Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007 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................................................................................................................30-53 Required Supplementary Information (Other than MD&A): Budgetary Comparison Schedule – General Fund (State Highway Fund)........................................................54 Notes to Required Supplementary Information ......................................................... ......................................55 Information About Infrastructure Assets Reported Using the Modified Approach .....................................56-60 2007 Comprehensive Annual Financial Report Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007 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 Overview ............................................................................................................................................................... 70 Index of Statistical Section.................................................................................................................................... 71 Financial Trends: Change in Net Assets (Table 1) .....................................................................................................................72-73 Net Assets by Component (Table 2)...................................................................................................................74 Statement of Revenues, Expenditures, and Changes in Fund Balances (Table 3) ..............................................75 Fund Balances of Governmental Funds (Table 4) ..............................................................................................76 Expenditures of Federal Awards (Table 5).........................................................................................................77 Government-wide Expenses by Function (Table 6) ...........................................................................................78 Government-wide Revenues (Table 7) ...............................................................................................................79 Revenue Capacity: Highway User Revenue Fund Collections (Table 8) ..........................................................................................80 Highway User Revenue Fund Distributions (Table 9)........................................................................................81 Fuel Tax Rates (Table 10) ..................................................................................................................................82 Motor Vehicle Fuel Tax – Top Ten Suppliers (Table 11) ..................................................................................83 Gasoline Volume Sold – Top Twenty-Five Suppliers (Table 12) ......................................................................84 Debt Capacity: Highway User Revenue Fund – Legal Debt Margin (Table 13) .........................................................................85 Highway User Revenue Fund Series – Bond Coverage (Table 14)....................................................................86 2007 Comprehensive Annual Financial Report Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007 TABLE OF CONTENTS (Continued) Page Debt Capacity (continued): Regional Area Road Fund Series – Bond Coverage (Table 15) .........................................................................87 Regional Area Road Fund Series – Debt Service Revenue and Cost Per Capita (Table 16) ..............................88 Demographic and Economic Information: Number of Vehicle Registrations Per Year With Population Data (Table 17) ...................................................89 Vehicle Registrations Per Year Compared to Fuel Sales (Table 18) ..................................................................90 Operating Information: Total Public Road Mileage By Highway Class and Governmental Ownership (Table 19) ................................91 Appropriated Full Time Equivalents (FTEs) (Table 20).....................................................................................92 Daily Vehicle Miles Traveled With Population Data (Table 21)........................................................................93 Acknowledgements .....................................................................................................................................................94 2007 Comprehensive Annual Financial Report Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 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, 2007. 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 $13.5 billion, compared to $12.5 billion for fiscal year 2006, an increase of 7.9 percent. Of this amount, $236.3 million represents unrestricted net assets and may be used to meet the Department’s ongoing obligations to citizens and creditors as compared to $189.6 million in 2006. • The Department’s capital assets are $14.3 billion, compared to $13.6 billion for fiscal year 2006, an increase of 5.1 percent. This increase is primarily attributable to highway construction activity. The Department’s investment in capital assets, net of related debt, is $12.2 billion, compared to $11.8 billion for fiscal year 2006, an increase of 3.4 percent. • The Department’s non-current liabilities are $2.2 billion, compared to $2.0 billion in 2006. The Department issued $224.6 million more in bonds than were retired. Fund Level: • As of the close of the fiscal year, the governmental funds of the Department reported combined ending fund balances of $1.0 billion, as compared to $482.4 million in 2006, a 116.3 percent increase over the prior fiscal year. This increase is primarily due to the receipt of $245 million of State General Fund monies for Statewide Transportation Acceleration Needs (STAN), an account within the Department’s General Fund (State Highway Fund). These funds were appropriated by the State to the Department’s General Fund (State Highway Fund) to accelerate the construction of certain critical projects on the State highway system. • The total reserved fund balance is $1.0 billion; of this, $977.4 million (93.5 percent) is reserved for capital projects. Approximately $39.0 million (3.7 percent) is available for spending at the government’s discretion (unreserved fund balance) as compared to $49.2 million (10.2 percent) in 2006. At the end of the fiscal year, the unreserved fund balance for the General Fund (State Highway Fund) was $<10.0> million. • The proprietary funds reported net assets at year-end of $72.0 million, as compared to $67.9 million in 2006, an increase of 6.0 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. 2007 Comprehensive Annual Financial Report 3 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 The statement of net assets combines and consolidates the Department’s current financial resources with capital assets and long-term obligations. This statement includes all of the Department’s non-fiduciary assets and liabilities. Net assets are the difference between the Department’s assets and liabilities, and represent one measure of the Department’s financial health. • An increase or decrease in the Department’s net assets from one year to the next is an indicator of whether its financial health is improving or declining. • Other indicators of the Department’s financial health include the condition of its roads and 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. 2007 Comprehensive Annual Financial Report 4 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 • 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. 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 Budgetary Comparison Schedule – General Fund (State Highway Fund) has been provided 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 the 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. 