1 Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2002 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal................................................................................................................................................................ i-v Certificate of Achievement for Excellence in Financial Reporting ..................................................................................vi List of Principal Officials ........................................................................................................................................................vii Organizational Chart .............................................................................................................................................................. viii FINANCIAL SECTION Independent Auditors’ Report .............................................................................................................................................. 1-2 Management’s Discussion and Analysis .......................................................................................................................... 3-12 BASIC FINANCIAL STATEMENTS: Government-wide Financial Statements: Statement of Net Assets (Exhibit 1)...........................................................................................................................13 Statement of Activities (Exhibit 2).............................................................................................................................14 Governmental Fund Financial Statements: Balance Sheet - Governmental Funds (Exhibit 3).............................................................................................15-16 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets (Exhibit 3.1) ........................................................................................................17 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds (Exhibit 4) ..................................................................................................18-21 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities (Exhibit 4.1)...............................22 Proprietary Fund Financial Statements: Statement of Net Assets (Exhibit 5)...........................................................................................................................23 Statement of Revenues, Expenses, and Changes in Fund Net Assets (Exhibit 6).. ...........................................24 Statement of Cash Flows (Exhibit 7) .........................................................................................................................25 Fiduciary Fund Financial Statements: Statement of Net Assets – Agency Funds (Exhibit 8).............................................................................................26 Statement of Changes in Assets and Liabilities – Agency Funds (Exhibit 9)...................................................27 Index of Notes to the Financial Statements ...................................................................................................................28 Notes to the Financial Statements .............................................................................................................................29-50 2 Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2002 TABLE OF CONTENTS (continued) Page Required Supplementary Information (Other than MD&A): Schedule of Revenues and Expenditures - Budget and Actual – General Fund (State Highway Fund).......51-52 Notes to Required Supplementary Information................................................................. .....................................53-54 Information About Infrastructure Assets Reported Using the Modified Approach..........................................55-59 Combining and Individual Fund Statements and Schedules: Non-Major Governmental Funds: Combining Balance Sheet (Exhibit 10).....................................................................................................................60-61 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Exhibit 11)..................62-63 Capital Assets Used in the Operation of Governmental Funds: Schedule by Source (Exhibit 12)......................................................................................................................................64 Schedule by Function and Activity (Exhibit 13)...........................................................................................................65 Schedule of Changes by Function and Activity (Exhibit 14)......................................................................................66 STATISTICAL SECTION Government-wide information: Government-wide Expenses by Function (Table 1).....................................................................................................67 Government-wide Revenues (Table 2)...........................................................................................................................68 Fund information: General Governmental Expenditures by Function (Table 3)......................................................................................69 General Governmental Revenues by Source (Table 4)................................................................................................70 Expenditures of Federal Awards (Table 5)....................................................................................................................71 Fuel Tax Rates (Table 6) ...................................................................................................................................................72 Highway User Revenue Fund Collections (Table 7)....................................................................................................73 Highway User Revenue Fund Distributions (Table 8).................................................................................................74 Highway User Revenue Fund Series Bond Coverage (Table 9).................................................................................75 Regional Area Road Fund Series Bond Coverage (Table 10)....................................................................................76 Total Public Road Mileage by Highway Class and Governmental Ownership (Table 11)...................................77 Acknowledgements ........................................................................................................................................................................78 3 INTRODUCTION 4 5 internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatements. To the best of our knowledge and belief, this financial report is complete and reliable in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds. All disclosures necessary to enable the reader to gain an understanding of the Department's financial activities have been included. Department Profile The Department was established by the State Legislature in July 1974 by combining the former Arizona Highway Department (originally established in 1927) and the State Department of Aeronautics (originally established in 1962). The Department is not legally separate from the State of Arizona's primary government. The Department's mission is to provide a safe and efficient transportation system, together with the means of revenue collection and licensing for Arizona. It serves as the State's public agency to plan, develop, maintain and operate facilities for the efficient movement of people and goods by surface and air throughout the State. The Department has statutory responsibility for carrying out its programs under Arizona Revised Statutes, Titles 28, 35 and 41. The Department's key responsibilities to its customers include: • • • Planning, designing, constructing, and maintaining a statewide transportation system. Providing title, registration, and licensing services. Providing revenue collection and distribution for both highway user and aviation-related taxes and fees. The Department’s emphasis on providing quality services and products to the citizens of Arizona resulted in the Department being named as recipient of the Arizona’s Governor’s Award for Quality in 2001. The Department became only the fifth organization to receive the highest level of Arizona State Quality Awards since the awards were created in 1993 joining AVNET, Honeywell Satellite Systems, Raytheon Missile Systems, and the 56th Medical Group of the 56th Fighter Wing as award recipients. The Department receives guidance in capital planning and program development from a seven-member Transportation Board of the State of Arizona Department of Transportation (Transportation Board) appointed by the Governor. The Transportation Board is responsible for the annual update of the Five Year Transportation Facilities Construction Program and awards contracts each month for highway projects. The Transportation Board also has authority for the issuance of highway revenue and transportation excise tax bonds, grant anticipation notes and board funding obligations. The Department is organized into three operating divisions plus a planning division: Intermodal Transportation Division, Motor Vehicle Division, Aeronautics Division and Transportation Planning Division. The Intermodal Transportation Division is responsible for the management and maintenance of the existing State highway system and related facilities as well as the location, design and construction of new highways and facilities that are a part of the State highway system. The Motor Vehicle Division regulates motor vehicles in the State, processes motor vehicle registrations and drivers' license applications, issues certificates of title for motor vehicles and also operates 23 port-of-entry stations. The Aeronautics Division coordinates general aviation in the State and is responsible for registering and licensing all general aviation aircraft, conducting the Local Airports Grant Program and representing the State at air service hearings. The Transportation Planning Division is responsible for the planning of the statewide transportation system including highways and airports, and produces an annually updated Five Year Transportation Facilities Construction Program for the Transportation Board, from which the Transportation Board establishes the priorities for highway and airport projects within the State. In addition, the Department has a Transportation Services Group (TSG) that provides support to the Department's operating and planning divisions. Overall, the Department employs approximately 4,800 persons. Budgetary Controls Upon receipt of the operating budget appropriations bill, allocations are made to organizational levels within each division, including changes such as for pay adjustments. The result is a detailed operating budget which guides the divisions and programs in their financial operation. The Five Year Transportation Facilities Construction Program is included in the Capital Outlay Appropriations bill, as a lump -sum budget without identifying individual projects. In the Land, Building and Improvements portion of that bill, each separate building project is identified for control purposes. This bill also provides funding for building renewal purposes. 6 The budgets are prepared on a cash basis except that liabilities (encumbrances) incurred before the end of the fiscal year and paid within the next calendar month are charged against that prior fiscal year's budget. With a few exceptions, such as the capital budgets , highway maintenance and special line items , State appropriations typically lapse at the end of the fiscal year. The Department relies on the Arizona Financial Information System (AFIS) to control total expenditures by appropriation. In addition, the Department utilizes several control features in its internal accounting system (ADVANTAGE) to ensure budgetary compliance and management control. These features include: encumbrance and pre-encumbrance capabilities, appropriation allocation and control capabilities to the expense budget and organization unit level, and management control reports from the expense budget/organizational unit level, with summary reporting capabilities by program, division or appropriation. Factors Affecting Financial Condition Arizona Economy With the national economy struggling due to reduced business spending, corporate downsizing and stock market uncertainty, Arizona has not been immune to the economic downturn. The Arizona economy began slowing during the spring of 2001 and was further impacted by the tragic events in September 2001. During fiscal year 2002, Arizona employment growth declined sharply while the interest rates spurred strong new home and motor vehicle sales. The Department’s two main funding sources, the Highway User Revenue Fund (HURF) and the Maricopa County Transportation Excise Tax had mixed results during fiscal year 2002. The HURF collections totaled $1.092 billion, an increase of 6.6 percent over fiscal year 2001 and 1.0 percent above the forecast. Maricopa County Transportation Excise Tax collections totaled $268 million, an increase of 1.1 percent over fiscal year 2001, but 4.3 percent below the forecast. The Maricopa County Transportation Excise Tax growth was the lowest since the inception of the tax in 1986. The Arizona economy is dependent on high tech manufacturing and tourism, which have experienced sharp employment declines as a result of corporate downsizing and fewer tourists. Consumer spending has held up mostly on the strength in new home and motor vehicle sales. However, the current economic uncertainty is not expected to have a significant impact on the Department’s future revenues and operating budget. The uncertainty may provide slower growth over the next few years, but Arizona will return to being one of the top states for employment, personal income and population growth. The Department estimates fiscal year 2003 HURF collections will reach $1.108 billion, an increase of 2.9 percent over fiscal year 2002. The HURF average compound growth rate for fiscal years 1993 through 2002 has been 4.6 percent. The distribution of HURF revenues in fiscal year 2003 is estimated to be as follows: State Highway Fund $536 million; Arizona cities and towns $324 million; Arizona counties $202 million; Department of Public Safety $45 million; Economic Strength Project Fund $0.5 million; and Aviation Special Fund $0.5 million. Maricopa County Transportation Excise Tax collections are estimated to be $276 million in fiscal year 2003, an increase of 3.0 percent over fiscal year 2002. The first half of the year is expected to see little if any growth while the second half of the year should experience growth ranging from 3 to 6 percent. The rebound in the second half of the year relies on the employment and stock markets stabilizing. The Maricopa County Transportation Excise Tax average compound growth rate for fiscal years 1993 through 2002 has been 9.0 percent. Planned Construction Activity In June 2002, the Transportation Board approved a $4.027 billion highway construction program as part of the Five Year Transportation Facilities Construction Program for fiscal years 2003 through 2007, which provides funding for highway facilities on both the National Highway System and the statewide system. The Five Year Transportation Facilities Construction Program includes approximately: $1.179 billion for freeway and expressway construction in Maricopa County funded in large part from the Maricopa County Regional Area Road Fund; $1.824 billion for system improvements, which includes $172 million to advance freeway and expressway construction in Maricopa County; $688 million for system preservation; and $336 million for system management. The Regional Freeway Program in Maricopa County that was redefined in 1995 to complete 107 miles of freeways by 2006 has been advanced and expanded to include 40 additional miles on the Santan, South 7 Mountain (Interim), Grand Avenue and Red Mountain freeways. Under the "2007 Acceleration Plan," 147 miles of new freeways are planned to be opened by the end of 2007. Currently 95 miles have been opened to traffic and 10 more miles are under construction. As part of the Five Year Transportation Facilities Construction Program, the Transportation Board also adopted a $555 million Five Year Airport Development Program that includes 961 projects at general aviation and air carrier airports located throughout the State. Retirement Plan The Arizona State Retirement System Board administers the Arizona State Retirement Plan (Plan), a cost sharing multi-employer public employee retirement system, for the benefit of Arizona employees and employees of certain other governmental entities. Plan provisions, including death, disability, and retirement benefits, are established by State statute. Substantially all employees of the Department are covered by the Plan. Cash Management The Cash Management Unit has responsibility for the Department's investment program in cooperation with the State Treasurer's Office. The Department's policy is to invest public funds for maximum return, while maintaining the safety of investment principal and adequate liquidity to meet cash flow requirements in conformity with State statutes governing investment of the Department's funds. The emphasis of the investment program has focused on maintaining 99.5 percent of cash invested and maximizing the investment yield. During fiscal year 2002, the Department earned over $33 million in interest from its investment program. On average, 99.8 percent of the Department's $844 million average cash balance was invested during the year earning an average yield of 4.2 percent. Risk Management The Department continues to place emphasis in the area of risk management in order to control exposure and losses. The Office of Risk Management is responsible for the coordination of all activities necessary within the Department, and, in conjunction with the State's Risk Management Division and Attorney General's Office, to investigate and defend the Department from all losses arising from tort liability claims. The State has a self-insured retention workers' compensation program. The Department's Safety Office has increased its emphasis on training, accident investigation, and the handling of hazardous materials to minimize exposure and injury to employees. The Department has first dollar replacement value on real property coverage for all losses exceeding $100 and maintains building and contents coverage for common property perils. Other Information Single Audit The Department is required to undergo an annual Single Audit in accordance with the provisions of the Single Audit Act Amendments of 1996 and the U.S. Office of Management and Budget Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations." The Department's Single Audit information is included in the Single Audit of the State for the fiscal year ended June 30, 2002. A requirement of the Single Audit is to ensure that adequate internal control is in place and that the Department is in compliance with applicable Federal laws and regulations. The internal control has been reviewed by the United States Department of Transportation's (U.S. DOT) Inspector General on several occasions in the past. The U.S. DOT auditors typically rely on the Department's internal audit staff in determining the scope of their review. These reviews are in addition to the comprehensive review of the Department's internal control previously mentioned. Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Arizona Department of Transportation for its comprehensive annual financial report for the fiscal year ended June 30, 2001. This was the twelfth consecutive year that the Department has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. 8 9 10 Arizona Department of Transportation List of Principal Officials Victor M. Mendez Director Debra Brisk Deputy Director John A. Bogert Chief of Staff Edward D. Wright State Engineer Intermodal Transportation Division Stacey K. Stanton Assistant Director Motor Vehicle Division Dale Buskirk Acting Assistant Director Transportation Planning Division Gary Adams Assistant Director Aeronautics Division John E. McGee Chief Financial Officer Arizona State Transportation Board Katie Dusenberry, Chairman Ingo Radicke, Vice Chairman Bill Jeffers Richard Hileman Dallas Gant James W. Martin Joe Lane 11 District Two District Four District Five District Six District One District Three District One 12 FINANCIAL 13 1 1 2 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 As management of the Arizona Department of Transportation (Department), we offer readers of the Department’s financial statements this narrative overview and analysis of the financial activities of the Department for the fiscal year ended June 30, 2002. We encourage readers to consider the information presented here in conjunction with the letter of transmittal, which can be found on pages i-v and the Department’s financial statements, which begin on page 13 with the accompanying notes and required supplementary information (RSI). Because fiscal year 2002 represents the first year in which the Department implemented the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34, this discussion and analysis provides few comparisons with the previous year. Future reports are required to include extensive comparisons. Financial Highlights Government-wide: • The assets of the Department exceeded its liabilities at the close of the fiscal year by $9.7 billion (reported as total net assets). Of this amount, $221.2 million (unrestricted net assets) may be used to meet the Department’s ongoing obligations to citizens and creditors. • The Department’s investment in capital assets, net of related debt, is $9.0 billion, resulting from the implementation of GASB 34. GASB 34 requires the Department to include all capital assets ($10.7 billion) net of its related debt ($1.7 billion). Fund Level: • As of the close of the fiscal year, the governmental funds of the Department reported combined ending fund balances of $413.0 million. Approximately $90.6 million (22 percent) is available for spending at the government’s discretion (unreserved fund balance). At the end of the fiscal year, unreserved fund balance for the General Fund was $67.3 million. • The proprietary funds reported net assets at year end of $86.3 million, an increase of $1.9 million during the year. Non-Current Liabilities • The Department’s non-current liabilities increased by 8 percent during the fiscal year to $1.9 billion. This increase can be attributed to issuance of $100.0 million in Board Funding Obligations ($60.0 million to the State Highway Fund and $40.0 million the Highway Expansion and Extension Loan Program Fund (HELP)), $25.7 million in construction loans from the City of Mesa to Maricopa Regional Area Road Construction Fund, and $94 million in HELP loans to the State Highway Fund. The bonded debt decreased by $63.6 million (4 percent) as a result of new issuances, refundings, and repayments. