2006 Comprehensive Annual Financial Report For the fiscal year ended June 30, 2006 Prepared by Financial Management Services State of Arizona Department of Transportation Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2006 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 Organization Chart .................................................................................................................................................................viii FINANCIAL SECTION Independent Auditors’ Report ..............................................................................................................................................1-2 Management’s Discussion and Analysis ..........................................................................................................................3-14 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets (Exhibit 1) ...........................................................................................................................15 Statement of Activities (Exhibit 2) .............................................................................................................................16 Governmental Fund Financial Statements: Balance Sheet - Governmental Funds (Exhibit 3) .............................................................................................17-18 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets (Exhibit 3.1) ........................................................................................................19 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds (Exhibit 4) ..................................................................................................20-23 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities (Exhibit 4.1)...............................24 Proprietary Fund Financial Statements: Statement of Net Assets (Exhibit 5) ...........................................................................................................................25 Statement of Revenues, Expenses, and Changes in Fund Net Assets (Exhibit 6)..............................................26 Statement of Cash Flows (Exhibit 7) .........................................................................................................................27 Fiduciary Fund Financial Statement Statement of Net Assets – Agency Funds (Exhibit 8).............................................................................................28 Index of Notes to the Financial Statements....................................................................................................................29 Notes to the Financial Statements..............................................................................................................................30-52 Required Supplementary Information (Other than MD&A): Budgetary Comparison Schedule – General Fund (State Highway Fund) .........................................................53-54 Notes to Required Supplementary Information.............................................................................................................55 Information About Infrastructure Assets Reported Using the Modified Approach..........................................56-60 2006 Co mprehensive Annual Financial Report Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2006 TABLE OF CONTENTS (Continued) Page Supplementary Information: Non-Major Governmental Funds: Combining Balance Sheet (Exhibit 9).............................................................................................................61-62 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Exhibit 10) ........63-64 Fiduciary Fund: Combining Statement of Net Assets – Agency Funds (Exhibit 11) .....................................................................65 Statement of Changes in Assets and Liabilities – Agency Funds (Exhibit 12) ..................................................66 Capital Assets Used in the Operation of Governmental Funds: Schedule by Source (Exhibit 13) ................................................................................................................................67 Schedule by Function and Activity (Exhibit 14)......................................................................................................68 Schedule of Changes by Function and Activity (Exhibit 15) ................................................................................69 STATISTICAL SECTION Index of Statistical Section.................................................................................................................................................... 70 Financial Trends: Change in Net Assets (Table 1)....................................................................................................................................71-72 Net Assets by Component (Table 2)..................................................................................................................................73 Statement of Revenues, Expenditures, and Changes in Fund Balances (Table 3) ....................................................74 Fund Balances of Governmental Funds (Table 4) ..........................................................................................................75 Expenditures of Federal Awards (Table 5) ......................................................................................................................76 Government-wide Expenses by Function (Table 6) .......................................................................................................77 Government-wide Revenues (Table 7) .............................................................................................................................78 Revenue Capacity: Highway User Revenue Fund Collections (Table 8)......................................................................................................79 Highway User Revenue Fund Distributions (Table 9)...................................................................................................80 Fuel Tax Rates (Table 10) ...................................................................................................................................................81 Motor Vehicle Fuel Tax – Top Ten Suppliers (Table 11) .............................................................................................82 Gasoline Volume Sold – Top Twenty-Five Suppliers (Table 12)................................................................................83 Debt Capacity: Highway User Revenue Fund – Legal Debt Margin (Table 13)...................................................................................84 Highway User Revenue Fund Series – Bond Coverage (Table 14) .............................................................................85 Regional Area Road Fund Series – Bond Coverage (Table 15) ...................................................................................86 2006 Co mprehensive Annual Financial Report Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2006 TABLE OF CONTENTS (Continued) Page Debt Capacity (continued): Regional Area Road Fund Series – Debt Service Revenue and Cost Per Capita (Table 16)...................................87 Demographic and Economic Information: Number of Vehicle Registrations Per Year With Population Data (Table 17) ..........................................................88 Vehicle Registrations Per Year Compared to Fuel Sales (Table 18) ...........................................................................89 Operating Information: Total Public Road Mileage By Highway Class and Governmental Ownership (Table 19).....................................90 Appropriated Full Time Equivalents (FTEs) (Table 20)................................................................................................91 Daily Vehicle Miles Traveled With Population Data (Table 21).................................................................................92 Acknowledgements ........................................................................................................................................................................93 2006 Co mprehensive Annual Financial Report Introductory Arizona Department of Transportation Office of the Director 206 South Seventeenth Avenue Phoenix, Arizona 85007 - 3213 David P. Jankofsky Deputy Director Janet Napolitano Governor Victor M. Mendez Director November 15, 2006 The Honorable Janet Napolitano Governor of the State of Arizona Members of the Legislature, and Citizens of the State of Arizona The Arizona Department of Transportation (Department) is pleased to submit the Comprehensive Annual Financial Report (CAFR) of the Department for the fiscal year ended June 30, 2006. The CAFR is presented in three sections: Introductory, Financial, and Statistical. The Introductory Section includes this letter of transmittal, a list of principal officials and the Department's organization chart. The Financial Section includes the independent auditors' report, management’s discussion and analysis, basic financial statements, notes to the financial statements, required supplementary information, as well as other supplementary information. The Statistical Section includes additional financial information and transportation data presented on a multi-year comparative basis. Arizona Revised Statutes, §41-1279.03, requires the State Auditor General to "conduct or cause to be conducted at least biennial financial and compliance audits of financial transactions and accounts kept by or for all state agencies subject to the single audit act of 1984 (P.L. 98-502)." In fulfillment of this requirement, the Department prepared this CAFR, for the fiscal year ended June 30, 2006, and contracted with the independent auditing firm of Deloitte & Touche LLP to audit the financial statements. The objective of the independent audit is to provide a reasonable assurance that the financial statements are free from material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the Department's financial statements for the fis cal year ended June 30, 2006, are fairly presented in conformity with accounting principles generally accepted in the United States of America (GAAP). The independent auditors’ report is presented as the first component of the financial section of this report. GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The Department's MD&A can be found immediately following the report of the independent auditors, beginning on page 3. The CAFR includes all funds used to record the financial activity of the Department. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the Department. To provide a reasonable basis for making these representations, the Department has established a comprehensive internal control framework that is designed both to protect the Department's assets from loss, theft, or misuse and to compile sufficiently reliable information for the preparation of the financial statements in conformity with GAAP. The Department's internal control includes both automated controls, which are an integral component of the financial accounting system, and comprehensive policies and procedures. In addition, the Department's Office of Audit and Analysis is an independent unit that reviews accounting controls and performs operational audits of the various divisions and units of the Department. Because the cost of internal controls should not outweigh their benefits, the Department's comprehensive framework of internal control 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. Profile of the Department 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 products and services for a safe, efficient, cost-effective transportation system that links Arizona to the global economy, promotes economic prosperity and demonstrates respect for Arizona’s environment and quality of life. The Arizona Department of Transportation 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 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 and confirmed by the State Senate. 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 (GARVEE bonds), board funding obligations and approval of privatization agreements for toll facilities. The Department is organized into four operating divisions supported by a Planning Division and Transportation Services Group. The four operating divisions include: Intermodal Transportation Division, Motor Vehicle Division, Aeronautics Division and Public Transportation 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 22 ports-of-entry. The Aeronautics Division coordinates general aviation in the State and is responsible for registering and licensing all general aviation aircraft, managing the Grand Canyon Airport, conducting the local airports grant program and representing the State at air service hearings. The Public Transportation Division is responsible for designing and managing certain rural transit programs to meet non-urbanized public, elderly and disabled transportation needs statewide. With the design and construction of the light rail program in the Phoenix metropolitan area, the Public Transportation Division is also responsible for ensuring safety and security throughout the implementation and construction. 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, through which the Transportation Board establishes the priorities for highway and airport projects within the State. In addition, the Department has a Transportation Services Group that provides support to the Department's operating and other 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. The result is a detailed operating budget that guides the divisions and programs in their financial operation. State funding for 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 capital project is identified for control purposes. This bill also provides funding for building renewal purposes. ii 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 Arizona’s economy continued to show strength in fiscal year 2006 with the state posting the second highest growth rates in the nation for employment, population and personal income growth during calendar year 2005. State and national economies saw the housing market slow significantly during the second half of fiscal year 2006 along with higher interest rates and fuel prices. The impact on Arizona’s economy from these factors has been muted due to the continued strong growth in employment, population and personal income. Two of the Department’s main funding sources, the Highway User Revenue Fund (HURF) and the Maricopa County Transportation Excise Tax posted strong gains for the third consecutive year in fiscal year 2006. HURF collections totaled $1.3 billion, an increase of 6.7 percent over fiscal year 2005 and 1.9 percent above the forecast. Maricopa County Transportation Excise Tax collections totaled $367.6 million, an increase of 16.0 percent over fiscal year 2005 and 8.3 percent above the forecast. The HURF revenue growth of 6.9 percent was the second highest yearover-year growth rate within the past ten fiscal years while the Maricopa County Transportation Excise Tax collections posted the strongest year-over-year growth rate since the inception of the tax in fiscal year 1986. The Arizona economy is expected to slow moderately in fiscal year 2007 but continue with above average growth in employment, population and personal income. The slowing housing market and higher fuel prices due to geopolitical issues, domestic production and refining issues remain and may apply additional pressure on Arizona’s economy. Although the housing market has slowed, the commercial and retail construction sectors expect strong growth during fiscal year 2007 which will moderate the impact on construction employment growth. Arizona should continue to attract new residents due to employment growth and continued growth in retiree population. The Department’s fiscal year 2007 HURF estimate amounts to $1.4 billion, an increase of 5.0 percent over fiscal year 2006. The HURF average compound growth rate for fiscal years 1997 through 2006 was 4.5 percent. The distribution of HURF revenues in fiscal year 2007 is estimated to be as follows: State Highway Fund $697.5 million; Arizona cities and towns $423.1 million; Arizona counties $263.6 million; Department of Public Safety $10.0 million; Economic Strength Project Fund $1.0 million; and the Motor Vehicle Division for registration compliance $0.6 million. $3.0 million will be allocated from the State Highway Fund share of HURF vehicle license tax revenues to the Department of Public Safety Parity Compensation Fund. Maricopa County Transportation Excise Tax revenues are projected to reach $397.1 million in fiscal year 2007, a year-over-year increase of 8.0 percent. Fiscal year 2007 should experience more modest growth due mainly to slower consumer spending brought on by higher interest rates and fuel prices. However, fiscal year 2007 growth should outpace the Maricopa County Transportation Excise Tax average compound growth rate of 7.5 percent for fiscal years 1997 through 2006. The Department’s third major funding source, federal funds, is also expected to see healthy increases in funding over the next several years. On August 10, 2005, President Bush signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users (SAFETEA -LU), a multi-year transportation funding bill. Under the bill, Arizona is expected to receive approximately 40% more in average apportionments for the period FY 2004 – 2009 than it received under the prior reauthorization bill (TEA -21) for the years 1998 – 2003. On an inflationadjusted basis, this increase should result in a 17-20 percent higher funding level. iii Planned Construction Activity In June 2006, the Transportation Board approved a $5.8 billion Highway Construction Program as part of the Five-Year Transportation Facilities Construction Program for fiscal years 2007 through 2011; $4.3 billion for system improvements, $537 million for system management and $988 million for system preservation. This program provides funding for highway facilities on the National Highway System and the statewide system, as well as the new Maricopa County Regional Transportation Plan and the completion of the Maricopa County Association of Governments (MAG) Life Cycle Program. The Five-Year Transportation Facilities Construction Program includes approximately $3.2 billion for freeway and expressway construction in Maricopa County, funded in large part from the Maricopa County Regional Area Road Fund. The Regional Freeway Program in Maricopa County began in 1986 and will ultimately open 137 miles of new freeways. Currently 130 miles have been opened to traffic and 7 more miles are under construction. As part of the Five-Year Transportation Facilities Construction Program, the Transportation Board also adopted a $716.9 million Five-Year Airport Development Program that includes 1,025 projects at general aviation and air carrier airports located throughout the State. Since the beginning of the fiscal year 2006, the Department has seen an unwelcome trend in the cost of many of its construction projects. Material and labor price increases, and in some cases shortages , have resulted in materially higher bid prices than those estimated by the Department. How long this trend will continue, and the potential impact this trend may have on the Board’s Five-Year Transportation Facilities Construction Program, cannot yet be determined. 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 of Arizona for the fiscal year ended June 30, 2006. 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 United States Department of Transportation's (U.S. DOT) Inspector General has reviewed the internal controls on several occasions. The U.S. DOT auditors typically rely on the Department's internal audit staff in determining the scope of their review. 