2007 Comprehensive Annual Financial Report 5 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 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. Required Supplementary Information In addition to the basic financial statements including accompanying notes, this section presents certain Required Supplementary Information including the Department’s Budgetary Comparison Schedule – 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 analyses 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, 2007 and 2006. The Department’s combined net assets increased by $996.3 million over the course of this fiscal year’s operations, an increase of 8.0 percent. The net assets of the governmental activities increased by $992.2 million or 8.0 percent and business-type activities increased by $4.1 million, an increase of 6.0 percent over the previous year. The following table reflects the condensed Statement of Net Assets as of June 30, 2007 and 2006: Business-type Activities 2007 2006 Governmental Activities 2007 2006 Total 2007 2006 222,255,469 248,715 222,504,184 $ 1,733,718,667 14,290,324,250 16,024,042,917 $ 1,157,732,987 13,616,928,493 14,774,661,480 3,943,716 150,629,003 154,572,719 267,970,785 2,229,478,478 2,497,449,263 235,853,543 2,008,494,147 2,244,347,690 248,715 12,212,086,334 67,713,248 1,078,219,564 <30,498> 236,287,756 67,931,465 $13,526,593,654 11,806,624,811 534,049,866 189,639,113 $12,530,313,790 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 $ 1,503,637,083 14,290,099,071 15,793,736,154 $ 935,477,518 13,616,679,778 14,552,157,296 $ 264,384,346 2,074,792,811 2,339,177,157 231,909,827 1,857,865,144 2,089,774,971 3,586,439 154,685,667 158,272,106 12,211,861,155 1,006,511,853 236,185,989 $13,454,558,997 11,806,376,096 466,336,618 189,669,611 $12,462,382,325 225,179 71,707,711 101,767 72,034,657 $ 230,081,584 225,179 230,306,763 $ $ The total assets of the Department were $16.0 billion, while total liabilities were $2.5 billion, resulting in a net assets balance of $13.5 billion. By far, the largest portion of the Department’s net assets, $12.2 billion (90.4 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, 2007, 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 an increase in unrestricted net assets for the first time in three years. 2007 Comprehensive Annual Financial Report 6 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 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 2007 2006 Business-type Activities 2007 2006 Total 2007 2006 Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Transportation excise taxes Vehicle, registration, title, license and related taxes Fuel and motor carrier taxes and fees Flight property taxes Interest on investments Other Total revenues Expenses: 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 Arizona Highways Magazine Highway Expansion and Extension Loan Program Total expenses Change in net assets before special item Special item - State appropriation Change in net assets Net assets - July 1 Net assets - June 30 $ 158,019,080 72,678,913 354,023,589 $ 134,068,183 67,241,642 387,613,919 $ 10,969,360 - $ 11,293,230 - 262,263,939 316,491,260 - - 262,263,939 316,491,260 1,029,000,817 790,908,552 15,302,697 55,760,406 9,997,814 2,747,955,807 994,052,170 770,595,788 13,685,936 28,538,190 11,025,538 2,723,312,626 3,517,627 14,810,857 1,029,000,817 790,908,552 15,302,697 61,323,442 9,995,065 2,764,485,454 994,052,170 770,595,788 13,685,936 32,055,817 11,025,538 2,738,123,483 51,666,715 5,417,937 79,279,372 120,162,937 105,961,064 173,077,942 45,001,954 10,705,401 62,712,812 114,118,876 96,936,845 9,394,006 1,453,012 - - 51,666,715 5,417,937 79,279,372 120,162,937 105,961,064 173,077,942 45,001,954 10,705,401 62,712,812 114,118,876 96,936,845 9,394,006 1,453,012 1,219,208,067 114,795,378 48,760,126 82,449,597 - 1,095,671,256 206,903,293 36,771,014 88,278,605 - 8,071,836 8,174,700 1,219,208,067 114,795,378 48,760,126 82,449,597 8,071,836 1,095,671,256 206,903,293 36,771,014 88,278,605 8,174,700 2,000,779,135 1,767,947,074 4,354,619 12,426,455 4,273,429 12,448,129 4,354,619 2,013,205,590 4,273,429 1,780,395,203 747,176,672 245,000,000 955,365,552 - 4,103,192 - 2,362,728 - 751,279,864 245,000,000 957,728,280 - 992,176,672 12,462,382,325 $ 13,454,558,997 955,365,552 11,507,016,773 $ 12,462,382,325 4,103,192 67,931,465 $ 72,034,657 2,362,728 65,568,737 $ 67,931,465 996,279,864 12,530,313,790 $ 13,526,593,654 957,728,280 11,572,585,510 $ 12,530,313,790 5,563,036 <2,749> 16,529,647 2007 Comprehensive Annual Financial Report 7 $ 168,988,440 72,678,913 354,023,589 $ 145,361,413 67,241,642 387,613,919 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 Governmental Activities: The following chart depicts revenues of the governmental activities for the fiscal year ended June 30, 2007: Revenues - Governmental Activities $2,747,955,807 Fuel and motor carrier taxes and fees 28.8% Interest on investments 2.0% Other revenues including flight property taxes 0.9% Transportation excise taxes 9.5% Charges for services 5.7% Capital grants and contributions 12.9% Vehicle, registration, title, license and related taxes 37.4% Operating grants and contributions 2.7% $2.4 billion (or 88.6 percent) of the Department’s revenues are from the following five revenue sources: • Vehicle, registration, title, license, and related taxes comprise the Department’s largest revenue source of $1.0 billion (37.4 percent). • Fuel and motor carrier taxes and fees represent the Department’s second largest revenue source of $791.0 million (28.8 percent). • Capital grants and contributions total $354.0 million (12.9 percent). • Transportation excise taxes total $262.3 million (9.5 percent). The Department’s two main funding sources, the Highway User Revenue Fund (HURF) and the Maricopa County Transportation Excise Tax posted modest gains in fiscal year 2007. HURF collections totaled $1.4 billion, an increase of 3.8 percent over fiscal year 2006. However, this total was 1.2 percent below the forecast. The HURF revenue growth of 3.8 percent was the slowest year-over-year growth rate since fiscal year 2003. Maricopa County Transportation Excise Tax collections totaled $392.5 million, an increase of 6.7 percent over fiscal year 2006, but this total was also 1.2 percent below the forecast. However, the Transportation Excise Tax distributed to the Department was $262.2 million compared to $316.5 million for FY 2006. This decrease is attributable to the passage of Proposition 400, which provides that 33.3 percent of all Maricopa County Transportation Excise Taxes collected will be distributed by the State Department of Revenue directly to the Regional Public Transportation Authority, a regional entity. Maricopa County Transportation Excise Tax collection growth in FY 2007 was the slowest year-over-year growth since fiscal year 2003. 2007 Comprehensive Annual Financial Report 8 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 The following chart depicts expenses of the governmental activities for the fiscal year ended June 30, 2007: Expenses - Governmental Activities $2,000,779,135 Distributions to Arizona counties and cities 60.9% Distributions to other state agencies 5.7% Intergovernmental 2.4% Interest on long-term debt 4.1% Administration 2.6% Highway 4.0% Highway Maintenance 6.0% Non-capital, including asset preservation 8.7% Motor Vehicle 5.3% Aeronautics 0.3% $1.6 billion (or 81.3 percent) of the Department’s expenses were for the following: • Distributions to Arizona counties and cities $1.2 billion (60.9 percent). • Non-capital including asset preservation $173.1 million (8.7 percent). • Highway Maintenance $120.2 million (6.0 percent). • Distributions to other state agencies $114.8 million (5.7 percent). The increase in distributions to Arizona counties and cities was due to an increase in fuel tax and vehicle license tax collections. The decrease in distributions to other state agencies is primarily due to 2005 Senate Bill 1513 which required an additional $49.6 million be transferred from the Highway User Revenue Fund to the Department of Public Safety in 2006. 2007 Comprehensive Annual Financial Report 9 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 Business-type Activities: Net assets for business-type activities increased by $4.1 million in fiscal year 2007. Total revenues were $16.5 million, with charges for services representing 66.4 percent and interest on investments 33.6 percent. The total expenses for businesstype activities were $12.4 million. The Highway Expansion and Extension Loan Program had an increase in revenues of $1.6 million. Higher average interest rates on invested cash due to prevailing market conditions during fiscal year 2007 resulted in interest on investments of $5.4 million for fiscal year 2007 for the Highway Expansion and Extension Loan Program. The Arizona Highways Magazine had an increase in revenues of $86 thousand and was able to achieve a positive cash flow. 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 $1.0 billion, an increase of $562.3 million over the previous fiscal year. This increase is primarily due to the receipt of $245 million of State General Fund monies for Statewide Transportation Acceleration Needs (STAN), an account within the Department’s General Fund (State Highway Fund). These funds were appropriated by the State to the State Highway Fund to accelerate the construction of certain critical projects on the State Highway System. Of this $1.0 billion balance, $39.0 million or 3.7 percent constitutes the unreserved fund balance, which was available for spending for the general purposes of the Department. The remaining fund balance of $1.0 billion, or 96.3 percent, was reserved for the following: 1) $5.8 million for inventories, 2) $2.7 million to pay debt service, 3) $977.4 million to pay for capital projects and 4) $20 million for the repayment of an advance from the HELP fund. 