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction of the Department’s basic financial statements. The Department’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other required supplementary information in addition to the basic financial statements. For the first time, this report includes government-wide financial statements as required by GASB Statement No. 34. Government-wide Financial Statements (Reporting the Department as a Whole) The government-wide financial statements are designed to present an overall picture of the financial position of the Department. These statements consist of the statement of net assets and the statement of activities and are prepared using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. 2002 Comprehensive Annual Financial Report 3 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 The statement of net assets combines and consolidates the Department’s current financial resources with capital assets and long-term obligations. This statement includes all of the Department’s non-fiduciary assets and liabilities. Net assets are the difference between the Department’s assets and liabilities, and represent one measure of the Department’s financial health. • An increase or decrease in the Department’s net assets from one year to the next is an indicator of whether its financial health is improving or declining. • Other indicators of the Department’s financial health include the condition of its roads and highways (infrastructure), and economic trends affecting the Department’s future tax revenues. The statement of activities focuses on both the gross and net cost of various activities (governmental and businesstype); these costs are paid by the Department’s general tax and other revenues. This statement summarizes the cost of providing specific Department services, and includes all current year revenues and expenses. The statement of net assets and the statement of activities divide the Department’s activities into two types: Governmental Activities The Department’s basic services are reported here, including administration, aeronautics, highway, highway maintenance, motor vehicle division and other activities. Taxes, fees, and federal grants finance most of these activities. Business-Type Activities Activities for which the Department charges a fee to customers to pay most or all of the costs of certain services it provides are reported as business-type activities. The Department’s Arizona Highways Magazine and Highway Expansion and Extension Loan Program (HELP) are reported here. The government-wide financial statements can be found on pages 13-14 of this report. This report includes two schedules (Exhibit 3.1 and Exhibit 4.1) that reconcile the amounts reported on the governmental fund financial statements (prepared using the modified accrual basis of accounting) with governmental activities (prepared using the accrual basis of accounting) on the appropriate government-wide statements. The following summarizes the impact of converting to GASB 34 reporting: • Capital assets used in governmental activities are not reported on governmental fund statements. • Other long-term assets that are not available to pay for current period expenditures are deferred in governmental fund statements, but not deferred on the government-wide statements. • Internal service fund is reported as governmental activities, but reported as proprietary funds in the fund financial statements. • Deferred issuance costs are capitalized and amortized as governmental activities, but reported as expenditures in the governmental fund statements. • Unless due and payable, long-term liabilities, such as capital lease obligations, compensated absences, notes payable and others, only appear as liabilities on the government-wide statements. • Capital outlay spending results in capital assets on the government-wide statements, but are reported as expenditures on the governmental fund statements. • Bond and note proceeds result in liabilities on the government-wide statements, but are recorded as other financing sources on the governmental fund statements. 2002 Comprehensive Annual Financial Report 4 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 • Certain other outflows represent either increases or decreases in liabilities on the government-wide statements, but are reported as expenditures on the governmental fund statements. Fund Financial Statements (Reporting the Department’s Major Funds) The fund financial statements begin on page 15 and provide detailed information about the major individual funds. A fund is an accounting entity with a self-balancing set of accounts that the Department uses to keep track of specific sources of funding and spending for a particular purpose. The Department, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the Department can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds. A majority of the Department’s activities are reported in governmental funds. Reporting of these funds focuses on how money flows in to and out of the funds, and amounts remaining at year-end for future spending. Governmental funds are accounted for using the modified accrual method of accounting, which measures cash and other assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the Department’s general government operations and the basic services it provides. This information should help determine whether there are more or less resources available for the Department’s programs. The reconciliation following the fund financial statements explains the differences between the government’s activities, reported in the government-wide statement of activities, and the governmental funds. The Department maintains sixteen individual governmental funds. Information is presented separately in the governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances for the General Fund (State Highway Fund), Maricopa Regional Area Road Construction Fund, Motor Vehicle Division Clearing Fund, Highway User Revenue Fund, Debt Service Fund and Capital Projects Fund which are considered to be major funds. Data from the other ten governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The legislature appropriates an annual budget for the Department’s General Fund. The Schedule of Revenues and Expenditures – Budget and Actual has been provided for the General Fund to demonstrate compliance with this budget and is presented as required supplementary information. The governmental funds financial statements can be found on pages 15-22 of this report. Proprietary Funds. When the Department charges customers for the services it provides – whether to outside customers, other agencies or to other divisions of the Department – these services are generally reported in proprietary funds. Proprietary funds (enterprise and internal service) utilize full accrual accounting; the same method used by private sector businesses. Enterprise funds report activities that provides supplies and services to the general public. The Department’s enterprise funds are the Arizona Highways Magazine Fund and Highway Expansion and Extension Loan Program Fund. The internal service fund reports activities that provide supplies and services for the Department’s other programs and activities and other state agencies. The Equipment Fund is the Department’s only internal service fund. The internal service fund is reported as governmental activities on the government-wide statements. The proprietary funds financial statements can be found on pages 23-25 of this report. Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the Department’s own programs. The fiduciary fund financial statement can be found on pages 26-27. 2002 Comprehensive Annual Financial Report 5 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 28-50 of this report. Required Supplementary Information. In addition to the basic financial statements and accompanying notes, this report presents certain required supplementary information concerning the Department’s Schedule of Revenues and Expenditures – Budget and Actual for the General Fund and the modified approach to reporting infrastructure assets. Required supplementary information can be found on pages 51-59 of this report. Other Supplementary Information. Other supplementary information includes the combining statements for the non-major governmental funds and internal service fund are presented immediately following the required supplementary information on budget and infrastructure assets. Combining and individual fund statements and schedules can be found on pages 60-66 of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of the Department’s financial health. The following tables, graphs and analysis discuss the financial position and changes to financial position for the Department as a whole as of and for the fiscal year ended June 30, 2002. The Department’s combined net assets increased by $861.0 million over the course of this fiscal year’s operations. The net assets of the governmental activities increased by $859.1 million or 99.8 percent and business-type activities increased by $1.9 million or 0.2 percent. The following table reflects the condensed Statement of Net Assets as of June 30, 2002: Current and other assets Capital assets Total assets Other liabilities Non-current liabilities Total liabilities Governmental Activities Business-Type Activities Total 833,488,297 10,733,547,800 $235,245,607 1,439,057 $ 1,068,733,904 10,734,986,857 11,567,036,097 236,684,664 11,803,720,761 213,447,052 1,734,806,233 1,948,253,285 4,760,226 145,670,558 150,430,784 218,207,278 1,880,476,791 2,098,684,069 8,998,741,567 400,315,381 219,725,864 1,439,057 83,292,829 1,521,994 9,000,180,624 483,608,210 221,247,858 $ 9,618,782,812 $ 86,253,880 $ 9,705,036,692 $ Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets The total assets of the Department were $11.8 billion, while total liabilities were $2.1 billion, resulting in a net assets balance of $9.7 billion. By far, the largest portion of the Department’s net assets, $9.0 billion (93 percent), were invested in capital assets (e.g., land, infrastructure, buildings, machinery and equipment), net of any related debt used to acquire those assets. The Department uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Department’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other resources, since the capital assets themselves cannot be used to liquidate these liabilities. 2002 Comprehensive Annual Financial Report 6 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 As of June 30, 2002, the Department is able to report positive balances in all three categories of net assets, both for the governmental and business-type activities. The following condensed financial information was derived from the government-wide Statement of Activities and reflects how the Department’s net assets changed during the year: Governmental Activities Business-Type Activities Total Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions $ 112,724,784 56,480,747 470,771,977 General revenues: Transportation excise taxes Vehicle, registration, title, license and related taxes Fuel and motor carrier taxes and fees Flight property taxes Interest on investments Other Total revenues $ 11,840,350 - $ 124,565,134 56,480,747 470,771,977 267,563,343 - 267,563,343 899,092,103 547,129,189 6,528,347 - 899,092,103 547,129,189 6,528,347 29,862,802 26,484,086 5,624,632 381,360 35,487,434 26,865,446 2,416,637,378 17,846,342 2,434,483,720 57,864,409 3,750,673 160,481,172 - 57,864,409 3,750,673 160,481,172 91,569,523 82,904,097 6,844,145 - 91,569,523 82,904,097 6,844,145 7,482,406 - 7,482,406 1,064,559,675 89,604,704 - 1,064,559,675 89,604,704 - 10,710,728 10,710,728 - 5,264,722 5,264,722 1,565,060,804 15,975,450 1,581,036,254 851,576,574 8,767,206,238 1,870,892 84,382,988 853,447,466 8,851,589,226 86,253,880 $9,705,036,692 Expenses: Administration Aeronautics Highway Highway Maintenance Motor Vehicle Other Transportation - not appropriated by State legislature Distributions to Arizona counties, cities and other state agencies Interest on long-term debt Arizona Highways Magazine Highway Expansion and Extension Loan Program Total expenses Increase in net assets Net assets - July 1 Net assets - June 30 $ 9,618,782,812 $ 2002 Comprehensive Annual Financial Report 7 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 Governmental Activities: The following chart depicts revenues of the governmental activities for the fiscal year ended June 30, 2002: Revenues - Governmental Activities Fuel and motor carrier taxes and fees 22.6% Interest on investments 1.2% Other revenues including flight property taxes 1.4% Vehicle, registration, title, license and related taxes 37.2% Transportation excise taxes 11.1% Operating grants and contributions 2.3% Capital grants and contributions 19.5% Charges for services 4.7% $2.2 billion (or 90.4 percent) of the Department revenues are from the following four revenue sources: 1. Vehicle, registration, title, license and related taxes represent the Department’s largest revenue source of $899.1 million (37.2 percent). 2. Fuel and motor carrier taxes and fees represent the Department’s second largest revenue source of $547.1 million (22.6 percent). 3. Capital grants and contributions represent the Department’s third largest revenue source of $470.8 million (19.5 percent). 4. Transportation excise taxes represent the Department’s fourth largest revenue source of $267.6 million (11.1 percent). 2002 Comprehensive Annual Financial Report 8 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 The following chart depicts expenses of the governmental activities for the fiscal year ended June 30, 2002: Expenses - Governmental Activities Distributions to Arizona counties, cities and other state agencies 68.0% Interest on long-term debt 5.7% Administration 3.7% Other (includes Aeronautics and Transportation -not appropriated by state legislature) 1.2% Highway 10.3% Motor Vehicle 5.3% Highway Maintenance 5.9% Business-Type Activities: Net assets for business-type activities increased by $1.9 million during the fiscal year. Of the total revenues of $17.9 million, charges for services represented 66.3 percent and interest on investments 31.5 percent. The total expenses for business-type activities were $16.0 million. Factors contributing to these results included: • The Arizona Highways Magazine’s deficit of $0.6 million. This deficit is attributable to a decrease in magazine sales as a result of the down turn in the economy since the September 11, 2001 terrorist act. • The Highway Expansion and Extension Loan Program’s income of $2.5 million. The majority of the changes are attributable to an increase in the interest on loan receivables. 2002 Comprehensive Annual Financial Report 9 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 Financial Analysis of the Department’s Funds As previously mentioned, the Department uses fund accounting to ensure and demonstrate compliance with budgetary and legal requirements. The following is a brief discussion of financial highlights from the fund financial statements. Governmental Funds. The focus of the Department’s governmental funds financial statements (page 15-22) is to provide information on near-term inflows, outflows, and balances of spendable resources. All major governmental funds are discretely presented on these financial statements, while the nonmajor funds are combined into a single column. Combining statements for the non-major funds may be found on pages 60-63. As of the end of the fiscal year, the fund balances of the governmental funds totaled $413.0 million. Of this balance, $90.6 million or 22.0 percent constitutes unreserved fund balance, which was available for spending for the general purposes of the Department. The remaining fund balance of $322.3 million or 78.0 percent was reserved for the following: 1) $20.0 million to liquidate an advance to the HELP, 2) $25.0 million to pay debt service, and 3) $277.3 million to pay for capital projects. The General Fund is the chief operating fund of the Department. At the end of the current fiscal year, the unreserved fund balance of the General Fund was $67 million and the reserved fund balance was $121 million. As a measure of the General Fund’s liquidity, it may be useful to compare both the unreserved fund balance and the total fund balance to the total fund expenditures. Unreserved fund balance represents 7 percent of total General Fund expenditures, while total fund balance represents 19 percent of the same amount. Capital Assets and Debt Administration Capital Assets (Note 5A): The Department’s investment in capital assets for its governmental and business-type activities as of June 30, 2002, amounts to $10.7 billion (net of accumulated depreciation). Governmental Activities Land Buildings and improvements Improvements other than buildings Airport facilities Mobile fleet and aircraft Machinery and equipment Infrastructure Construction in progress Total BusinessType Activities Total $ 1,715,941,418 $ 7,900 $ 1,715,949,318 97,635,066 345,600 97,980,666 12,134,233 12,134,233 19,569,077 19,569,077 41,995,018 41,995,018 16,280,578 1,085,557 17,366,135 7,444,327,275 7,444,327,275 1,385,665,135 1,385,665,135 $10,733,547,800 $ 1,439,057 $ 10,734,986,857 As provided by GASB 34, the Department has elected to record its infrastructure assets using the modified approach. Assets accounted for under the modified approached include approximately 6,650 center lane miles (17,807 travel lane miles) and 4,378 bridges that the Department is responsible for maintaining. The Department 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 poor) to characterize the condition of the roadway. The Department’s serviceability rating goal is 3.23 for the overall system. The most recent assessment indicated that an overall rating of 3.6 was achieved for fiscal year 2002. 2002 Comprehensive Annual Financial Report 10 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 The Department manages its bridges using the Arizona Bridge Information and Storage System (ABISS). The Department determines the condition rating based on standards developed by the Federal Highway Administration and additional internal criteria. It is the policy of the Department to maintain a Condition Rating Index (CRI) of 92.5 percent or better. In fiscal year 2002, a CRI of 93.6 percent was obtained. In addition to many smaller projects, the following major highway construction projects in excess of $20 million were started during fiscal year 2002: Project Description Contract Start Construction of Pima Loop 101 from Scottsdale Road to Pima Road 07/18/2001 Construction of the Red Mountain Loop 202 from Gilbert Road to Higley Road 08/21/2001 Widening of a 5.5 mile section of State Route 260 near Christopher Creek 09/27/2001 Construction of US 60 (Grand Avenue) Ramps at 27th Avenue and 91st Avenue 09/27/2001 Reconstruction of the Interstate 10 and Interstate19 Interchange 04/15/2002 Construction of the Price Loop 101 and Santan Loop 202 Interchange 04/22/2002 Construction of the Santan Loop 202 from 56th Street to McClintock Drive 06/24/2002 Contract Amount $ 24,537,697 $ 46,835,303 $ 32,500,000 $ 24,209,923 $ 54,272,422 $ 48,374,811 $ 38,376,899 Non-Current Liabilities (Note 5 H): Governmental Activities Highway revenue bonds Transportation excise tax revenue bonds Grant anticipation notes $ 734,155,000 602,890,000 182,295,000 Premium on bonds Compensated absences Capital leases Notes payable Total Governmental Activities 9,357,653 11,701,814 1,557,477 192,849,289 $ 1,734,806,233 Business-Type Activities Compensated absences Notes payable Total Business-Type Activities Total Non-Current Liabilities $ $ 134,092 145,536,466 145,670,558 $ 1,880,476,791 As of June 30, 2002, the Department had $1.52 billion in outstanding bonds payable. This total includes $734.2 million in Highway Revenue Bonds (HURF), $602.9 million in Transportation Excise Tax Revenue Bonds (RARF) and $182.3 million in Grant Anticipation Notes (GANs). The Department has $9.4 million in unamortized premium on bonds. The Department had capital leases outstanding of $1.6 million for acquisition of data processing equipment and notes payable of $338.4 million for the following: 1. General Fund - $93,979,854 for loans from the HELP and $60,010,175 for principal and interest for Board Fund Obligations (BFO) for highway constructions. 2. Maricopa Regional Area Road Construction Fund - $33,166,362 for a loan from the City of Mesa for advance construction of a section of Loop 202. 