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, 2005. This was the sixteenth 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. A Certificate of Achievement is valid for a period of one year only. We believe our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. iv Acknowledgements We would like to express our sincere appreciation to the many individuals whose dedicated efforts have made this report possible. A special note of thanks is extended to the staff of Fiscal Operations whose commitment, professionalism, and dedicated efforts contributed to the timely preparation of the fiscal year 2006 Comprehensive Annual Financial Report. Respectfully Submitted, Victor M. Mendez, Director Arizona Department of Transportation John E. McGee, Chief Financial Officer Arizona Department of Transportation v vi Arizona Department of Transportation List of Principal Officials Victor M. Mendez Director David P. Jankofsky Deputy Director John A. Bogert Chief of Staff Sam M. Elters State Engineer Intermodal Transportation Division Stacey K. Stanton Assistant Director Motor Vehicle Division Dale J. Buskirk Assistant Director Transportation Planning Division James D. Dickey Assistant Director Public Transportation Division Barclay L. Dick Assistant Director Aeronautics Division John E. McGee Chief Financial Officer Arizona State Transportation Board Member James W. Martin, Chairman Joe Lane, Vice Chairman S. L. Schorr Delbert Householder Robert M. Montoya Felipe Andres Zubia William J. (Bill) Feldmeier Counties District 3 (Cochise, Greenlee and Santa Cruz Counties) District 1 (Maricopa County) District 2 (Pima County) District 4 (Gila, Graham and Pinal Counties) District 5 (Navajo, Apache and Coconino Counties) District 1 (Maricopa County) District 6 (Yavapai, Yuma, Mohave, and LaPaz Counties) 2006 Comprehensive Annual Financial Report vii Term Expires 2007 2008 2009 2010 2011 2012 2012 Financial Deloitte. Deloitte & Touche LLP Suite 1200 2901 N. Central Avenue Phoenix, AZ 85012-2799 USA Tel: +16022345100 Fax: +16022345186 www.deloitte.com INDEPENDENT AUDITORS' REPORT The Honorable Janet Napolitano Governor of the State of Arizona, and Members of the Legislature We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Arizona Department of Transportation (the "Department"), as of and for the year ended June 30, 2006, which collectively comprise the Department's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Department's management. Our responsibility is to express an opinion on the respective financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the respective financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Department's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the respective financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the financial statements of the Department of the State of Arizona (the "State"), are intended to present the financial position, and the changes in financial position and cash flows, where applicable, of only that portion of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the State that is attributable to the transactions of the Department. They do not purport to, and do not, present fairly the financial position of the State as of June 30, 2006, and the changes in its financial position and its cash flows, where applicable, for the year then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the Department as of June 30, 2006, and the respective changes in financial position and respective cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis, budgetary comparison information, and infrastructure assets reported using the modified approach as listed in the table of contents are not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. This supplementary information is the responsibility of the Department's management. Member of Deloitte Touche Tohmatsu We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit such information and we do not express an opinion on it. Our audit was conducted for the purpose of forming an opinion on the Department's respective financial statements that collectively comprise the Department's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. This supplementary information is the responsibility of the Department's management. The combining and individual nonmajor fund financial statements, have been subjected to the auditing procedures applied by us in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. In accordance with Government Auditing Standards, we have also issued our report dated November 15, 2006, on our consideration of the Department's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. -2 - Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 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, 2006. 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 basic financial statements, which begin on page 15, with the accompanying notes and Required Supplementary Information (RSI). Financial Highlights Government-wide: • The net assets of the Department at the close of the fiscal year are $12.5 billion, compared to $11.6 billion for fiscal year 2005, an increase of 8.3 percent. Of this amount, $189.6 million represents unrestricted net assets and may be used to meet the Department’s ongoing obligations to citizens and creditors as compared to $234.3 million in 2005. • The Department’s investment in capital assets, net of related debt, is $11.8 billion, compared to $10.8 billion for fiscal year 2005, an increase of 9.5 percent. The Department’s capital assets are $13.6 billion, compared to $12.7 billion for fiscal year 2005, an increase of 7.6 percent. This increase is primarily attributable to highway construction activity. • The Department’s non-current liabilities are $2.0 billion, compared to $2.0 billion in 2005. The Department retired $56 million more in bonds than were issued. Fund Level: • As of the close of the fiscal year, the governmental funds of the Department reported combined ending fund balances of $482.4 million, as compared to $537.0 million in 2005, a 10.2 percent decrease over the prior fiscal year. The total reserved fund balance is $433 million; of this, $426 million (98.4 percent) is reserved for capital projects. Approximately $49.2 million (10.2 percent) is available for spending at the government’s discretion (unreserved fund balance) as compared to $90 million (16.8 percent) in 2005. At the end of the fiscal year, the unreserved fund balance for the General Fund (State Highway Fund) was $9.3 million. • The proprietary funds reported net assets at year-end of $67.9 million, as compared to $65.6 million in 2005, an increase of 3.6 percent. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction of the Department’s basic financial statements. The Department’s basic financial statements consist of 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. 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. 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. 2006 Comprehensive Annual Financial Report 3 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 • Other indicators of the Department’s financial health include the condition of its roads and bridges (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 business-type); 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 15-16 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 and current financial resources measurement focus) with governmental activities (prepared using the accrual basis of accounting and economic resources measurement focus) on the appropriate government-wide statements. The following summarizes the impact of utilizing Governmental Accounting Standards Board Statement 34 (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 not reported on governmental fund statements. • Internal service fund activities are reported as governmental activities, but reported as proprietary funds in the fund financial statements. • Bond issuance costs are capitalized and amortized to expense as governmental activities, but reported as expenditures in the governmental fund statements. • Unless currently 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 is 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. • 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. 2006 Comprehensive Annual Financial Report 4 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 Fund Financial Statements (Reporting the Department’s Major Funds) The fund financial statements begin on page 17 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 financial resources flow 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 basis 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 governmental operations and the basic services it provides. This information should help determine whether there are more or less current financial 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 fifteen 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 nine governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds are provided in the form of combining statements elsewhere in this report. The legislature appropriates an annual budget for the Department’s General Fund (State Highway Fund). The Schedule of Revenues and Expenditures – Budget and Actual has been provided for the General Fund (State Highway Fund) to demonstrate compliance with this budget and is presented as Required Supplementary Information. The governmental funds financial statements can be found on pages 17-24 of this report. Proprietary Funds. When the Department charges customers for the services it provides, 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 provide supplies and services to outside customers, other agencies or to other divisions of the Department. 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. Internal service fund activities are reported as governmental activities on the government-wide statements. The proprietary funds financial statements can be found on pages 25-27 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 page 28. 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 29-52 of this report. 2006 Comprehensive Annual Financial Report 5 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 Required Supplementary Information. In addition to the basic financial statements including accompanying notes, this section presents certain Required Supplementary Information concerning the Department’s Schedule of Revenues and Expenditures – Budget and Actual for the General Fund (State Highway Fund) and the modified approach to reporting infrastructure assets. Required Supplementary Information can be found on pages 53-60 of this report. Supplementary Information. Other Supplementary Information includes the combining statements for the non-major governmental funds, agency funds and capital assets and is presented immediately following the Required Supplementary Information on budget and infrastructure assets. Combining and individual fund statements and schedules can be found on pages 61-69 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 years ended June 30, 2006 and 2005. The Department’s combined net assets increased by $957.7 million over the course of this fiscal year’s operations, an increase of 8.3 percent. The net assets of the governmental activities increased by $955 million or 8.3 percent and businesstype activities increased by $2.4 million, an increase of 3.6 percent over the previous year . The following table reflects the condensed Statement of Net Assets as of June 30, 2006 and 2005: Governmental Activities 2006 2005 Business-type Activities 2006 2005 Total 2006 2005 215,449,199 499,474 215,948,673 $ 1,157,732,987 13,616,928,493 14,774,661,480 $ 1,180,145,813 12,650,504,435 13,830,650,248 3,791,948 146,587,988 150,379,936 235,853,543 2,008,494,147 2,244,347,690 241,946,080 2,016,118,658 2,258,064,738 499,474 11,806,624,811 65,273,296 534,049,866 <204,033> 189,639,113 65,568,737 $12,530,313,790 10,780,973,765 557,267,978 234,343,767 $11,572,585,510 Assets: Current and other assets Capital assets Total assets Liabilities: Other liabilities Non-current liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets $ 935,477,518 13,616,679,778 14,552,157,296 $ 964,696,614 12,650,004,961 13,614,701,575 231,909,827 1,857,865,144 2,089,774,971 238,154,132 1,869,530,670 2,107,684,802 11,806,376,096 466,336,618 189,669,611 $12,462,382,325 10,780,474,291 491,994,682 234,547,800 $11,507,016,773 $ 222,255,469 248,715 222,504,184 $ 3,943,716 150,629,003 154,572,719 $ 248,715 67,713,248 <30,498> 67,931,465 $ The total assets of the Department were $14.8 billion, while total liabilities were $2.2 billion, resulting in a net assets balance of $12.5 billion. By far, the largest portion of the Department’s net assets, $11.8 billion (94.2 percent), was 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. As of June 30, 2006, the Department is able to report positive balances in all three categories of net assets for the governmental activities. The same situation held true for the prior fiscal year. The business-type activities reported a deficit in unrestricted net assets for the current and prior year. 2006 Comprehensive Annual Financial Report 6 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 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, compared to the prior year: Governmental Activities 2006 2005 Business-type Activities 2006 2005 Total 2006 2005 Revenues: Program revenues: Charges for services $ 134,068,183 Operating grants and contributions 67,241,642 Capital grants and contributions 387,613,919 General revenues: Transportation excise taxes 316,491,260 Vehicle, registration, title, license and related taxes 1,086,086,306 Fuel and motor carrier taxes and fees 770,595,788 Flight property taxes 13,685,936 Interest on investments 28,538,190 Other 11,025,538 Total revenues 2,815,346,762 Expenses: Administration 45,001,954 Aeronautics 10,705,401 Highway 62,712,812 Highway Maintenance 114,118,876 Motor Vehicle 96,936,845 Other 9,394,006 Non-capital, including asset preservation 1,453,012 Distributions to Arizona counties and cities 1,187,705,392 Distributions to other state agencies 206,903,293 Intergovernmental 36,771,014 Interest on long-term debt 88,278,605 Arizona Highways Magazine Highway Expansion and Extension Loan Program Total expenses 1,859,981,210 Change in net assets Net assets - July 1 Net assets - June 30 955,365,552 11,507,016,773 $ 12,462,382,325 $ 126,267,181 58,947,746 484,275,728 $ 11,293,230 - $ 11,452,006 - 316,805,562 - - 316,491,260 316,805,562 966,884,699 759,632,832 13,180,039 19,245,241 27,120,478 2,772,359,506 3,517,627 14,810,857 2,764,337 380,488 14,596,831 1,086,086,306 770,595,788 13,685,936 32,055,817 11,025,538 2,830,157,619 966,884,699 759,632,832 13,180,039 22,009,578 27,500,966 2,786,956,337 42,297,877 9,803,605 72,665,070 105,036,826 91,676,147 6,871,015 209,901,662 - - 45,001,954 10,705,401 62,712,812 114,118,876 96,936,845 9,394,006 1,453,012 42,297,877 9,803,605 72,665,070 105,036,826 91,676,147 6,871,015 209,901,662 1,086,955,131 306,852,517 42,440,134 86,870,178 - 8,174,700 10,270,407 1,187,705,392 206,903,293 36,771,014 88,278,605 8,174,700 1,086,955,131 306,852,517 42,440,134 86,870,178 10,270,407 2,061,370,162 4,273,429 12,448,129 4,359,732 14,630,139 4,273,429 1,872,429,339 4,359,732 2,076,000,301 710,989,344 10,796,027,429 $ 11,507,016,773 2,362,728 65,568,737 $ 67,931,465 957,728,280 11,572,585,510 $ 12,530,313,790 710,956,036 10,861,629,474 $ 11,572,585,510 <33,308> 65,602,045 $ 65,568,737 2006 Comprehensive Annual Financial Report 7 $ 145,361,413 67,241,642 387,613,919 $ 137,719,187 58,947,746 484,275,728 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 Governmental Activities: The following chart depicts revenues of the governmental activities for the fiscal year ended June 30, 2006: Revenues - Governmental Activities $2,815,346,762 Fuel and motor carrier taxes and fees 27.4% Interest on investments 1.0% Other revenues including flight property taxes 0.9% Transportation excise taxes 11.3% Charges for services 4.8% Capital grants and contributions 13.8% Vehicle, registration, title, license and related taxes 38.6% Operating grants and contributions 2.3% $2.6 billion (or 91.0 percent) of the Department’s revenues are from the following four revenue sources: • Vehicle, registration, title, license and related taxes comprise the Department’s largest revenue source of $1.1 billion (38.6 percent). • Fuel and motor carrier taxes and fees represent the Department’s second largest revenue source of $770.6 million (27.4 percent). • Capital grants and contributions total $387.6 million (13.8 percent). • Transportation excise taxes are the Department’s fourth largest revenue source of $316.5 million (11.2 percent). The Highway User Revenue Fund (HURF) and the Maricopa County Transportation Excise Tax both posted strong gains in fiscal year 2006. Maricopa County Transportation Excise Tax collections totaled $367.6 million, an increase of 16.0 percent over fiscal year 2005 and 8.3 percent above the forecast. However, the Transportation Excise Tax distributed to ADOT was $316.5 million compared to $316.8 million for fiscal year 2005, a decrease of $314 thousand (or .09 percent). This decrease is attributable to the passage of Proposition 400, which provides that Public Transportation Funds are distributed directly to the Regional Public Transportation Authority (RPTA) and are not passed through ADOT. The HURF average compound growth rate for fiscal years 1997 through 2006 was 4.5 percent. The growth in collections was broad based, posting gains over fiscal year 2005 for vehicle registration, gas tax, use fuel tax and motor carrier taxes because of the increase in the population, which tends to follow job growth. 2006 Comprehensive Annual Financial Report 8 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 The following chart depicts expenses of the governmental activities for the fiscal year ended June 30, 2006: Expenses - Governmental Activities $1,859,981,210 Distributions to other state agencies 11.1% Intergovernmental 2.0% Distributions to Arizona counties and cities 63.9% Interest on long-term debt 4.7% Administration 2.4% Highway 3.4% Highway Maintenance 6.1% Non-capital, including asset preservation 0.1% Motor Vehicle 5.2% Other * 1.1% *Other includes expenses for Aeronautics and Other $1.5 billion (or 81.1 percent) of the Department’s expenses were for the following: • Distributions to Arizona counties and cities $1.2 billion (63.9 percent). • Distributions to other state agencies $206.9 million (11.1 percent). • Highway Maintenance $114.1 million (6.1 percent) The decrease in distributions to other state agencies in fiscal year 2006 was due to 2004 Senate Bill 1314 which required an additional $118.0 million be transferred from vehicle license tax revenues to the State of Arizona General Fund in fiscal year 2005. There was also a 6.3 percent increase in the distributions to Arizona counties and cities due to an increase in motor fuel tax and vehicle license tax collections. 2006 Comprehensive Annual Financial Report 9 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 Business-type Activities: Net assets for business-type activities increased by $2.4 million in fiscal year 2006. Total revenues were $14.8 million, with charges for services representing 76.2 percent and interest on investments 23.8 percent. The total expenses for business-type activities were $12.4 million. The Highway Expansion and Extension Loan Program had an increase in revenues of $980 thousand. Higher average interest rates on invested cash due to prevailing market conditions during fiscal year 2006 resulted in interest on investments of $708 thousand for fiscal year 2006 for the Highway Expansion and Extension Loan Program. 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 (pages 17-24) 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 non-major governmental funds are combined into a single column. Combining statements for the non-major governmental funds may be found on pages 61-64. As of the end of the fiscal year, the fund balances of the governmental funds totaled $482.4 million, a decrease of $54.6 million over the previous fiscal year. Of this balance, $49.2 million or 10.2 percent constitutes the unreserved fund balance, which was available for spending for the general purposes of the Department. The remaining fund balance of $433.2 million, or 89.8 percent, was reserved for the following: 1) $5.0 million for inventories, 2) $2.2 million to pay debt service, and 3) $426 million to pay for capital projects. The General Fund (State Highway Fund) is the primary operating fund of the Department. At the end of the current fiscal year, the unreserved fund balance of the General Fund (State Highway Fund) was $9.3 million and the reserved fund balance was $172.8 million. As a measure of the General Fund’s (State Highway Fund) 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 1.0 percent of total General Fund (State Highway Fund) expenditures, while total fund balance represents 19.9 percent of the same amount. The Maricopa Regional Area Road Construction Fund (MRF) is a major special revenue fund that receives Maricopa County Transportation Excise Tax monies that are used for construction of certain state highways and arterial streets within Maricopa County. Total revenues collected in fiscal year 2006 were $360.5 million; transportation excise tax revenue of $316.5 million (or 87.8 percent) was the bulk of the revenue. Of this revenue, $81.5 million (or 22.6 percent) was used to pay debt service for Transportation Excise Tax Revenue Bonds. The Debt Service Fund is used for the accumulation of resources for, and the payment of, general long-term debt principal and interest of the governmental funds. The other financing sources of $252.2 million were transferred in from the General Fund (State Highway Fund) ($115.4 million), the MRF fund ($81.5 million) and Grant Anticipation Notes Fund ($55.0 million), and were used to pay the debt service. The remaining fund balance of $2.2 million is restricted for future debt service payments. The Capital Projects Fund is used to account for financial resources used for the acquisition or construction of major capital facilities of the governmental funds. During the fiscal year, the Department’s expenditures were $238.5 million. Capital outlay expenditure of $198.0 million (83.0 percent) accounted for the majority of the expenditures. This expenditure for the acquisition and construction of new highways was converted to capital assets on the government wide statements. The fund balance decreased by $112.2 million (84.6 percent) during this fiscal year because there was less unspent bond proceeds. 