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 $<10.0> million and the reserved fund balance was $507.7 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 <1.2> percent of total General Fund (State Highway Fund) expenditures, while total fund balance represents 58.9 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 2007 were $322.4 million; transportation excise tax revenue of $262.3 million (or 81.3 percent) was the bulk of the revenue. The remaining revenue was mainly Federal revenue and interest on investments. 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 $186.8 million were transferred in from the General Fund (State Highway Fund) ($129.7 million), and Grant Anticipation Notes Fund ($57.1 million), and were used to pay the debt service. The remaining fund balance of $2.7 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 $172.2 million. Capital outlay expenditures of $166.2 million (96.5 percent) accounted for the majority of the expenditures in the Capital Projects 2007 Comprehensive Annual Financial Report 10 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 Fund. This expenditure for the acquisition and construction of new highways was converted to capital assets on the government-wide statements. The fund balance increased by $187.5 million. Budget Variances The increase from the original to the final budget was the result of a general wage increase for all State employees as well as the accompanying employee related expenses, including health insurance and retirement. There were no significant differences between the Department’s final budgeted amounts and the actual expenditures for fiscal year 2007. 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, 2007, amounts to $14.3 billion (net of accumulated depreciation), a $673.4 million increase over the previous fiscal year. Governmental Activities 2007 2006 Land Buildings and improvements Improvements other than buildings Mobile fleet and aircraft Machinery and equipment Infrastructure Construction in progress Total $ 2,217,183,763 92,815,639 20,122,366 51,132,300 21,026,496 9,855,140,388 2,032,678,119 $ 14,290,099,071 $ 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 2007 2006 $ $ 7,900 170,133 47,146 225,179 $ $ 7,900 203,951 36,864 248,715 Total 2007 2006 $ 2,217,191,663 92,985,772 20,122,366 51,132,300 21,073,642 9,855,140,388 2,032,678,119 $ 14,290,324,250 $ 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 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 6,817 center lane miles (18,573 travel lane miles) and 4,648 bridges that the Department is responsible for maintaining. The Five-Year Transportation Facilities Construction Program (Program) is a dynamic program 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. The program is updated annually, and as circumstances may require, adjustments are made monthly 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 3.87 was achieved for fiscal year 2007. 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 2007, a CRI of 93.6 percent was achieved. 2007 Comprehensive Annual Financial Report 11 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 In addition to many smaller projects, each of the following major highway construction contracts in excess of $20 million was started during fiscal year 2007: Description Construction on Interstate 10 from Price Road to 29th Street within the City of Tucson in Pima County. Construction on State Route 179 south of Sedona in Coconino and Yavapai Counties. Construction of two traffic interchanges and related bridge work on Interstate 17 within the City of Phoenix in Maricopa County. Construction of HOV lanes on State Route Loop 101 and State Route 51 within the City of Phoenix in Maricopa County. Construction on Interstate 10 north of Tucson in Pima and Pinal Counties. Construction on US 60 east of Apache Junction in Pinal County. Contract Start Date Contract Amount Fiscal Year 2007 Expenditures 09/18/2006 $ 200,300,000 07/24/2006 30,352,243 12,066,270 03/23/2007 35,777,669 1,558,967 04/23/2007 40,207,439 989,000 06/19/2007 21,893,081 - 06/22/2007 40,530,000 - $ 28,463,055 In addition to many smaller projects, the following major highway construction projects had expenditures in excess of $15 million in fiscal year 2007. These expenditures include payments made to construction contractors as well as utility, design, right-of-way, and landscaping costs. Location Description State Route Loop 202 from Power Road to University Drive within the City of Mesa in Maricopa County. US 60 from Gilbert Road to Power Road within the City of Mesa in Maricopa County. State Route Loop 202 from University Drive to Southern Avenue within the City of Mesa in Maricopa County. Interstate 10 from Price Road to 29th Street within the City of Tucson in Pima County. State Route Loop 101 and Interstate 17 interchange in Maricopa County. State Route 179 south of Sedona in Coconino and Yavapai Counties. State Route Loop 202 and US 60 interchange within the City of Mesa in Maricopa County. Intersection of Interstate 40 and North Park Drive within the City of Winslow in Navajo County. 2007 Comprehensive Annual Financial Report 12 Project Expenditures $91,391,972 44,977,325 43,007,571 31,392,430 28,865,754 26,146,617 23,591,436 17,316,120 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 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, 2007, amount to $2.2 billion, a decrease of $221.0 million from the previous fiscal year. 2006 Governmental Activities Highway revenue bonds Grant anticipation notes Premium on bonds Compensated absences Capital leases Notes payable Total Governmental Activities 2007 $ 1,490,600,000 282,860,000 108,034,322 14,410,376 10,600,742 168,287,371 2,074,792,811 $ 1,223,425,000 325,430,000 90,852,414 12,010,473 11,129,668 195,017,589 1,857,865,144 Business-type Activities Compensated absences Notes payable Total Business-type Activities 151,201 154,534,466 154,685,667 134,537 150,494,466 150,629,003 $ 2,229,478,478 $ 2,008,494,147 Total Non-Current Liabilities The Department has issued revenue bonds in 39 separate issues between 1980 and 2007. All bonds outstanding as of June 30, 2007, are scheduled to mature on various dates, but not later than July 1, 2026. The bonds are obligations of the State Transportation Board and are not obligations of the State of Arizona. Of the $5.9 billion total in bonds issued between 1980 and 2007, $1.4 billion, or approximately 24 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 Grant Anticipation Notes (GARVEE bonds) are rated AA/Aa3/AA with the additional rating provided by Fitch Ratings. The Department has no Regional Area Road Fund bonds outstanding. 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 2007, the Department issued Highway Revenue Bonds totaling $325,000,000 to (i) finance portions of the Transportation Board’s Five-Year Transportation Facilities Construction Program and (ii) pay costs of issuing the bonds. In fiscal year 2007 the State Transportation Board received legislative authority to begin issuing Highway Revenue Bonds with maturities up to 30 years in length, replacing the 20 year maturity requirement that had been in place since 1980. 2007 Comprehensive Annual Financial Report 13 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2007 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 2007 Comprehensive Annual Financial Report 14 Exhibit 1 Arizona Department of Transportation Statement of Net Assets June 30, 2007 Governmental Activities ASSETS Unrestricted cash on deposit with the State Treasurer Receivables: $ 159,561,121 Notes and loans Subscriptions, net of allowance for doubtful accounts Business-type Activities $ Total 2,105,531 $ 161,666,652 7,622,744 - 114,682,502 323,591 122,305,246 323,591 Accrued interest Taxes and fees Other, net of allowance for doubtful accounts Due from U.S. Government for reimbursable costs 4,227,107 62,121,925 9,154,717 49,544,490 760,657 79,997 - 4,987,764 62,121,925 9,234,714 49,544,490 Due from other state agencies Internal balances 19,918,329 122,327 <19,918,329> Inventories Prepaid items Deferred charges 8,690,321 16,152,530 1,056,893 236,805 - 9,747,214 236,805 16,152,530 1,166,643,799 14,105,002,270 130,631,610 7,900 1,297,275,409 14,105,010,170 185,096,801 15,793,736,154 217,279 230,306,763 185,314,080 16,024,042,917 LIABILITIES Accounts payable and other current liabilities Accrued payroll and other accrued expenses 24,240,938 10,514,108 259,101 131,040 24,500,039 10,645,148 Contracts and retainage payable 88,684,437 - 88,684,437 130,374,378 10,570,485 - 3,196,298 130,374,378 10,570,485 3,196,298 251,056,635 1,823,736,176 2,339,177,157 154,685,667 158,272,106 405,742,302 1,823,736,176 2,497,449,263 12,211,861,155 225,179 12,212,086,334 2,687,622 1,003,824,231 236,185,989 71,707,711 101,767 71,707,711 2,687,622 1,003,824,231 236,287,756 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 $ 13,454,558,997 $ The notes to the financial statements are an integral part of this statement. 