3. Equipment Fund - $5,692,898 for purchase of snow plows using capital leases. 4. HELP Fund - $145,536,466 for principal and interest for BFO used for capitalizing Arizona’s State Infrastructure Bank. 2002 Comprehensive Annual Financial Report 11 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2002 The bonds have been sold in 25 separate issues between 1986 and 2002. All bonds outstanding as of June 30, 2002, are scheduled to mature not later than July 1, 2020. The bonds are obligations of the Transportation Board and are not obligations of the State of Arizona. Of the $4.0 billion total in bonds issued between 1986 and 2002, $1.2 billion, or approximately 30 percent, have been refunding issues to lower debt service costs. These efforts have resulted in cumulative debt service savings of $60 million in current dollars and $42 million on a present value basis. The senior lien HURF bonds have been rated AAA/Aa1 by Standard & Poor’s Rating Services Group and Moody’s Investors Service, respectively. The Department’s subordinate lien HURF bonds are rated AA/Aa2. The senior lien RARF bonds are rated AA/Aa2, while the subordinate lien RARF bonds are rated A/Aa3. The Grant Anticipation Notes are rated AA-/Aa3/AA with the additional rating provided by Fitch, Inc. Laws 1999, Chapter 189 (SB 1201), Arizona Revised Statute 28-7678, authorized the Transportation Board to issue nonnegotiable Board Funding Obligations (BFOs) for purchase by the Arizona State Treasurer. The law restricts the Transportation Board to issuing $100 million in fiscal years 2000, 2002 and 2004. The BFOs are used to capitalize Arizona’s State Infrastructure Bank, which allows the Department and political subdivisions to apply for loans from the HELP established by this legislation Laws 2001, Chapter 238 (HB 2636), Arizona Revised Statute 28-7510, increased the HURF bonding cap to $1 billion from $800 million. Additionally, the legislation authorized the Transportation Board to issue an additional $100 million in BFOs in fiscal year 2002 and increased the BFO authority in fiscal year 2004 to $200 million from $100 million. The distribution of this additional BFO authority is $60 million to the State Highway Fund and $40 million to the HELP fund in fiscal years 2002 and 2004. Laws 2002, Chapter 4 (HB 2588), Arizona Revised Statute 28-7510, increased the HURF bonding cap to $1.3 billion from $1.0 billion Requests for Information This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with an overview of the Department’s finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Controller, Arizona Department of Transportation, 206 S. 7th Avenue, Phoenix, Arizona, 85007 or by visiting our website at http://www.dot.state.az.us/ABOUT/fms/cafr/cindex.htm. 2002 Comprehensive Annual Financial Report 12 12 Basic Financial Statements Government-wide Financial Statements include the Statement of Net Assets and Net Activities and uses the accrual basis of accounting for financial reporting. Governmental Fund Financial Statements include Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance for the major and nonmajor governmental funds and uses the modified basis of accounting for financial reporting. Also includes the reconciliation to the government-wide financial statements. Proprietary Fund Financial Statements include the Statement of Net Assets, Statement of Revenues, Expenses and Changes in Fund Net Assets and Statement of Cash Flows for the business- type funds and Internal Service Fund and uses the accrual basis accounting for financial reporting. Statement of Fiduciary Net Assets include Statement of Net Assets for assets being held for parties outside of the Department. Notes to the Financial Statements 12 Exhibit 1 Arizona Department of Transportation Statement of Net Assets June 30, 2002 Governmental Activities ASSETS Unrestricted cash on deposit with the State Treasurer $ 186,838,257 Receivables: Notes and loans Subscriptions, net of allowance for doubtful accounts Accrued interest Taxes and fees Other, net of allowance for doubtful accounts Due from U.S. Government for reimbursable construction costs Due from Arizona counties, cities and other state agencies Internal balances Inventories Prepaid items Deferred charges 11,570,864 4,452,915 102,618,734 4,774,351 57,592,619 22,324,023 19,429,740 6,392,123 953,490 Restricted cash on deposit with the State Treasurer Capital assets not subject to depreciation (Note 5A) Capital assets subject to depreciation, net of accumulated depreciation (Note 5A) Total assets Business-Type Activities $ 2,301,232 Total $ 106,119,476 456,519 674,334 46,801 158,953 <19,429,740> 2,809,704 773,730 - 189,139,489 117,690,340 456,519 5,127,249 102,618,734 4,821,152 57,592,619 22,482,976 9,201,827 773,730 953,490 416,541,181 10,565,502,905 141,334,598 7,900 557,875,779 10,565,510,805 168,044,895 11,567,036,097 1,431,157 236,684,664 169,476,052 11,803,720,761 30,260,011 4,567,029 285,006 63,644 30,545,017 4,630,673 81,963,147 5,120,007 91,536,858 - 157 4,411,419 81,963,147 5,120,007 91,537,015 4,411,419 342,763,312 1,392,042,921 1,948,253,285 134,092 145,536,466 150,430,784 342,897,404 1,537,579,387 2,098,684,069 NET ASSETS Invested in capital assets, net of related debt Restricted for: 8,998,741,567 1,439,057 9,000,180,624 Loans and other financial assistance Debt service Capital projects Unrestricted Total Net Assets 25,939,864 374,375,517 219,725,864 9,618,782,812 83,292,829 1,521,994 $ 86,253,880 83,292,829 25,939,864 374,375,517 221,247,858 9,705,036,692 LIABILITIES Accounts payable and other current liabilities Accrued payroll and other accrued expenses Contracts and retainage payable Judgements payable (Note 5C) Due to Arizona counties, cities and other state agencies Deferred revenues (Note 5D) Non-current liabilities (Note 5H): Due within one year Due in more than one year Total liabilities $ The notes to the financial statements are an integral part of this statement. 13 $ Exhibit 2 Arizona Department of Transportation Statement of Activities For the fiscal year ended June 30, 2002 Program Revenues Expenses Functions/Programs Governmental Activities: Administration Aeronautics Highway Highway Maintenance Motor Vehicle Other Transportation - not appropriated by State legislature Distributions to Arizona counties, cities and other state agencies Intergovernmental Interest on long-term debt Total governmental activities Business-type Actvities: Arizona Highways Magazine Highway Expansion and Extension Loan Program Total business-type actvities Total $ $ 57,864,409 3,750,673 160,481,172 91,569,523 82,904,097 6,844,145 Charges for Services Operating Grants and Contributions $ 974,016 104,298,256 3,341,440 $ 36,632,493 - Capital Grants and Contributions $ 470,771,977 - Net Revenues $ <57,864,409> <2,776,657> 346,923,298 <91,569,523> 21,394,159 <3,502,705> 7,482,406 - - - <7,482,406> 1,064,559,675 89,604,704 1,565,060,804 4,111,072 112,724,784 19,848,254 56,480,747 470,771,977 <1,064,559,675> 23,959,326 <89,604,704> <925,083,296> 10,710,728 9,613,848 - - <1,096,880> 5,264,722 15,975,450 1,581,036,254 2,226,502 11,840,350 $124,565,134 56,480,747 $ 470,771,977 <3,038,220> <4,135,100> $ <929,218,396> Business-type Activities Total $ Governmental Activities Net General revenues: Transportation excise taxes Vehicle, registration, title, license and related taxes Fuel and motor carrier taxes and fees Flight property taxes Interest on investments Other Total general revenues $ <925,083,296> $ <4,135,100> $ <929,218,396> 267,563,343 899,092,103 547,129,189 6,528,347 29,862,802 26,484,086 1,776,659,870 5,624,632 381,360 6,005,992 267,563,343 899,092,103 547,129,189 6,528,347 35,487,434 26,865,446 1,782,665,862 Change in net assets Net assets - July 1 Net assets - June 30 851,576,574 8,767,206,238 $9,618,782,812 1,870,892 84,382,988 $ 86,253,880 853,447,466 8,851,589,226 $ 9,705,036,692 The notes to the financial statements are an integral part of this statement. 14 Governmental Fund Financial Statements MAJOR FUNDS General Fund (State Highway Fund) This fund is used to account for all financial transactions applicable to the general operations of the Department. The fund receives money from the Highway User Revenue Fund for vehicle registration, title, license and related fees and fuel and motor carrier taxes. Reimbursements for certain construction expenditures are received from the federal government, Arizona cities and counties, and other state agencies. The fund also receives interest and other revenues. The fund disburses money primarily for the engineering, construction, improvement and maintenance of state highways, parts of highways forming state routes and highways under cooperative agreements with the United States. Maricopa Regional Area Road Construction Fund This fund receives Maricopa County transportation excise tax monies collected by the Department of Revenue. These movies are used for the construction of certain state highways within Maricopa County. Motor Vehicle Division Clearing Fund This fund accounts for the collection and disbursement of certain Motor Vehicle Division revenues. Highway User Revenue Fund This fund collects motor vehicle and liquid use fuel taxes and receives certain Motor Vehicle Division revenues from the Motor Vehicle Division Cleaning Fund. These monies are distributed to the State Highway Fund, the Department of Public Safety, the Arizona State Parks, the Economic Strength Project Fund, and incorporated cities and counties. Debt Service Fund This fund is used to administer all payments of principal and interest on bonds and notes issued by the Arizona Department of Transportation Board for Highway Revenue Bonds, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes. Capital Projects Fund This fund is used to administer bond proceeds for Highway Revenue Bonds, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes. These monks are expended for the construction of federal, state and local highways within the state. Non-Major Funds Other Governmental Funds are non-major funds and are all special revenue funds. These funds call be found on Exhibit 10 and Exhibit 11. 15 15 Arizona Department of Transportation Balance Sheet Governmental Funds June 30, 2002 Maricopa Special Revenue Funds Motor General Regional Area Road Vehicle Division Highway User Fund (State Highway Fund) Construction Fund Clearing Fund Revenue Fund ASSETS Unrestricted cash on deposit with the State Treasurer Receivables: $ 159,311,245 $ - $ - $ - Accrued interest 2,102,767 139,533 - 365,548 Taxes and fees Notes and loans 2,313,833 3,877,976 8,870,768 - 93,747,966 - Other 1,753,897 1,612,954 - - 79,096,427 - 401,804 9,073,845 55,995,117 38,010 54,663 22,064,262 16 118,493 4,082,901 - - - 20,000,000 101,074,669 107,504,344 32,600,254 53,288,913 Amounts due from: Other Arizona Department of Transportation funds U.S. Government Arizona counties, cities and other state agencies Inventories Advance to other Arizona Department of Transportation funds Restricted cash on deposit with the State Treasurer Total assets $ 425,768,866 $ 135,253,732 $ 41,872,842 $ 156,594,765 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 7,054,844 Accrued payroll and other accrued expenditures Contracts and retainage payable Judgements payable Amounts due to: 168,022 21,330,245 225,941 5,913,105 3,137 - - 66,232,654 4,578,431 - - 95,310 - - - 1,139,084 - 9,329,309 78,966,256 702,312 - 10,226,964 77,402,568 2,313,833 153,990,029 3,877,976 33,166,362 986,324 - - 237,441,171 41,793,928 41,872,842 156,594,765 20,000,000 - - - - - - - 101,074,669 67,253,026 188,327,695 93,459,804 93,459,804 - - Other Arizona Department of Transportation funds Arizona counties, cities and other state agencies Surety and rental deposits Deferred revenue Notes payable Total liabilities Fund balances: Reserved for: Advance to other funds Debt service Capital projects Unreserved Total fund balances Total liabilities and fund balances $ 425,768,866 The notes to the financial statements are an integral part of this statement. 15 $ 135,253,732 $ 41,872,842 $ 156,594,765 Debt Service Fund $ $ $ Capital Projects Fund - $ Other Governmental Funds - $ Total Governmental Funds 23,815,762 $ 183,127,007 801,061 - 774,613 - 246,366 - 4,429,888 102,618,734 - - 5,379,055 1,407,500 11,570,864 4,774,351 - - 124,924 1,542,839 64,992 88,697,000 57,592,619 22,285,773 - - - 4,082,901 21,991,955 22,793,016 89,413,357 90,187,970 10,667,689 43,249,127 20,000,000 416,541,181 915,720,318 $ $ $ 3,121 58,156 155,399 28,995,728 - 9,094,234 3,639,160 86,154 2,057,828 1,385,537 6,002,396 81,963,147 5,120,007 - - 75 89,434,724 3,121 12,791,550 3,205,014 5,379,055 12,269,062 91,536,858 986,324 11,570,864 187,156,391 502,766,439 22,789,895 22,789,895 22,793,016 77,396,420 77,396,420 90,187,970 2,196,479 5,389,066 23,394,520 30,980,065 43,249,127 20,000,000 24,986,374 277,319,959 90,647,546 412,953,879 915,720,318 $ $ $ 16 Exhibit 3.1 Arizona Department of Transportation Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2002 Total fund balances - governmental funds (Exhibit 3) Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds (Note 4B). Internal service funds are used by management to charge the costs of equipment rentals to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the Statement of Net Assets (Exhibit 5). Other long-term assets are not available to pay for current-period expenditures and therefore are deferred in the funds (Note 4B). Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds (Note 4B). Net assets of governmental activities (Exhibit 1) The notes to the financial statements are an integral part of this statement. 17 $ 412,953,879 10,690,438,239 42,542,520 11,570,864 <1,538,722,690> $ 9,618,782,812 Arizona Department of Transportation Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the fiscal year ended June 30, 2002 General Fund (State Highway Fund) Revenues: Transportation excise taxes Vehicle registration, title, license and related taxes and fees Fuel and motor carrier taxes and fees Reimbursement of construction expenditures - federal aid Other federal grants and reimbursements Reimbursements from Arizona counties, cities and other state agencies State appropriations Interest on loans receivable Interest on investments Flight property taxes Grand Canyon National Park Airport Other Total revenues $ Expenditures: Current: Transportation - appropriated by State legislature: Administration Highway Highway maintenance Motor Vehicle Aeronautics Other Total Transportation - appropriated by State legislature Special Revenue Funds Maricopa Motor Regional Vehicle Highway Area Road Division User Construction Clearing Revenue Fund Fund Fund - $ 267,563,343 228,894,803 294,144,373 - 273,433,476 145,961,910 462,690,369 105,418,588 479,443,294 5,388,898 7,174,684 - - - 5,634,123 317,478 418,467 14,388,418 17,101,259 1,045,731,113 2,601,135 344,136 2,469,069 5,637,155 285,789,522 65,574 419,460,960 1,901,476 1,274,683 571,285,116 56,229,911 43,578,170 89,314,437 77,613,135 2,091,895 - - - 268,827,548 - - - The notes to the financial statements are an integral part of this statement. 2002 Comprehensive Annual Financial Report 18 $ - $ - Exhibit 4 Debt Service Fund $ Capital Projects Fund - $ Other Governmental Funds - $ Total Governmental Funds - $ 267,563,343 - - 38,480,412 1,604,318 1,003,499,060 547,129,189 - - 30,029,111 - 516,647,089 5,388,898 470,962 3,435,721 3,906,683 6,618,969 6,618,969 4,111,072 664,838 883,078 6,528,347 941,194 958,201 84,200,571 12,346,330 317,478 1,898,403 29,696,731 6,528,347 941,194 25,036,872 2,416,992,934 274,902 - 24,791,275 3,399,274 3,490,536 1,665 56,229,911 68,369,445 89,314,437 81,012,409 3,490,536 2,368,462 274,902 - 31,682,750 300,785,200 (continued) 2002 Comprehensive Annual Financial Report 19 Arizona Department of Transportation Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the fiscal year ended June 30, 2002 General Fund (State Highway Fund) Transportation - not appropriated by State legislature Arizona Department of Public Safety distributions - appropriated by State legislature State appropriations Distributions to Arizona counties, cities and other state agencies Interest on notes payable Debt service: Principal Interest Bond issuance costs Capital outlay Total expenditures Special Revenue Funds Maricopa Motor Regional Vehicle Highway Area Road Division User Construction Clearing Revenue Fund Fund Fund 7,479,691 - - - 25,017,100 3,863,067 - - - 232,500 1,228,358 2,234,065 - 419,460,960 - 571,285,116 - 701,666,645 1,008,314,909 71,870,710 74,104,775 419,460,960 571,285,116 37,416,204 211,684,747 - - Other financing sources : Transfers in Transfers out debt service Transfer out other Proceeds from sale of bonds Proceeds from sale of refunding bond Premium from sale of bonds Payment to refunded bond escrow agent Total other financing sources 6,701,604 <83,617,343> <175,058> <77,090,797> 9,813 <198,055,907> <4,539,240> <202,585,334> - - Net change in fund balances Fund balances - July 1 Fund balances - June 30 <39,674,593> 9,099,413 228,002,288 84,360,391 188,327,695 $ 93,459,804 - - Excess of revenues over expenditures $ The notes to the financial statements are an integral part of this statement. 2002 Comprehensive Annual Financial Report 20 $ $ Exhibit 4 Debt Service Fund $ Capital Projects Fund Other Governmental Funds Total Governmental Funds - - - 7,479,691 - - - 25,017,100 3,863,067 - - 45,101,576 - 1,038,314,217 1,228,358 208,820,000 84,159,353 298,631 293,552,886 749,834 324,228,184 324,978,018 671,162 77,455,488 208,820,000 84,159,353 1,048,465 1,098,436,701 2,769,152,152 <289,646,203> <318,359,049> 6,745,083 <352,159,218> 291,854,107 74,250,000 3,378,102 <77,134,805> 292,347,404 <3,899,124> 142,000,000 6,763,980 144,864,856 1,997,753 <10,180,857> <95,748> <8,278,852> 300,563,277 <291,854,107> <8,709,170> 142,000,000 74,250,000 10,142,082 <77,134,805> 149,257,277 2,701,201 20,088,694 22,789,895 <173,494,193> 250,890,613 $ 77,396,420 $ <1,533,769> <202,901,941> 32,513,834 615,855,820 30,980,065 $ 412,953,879 2002 Comprehensive Annual Financial Report 21 Exhibit 4.1 Arizona Department of Transportation Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the fiscal year ended June 30, 2002 Net change in fund balance - total governmental funds (Exhibit 4) $ <202,901,941> Amounts reported for governmental activities in the Statement of Activities (Exhibit 2) are different because: Capital outlays are reported as expenditures in governmental funds (Note 4C). 1,001,780,564 Bond proceeds provide current financial resources to governmental funds. However, issuing debt increases long-term liabilities in the statement of net assets. Governmental funds report the effect of issuance costs, premiums, discounts, and similar items when the debt is first issued, whereas these amounts are deferred and amortized in the statement of activities (Note 4C). <226,392,082> Repayment of long-term debt is reported as an expenditure in governmental funds, but the repayment reduces long-term liabilities in the statement of net assets (Note 4C). 281,557,919 Internal service funds are used by management to charge the cost of equipment rentals to individual funds. The net loss of the internal service funds is reported with governmental activities (Note 4C). <1,989,328> Some items reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Change in net assets of governmental activities (Exhibit 2) <478,558> $ The notes to the financial statements are an integral part of this statement. 22 851,576,574 Proprietary Fund Financial Statements MAJOR FUNDS Arizona Highways Magazine Fund The Department uses this fund in the publishing and marketing of the Arizona Highways Magazine and various other products that promote the State of Arizona. Highway Expansion and Extension Loan Program Fund This fund is an innovative financing mechanism to administer funds designed to provide loans and credit enhancement assistance to sponsors of local transportation projects and the Department. Non-Major Funds – Internal Service Fund The Department’s own internal service fund, known as the Equipment Fund, purchases and maintains equipment and materials to be used by other funds and state agencies. 