2006 Comprehensive Annual Financial Report 10 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 Budget Variances There were no significant differences between the Department’s budgeted amounts and the actual expenditures for fiscal year 2006. Capital Assets and Debt Administration Capital Assets (See Note 5A to the financial statements for additional information): The Department’s investment in capital assets for its governmental and business-type activities as of June 30, 2006, amounts to $13.6 billion (net of accumulated depreciation), a $1.0 billion increase over the previous fiscal year. Governmental Activities 2006 2005 Land Buildings and improvements Improvements other than buildings Mobile fleet and aircraft Machinery and equipment Infrastructure Construction in progress Total $ 2,118,364,685 91,079,425 19,876,604 52,678,865 19,731,615 9,379,755,220 1,935,193,364 $ 13,616,679,778 Business-type Activities 2006 2005 $ 1,875,770,486 91,904,625 32,529,900 45,923,112 16,624,936 8,863,627,692 1,723,624,210 $ 12,650,004,961 $ $ 7,900 203,951 36,864 248,715 $ $ 7,900 244,151 247,423 499,474 Total 2006 2005 $ 2,118,372,585 91,283,376 19,876,604 52,678,865 19,768,479 9,379,755,220 1,935,193,364 $ 13,616,928,493 $ 1,875,778,386 92,148,776 32,529,900 45,923,112 16,872,359 8,863,627,692 1,723,624,210 $ 12,650,504,435 As provided by accounting principles generally accepted in the United States (GAAP), the Department has elected to record its infrastructure assets using the modified approach, as defined in GASB Statement 34. Assets accounted for under the modified approach include 6,922 center lane miles (18,668 travel lane miles) and 4,676 bridges that the Department is responsible for maintaining. The Five-Year Transportation Facilities Construction Program (Program) is a dynamic instrument and adjustments are made to the annual plans based on the needs of the Department to maintain the condition level of the roads and bridges at a level equal to, or greater than, the goals established by the Department. In addition, not only are adjustments made during the life of the Program, circumstances may require that refinements to the individual components of the Program be made during the fiscal year. 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 impassable) to characterize the condition of the roadway. The Department’s serviceability rating goal is 3.23 for the overall system. The most recent assessment from the Transportation Material Technicians indicated that an overall rating of 3.52 was achieved for fiscal year 2006. 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 2006, a CRI of 93.8 percent was obtained. 2006 Comprehensive Annual Financial Report 11 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 In addition to many smaller projects, each of the following major highway construction contracts in excess of $20 million was started during fiscal year 2006: Description Widen the roadway on the US 60 from Gilbert Road to Power Road within the City of Mesa, in Maricopa County. Construction of State Route Loop 202 from Power Road to University Drive within the City of Mesa, in Maricopa County. Construction of State Route Loop 202 from University Drive to Southern Avenue within the City of Mesa, in Maricopa County. Reconstruct roadway to a four lane divided highway on US 93, in Yavapai County. Reconstruction of the intersection of US89 and I-40B within the City of of Flagstaff, in Coconino County. Reconstruction at the intersection of Interstate 40 and North Park Drive within the City of Winslow, in Navajo County. Contract Start Date Contract Amount Total Contract Expenditures 09/23/2005 $73,704,905 12/19/2005 195,340,043 34,090,908 10/24/2005 67,415,009 24,064,707 09/23/2005 25,471,633 10,301,637 11/22/2005 30,480,000 6,398,160 10/25/2005 $20,629,174 $ $ 37,152,758 5,577,549 In addition to many smaller projects, the following major highway construction projects had expenditures in excess of $15 million in fiscal year 2006. These expenditures include payments made to construction contractors as well as utility, design, right-of-way and landscaping costs. Project Expenditures Description Construction at the interchange of State Route Loop 202 and Interstate 60 in Maricopa County. Construction of State Route Loop 202 from Power Road to University Drive in Maricopa County. Construction of State Route Loop 202 from Frye Road to Power Road in Maricopa County. Widen the roadway on the US 60 from Gilbert Road to Power Road in Maricopa County. Construction of State Route Loop 202 from Gilbert Road to Frye Road in Maricopa County. Construction of State Route Loop 202 from University Drive to Southern Avenue in Maricopa County. Construction on US 93 North of Wickenburg in Mohave County. Construction on Interstate 60 at 59th Avenue and Glendale Avenue in Maricopa County. Construction of State Route Loop 202 from Power Road to Elliot Road in Maricopa County. 2006 Comprehensive Annual Financial Report 12 $ $ 50,943,698 43,694,491 43,013,481 40,129,546 36,548,647 26,087,558 22,912,316 21,306,014 20,161,684 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 Non-Current Liabilities (See Note 5G to the financial statements for additional information): The Department’s non-current liabilities for its governmental and business-type activities as of June 30, 2006, amount to $2.0 billion, a decrease of $7.6 million from the previous fis cal year. Governmental Activities Highway revenue bonds Transportation excise tax revenue bonds Grant anticipation notes Premium on bonds Compensated absences Capital leases Notes payable Total Governmental Activities Business-type Activities Compensated absences Notes payable Total Business-type Activities Total Non-Current Liabilities 2006 2005 $ 1,223,425,000 325,430,000 90,852,414 12,010,473 11,129,668 195,017,589 $ 1,161,355,000 80,375,000 363,970,000 76,721,480 11,726,637 5,909,829 169,472,724 1,857,865,144 1,869,530,670 134,537 150,494,466 133,522 146,454,466 150,629,003 146,587,988 $ 2,008,494,147 $ 2,016,118,658 The revenue bonds have been sold in 38 separate issues between 1980 and 2006. All bonds outstanding as of June 30, 2006, are scheduled to mature on various dates, but not later than July 1, 2025. The bonds are obligations of the State Transportation Board and are not obligations of the State of Arizona. Of the $5.6 billion total in bonds issued between 1980 and 2006, $1.4 billion, or approximately 25 percent, have been refunding issues to lower debt service costs. These efforts have resulted in cumulative debt service savings of $82.4 million in current dollars and $60.5 million on a present value basis. The senior lien Highway User Revenue Fund (HURF) bonds have been rated AAA/Aa1 by Standard & Poor’s Ratings Services and Moody’s Investors Service, respectively. The Department’s subordinate lien HURF bonds, as a result of a rating increase on September 26, 2006, are rated AAA/Aa2. The senior lien Regional Area Road Fund (RARF) bonds are rated AA/Aa2, while the subordinate lien RARF bonds are rated A/Aa3. The Grant Anticipation Notes (GARVEE bonds) are rated AA-/Aa3/AA with the additional rating provided by Fitch Ratings. Arizona Revised Statutes, ARS 28-7678, authorized the Transportation Board to issue non-negotiable Board Funding Obligations (BFOs) for purchase by the Arizona State Treasurer. Laws 2005, Chapter 150 (HB 2123), authorized the Transportation Board to issue BFOs in the principal amount of $200 million in any fiscal year from fiscal years 2006 through 2020 and that mature no later than four calendar years after the date of issuance. The distribution of this authority is $60 million to the General Fund (State Highway Fund) and $140 million to the Highway Expansion and Extension Loan Program (HELP) Fund. The BFOs are used to help capitalize Arizona’s State Infrastructure Bank, which allows the Department and political subdivisions to apply for loans from the HELP Fund established by this legislation. In fiscal year 2006, the Department issued Highway Revenue Bonds totaling $118,250,000 to (i) finance portions of the Transportation Board’s Five-Year Transportation Facilities Construction Program, (ii) pay costs of issuing the bonds, and (iii) pay interest on any bonds issued for highway purposes. The Department also issued Highway Revenue Refunding 2006 Comprehensive Annual Financial Report 13 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2006 Bonds totaling $147,400,000 to (i) refund bonds previously issued by the Department, and (ii) pay the costs of issuing the bonds. Another bond issue of $325,000,000 of Highway Revenue Bonds was priced for sale on September 26, 2006. 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 requests for additional financial information should be addressed to the Controller, Arizona Department of Transportation, 206 S. 17th Avenue, Phoenix, Arizona, 85007 or by visiting our website at http://www.azdot.gov/Inside_ADOT/fms . 2006 Comprehensive Annual Financial Report 14 Basic Financial Statements Government-wide Financial Statements include the Statement of Net Assets and Statement of Activities and uses the accrual basis of accounting for financial reporting. Governmental Fund Financial Statements include the Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances for the major governmental funds and uses the modified accrual basis of accounting for financial reporting. Also includes the reconciliations 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 activities and uses the accrual basis of accounting for financial reporting. Statement of Fiduciary Net Assets includes the Statement of Net Assets for assets being held for parties outside of the Department. Notes to the Financial Statements Exhibit 1 Arizona Department of Transportation Statement of Net Assets June 30, 2006 Governmental Activities ASSETS Unrestricted cash on deposit with the State Treasurer $ 158,888,914 Business-type Activities $ Total 2,323,964 $ 161,212,878 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 9,464,449 1,935,512 70,212,169 8,492,521 26,758,955 148,093,509 306,366 440,520 64,806 - Due from other state agencies Internal balances 19,192,345 120,432 <19,192,345> Inventories Prepaid items Deferred charges 7,929,525 15,194,036 1,023,772 298,553 8,953,297 298,553 15,194,036 617,409,092 13,433,313,269 88,775,892 7,900 706,184,984 13,433,321,169 183,366,509 14,552,157,296 240,815 222,504,184 183,607,324 14,774,661,480 LIABILITIES Accounts payable and other current liabilities Accrued payroll and other accrued expenses 25,675,059 10,038,867 239,352 112,128 25,914,411 10,150,995 Contracts and retainage payable 63,339,691 - 63,339,691 127,684,049 5,172,161 - 3,592,236 127,684,049 5,172,161 3,592,236 154,901,003 1,702,964,141 2,089,774,971 134,537 150,494,466 154,572,719 155,035,540 1,853,458,607 2,244,347,690 11,806,376,096 248,715 11,806,624,811 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 Due to Arizona counties and cities Due to other state agencies Deferred revenues (Note 5C) Non-current liabilities (Note 5G): Due within one year Due in more than one year Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted: Loans and other financial assistance Debt service Capital projects Unrestricted Total Net Assets $ 4,161,172 462,175,446 189,669,611 12,462,382,325 $ The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 15 67,713,248 <30,498> 67,931,465 $ 157,557,958 306,366 2,376,032 70,212,169 8,557,327 26,758,955 120,432 - 67,713,248 4,161,172 462,175,446 189,639,113 12,530,313,790 Exhibit 2 Arizona Department of Transportation Statement of Activities For the fiscal year ended June 30, 2006 Program Revenues Expenses Functions/Programs Governmental Activities: Administration Aeronautics Highway Highway Maintenance Motor Vehicle Other Non-capital, including asset preservation Distributions to Arizona counties and cities Distributions to 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 $ 45,001,954 10,705,401 62,712,812 114,118,876 96,936,845 9,394,006 1,453,012 $ Charges for Services Operating Grants and Contributions Capital Grants and Contributions 1,213,726 536,955 121,178,690 7,098,819 - $ $ 439,362 33,534,175 - $ 3,898,986 379,811,558 3,903,375 - Net Revenues $ <45,001,954> <5,153,327> 350,632,921 <113,581,921> 24,241,845 1,608,188 <1,453,012> 1,187,705,392 206,903,293 36,771,014 88,278,605 1,859,981,210 4,039,993 134,068,183 33,268,105 67,241,642 387,613,919 <1,187,705,392> <206,903,293> 537,084 <88,278,605> <1,271,057,466> 8,174,700 8,011,869 - - <162,831> 4,273,429 12,448,129 $ 1,872,429,339 3,281,361 11,293,230 $ 145,361,413 67,241,642 $ 387,613,919 <992,068> <1,154,899> $ <1,272,212,365> Business-type Activities Total $ Governmental Activities Net General revenues: Transportation excise taxes Vehicle, registration, title, license and related taxes Fuel and motor carrier taxes Flight property taxes Interest on investments Gain on sale of capital assets Other Total general revenues $ <1,271,057,466> $ <1,154,899> $ <1,272,212,365> 316,491,260 1,086,086,306 770,595,788 13,685,936 28,538,190 1,265,962 9,759,576 2,226,423,018 3,517,627 3,517,627 316,491,260 1,086,086,306 770,595,788 13,685,936 32,055,817 1,265,962 9,759,576 2,229,940,645 Change in net assets Net assets - July 1 Net assets - June 30 955,365,552 11,507,016,773 $ 12,462,382,325 2,362,728 65,568,737 $ 67,931,465 957,728,280 11,572,585,510 $ 12,530,313,790 The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 16 Governmental Funds 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 monies are used for the construction of certain state highways and arterial streets within Maricopa County. Motor Vehicle Division Clearing Fund This fund accounts for the collection and disbursement of Motor Vehicle Division revenues. Highway User Revenue Fund This fund receives motor vehicle and liquid use fuel taxes and other motor vehicle related taxes and fee 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 incorporated cities, towns 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, Arizona Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes. Capital Projects Fund This fund is used to administer bond proceeds for Arizona Transportation Board Highway Revenue Bonds, Arizona Transportation Excise Tax Revenue Bonds, Grant Anticipation Notes (GARVEE bonds) and Board Funding Obligations. These monies are expended for the construction of federal, state and local highways within the state. NON-MAJOR FUNDS Other Governmental Funds are the non-major funds and are all special revenue funds. These funds can be found on Exhibit 9 and Exhibit 10. Arizona Department of Transportation Balance Sheet Governmental Funds June 30, 2006 General Fund (State Highway Fund) ASSETS Unrestricted cash on deposit with the State Treasurer Receivables: Accrued interest Interfund (Note 5E) Taxes and fees Notes and loans Other Amounts due from: U.S. Government Inventories Advance to other funds Defered charges Restricted cash on deposit with the State Treasurer Total assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Accrued payroll and other accrued expenditures Contracts and retainage payable Interfund payables (Note 5E) Amounts due to: Arizona counties and cities Other state agencies Surety and rental deposits Deferred revenue Notes payable Total liabilities Fund balances: Reserved for: Inventories Debt service Capital projects Unreserved reported in: General fund Non-major special revenue funds Total fund balances Total liabilities and fund balances $ 115,641,150 Special Revenue Funds Motor Vehicle Division Clearing Fund Maricopa Regional Area Road Construction Fund $ - $ - Highway User Revenue Fund $ - 566,377 95,336,731 105,994 5,446,076 933,177 2,131,628 535,279 496,707 16,111,592 - 100,481 17,046,322 54,100,577 - $ 23,871,290 5,004,828 20,000,000 167,779,060 433,751,506 383,075 246,209,575 $ 250,192,734 $ 8,128,423 48,823,588 73,560,310 $ 117,631,917 188,879,297 $ 3,251,732 $ $ 21,529,932 $ - $ 19,712 11,532,325 39,640,318 1,532,008 33,210 22,127,762 - 19,773,726 6,319 95,243,457 545,981 105,994 195,017,589 251,625,947 2,131,628 24,312,312 29,862,071 2,370,079 24,502 73,560,310 93,629,521 188,879,297 5,004,828 167,779,060 225,880,422 - - 9,341,671 182,125,559 433,751,506 225,880,422 $ 250,192,734 73,560,310 188,879,297 The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 17 $ $ Exhibit 3 Debt Service Fund $ Total Non-Major Governmental Funds (See Exhibit 9) Capital Projects Fund - - $38,091,209 162,595 - 80,768 - 80,986 2,864,160 7,226,827 2,511,166 1,924,384 115,743,920 70,212,169 9,464,449 8,492,521 1,996,797 $ 2,159,392 $ 20,362,797 20,443,565 2,504,590 14,605,358 $67,884,296 $ 26,758,955 5,004,828 20,000,000 8,128,423 617,409,092 1,036,871,100 $ $ - $ $ 24,871,013 - $ Total Governmental Funds 69,637 $ 153,732,359 - - 212,064 1,571,611 - 11,783,918 63,339,691 116,549,191 - - 4,192,457 2,802,082 7,226,827 16,074,678 127,684,049 5,172,161 570,483 9,464,449 195,017,589 554,452,544 2,159,392 - 20,443,565 11,911,956 5,004,828 2,159,392 426,015,003 2,159,392 $ 2,159,392 20,443,565 20,443,565 39,897,662 51,809,618 $67,884,296 9,341,671 39,897,662 482,418,556 1,036,871,100 $ $ 2006 Comprehensive Annual Financial Report 18 Exhibit 3.1 Arizona Department of Transportation Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2006 Total fund balances - governmental funds (Exhibit 3) $ Amounts reported for governmental activities in the Statement of Net Assets (Exhibit 1) are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds (Note 4 B). 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 4 B). Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds (Note 4 B). Net assets of governmental activities (Exhibit 1) 482,418,556 13,563,298,011 48,981,373 9,464,449 <1,641,780,064> $ 12,462,382,325 The notes to the financial statements are an integral part of this statement. 2006 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, 2006 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 and cities Distributions from other state agencies Interest on loans receivable Interest on investments Flight property taxes Grand Canyon National Park Airport Rental income Other Total revenues Expenditures: Current: Transportation - appropriated by State legislature: Administration Aeronautics Highway Highway maintenance Motor Vehicle Other Total Transportation - appropriated by State legislature $ Maricopa Regional Area Road Construction Fund Special Revenue Funds Motor Vehicle Division Clearing Fund - $ 316,491,260 287,084,563 346,796,689 - 592,605,176 6,696,951 313,319,661 383,142,571 290,101,626 32,044,310 1,623,093 1,489,865 492,472 11,769,174 1,451,389 2,691,120 975,544,301 25,163,613 7,903,332 102,242 8,392,507 250,305 2,184,988 360,488,247 599,302,127 1,971,495 1,548,966 699,982,693 43,372,484 69,290,598 111,378,239 91,107,545 448,625 - - - 315,597,491 - - - The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 20 $ - $ Highway User Revenue Fund - Exhibit 4 Debt Service Fund $ Total Non-Major Governmental Funds (See Exhibit 10) Capital Projects Fund - $ - $ Total Governmental Funds - $ 316,491,260 - - 14,255,596 33,959,577 1,207,264,996 770,595,788 2,342,183 2,342,183 2,809,176 2,809,176 92,626,348 4,039,993 144,143 1,066,088 13,685,936 1,213,726 64,632 161,056,039 407,891,587 32,044,310 13,566,418 1,489,865 738,857 28,350,623 13,685,936 1,213,726 1,701,694 6,489,706 2,801,524,766 50,340 65,888 10,470,243 36,771,014 4,090,069 1,744,609 43,372,484 10,470,243 106,061,612 111,378,239 95,197,614 2,309,462 50,340 65,888 53,075,935 368,789,654 (continued) 2006 Comprehensive Annual Financial Report 21 Arizona Department of Transportation Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the fiscal year ended June 30, 2006 Maricopa Regional Area Road Construction Fund General Fund (State Highway Fund) Intergovernmental: Distributions to Arizona counties and cities Distributions to other state agencies Debt service: Principal Interest Bond issuance costs Interest on notes payable Non-capital, including asset preservation Capital outlay Total expenditures $ Excess of revenues over expenditures Other financing sources : Transfers in Transfers out for debt service Transfers out other Sale of capital assets Insurance recovery Debt issuance Debt issuance - refunding Premium from debt issuance Payment to refunded bond escrow agent Total other financing sources Net change in fund balances Fund balances - July 1 Fund balances - June 30 $ 44,830,478 $ Special Revenue Funds Motor Vehicle Division Clearing Fund Highway User Revenue Fund 7,877,139 - $ 543,912,513 55,389,614 $ 626,067,461 73,915,232 2,747,657 252,305,255 298,215,527 913,696,408 14,181,006 167,062,614 189,120,759 599,302,127 699,982,693 61,847,893 171,367,488 - - 10,129,858 <115,421,032> <15,010> 1,504,764 536,955 <103,264,465> 192,017 <81,449,977> <7,657,919> 9,613,420 <79,302,459> - - - - <41,416,572> 92,065,029 223,542,131 133,815,393 182,125,559 $ 225,880,422 The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 22 $ $ Exhibit 4 Debt Service Fund $ Total Non-Major Governmental Funds (See Exhibit 10) Capital Projects Fund - $ - $ Total Governmental Funds 13,105,120 32,767,969 $ 1,190,962,233 206,903,293 173,745,000 80,268,663 568,788 254,632,791 682,797 39,684,119 198,037,606 238,470,410 98,949,024 173,745,000 80,268,663 1,251,585 2,747,657 306,170,380 663,315,747 2,994,154,212 <252,290,608> <235,661,234> 62,107,015 <192,629,446> 251,890,903 <359,614> 147,400,000 14,956,636 <161,726,134> 252,161,791 <2,216,257> 118,250,000 7,449,892 123,483,635 3,013 <55,019,894> <76,088> <55,092,969> 262,215,791 <251,890,903> <10,324,888> 11,118,184 536,955 118,250,000 147,400,000 22,406,528 <161,726,134> 137,985,533 $ <128,817> <112,177,599> 2,288,209 132,621,164 2,159,392 $ 20,443,565 $ 7,014,046 44,795,572 51,809,618 <54,643,913> 537,062,469 $ 482,418,556 2006 Comprehensive Annual Financial Report 23 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, 2006 Net change in fund balances - total governmental funds (Exhibit 4) 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 4 C). 