2007 Comprehensive Annual Financial Report 15 72,034,657 122,327 - $ 13,526,593,654 Exhibit 2 Arizona Department of Transportation Statement of Activities For the fiscal year ended June 30, 2007 Program Revenues Expenses Functions/Programs Governmental Activities: Administration Aeronautics Highway Highway Maintenance Motor Vehicle 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 $ 51,666,715 5,417,937 79,279,372 120,162,937 105,961,064 173,077,942 $ Charges for Services Operating Grants and Contributions Capital Grants and Contributions 8,843,066 1,133,347 2,953,149 577,128 132,273,779 - $ $ 609,848 31,510,083 - 354,023,589 - Net Revenues $ <42,823,649> <3,674,742> 309,207,449 <119,585,809> 26,312,715 <173,077,942> 1,219,208,067 114,795,378 48,760,126 82,449,597 2,000,779,135 12,238,611 158,019,080 40,558,982 72,678,913 354,023,589 <1,219,208,067> <114,795,378> 4,037,467 <82,449,597> <1,416,057,553> 8,071,836 8,059,902 - - <11,934> 4,354,619 12,426,455 $ 2,013,205,590 2,909,458 10,969,360 $ 168,988,440 72,678,913 $ 354,023,589 <1,445,161> <1,457,095> $ <1,417,514,648> 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 Special item - State appropriation (Note 6D) Total general revenues and special item $ <1,416,057,553> $ <1,457,095> $ <1,417,514,648> Change in net assets Net assets - July 1 Net assets - June 30 992,176,672 12,462,382,325 $ 13,454,558,997 262,263,939 1,029,000,817 790,908,552 15,302,697 55,760,406 <464,317> 10,462,131 245,000,000 2,408,234,225 The notes to the financial statements are an integral part of this statement. 16 5,563,036 <2,749> 5,560,287 4,103,192 67,931,465 $ 72,034,657 262,263,939 1,029,000,817 790,908,552 15,302,697 61,323,442 <467,066> 10,462,131 245,000,000 2,413,794,512 996,279,864 12,530,313,790 $ 13,526,593,654 Arizona Department of Transportation Balance Sheet Governmental Funds June 30, 2007 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 Advance to other funds Debt service Capital projects Unreserved reported in: General fund Non-major special revenue funds Total fund balances Total liabilities and fund balances $ 96,349,039 Special Revenue Funds Motor Vehicle Division Clearing Fund Maricopa Regional Area Road Construction Fund $ - $ - Highway User Revenue Fund $ - 1,781,085 97,870,229 4,336,883 1,167,009 639,320 1,720,571 604,976 605,937 10,181,080 - 152,985 15,889,250 51,940,845 - $ 22,097,656 5,757,100 20,000,000 481,966,113 730,158,105 12,005,017 281,914,979 $ 298,051,872 $ 8,128,423 51,720,559 70,635,999 $ 124,943,518 192,926,598 $ 4,917,524 $ $ 17,273,337 $ - $ - 9,710,915 48,011,677 1,536,349 55,494 24,709,728 - 18,895,171 8,410 97,282,353 2,814 168,287,371 232,466,650 1,720,571 26,485,793 29,772,848 4,673,143 21,500 70,635,999 95,635,835 192,926,598 5,757,100 20,000,000 481,966,113 271,566,079 - - <10,031,758> 497,691,455 271,566,079 730,158,105 $ 298,051,872 70,635,999 192,926,598 The notes to the financial statements are an integral part of this statement. 2007 Comprehensive Annual Financial Report 17 $ $ Exhibit 3 Debt Service Fund $ Total Non-Major Governmental Funds (See Exhibit 9) Capital Projects Fund - - $ 54,876,072 258,190 - 674,662 134,907 - 166,917 2,964,865 5,902,173 4,212,860 4,200,848 118,104,508 62,121,925 7,622,744 9,154,719 2,429,452 $ 2,687,642 207,177,484 $ 207,987,053 15,441,817 16,491,694 $100,056,398 $ 49,544,490 5,757,100 20,000,000 8,128,423 1,166,643,799 1,602,503,667 $ $ - $ 1,787,926 $ 23,978,787 110 - 195,446 15,963,032 468,204 9,970,265 88,684,437 118,182,187 110 - 4,965,695 5,897,342 5,902,173 35,179,818 130,374,378 10,570,485 24,314 7,622,744 168,287,371 557,694,968 2,687,532 - 207,987,053 90 15,874,687 5,757,100 20,000,000 2,687,622 977,393,932 2,687,532 $ 2,687,642 207,987,053 $ 207,987,053 49,001,803 64,876,580 $100,056,398 - $ Total Governmental Funds $ $ 151,225,111 <10,031,758> 49,001,803 1,044,808,699 1,602,503,667 2007 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, 2007 Total fund balances - governmental funds (Exhibit 3) $ 1,044,808,699 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) 14,238,045,343 53,290,976 7,622,744 <1,889,208,765> $ 13,454,558,997 The notes to the financial statements are an integral part of this statement. 2007 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, 2007 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: Administration Aeronautics Highway Highway maintenance Motor Vehicle Total Transportation $ Maricopa Regional Area Road Construction Fund Special Revenue Funds Motor Vehicle Division Clearing Fund - $ 262,263,939 318,644,954 365,855,724 - 515,890,108 6,715,422 313,473,265 381,442,992 236,948,147 31,378,893 15,609,786 1,799,504 486,134 26,462,906 1,143,026 4,563,469 1,002,892,543 40,279,418 7,122,358 144,452 12,230,767 291,499 84,422 322,416,855 522,605,530 2,451,735 2,337,538 699,705,530 44,389,169 75,970,369 118,939,991 98,249,066 337,548,595 - - 607,300 607,300 The notes to the financial statements are an integral part of this statement. 2007 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 - $ 262,263,939 - - 11,370,345 38,702,544 1,159,378,672 792,716,682 2,513,135 2,513,135 9,939,693 9,939,693 57,148,219 41,168,830 12,238,611 297,388 1,795,211 15,302,697 1,133,347 102,280 179,259,472 334,375,784 72,547,723 34,970,755 1,799,504 927,974 55,393,447 15,302,697 1,133,347 1,434,525 7,087,709 2,739,332,758 39,901 39,901 446,244 446,244 3,876,077 48,760,126 4,944,692 57,580,895 44,875,314 3,876,077 124,730,495 118,939,991 103,801,058 396,222,935 (continued) 2007 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, 2007 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 Capital leases Sale of capital assets Insurance recovery Debt issuance Premium from debt issuance Total other financing sources 22,299,363 14,992,487 $ Special Revenue Funds Motor Vehicle Division Clearing Fund Highway User Revenue Fund 22,303,272 - $ 478,695,619 43,909,911 $ 677,647,751 21,450,479 2,472,429 118,637,423 348,332,757 844,283,054 152,403 226,953,479 249,409,154 522,605,530 699,705,530 158,609,489 73,007,701 - - 38,568,866 <129,707,596> <72,928> 2,128,489 462,448 577,128 <88,043,593> 73,279 <37,094,890> 9,699,566 <27,322,045> - - Special item State appropriation for Statewide Transportation Acceleration Needs (STAN) 245,000,000 - - - Net change in fund balances Fund balances - July 1 Fund balances - June 30 315,565,896 182,125,559 497,691,455 45,685,656 225,880,423 $ 271,566,079 - - $ The notes to the financial statements are an integral part of this statement. 2007 Comprehensive Annual Financial Report 22 $ $ Exhibit 4 Debt Service Fund $ Total Non-Major Governmental Funds (See Exhibit 10) Capital Projects Fund - $ - $ Total Governmental Funds 16,937,408 34,442,501 $ 1,217,883,413 114,795,378 100,395,000 88,363,507 1,591,556 2,472,429 122,781,596 741,505,742 2,786,011,556 100,395,000 88,363,507 188,798,408 1,591,556 3,991,770 166,219,506 172,249,076 108,960,804 <186,285,273> <162,309,383> 70,298,668 <46,678,798> 186,857,174 <43,761> 186,813,413 <1,348,438> 325,000,000 26,201,309 349,852,871 <57,148,219> <83,487> <57,231,706> 225,499,319 <186,855,815> <38,643,504> 2,128,489 10,162,014 577,128 325,000,000 26,201,309 364,068,940 $ - - - 245,000,000 528,140 2,159,392 2,687,532 187,543,488 20,443,565 $ 207,987,053 13,066,962 51,809,618 64,876,580 562,390,142 482,418,557 $ 1,044,808,699 $ 2007 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, 2007 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. 2007 Comprehensive Annual Financial Report 24 $ 562,390,142 674,747,333 <351,201,309> 110,372,895 4,309,093 <8,441,482> $ 992,176,672 Exhibit 5 Arizona Department of Transportation Statement of Net Assets Proprietary Funds June 30, 2007 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 130,631,610 Arizona Highways Magazine Fund $ 2,105,531 - Total $ 2,105,531 130,631,610 Governmental Activities Internal Service Fund $ 8,336,010 - 746,190 72,715,250 78,777 122,327 204,294,154 323,591 14,467 79,997 1,056,893 236,805 3,817,284 323,591 760,657 72,715,250 79,997 78,777 122,327 1,056,893 236,805 208,111,438 26,259 2,933,221 11,295,490 Non-current assets: Loans receivable Capital assets not subject to depreciation Capital assets subject to depreciation, net of accumulated depreciation Total noncurrent assets Total assets 41,967,252 - 7,900 41,967,252 7,900 - 41,967,252 246,261,406 217,279 225,179 4,042,463 217,279 42,192,431 250,303,869 52,053,728 52,053,728 63,349,218 LIABILITIES Current liabilities: Accounts payable Accrued payroll and other accrued expenses Interfund payables (Note 5E) Compensated absences Deferred revenue Capital leases payable (Note 5F) Notes payable Total current liabilities 5,350 13,879 154,534,466 154,553,695 259,101 125,690 137,322 3,196,298 3,718,411 259,101 131,040 151,201 3,196,298 154,534,466 158,272,106 237,837 1,268,483 1,100 2,672,188 4,179,608 Non-current liabilities: Advance from other funds Capital leases payable (Note 5F) Total noncurrent liabilities Total liabilities 20,000,000 20,000,000 174,553,695 3,718,411 20,000,000 20,000,000 178,272,106 5,878,634 5,878,634 10,058,242 71,707,711 71,707,711 225,179 98,873 324,052 225,179 71,707,711 98,873 72,031,763 43,502,906 9,788,070 53,290,976 NET ASSETS Invested in capital assets, net of related debt Restricted for loans and other financial assistance Unrestricted Total net assets $ $ 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. 