23 Exhibit 5 Arizona Department of Transportation Statement of Net Assets Proprietary Funds June 30, 2002 Highway Expansion and Extension Loan Program Fund ASSETS Current assets: Unrestricted cash on deposit with the State Treasurer Restricted cash on deposit with the State Treasurer Receivables: Subscriptions, net of allowance for doubtful accounts Accrued interest Loans Other, net allowance for doubtful accounts Due from other Arizona Department of Transportation funds Due from other state agencies Inventories Prepaid items Total current assets $ 141,334,598 Enterprise Funds Arizona Highways Magazine Fund $ 2,301,232 - Total $ 2,301,232 141,334,598 Governmental Activities Internal Service Fund $ 3,711,250 - 666,035 51,019,947 - 456,519 8,299 46,801 456,519 674,334 51,019,947 46,801 23,027 - 571,451 158,953 193,750,984 2,809,704 773,730 6,396,285 571,451 158,953 2,809,704 773,730 200,147,269 167,818 38,250 2,309,222 6,249,567 55,099,529 - 7,900 55,099,529 7,900 - 55,099,529 248,850,513 1,431,157 1,439,057 7,835,342 1,431,157 56,538,586 256,685,855 43,109,561 43,109,561 49,359,128 3,905 17,313 285,006 59,739 116,779 285,006 63,644 134,092 277,959 225,449 464,210 21,218 25 157 4,411,419 4,873,125 25 157 4,411,419 4,894,343 1,520 969,138 Noncurrent liabilities: Advances from other Arizona Department of Transportation funds Compensated absences Notes payable Total noncurrent liabilities Total liabilities 20,000,000 145,536,466 165,536,466 165,557,684 4,873,125 20,000,000 145,536,466 165,536,466 170,430,809 154,572 5,692,898 5,847,470 6,816,608 NET ASSETS Invested in capital assets, net of related debt Restricted for loans and other financial assistance Unrestricted Total net assets 83,292,829 83,292,829 1,439,057 1,523,160 2,962,217 1,439,057 83,292,829 1,523,160 86,255,046 37,416,663 5,125,857 42,542,520 Noncurrent assets: Loans receivable Capital assets not subject to depreciation Capital assets subject to depreciation, net of accumulated depreciation Total noncurrent assets Total assets LIABILITIES Current liabilities: Accounts payable Accrued payroll and other accrued expenses Compensated absences Due to other Arizona Department of Transportation funds Due to Arizona counties, cities and other state agencies Deferred revenue Total current liabilities $ Adustment to reflect the consolidation of internal service fund activities related to enterprise funds. Net assets of business-type activities $ <1,166> $ 86,253,880 23 $ Exhibit 6 Arizona Department of Transportation Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds For the fiscal year ended June 30, 2002 Enterprise Funds Highway Arizona Governmental Expansion and Highways Activities - Extension Loan Program Fund Magazine Fund Total Internal Service Fund Operating revenues: Sales and charges for services 9,613,848 $ 29,721,068 Interest on loans receivables Other $ 2,226,502 - - $ 9,613,848 381,360 $ 2,226,502 381,360 907,192 Total operating revenues 2,226,502 9,995,208 12,221,710 30,628,260 Publication and promotional cost - 4,845,111 4,845,111 - Repair and maintenance - 95,154 95,154 5,838,523 Operating expenses: Fuel and lubricants Salaries and related benefits - - - 4,603,036 251,220 2,804,435 3,055,655 10,139,726 - 1,642,791 1,642,791 - 1,043 106,827 107,870 350,138 Shipping and postage Supplies Equipment rental Professional and outside services - 45,721 45,721 - 139,498 432,533 572,031 603,044 Insurance Travel - - - 605,300 6,126 15,309 21,435 76,684 - 9,399 9,399 - 4,821,052 - 4,821,052 329,673 45,783 321,683 389,715 321,683 435,498 8,274,470 875,431 5,264,722 10,708,678 Write-off of uncollectible accounts Interest on notes payable Depreciation Other Total operating expenses Operating loss 15,973,400 31,696,025 <3,038,220> <713,470> <3,751,690> <1,067,765> 5,540,498 84,134 5,624,632 Nonoperating revenues : Interest on investments Loss on sale/disposal of capital assets Legislative transfer out - Total non-operating revenues Changes in net assets Total net assets - July 1 Total net assets - June 30 <884> - <884> - 166,071 <1,088,800> 5,540,498 83,250 5,623,748 <922,729> 2,502,278 80,790,551 <630,220> 3,592,437 1,872,058 <1,990,494> 44,533,014 $ 83,292,829 $ 2,962,217 $ 42,542,520 Adustment to reflect the consolidation of internal service fund activities related to enterprise funds. <1,166> Changes in net assets of business-type activities $ The notes to the financial statements are an integral part of this statement. 24 1,870,892 Exhibit 7 Arizona Department of Transportation Statement of Cash Flows Proprietary Funds For the fiscal year ended June 30, 2002 Enterprise Funds Highway Arizona Governmental Expansion and Extension Loan Program Fund Highways Magazine Fund Activities Internal Service Fund Total Cash flows from operating activities: Receipts from customers Receipts from other funds $ 2,048,346 9,689,351 $ 9,596,834 - $ $ 26,478,489 Receipts from other agencies 3,417,773 3,417,930 3,830,314 Payments to suppliers Payments to employees <26,863> <244,291> <7,352,530> <2,811,442> <7,379,393> <3,055,733> <12,984,807> <10,156,125> Payments to other funds <75,507,164> <50> Payments to other agencies Other receipts Net cash provided by operating activities 157 11,645,180 9,689,351 <75,507,214> - <7,037,504> <45,785> 393,907 <7,037,504> 348,122 989,046 <67,706,137> <173,124> <67,879,261> 8,156,917 40,000,000 40,000,000 <1,088,800> <1,088,800> Cash flows from noncapital financing activities: Transfer to other agencies Transfer from other agencies Net cash provided by noncapital financing activities 40,000,000 40,000,000 - Cash flows from capital and related financing activities: Proceeds from sale of capital assets Acquisition of capital assets Net cash used by capital and related financing activities Cash flows from investing activities: Interest on investments Net cash provided by investing activities Net increase in cash Cash - July 1 Cash - June 30 $ - <5,851> <5,851> 861,179 <9,823,664> - <5,851> <5,851> <8,962,485> 5,625,847 84,134 5,709,981 5,625,847 84,134 5,709,981 <22,080,290> 163,414,888 <94,841> 2,396,073 <22,175,131> 165,810,961 141,334,598 $ 2,301,232 $ 143,635,830 166,071 166,071 <1,728,297> 5,439,547 $ 3,711,250 Reconciliation of operating income to net cash provided by operating activities: Operating Adjustment to reconcile operating to net $ cash provided by operating activities: Depreciation <3,038,220> $ - <3,038,220> $ 321,683 <6,076,440> $ 321,683 <1,067,765> 8,274,470 Net changes in assets and liabilities: Receivables Due from other Arizona Department of Transportation funds Due from other state agencies <69,323,867> <330,150> 151,994 Inventories Prepaid expenses Accounts payable Accrued payroll and other accrued expenses Compensated absence Due to other Arizona Department of Transportation funds Due to other state agencies Notes payable Deferred revenue Net cash provided by operating activities 25 <69,309,469> <330,150> 151,994 81,854 97,826 495,423 - 115,072 <51,920> 115,072 <51,920> 139,806 - - 157,479 157,479 80,532 <4,259> 17,313 - $ 14,398 - 4,821,052 <67,706,137> $ 4,588 <11,595> <50> 329 5,718 <50> 157 157 4,821,052 <9,466> <9,466> <2,497,874> $ <70,204,011> $ 10,552 49,733 1,035 <6,549> 8,156,917 Fiduciary Funds Financial Statements Highway Properties – Priviledge Tax Fund This fund collects monies from renters of properties previously acquired by the Department for use in future highway developent. Monies collected are distributed to the Department of Revenue. Highway Properties – 24% Lieu Tax Fund This fund collects 24 percent of the Department’s rental income from properties for use in future highway development. Monies collected are distributed to the local counties. 26 26 Exhibit 8 Arizona Department of Transportation Statement of Net Assets Agency Funds June 30, 2002 ASSETS Restricted cash on deposit with the State Treasurer Total assets Highway Highway Properties - Properties - Privilege Tax 24 % Lieu Fund Tax Fund $ 237 $ 365,471 $ 237 $ 365,471 $ 237 - $ $ 237 $ 365,471 LIABILITIES Due to Department of Revenue Due to Arizona counties Total liabilities The notes to the financial statements are an integral part of this statement. 26 365,471 Exhibit 9 Arizona Department of Transportation Statement of Changes in Assets and Liabilities Agency Funds June 30, 2002 Balance July 1, 2001 Additions Deletions Balance June 30, 2002 Highway Properties - Privilege Tax ASSETS Restricted cash on deposit with the State Treasurer Total assets LIABILITIES Due to Department of Revenue Total liabilities $ 282 $ 4,449 $ <4,494> $ 237 $ 282 $ 4,449 $ <4,494> $ 237 $ 282 $ 4,449 $ <4,494> $ 237 $ 282 $ 4,449 $ <4,494> $ 237 $ 412,606 $ 369,237 $ <416,372> $ 365,471 $ 412,606 $ 369,237 $ <416,372> $ 365,471 $ 412,606 $ 369,237 $ <416,372> $ 365,471 $ 412,606 $ 369,237 $ <416,372> $ 365,471 Highway Properties - 24 % Lieu Tax ASSETS Restricted cash on deposit with the State Treasurer Total assets LIABILITIES Due to Arizona counties Total liabilities The notes to the financial statements are an integral part of this statement. 27 Notes to the Financial Statements 28 28 Index Notes to the Financial Statements Page Note 1 – Summary of Significant Accounting Policies ...........................................................................................................29 A – Reporting Entity............................................................................................................................................................29 B – Government-wide and Fund Financial Statements .................................................................................................29 C – Measurement Focus, Basis of Accounting, and Financial Statement Presentation...........................................30 D – Assets, Liabilities, and Net Assets/Fund Balance ...................................................................................................32 E – Revenues and Expenditures/Expenses ......................................................................................................................35 F – Interfund Activity and Balances .................................................................................................................................35 Note 2 – Funds by Classification.................................................................................................................................................36 Note 3 – Budgeting, Budgetary Control, and Legal Compliance...........................................................................................36 Note 4 – Accounting Changes .....................................................................................................................................................37 A – Fund Balance .................................................................................................................................................................37 B – Explanations of Reconciling Items of the Balance Sheet of Governmental Fund to the Statement of Net Assets ..........................................................................................................................................38 C– Explanations of Reconciling Items of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Fund to Statement of Activities...............................................38 Note 5 – Detailed Notes on all Funds.........................................................................................................................................40 A – Capital Assets................................................................................................................................................................40 B – Construction Commitments ........................................................................................................................................41 C – Judgements Payable......................................................................................................................................................41 D – Deferred Revenues .......................................................................................................................................................41 E – Securities Held in Lieu of Retention..........................................................................................................................42 F – Interfund Receivables, Payables, and Transfers.......................................................................................................42 G– Leases ..............................................................................................................................................................................43 H – Non-Current Liabilities ................................................................................................................................................44 I – Fund Balances .................................................................................................................................................................48 Note 6 – Other Information...........................................................................................................................................................49 A – Subsequent Events........................................................................................................................................................49 B – Contingent Liabilities ...................................................................................................................................................49 C – Retirement Plan .............................................................................................................................................................50 28 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting polices of the Arizona Department of Transportation (Department) conform in all material respects to generally accepted accounting principles (GAAP) as applicable to governments. The Governmental Accounting Standards Board (GASB) is the standard setting body for establishing governmental accounting and financial reporting principles, which are primarily set forth in the GASB’s Codification of Governmental and Financial Reporting Standards (GASB Codification). Following is a summary of the Department’s significant accounting policies. Reporting Entity The Department is a department of the State of Arizona (State) and is not a legally separate entity. The Department has no component units. The Director of the Department serves as the Chief Administrative Officer and is directly responsible to the Governor. The Governor appoints a seven-member Transportation Board of the State of Arizona Department of Transportation (Transportation Board) which has responsibility for establishing a complete system of state highway routes, approving all highway construction contracts, and distributing monies for local airport facilities’ projects through a grant program. The Department is responsible for the construction and maintenance of all state highways. The Department cooperates with the various cities and counties within the state in the construction and maintenance of state roads and with the Federal Highway Administration in the construction and maintenance of interstate and other highways. Assistance in the development of local airports, registering motor vehicles and aircraft, licensing drivers and the publishing of the Arizona Highways Magazine are also responsibilities of the Department. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non-fiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by federal reimbursement, taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for services. The Statement of Net Assets presents the reporting entity’s non-fiduciary assets and liabilities, with the difference reported as net assets. Net assets are reported in three categories: Invested in capital assets, net of related debt consists 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 assets result when constraints placed on asset use are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions, or enabling legislation. Unrestricted net assets consists of net assets which do not meet the definition of the two preceding categories. Unrestricted net assets often are designated to indicate that management does not consider them to be available for general operations. Unrestricted net assets often have constraints on resources which are imposed by management, but can be removed or modified. The Statement of Activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identified with a specific function. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services or privileges provided by a given function and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual 29 governmental funds and major proprietary funds are reported as separate columns in the fund financial statements, with non-major funds being reported in a single column. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting, as are the proprietary funds. Revenues are recorded when earned and expenses are recorded when the liability is incurred, regardless of the timing of related cash flows. Taxes are recognized as revenues in the year they are levied for transportation excise, aircraft licensing, aviation and motor fuel, flight property, and underground storage tanks. Motor carrier and vehicle license taxes are recognized when received. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. As allowed by GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting, the Department’s proprietary funds follow GASB pronouncements and those Financial Accounting Standard Board Statements and Interpretations, Accounting Principle Board Statements and Interpretations, Accounting Principle Board Opinions, and Accounting Research Bulletins that were issued on or before November 30, 1989, except those that conflict with a GASB pronouncement. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or 30 32 soon enough thereafter to pay liabilities of the current period. For this purpose, the Department considers revenues to be available if they are collected within 60 days of the end of the fiscal year, e.g. federal revenue reimbursements, vehicle license taxes and highway user revenue taxes. Expenditures generally are recorded when a liability is incurred as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgements, are recorded only when payment is due and payable. Financial Statement Presentation The Department reports the following major governmental funds: The General Fund, known as the State Highway Fund, is the primary operating fund. It accounts for all financial resources except for those required to be accounted for in another fund. Expenditures are reported for general operations of the Department, including road and bridge repairs, maintenance and construction, planning and development, engineering, and administration. Revenues are received from the following primary sources: fuel and motor carrier taxes and fees; vehicle registrations, titles, licenses and related fees; and federal grants. The Maricopa Regional Area Road Construction Fund is a special revenue fund that receives Maricopa County transportation excise tax monies collected by the Department of Revenue. These monies are used for the construction of certain state highways within Maricopa County. The Motor Vehicle Division Clearing Fund is a special revenue fund which accounts for the collection and disbursement of certain Motor Vehicle Division revenues. The Highway User Revenue Fund is a special revenue fund which collects motor vehicle and liquid use fuel taxes and receives certain Motor Vehicle Division revenues from the Motor Vehicle Division Clearing Fund. These monies are distributed to the State Highway Fund, the Department of Public Safety, the Arizona State Parks, the Economic Strength Project Fund, and various cities and counties. The debt service fund is used to account for the accumulation of resources for, and the payments of, general long-term debt principal and interest of the governmental funds. The capital projects fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities of the governmental funds. The Department reports the following major proprietary funds: The Highway Expansion and Extension Loan Program Fund (HELP) is an innovative financing mechanism to administer funds designated to provide loan and credit enhancement assistance to sponsors of local transportation projects . The Arizona Highways Magazine Fund publishes and markets the Arizona Highways Magazine and various other products that promote the State of Arizona. Additionally, the Department reports the following fund types: The internal service fund which accounts for purchases and maintenance of equipment and materials to be used by other divisions in the Department and other government agencies. The Equipment Fund is the Department’s only internal service fund. The agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The Department has two agency funds, the Highway Properties – Privilege Tax and Highway Properties – 24% Lieu Tax. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges for services by the Equipment Fund to the other governmental functions. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 32 Amounts reported as program revenues include: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues are charges for services and magazine subscriptions. The Department also recognizes as operating revenues interest on loan receivables and other revenues intended to recover the cost of services. Operating expenses for the enterprise funds and the internal service fund 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 nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, the Department generally expends the restricted resources first, then unrestricted resources as they are needed to maintain appropriate cash balances and finance the construction program. D. Assets, Liabilities, and Net Assets/Fund Balance Deposits and Investments The Department’s cash include petty cash, bank accounts, and deposits with the State Treasurer for pooled investments. All investments are carried in the name of the State of Arizona. State statutes require the State Treasurer to invest these pooled funds in collateralized time certificates of deposit, repurchase agreements or obligations of the U.S. Government. All investments are carried at cost, which approximates fair value. These balances are not subject to GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements, classification because they are included in the state’s investment pool. State statutes require the State Treasurer to maintain separate investment accounts for the portions of the Highway Revenue Bond Proceeds Fund relating to the highway revenue bond issues and the Maricopa Regional Area Road Bond Proceeds Fund relating to the transportation excise tax revenue bond issues. These funds may be invested by the Treasurer in the state’s investment pool. The Department’s investments are included in the state investment pool and these investments are not shown in the Department’s name. Therefore, the Department presents its equity in the internal pool as required in GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between U.S. Government and Arizona counties, cities and other state agencies are reported as “due to/from”. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances”. Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in the General Fund to indicate that they are not available for appropriation and are not expendable available financial resources. The other receivables and subscriptions receivables are shown net of allowance for doubtful accounts. Other receivables in excess of 180 days comprise the insurance claims net of allowance for doubtful accounts. The subscriptions receivable is equal to two (2) percent of outstanding subscriptions at June 30, 2002. 32 Notes receivable represents real estate mortgage loans made to individuals purchasing homes previously owned by the Department for highway construction purposes. The loans were made at a fixed rate and mature ten years from the date of origination. Inventories and Prepaid Items The governmental activities inventory is valued at cost, which approximates market, using the first-in, firstout (FIFO) method. This inventory is accounted for using the consumption method. Under this method, inventories are recorded as expenditures as they are used. The business-type activities’ inventories are stated at the lower of cost or market. Costs of proprietary fund inventories consisting of resale products and supplies are generally determined by moving average cost and specific identification methods, respectively. Costs of the internal service fund’s inventories (consisting of vehicle parts and supplies, fuels and lubricants, and other supplies) are determined by moving average cost methods. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. Restricted Assets Certain proceeds of the Department’s governmental revenue bonds, as well as certain resources of the General Fund and the Highway Extension and Expansion Loan Program Fund (enterprise fund) are classified as restricted assets on the balance sheet because they are maintained in separate bank accounts and their use is limited by applicable bond covenants or state statutes. Effective July 1, 1981, state law required accumulation of at least 15 percent, which in fiscal year 1996 was modified to 12.6 percent, of the revenues allocated each year to the General Fund from the Highway User Revenue Fund for the design, purchase of right-of-way or construction of controlled-access highways which are included in the regional transportation plan of counties with populations in excess of 400,000 (Maricopa and Pima counties). The debt service fund is used to report the resources set aside for payment of future debt service payments. The revenue bonds proceeds are deposited in the capital projects fund and are restricted for acquisitions of right-of-way and constructions of federal, state and local highways. Capital Assets Capital assets, which include land, buildings and improvements, improvements other than buildings, machinery and equipment, infrastructure and construction in progress are reported in the applicable governmental or business-type columns in the government-wide financial statements. Capital assets are defined by the Department as assets with an initial, individual cost of $5,000 or more and an estimated useful life in excess of one year. Assets are recorded at historical cost or estimated historical cost if historical cost is not available. Donated capital assets are recorded at estimated fair market value at the date of donation. Costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the assets’ lives are not capitalized. Outlays for capital assets are capitalized at the time of the purchase or, in the case of infrastructure, at the time of final acceptance by the Department from the contractor. The Department depreciates non-infrastructure on a straight-line basis using the following estimated useful lives. Modular building are included on the statements assets under the machinery and equipment category, however, modular buildings have an estimated useful life of fifteen (15) years. Assets Buildings and improvements Improvements other than building Machinery and equipment Mobile fleet and aircraft Years 40 40 5-15 5-15 Infrastructure is capitalized for the first time in fiscal year 2002. The infrastructure assets are reported in the governmental-type activities column of the statement of net assets. The Department’s infrastructure assets 33 consist of roads and bridges and are presented using the modified approach and, therefore, are not depreciated. In addition, expenditures made by the Department to preserve existing roads or bridges are expensed rather than capitalized. Additional disclosures about the condition assessments and maintenance cost regarding the Department’s roads and bridges appear in the Required Supplementary Information portion of this report. Deferred Revenues In the government-wide statements and proprietary fund financial statements, deferred revenues are recognized when cash, receivables, or other assets are received prior to being earned. In the governmental funds, earned amounts are reported as deferred revenues until they are available to liquidate liabilities of the current period. Deferred revenues are reported in the government-wide statements for the business-type activities and in the fund statements for both the governmental and proprietary funds. In the governmentwide statements, the deferred revenues relate to unearned subscriptions’ income for the Arizona Highways Magazine. Unearned subscription income is recorded when subscription orders are received and is amortized as income over the terms of the related subscriptions. Costs associated with the selling of subscriptions are expensed in the year incurred. In the fund statements, the deferred revenues represent the amount for the notes receivable for real estate mortgage loans made to individuals who purchased homes previously owned by the Department for highway construction purposes. The loans were made at a fixed rate and mature ten years from the date of origination. Compensated Absences It is the Department’s policy to permit employees to accumulate earned but unused sick leave and vacation benefits. There is no liability for unpaid accumulated sick leave for the Department. All vacation pay is accrued when incurred in the government-wide and proprietary fund financial statements. Effective July 1, 1998, state employees are eligible to receive payment for an accumulated sick leave balance of 500 hours or more with a maximum of 1,500 hours, upon retirement directly from state service. The benefit value is calculated by taking the state 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 percent for 500 hours to a maximum of 50 percent for 1,500 hours. The maximum benefit value is $30,000. The benefit is paid out in annual installments over three years. The Retiree Accumulated Sick Leave Fund is accounted for on the State’s financial statements as an Internal Service Fund. Employees are allowed to accumulate up to 240 hours of vacation leave (320 hours for exempt employees) which is paid when vacation is taken or upon termination of employment at the individual’s then current rate of pay. The liability for vacation outstanding as of June 30 for both the governmental and proprietary fund are reported on the Statement of Net Assets. Long-term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bond using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as issuance costs, during the current period. The face amount of the debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 34 Net Assets/Fund Balance The difference between fund assets and liabilities is “Net Assets” on the government-wide, proprietary, and fiduciary fund statements and “Fund Balance” on the governmental fund statements. Reservations E. Fund balances for governmental funds are classified as either reserved or unreserved in the fund financial statements. Reserved fund balances reflect either: 1) funds legally segregated for a specific purpose, or 2) assets, which by their nature, are not available for expenditure. Unreserved fund balances reflect the balances available for appropriation for the general purposes of the fund. Note 5I provides a disaggregation of reserved fund balances. Revenues and Expenditures/Expenses In the government-wide Statement of Activities, revenues and expenses are segregated by activity (governmental or business-type), then further by function (e.g. Administration, Aeronautics, Highway, etc). Additionally, revenues are classified between program and general revenues. Program revenues include: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenue rather than as program revenue. General revenues include all taxes and interest on investments. In the governmental fund financial statements, revenues are reported by source. Expenditures are reported by function (e.g., Administration, Distributions to Arizona counties, cities and other state agencies, Debt service, Capital outlay, etc.). The Distributions to Arizona cities, counties and other state agencies are shared tax revenues that are distributed based on statutory requirements. Debt service includes both interest and principal outlays related to bonds. Capital outlay includes expenditures for real property or infrastructure (e.g. bridges and roads). Revenues and expenses of proprietary funds are classified as operating and non-operating and as subclassified by object (e.g., salaries, equipment rental, depreciation, etc). Operating revenues and expenses generally result from providing services and producing and delivering goods. All other revenues and expenses are reported as non-operating. Other Financing Sources Other financing sources are additions to the governmental fund balances in the fund financial statements and include resources and financing provided by bond proceeds and transfers from other funds. Other financing are reductions of governmental fund resources in fund financial statements normally resulting from transfers to other funds. F. Interfund Activity and Balances Interfund Activity As a general rule, the effect of interfund activity has been eliminated from the government-wide statements. Exceptions to this rule are activities between the funds reported as governmental activities and the funds reported as business-type activities (e.g. the transfer of the loss from the Equipment Fund). Interfund Balances Interfund receivables and payables have been eliminated from the Statement of Net Assets, except for the residual amounts due between governmental and business-type activities. 35 2. FUNDS BY CLASSIFICATION The following table lists all of the funds whose balances are reflected in this financial report. The General Fund is subject to annual appropriation and the budget and actual schedule is included in this report under the Required Supplementary Information. MAJOR FUNDS Governmental Funds : General Fund (State Highway Fund) Special Revenue Funds: Maricopa Regional Area Road Construction Fund Motor Vehicle Division Clearing Fund Highway User Revenue Fund Debt Service Fund Capital Projects Fund Proprietary Funds: Arizona Highway Magazine Fund Highway Expansion and Extension Loan Program Fund NON-MAJOR FUNDS Other Governmental Funds: Special Revenue Funds: State Aviation Fund Safety Enforcement and Transportation Infrastucture Fund Motor Vehicle Liabitity Insurance Enforcement Fund Vehicle Inspection and Title Enforcement Fund Grant Anticipation Notes Fund Local Agency Deposits Fund Motor Carrier Safety Revolving Fund Motorcycle Safety Education Fund Underground Storage Tank Fund Economic Strength Project Fund FIDUCIARY FUNDS Agency Funds: Highway Properties - Privilege Tax Fund Highway Properties - 24% Lieu Tax Fund 3. BUDGETING, BUDGETARY CONTROL, AND LEGAL COMPLIANCE An annual budget for the operating expenditures and capital outlay including land, building and improvements are submitted to the Governor in accordance with state law for the General Fund. The budgets are legally enacted as appropriations after approval by the state legislature and signature by the Governor. The legal level of control is at the program level and expenditure budgets are appropriated using a lump sum format with special line items. Expenditure details for personal services, employee related expenditures and all other operating expenditures are specifically budgeted within most divisions. In certain divisions, other specific programs are budgeted in addition to these categories. Revenue budgets are developed internally by the Department and are not a part of the appropriation process. Amendments to the approved appropriations require legislative approval. However, since the Department’s appropriation is a lump sum appropriation by program, the allocation of funds between personal services, employee-related expenses, and other operating expenses is an internal decision for the program manager. Accordingly, transfers between line items such as personal services and other operating expenses within a particular program may be done by the program manager. Transfers of funds between programs require the approval of the Joint Legislative Budget Committee. Absent an amendment to the Department’s appropriated amount by the full state legislature, expenditures may not exceed appropriations. All transfers of funds are reported to the Department’s Office of Strategic Planning and Budgeting for monitoring purposes. Budgets are prepared on the cash basis except that liabilities incurred before the end of the fiscal year and paid within the first month of the subsequent fiscal year are charged against the prior fiscal year’s budget. The Department’s appropriations lapse at year end. For financial reporting purposes, the accompanying financial statements present the legally adopted budget for those operations subject to legislative appropriation. 36 A legal limitation is adopted for capital outlay including land, building and improvements for the General Fund. Any balances and collections in this fund in excess of the specific amounts appropriated in the general appropriations act are appropriated to the Department. The Department monitors expenditures through an internal budgetary process and the Five-Year Transportation Facilities Construction Program approved by the Transportation Board. A legal limitation is not adopted for the other special revenue funds, the debt service funds, capital projects funds, proprietary funds and fiduciary funds. Governments have the option of reporting the budgetary comparison as required supplementary information (RSI) rather than as a basic governmental fund financial statement. Budgetary reporting is required for the General Fund. 4. ACCOUNTING CHANGES During fiscal year 2002, the Department implemented several new accounting standards issued by GASB: Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, Statement No. 37, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Goverments: Ominibus, and Statement No. 38, Certain Financial Statement Note Disclosures. Statement No. 34, as amended by Statement No. 37, establishes new financial reporting standards for state and local governments. This statement’s requirements represent a significant change in the financial reporting model used by the Department, including statement formats and changes in fund types and account groups. In addition to the fund financial statements, governments are required to report government-wide financial statements prepared using the accrual basis of accounting and the economic resources measurement focus. As a result, fund reclassifications and adjustments to the fund equities reported in the prior financial statement balances were required. Statement No. 38 requires certain note disclosures when Statement No. 34 is implemented. A. Fund Balance The provisions of these new standards have been incorporated into the financial statements and notes. The following tables summarize changes to fund equities previously reported on the Combined Balance Sheet. The changes resulted primarily from the implementation of GASB 34, however, the Highway Expansion and Extension Loan Program Fund was reclassified from a governmental fund to a proprietary fund. 37 Aggregated fund balances of governmental fund types at June 30, 2001 - as previously reported Add: Capital assets, net of accumulated depreciation Revenues earned but not yet available Internal Sevice Fund net assets Less: Long-term liabilities Net assets of governmental activities as of July 1, 2001 $ 615,855,820 9,688,657,675 11,570,864 44,533,014 <1,593,411,135> $ 8,767,206,238 B. Explanations of Reconciling Items of the Balance Sheet of Governmental Funds to the Statement of Net Assets The governmental fund balance sheet includes a reconciliation between fund balance – total governmental funds and net assets –government activities as reported on the government-wide statement of new assets. The following explanations are necessary to explain these differences between the governmental fund balance sheet and the government-wide statement of net assets: 1. Capital assets are not included on the fund statements but are included on the government-wide statement as follows: Capital assets $10,733,547,800 less Internal Service Fund (Equipment Fund) assets <43,109,561> $10,690,438,239 2. Deferred revenues for assets shown in fund statements for the following funds: General Fund $ 2,313,833 Maricopa Regional Area Road Construction Fund State Aviation Fund 3,877,976 5,379,055 $ 11,570,864 3. Long-term liabilities including bonds payable are not due and payable in the current period and are not reported in the current period on the fund statements. The detail for the $<$1,538,722,690> difference are as follows: Bonds payable Deferred charges - issuance cost $<1,528,697,653> 953,490 Capital leases <1,557,477> Compensated absences Business activity share of Equipment Fund loss <9,422,216> 1,166 $<1,538,722,690> C. Explanations of Reconciling Items of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Fund to Statement of Activities The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances – total governmental funds and changes in net assets of governmental activities as reported on the government-wide statement of activities. The following explanations are necessary to explain these differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities: 38 1. Governmental funds report capital outlay as expenditures. However, in the statement of activities, these costs are removed and capitalized as infrastructure assets as follows: Capital outlay $ 1,098,436,701 Depreciation expense Excess Highway construction included as expenditure in Highway <7,509,469> <89,146,668> $ 1,001,780,564 2. The issuance of long-term debt (e.g. bonds) provides current financial resources to governmental funds, while the repayment of principal of long-term debt consumes current financial resources of the governmental funds. Neither transaction, however, has any effect on net assets. Also, the government reports the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are amortized in the statement of activities. The details of this $55,165,837 difference are as follows: Debt issued or incurred: Issuance of Highway Revenue Bonds $ <75,990,000> Issuance of Transportation Excise Tax Revenue Bonds Issuance of Highway Revenue Refunding Bonds Premium on bonds <66,010,000> <74,250,000> <10,142,082> <226,392,082> Principal repayments: Highway Revenue Bonds 45,365,000 Transportation Excise Tax Revenue Bonds Amortization of premium and discount 163,455,000 689,454 Bond issuance costs Payment to refunded bond escrow agent 1,048,465 71,000,000 281,557,919 $ 3. 