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 4 C). 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 4 C). 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 4 C). 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 (Note 4 C). Change in net assets of governmental activities (Exhibit 2) The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 24 $ <54,643,913> 958,393,237 <288,056,528> 331,460,434 2,990,018 5,222,304 $ 955,365,552 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 designated to provide loan and credit enhancement assistance to the Department and to sponsors of local transportation projects. NON-MAJOR FUND 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. Exhibit 5 Arizona Department of Transportation Statement of Net Assets Proprietary Funds June 30, 2006 Business-type Activities - Enterprise Funds 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 Interfund receivables (Note 5E) Due from Arizona counties and cities Inventories Prepaid items Total current assets 88,775,892 Arizona Highways Magazine Fund $ 2,323,964 - Total $ 2,323,964 88,775,892 Governmental Activities Internal Service Fund $ 5,156,555 - 430,840 39,086,414 805,271 120,432 129,218,849 306,366 9,680 64,806 1,023,772 298,553 4,027,141 306,366 440,520 39,086,414 64,806 805,271 120,432 1,023,772 298,553 133,245,990 11,128 2,924,697 8,092,380 Non-current assets: Prepaid items Loans receivable Capital assets not subject to depreciation Capital assets subject to depreciation, net of accumulated depreciation Total noncurrent assets Total assets 109,007,095 - 7,900 109,007,095 7,900 - 109,007,095 238,225,944 240,815 248,715 4,275,856 240,815 109,255,810 242,501,800 53,381,767 53,381,767 61,474,147 LIABILITIES Current liabilities: Accounts payable Accrued payroll and other accrued expenses Interfund payables (Note 5 E) Compensated absences Deferred revenue Notes payable Total current liabilities 5,209 13,021 18,230 239,352 106,919 121,516 3,592,236 4,060,023 239,352 112,128 134,537 3,592,236 4,078,253 233,562 1,129,544 2,578,846 3,941,952 20,000,000 150,494,466 170,494,466 170,512,696 4,060,023 20,000,000 150,494,466 170,494,466 174,572,719 8,550,822 8,550,822 12,492,774 Non-current liabilities: Advance from other funds Notes payable Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for loans and other financial assistance Unrestricted Total net assets $ 67,713,248 67,713,248 $ 248,715 <32,882> 215,833 248,715 67,713,248 <32,882> 67,929,081 $ Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Net assets of business-type activities $ The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 25 2,384 67,931,465 42,252,099 6,729,274 48,981,373 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, 2006 Business-type Activities - Enterprise Funds Highway Expansion and Extension Loan Program Fund Operating revenues: Sales and charges for services (net of write off $67,658) Interest on loans receivables Other Total operating revenues $ Operating expenses: Publication and promotional cost Repair and maintenance Fuel and lubricants Salaries and related benefits Shipping and postage Supplies Equipment purchase and rental Professional and outside services Insurance Travel Interest on notes payable Depreciation Other Total operating expenses Operating income Non-operating revenues : Interest on investments Gain/ on sale/disposal of capital assets Total non-operating revenues 3,281,361 3,281,361 $ Total 7,578,575 433,294 8,011,869 $ 7,578,575 3,281,361 433,294 11,293,230 $ 37,790,010 626,177 38,416,187 3,562,100 110,259 2,364,696 1,175,597 104,303 23,751 443,576 6,831 256,316 124,115 8,171,544 3,562,100 110,259 2,498,474 1,175,597 105,265 23,751 539,845 7,498 4,040,000 256,316 125,868 12,444,973 4,894,865 11,196,294 12,583,642 330,107 217,979 222,490 605,300 101,882 355,898 8,012,884 1,195,603 39,716,944 <992,068> <159,675> <1,151,743> <1,300,757> 3,432,020 - 85,607 <2,091> 3,517,627 <2,091> 187,567 198,768 3,432,020 83,516 3,515,536 386,335 - - - 3,903,375 2,363,793 2,988,953 45,992,420 $ 48,981,373 2,439,952 65,273,296 $ 67,713,248 $ <76,159> 291,992 215,833 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net assets of business-type activities $ The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 26 Governmental Activities Internal Service Fund 133,778 962 96,269 667 4,040,000 1,753 4,273,429 Capital contributions Changes in net assets Total net assets - July 1 Total net assets - June 30 Arizona Highways Magazine Fund <1,065> 2,362,728 Exhibit 7 Arizona Department of Transportation Statement of Cash Flows Proprietary Funds For the fiscal year ended June 30, 2006 Business-type Activities - Enterprise Funds Highway Expansion and Extension Loan Program Fund Arizona Highways Magazine Fund Total Governmental Activities Internal Service Fund Cash flows from operating activities: Receipts from customers Receipts from other funds Receipts from other agencies Payments to suppliers Payments to employees Payments to other funds Payments to other agencies Other receipts Net cash provided by operating activities $ 7,090,026 $ 7,687,204 $ 14,777,230 $ 7,033,735 40,050 7,073,785 30,694,691 12,157,669 12,157,669 7,095,319 <30,515> <5,318,051> <5,348,566> <19,061,912> <130,645> <2,366,178> <2,496,823> <12,542,283> <31,018,600> <31,018,600> <4,902,716> <4,902,716> <1,753> 428,817 427,064 626,096 471,842 <9,330,957> 6,811,911 <9,802,799> Cash flows from capital and related financing activities: Proceeds from sale of capital assets Acquisition of capital assets Net cash capital and related financing activities - Cash flows from investing activities: Interest on investments Net cash provided by investing activities 3,273,607 3,273,607 Net increase in cash Cash - July 1 Cash - June 30 <7,650> <7,650> 85,607 85,607 <6,529,192> 549,799 95,305,084 1,774,165 $ 88,775,892 $ 2,323,964 Reconciliation of operating income to net cash provided by operating activities: Operating income Adjustment to reconcile operating income to net cash provided by operating activities: Depreciation Net changes in assets and liabilities: Receivables Due from other Arizona Department of Transportation funds Due from Arizona counties and cities $ <992,068> $ Inventories Prepaid items Accounts payable Accrued payroll and other accrued expenses Compensated absences Notes payable Deferred revenue Net cash provided by operating activities 899 2,901 4,040,000 $ <9,802,799> $ Noncash capital and financing activities: Certain vehicles were contributed to the Equipment Fund by the General Fund totaling $3,903,375. The Equipment Fund obtained heavy equipment vehicles totaling $5,219,839 through a capital lease. The notes to the financial statements are an integral part of this statement. 2006 Comprehensive Annual Financial Report 27 3,359,214 3,359,214 748,325 <6,152,579> <5,404,254> 187,567 187,567 <5,979,393> 1,595,224 97,079,249 3,561,331 $ 91,099,856 $ 5,156,555 <159,675> $ <1,151,743> $<1,300,757> 256,316 <16,663,196> 3,725,939 82,726 <7,650> <7,650> 124,209 <3,765> - 256,316 <16,538,987> 3,722,174 82,726 8,012,884 <81> - 113,349 113,349 <127,606> <7,575> <7,575> 126,708 126,708 84,230 404 1,303 712,434 <1,886> 1,015 <569,193> 4,040,000 23,757 23,757 471,842 $ <9,330,957> $ 6,811,911 Fiduciary Fund Financial Statements Agency Funds Combining Statement of Net Assets Statement of Changes in Assets and Liabilities AGENCY FUNDS Highway Properties - Privilege Tax Fund This fund collects monies from renters of properties previously acquired by the Department for use in future highway development. 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. Exhibit 8 Arizona Department of Transportation Statement of Net Assets Agency Funds June 30, 2006 ASSETS Restricted cash on deposit with the State Treasurer Total assets LIABILITIES Due to Department of Revenue Due to Arizona counties Total liabilities $ $ 192,644 192,644 $ 148 192,496 192,644 $ The notes to the financial statements are an integral part of this statement. 2006 Comprehsive Annual Financial Report 28 Notes to Financial Statements Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2006 Index Notes to the Financial Statements Page Note 1 – Summary of Significant Accounting Policies ...........................................................................................................30 A – Reporting Entity............................................................................................................................................................30 B – Government-wide and Fund Financial Statements..................................................................................................30 C – Measurement Focus, Basis of Accounting, and Financial Statement Presentation ...........................................31 D – Assets, Liabilities, and Net Assets/Fund Balance ...................................................................................................33 E – Revenues and Expenditures/Expenses.......................................................................................................................36 F – Interfund Activity and Balances .................................................................................................................................37 Note 2 – Funds by Classification.................................................................................................................................................37 Note 3 – Budgeting, Budgetary Control, and Legal Compliance ..........................................................................................38 Note 4 – Accounting Pronouncements and Reconciliation of Government-wide and Fund Financial Statements ......38 A – New Accounting Pronouncements.............................................................................................................................38 B – Explanations of Reconciling Items of the Balance Sheet of Governmental Fund to the Statement of Net Assets ..........................................................................................................................................39 C – Explanations of Reconciling Items of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Fund to Statement of Activities...............................................40 Note 5 – Detailed Notes on all Funds.........................................................................................................................................42 A – Capital Assets................................................................................................................................................................42 B – Construction Commitments.........................................................................................................................................43 C – Deferred Revenues........................................................................................................................................................43 D – Securities Held in Lieu of Retention .........................................................................................................................44 E – Interfund Receivables, Payables, Advances and Transfers....................................................................................44 F – Leases ..............................................................................................................................................................................45 G – Non-Current Liabilities ................................................................................................................................................46 H – Short-term Debt.............................................................................................................................................................50 I – Fund Balances .................................................................................................................................................................50 Note 6 – Other Information ..........................................................................................................................................................51 A – Subsequent Events........................................................................................................................................................51 B – Contingent Liabilities ...................................................................................................................................................51 C – Retirement Plan .............................................................................................................................................................52 2006 Comprehensive Annual Financial Report 29 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of the Arizona Department of Transportation (Department) conform in all material respects to accounting principles generally accepted in the United States of America (GAAP) as applicable to governments. The Governmental Accounting Standards Board (GASB) is the primary 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. A. 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. B. 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 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 consist 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 by management or the Transportation Board. 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 2006 Comprehensive Annual Financial Report 30 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 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 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 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. C. 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 enterprise funds follow GASB pronouncements and those Financial Accounting Standard Board Statements (FASB) 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. The enterprise funds do not follow any FASB Statements and Interpretations issued after November 30, 1989. 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 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 judgments, 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 and arterial streets 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. 2006 Comprehensive Annual Financial Report 31 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 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 incorporated 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 the Highway Properties – 24% Lieu Tax (neither are included in the government-wide statements). 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. 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 non-operating 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 non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, the Department generally expends the restricted resources first, and then unrestricted resources, as they are needed to maintain appropriate cash balances and finance the construction program. 2006 Comprehensive Annual Financial Report 32 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 D. Assets, Liabilities, and Net Assets/Fund Balance Deposits and Investments The Department’s cash includes 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, obligations of the U.S. Government or other permitted investments. All investments are carried at fair value. These balances are not subject to GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements, and GASB Statement No. 40, Deposit and Investment Risk Disclosures – an amendment of GASB Statement No. 3, classification because they are included in the state’s investment pool. The investment pool is not required to register (and is not registered) with the Securities and Exchange Commission under the 1940 Investment Advisors Act. The activity and performance of the pool is reviewed monthly by the State Board of Investment in accordance with ARS §35-311. The fair value of investments is measured on a monthly basis. Participant shares are purchased and sold based on the Net Asset Value (NAV) of the shares. The NAV is determined by dividing the fair value of the portfolio by the total shares outstanding. The State Treasurer does not contract with an outside insurer in order to guarantee the value of the portfolio or the price of shares redeemed. As of June 30, 2006, the state’s investment pools were not rated. 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. The Department has restricted cash for payment of capital projects for Maricopa and Pima counties, for future debt service payments, and for loan repayment to the HELP fund. Receivables, Payables and Advances Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fis cal year are referred to as interfund receivables/payables. All other outstanding balances between U.S. Government, Arizona counties and 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 applicable governmental funds 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 recoverable insurance claims net of allowance for doubtful accounts. The subscriptions receivable allowance for doubtful accounts is equal to outstanding subscription payments past due more than 90 days. 2006 Comprehensive Annual Financial Report 33 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 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 moving average method. This inventory is accounted for using the consumption method. Under this method, inventories are recorded as expenditures as they are used. The fund financial statement shows a reservation for inventory for the like amount indicating it does not constitute available expendable resources. No reservation of net assets is shown in the government-wide statements for inventories. The business-type activities’ inventories are stated at the lower of cost or market. Costs of enterprise 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 Expansion and Extension 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 (State Highway Fund) from the Highway User Revenue Fund for the design, purchase of right-of-way or construction of controlledaccess 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. Bond proceeds are deposited in the capital projects fund and are restricted for acquisitions of rightof-way and construction of federal, state and local highways. The Department has restricted cash for payment of capital projects for Maricopa and Pima counties, for future debt service payments, and for loan repayment to the HELP fund. 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. Purchased capital assets are recorded at historical cost or estimated historical cost if historical cost is not available. Donated capital assets are recorded at estimated fair 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. Asset preservation costs are expensed as incurred. 2006 Comprehensive Annual Financial Report 34 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 The Department depreciates non-infrastructure capital assets on a straight-line basis using the following estimated useful lives. Modular buildings are included on the Statement of Net 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 was 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 consist of roads and bridges and are presented using the modified approach and, therefore, are not depreciated. In order to utilize the modified approach, the Department is required to: 1) maintain an asset management system that includes an up to date inventory of eligible infrastructure assets, 2) perform condition assessments of eligible assets and summarize the results using a measurement scale, 3) estimate each year the annual amount to maintain and preserve the assets at the condition level established and disclosed by the Department, and 4) document that the assets are being preserved approximately at or above the established condition level. 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 recognized. In the governmental funds, 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 government-wide statements, the deferred revenues relate to unearned subscription revenue for the Arizona Highways Magazine. Unearned subscription revenue is recorded when subscription orders are received and is amortized as revenue 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 revenue represents 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 as well as compensatory time. There is no liability for unpaid accumulated sick leave for the Department. All vacation pay and compensatory time 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. 