2007 Comprehensive Annual Financial Report 25 2,894 72,034,657 $ 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, 2007 Business-type Activities - Enterprise Funds Highway Expansion and Extension Loan Program Fund Operating revenues: Sales and charges for services (net of write off $81,371) 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 2,909,458 2,909,458 Arizona Highways Magazine Fund $ 197,042 1,144 31,000 886 4,040,000 1,311 4,271,383 Operating income Non-operating revenues : Interest on investments Investment expense Gain on sale/disposal of capital assets Insurance recoveries Interest on capital leases Total non-operating revenues Total 7,285,800 774,102 8,059,902 $ 3,452,483 114,521 2,416,998 1,195,167 97,159 19,986 400,752 13,538 38,791 321,255 8,070,650 $ 43,125,738 51,322 43,177,060 3,452,483 114,521 2,614,040 1,195,167 98,303 19,986 431,752 14,424 4,040,000 38,791 322,566 12,342,033 4,815,052 12,364,533 13,737,008 351,592 501,996 215,797 605,300 86,418 8,022,214 1,314,259 42,014,169 1,162,891 <10,748> <1,372,673> 5,439,624 <83,236> - 123,412 <1,696> <2,749> - 5,563,036 <84,932> <2,749> - 366,959 122,289 699,346 <355,896> 5,356,388 118,967 5,475,355 832,698 - - - 2,314,014 3,994,463 67,713,248 $ 71,707,711 108,219 215,833 324,052 4,102,682 4,309,603 48,981,373 $ 53,290,976 $ 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. 2007 Comprehensive Annual Financial Report 26 7,285,800 2,909,458 774,102 10,969,360 <1,361,925> Capital contributions Changes in net assets Total net assets - July 1 Total net assets - June 30 Governmental Activities Internal Service Fund 510 4,103,192 Exhibit 7 Arizona Department of Transportation Statement of Cash Flows Proprietary Funds For the fiscal year ended June 30, 2007 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 agencies Other receipts Net cash provided by operating activities $ 3,634,058 $ 6,857,446 $ 31,600,000 7,608,289 <32,144> <5,566,484> <196,930> <2,382,421> <5,797,282> 769,314 <1,311> 36,814,680 <322,145> Cash flows from capital and related financing activities: Proceeds from sale of capital assets Acquisition of capital assets Insurance recoveries Capital lease payments Net cash capital and related financing activities - Cash flows from investing activities: Interest on investments Investment expense Net cash provided by investing activities 5,124,274 <83,236> 5,041,038 Net increase in cash Cash - July 1 Cash - June 30 41,855,718 88,775,892 $ 130,631,610 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 Inventories Prepaid items Accounts payable Accrued payroll and other accrued expenses Compensated absences Notes payable Deferred revenue Net cash provided by operating activities $ <1,361,925> $ 33,411,007 726,494 <1,895> 141 858 4,040,000 36,814,680 $ Noncash capital and financing activities: Certain vehicles were contributed to the Equipment Fund by the General Fund totaling $2,314,014. The notes to the financial statements are an integral part of this statement. 2007 Comprehensive Annual Financial Report 27 <18,004> <18,004> <18,004> <18,004> 123,412 <1,696> 121,716 5,247,686 <84,932> 5,162,754 <218,433> 41,637,285 2,323,964 91,099,856 $ 2,105,531 $ 132,737,141 - $ 10,491,504 $ 31,600,000 34,983,118 7,608,289 8,143,720 <5,598,628> <20,172,778> <2,579,351> <13,684,487> <5,797,282> 768,003 36,191 36,492,535 9,305,764 <10,748> $ 38,791 <37,203> <33,121> 61,748 19,749 18,771 15,806 <395,938> <322,145> $ 349,123 <4,606,995> 699,346 <2,934,742> <6,493,268> 366,959 366,959 3,179,455 5,156,555 $ 8,336,010 <1,372,673> $ 1,162,891 38,791 8,022,214 33,373,804 <15,131> 726,494 1,100 <1,895> <33,121> <8,524> 61,748 19,749 4,275 18,912 138,939 16,664 4,040,000 <395,938> 36,492,535 $ 9,305,764 Exhibit 8 Arizona Department of Transportation Statement of Net Assets Agency Funds June 30, 2007 ASSETS Restricted cash on deposit with the State Treasurer Other receivables Total assets $ $ LIABILITIES Due to Arizona counties Other payables Total liabilities $ $ The notes to the financial statements are an integral part of this statement. 2007 Comprehsive Annual Financial Report 28 172,526 204 172,730 169,916 2,814 172,730 Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007 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...........................................................................................................................40 C – Explanations of Reconciling Items of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Fund to Statement of Activities .........................................41 Note 5 – Detailed Notes on all Funds ..........................................................................................................................43 A – Capital Assets ..............................................................................................................................................43 B – Construction Commitments .........................................................................................................................44 C – Deferred Revenues.......................................................................................................................................44 D – Securities Held in Lieu of Retention............................................................................................................45 E – Interfund Receivables, Payables, Advances, and Transfers .........................................................................45 F – Leases ...........................................................................................................................................................46 G – Non-Current Liabilities................................................................................................................................48 H – Short-term Debt ...........................................................................................................................................51 I – Fund Balances ...............................................................................................................................................51 Note 6 – Other Information .........................................................................................................................................51 A – Subsequent Events .......................................................................................................................................51 B – Contingent Liabilities...................................................................................................................................52 C – Retirement Plan............................................................................................................................................52 D – Special Item .................................................................................................................................................53 2007 Comprehensive Annual Financial Report 29 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 2007 Comprehensive Annual Financial Report 30 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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. 2007 Comprehensive Annual Financial Report 31 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 Economic Strength Project Fund, incorporated cities, counties and other legislatively appropriated distributions. 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 funds: 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 Fund and the Highway Properties – 24 Percent Fund (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 aproprietary 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. 2007 Comprehensive Annual Financial Report 32 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 Arizona Revised Statutes, §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, 2007, 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, for the Statewide Transportation Acceleration Needs (STAN) account, and for loan repayments to the HELP fund. Receivables, Payables and Advances Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal 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. Notes receivable represents loans made to parties purchasing assets 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. 2007 Comprehensive Annual Financial Report 33 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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, for the Statewide Transportation Acceleration Needs (STAN) account, and for loan repayments 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. 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. 