55,165,837 Some expenses reported in the statement of activities do not required the use of current financial resources and therefore, are not reported as expenditures in the governmental funds. The details are as follows: Internal Service Fund (Equipment Fund): Changes in net assets Business activity share of Equipment Fund loss 39 $ <1,990,494> 1,166 $ <1,989,328> 5. DETAILED NOTES ON ALL FUNDS A. Capital Assets Capital asset activity for the year ended June 30, 2002, was as follows: July 1, 2001 Beginning Balance Governmental Activities Capital Assets, not being depreciated: Land Airport facilities Infrastructure Construction in progress $ Total Capital Assets, not being depreciated Capital Assets, being depreciated: Buildings Improvements other than buildings Machinery and equipment Mobile Fleet and aircraft Total Capital Assets, being depreciated Less accumulated depreciation for: Buildings Improvements other than buildings Machinery and equipment Mobile Fleet and aircraft Total accumulated depreciation Total Capital Assets, being depreciated, net Governmental activities capital assets, net $ Decreases 652,946,396 280,656,144 779,487,283 $ <490,709,296> $ 1,715,941,418 19,569,077 <7,164,783> 7,444,327,275 <344,090,487> 1,385,665,135 9,694,377,648 1,713,089,823 <841,964,566> 10,565,502,905 135,092,917 11,058,576 44,969,416 110,376,196 301,497,105 7,627,479 2,321,150 4,679,494 7,293,398 21,921,521 <4,403> <4,836,380> <5,378,840> <10,219,623> 142,715,993 13,379,726 44,812,530 112,290,754 313,199,003 <42,024,070> <974,159> <27,472,419> <67,021,036> <137,491,684> <3,056,857> <271,334> <4,497,064> <7,958,684> <15,783,939> 3,437,531 4,683,984 8,121,515 <45,080,927> <1,245,493> <28,531,952> <70,295,736> <145,154,108> 164,005,421 6,137,582 <2,098,108> 168,044,895 9,858,383,069 $ 1,719,227,405 $ 7,900 Total Capital Assets, being depreciated, net $ $ <844,062,674> $ 10,733,547,800 June 30, 2002 Ending Balance Decreases - $ 5,850 5,850 - $ 7,900 <8,837> <8,837> 981,157 2,424,705 3,405,862 <635,557> <1,339,148> <1,974,705> <601,741> <1,059,235> <1,660,976> <33,816> <287,867> <321,683> 7,954 7,954 1,747,873 <315,833> <883> 1,431,157 <315,833> $ <883> $ 1,439,057 1,755,773 40 $ Increases 981,157 2,427,692 3,408,849 Less accumulated depreciation for: Buildings Machinery and equipment Total accumulated depreciation Business type activities capital assets, net $ July 1, 2001 Beginning Balance Business-Type Activities Capital Assets, not being depreciated: Land Capital Assets, being depreciated: Buildings Machinery and equipment Total Capital Assets, being depreciated 1,553,704,318 19,569,077 7,170,835,914 950,268,339 Increases June 30, 2002 Ending Balance $ Depreciation expense was charged to functions/programs as follows: Governmental Activities: Administration Aeronautics Highway Highway Maintenance Motor Vehicle Capital assets held by the Department's internal service fund are charged to the various functions based on their usage of the assets Total depreciation expense - governmental activities Business-Type Activities Arizona Highways Magazine Fund B. $ 1,513,656 260,292 2,515,771 1,422,250 1,797,500 8,274,470 $ 15,783,939 $ 321,683 Construction Commitments The Department’s outstanding commitments for contracts at June 30, 2002, were $686,200,067. Spent-to-Date Construction Contracts: Rural Roadways Small Urban Roadways Urban Roadways Large Urban Roadways $ Sub-total Design Contracts Other Commitments Total C. Remaining Commitments 326,462,448 52,450,641 269,513,722 241,819,754 $ 149,734,243 6,633,783 111,932,998 221,769,899 890,246,565 490,070,923 668,270,824 130,393,229 $ 1,688,910,618 98,288,955 97,840,189 $ 686,200,067 Judgements Payable Judgements payable represent assessments by the Maricopa County Superior Court for land condemnation settlements ($3,734,470) and violation of a “Most Favored Nation” clause for the Grand Canyon Airlines, Inc. ($1,385,537) that was paid in July 2002. D. Deferred Revenues In the fund financial statements, the deferred revenues represent the amount for notes receivable for real estate mortgage loans made to individuals who purchased homes previously owned by the Fund for highway construction purposes. The loans were made at a fixed rate and mature ten years from the date of origination. The State Aviation Fund amount represents loans to various local governments for construction of hangars, taxiways extension, runways, etc. These loans were made at a fixed rate and with various maturities. The proprietary fund includes the amount for unearned subscriptions. The following schedule is a summary of the amounts outstanding as of June 30, 2002: 41 Governmental Funds: General Fund Maricopa Regional Area Road Construction Fund State Aviation Fund Total Governmental Funds Proprietary Fund: Arizona Highways Magazine Fund $ 2,313,833 3,877,976 5,379,055 $11,570,864 $ 4,411,419 E. Securities Held in Lieu of Retention In accordance with Arizona law, a contractor may assign to the Department, securities in lieu of retention and will deposit with the bank, cash, time certificates of deposit in federally insured banks licensed by the State of Arizona (Certificates of Deposit), securities of or guaranteed by the United States of America (Treasury Bills), or other eligible securities as defined in the Arizona Revised Statutes, Title 35, Chapter 2, Article 2, Section 35-313 (Eligible Investments). At June 30, 2002, the bank held assignment on securities aggregating approximately $33 million in lieu of contractor retentions for construction. These additional securities are not reflected in the accompanying financial statements. F. Interfund Receivables, Payables, and Transfers The balances of current interfund receivables and payables as of June 30, 2002, were: Due to/from other funds: Receivable Fund General Fund Highway Expansion and Extension Loan Program Fund Equipment Fund Highway User Revenue Fund Motor Vehicle Division Clearing Fund Non-major governmental funds Payable Fund Highway User Revenue Fund Motor Vehicle Division Clearing Fund Motor Vehicle Liability Insurance Enforcement Fund Equipment Fund Arizona Highways Magazine Fund State Aviation Fund General Fund General Fund Motor Vehicle Division Clearing Fund General Fund Motor Vehicle Division Clearing Fund General Fund Motor Vehicle Division Clearing Fund Advance from/to other funds: Receivable Fund General Fund Payable Fund Highway Expansion and Extension Loan Program Fund Amount $ 78,966,256 128,551 50 1,520 25 25 571,451 167,818 8,966,416 107,429 109,987 291,817 124,924 $ 89,436,269 Amount $ 20,000,000 The General Fund receivable of $78,966,256 is an accrual for fuel tax revenues due in fiscal year 2002 from the Highway User Revenue Fund that were collected in fiscal year 2003. 42 The Highway User Revenue Fund receivable of $8,966,416 is an accrual for vehicle license taxes due in fiscal year 2002 from Motor Vehicle Division Clearing Fund that were collected in fiscal year 2003. In a prior fiscal year, the General Fund loaned $20 million to the Highway Expansion and Extension Loan Program Fund to increase its loan capacity. The advance is due no later than December 31, 2008. Interfund transfers for the year ended June 30, 2002, consisted of the following: Transfer In: Maricopa Regional Area Road Construction Fund General Fund Transfer Out: General Fund Capital Projects Fund Maricopa Regional Area Road Construction Fund Non-major Governmental Funds Total Transfers Out $ 2,066,616 4,539,240 95,748 $ 6,701,604 $ $ Debt Service Fund Non-Major Governmental Funds Total 9,813 - $ 83,617,343 - $ 165,245 1,832,508 $ 83,792,401 3,899,124 9,813 198,055,907 10,180,857 $ 291,854,107 $ 1,997,753 202,595,147 10,276,605 $ 300,563,277 The General Fund ($83,617,343) and the Maricopa Regional Area Road Construction Fund ($198,055,907) made transfers to the Debt Service Fund to pay bond debt service. G. Leases Operating Leases The Department leases data processing equipment, other equipment, and certain facilities from various lessors. The majority of these leases are for a one year term, renewable annually. Total rental expenditures (excluding interfund transactions) for the fiscal year ended June 30, 2002, approximated $4,460,000. In fiscal year 2002, the Department renegotiated its long-term lease with the City of Phoenix for a facility located on Washington Street in Phoenix. The future operating lease commitments are as follows: Year ending June 30 Amount 2003 2004 654,520 695,427 2005 2006 2007 736,335 777,243 818,150 Future operating lease commitments 43 $ 3,681,675 Capital Leases The Department has entered into lease agreements as lessee for financing the acquisition of modular buildings and data processing equipment. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. The assets acquired through capital leases are as follows: Governmental Activities Assets: Machinery and equipment Less accumulated depreciation $ 2,586,915 <324,944> Total $ 2,261,971 The future minimum lease obligations and the net present value of these minimums lease payments as of June 30, 2002, were as follows: Governmental Activities Year Ending June 30 2003 2004 2005 2006 2007 $ Total minimum lease payments Less amount representing interest 513,985 489,702 374,237 252,874 69,593 1,700,391 <142,914> Present value of minimum lease payments $ 1,557,477 H. Non-Current Liabilities State of Arizona Highway Revenue Bonds The Transportation Board issued Senior and Subordinated Highway Revenue Bonds to provide funds for acquisition of right-of-way and construction of federal, state and local highways. The original amount of Highway Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $700,280,000. During the year, Highway Revenue Bonds totaling $150,240,000 were issued to (i) finance portions of the Transportation Board’s Five Year Transportation Facilities Construction Program, (ii) pay costs of issuing the Bonds, and (iii) refund in advance of maturity portions of the Board’s outstanding Senior and Subordinated Bonds in the aggregate principal amount of $71,000,000. The Highway Revenue Bonds are secured by a prior lien on and a pledge of motor vehicle and related fuel fees and taxes of the General Fund. Arizona Revised Statutes prohibit the total principal amount of Arizona Highway Revenue Bonds, excluding refunded bonds, from exceeding $1.3 billion. Highway Revenue Bonds currently outstanding are as follows: Purpose Interest Rates Amount Govermental activities Govermental activities - refunding 2.2% - 8.8% 2.3% - 6.0% $ 314,770,000 419,385,000 $ 734,155,000 44 Annual debt service requirements to maturity for Highway Revenue Bonds are as follows: Fiscal year ending June 30 2003 2004 2005 2006 2007 2008-2012 2013-2017 2018-2020 Highway Revenue Bonds Principal Interest $ 44,490,000 50,075,000 52,110,000 55,455,000 56,760,000 287,480,000 125,555,000 62,230,000 $ 38,787,292 36,420,980 33,705,024 30,912,416 27,913,864 91,697,002 34,611,814 6,092,888 $ 734,155,000 $ 300,141,280 State of Arizona Transportation Excise Tax Revenue Bonds The Maricopa County Regional Area Road Bond Fund is used to record all payments of principal and interest for bonds issued by the Transportation Board. The Transportation Excise Tax Revenue Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. The original amount of Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $700,335,000. During the year, Transportation Excise Tax Revenue Bonds totaling $66,010,000 were issued to (i) finance the acquisition of land and the design and construction of certain controlled access highways within Maricopa County, Arizona and (ii) pay costs of issuing the Bonds. The Bond Resolution adopted by the Transportation Board on July 25, 1986, established a debt service reserve requirement equal to the maximum annual interest due in the current year or future years on any series of outstanding Transportation Excise Tax Revenue Bonds. The Second Supplemental Transportation Excise Tax Revenue Bond Resolution adopted by the Transportation Board on September 22, 1988, gives the Transportation Board the option, which it has elected, of acquiring debt service reserve insurance policies in lieu of the debt service reserve requirement. Accordingly, no debt service reserve is reflected in the accompanying financial statements. The policies (aggregating $70,063,698 at June 30, 2002) were issued by Financial Guaranty Insurance Company, except for the 1993 Series Subordinated Bonds policies, which were issued by MBIA Insurance Corporation, and the 1995 Series A and Series B Subordinated Bonds policies which were issued by AMBAC Assurance Corporation. These policies are noncancelable and insure payment, up to the policy amount, of the bond interest on their respective payment dates. The policies shall terminate on the earlier of July 1, 2005, or the date when no respective bonds are outstanding under the bond resolution. The premiums on these insurance policies are recorded as expenditures in the year of payment. The carrying basis of the 1988 Series A Capital Appreciation Bonds increases as a result of accretion of the original issuance discount. At June 30, 2002, the carrying basis was $45,409,692. At maturity on July 1, 2005, the carrying basis will equal the maturity amount of $51,500,000. 45 All Transportation Excise Tax Revenue Bonds mature no later than December 31, 2005. Transportation Excise Tax Revenue Bonds currently outstanding are as follows: Purpose Govermental activities Govermental activities - capital appreciation Govermental activities - refunding Interest Rates Amount 3.8% - 6.5% 7.3% - 7.5% 4.5% - 6.5% $329,555,000 51,500,000 221,835,000 $602,890,000 Annual debt service requirements to maturity for Transportation Excise Tax Revenue Bonds are as follows: Fiscal year ending June 30 Transportation Excise Tax Revenue Bonds Principal Interest 2003 2004 2005 $ 192,290,000 200,650,000 209,950,000 $ 28,605,218 20,245,235 10,947,652 $ 602,890,000 $ 59,798,105 State of Arizona Grant Anticipation Notes The Grant Anticipation Notes Fund administers all payments of principal and interest for notes issued by the Transportation Board and is secured by revenues received from the Federal Highway Administration under a grant agreement and certain other federal-aid revenues. The original amount of grant anticipation notes issued was $182,295,000. Grant Anticipation Notes currently outstanding are as follows: Purpose Govermental activities Interest Rates Amount 4.0% - 5.3% $ 182,295,000 Annual debt service requirements to maturity for Grant Anticipation Notes are as follows: Fiscal year ending June 30 2003 2004 2005 2006 2007 2008 Grant Anticipation Notes Principal Interest $ 13,150,000 $ 8,683,403 36,755,000 7,488,470 49,000,000 5,400,850 38,540,000 3,209,175 37,000,000 1,307,500 7,850,000 196,250 $ 182,295,000 46 $ 26,285,648 Notes Payable The Department’s outstanding notes payable as of June 30, 2002 was $338,385,755. The governmental activities notes payable was $192,849,289 and business-type activities was $145,536,898. The notes payable represent the General Fund loan payable to HELP for $93,979,854, the Maricopa Regional Area Road Construction Fund loan payable to the City of Mesa for $33,166,362, the Equipment Fund loan payable to creditors for $5,692,898 and the Board Funding Obligations for loans from State Treasurer for $205,546,641. The total outstanding for Board Funding Obligations are as follows: 1. Laws 1999, Chapter 189 (SB 1201) authorized a Board Funding Obligation (BFO) of $100,000,000 to HELP in fiscal year 2000. Both the principal and interest of the BFO are due on March 14, 2004 ($43,115,200) and June 27, 2004 ($62,314,614) respectively. 2. Laws 2001, Chapter 238 (HB 2636) authorized a Board Funding Obligation (BFO) of $40,000,000 to HELP in fiscal year 2002. Interest accrued to date is $106,652. Both the principal and interest of the BFO are due no later than May 31, 2004. 3. Laws 2001, Chapter 238 (HB 2636) authorized a Board Funding Obligation (BFO) of $60,000,000 to the State Highway Fund in fiscal year 2002. Interest accrued to date is $10,175. Both the principal and interest of the BFO are due no later than May 31, 2004. Refunded Bonds Deposited with Escrow Agents In prior years ($61,346,156) and fiscal year 2002 ($71,000,000), the Transportation Board refinanced various bond issues through advance refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal 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 financial statements of the Department. The Department advance refunded the Highway Revenue Subordinated Series 1992 B Bonds ($6,870,000) and Senior Series 1999 Bonds ($64,130,000) to reduce its total debt service payments by $2,820,875 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt of) of $2,473,048. Refunded bonds of the Department deposited with escrow agents at June 30, 2002, are as follows: Original Issue Type 1992 Series B, Subordinated Highway Revenue Bonds 1999 Senior Highway Revenue Bonds 1988 Series A Transportation Excise Tax Revenue Bonds Capital Appreciation Bonds Total refunded bonds deposited with escrow agents 47 Escrow Maturity Date Balance July 1, 2002 $ 59,220,000 July 1, 2009 64,130,000 July 1, 2005 8,996,156 $ 132,346,156 Changes in non-current liabilities The activity for the year ended June 30, 2002, was as follows: Beginning Balance July 1, 2001 Additions $ 700,280,000 $ 150,240,000 700,335,000 182,295,000 - 66,010,000 10,142,082 1,582,910,000 1,370,161 9,512,707 47,673,301 $ 1,641,466,169 Compensated absences Notes payable Total business-type activities $ Total non-current liabilities Governmental Activities: Bonds and Notes: Highway Revenue Bonds Transportation Excise Tax Tax Revenue Bonds Grant Anticipation Notes Premium on Bonds Total bonds and notes Capital leases Compensated absences Notes payable Total governmental activities Reductions Ending Balance June 30, 2002 $ <116,365,000> $ 734,155,000 <163,455,000> <784,429> Due Within One Year $ 44,490,000 602,890,000 182,295,000 9,357,653 192,290,000 13,150,000 1,259,733 226,392,082 858,874 12,282,131 157,034,194 $ 396,567,281 <280,604,429> 1,528,697,653 <671,558> 1,557,477 <10,093,024> 11,701,814 <11,858,206> 192,849,289 $ <303,227,217> $ 1,734,806,233 251,189,733 454,330 8,946,773 82,172,476 $ 342,763,312 128,374 100,715,414 $ 100,843,788 $ 192,524 44,821,052 $ 45,013,576 $ $ $ 1,742,309,957 $ 441,580,857 $ <303,414,023> $ 1,880,476,791 Business-type Activities: $ <186,806> $ 134,092 145,536,466 <186,806> $ 145,670,558 134,092 134,092 $ $ 342,897,404 Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. At year end, $618,782 of internal service funds compensated absences and $5,692,898 of notes payable are included in the above amounts. I. Fund Balances Reservations The line entitled “Reserved Fund Balances” on the Governmental Funds Balance Sheet at June 30, 2002, consist of the following: General Fund Reserved Fund Balances: Advance to other funds Debt Service Capital Projects Fund Total Reserved Fund Balances $ 20,000,000 101,074,669 $ 121,074,669 Maricopa Regional Area Road Construction Fund $ 93,459,804 $ 93,459,804 48 Debt Service Fund $ 22,789,895 $22,789,895 Capital Projects Fund $ 77,396,420 $77,396,420 Other Governmental Funds $ 2,196,479 5,389,066 $ 7,585,545 Total $ 20,000,000 24,986,374 277,319,959 $322,306,333 Effective July 1, 1981, State law required accumulation of at least 15 percent, which in fiscal year 1996 was modified to 12.6 percent, of the revenues allocated each year to the General Fund from the Highway User Revenue Fund for the design, purchase of right-of-way or construction of controlled-access highways which are included in the regional transportation plan of counties with populations in excess of 400,000 (Maricopa and Pima counties). At June 30, 2002, approximately $97.8 million was reserved in the General Fund for this purpose. The remaining $3.3 million was restricted for highway construction from Federal Highway Fatality monies. The advance to the General Fund for $20.0 million is reserved for the receivable from the Highway Expansion and Extension Loan Program Fund. The Maricopa Regional Area Road Construction Fund is reserved for capital projects. Capital Projects Fund is reserved for capital projects based on the debt covenants. The Debt Service Fund reserve is for future debt service payments. 6. OTHER INFORMATION A. Subsequent Events On August 22, 2002, the Department issued $80,475,000 in Transportation Excise Tax Revenue Bonds (2002 Series) to (i) finance the costs of design, right-of-way purchase, or construction of certain controlledaccess highways within Maricopa County, Arizona, (ii) refund in advance of maturity portions of the Board’s outstanding Senior Bonds in the aggregate principal amount of $4,550,000 and (iii) pay costs of issuing the Bonds. The 2002 Series Bonds are due July 1, 2005 and December 31, 2005. Net proceeds totaled $84,783,649 (after receipt of $4,781,020 of reoffering premium and payment of $472,371 in underwriting fees and cost of issuance). On November 13, 2002, the Department issued $156,475,000 in Arizona Transportation Board Highway Revenue Bonds, Series 2002B to (i) finance portions of the Board’s Five Year Transportation Facilities Construction Program, (ii) advance refund portions of the Board’s outstanding Senior Bonds in the aggregate principal amount of $20,405,000, and (iii) pay costs of issuing the Bonds. The Series 2002B Bonds are due July 1, 2007 through July 1, 2022. Net proceeds totaled $165,000,189 (after receipt of $9,461,606 reoffering premium and payment of $936,417 in underwriting fees and cost of issuance). B. Contingent Liabilities Risk Management Insurance Losses The Department is exposed to various risks of loss related to torts; thefts of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Department is a participant in the state’s self-insurance program, and, in the opinion of the Department’s management, any unfavorable outcomes from these claims and actions would be covered by the self-insurance program. Accordingly, the Department has no risk of loss beyond adjustments to future years’ premium payments to the state’s selfinsurance program. All estimated losses for unsettled claims and actions of the state are determined on an actuarial basis and are included in the State of Arizona’s Comprehensive Annual Financial Report. Claims The Department has a variety of claims pending against it that arose during the normal course of its activities. Management of the Department believes, based on the advice of legal counsel, that losses, if any, resulting from settlement of these claims will not have a material effect on the financial position of the Department’s fund types. On August 5, 1999, in Hurley Trucking Co., Inc. v. State, the Tax Court of the State, overturning an order by a Department Administrative Law Judge, ruled in favor of a refund claim for motor vehicle use fuel (diesel) taxes and motor carrier taxes (based on weight and mileage) paid to the State (the “Disputed Revenues”). Hurley asserts that the applicable statutes at the time did not permit the State to collect Disputed Revenues for certain tax years prior to 1997 relating to travel on state maintained roads crossing federal lands. The Arizona Legislature subsequently clarified the statutes in 1997. On appeal, the Arizona Court of Appeals on January 29, 2002, reversed the Tax Court judgment and remanded the case with directions to affirm the Administrative Law Judge’s order. Hurley petitioned the Arizona Supreme Court to review the decision of 49 the appellate court; and on May 21, 2002, the Arizona Supreme Court denied the plaintiff’s petition. However, the Arizona Supreme Court ordered the Court of Appeals not to publish its opinion. On July 10, 2002, the Arizona Tax Court entered a Judgement on Mandate affirming the administrative hearing decision that Hurley was not entitled to a refund. Several trucking companies also filed administrative claims. These claims were held in abeyance pending the outcome of the Hurley lawsuit. Currently, the Department is in the process of determining whether the claimants intend to pursue their claims further in light of the court’s decision in Hurley. The Department disputes the claimant’s interpretation of the applicable statutes and intends to continue a vigorous defense. However, if the claimants were to prevail, the maximum potential amount of the claim is difficult to predict with certainty because the amount of each claim would vary based on the nature of the actual roads used and mileage of each claimant. If the claimants were to prevail on all counts and all existing claimants were to receive a lump sum payment in a single fiscal year, the Department does not believe that the maximum potential payment from the Arizona Highway User Revenue Fund would reduce the amount of State Highway Fund revenues by more than ten percent (10%) for the single fiscal year in which such payment were made. Grants Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the Department expects such amounts, if any, to be immaterial. C. Retirement Plan The Arizona State Retirement System Board administers the Arizona State Retirement Plan (Plan), a cost sharing multi-employer defined benefit pension plan, for the benefit of Arizona employees and employees of certain other governmental entities. Plan provisions, including death, disability, and retirement benefits, are established by state statute. Substantially all employees of the Department are covered by the Plan. The Arizona State Retirement System (System) issues a Comprehensive Annual Financial Report that includes financial statements and required supplementary information. The most recent report may be obtained by writing the System, 3300 North Central Avenue, P. O. Box 33910, Phoenix, Arizona 850673910 or by calling (602) 240-2000 or (800) 621-3778. Arizona Revised Statutes provide statutory authority for employee and employer contributions. The employee and employer contribution rate for the year ended June 30, 2002, was computed to be 2.49 percent of covered payroll by an actuarial valuation performed at June 30, 2000. Contributions for the years ended June 30, 2000, 2001 and 2002 were $3,877,921, $4,032,399 and $3,959,972, respectively, for both the employees and the Department, which were equal to the required contributions for each year. The Department's total payroll for fiscal year 2002 was $159.8 million. The Plan is funded through payroll deductions from employees' gross earnings and amounts contributed by the Department. Retirement benefits are obligations of the Plan and not of the Department. The Arizona Revised Statutes provide statutory authority for employee and employer contributions. The employee and employer contribution rate for the fiscal year ended June 30, 2002, was actuarially computed to be 2.49 percent of covered payroll by an actuarial valuation performed at June 30, 2000. The contribution requirement for fiscal year 2002 was $4 million by both the employees and the Department. 