2006 Comprehensive Annual Financial Report 35 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 Employees are allowed to accumulate up to 240 hours of vacation leave (320 hours for uncovered employees) and up to 240 hours of compensatory time which is paid when vacation or compensatory time is taken or upon termination of employment at the individual’s then current rate of pay. The liabilities for vacation and compensatory time outstanding as of June 30 for both the governmental and proprietary funds 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. Prior to 2006 bond premiums and discounts were deferred and amortized over the life of the bonds using the straightline method, which approximates the effective interest method. Beginning in 2006, bond premiums and discounts are deferred and amortized using the effective interest 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. Net Assets/Fund Balance The difference between assets and liabilities is “Net Assets” on the government-wide and proprietary statements and “Fund Balance” on the governmental fund statements. Reservations 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. E. 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 revenue includes 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 and cities, and Distributions to other state agencies, Debt service, Capital outlay, etc.). The Distributions to Arizona counties and cities and Distributions to 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 are sub-classified 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 nonoperating. 2006 Comprehensive Annual Financial Report 36 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 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 issuance, sale of capital assets, capital leases, insurance recovery and transfers from other funds. Other financing uses are reductions of governmental fund resources in fund financial statements normally resulting from transfers to other funds. F. Interfund Activity and Balances Interfund Activi ty 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 gain or 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. 2. FUNDS BY CLASSIFICATION The following table lists all of the funds whose balances are reflected in this financial report. MAJOR FUNDS Governmental Funds : General Fund (State Highway 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 Motorcycle Safety Education Fund Underground Storage Tank Fund Economic Strength Project 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 Highways Magazine Fund Highway Expansion and Extension Loan Program Fund FIDUCIARY FUNDS Agency Funds: Highway Properties - Privilege Tax Fund Highway Properties - 24% Lieu Tax Fund 2006 Comprehensive Annual Financial Report 37 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 3. BUDGETING, BUDGETARY CONTROL, AND LEGAL COMPLIANCE Annual budgets for the operating expenditures and capital outlay including land, building and improvements for the General Fund (State Highway Fund and State Aviation Fund) are submitted to the Governor in accordance with state law. The budgets are legally enacted as appropriations after approval by the state legislature and signature by the Governor. The legal level of control for operating expenditures 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 all 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, employeerelated expenses, and other operating expenditures is an internal decision for the program manager. Accordingly, transfers between line items such as personal services and other operating expenditures within a particular program may be made by the program manager. Transfers of funds between programs require the approval of the Director of the Department of Administration. 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 unless exempted by the legislature. The capital outlay appropriation includes state highway construction and land, buildings and improvements for the General Fund (State Highway Fund). A legal limitation is adopted for land, buildings and improvements; however, legislation allows the Department to spend in excess of its appropriation for state highway construction up to the current fund balance. 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. 4. ACCOUNTING PRONOUNCEMENTS AND RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. New Accounting Pronouncements Statement No. 44, Economic Condition Reporting: The Statistical Section, an amendment of NCGA Statement 1, issued May 2004 This Statement amends the portions of NCGA Statement 1, Governmental Accounting and Financial Reporting Principles, that guide the preparation of the statis tical section. The statistical section presents detailed information, typically in ten-year trends, that assists users in utilizing the basic financial statements, notes to basic financial statements, and required supplementary information to assess the economic condition of a government. This Statement applies to any statistical section that accompanies a government’s basic financial statements. The provisions of this Statement are effective for statistical sections for periods beginning after June 15, 2005. The Department has implemented this Statement. 2006 Comprehensive Annual Financial Report 38 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 Statement No. 46, Net Assets Restricted by Enabling Legislation In December 2004, GASB issued Statement No. 46. This Statement requires that limitations on the use of net assets imposed by legislation be reported as restricted net assets. The Statement clarifies that a legally enforceable enabling legislation restriction is one that a party external to a government – such as citizens, public interest groups, or the judiciary – can compel a government to honor. This Statement also specifies the accounting and financial reporting requirements if new enabling legislation replaces existing enabling legislation or if legal enforceability is reevaluated. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2005. The Department has implemented this Statement. Statement No. 47, Accounting for Termination Benefits This Statement was issued in June 2005. The Statement requires employers to disclose a description of the termination benefit arrangement, the cost of the termination benefits (required in the period in which the employer becomes obligated if that information is not otherwise identifiable from information displayed on the face of the financial statements), and significant methods and assumptions used to determine termination benefit liabilities. The requirements of the Statement are effective for financial statements for periods beginning after June 15, 2005. Earlier application is encouraged. The Department has implemented this Statement but does not have any current benefits that are covered by this Statement. B. Explanations of Reconciling Items of the Balance Sheet of Governmental Funds to the Statement of Net Assets The governmental funds balance sheet includes a reconciliation between fund balance – total governmental funds and net assets – government activities as reported on the government-wide Statement of Net 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 not subject to depreciation $ 13,433,313,269 Capital assets subject to depreciation 183,366,509 13,616,679,778 <53,381,767> less Internal Service Fund (Equipment Fund) assets $ 13,563,298,011 2. Deferred revenues for assets shown in fund statements for the following funds: General Fund (State Highway Fund) Maricopa Regional Area Road Construction Fund State Aviation Fund $ 105,994 2,131,628 7,226,827 $ 9,464,449 2006 Comprehensive Annual Financial Report 39 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 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 difference is as follows: Bonds payable $<1,639,707,414> Deferred charges - bond issuance costs Compensated absences Business activity share of Equipment Fund gain 7,065,613 <9,135,879> <2,384> $<1,641,780,064> C. Explanations of Reconciling Items of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities The governmental funds 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: 1. Governmental funds report capital outlay as expenditures. However, in the Statement of Activities, these costs are removed; some costs are capitalized as assets while other costs are expensed as follows: Capital outlay Non-capital, including asset preservation Adjustment to infrastructure $ 663,315,747 306,170,380 <3,795,232> Less depreciation expense <7,297,658> $ 958,393,237 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 bond 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 difference are as follows: Debt issued or incurred: Issuance of Highway Revenue Bonds Issuance of GARVEE Bonds (Grant Anticipation Notes) Premium on bonds $<265,650,000> <22,406,528> <288,056,528> Principal repayments: Highway Revenue Bonds 203,580,000 Transportation Excise Tax Revenue Bonds GARVEE Bonds (Grant Anticipation Notes) 80,375,000 38,540,000 Amortization of premium and discount Amortization of bond issuance costs 8,275,594 689,840 331,460,434 $ 2006 Comprehensive Annual Financial Report 40 43,403,906 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 3. The Internal Service Fund is used by the Department to charge the cost for purchases and maintenance of equipment and material to be used by other funds and state agencies. The gain in the Internal Service Fund represents over -billing and must be eliminated from the government-wide Statement of Activities for the business activity. Internal Service Fund (Equipment Fund): Changes in net assets Business activity share of Equipment Fund loss $ $ 4. 2,988,953 1,065 2,990,018 Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore, are not reported as expenditures in the governmental funds. The details are as follows: Sales/disposals of capital assets Notes & loans Compensated absences $ 1,568,226 3,878,280 <224,202> $ 5,222,304 2006 Comprehensive Annual Financial Report 41 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 5. DETAILED NOTES ON ALL FUNDS A. Capital Assets Capital assets activity for the year ended June 30, 2006, was as follows: July 1, 2005 Beginning Balance Governmental Activities Capital Assets, not being depreciated: Land Infrastructure Construction in progress Total Capital Assets, not being depreciated $ Capital Assets, being depreciated: Buildings and improvements Improvements other than buildings Machinery and equipment Mobile Fleet and aircraft Total Capital Assets, being depreciated $ <10,863,916> $ 2,118,364,685 <48,151> 9,379,755,220 <389,868,955> 1,935,193,364 <400,781,022> 13,433,313,269 <370,462> <12,732,909> <1,674,350> <6,243,032> <21,020,753> 149,209,322 22,423,500 54,229,404 134,242,522 360,104,748 <54,802,857> <2,202,356> <32,157,317> <78,543,534> <167,706,064> <3,327,040> <344,540> <3,751,627> <7,887,335> <15,310,542> 1,411,155 4,867,212 6,278,367 <58,129,897> <2,546,896> <34,497,789> <81,563,657> <176,738,239> 187,139,116 10,969,779 <14,742,386> 183,366,509 $ 12,650,161,504 $ 1,382,041,682 July 1, 2005 Beginning Balance Business-Type Activities $ 7,900 $ 491,574 $ 499,474 $ - $ - $ 7,900 <20,914> <20,914> 981,157 2,352,439 3,333,596 <40,200> <216,117> <256,317> 18,822 18,822 <777,206> <2,315,575> <3,092,781> <248,667> <2,092> 240,815 <248,667> $ <2,092> $ 248,715 2006 Comprehensive Annual Financial Report 42 June 30, 2006 Ending Balance Decreases 7,650 7,650 <737,006> <2,118,280> <2,855,286> Total Capital Assets, being depreciated, net $ <415,523,408> $ 13,616,679,778 Increases 981,157 2,365,703 3,346,860 Less accumulated depreciation for: Buildings and improvements Machinery and equipment Total accumulated depreciation Business type activities capital assets, net 253,458,115 516,175,679 601,438,109 1,371,071,903 2,872,302 424,153 6,964,430 16,019,436 26,280,321 Total Capital Assets, being depreciated, net Capital Assets, not being depreciated: Land Capital Assets, being depreciated: Buildings and improvements Machinery and equipment Total Capital Assets, being depreciated $ Decreases 146,707,482 34,732,256 48,939,324 124,466,118 354,845,180 Less accumulated depreciation for: Buildings and improvements Improvements other than buildings Machinery and equipment Mobile Fleet and aircraft Total accumulated depreciation Governmental activities capital assets, net 1,875,770,486 8,863,627,692 1,723,624,210 12,463,022,388 Increases June 30, 2006 Ending Balance Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 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 1,546,810 236,734 2,346,166 1,583,567 1,584,381 $ 8,012,884 15,310,542 $ 256,317 B. Construction Commitments The Department’s outstanding commitments for contracts at June 30, 2006, were $692,381,228. Expenditures To Date Construction Contracts: Rural Roadways Small Urban Roadways Urban Roadways Large Urban Roadways Sub-total Design Contracts Other Commitments Total $ 226,503,209 34,185,168 59,020,526 577,072,330 896,781,233 978,734,859 162,889,433 $ 2,038,405,525 Remaining Commitment $ 73,313,274 26,542,473 58,653,063 299,490,749 457,999,559 111,961,393 122,420,276 $ 692,381,228 C. 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, 2006: Governmental Funds: General Fund (State Highway Fund) Maricopa Regional Area Road Construction Fund State Aviation Fund Proprietary Fund: Arizona Highways Magazine Fund 2006 Comprehensive Annual Financial Report 43 $ 105,994 2,131,628 7,226,827 $ 9,464,449 $ 3,592,236 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 D. 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. At June 30, 2006, the bank held assignment on securities aggregating approximately $19 million in lieu of contractor retentions for construction. These additional securities are not reflected in the accompanying financial statements. E. Interfund Receivables, Payables, Advances and Transfers The balances of current interfund receivables and payables as of June 30, 2006, were: Receivables Governmental activities: General Fund (State Highway Fund) Payables Motor Vehicle Division Clearing Fund Highway User Revenue Fund Non-major governmental funds Business-type activities: Highway Expansion and Extension Loan Program Fund Amount Highway User Revenue Fund Motor Vehicle Division Clearing Fund General Fund (State Highway Fund) Motor Vehicle Division Clearing Fund General Fund (State Highway Fund) Motor Vehicle Division Clearing Fund $ 95,243,457 93,275 496,707 16,816,291 230,030 2,864,160 115,743,920 General Fund (State Highway Fund) 805,271 805,271 $ 116,549,191 The General Fund receivable of $95,243,457 is an accrual for fuel tax revenues imposed in fiscal year 2006 from the Highway User Revenue Fund that will be collected in fiscal year 2007. The Highway User Revenue Fund receivable of $16,816,291 is an accrual for vehicle license taxes due in fiscal year 2006 from the Motor Vehicle Division Clearing Fund that will be collected in fiscal year 2007. In a prior fiscal year, the General Fund advanced $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. 2006 Comprehensive Annual Financial Report 44 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 Interfund transfers for the year ended June 30, 2006, consisted of the following: Interfund Transfer In: General Fund (State Highway Fund) Interfund Transfer Out: General Fund (State Highway Fund) Capital Projects Fund Debt Service Fund Maricopa Regional Area Road Construction Fund Non-Major Governmental Funds Total $ 2,215,600 180,251 7,657,919 76,088 $ 10,129,858 Maricopa Regional Area Road Construction Fund $ $ Debt Service Fund 11,997 657 179,363 $ 115,421,032 - 192,017 81,449,977 55,019,894 $ 251,890,903 Non-Major Governmental Funds $ $ Total 3,013 - $115,436,042 2,216,257 359,614 3,013 89,107,896 55,095,982 $262,215,791 The General Fund (State Highway Fund) ($115,421,032), the Maricopa Regional Area Road Construction Fund ($81,449,977) and Other Governmental Funds - Grant Anticipation Notes Fund ($55,019,894) made transfers to the Debt Service Fund to pay bond debt service. F. 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, 2006, approximated $2,737,000. 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 lease contains a three year option period which the Department has exercised. The future operating lease commitments are as follows: Year ending June 30 2007 2008 2009 2010 Future operating lease commitments Amount $ 818,150 859,058 899,965 940,873 $ 3,518,046 2006 Comprehensive Annual Financial Report 45 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 In fiscal year 2003, the Department entered into a long-term lease to build a structure to house lab facilities in Gilbert, Arizona. The future operating lease commitments are as follows: Year ending June 30 Amount 2007 2008 2009 2010 2011 2012 -2013 101,820 105,489 117,324 120,660 124,095 225,393 Future operating lease commitments $ 794,781 Capital Leases The Department has entered into lease agreements as lessee for financing the acquisition of various vehicles and 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 Total $ 13,422,677 <894,150> $ 12,528,527 The future minimum lease obligations and the net present value of these minimums lease payments as of June 30, 2006, were as follows: Governmental Year Ending June 30 Activities 2007 2008 2009 2010 2011 2,934,742 2,934,742 2,934,742 2,682,886 498,099 Total minimum lease payments Less amount representing interest Present value of minimum lease payments 11,985,211 <855,543> $ 11,129,668 G. Non-Current Liabilities Arizona Transportation Board Highway Revenue Bonds The Transportation Board has issued Senior and Subordinate Lien Highway Revenue Bonds to provide funds for acquisition of right-of-way, design and construction of federal and state highways. The original amount of Highway Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $1,161,355,000. During the year, Highway Revenue Bonds totaling $265,650,000 were issued to (i) finance portions of the Transportation Board’s Five-Year Transportation Facilities Construction Program, (ii) pay interest on any bonds issued for highway purposes, 2006 Comprehensive Annual Financial Report 46 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 (iii) pay costs of issuing the bonds, and (iv) refund portions of the Board’s outstanding Senior Series 1999 Bonds ($13,985,000), Senior Series 2001 Bonds ($86,170,000) and Senior Series 2002 B Bonds ($48,595,000). 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 (State Highway Fund). Arizona Revised Statutes restrict the total principal amount of Arizona Highway Revenue Bonds that may be outstanding at any time, excluding refunded bonds, from exceeding $1.3 billion. Highway Revenue Bonds currently outstanding are as follows: Purpose Govermental activities Govermental activities - refunding Interest Rates Amount 3.8% - 5.5 % 3.4% - 6.0% $ 789,380,000 434,045,000 $ 1,223,425,000 Annual debt service requirements to maturity for Highway Revenue Bonds are as follows: Fiscal year ending Highway Revenue Bonds June 30 Principal Interest 2007 2008 2009 2010 2011 2012-2016 2017-2021 2022-2025 $ 57,825,000 60,645,000 64,190,000 68,140,000 71,770,000 349,985,000 394,245,000 156,625,000 $62,197,778 59,432,004 56,087,862 52,884,962 49,183,931 193,227,123 97,711,831 14,900,788 $1,223,425,000 $585,626,279 Arizona Transportation Board Transportation Excise Tax Revenue Bonds The Maricopa County Regional Area Road Bond Fund is used to record all payments of principal and interest for Transportation Excise Tax Revenue Bonds issued by the Transportation Board. These 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 $80,375,000. 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 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 were noncancelable and insured payment, up to the policy amount, of the bond interest on their respective payment dates. The policies terminated on the earlier of July 1, 2005, or the date when no respective bonds were outstanding under the Bond Resolution. The premiums on these insurance policies were recorded as expenditures in the year of payment. 