2007 Comprehensive Annual Financial Report 34 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 recorded when cash, receivables, or other assets are received prior to revenue 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 for the General Fund, the deferred revenue represents the amount for the notes receivable for loans made to parties who purchased assets 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. For the Non-Major Governmental Funds, the deferred revenue represents airport capital improvements designed to generate airport revenues and/or related airport economic development efforts. Loans are typically for construction of aircraft storage hangars, fuel dispensing and storage facilities, and terminal buildings. Loan rates vary and are based on the Bond Buyer Index (BBI) for 25 year national revenue bonds. Loan periods are typically 10 to 25 years in length. 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. 2007 Comprehensive Annual Financial Report 35 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 non-operating. 2007 Comprehensive Annual Financial Report 36 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 Activity As a general rule, the effect of interfund activity has been eliminated from the government-wide statements. Exceptions to this rule are activities between the funds reported as governmental activities and the funds reported as business-type activities (e.g. the transfer of the 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. FUND TYPES MAJOR FUNDS Governmental Funds : General Fund (State Highway Fund) Special Revenue Funds: Maricopa Regional Area Road Construction Fund Motor Vehicle Division Clearing Fund Highway User Revenue Fund Debt Service Fund Capital Projects Fund Proprietary Funds: Arizona Highways Magazine Fund Highway Expansion and Extension Loan Program Fund NON-MAJOR FUNDS Other Governmental Funds: Special Revenue Funds: State Aviation Fund Safety Enforcement and Transportation Infrastucture Fund Motor Vehicle Liabitity Insurance Enforcement Fund Vehicle Inspection and Title Enforcement Fund Motor Carrier Safety Revolving Fund Underground Storage Tank Fund Economic Strength Project Fund Grant Anticipation Notes Fund Local Agency Deposits Fund FIDUCIARY FUNDS Agency Funds: Highway Properties - Privilege Tax Fund Highway Properties - 24 Percent Fund 2007 Comprehensive Annual Financial Report 37 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 allocated within all divisions. In certain divisions, other specific programs are allocated 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, building, and improvements for the General Fund (State Highway Fund). A legal limitation is adopted for land, building, 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. 43 Financial Reporting by for Postemployment Benefit Plans Other Than Pensions Plans This Statement establishes uniform financial reporting standards for other postemployment benefits (OPEB) and supersedes the interim guidance included in Statement No. 26, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans. The standards in this Statement apply for OPEB trust funds included in the financial reports of plan sponsors or employers, as well as for the stand-alone financial reports of OPEB plans or the public employee retirement systems, or other third parties, that administer them. This Statement also provides requirements for reporting of OPEB funds by administrators of multiple-employer OPEB plans, when the fund used to accumulate assets and pay benefits or premiums when due is not a trust fund. The provisions of this Statement are effective for periods beginning after December 15, 2005. The Department does not have any postemployment benefit plans and therefore, this Statement is not applicable to the Department. 2007 Comprehensive Annual Financial Report 38 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 Statement No. 45 Accounting and Financial Reporting by Employers of Postemployment Benefits Other Than Pensions This Statement establishes standards for the measurement, recognition, and display of other postemployment benefits (OPEB) expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the financial reports of state and local governmental employers. This Statement improves the relevance and usefulness of financial reporting by (a) requiring systematic, accrual-basis measurement and recognition of OPEB cost (expense) over a period that approximates employee’s years of service and (b) providing information about actuarial accrued liabilities associated with OPEB and whether and to what extent progress is being made in funding the plan. The provisions of this Statement are effective for periods beginning after December 15, 2006. The Department will implement this Statement as appropriate. Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues This Statement establishes criteria that governments will use to ascertain whether the proceeds received should be reported as revenue or as a liability. The criteria should be used to determine the extent to which a transferor government either retains or relinquishes control over the receivables or future revenues through its continuing involvement with those receivables or future revenues. This Statement establishes that a transaction will be reported as a collateralized borrowing unless the criteria indicating a sale has taken place are met. If it is determined that a transaction involving receivables should be reported as a sale, the difference between the carrying value of the receivables and the proceeds should be recognized in the period of the sale in the change statements. If it is determined that a transaction involving future revenues should be reported as a sale, the revenue should be deferred and amortized, except when specific criteria are met. This Statement also provides additional guidance for sales of receivables and future revenues within the same financial reporting entity. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2006. The Department will implement this Statement as appropriate. Statement No. 49 Accounting and Financial Reporting for Pollution Remediation Obligations This Statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. The scope of the document excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as landfill closure and postclosure care and nuclear plant decommissioning. Essentially, once any one of five specified obligating events occurs, a government is required to estimate the components of expected pollution remediation outlays and determine whether outlays for those components should be accrued as a liability or, if appropriate, capitalized when goods and services are acquired. The provisions of this Statement are effective for periods beginning after December 15, 2007. The Department will implement this Statement as appropriate. Statement No. 50 Pension Disclosures This Statement more closely aligns the financial reporting requirements for pensions with those for other postemployment benefits and, in doing so, enhances information disclosed in notes to financial statements or presented as required supplementary information by pension plans and by employers that provide pension benefits. This Statement amends Statements 25 and 27 to require defined benefit pension plans and sole and agent employers to present certain information related to note disclosures or required supplementary information. The provisions of this Statement are effective for periods beginning after June 15, 2007. The Department does not have any pension plans, as defined by this Statement, and therefore, this Statement is not applicable to the Department. 2007 Comprehensive Annual Financial Report 39 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 Statement No. 51 Accounting and Financial Reporting for Intangible Assets The objective of this Statement is to establish accounting and financial reporting requirements for intangible assets to reduce inconsistencies, thereby enhancing the comparability of the accounting and financial reporting of such assets among state and local governments. This Statement requires that all intangible assets not specifically excluded by its scope provisions be classified as capital assets. Accordingly, existing authoritative guidance related to the accounting and financial reporting for capital assets should be applied to these intangible assets, as applicable. This Statement also provides authoritative guidance that specifically addresses the nature of these intangible assets. Such guidance should be applied in addition to the existing authoritative guidance for capital assets. The provisions of this Statement are effective for periods beginning after June 15, 2009. The Department will implement this Statement as appropriate. 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 clarify these differences between the governmental fund Balance Sheet and the government-wide Statement of Net Assets: 1. 2. 