50 Required Supplementary Information (Other than MD&A) Arizona Department of Transportation Required Supplementary Information Schedule of Revenues and Expenditures Budget and Actual - General Fund (State Highway Fund) For the fiscal year ended June 30, 2002 Variance with Final Budget Budgeted Amounts Actual Amounts Positive Original Final $ 229,429,500 297,608,900 $ 229,429,500 297,609,900 527,038,400 527,039,400 520,171,180 <6,868,220> <8,799> Revenues: Vehicle registration, title, license and related fees Fuel and motor carrier taxes Total revenues Expenditures appropriated by state $ 227,672,882 292,498,298 $ <1,756,618> <5,111,602> legislature in 2002 budget: Administration: Personal services 17,819,900 18,809,340 18,818,139 Employee related expenditures 4,169,000 4,296,735 4,296,703 32 Other operating expenditures Attorney General Legal Service 33,878,800 2,045,100 31,202,325 2,022,900 30,528,929 2,022,900 673,396 - Total Administration 57,912,800 56,331,300 55,666,671 664,629 Personal services 33,259,500 30,770,900 30,749,668 21,232 Employee related expenditures Other operating expenditures Total Highways 7,466,100 5,268,600 45,994,200 6,829,300 6,581,000 44,181,200 6,825,537 5,886,834 43,462,039 3,763 694,166 719,161 1,035,906 Highways: Highway Maintenance: Personal services 27,330,300 29,500,000 28,464,094 Employee related expenditures 7,402,900 8,655,500 8,636,270 19,230 Other operating expenditures Maintenance carryover 59,810,600 2,398,708 52,220,400 2,398,708 49,753,668 2,398,451 2,466,732 257 96,942,508 92,774,608 89,252,483 3,522,125 Personal services 44,220,400 41,974,100 41,795,384 178,716 Employee related expenditures 11,407,000 11,855,400 11,739,309 116,091 Other operating expenditures 19,626,000 18,886,000 17,735,349 1,150,651 398,229 Total Highway Maintenance Motor Vehicle: Fee Accounting and Revenue 1,117,681 1,117,681 719,452 Integrated Inventory System Management System 634,873 634,873 314,462 320,411 Security Enhancement Issue 2,250,400 2,250,400 75,938 2,174,462 License plates and tabs 2,295,300 2,295,300 2,295,285 15 (continued) 51 Arizona Department of Transportation Required Supplementary Information Schedule of Revenues and Expenditures Budget and Actual - General Fund (State Highway Fund) For the fiscal year ended June 30, 2002 Variance with Final Budget Budgeted Amounts Original Actual Amounts Final Positive Motor Vehicle (continued): Public Information Service $ 200,000 $ 200,000 $ 183,547 $ 16,453 Plate and Fee to Owner 706,727 706,727 631,657 75,070 MVD One-time Trailer Fees Administration 180,000 180,000 135,715 44,285 MVD Electronic Certificate of Title System 283,000 283,000 22,741 260,259 MVD Attorney General Legal Services Abandoned Vehicle Administration 132,600 462,200 132,600 462,200 131,856 436,826 744 25,374 83,516,181 80,978,281 76,217,521 4,760,760 Personal services 37,500 37,000 36,600 400 Employee related expenditures Other operating expenditures 11,000 200 10,900 200 11,200 200 <300> - Total Air Quality Programs 48,700 48,100 48,000 100 Personal services 53,100 43,300 40,976 2,324 Employee related expenditures 15,200 13,700 12,637 Other operating expenditures Local Transit Assistance Fund 19,100 3,526,150 2,600 3,526,150 4,819 3,526,150 <2,219> - 3,613,550 3,585,750 3,584,582 1,168 Capital outlay - land, buildings and improvements 13,080,082 13,080,082 11,416,024 1,664,058 Arizona Department of Public Safety transfers 25,017,100 25,017,100 25,017,100 - 232,500 232,500 232,500 - Total Motor Vehicle Division Air Quality Programs: Administration air quality project: State General Fund Program: Public transit: Total State General Fund Program Governors Office of Highway Safety transfer Expenditures appropriated by state legislature by carryover of previous year's unexpended budget Total expenditures Excess of revenues over expenditures 1,063 1,985,785 1,985,785 1,985,785 - 328,343,406 318,214,706 306,882,705 11,332,001 $ 198,694,994 $ 208,824,694 $ The notes to required supplementary information are an integral part of this statement. 52 213,288,475 $ 4,463,781 Notes to Required Supplementary Information – Budgetary Reporting Budgets and budgetary accounting Annual budgets for the operating expenditures and capital outlay including land, building and improvements for the General Fund (State Highway Fund) are submitted to the Governor in accordance with state law. The budgets are legally enacted as appropriations after approval by the legislature and signature by the Governor. The legal level of control is at the program level and expenditure budgets are appropriated using a lump sum format with special line items. Expenditure details for personal services, employee related expenditures and all other operating expenditures are specifically budgeted within most divisions. In certain divisions, other specific programs are budgeted in addition to these categories. Revenue budgets are developed internally by the Department and are not a part of the appropriation process Amendments to the approved appropriations require legislative approval. However, since the Agency's appropriation is a lump sum appropriation by program, the allocation of funds between personal services, employee-related expenses, and other operating expenses is an internal decision for the program manager. Accordingly, transfers between line items such as personal services and other operating expenses within a particular program may be done by the program manager. Transfers of funds between programs require the approval of the Joint Legislative Budget Committee. Absent an amendment to the Agency's appropriated amount by the full legislature, expenditures may not exceed appropriations. All transfers of funds are reported to the Department’s Office of Strategic Planning and Budgeting for monitoring purposes. Budgets are prepared on a cash basis except that liabilities incurred before the end of the fiscal year and paid within the next calendar month are charged against the prior fiscal year’s budget. Most state appropriations lapse at year end. For financial reporting purposes, the accompanying financial statements present the legally adopted budget for the operations of the General Fund that is subject to legislative appropriation. A legal limitation is adopted for capital outlay including land, building and improvements for the General Fund. Any balances and collections in this fund in excess of the specific amounts appropriated in the general appropriations act are appropriated to the Department. The Department monitors expenditures through an internal budgetary process and the Five Year Transportation Facilities Construction Program approved by the Transportation Board. The Department has elected to report the budgetary comparison as required supplementary information (RSI). The Department is required to report as notes to RSI: any budgetary expenditures in excess of appropriations, budgetary basis of accounting used for the adopted budgets and reconciliation between the budgetary basis of accounting and General Accepted Accounting Principles (GAAP). 53 Explanation of differences between budgetary inflows and outflows and GAAP revenues and expenditures: Sources/inflows of resources: Actual amounts from the Schedule of Revenues and Expenditures - Budget and Actual - General Fund Net decrease in receivable related to fuel and motor carrier taxes and vehicle registration, title, license, and related fees not recognized as revenue on budgetary basis Revenues which are on the modified accrual basis and not recognized on budgetary basis: Federal aid reimbursements of construction expenditures from the Federal Highway Administration Federal grants and reimbursements related to elderly and disabled assistance, planning assistance and community assistance from the Federal Transit Administration State and local reimbursements related to grants from Arizona counties, cities, and other state agencies State appropriation Investment interest and loan interest income from Treasurer and loan agreements Other income from various miscellaneous sources Total revenues as reported on the statement of revenues, expenditures, and changes in fund balances - General Fund (Exhibit 4) Uses/outflows or resources: Actual amounts from the Schedule of Revenues and Expenditures - Budget and Actual - General Fund Net increase in accounts payable, accrued payroll and other accruals not recognized as expenditures for budgetary basis Expenditures which are on the modified accrual basis and not recognized on budgetary basis: Transportation expenditures from sources not appropriated by State legislature Capital outlay are outflows of highway construction expenditures from State appropriation and federal aid reimbursements State appropriation Interest expense on loans borrowed from the Highway Expansion and Extension Loan Program Fund Total expenditures as reported on the statement of revenues, expenditures, and changes in fund balances - General Fund (Exhibit 4) 54 $ 520,171,180 2,867,996 479,443,294 5,388,898 5,634,123 317,478 14,806,885 17,101,259 $ 1,045,731,113 $ 306,882,705 <1,389,533> 7,479,691 690,250,621 3,863,067 1,228,358 $ 1,008,314,909 Information About Infrastructure Assets Reported Using the Modified Approach As allowed by Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments (GASB 34), the Arizona Department of Transportation (Department) reports it roads and bridges using the modified approach. Assets accounted for under the modified approach include approximately 6,650 center lane miles (17,807 travel lane miles) of roads and 4,378 bridges that the Department is responsible to maintain. In order to utilize the modified approach, the Department is required to: • Maintain an asset management system that includes an up to date inventory of eligible infrastructure assets. • Perform condition assessments of eligible assets and summarize the results using a measurement scale. • Estimate each year the annual amount to maintain and preserve the assets at the condition level established and disclosed by the Department. • 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 contains estimated expenditures for highway system improvements and the preservation of existing roadway and bridges. The Five Year Transportation Facilities Construction Program in effect for fiscal year 2002 and beyond was adopted by the Transportation Board on June 15, 2001. The following information pertains to the condition assessment and maintenance of these infrastructure assets. Roads The mission of the 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 ADOT PMS both work toward the same basic goal, the efficient, effective management of ADOT 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 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 travelling public (as documented in 1961 after AASHTO Road Test, 1956-1961). Serviceability was originally based on detailed measurements of objective features of the pavement but many surveys since the original road test have shown that such measurements closely track the subjective opinion of the travelling public. Because of that close tracking, it is possible to substitute panel rating measurements by road users as a subjective assessment to determine Serviceability ratings and then use those ratings to track performance from year to year. Most commonly, this number is called Present Serviceability Rating and abbreviated as PSR. PSR is a five-point scale (5 excellent, 0 impassable), similar to the Weaver/AASHTO Scale shown as follows: Numerical Rating 5 4 3 2 1 0 PSR Excellent Good Fair Poor Very Poor Impassable 55 Weaver/AASHTO Scale Perfect Very Good Good Fair Poor Very Poor Information About Infrastructure Assets Reported Using the Modified Approach - continued The Serviceability rating method, in its most common form, is shown in Figure 1 below: PERFECT 5 EXCELLENT VERYGOOD 4 SMOOTH GOOD 3 SO SMOOTH THAT NO IMPROVEMENT WOULD PRODUCE NOTICEABLE STABLE 2 FAIR UNSTEADY POOR 1 VERY POOR IMPASSABLE Weaver/AASHTO Scale 0 UNBEARABLE Figure 1 SO ROUGH THAT CONTINUING WOULD RISK DAMAGE TO VEHICLE OR INJURY TO OCCUPANTS Nonsegmented Scale The goal of the Arizona Department of Transportation is to maintain a condition level (PSR) rating of 3.23 or better for all roads in the state 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 2002, an overall rating of 3.6 was achieved, as shown in the following graph: 56 Information About Infrastructure Assets Reported Using the Modified Approach - continued Condition Levels - Roads 5 4 P S R 3 Desired Level Actual Level 2 1 0 2002 2003 2004 2005 2006 Fiscal Year Figure 2 Preservation of the roads is accomplished through programs managed by the ADOT Pavement Management Section). The estimated and actual expenditures for fiscal year 2002 were as follows: Fiscal Year 2002 Estimated Expenditures (in millions) $227.4 Actual Expenditures (in millions) $234.8 Bridges ADOT’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2002, ADOT owns and maintains 4,378 bridges with an approximate total deck area of 39,422,410 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 an 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 element condition ratings that are included in the CRI computation are: the bridge joints condition, the deck condition, the superstructure condition, and the substructure condition. The bridge joints condition rating is an Arizona specific rating item not included in the FHWA condition rating guidelines, whereas the three other condition ratings are federally mandated condition ratings. The CRI is computed by subtracting from one the ratio of the sum of the deck areas of all bridges with a condition rating of four or less, which indicates that the rated element is at best in a poor condition, to the total sum of the deck areas. 57 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 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 ADOT to maintain state highway bridges so that the CRI exceeds 92.5%. In fiscal year 2002, the CRI was computed at 93.6%. Condition Levels - Bridges 94% CRI Desired Level Actual Level 92% 90% 2002 2003 2004 2005 2006 Fiscal Year Figure 3 Bridges represent a major public investment and their inspection and maintenance is an essential function of the Department of Transportation in its mission of providing a safe and efficient transportation system. Figure 4 indicates that approximately 66% of the bridges in the state were constructed prior to the 1970s while only 20% have been constructed in the last two decades. 58 Information About Infrastructure Assets Reported Using the Modified Approach- continued Age of ADOT's Bridge Population 35 % of bridges built in corresponding decade 30 25 20 15 10 5 0 < 1930 30s 40s 50s 60s 70s 80s 90s 2000s Figure 4 Preservation of the bridges is accomplished through programs managed by the Bridge Group. The estimated and actual expenditures for fiscal year 2002 were as follows: Fiscal Year 2002 Estimated Expenditures (in millions) $14.4 59 Actual Expenditures (in millions) $18.2 Non-Major Governmental Funds SPECIAL REVENUE FUNDS Special revenue funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes. The State Aviation Fund is appropriated by the legislature and receives monies from aviation gasoline taxes, sale of abandoned or seized aircraft, flight property taxes and the operation of certain airports. The State Aviation Fund monies are used to build and maintain airport facilities. The Safety Enforcement and Transportation Infrastructure Fund is appropriated by the legislature and receives monies from the registration of vehicles of nonresidents for enforcement of vehicle safety , requirements, maintenance of transportation facilities and upgrades. of transportation facilities, including roads, streets, and highways, approved by the Transportaton Board within twenty-five miles of the border between Arizona and Mexico. The Motor Vehicle Liability Insurance Enforcement Fund receives fees and interest to administer the State's Mandatory Liability Insurance Program. The Vehicle Inspection and Title Enforcement Fund receives monies from continuing appropriation to be used to defray the cost of investigations involving certificates of title, licensing fraud, registration enforcement and other enforcement related issues. The Grant Anticipation Notes Fund receives revenues from the Federal Highway Administration under a grant agreement and certain other federal-aid revenues to accelerate highway construction projects. The Local Agency Deposits Fund receives monies from the U.S. Government and local agencies for the payment of local agency sponsored county secondary road construction projects. The Motor Carrier Safety Revolving Fund receives fees to administer and enforce the rules governing the safety operations of motor carriers, shippers and vehicles transporting hazardous materials, substances or waste. The Motorcycle Safety Education Fund provides support for the motorcycle licensing and education programs that promote motorcycle safety. The Underground Storage Tank Fund receives certain Motor Vehicle Division revenues for distribution to the Department of Environmental Quality. The Economic Strength Project Fund collects monies from the Highway User Revenue Fund for use on approved economic strength projects recommended by the Commerce and Economic Development Commission. Arizona Department of Transportation Combining Balance Sheet Non-Major Governmental Funds June 30, 2002 Safety Enforcement Motor Vehicle Vehicle and Liability Inspection Grant Local State Transportation Insurance and Title Anticipation Agency Aviation Fund Infrastructure Fund Enforcement Fund Enforcement Fund Notes Fund Deposits Fund ASSETS Unrestricted cash on deposit with the State Treasurer $ 14,585,744 $ 4,548,444 $ 3,527,419 $ 1,069,362 $ - $ - Receivables: Accrued interest 193,848 24,108 - - 11,245 Notes and loans 5,379,055 - - - - - 793,914 - - - - 569,398 76,504 14,107 25,425 8,160 - - - - - - - 1,542,839 - 24,440 - - - 40,552 Other - Amounts due from: Other Arizona Department of Transportation funds U.S. Government Arizona counties, cities and other state agencies Restricted cash on deposit with the State Treasurer Total assets - 2,185,234 $ 21,029,065 $ 4,611,099 $ 3,552,844 $ 1,077,522 $ 2,196,479 $ 5,294,105 7,446,894 $ 77,588 $ 30,335 $ 2,457 $ 330 $ $ - LIABILITIES Accounts payable - Accrued payroll and other accrued expenditures Contracts and retainage payable Judgements payable 32,550 12,155 15,573 25,876 - - - - - - - 2,057,828 1,385,537 - - - - - 25 - 50 - - - 5,379,055 - - - - - 6,874,755 42,490 18,080 26,206 - 2,057,828 - - - - - 5,389,066 14,154,310 4,568,609 3,534,764 1,051,316 2,196,479 - - Amounts due to: Other Arizona Department of Transportation funds Arizona counties, cities and other state agencies Deferred revenue Total liabilities FUND BALANCES Reserved: Capital projects Debt service Unreserved Total fund balances Total liabilities and fund balances 14,154,310 $ 21,029,065 4,568,609 $ 4,611,099 60 3,534,764 $ 3,552,844 $ 1,051,316 2,196,479 