pinal
Yavapai
Yuma

Population

132 thousand
188
958
247
205
189

SOURCE: 2005 AZ Department of
Economic Security

SOURCE: 2005 U.S. Census Bureau

Other sources include actuarial reports, the U.S. Census Bureau, Governmental
Accounting Standards Board, Arizona Department of Economic Security Research
Administration, Maricopa County’s Strategic Plans (budgetary documents), Auditor
General Reports, and correspondence with internal and external staff.
Trend analysis is used in this report. Trend analysis involves examining historical data.
Adjustments for inflation were made according to the “U.S. Consumer Price Index—All
Items.”

Maricopa County Internal Audit

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FY05 Financial Condition Report — June 2007

Maricopa County Internal Audit
301 W. Jefferson, Suite 660
Phoenix, AZ 85003
Telephone: (602) 506-1585
Facsimile: (602) 506-8957
E-Mail: Thielew@mail.maricopa.gov

Maricopa County Internal Audit

FY05 Financial Condition Report — June 2007