2006 Comprehensive Annual Financial Report 47 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 All Transportation Excise Tax Revenue Bonds matured no later than December 15, 2005. There are no Transportation Excise Tax Revenue Bonds currently outstanding. Arizona Transportation Board Grant Anticipation Notes (GARVEE bonds) 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 grant agreements and certain other federal-aid revenues. The original amount of Grant Anticipation Notes (GARVEE bonds – Grant Anticipation Revenue Vehicles) issued in prior years and outstanding at the start of the fiscal year was $363,970,000. Grant Anticipation Notes (GARVEE bonds) currently outstanding are as follows: Purpose Govermental activities Interest Rates Amount 2.5% - 5.25% $ 325,430,000 Annual debt service requirements to maturity for Grant Anticipation Notes (GARVEE bonds) are as follows: Fiscal year ending June 30 2007 2008 2009 2010 2011 2012-2016 GARVEE Bonds (Grant Anticipation Notes) Principal Interest $ 42,570,000 36,565,000 29,990,000 31,350,000 32,785,000 152,170,000 $ 14,578,218 13,299,868 11,831,556 10,467,556 9,033,982 20,075,482 $325,430,000 $ 79,286,662 Notes Payable The Department’s outstanding notes payable as of June 30, 2006, was $345,512,055. The governmental activities notes payable was $195,017,589 and business-type activities was $150,494,466. The notes payable represent the General Fund (State Highway Fund) loan payable to HELP for $130,500,000 and the Board Funding Obligations (BFO) for loans from the State Treasurer for $215,012,055 (principal of $200,000,000 and accrued interest of $15,012,055). Annual debt service requirements to maturity for notes payable are as follows: Fiscal year ending June 30 2007 2008 2009 Governmental Activities Principal $ 31,600,000 125,000,000 33,900,000 $190,500,000 Interest $ 3,182,048 7,443,201 264,604 $ 10,889,853 Business-type Activities Principal $ 140,000,000 $140,000,000 2006 Comprehensive Annual Financial Report 48 Interest $ 16,160,000 $ 16,160,000 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 The notes payable amount for governmental activities of $195,017,589 includes the accrued interest on the BFO of $4,517,589. The notes payable for business-type activities of $150,494,466 includes the accrued interest on the BFO of $10,494,466. Refunded Bonds Deposited with Escrow Agents In prior fiscal years, the Transportation Board had refinanced various bond issues through refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal, redemption premium, if any, and interest on the refunded bond issues have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest of the issues refunded. The assets, liabilit ies, 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 a portion of the Highway Revenue Bonds Series 1999 Bonds ($13,985,000), a portion of the Highway Revenue Bonds Series 2001 Bonds ($86,170,000), and a portion of the Highway Revenue Bonds Series 2002B Bonds ($48,595,000) to reduce its total debt service payments by $7,833,066 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $5,847,875. The payment to the refunded bond escrow agent totaled $161,726,134, representing principal of $148,750,000 and interest of $12,976,134. Refunded bonds of the Department deposited with escrow agents at June 30, 2006, are as follows: Original Issue Type Escrow Maturity Date Balance 1999 Series - Senior 1999 Series - Senior Highway Refunding Bonds Highway Refunding Bonds July 1, 2009 July 1, 2009 $ 64,130,000 13,985,000 2001 Series - Senior 2002 Series B - Senior Highway Revenue Bonds Highway Revenue Bonds July 1, 2011 July 1, 2012 86,170,000 48,595,000 Total refunded bonds deposited with escrow agent 2006 Comprehensive Annual Financial Report 49 $ 212,880,000 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 Changes in non-current liabilities The activity for the fiscal year ended June 30, 2006, was as follows: Governmental Activities: Bonds and Notes: Highway Revenue Bonds Transportation Excise Tax Revenue Bonds GARVEE Bonds (Grant Anticipation Notes) Premium on Bonds Total bonds and notes Capital leases Compensated absences Notes payable Total governmental activities Business-type Activities: Compensated absences Notes payable Total business-type activities Total non-current liabilities Beginning Balance July 1, 2005 Additions $ 1,161,355,000 $ 265,650,000 80,375,000 363,970,000 76,721,480 22,406,528 <80,375,000> <38,540,000> <8,275,594> 325,430,000 90,852,414 42,570,000 7,876,942 1,682,421,480 5,909,829 11,726,637 169,472,724 1,869,530,670 288,056,528 7,300,539 12,249,023 32,578,600 340,184,690 <330,770,594> <2,080,700> <11,965,187> <7,033,735> <351,850,216> 1,639,707,414 11,129,668 12,010,473 195,017,589 1,857,865,144 108,271,942 2,578,846 9,868,167 34,182,048 154,901,003 133,522 146,454,466 146,587,988 147,132 4,040,000 4,187,132 <146,117> <146,117> 134,537 150,494,466 150,629,003 134,537 134,537 $ 2,016,118,658 $ 344,371,822 $ <351,996,333> $ 2,008,494,147 $ 155,035,540 Reductions Ending Balance June 30, 2006 $ <203,580,000> $ 1,223,425,000 Due Within One Year $ 57,825,000 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, $620,112 of the internal service fund’s compensated absences and $11,129,668 of capital leases are included in the above amounts. The capital leases will be liquidated by the internal service fund. The General Fund (State Highway Fund) has paid compensated absences in the past while the notes payable will be repaid with funds from the General Fund (State Highway Fund) and the Maricopa Regional Area Road Construction Fund. Bonds and notes issued by the Department require compliance with a number of covenants. The Department believes that it is in compliance with all such covenants. In addition, certain of the Department’s obligations are subject to Internal Revenue Service regulations pertaining to issuance of tax-exempt debt by governmental entities. The Department has not accrued a liability under these regulations. H. Short-term Debt The Department had no short-term debt activity for the fiscal year ended June 30, 2006. I. Fund Balances Reservations 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 and other permitted facilities which are included in the regional transportation plan of counties with populations in excess of 400,000 (Maricopa and Pima 2006 Comprehensive Annual Financial Report 50 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 counties). At June 30, 2006, approximately $155.5 million was reserved in the General Fund (State Highway Fund) for this purpose. The remaining $12.3 million was restricted for highway construction from Federal highway fatality monies and right of way. The Maricopa Regional Area Road Construction Fund is reserved for capital projects. The Capital Projects Fund is reserved for capital projects funded with Highway Revenue Bonds and Grant Anticipation Notes (GARVEE Bonds). The Debt Service Fund reserve is for future debt service payments. 6. OTHER INFORMATION A. Subsequent Events On September 21, 2006, House Bill 2206 became effective and eliminated the restriction that limited the principal amount of Highway Revenue Bonds that could be outstanding at any time to $1.3 billion. On September 26, 2006, the Transportation Board issued $325,000,000 in Highway Revenue Bonds, Series 2006 to (i) finance portions of the Board’s Five-Year Capital Program and (ii) pay costs of issuing the Series 2006 Bonds. The 2006 Bonds are due July 1, 2012, through July 1, 2026. Net proceeds totaled $350,726,786 (after receipt of $26,201,309 reoffering premium and payment of $966,656 in underwriting fees and costs of issuance). Also on September 26, Standard & Poor’s Ratings Services upgraded the rating on the Department’s outstanding subordinate lien Highway Revenue Bonds from AA+ to AAA. 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 selfinsurance 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 self-insurance 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. 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. 2006 Comprehensive Annual Financial Report 51 Arizona Department of Transportation Notes to the Financial Statements June 30, 2006 Light Rail Transit System ARS 28-9201 requires the Department to establish, implement and enforce minimum safety standards for light rail transit systems. If a violation of the safety standards is discovered, the Department shall report the violation in writing to the Federal Transit Administration. Furthermore, the organization that operates a light rail transit system shall include a safety oversight function and pay the Department’s costs resulting from administration. C. Retirement Plan The Arizona State Retirement System Board administers the Arizona State Retirement Plan (Plan), a cost sharing multi-employer public employee defined benefit 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 85067-3910 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, 2006, was computed to be 6.90 percent of covered payroll by an actuarial valuation performed at June 30, 2003. The contribution rate for fiscal year 2005 was 5.20 percent. Contributions for the years ended June 30, 2006, 2005 and 2004 were $12,104,582, $8,990,672 and $8,687,059, 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 2006 was $169.8 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 contribution requirement for fiscal year 2006 was $12.1 million by both the employees and the Department. 2006 Comprehensive Annual Financial Report 52 Required Supplementary Information (other than MD &A) Budgetary Comparison Schedule - General Fund (State Highway Fund) Notes to Required Supplementary Schedule Information About Infrastructure Assets Reported Using the Modified Approach Arizona Department of Transportation Required Supplementary Information June 30, 2006 Budgetary Comparsion Schedule General Fund (State Highway Fund) For the fiscal year ended June 30, 2006 Variance with Final Budget Budgeted Amounts Original Final Actual Amounts Positive Expenditures appropriated by State legislature in 2006 budget: Administration: Personal services Employee related expenditures Other operating expenditures Attorney General legal service Total Administration $ 18,675,600 6,849,900 13,502,300 2,574,800 41,602,600 $ 18,170,800 6,040,100 16,102,100 2,574,800 42,887,800 $ 18,203,398 6,035,722 16,060,781 2,574,800 42,874,701 $ <32,598> 4,378 41,319 13,099 Highways: Personal services Employee related expenditures Other operating expenditures Total Highways 33,645,600 11,441,700 21,394,500 66,481,800 32,736,600 10,417,000 27,024,700 70,178,300 32,736,244 10,409,237 25,380,946 68,526,427 356 7,763 1,643,754 1,651,873 Personal services 28,404,200 21,166,300 21,165,185 1,115 Employee related expenditures Other operating expenditures Total Highway Construction 9,564,700 16,808,600 54,777,500 8,757,200 25,404,700 55,328,200 8,756,544 25,081,911 55,003,640 656 322,789 324,560 32,259,600 29,860,200 29,860,331 15,464,600 62,350,300 3,214,512 12,827,000 68,131,600 3,214,512 12,826,792 65,288,419 3,159,335 208 2,843,181 55,177 113,289,012 114,033,312 111,134,877 2,898,435 Highway Construction Administration: Highway Maintenance: Personal services Employee related expenditures Other operating expenditures Maintenance carryover Total Highway Maintenance <131> (continued) 2006 Comprehensive Annual Financial Report 53 Arizona Department of Transportation Required Supplementary Information June 30, 2006 Budgetary Comparsion Schedule General Fund (State Highway Fund) For the fiscal year ended June 30, 2006 Variance with Budgeted Amounts Original Final Motor Vehicle: Personal services Employee related expenditures Actual Amounts Final Budget Positive $ 48,244,600 21,884,500 $ 46,608,100 18,403,300 $ 46,601,505 18,397,540 Other operating expenditures Fee accounting and revenue management system 19,120,900 25,472,700 25,429,076 43,624 2,902 2,902 2,902 - Integrated inventory system Security enhancement 50 1,540,735 50 1,540,735 50 457,164 1,083,571 3,746 2,225,640 18,341 783,800 93,825,214 3,746 2,225,640 18,341 783,800 95,059,314 297,450 614,650 91,800,337 3,746 1,928,190 18,341 169,150 3,258,977 Personal services Employee related expenditures Other operating expenditures 39,200 19,500 2,800 40,200 19,800 2,800 40,200 19,800 2,800 - Total Air Quality Programs 61,500 62,800 62,800 - Capital outlay - land, buildings and improvements 6,603,863 6,603,863 3,109,072 3,494,791 Arizona Department of Public Safety transfers Expenditures appropriated by State legislature by carryover of previous year's unexpended budget 39,327,700 42,197,600 42,197,600 - License plates and tabs Special plates MVD electronic certificate of title system Abandoned vehicle administration Total Motor Vehicle $ 6,595 5,760 Air Quality Programs: Administration air quality project: Total expenditures <19,921> $415,949,268 <19,921> $426,331,268 The notes to required supplementary information are an integral part of this statement. 2006 Comprehensive Annual Financial Report 54 <19,921> $414,689,533 $ 11,641,735 Arizona Department of Transportation Required Supplementary Information June 30, 2006 Notes to Required Supplementary Information 1. 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 and State Aviation Fund) are submitted to the Governor in accordance with state law. The budgets are legally enacted as appropriations after approval by the State legislature and signature by the Governor. The legal level of control for operating expenditures 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 all 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, employeerelated expenses, and other operating expenditures is an internal decision for the program manager. Accordingly, transfers between line items such as personal services and other operating expenditures within a particular program may be made by the program manager. Transfers of funds between programs require the approval of the Director of the Department of Administration. 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 unless exempted by the legislature. 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. The capital outlay appropriation includes state highway construction and land, buildings and improvements for the General Fund (State Highway Fund). A legal limitation is adopted for land, buildings and improvements; however, legislation allows the Department to spend in excess of its appropriation for state highway construction up to the current fund balance. The Department monitors expenditures through an internal budgetary process and the Five-Year Transportation Facilities Construction Program approved by the Transportation Board. 2. Explanation of difference between budgetary outflows and GAAP expenditures Actual amounts from the Budgetary Comparison Schedule 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: Capital outlay Non-capital, including asset preservation Distribution to other state agencies Interest expense on loans borrowed from the Highway Expansion and Extension Loan Program Total expenditures as reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds (General Fund) - Exhibit 4 2006 Comprehensive Annual Financial Report 55 $ 414,689,533 1,579,562 479,512,449 12,534,329 2,632,878 2,747,657 $ 913,696,408 Arizona Department of Transportation Required Supplementary Information June 30, 2006 Information About Infrastructure Assets Reported Using the Modified Approach As allowed by Governmental Accounting Standards Board 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 6,922 center lane miles (18,668 travel lane miles) of roads and 4,676 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 Transportation Board on an annual basis, the Five-Year Transportation Facilities Construction Program (Program) contains estimated expenditures for highway system improvements and the preservation of existing roadway and bridges. Both of these factors impact the condition assessment of the roads and bridges as described in the following sections. The Program in effect for fiscal year 2007 and beyond was adopted by the Transportation Board on June 23, 2006. This Program is a dynamic instrument and adjustments are made to the annual plans based on the needs of the Department to maintain the condition level of the roads and bridges at a level equal to, or greater than, the goals established by the Department. In addition, not only are adjustments made during the life of the Program, circumstances may require that refinements to the individual components of the Program be made during the fiscal year. In comparing Estimated to Actual Expenditures in the tables that follow, significant variances can occur. These variances are primarily due to the methodology used in the preparation of the Program. In this Program, the Estimated Expenditures for the current year is based on “programmed” projects which may or may not be spent in the current year of the Program. “Programmed” expenditures consist of those items that are planned for the future and contracts have not yet been awarded. Furthermore, the Actual Expenditures will include projects that were “programmed” for a prior year’s Estimated Expenditures but which did not occur, or were not completed, in the prior year. The following information pertains to the condition assessment and maintenance of infrastructure assets and reflects the Department’s success in achieving condition levels that exceed the established levels. Roads The mission of the Department’s Pavement Management Section (PMS) is to develop and provide a cost effective pavement rehabilitation construction program that preserves the State’s investment in its highway system and enhances public transportation and safety. The requirements of GASB 34 and the PMS both work toward the same basic goal, the efficient, effective management of the Department’s assets to produce long term benefits while minimizing expenditures. The PMS has developed performance goals for the condition level of the pavement in the State highway system. These goals require periodic assessment of pavement conditions and the budget level needed to meet that goal. The goal is expressed as a measure called “Serviceability” which can be defined as the ability of a pavement to serve the traveling public (as documented in 1961 after AASHTO Road Test, 1956-1961). Serviceability is based on detailed measurements of objective features of the pavement. Many surveys since the original road test have shown that these measurements closely track the subjective opinion of the traveling public. Most commonly, this number is called 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: 2006 Comprehensive Annual Financial Report 56 Arizona Department of Transportation Required Supplementary Information June 30, 2006 Information About Infrastructure Assets Reported Using the Modified Approach - continued Numerical Rating 5 4 3 2 1 0 Weaver/AASHTO Scale PSR Excellent Good Fair Poor Very Poor Impassable Perfect Very Good Good Fair Poor Very Poor The goal of the Department 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 2006, an overall rating of 3.52 was achieved, as shown in the following graph: Condition Level - Roads 5.00 PSR 4.00 3.00 Actual Level 2.00 Desired Level 1.00 0.00 2002 2003 2004 2005 2006 Fiscal Year Figure 1 Preservation of the roads is accomplished through programs managed primarily by the ADOT PMS, as well as other units within the Department. The estimated (as specified in the Program as programmed amounts) and actual expenditures for fiscal years 2002 through 2006 were as follows: Fiscal Year 2002 2003 2004 2005 2006 Estimated Expenditures (in millions) $227.4 243.5 198.5 235.7 218.5 Actual Expenditures (in millions) $234.8 220.8 215.5 196.0 214.5 2006 Comprehensive Annual Financial Report 57 Arizona Department of Transportation Required Supplementary Information June 30, 2006 Information About Infrastructure Assets Reported Using the Modified Approach - continued Bridg es The Department’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2006, the Department owns and maintains 4,676 bridges with an approximate total deck area of 44,212,631 square feet. Bridges, for purposes of this report, include all structures erected over an opening or depression with a centerline of 20 feet or more. Information related to these bridges is stored and updated in the Arizona Bridge Information and Storage System (ABISS). This system is used to efficiently manage the bridge inventory through storing all bridge related data and assisting bridge engineers in arriving at appropriate bridge preservation decisions. Also, ABISS is used for reporting bridge inventory and condition, on a biennial basis, to the Federal Highway Administration (FHWA). A Condition Rating Index (CRI) is used to track the condition of the bridge network. The CRI is based on four selected bridge inspection condition ratings, which in turn are based on standards established in the FHWA’s “Recording and Coding Guide for the Structural Inventory of the Nation’s Bridges”. The four selected condition ratings that are included in the CRI computation are: the bridge joints condition, the deck condition, the super-structure 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 (see table below), which indicates that the rated element is at best in a poor condition, to the total sum of the deck areas. The rating system in this guide is as follows: Numerical Rating 9 8 7 6 5 4 3 2 1 Condition Rating Excellent Very Good Good Satisfactory Fair Poor Serious Critical Imminent Failure Management of the bridge inventory is a major function of the Department’s Bridge Group and regularly scheduled biennial inspections are made of all bridges. A civil or structural engineer, licensed to practice in Arizona, performs these inspections. It is the policy of the Department to maintain State highway bridges so that the CRI exceeds 92.5%. In fiscal year 2006, the CRI was computed at 93.8%. 2006 Comprehensive Annual Financial Report 58 Arizona Department of Transportation Required Supplementary Information June 30, 2006 Information About Infrastructure Assets Reported Using the Modified Approach – continued Condition Levels - Bridges 95% CRI 94% 93% Actual Level 92% Desired Level 91% 90% 2002 2003 2004 2005 2006 Fiscal Year Figure 2 Bridges represent a major public investment and their inspection and maintenance is an essential function of the Department in its mission of products and services for a safe, efficient, and cost effective transportation system. Figure 3 indicates that approximately 62% of the bridges in the state were constructed prior to the 1970s while only 16% have been constructed in the last two decades. Age of Department'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 3 Information About Infrastructure Assets Reported Using the Modified Approach - continued 2006 Comprehensive Annual Financial Report 59 Arizona Department of Transportation Required Supplementary Information June 30, 2006 Preservation of the bridges is accomplished through programs managed by the Bridge Group. The estimated (as specified in the Program as programmed amounts) and actual expenditures for fiscal years 2002 through 2006 were as follows: Fiscal Year 2002 2003 2004 2005 2006 Estimated Expenditures (in millions) $14.4 13.6 12.1 9.4 8.8 Actual Expenditures (in millions) $18.2 15.8 12.2 10.0 8.3 2006 Comprehensive Annual Financial Report 60 Non-Major Governmental Funds Financial Statements 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 Transportation 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 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 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. 