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 Capital assets subject to depreciation $ 14,105,002,270 185,096,801 less Internal Service Fund (Equipment Fund) assets 14,290,099,071 <52,053,729> $ 14,238,045,342 Deferred revenues for assets shown in fund statements for the following funds: Maricopa Regional Area Road Construction Fund State Aviation Fund 3. $ 1,720,571 5,902,173 $ 7,622,744 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 Deferred charges - bond issuance costs - outstanding amount Capital leases Compensated absences Business activity share of Equipment Fund gain 2007 Comprehensive Annual Financial Report 40 $<1,881,494,322> 8,024,107 <2,049,920> <13,685,736> <2,894> $<1,889,208,765> Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 clarify 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 Adjustment to infrastructure Less depreciation expense 2. $ 741,505,742 <57,818,364> <8,940,045> $ 674,747,333 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 Principal repayments: Highway Revenue Bonds Transportation Excise Tax Revenue Bonds GARVEE Bonds (Grant Anticipation Notes) Amortization of premium and discount Amortization of bond issuance costs 3. $<325,000,000> <26,201,309> <351,201,309> 57,825,000 42,570,000 9,019,401 958,494 110,372,895 $<240,828,414> 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 $ $ 2007 Comprehensive Annual Financial Report 41 4,309,603 <510> 4,309,093 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 4. 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: Contributed capital Capital lease Notes and loans Compensated absences $ <2,314,014> <2,049,920> <1,735,709> <2,341,839> $ <8,441,482> 2007 Comprehensive Annual Financial Report 42 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 5. DETAILED NOTES ON ALL FUNDS A. Capital Assets Capital assets activity for the year ended June 30, 2007, was as follows: July 1, 2006 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 $ <22,260,195> $ 2,217,183,763 <12,647,430> 9,855,140,388 <481,231,315> 2,032,678,119 <516,138,940> 14,105,002,270 <3,136,601> <5,626,782> <8,763,383> 155,682,847 23,012,860 56,537,450 135,550,442 370,783,599 <58,129,896> <2,546,896> <34,497,790> <81,563,657> <176,738,239> <4,737,312> <343,598> <3,965,757> <7,915,592> <16,962,259> 2,952,593 5,061,107 8,013,700 <62,867,208> <2,890,494> <35,510,954> <84,418,142> <185,686,798> 183,366,509 2,479,975 $ 13,616,679,780 $ 1,190,307,914 July 1, 2006 Beginning Balance Business-Type Activities $ Less accumulated depreciation for: Buildings and improvements Machinery and equipment Total accumulated depreciation Total Capital Assets, being depreciated, net Business type activities capital assets, net 121,079,273 488,032,596 578,716,070 1,187,827,939 6,473,525 589,360 5,444,646 6,934,703 19,442,234 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 149,209,322 22,423,500 54,229,405 134,242,521 360,104,748 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 2,118,364,685 9,379,755,222 1,935,193,364 13,433,313,271 Increases June 30, 2007 Ending Balance 7,900 $ 185,096,801 $ <516,888,623> $ 14,290,099,071 Increases June 30, 2007 Ending Balance Decreases - $ - $ 7,900 981,157 2,352,439 3,333,596 18,004 18,004 <9,003> <9,003> 981,157 2,361,440 3,342,597 <777,206> <2,315,575> <3,092,781> <33,818> <4,973> <38,791> 6,254 6,254 <811,024> <2,314,294> <3,125,318> <20,787> <2,749> 217,279 <20,787> $ <2,749> $ 225,179 240,815 $ <749,683> 248,715 $ 2007 Comprehensive Annual Financial Report 43 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 $ 1,664,260 1,515,516 2,541,549 1,611,044 1,607,676 8,022,214 $ 16,962,259 $ 38,791 B. Construction Commitments The Department’s outstanding commitments for contracts at June 30, 2007, were $873,795,206. Construction Contracts: Rural Roadways Small Urban Roadways Urban Roadways Large Urban Roadways Sub-total Design Contracts Other Commitments Total Expenditures To Date Remaining Commitment $ 169,065,837 29,454,931 60,846,448 356,465,009 615,832,225 952,896,629 335,606,580 $ 1,904,335,434 $170,213,151 21,875,919 47,684,078 356,235,098 596,008,246 133,156,414 144,630,546 $873,795,206 C. Deferred Revenues In the fund financial statements, the deferred revenues represent the amount for notes receivable for loans made to parties who purchased assets 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, 2007: Governmental Funds: Maricopa Regional Area Road Construction Fund State Aviation Fund Proprietary Fund: Arizona Highways Magazine Fund 2007 Comprehensive Annual Financial Report 44 $ 1,720,571 5,902,173 $ 7,622,744 $ 3,196,298 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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, 2007, the bank held assignment on securities aggregating approximately $5.7 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, 2007, were: Receivables Governmental activities: General Fund (State Highway Fund) Payables Motor Vehicle Division Clearing Fund Highway User Revenue Fund Maricopa Regional Area Road Fund Capital Project Non-major governmental funds Business-type activities: Highway Expansion and Extension Loan Program Fund Amount Highway User Revenue Fund Equipment Service Fund Debt Service Fund Motor Vehicle Division Clearing Fund Non-major governmental Funds General Fund (State Highway Fund) Motor Vehicle Division Clearing Fund General Fund (State Highway Fund) General Fund (State Highway Fund) General Fund (State Highway Fund) Motor Vehicle Division Clearing Fund General Fund (State Highway Fund) $ 97,282,353 1,100 110 118,462 468,204 605,937 15,831,650 57,600 639,320 134,907 2,945,058 19,807 118,104,508 General Fund (State Highway Fund) 78,777 $ 118,183,285 The General Fund receivable of $97,282,353 is an accrual for fuel tax revenues imposed in fiscal year 2007 from the Highway User Revenue Fund that will be collected in fiscal year 2008. The Highway User Revenue Fund receivable of $15,831,650 is an accrual for vehicle license taxes due in fiscal year 2007 from the Motor Vehicle Division Clearing Fund that will be collected in fiscal year 2008. 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. 2007 Comprehensive Annual Financial Report 45 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 Interfund transfers for the year ended June 30, 2007, consisted of the following: 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 $ 1,346,728 43,761 37,094,890 83,487 $ 38,568,866 Interfund Transfer In: Maricopa Regional Area Road Construction Debt Service Fund Fund $ $ Total 72,928 351 - $ 129,707,596 1,359 - $129,780,524 1,348,438 43,761 73,279 57,148,219 $ 186,857,174 37,094,890 57,231,706 $225,499,319 The General Fund (State Highway Fund) ($129,707,596) and Other Governmental Funds - Grant Anticipation Notes Fund ($57,148,219) made transfers to the Debt Service Fund to pay bond debt service. The Maricopa Regional Area Road Construction Fund made loan principal and interest payments to the General Fund (State Highway Fund) for loan repayments to the Highway Expansion and Extension Loan Program Fund. 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, 2007, approximated $3.8 million. 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 2008 2009 2010 Future operating lease commitments Amount $ $ 2007 Comprehensive Annual Financial Report 46 859,058 899,965 940,873 2,699,896 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 2008 2009 2010 2011 2012 2013 Future operating lease commitments $ 105,489 117,324 120,660 124,095 127,635 97,758 692,961 $ Capital Leases The Department has entered into lease agreements as lessee for financing the acquisition of various vehicles, equipment, and modular office buildings. 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 Modular office buildings Less accumulated depreciation Total $ $ 13,422,677 2,139,711 <2,247,335> 13,315,053 The future minimum lease obligations and the net present value of these minimums lease payments as of June 30, 2007, were as follows: Governmental Activities Year Ending June 30 2008 2009 2010 2011 2012 $ Total minimum lease payments Less amount representing interest Present value of minimum lease payments $ 3,403,402 3,403,402 3,151,364 966,759 374,385 11,299,312 <698,571> 10,600,741 2007 Comprehensive Annual Financial Report 47 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 $1,223,425,000. During the year, Highway Revenue Bonds totaling $325,000,000 were issued to (i) finance portions of the Transportation Board’s Five-Year Transportation Facilities Construction Program and (ii) pay costs of issuing the bonds. 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). 