1,077,522 $ 2,196,479 5,389,066 $ 7,446,894 Motor $ Carrier Motorcycle Underground Economic Total Safety Safety Storage Strength Non-major Revolving Fund Education Fund Tank Fund Project Fund Governmental Funds 8,459 $ 76,334 $ - $ - $ 23,815,762 - - 3,119 14,046 246,366 - - - - 5,379,055 - - - 44,188 1,407,500 - 728 - - 124,924 - - - - 1,542,839 - - - - 64,992 267,644 2,920,706 10,667,689 $ 8,459 $ 77,062 $ 270,763 $ 2,978,940 $ 43,249,127 $ - $ - $ 501 $ $ 155,399 - - - - 86,154 - - - - 2,057,828 - - - - 1,385,537 - - - - 75 - - 270,262 - 2,934,752 - 3,205,014 5,379,055 - - 270,763 2,978,940 12,269,062 - - - - 5,389,066 8,459 77,062 - - 2,196,479 23,394,520 8,459 $ 44,188 8,459 77,062 $ 77,062 $ - - 30,980,065 270,763 $ 2,978,940 $ 43,249,127 61 Arizona Department of Transportation Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Governmental Funds For the fiscal year ended June 30, 2002 Safety Enforcement Motor Vehicle and Liability Transportation Insurance State Aviation Fund Vehicle Inspection and Title Grant Anticipation Local Agency Notes Fund Deposits Fund Infrastructure Fund Enforcement Fund Enforcement Fund $ $ $ Revenues: Vehicle registration, title, license and related fees Fuel and motor carrier taxes and fees Reimbursement of construction expenditures - Federal aid Reimbursements from Arizona counties, cities and other state agencies $ 4,163,773 527,256 3,316,630 - 2,305,940 - 1,289,249 - $ - $ - - - - - 10,180,857 19,848,254 - - - - - 4,111,072 664,838 579,029 154,823 - - 40,685 - 6,528,347 941,194 859,377 24,440 - - - 74,384 14,263,814 3,495,893 2,305,940 1,289,249 10,221,542 24,033,710 - 1,846,935 - 563,126 - 989,213 - - 24,791,275 3,490,536 - - - - 1,665 - 3,490,536 1,846,935 563,126 989,213 1,665 24,791,275 Distributions to Arizona counties, cities and other state agencies Capital outlay Total expenditures 15,465,978 18,956,514 1,014,600 671,162 3,532,697 563,126 107,700 1,096,913 1,665 24,791,275 Excess of revenues over expenditures <4,692,700> <36,804> 1,742,814 192,336 10,219,877 <757,565> <7,411> - - 1,832,508 <10,180,857> - 165,245 <88,337> - - <8,348,349> 76,908 1,742,814 1,791,950 3,534,764 192,336 858,980 1,051,316 1,871,528 324,951 2,196,479 <680,657> 6,069,723 5,389,066 Interest on loans receivable Interest on investments Flight property taxes Grand Canyon National Park Airport Other Total revenues Expenditures: Current: Transportation - appropriated by state legislature: Motor Vehicle Highway Aeronautics Other Total Transportation - appropriated by State legislature Other financing sources : Transfers in Transfers out debt service Transfers out other Total other financing sources Net change in fund balances Fund balances - July 1 Fund balances - June 30 <4,692,700> 18,847,010 $ 14,154,310 $ <7,411> <44,215> 4,612,824 4,568,609 $ 62 $ $ $ Motor Carrier $ $ Motorcycle Underground Economic Safety Safety Storage Strength Non-major Revolving Fund Education Fund Tank Fund Project Fund Governmental Funds 5,063 - $ 27,399,757 - 77,062 - 1,000,000 1,604,318 - - - - 30,029,111 - - - - 4,111,072 - - - - 664,838 - - - 108,541 883,078 - - - - 6,528,347 - - - - 941,194 958,201 5,063 77,062 27,399,757 1,108,541 84,200,571 - - - - 3,399,274 - - - - 24,791,275 - - - - 3,490,536 1,665 - - - - 31,682,750 5,000 - - 27,399,757 - 1,108,541 - 45,101,576 671,162 5,000 - 27,399,757 1,108,541 77,455,488 63 77,062 - - 6,745,083 - - - - 1,997,753 - - - - <10,180,857> <95,748> - - - - <8,278,852> 63 8,396 77,062 - - - <1,533,769> 32,513,834 8,459 $ $ 77,062 $ - $ Total - $ - 63 $ $ 38,480,412 30,980,065 Capital Assets Arizona Department of Transportation Capital Assets Used in the Operation of Governmental Funds Schedule by Source1 June 30, 2002 Governmental funds capital assets: Land $ Buildings and improvements 1,715,941,418 142,715,993 Improvements other than buildings 32,948,803 Machinery and equipment 41,992,797 Infrastructure Construction in progress 7,444,327,275 1,385,665,135 Total governmental funds capital assets $ 10,763,591,421 $ 10,763,591,421 $ 10,763,591,421 Investment in governmental funds capital assets by source: Government funds Total governmental funds capital assets 1 This schedule presents only the capital assets balances related to governmental funds. Accordingly, the capital assets reported in the internal service fund is excluded from the above amounts. Generally, the capital assets of the internal service fund are included as governmental activities in the statement of net assets. 64 Exhibit 13 Arizona Department of Transportation Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity1 June 30, 2002 Function and Activity Land $ 879,017 - $ 14,775,419 21,604 935,955 1,699,397,056 4,907,328 9,822,062 33,705,229 4,594,506 4,821,029 316,480 40,234,297 44,247,429 Total governmental funds capital assets $ 1,715,941,418 $ 142,715,993 $ 749,984 19,593,875 Machinery and Equipment $ 1,521,518 268,066 17,942 121,106 7,595,582 3,080,730 11,964,657 988,956 Construction in Progress Infrastructure $ - 3,534,735 4,157,204 3,069,269 3,331,071 969,414 711,310 4,992,398 8,273,783 7,444,327,275 41,992,797 $ Total - $ 28,369,077 20,604,435 - 1,385,665,135 - 39,697,437 10,538,409,242 3,069,269 8,152,100 1,303,836 832,416 57,729,605 65,424,004 $ 7,444,327,275 $ 1,385,665,135 $ 10,763,591,421 65 Administration Aeronautics Highway: Administrative and other services Highway construction Highway development Materials engineering Traffic engineering Transportation planning and research Highway Maintenance Motor Vehicle Improvements other than Buildings Buildings and Improvements 1 This schedule presents only the capital assets balances related to governmental funds. Accordingly, the capital assets reported in the internal service fund is excluded from the above amounts. Generally, the capital assets of the internal service fund are included as governmental activities in the statement of net assets. $ 32,948,803 $ Exhibit 14 Arizona Department of Transportation Capital Assets used in the Operation of Governmental Funds Schedule of Changes by Function and Activity 1 For the fiscal year ended June 30, 2002 Governmental Governmental Funds Capital Assets Funds Capital Assets Function and Activity Administration Aeronautics July 1, 2001 $ 29,591,689 Additions $ 20,574,057 1,803,477 Deductions $ June 30, 2002 <3,026,089> $ 30,378 - 28,369,077 20,604,435 Highway: Administrative and other services 36,030,877 4,168,934 <502,374> 39,697,437 Highway construction 8,716,531,648 934,251,640 <498,039,181> 9,152,744,107 Highway development 3,144,733 97,125 <172,589> 3,069,269 Materials engineering 7,980,368 250,038 <78,306> 8,152,100 Traffic engineering 1,254,540 49,296 Transportation planning and research - 723,136 109,280 54,621,819 62,234,840 3,237,131 3,675,139 <129,345> <485,975> 57,729,605 65,424,004 8,932,687,707 947,672,438 <502,433,859> 9,377,926,286 950,268,339 779,487,283 <344,090,487> 1,385,665,135 Total governmental funds capital assets $ 9,882,956,046 $ 1,727,159,721 Highway Maintenance Motor Vehicle Functional sub-total Construction in progress 1 - 1,303,836 $ <846,524,346> $ This schedule presents only the capital assets balances related to governmental funds. Accordingly, the capital assets reported in the internal service fund is excluded from the above amounts. Generally, the capital assets of the internal service fund are included as governmental activities in the statement of net assets. 66 832,416 10,763,591,421 Statistical Table 1 Arizona Department of Transportation Government-wide Expense by Function For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Administration Aeronautics 2002 $ $ 57,864 3,751 Highway $ 160,481 Highway Maintenance $ 91,569 Motor Vehicle $ 82,904 Distributions to Transportation Arizona not appropriated counties, cities by the State and other State legislature agencies Interest on long-term debt $ $ 7,482 $ 1,064,560 89,605 Other Arizona Highways Magazine Highway Expansion and Extension Loan Program Total $ 6,844 $ 10,711 $ 5,265 $ 1,581,036 67 Note: Implemented GASB 34 in fiscal year 2002. Therefore, government-wide financial information for years prior to fiscal year 2002 is not available. Table 2 Arizona Department of Transportation Government-wide Revenues For the fiscal year ended June 30 (Thousands of Dollars) PROGRAM REVENUES Fiscal Charges for Year Services 2002 $ 124,565 GENERAL REVENUES Operating Capital Grants Grants and and Contributions Contributions $ 56,481 $ 470,772 Taxes $ 1,720,030 Other Interest on Revenues Investments $ 27,148 $ 35,488 Total $ 2,434,484 Note: Implemented GASB 34 in fiscal year 2002. Therefore, government-wide financial information for years prior to fiscal year 2002 is not available. 68 Table 3 Arizona Department of Transportation General Governmental Expenditures by Function Last Ten Fiscal Years For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 Administration/1 $ 56,230 48,150 47,847 44,648 43,914 43,981 36,406 36,933 45,363 38,473 Aeronautics $ 3,491 18,280 21,640 26,787 30,734 18,975 11,107 9,239 13,579 17,279 Highway Maintenance Highway/2 $ 68,369 43,117 42,302 42,035 41,381 40,230 111,884 111,876 107,756 114,777 $ 89,314 89,400 83,398 79,304 76,597 70,336 - Distributions to Transportation - Arizona counties, not appropriated by cities and other Motor Vehicle the State legislature State agencies/3 Debt Service Capital Outlay/4 $ $ 81,012 77,337 74,492 67,144 63,056 30,147 33,486 35,221 27,992 30,776 $ 7,480 - $ 1,038,314 - $ 292,979 292,930 253,823 226,928 199,948 210,446 200,364 182,554 181,519 168,684 69 Notes: Implemented GASB 34 in FY 2002 include expenditures that were considered Agency Funds in prior years. /1 Includes the Director's Office, Financial Management (formerly Administrative) Services, Transportation Support Services and the Department's Risk Management Premium. /2 Includes Transportation Planning for FY 1997-2000. Includes Highway Maintenance for FY 1993-1996. /3 FY 2002 includes expenditures that are distributed to General Fund, Cities, Counties and Other State Agencies. /4 Named Highay Construction in years prior to FY 2002. For years prior to 1999, includes Expendable Trust Fund. /5 FY 2002 includes interest on loans payable, State appropriations and DPS distributions - appropriated by State legislature. FY 2001 includes other and Arizona Department of Public Safety (DPS) distributions - appropriated by State legislature. Includes Transportation not appropriated, Land, Buildings & Improvements, Leases Payable and Transfers for FY 1997-2000. Includes Reimbursements, Transfers, Director's Office, Highway Safety Office and Land, Buildings and Improvements for FY 1993-1996. 1,098,437 1,008,590 941,913 853,695 602,955 540,203 555,087 418,601 481,538 446,676 Other/5 Total $ 33,526 34,310 43,927 62,600 65,625 84,433 87,960 57,757 78,254 66,274 $ 2,769,152 1,612,114 1,509,342 1,403,141 1,124,210 1,038,751 1,036,294 852,181 936,001 882,939 Table 4 Arizona Department of Transportation General Governmental Revenues by Source Last Ten Fiscal Years For the fiscal year ended June 30 (Thousands of Dollars) Vehicle Reg., Motor Fuel Title, License Expenditures Fiscal Transportation Taxes and and Related of Federal Year Excise Taxes/1 Fees/1 Fees/1 Awards /2 ments $ 267,563 $ 547,129 $ Investments $ Other/3 Total /4 1,003,499 $ 522,036 $ 12,664 29,697 $ 34,405 2,416,993 2001 - 300,750 219,746 428,290 17,150 44,648 292,416 1,303,000 2000 - 276,189 255,088 414,015 18,788 41,534 267,004 1,272,618 1999 - 298,394 250,121 401,464 15,748 34,377 257,479 1,257,583 1998 - 273,806 210,370 283,982 8,505 34,382 223,486 1,034,531 1997 - 288,878 198,002 305,438 15,083 33,238 231,792 1,072,431 1996 - 291,000 171,823 268,605 32,711 29,603 228,698 1,022,440 1995 - 293,870 133,689 225,607 17,808 22,340 190,498 883,812 1994 - 280,394 117,412 261,000 13,130 14,229 177,561 863,726 1993 - 264,307 102,524 183,407 22,604 18,560 153,333 744,735 Notes: Due to the implementation of GASB 34, FY 2002 includes revenues that were considered Agency Funds in prior years. /1 FY 2002 include revenues that are being collected for distribution to General Fund, Cities, Counties and other State Agencies. /2 For years prior to 1999, includes Expendable Trust Fund. /3 Includes interest on loans receivable, flight property taxes, Grand Canyon National Airport and other. /4 Method of accounting for taxpayer assessed revenues has been changed due to the adoption of GASB Statement No. 22 during fiscal year 1995. Total Revenues $2,500,000 $2,000,000 Thousands of Dollars 2002 Reimburse- Interest on $1,500,000 $1,000,000 $500,000 2002 Comprehensive Annual Financial Report $0 1993 1994 1995 1996 1997 1998 Fiscal Year 70 1999 2000 2001 2002 Table 5 Arizona Department of Transportation Expenditures of Federal Awards /1 For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 FAA FRA $ $ 6 6,278 2,379 91 506 849 129 3,208 SOURCE: 3 14 2 69 14 130 499 475 437 441 FTA $ 5,264 4,746 3,717 5,107 3,392 2,508 3,552 1,687 3,448 1,715 NHTSA $ 83 65 65 275 49 55 FHWA $ 496,509 390,204 409,177 388,761 278,148 302,633 261,820 221,818 256,986 177,968 FMCSA BLM $ 282 - $ 47 28 20 $ BIA Sub-total FHWA /2 Total 1,048 974 76 2,228 750 - $ 502,188 395,029 414,015 401,464 283,982 305,438 268,605 225,607 261,000 183,407 $ 19,848 33,261 15,219 17,748 - $ 522,036 428,290 429,234 419,212 283,982 305,438 268,605 225,607 261,000 183,407 Single Audit Reports - fiscal years 1993 through 2002 NOTES: /1 Federal Aviation Administration (FAA); Federal Railroad Administration (FRA); Federal Transit Administration (FTA) - previously Urban Mass Transit Administration (UMTA); National Highway Transportation Safety Administration (NHTSA); Federal Highway Administration (FHWA); Federal Motor Carrier Safety Administration (FMCSA); Bureau of Land Management (BLM); Bureau of Indian Affairs (BIA); and Department of Agriculture (DOA). /2 Prior to 1999, the Local Agency Deposits Fund was an Expendable Trust Fund. It is now a Special Revenue Fund. Total Expenditures of Federal Awards $550,000 Thousand of Dollars $450,000 $350,000 $250,000 $150,000 $50,000 71 Table 6 Arizona Department of Transportation Fuel Tax Rates For the fiscal year ended June 30 (Cents per Gallon) Fiscal Year Effective Date Gasoline Tax Use Fuel Tax /1 2002 - 18 26 2001 07/01/2000 18 26 2000 - 18 27 1999 - 18 27 1998 12/31/1997 18 27 1997 - 18 18 1996 - 18 18 1995 - 18 18 1994 - 18 18 1993 - 18 18 SOURCE: Arizona Revised Statutes §28-5606, §28-5708 NOTE: Gasohol is currently taxed at the same rate as gasoline and use fuel. Use fuel is primarily diesel fuel. /1 Lightweight motor vehicles under 26,000 pounds pay $.18 per gallon. 72 Table 7 Arizona Department of Transportation Highway User Revenue Fund Collections For the fiscal year ended June 30 (Thousands of Dollars) Motor Veh. Operators' Motor Veh. Total Deposited License Fees and Other Fees License (In Lieu) Tax Revenues To Arizona Hwy. User Rev. Fund Motor Veh. Fuel Tax Revenue Motor Veh. Reg. Fee Revenues Motor Carrier Tax Revenues $ 629,360 566,115 $ 151,437 148,336 $ 2000 1999 545,901 636,117 158,424 145,340 15,040 14,409 43,508 15,939 235,287 217,905 998,160 1,029,710 1998 1997 1996 508,544 488,701 473,741 109,445 101,528 97,601 56,123 90,186 85,433 36,426 41,294 42,654 176,950 175,253 160,145 887,488 896,962 859,574 1995 1994 451,089 422,556 86,159 83,826 92,103 118,530 39,238 37,161 131,562 113,990 800,151 776,063 1993 387,235 80,717 120,303 24,161 105,027 717,443 2002 2001 11,896 15,094 $ 40,122 43,248 $ 259,308 251,496 $ 1,092,123 1,024,289 SOURCES: General Purpose Financial Statement - Fiscal Years 1999 through 2002. Arizona Highway User Revenue Fund Revenue Collections by Category Fiscal Years 1993 through 1998. Highway User Revenue Fund Collections $1,200,000 $1,050,000 $900,000 Thousands of Dollars Fiscal Year $750,000 $600,000 $450,000 $300,000 $150,000 $0 1993 1994 1995 1996 1997 1998 Fiscal Year 73 1999 2000 2001 2002 Table 8 Arizona Department of Transportation Highway User Revenue Fund Distributions For the fiscal year ended June 30 (Thousands of Dollars) State Department Economic Fiscal Year Highway Fund /1 Cities and Towns Counties of Public Safety Strength Project Fund Other /2 Total 2002 $ 519,837 $ 312,252 $ 195,530 $ $ 1,000 $ 26,438 $ 1,092,123 2001 503,611 305,009 188,982 10,937 1,000 14,750 1,024,289 2000 493,697 323,798 157,594 13,622 1,000 8,449 998,160 1999 512,149 295,879 199,591 12,630 1,000 8,461 1,029,710 1998 435,882 263,220 163,973 14,688 1,000 8,519 887,282 1997 444,927 268,696 167,350 17,188 1,000 9,289 908,450 1996 429,171 256,901 152,571 19,688 1,000 9,304 868,635 1995 412,206 244,512 145,349 20,000 1,000 9,084 832,151 1994 406,376 205,479 134,511 24,925 1,000 532 772,823 1993 355,304 210,531 124,468 24,928 1,000 1,212 717,443 37,066 The Highway User Revenue Fund receives certain Motor Vehicle Division revenues from the Motor Vehicle Division Clearing Fund. These monies are distributed to the State Highway Fund and various counties and cities, based on statutory formulas. SOURCES: General Purpose Financial Statement - Fiscal Years 1994 through 2002. Highway User Revenue Fund Schedule 1 Summary for Revenue Collected Fiscal Year 1993. Monthly Reports MV675580-01 fiscal years 1993 through 2002 (adjusted for accrual basis in years 1994 through 2002). NOTES: /1 In fiscal year 1995, HB 2431 authorized the transfer of $1 million for border transportation projects. /2 Appropriation to the Motor Vehicle Division for funding of mandatory insurance enforcement administration for fiscal years 1993 and 1994. In fiscal years 1995 through 2002, an appropriation for Arizona State Parks is included. In 2002, includes distribution to State General Fund. 74 Table 9 Arizona Department of Transportation Bond Coverage Highway User Revenue Fund Series For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 Principal $ 45,365 52,055 46,270 43,805 43,405 40,970 38,430 36,330 33,425 27,865 Interest $ 38,534 36,581 33,994 31,090 33,266 36,148 38,770 40,974 44,037 48,289 Pledged Total Revenues /1 Coverage $ 83,899 $ 523,326 6.2 88,636 513,890 5.8 80,264 528,721 6.6 74,895 509,935 6.8 76,671 468,240 6.1 77,118 468,542 6.1 77,200 429,825 5.6 77,304 399,605 5.2 77,462 385,844 5.0 76,154 355,304 4.7 SOURCES: Highway User Revenue Fund Schedule 1 Summary For Revenue Collected Monthly Reports MV675577-1 fiscal years 1993 through 2001; Debt Service Funds - fiscal years 1993 through 2002. /1 For fiscal years 1993 through 1996, net of 7% distributed to cities with a population greater than 300,000 persons. For fiscal years 1997 and after, includes vehicle license tax revenues distributed directly to the State Highway Fund. Highway User Revenue Fund Series Bond Coverage $550,000 $500,000 $450,000 Thousands of Dollars $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 1993 1994 1995 1996 1997 1998 2000 Fiscal Year REVENUE DEBT SERVICE 75 2001 2002 Table 10 Arizona Department of Transportation Bond Coverage Regional Area Road Fund Series For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Principal Interest Total Revenues Coverage 2002 $ 163,455 $ 35,445 $ 198,900 $ 267,563 1.3 2001 2000 156,865 128,805 40,035 42,609 196,900 171,414 264,722 248,596 1.3 1.5 1999 106,765 43,251 150,016 229,470 1.5 1998 1997 82,765 78,015 40,512 45,248 123,277 123,263 209,263 192,257 1.7 1.6 1996 76,955 46,209 123,164 178,413 1.4 1995 1994 57,930 54,710 47,320 49,347 105,250 104,057 160,319 142,846 1.5 1.4 1993 45,650 46,880 92,530 127,273 1.4 SOURCE: Maricopa County Regional Area Road Fund Report. NOTE: Bond coverage ratio is based upon total Maricopa County Transportation Excise Tax collections. Regional Area Road Fund Series Bond Coverage $300,000 $250,000 Thousands of Dollars $200,000 $150,000 $100,000 $50,000 $0 1993 1994 1995 1996 1998 1999 Fiscal Year REVENUE DEBT SERVICE 76 2000 2001 2002 Table 11 Arizona Department of Transportation Total Public Road Mileage By Highway Class and Governmental Ownership For the calendar year ended December 31, 2001 (With comparative totals for the calendar year ended December 31, 2000) (In Center Lane Miles) TOTAL FUNCTIONAL CLASSIFICATION STATE COUNTY MUNICIPAL FEDERAL 2001 2000 RURAL: Interstate Freeway 996 - - - 996 995 Principal Arterial 1,117 45 17 7 1,186 1,184 Minor Arterial 1,134 100 23 - 1,257 1,256 Major Collector 1,847 1,548 241 843 4,479 4,487 Minor Collector Local 366 372 1,159 14,836 62 1,835 716 9,976 2,303 27,019 2,304 26,663 5,832 17,688 2,178 11,542 37,240 36,889 172 TOTAL RURAL URBAN: Interstate Freeway 172 - - - 172 Urban Expressway 132 2 9 - 143 126 Principal Arterial 264 80 657 - 1,001 1,021 Minor Arterial 126 268 873 5 1,272 1,297 Urban Collector Local 5 119 476 1,295 1,233 11,887 20 381 1,734 13,682 1,739 13,950 818 2,121 14,659 406 18,004 18,305 TOTAL URBAN STATEWIDE COMPOSITE: Freeways and Expressways 1,300 2 9 - 1,311 1,293 Arterials 2,641 493 1,570 12 4,716 4,758 Collectors Locals 2,218 491 3,183 16,131 1,536 13,722 1,579 10,357 8,516 40,701 8,530 40,613 6,650 19,809 16,837 11,948 55,244 55,194 TOTAL STATEWIDE Source: Arizona's Highway Performance Monitoring System (HPMS) 2001 & 2000 Data 77 ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by Financial Management Services, Fiscal Operations: Craig Rudolphy, MBA, CGFM, CPA, CPFO Theresa Simms, MBA, CGFM, CPA Lawrence H. Ehrke, Jr., MBA Julie Phelps, MBA Stanley Brown, MS Mantian Xu, MA Richard Gromoll, MBA Christopher Kipiani Trang Huynh John Ralston, CPA Marsha Bloom, CPA Patricia Markiw, CPA Special acknowledgment goes to: All Financial Management Services staff whose cooperation and hard work contributed to the compilation of financial information that appears in this report. A special thank you to Ronald Loar of the Transportation Planning Division for his graphic design and photography. 2002 Comprehensive Annual Financial Report 78 State of Arizona Department of Transportation 206 S. 17 th Ave. Phoenix, AZ 85007