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. Arizona Department of Transportation Combining Balance Sheet Non-Major Governmental Funds June 30, 2006 Safety Enforcement and Transportation Infrastructure Fund Motor Vehicle Liability Insurance Enforcement Fund Vehicle Inspection and Title Enforcement Fund $ 688,493 $ 10,226,463 $ 46,953 82,726 7,226,827 288,143 3,575 87,900 - 95,900 - 61,935 - 1,421,022 - - - $ 33,097,353 $ 779,968 $ 10,322,363 $ 3,179,714 69,637 $ - $ $ - State Aviation Fund ASSETS Unrestricted cash on deposit with the State Treasurer Receivables: Accrued interest Interfund Notes and loans Other Amounts due from: U.S. Government Restricted cash on deposit with the State Treasurer Total assets LIABILITIES Accounts payable Accrued payroll and other accrued expenditures Contracts and retainage payable Amounts due to: Arizona counties and cities Other state agencies Deferred revenue Total liabilities FUND BALANCES Reserved for: Capital projects Unreserved special revenue funds Total fund balances Total liabilities and fund balances $ 24,031,682 - 3,117,779 79,350 - 42,646 - 53,549 - 36,519 - 7,226,827 7,375,814 42,646 53,549 36,519 25,721,539 25,721,539 $ 33,097,353 737,322 737,322 779,968 10,268,814 10,268,814 $ 10,322,363 3,143,195 3,143,195 3,179,714 $ 2006 Comprehensive Annual Financial Report 61 $ Exhibit 9 Motor Carrier Safety Revolving Fund $ Underground Storage Tank Fund 26,792 $ - Economic Strength Project Fund $ Grant Anticipation Notes Fund - $ Local Agency Deposits Fund - $ Total Non-Major Governmental Funds - $ 38,091,209 - 9,222 2,535,699 - 21,236 - - 2,223,023 80,986 2,864,160 7,226,827 2,511,166 - - - - 1,083,568 2,504,590 $ 26,792 $ 257,161 2,802,082 $ 4,171,221 4,192,457 $ 87 87 10,176,889 $ 13,483,480 14,605,358 $ 67,884,296 $ - $ - $ - $ - $ $ $ - 69,637 - - - - 1,571,611 212,064 1,571,611 - 2,802,082 2,802,082 4,192,457 4,192,457 - 1,571,611 4,192,457 2,802,082 7,226,827 16,074,678 26,792 26,792 26,792 2,802,082 4,192,457 87 87 87 11,911,869 11,911,869 $ 13,483,480 11,911,956 39,897,662 51,809,618 $ 67,884,296 $ $ $ 2006 Comprehensive Annual Financial Report 62 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, 2006 Safety Enforcement and Transportation Infrastructure Fund Motor Vehicle Liability Insurance Enforcement Fund Vehicle Inspection and Title Enforcement Fund $ 3,103,508 - $ 1,822,990 - 144,143 800,885 13,685,936 1,213,726 55,678 26,719,109 27,742 5,454 3,349,549 3,103,508 1,822,990 10,470,243 - 1,802,173 - 1,183,803 - 1,104,093 - 10,470,243 1,802,173 1,183,803 1,104,093 11,941,509 22,411,752 1,772,000 3,574,173 67,100 1,250,903 107,700 1,211,793 <224,624> 1,852,605 611,197 - - 1,852,605 8,416,209 10,268,814 611,197 2,531,998 $ 3,143,195 State Aviation Fund Revenues: Vehicle registration, title, license and related taxes and fees Fuel and motor carrier taxes and fees Reimbursement of construction expenditures - federal aid Reimbursements from Arizona counties and cities Interest on loans receivable Interest on investments Flight property taxes Grand Canyon National Park Airport Other Total revenues $ 6,012,745 467,647 4,338,349 Expenditures: Current: Transportation - appropriated by State legislature: Aeronautics Highway Motor Vehicle Other Total Transportation - appropriated by State legislature Intergovernmental: Distributions to Arizona counties and cities Distributions to other state agencies Total expenditures Excess of revenues over expenditures 4,307,357 Other financing sources : Transfers in Transfers out for debt service Transfers out other Total other financing sources Net change in fund balances Fund balances - July 1 Fund balances - June 30 $ <166> <166> $ 4,307,191 21,414,348 25,721,539 3,316,353 - - $ <224,624> 961,946 737,322 $ 2006 Comprehensive Annual Financial Report 63 Exhibit 10 Motor Carrier Safety Revolving Fund $ $ Underground Storage Tank Fund - $ 32,491,930 Economic Strength Project Fund $ Grant Anticipation Notes Fund 1,000,000 $ - Local Agency Deposits Fund $ Total Non-Major Governmental Funds - $ 14,255,596 33,959,577 3,500 3,500 73,848 32,565,778 163,611 1,163,611 55,019,894 2 55,019,896 33,268,105 4,039,993 37,308,098 92,626,348 4,039,993 144,143 1,066,088 13,685,936 1,213,726 64,632 161,056,039 - 1,744,609 - - 36,771,014 - 10,470,243 36,771,014 4,090,069 1,744,609 - 1,744,609 - - 36,771,014 53,075,935 - 30,821,169 32,565,778 1,163,611 1,163,611 - 36,771,014 13,105,120 32,767,969 98,949,024 3,500 - - 55,019,896 537,084 62,107,015 - - - <55,019,894> <55,019,894> 3,013 <75,922> <72,909> 3,013 <55,019,894> <76,088> <55,092,969> 3,500 23,292 26,792 - - $ $ $ 2 85 87 464,175 11,447,694 $ 11,911,869 $ 7,014,046 44,795,572 51,809,618 2006 Comprehensive Annual Financial Report 64 Fiduciary Fund Financial Statements Agency Funds Combining Statement of Net Assets Statement of Changes in Assets and Liabilities AGENCY FUNDS Highway Properties - Privilege Tax Fund This fund collects monies from renters of properties previously acquired by the Department for use in future highway development. 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. Exhibit 11 Arizona Department of Transportation Combining Statement of Net Assets Agency Funds June 30, 2006 Highway Highway Properties Properties - 24 % -Privilege Tax Fund Lieu Tax Fund ASSETS Restricted cash on deposit with the State Treasurer Total assets LIABILITIES Due to Department of Revenue Due to Arizona counties Total liabilities $ $ 148 148 $ $ 192,496 192,496 $ 192,644 $ 192,644 $ 148 148 $ 192,496 192,496 $ $ 2006 Comprehsive Annual Financial Report 65 Total $ 148 192,496 $ 192,644 Exhibit 12 Arizona Department of Transportation Statement of Changes in Assets and Liabilities Agency Funds For the fiscal year ended June 30, 2006 Balance July 1, 2005 Additions Deductions Balance June 30, 2006 Highway Properties - Privilege Tax ASSETS Restricted cash on deposit with the State Treasurer Total assets $ $ 220 220 $ $ 2,068 2,068 $ <2,140> $ $ <2,140> $ 148 148 LIABILITIES Due to Department of Revenue Total liabilities $ $ 220 220 $ $ 2,068 2,068 $ <2,140> $ $ <2,140> $ 148 148 Highway Properties - 24 % Lieu Tax ASSETS Restricted cash on deposit with the State Treasurer Total assets $ $ 248,195 248,195 $ $ 195,924 195,924 $<251,623> $ $<251,623> $ 192,496 192,496 LIABILITIES Due to Arizona counties Total liabilities $ $ 248,195 248,195 $ $ 195,924 195,924 $<251,623> $ $<251,623> $ 192,496 192,496 2006 Comprehensive Annual Financial Report 66 Capital Assets CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS Schedule by Source Schedule by Function and Activity Schedule of Changes by Function and Activity Exhibit 13 Arizona Department of Transportation Capital Assets Used in the Operation of Governmental Funds Schedule by Source1 June 30, 2006 and 2005 2005 2006 Governmental funds capital assets: Land Buildings and improvements Improvements other than buildings Airport facilities Machinery and equipment Infrastructure Construction in progress Total governmental funds capital assets $ 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 are 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. 2006 Comprehensive Annual Financial Report 67 $ $ 2,118,364,685 149,209,322 15,273,226 7,150,274 51,442,224 9,379,755,220 1,935,193,364 13,656,388,315 1,875,770,486 146,707,482 34,732,256 $ 46,235,293 8,863,627,692 1,723,624,210 12,690,697,419 $ $ 13,656,388,315 13,656,388,315 $ $ 12,690,697,419 12,690,697,419 Exhibit 14 Arizona Department of Transportation Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity1 June 30, 2006 Function and Activity Land 68 Administration Aeronautics Highway: Administrative and other services Highway construction Highway development Materials engineering Traffic engineering Transportation planning and research Highway Maintenance Motor Vehicle $ Total governmental funds capital assets $ 1 879,017 - $ 935,955 2,101,820,323 4,907,328 9,822,062 2,118,364,685 Improvements other than Buildings Buildings and Improvements 15,539,162 21,604 $ 33,949,470 5,673,178 4,849,537 320,207 152,944 42,222,126 46,481,094 $ 149,209,322 This schedule presents only the capital assets balances related to governmental funds. Accordingly, the capital assets reported in the internal service fund are 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. 753,950 - $ 1,646,171 284,610 7,077 21,667 122,946 8,865,022 3,571,783 $ 15,273,226 Machinery and Equipment Airport Facilities 7,150,274 $ $ 7,150,274 17,012,136 1,193,535 Infrastructure $ 3,998,381 6,844,563 2,908,781 3,923,554 1,055,260 319,926 6,883,098 7,302,989 $ 51,442,223 Construction in Progress 12,789,265 $ 9,366,965,956 $ 9,379,755,221 $ Total 1,935,193,364 - $ 1,935,193,364 $ 34,184,265 21,154,678 40,529,977 13,416,781,994 2,908,781 8,780,168 1,397,134 595,816 62,877,574 67,177,928 13,656,388,315 Exhibit 15 Arizona Department of Transportation Capital Assets used in the Operation of Governmental Funds Schedule of Changes by Function and Activity1 For the fiscal year ended June 30, 2006 Governmental Funds Capital Assets July 1, 2005 Function and Activity Administration Aeronautics Highway: $ Additions 33,505,031 21,374,587 $ 1,546,844 94,198 Deductions $ <867,610> $ <314,107> Governmental Funds Capital Assets June 30, 2006 34,184,265 21,154,678 Administrative and other services Highway construction Highway development Materials engineering Traffic engineering Transportation planning and research Highway Maintenance Motor Vehicle 38,921,922 10,733,436,913 2,509,250 8,632,858 1,420,942 428,521 60,721,947 66,121,238 1,614,506 759,063,784 495,720 277,245 27,475 167,295 2,264,909 1,303,864 <6,451> <10,912,067> <96,189> <129,935> <51,283> <109,282> <247,174> 40,529,977 11,481,588,630 2,908,781 8,780,168 1,397,134 595,816 62,877,574 67,177,928 Functional sub-total 10,967,073,209 766,855,840 <12,734,098> 11,721,194,951 1,723,624,210 601,438,109 <389,868,955> 1,935,193,364 Construction in progress Total governmental funds capital assets $ 12,690,697,419 $ 1,368,293,949 1 This schedule presents only the capital assets balances related to governmental funds. Accordingly, the capital assets reported in the internal service fund are 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. 2006 Comprehensive Annual Financial Report 69 $ <402,603,053> $ 13,656,388,315 Statistical STATISTICAL SECTION This part of the Arizona Department of Transportation’s comprehensive annual financial report provides detail in the form of graphs and tables intended to assist the reader of the report with understanding the information presented in the financial statements, note disclosures, and required supplementary information regarding the overall financial health of the department. Financial Trends These schedules show trend information that gives an insight into the department’s financial wellbeing and performance over time. Revenue Capacity Information about the Motor Vehicle Fuel Tax and the Highway User’s Revenue Fund, the department’s most significant own-source revenues, is presented in these tables. Debt Capacity These tables present information to help the reader assess the affordability of the department’s current levels of outstanding debt as well as the department’s ability to issue additional debt in the future. Demographic and Economic Information The demographic and economic indicators presented in this section offer an understanding of the environment in which the department’s financial activities take place. Operating Information The relationship of the financial report to the services provided by the department as well as its activities is illustrated in these tables depicting service and infrastructure information. Sources: Unless otherwise stated, all information in the following tables is derived from the comprehensive annual financial reports for the years shown. Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2006 Index Statistical Section Page Financial Trends Table 1 – Change in Net Assets ........................................................................................................................................... 71-72 Table 2 – Net Assets by Component..........................................................................................................................................73 Table 3 – Statement of Revenues, Expenditures, and Changes in Fund Balances........................................................... 74 Table 4 – Fund Balances of Governmental Funds................................................................................................................. 75 Table 5 – Expenditures of Federal Awards............................................................................................................................. 76 Table 6 – Government-wide Expenses by Function.............................................................................................................. 77 Table 7 – Government-wide Revenues.................................................................................................................................... 78 Revenue Capacity Table 8 – Highway User Revenue Fund Collections .............................................................................................................79 Table 9 – Highway User Revenue Fund Distributions ..........................................................................................................80 Table 10 – Fuel Tax Rates.............................................................................................................................................................81 Table 11 – Motor Vehicle Fuel Tax – Top Ten Suppliers .......................................................................................................82 Table 12 – Gasoline Volume Sold – Top Twenty-Five Suppliers .........................................................................................83 Debt Capacity Table 13 – Highway User Revenue Fund – Legal Debt Margin ............................................................................................84 Table 14 – Highway User Revenue Fund Series – Bond Coverage.......................................................................................85 Table 15 – Regional Area Road Fund Series – Bond Coverage.............................................................................................86 Table 16 – Regional Area Road Fund Series – Debt Service Revenue and Cost Per Capita ............................................87 Demographic and Economic Information Table 17 – Number of Vehicle Registrations Per Year With Population Data....................................................................88 Table 18 – Vehicle Registrations Per Year Compared to Fuel Sales.....................................................................................89 Operating Information Table 19 – Total Public Road Mileage By Highway Class and Governmental Ownership ..............................................90 Table 20 – Appropriated Full Time Equivalents (FTEs ) .........................................................................................................91 Table 21 – Daily Vehicle Miles Traveled With Population Data...........................................................................................92 2006 Comprehensive Annual Financial Report 70 Table 1 Arizona Department of Transportation Change in Net Assets For fiscal year ended June 30 (Thousands of Dollars) Expenses: 2002 71 Governmental activities: Administration Aeronautics Highway Highway Maintenance Motor Vehicle Other Non-capital, including asset preservation Distributions to Arizona counties and cities Distributions to other state agencies Intergovernmental Interest on long-term debt $ Total governmental activities expenses 57,864 3,751 46,543 91,570 82,904 6,844 96,629 915,219 149,341 24,791 89,605 2003 $ 52,533 3,848 45,644 96,353 83,090 8,460 277,975 957,057 192,536 30,235 84,084 2004 $ 57,703 7,512 48,797 95,642 86,845 9,815 378,789 1,022,768 161,029 39,205 89,431 2005 $ 42,298 9,804 72,665 105,037 91,676 6,871 209,902 1,086,955 306,853 42,440 86,870 2006 $ 45,002 10,705 62,713 114,119 96,937 9,394 1,453 1,187,705 206,903 36,771 88,279 1,565,061 1,831,815 1,997,536 2,061,371 1,859,981 Business-type activities: Arizona Highways Magazine Highway Expansion and Extension Loan Program 10,711 5,265 11,118 26,349 10,007 4,414 10,270 4,360 8,175 4,273 Total business-type activities expenses 15,975 37,467 14,421 14,630 12,448 Total primary government expenses Program Revenues: Governmental activities: Charges for services: Aeronautics Highway Maintenance Motor Vehicle Other Intergovernmental Operating grants and contributions Capital grants and contributions Total governmental activities program revenues $ 1,581,036 $ 1,869,282 $ 2,011,957 $ 2,076,001 $ 1,872,429 $ 974 104,298 3,341 4,111 56,481 470,772 $ 717 107,395 4,219 5,080 34,160 453,758 $ 902 108,346 4,848 4,129 44,008 418,174 $ 919 1,518 113,506 5,564 4,760 58,948 484,276 $ 1,214 537 121,179 7,099 4,040 67,241 387,614 639,977 605,330 580,407 669,491 588,924 Business-type activities: Charges for services: Arizona Highways Magazine Highway Expansion and Extension Loan Program 9,614 2,227 9,596 3,881 9,271 3,529 8,443 3,009 8,012 3,281 Total business-type activities program revenues 11,841 13,477 12,800 11,452 11,293 Total primary governmental program revenues Net /revenues: Governmental activities Business-type activities Total primary government net expense 72 General Revenues and Other Changes in Net Assets: Governmental activities: Transportation excise taxes Vehicle, registration, title, license and related taxes Fuel and motor carrier taxes Flight property taxes Interest on investments Other $ $ 593,207 $ 680,943 $ 600,217 <1,226,485> $ <23,989> <1,417,129> $ <1,621> <1,391,880> $ <3,178> <1,271,057> <1,155> $ <929,218> $ <1,250,474> $ <1,418,750> $ <1,395,058> $ <1,272,212> $ Total governmental activities Total business-type activities Total primary government 618,807 <925,084> $ <4,134> Business-type activities: Interest on investments Other Change in Net Assets: Governmental activities Business-type activities $ $ Governmental activities before accounting change Cumulative effect of accounting change Total primary government 651,818 267,563 899,092 547,129 6,528 29,863 26,484 $ 268,721 832,492 691,003 6,026 19,803 21,304 $ 288,600 914,657 698,406 6,321 8,352 24,775 $ 316,806 966,885 759,633 13,180 19,245 27,120 $ 316,491 1,086,086 770,596 13,686 28,538 11,026 1,776,659 - 1,839,349 40,399 1,941,111 - 2,102,869 - 2,226,423 - 1,776,659 1,879,748 1,941,111 2,102,869 2,226,423 5,625 381 2,440 425 1,588 505 2,764 380 3,518 - 6,006 2,866 $ 1,782,665 $ $ 851,575 1,872 $ 853,447 1,882,614 2,093 3,144 $ 1,943,204 $ $ 653,263 $ <21,124> 523,982 472 $ 632,140 524,454 $ 2,106,013 3,518 $ 2,229,941 $ 710,989 $ <34> 955,366 2,363 $ 710,955 957,729 $ Table 2 Arizona Department of Transportation Net Assets by Component For fiscal year ended June 30 (Thousands of Dollars) Governmental Activities Fiscal Year Invested in Capital Assets, Net of Related Debt 2006 $ 2005 2004 2003 2002 11,806,376 10,780,474 10,179,585 9,621,204 8,998,742 Restricted $ 466,337 491,995 408,410 439,045 400,315 Business-type Activities Unrestricted $ 189,669 234,548 208,032 211,796 219,726 Invested in Capital Assets, Net of Related Debt Total $ 12,462,382 11,507,017 10,796,027 10,272,045 9,618,783 $ 249 499 810 1,126 1,439 Restricted $ 67,713 65,273 63,900 63,225 83,293 Primary Government Unrestricted $ <30> $ <204> 892 780 1,522 Total 67,932 65,568 65,602 65,131 86,254 Invested in Capital Assets, Net of Related Debt $ 11,806,625 10,780,973 10,180,395 9,622,330 9,000,181 Restricted $ 534,050 557,268 472,310 502,270 483,608 Unrestricted $ 189,639 234,344 208,924 212,576 221,248 Total $ 12,530,314 11,572,585 10,861,629 10,337,176 9,705,037 Primary Government Net Assets By Type 73 $14,000,000 $12,000,000 Thousands of Dollars $10,000,000 $8,000,000 Unrestricted Restricted $6,000,000 Capital Assets $4,000,000 $2,000,000 $0 2002 2003 2004 Fiscal Year 2005 2006 Table 3 Arizona Department of Transportation Statement of Revenues, Expenditures, and Changes in Fund Balances For fiscal year ended June 30 (Thousands of Dollars) 2002 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 and cities Distributions from other state agencies Interest on loans receivable Interest on investments Flight property taxes Grand Canyon National Park Airport Rental income Other Total revenues Expenditures: Current: Transportation appropriated by State legislature: Administration Aeronautics Highway Highway Maintenance Motor Vehicle Other Total Transportation appropriated by State legislature Transportation not appropriated by State legislature: Intergovernmental: Distributions to Arizona counties and cities Distributions to other state agencies Debt service: Principal Interest Bond issuance costs Interest on notes payable Non-capital, including asset preservation Capital outlay Total expenditures Excess of revenues over expenditures Other financing sources : Transfers in Transfers out for debt service Transfers out other Sale of capital assets Insurance Recovery Debt issuance Debt issuance - refunding bond Premium from debt issuance Payment to refunded bond escrow agent Total other financing sources Net change in fund balances before accounting change Cumulative effect of accounting change for year 2003 Net change in fund balances Fund balances - July 1 Fund balances - June 30 Debt Service as a Percentage of Non-Capital Expenditures Debt Service as a Percentage of Total Transportation appropriated by State Legislature Debt Service as a Percentage of Total Revenues $ $ $ $ $ 2003 267,563 1,003,499 547,129 516,647 5,389 12,346 318 1,899 29,697 6,528 941 25,037 2,416,993 $ 56,230 3,491 68,369 89,314 81,012 2,369 $ $ 2004 268,721 940,022 690,869 459,458 6,896 24,818 1,284 2,486 19,702 6,026 717 1,632 6,021 2,428,652 $ 51,485 74,244 94,978 81,517 3,579 2,304 $ $ 2005 288,600 1,023,004 698,406 421,220 6,146 38,012 933 1,880 8,333 6,321 902 1,635 5,161 2,500,553 $ 56,484 7,228 85,258 95,144 84,921 2,940 $ $ 316,806 1,080,391 759,633 503,646 9,078 32,186 2,349 945 19,162 13,180 919 1,596 6,216 2,746,107 $ 40,599 9,517 106,184 105,887 90,208 1,802 $ $ 354,197 316,491 1,207,265 770,596 407,891 32,044 13,566 1,490 739 28,351 13,686 1,214 1,702 6,490 2,801,525 43,372 10,470 106,062 111,378 95,198 2,309 300,785 308,107 7,480 9,594 1,038,314 28,880 957,057 189,784 1,022,768 160,029 1,086,955 306,852 1,190,962 206,903 208,820 84,159 1,049 1,228 89,147 1,009,290 2,769,152 248,055 82,148 2,424 2,780 146,168 833,731 2,779,848 284,815 89,537 2,546 2,834 378,788 599,819 2,873,111 302,202 91,830 1,996 2,514 209,902 623,829 2,980,277 173,745 80,269 1,252 2,748 306,170 663,316 2,994,154 $ 331,975 2006 - $ 368,789 - $ - $ <352,159> <351,196> <372,558> <234,170> 300,563 <291,854> <8,709> 142,000 74,250 10,142 <77,135> 149,257 <202,902> <202,902> 615,856 412,954 $ 383,136 <321,327> <61,809> 7,229 1,082 331,475 90,530 28,147 <107,735> 350,728 <468> 40,399 39,931 412,954 452,885 $ 449,100 <374,852> <74,249> 16,023 1,407 319,942 130,573 31,647 <145,965> 353,626 <18,932> <18,932> 452,884 433,952 $ 388,046 <374,162> <13,885> 18,392 1,518 292,645 24,726 337,280 103,110 103,110 433,952 537,062 $ 16.8% 17.2% 16.7% 16.9% 11.1% 98.2% 12.2% 108.9% 13.8% 114.4% 15.2% 112.5% 14.5% 70.0% 9.2% 74 (192,629) 262,216 <251,891> <10,325> 11,118 537 118,250 147,400 22,407 <161,726> 137,986 <54,643> <54,643> 537,062 482,419 Table 4 Arizona Department of Transportation Fund Balances of Governmental Funds For fiscal year ended June 30 (Thousands of Dollars) 2002 General fund Reserved Unreserved Total general fund $ $ All other governmental funds Reserved Debt service Capital projects $ 2003 121,075 67,253 188,328 $ 24,986 176,245 $ $ 2004 134,938 48,696 183,634 $ 20,786 232,079 $ $ 2005 155,755 48,619 204,374 $ 18,592 190,640 $ $ 2006 166,420 57,123 223,543 $ 2,288 277,884 $ $ 172,784 9,342 182,126 2,159 258,236 Unreserved, reported in: Special revenue Total all other governmental funds $ 23,395 224,626 $ 16,386 269,251 $ 20,346 229,578 $ 33,348 313,520 $ 39,898 300,293 Total general and other governmental funds $ 412,954 $ 452,885 $ 433,952 $ 537,063 $ 482,419 Fund Balances of Governmental Funds $600,000 Thousands of Dollars $500,000 $400,000 Unreserved Reserved $300,000 $200,000 $100,000 $0 2002 2003 2004 Fiscal Year 75 2005 2006 Table 5 Arizona Department of Transportation Expenditures of Federal Awards1 For the fiscal year ended June 30 (Thousands of Dollars) Fiscal 2 Sub-total FHWA Total - $ 405,212 $ 33,268 $ 438,480 278 470,401 42,323 512,724 - 391,042 36,324 427,366 30 - 440,915 25,439 466,354 282 47 - 502,188 19,848 522,036 390,204 - - - 395,029 33,261 428,290 65 393,958 - - 1,048 398,796 15,219 414,015 5,107 275 371,013 - - 974 383,716 17,748 401,464 14 3,392 49 278,148 - - - 283,982 - 283,982 130 2,508 - 302,633 - - 76 305,438 - 305,438 Year FAA FRA FHWA FMCSA BLM 2006 $ 4,338 - $ 8,837 2005 4,203 - 8,466 69 $ 389,575 $ 2,231 $ 162 96 456,924 282 152 2004 480 - 5,549 84 384,416 434 79 2003 242 - 6,618 87 433,472 466 2002 - 3 5,264 83 496,509 2001 - 14 4,746 65 2000 6 2 3,717 1999 6,278 69 1998 2,379 1997 91 $ SOURCE: NOTES: FTA NHTSA $ BIA $ Single Audit Reports - fiscal years 1997 through 2006. 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 $600,000 Thousand of Dollars $500,000 $400,000 $300,000 $200,000 $100,000 $0 1997 1998 1999 2000 2001 2002 Fiscal Year 76 2003 2004 2005 2006 Table 6 Arizona Department of Transportation Government-wide Expenses by Function For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Administration 2006 $ 45,002 2005 42,298 2004 57,703 2003 52,533 2002 57,864 Highway Aeronautics $ 10,705 9,804 7,512 3,848 3,751 Highway $ 62,713 72,665 48,797 45,644 46,543 Maintenance $ 77 NOTE: 1 Includes Non-capital, including asset preservation 1 115,572 314,938 474,430 374,328 188,198 Motor Vehicle $ 96,937 91,676 86,845 83,090 82,904 Distributions to Arizona counties, cities and other State Interagencies governmental 1,394,609 1,393,808 1,183,797 1,149,593 1,064,560 $ 36,771 42,440 39,205 30,235 24,791 Interest on long-term debt $ 88,278 86,870 89,431 84,084 89,605 Other 9,394 6,871 9,815 8,460 6,844 Arizona Highways Magazine $ 8,175 10,270 10,007 11,118 10,711 Highway Expansion and Extension Loan Program $ 4,273 4,360 4,414 26,349 5,265 Total $ 1,872,429 2,076,000 2,011,956 1,869,282 1,581,036 Table 7 Arizona Department of Transportation Government-wide Revenues For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 2006 2005 2004 2003 2002 Charges for Services $ 134,068 126,267 118,225 117,412 112,725 Program Revenues Governmental Business-Type Operating Capital Grants Grants and and Charges for Contributions Contributions Services $ 67,242 58,948 44,008 34,160 56,481 $ 387,614 484,276 418,174 453,758 470,772 $ 11,293 11,452 12,800 13,477 11,840 General Revenues Governmental Taxes $ 2,186,859 2,056,503 1,907,984 1,798,243 1,720,313 Other Revenues Interest on Investments $ $ 11,025 27,120 24,775 21,304 26,484 28,538 19,245 8,352 19,803 29,863 Total Business-Type Other Revenues $ 380 505 425 381 Interest on Investments Government-wide Revenues $ $ 3,518 2,764 1,588 2,440 5,625 2,830,157 2,786,956 2,536,411 2,461,022 2,434,484 78 Table 8 Arizona Department of Transportation Highway User Revenue Fund Collections For the fiscal year ended June 30 (Thousands of Dollars) Motor Veh. Total Operators' Fiscal Year 2006 Motor Veh. Deposited Motor Veh. Motor Veh. Motor License License To Arizona Fuel Tax Revenue Reg. Fee Revenues Carrier Tax Revenues Fees and Other Fees (In Lieu) Tax Revenues Hwy. User Rev. Fund $ 710,115 $ 178,112 $ 20,824 $ 56,495 $ 372,168 $ 1,337,714 2005 701,965 163,463 18,573 50,789 318,689 1,253,479 2004 656,881 163,689 16,623 42,829 309,688 1,189,710 2003 633,826 158,726 23,302 39,906 276,279 1,132,039 2002 629,360 151,437 11,896 40,122 259,308 1,092,123 2001 566,115 148,336 15,094 43,248 251,496 1,024,289 2000 545,901 158,424 15,040 43,508 235,287 998,160 1999 636,117 145,340 14,409 15,939 217,905 1,029,710 1998 508,544 109,445 56,123 36,426 176,950 887,488 1997 488,701 101,528 90,186 41,294 175,253 896,962 SOURCES: Basic Financial Statements - Fiscal Years 2002 through 2006, General Purpose Financial Statements - Fiscal Years 1997 through 2001, Arizona Highway User Revenue Fund Revenue Collections by Category - Fiscal Years 1997 through 1998. Highway User Revenue Fund Collections $1,350,000 $1,200,000 Thousands of Dollars $1,050,000 $900,000 $750,000 $600,000 $450,000 $300,000 $150,000 $0 1997 1998 1999 2000 2001 2002 Fiscal Year 79 2003 2004 2005 2006 Table 9 Arizona Department of Transportation Highway User Revenue Fund Distributions For the fiscal year ended June 30 (Thousands of Dollars) State Department Economic of Public Strength Safety Project Fund Fiscal Highway Cities and Year Fund Towns Counties 2006 $ 636,094 $ 385,759 $ 240,309 2005 483,047 362,965 226,110 52,216 2004 570,801 344,699 214,731 2003 537,668 324,431 2002 519,837 2001 503,611 2000 1 Other Total 1,000 $ 10,553 $ 1,337,714 1,000 128,141 1,253,479 48,698 1,000 9,781 1,189,710 202,105 54,416 1,000 12,419 1,132,039 312,252 195,530 37,066 1,000 26,438 1,092,123 305,009 188,982 10,937 1,000 14,750 1,024,289 493,697 323,798 157,594 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 $ 63,999 $ 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: Basic Financial Statements - Fiscal Years 2002 through 2006, General Purpose Financial Statements - Fiscal Years 1997 through 2001, Monthly Reports MV675580-01 fiscal years 1997 through 2006 (adjusted for accrual basis). NOTES: 1 In fiscal years 1997 through 2006, an appropriation for Arizona State Parks is included. Fiscal years 2002 and 2005 include distributions to State General Fund. 80 Table 10 Arizona Department of Transportation Fuel Tax Rates For the fiscal year ended June 30 (Cents per Gallon) Fiscal Effective Gasoline Year Date Tax 2006 - 2005 - 0.18 0.26 2004 - 0.18 0.26 2003 - 0.18 0.26 2002 - 0.18 0.26 2001 07/01/2000 0.18 0.26 2000 - 0.18 0.27 1999 - 0.18 0.27 1998 12/31/1997 0.18 0.27 1997 - 0.18 0.18 $ 0.18 Use Fuel Tax $ 1 0.26 SOURCE: Arizona Revised Statutes §28-5606 NOTE: Gasohol is currently taxed at the same rate as gasoline and use fuel. Use fuel is primarily diesel. 1 Lightweight motor vehicles under 26,000 pounds pay $.18 per gallon. 81 Table 11 Arizona Department of Transportation Motor Vehicle Fuel Tax - Top Ten Suppliers For fiscal year ended June 30 (Thousands) Gallons From Top Ten Suppliers Fiscal Year 2006 2005 2004 2003 2002 1,679,379 1,691,572 1,848,459 1,884,644 1,788,066 Revenue From Top Ten Suppliers $ All Motor Vehicle Fuel Tax Revenue 302,288 304,483 332,723 339,236 321,852 $ 710,115 701,965 656,881 633,826 629,360 Revenue Percentage from Top Ten Suppliers 42.6% 43.4% 50.7% 53.5% 51.1% SOURCE: Highway User Revenue Fund distribution schedule, based on gallonage data reported by fuel suppliers. Motor Vehicle Fuel Tax Sources $800,000 Thousands of Dollars $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 2002 2003 2004 Fiscal Year All Fuel Tax Revenue Top Ten Suppliers 82 2005 2006 Table 12 Arizona Department of Transportation Gasoline Volume Sold - Top Twenty-Five Suppliers For fiscal year ended June 30 Range - in Millions of Gallons < 25 26 - 50 51 - 100 101 - 200 201 - 300 > 300 2000 2001 2002 2004 2005 2006 2003 Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Within Total Gallons Within Total Gallons Within Total Gallons Within Total Gallons Within Total Gallons Within Total Gallons Within Total Gallons Range sold Range sold Range sold Range sold Range sold Range sold Range sold 8 6 3 3 3 2 5.6% 8.3% 8.7% 14.8% 32.1% 24.4% 11 4 2 3 3 2 8.4% 5.5% 4.6% 18.0% 30.7% 24.8% 8 6 2 5 3 1 6.1% 9.4% 4.5% 29.3% 29.6% 13.2% 7 5 6 2 4 1 5.5% 6.9% 14.1% 11.9% 39.4% 11.8% 7 4 6 4 3 1 5.9% 4.9% 15.5% 24.8% 25.3% 12.7% 2 9 6 3 4 1 1.5% 11.0% 15.6% 14.9% 31.8% 14.2% 0 13 5 3 3 1 0.0% 16.8% 14.4% 16.0% 25.3% 17.0% 25 93.8% 25 92.1% 25 92.1% 25 89.6% 25 89.0% 25 89.0% 25 89.4% 83 Total Gallons of Gasoline (Millions) 2,479,233 2,501,654 2,554,032 2,631,239 2,678,174 2,745,186 2,726,776 Gasoline % of Total 87.0% 84.9% 79.7% 81.0% 79.9% 77.4% 76.4% 369,033 445,453 652,439 616,165 672,345 799,351 843,445 13.0% 15.1% 20.3% 19.0% 20.1% 22.6% 23.6% Total Gallons of Use Fuel (Diesel) (Millions) Diesel % of Total SOURCE: Highway User Revenue Fund distribution schedule, based on gallonage data reported by fuel suppliers. Table 13 Arizona Department of Transportation Highway User Revenue Fund Legal Debt Margin For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Debt Limit 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 $ 1,300,000 1,300,000 1,300,000 1,300,000 1,000,000 800,000 800,000 800,000 800,000 800,000 NOTE: 1 1 Total Principal Applicable to Limit $ 1,223,425 1,161,355 1,017,360 932,700 734,155 700,280 608,500 524,345 568,150 611,555 Legal Debt Margin $ 76,575 138,645 282,640 367,300 265,845 99,720 191,500 275,655 231,850 188,445 Total Principal Applicable to the Limit as a Percentage of Debt Limit 94.11% 89.34% 78.26% 71.75% 73.42% 87.54% 76.06% 65.54% 71.02% 76.44% The statutory limitation on the issuance of bonds, as outlined in ARS §28-7510, applies only to the Highway User Revenue Fund (HURF). The only limitation on Maricopa County Regional Area Road Fund (RARF) and Grant Anticipation Notes (GANS) is the ability to secure the debts with available excise tax monies and available grant revenues, respectively. As stated in House Bill 2206 of the Second Regular Session of the Fortyseventh Legislature, the $1.3 billion debt limit is eliminated from ARS §28-7510. The general effective date of this change is September 21, 2006. 84 Table 14 Arizona Department of Transportation Highway User Revenue Fund Series Bond Coverage For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Pledged 1 Year Principal Interest Total Revenues 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 $ 54,830 44,265 51,155 44,490 45,365 52,055 46,270 43,805 43,405 40,970 $ 62,222 60,459 53,149 41,932 38,534 36,581 33,994 31,090 33,266 36,148 $ 117,052 104,724 104,304 86,422 83,899 88,636 80,264 74,895 76,671 77,118 $ 624,408 461,763 557,854 540,540 523,326 513,890 528,721 509,935 468,240 468,542 Coverage 5.3 4.4 5.3 6.3 6.2 5.8 6.6 6.8 6.1 6.1 SOURCES: Highway User Revenue Fund Schedule 1 Summary For Revenue Collected Monthly Reports MV675577-1 fiscal years 1997 through 2006; Debt Service Funds - fiscal years 1997 through 2006 NOTE: 1Includes vehicle license tax revenues distributed directly to the State Highway Fund. Fiscal year 2005 is net of a $118 million distribution to the State General Fund. Highway User Revenue Fund Series Bond Coverage $600,000 $550,000 Thousands of Dollars $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 1997 1998 1999 2000 2001 2002 2003 Fiscal Year REVENUE 85 DEBT SERVICE 2004 2005 2006 Table 15 Arizona Department of Transportation Regional Area Road Fund Series Bond Coverage For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Principal 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 $ 80,375 208,625 199,400 190,415 163,455 156,865 128,805 106,765 82,765 78,015 Interest $ 1,566 14,318 23,553 31,533 35,445 40,035 42,609 43,251 40,512 45,248 Total Revenues Coverage $ 81,941 222,943 222,953 221,948 198,900 196,900 171,414 150,016 123,277 123,263 $ 316,491 316,806 288,600 268,721 267,563 264,722 248,596 229,470 209,263 192,257 3.9 1.4 1.3 1.2 1.3 1.3 1.5 1.5 1.7 1.6 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 $350,000 $300,000 Thousands of Dollars $250,000 $200,000 $150,000 $100,000 $50,000 $0 1997 1998 1999 2000 2001 2002 2003 Fiscal Year REVENUE 86 DEBT SERVICE 2004 2005 2006 Table 16 Arizona Department of Transportation Regional Area Road Fund Series Debt Service Revenue and Cost Per Capita For the fiscal year ended June 30 (Thousands) Fiscal Year Principal 2005 2004 2003 2002 $ 208,625 199,400 190,415 163,455 Interest Total Cost Revenue $ 14,318 23,553 31,533 35,445 $ 222,943 222,953 221,948 198,900 $ 316,806 288,600 268,721 267,563 Maricopa County Population 3,649 3,538 3,406 3,296 Cost Per Capita Revenue Per Capita $ $ 61 63 65 60 87 82 79 81 SOURCE: Maricopa County Regional Area Road Fund Report Population from the Department of Economic Security NOTE: Based upon total Maricopa County Transportation Excise Tax collections. Population data only available through 2005. Regional Area Road Fund Revenue and Cost Per Capita Thousands of Dollars $100 $80 $60 Cost $40 Revenue $20 $0 2002 2003 2004 Year 87 2005 Table 17 Arizona Department of Transportation Number of Vehicle Registrations Per Year For fiscal year ended June 30 (Thousands) Fiscal Year 2005 2004 2003 2002 Total Vehicles Change in Number of Registered Vehicles Arizona Population Change in Population 5,945 5,639 5,312 5,118 306 327 193 479 6,045 5,845 5,643 5,471 200 203 172 151 SOURCES: Vehicle registrations from Motor Vehicle Division's annual reports Population from the Department of Economic Sercuity, available through 2005 Change in Vehicles Registered Compared to Population Change 600,000 Change 500,000 400,000 300,000 200,000 100,000 0 2002 2003 2004 Fiscal Year Vehicles Population 88 2005 Table 18 Arizona Department of Transportation Vehicle Registrations Per Year Compared to Fuel Sales For fiscal year ended June 30 (Thousands) Fiscal Year Vehicle Registrations Percentage Change 2006 2005 2004 2003 2002 6,318 5,945 5,639 5,312 5,118 6.3% 5.4% 6.2% 3.8% 10.3% Fuel Sales 1 Percentage Change 3,646,446 3,559,216 3,426,136 3,339,089 3,245,274 2.5% 3.9% 2.6% 2.9% 2.8% SOURCES: Vehicle registrations from Motor Vehicle Division's annual reports Fuel sales from Motor Vehicle Division data reported by fuel suppliers NOTE: 1Fuel sales include both gasoline and use fuel (primarily diesel) sales Percentage Change in Vehicles Registered Compared to Fuel Gallons Sold 12.0% Percentage Change 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2002 2003 2004 Fiscal Year Vehicles Registered 89 2005 2006 Fuel Gallons Sold Table 19 Arizona Department of Transportation Total Public Road Mileage By Highway Class and Governmental Ownership For the calendar year ended December 31 (In Center Lane Miles) FUNCTIONAL CLASSIFICATION 2002 2003 2004 2005 RURAL: Interstate Freeway 996 980 980 981 Principal Arterial 1,187 1,141 1,187 1,167 Minor Arterial 1,274 1,276 1,343 1,363 Major Collector 4,473 4,233 4,301 4,332 Minor Collector Local 2,289 27,450 2,117 26,004 2,210 26,016 2,188 27,015 37,669 35,751 36,037 37,046 Interstate Freeway 172 187 188 188 Urban Expressway 153 145 150 156 Principal Arterial 1,000 1,087 1,156 1,400 Minor Arterial 1,274 1,189 1,279 1,790 1,732 15,188 2,200 16,969 2,161 17,142 1,645 17,564 19,519 21,777 22,076 22,743 Freeways and Expressways 1,321 1,312 1,318 1,325 Arterials 4,735 4,693 4,965 5,720 8,494 42,638 8,550 42,973 8,672 43,158 8,165 44,579 57,188 57,528 58,113 59,789 TOTAL RURAL URBAN: Urban Collector Local TOTAL URBAN STATEWIDE COMPOSITE: Collectors Locals TOTAL STATEWIDE SOURCE: Arizona's Highway Performance Monitoring System (HPMS) Total Public Road Mileage 70,000 60,000 Miles 50,000 40,000 Urban Rural 30,000 20,000 10,000 0 2002 2003 2004 Calendar Year 90 2005 Table 20 Arizona Department of Transportation Appropriated Full-Time Equivalents (FTEs) For fiscal year ended June 30 2002 Operating: Administration State Highway Fund Administration Air Quality Fund Highways Development and Administration Construction Operating Budget Maintenance State Highway Fund Maintenance Safety Enforcement and Traffic Infrastructure Transportation Planning Public Transit - General Fund Equipment Services Aeronautics Motor Vehicle Division (MVD) State Highway Fund Safety Enforcement and Traffic Infrastructure Fund Mandatory Insurance Vehicle Inspections and Title Enforcement Fund Air Quality Fund Highway Users Revenue Fund (HURF) Driving Under the Influence Fund (DUI) Total Operating Other Programs: Arizona Highways Magazine Highway Construction Federal Fatality File (MVD from FY05) Motor Vehicle Division (Federal) NAFTA Border Projects Motor Vehicle Division (Federal) Fuel Tax Evasion Public Transportation Division (Federal) Underground Storage - Motor Vehicle Division Underground Storage - Transportation Services Group (TSG) Maricopa Regional Area Road Fund Highway Expansion and Extension Loan Program (HELP) Total Other Programs Total All Programs 2003 2004 2006 465.5 1.5 740.0 959.0 8.0 48.0 2.0 247.0 33.0 425.5 1.5 712.0 912.0 8.0 46.0 2.0 247.0 33.0 405.0 684.0 619.0 912.0 8.0 46.0 2.0 247.0 33.0 406.0 683.0 619.0 925.0 46.0 2.0 247.0 33.0 412.0 682.0 616.0 925.0 44.0 2.0 247.0 33.0 1,587.0 29.0 16.0 17.0 4,153.0 1,534.0 29.0 16.0 17.0 3,983.0 1,585.5 29.0 16.0 17.0 1.5 4,605.0 1,598.5 31.0 17.0 17.0 1.5 4,626.0 1,606.5 22.0 29.0 21.0 1.5 5.0 3.0 4,649.0 72.0 619.0 2.0 4.0 4.0 1.0 3.0 705.0 72.0 619.0 2.0 4.0 4.0 1.0 3.0 705.0 72.0 2.0 2.0 4.0 4.0 1.0 3.0 88.0 72.0 2.0 19.0 5.0 4.0 1.0 3.0 106.0 72.0 2.0 21.0 8.0 4.0 3.0 1.0 1.0 3.0 115.0 4,858.0 4,688.0 4,693.0 4,732.0 4,764.0 SOURCE: Arizona Department of Transportation 10-Year FTE History Report NOTE: All FTE Operating positions shown above are approved annually by the State legislature. 91 2005 Table 21 Arizona Department of Transportation Daily Vehicle Miles Traveled with Population Data For calendar year ended December 31 (Thousands) Fiscal Year 2005 2004 2003 2002 Non-State Highways 80,400 75,070 75,396 73,192 State Highways 83,425 81,808 72,258 69,311 All Public Highways 163,825 156,878 147,654 142,503 Arizona Population 6,045 5,845 5,643 5,471 Daily Miles Per Capita 27.1 26.8 26.2 26.0 SOURCES: Arizona's Highway Performance Monitoring System (HPMS) ADOT Transportation Planning Division office records Department of Economic Security Daily Vehicle Miles Traveled 200,000 180,000 Thousands of Miles 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2002 2003 2004 Calendar Year State Highways Non-State Highways 92 2005 ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by Financial Management Services, Fiscal Operations: Craig Rudolphy, CPA, CPFO, CGFM Lawrence H. Ehrke, Jr. Christopher Kipiani Sheryl Bodmer, CPA Patricia Markiw, CPA Winifred Gettings Diane Wascher, 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 David McDarby of Communications and Community Partnerships for his graphic design. 2006 Comprehensive Annual Financial Report 93