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. Also during fiscal year 2007, the Transportation Board received legislative authority to begin issuing Highway Revenue bonds with maturities up to 30 years in length, replacing the 20 year maturity requirement that had been in place since 1980. Highway Revenue Bonds currently outstanding are as follows: Purpose Govermental activities Govermental activities - refunding Interest Rates 3.8% - 5.5 % 3.4% - 6.0% Amount $ 1,090,475,000 400,125,000 $ 1,490,600,000 Annual debt service requirements to maturity for Highway Revenue Bonds are as follows: Fiscal year ending June 30 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2026 Highway Revenue Bonds Principal Interest $ 60,645,000 64,190,000 68,140,000 71,770,000 75,415,000 438,195,000 504,645,000 207,600,000 $1,490,600,000 $75,538,204 72,194,062 68,991,162 65,290,131 61,692,081 247,377,369 127,063,704 22,719,088 $740,865,801 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 (Maricopa County Regional Area Road Fund) 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. There were no Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year or issued during the fiscal year. 2007 Comprehensive Annual Financial Report 48 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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 $325,430,000,000. Grant Anticipation Notes (GARVEE bonds) currently outstanding are as follows: Purpose Govermental activities Interest Rates 2.5% - 5.25% Amount $ 282,860,000 Annual debt service requirements to maturity for Grant Anticipation Notes (GARVEE bonds) are as follows: Fiscal year ending June 30 2008 2009 2010 2011 2012 2013-2016 GARVEE Bonds (Grant Anticipation Notes) Principal Interest $ 36,565,000 $ 13,299,868 29,990,000 11,831,556 31,350,000 10,467,556 32,785,000 9,033,982 34,360,000 7,460,782 117,810,000 12,614,700 $282,860,000 $ 64,708,444 Notes Payable The Department’s outstanding notes payable as of June 30, 2007, was $322,821,837. The governmental activities notes payable was $168,287,371 and business-type activities was $154,534,466. The notes payable represent the General Fund (State Highway Fund) loan payable to HELP for $102,209,782 and the Board Funding Obligations (BFO) for loans from the State Treasurer for $220,612,055 (principal of $200,000,000 and accrued interest of $20,612,055). Annual debt service requirements to maturity for notes payable are as follows: Fiscal year ending June 30 2008 2009 2010 2011 Governmental Activities Principal Interest $125,000,000 $ 7,443,201 33,900,000 264,604 3,309,782 $162,209,782 $ 7,707,805 Business-type Activities Principal Interest $140,000,000 $ 16,160,000 $140,000,000 $ 16,160,000 The notes payable amount for governmental activities of $168,287,371 includes the accrued interest on the BFO of $6,077,589. The notes payable for business-type activities of $154,534,466 includes the accrued interest on the BFO of $14,534,466. 2007 Comprehensive Annual Financial Report 49 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 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, liabilities, and financial transactions of these trust accounts and the liability for the defeased bonds are not reflected in the financial statements of the Department. Refunded bonds of the Department deposited with escrow agents at June 30, 2007, are as follows: Type Original Issue 1999 Series - Senior 1999 Series - Senior 2001 Series - Senior 2002 Series B - Senior Escrow Maturity Date Balance July 1, 2009 July 1, 2009 July 1, 2011 July 1, 2012 $ 64,130,000 13,985,000 86,170,000 48,595,000 Highway Refunding Bonds Highway Refunding Bonds Highway Revenue Bonds Highway Revenue Bonds Total refunded bonds deposited with escrow agent $ 212,880,000 Changes in non-current liabilities The activity for the fiscal year ended June 30, 2007, was as follows: Governmental Activities: Bonds and notes: Highway 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, 2006 Additions $ 1,223,425,000 325,430,000 90,852,414 $ 325,000,000 26,201,309 1,639,707,414 11,129,668 12,010,473 195,017,589 1,857,865,144 351,201,309 2,128,489 14,988,320 4,869,782 373,187,900 <109,414,401> <2,657,415> <12,588,417> <31,600,000> <156,260,233> 1,881,494,322 10,600,742 14,410,376 168,287,371 2,074,792,811 106,788,501 3,068,884 10,121,661 131,077,589 251,056,635 134,537 150,494,466 150,629,003 161,289 4,040,000 4,201,289 <144,625> <144,625> 151,201 154,534,466 154,685,667 151,201 154,534,466 154,685,667 $ 2,008,494,147 $ 377,389,189 $ <156,404,858> $ 2,229,478,478 $ 405,742,302 Reductions $ Ending Balance June 30, 2007 <57,825,000> $ 1,490,600,000 <42,570,000> 282,860,000 <9,019,401> 108,034,322 Due Within One Year $ 60,645,000 36,565,000 9,578,501 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, $719,920 of the internal service fund’s compensated absences and $8,550,822 of capital leases are included in the above amounts. 2007 Comprehensive Annual Financial Report 50 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 The capital leases will be liquidated by the internal service fund as well as the General Fund (State Highway 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 does not have and 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, 2007. 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 counties). At June 30, 2007, approximately $151.7 million was reserved in the General Fund (State Highway Fund) for this purpose. In addition, the Statewide Transportation Acceleration Needs account held $317.4 million. The remaining $12.9 million was reserved 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 In August 2007, the Department repaid $160,000,000 principal amount of the Series 2003 Board Funding Obligations (BFOs) plus accrued interest of $16,640,000. Of these totals, $60,000,000 of the principal and $6,240,000 of the interest repaid the BFOs deposited to the General Fund in fiscal year 2004, and $100,000,000 of the principal and $10,400,000 of the interest repaid a portion of the BFOs deposited to the HELP in fiscal year 2004. Concurrent with these repayments, the Department borrowed $110,000,000 ($50,000,000 deposited to HELP and $60,000,000 deposited to the General Fund) under a new series of BFOs (Series 2007) that are payable no later than August 2011. On September 19, 2007, House Bill 2793 became effective and extended the maximum term of Highway Revenue Bonds from 20 to 30 years. On September 21, 2007, the Transportation Board adopted a Master Resolution relating to Transportation Excise Tax Revenue Bonds (Maricopa County Regional Area Road Fund). Also on September 21, 2007, the Transportation Board adopted the First Supplemental Resolution authorizing the issuance of the first series of bonds under the Master Resolution in an amount not to exceed $370,000,000. On November 6, 2007, the Transportation Board priced $370,000,000 in Transportation Excise Tax Revenue Bonds (Maricopa County Regional Area Road Fund) 2007 Series to pay (i) the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Maricopa County, Arizona and (ii) the costs of issuing the 2007 Series Bonds. The 2007 Series Bonds were issued as senior lien bonds and mature from July 1, 2008 through July 2007 Comprehensive Annual Financial Report 51 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 1, 2025. Net proceeds totaled $387,403,980 (after receipt of $20,428,792 reoffering premium and payment of $1,897,112 in underwriting fees and costs of issuance). The bonds were rated AA+ and Aa2 by Standard & Poor's Ratings services and Moody's Investors Service, respectively. House Bill 2793, which passed during the 2007 Legislative Session, became effective on September 19, 2007. This bill changes the authorized uses of the HELP Fund to include rural public transit capital projects. Up to $10,000,000 of the monies in the HELP Fund may be used to make loans for eligible transit capital projects. B. Contingent Liabilities Risk Management Insurance Losses The Department is exposed to various risks of loss related to torts; thefts of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Department is a participant in the state’s self-insurance program and, in the opinion of the Department’s management, any unfavorable outcomes from these claims and actions would be covered by the self-insurance program. Accordingly, the Department has no risk of loss beyond adjustments to future years’ premium payments to the state’s 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. Light Rail Transit System Arizona Revised Statutes, §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. 2007 Comprehensive Annual Financial Report 52 Arizona Department of Transportation Notes to the Financial Statements June 30, 2007 Arizona Revised Statutes provide statutory authority for employee and employer contributions. The employee and employer contribution rate for the year ended June 30, 2007, was computed to be 9.10 percent of covered payroll. The contribution rate for fiscal year 2006 was 6.90 percent. Contributions for the years ended June 30, 2007, 2006 and 2005 were $16,206,154, $12,104,582 and $8,990,672, 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 2007 was $185.3 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 2007 was $16.2 million each by both the employees and the Department. D. Special Item Arizona Revised Statutes, §28-7009, establishes the Statewide Transportation Acceleration Needs (STAN) account in order to provide funding for critically needed highway construction projects throughout Arizona. Laws 2006, Chapter 344, Section 48 provided initial funding for the STAN account in the form of a $245,000,000 appropriation from the State General Fund, and a $62,000,000 appropriation from the General Fund (State Highway Fund). As of June 30, 2007, these two appropriations totaling $307,000,000 had been deposited in the STAN. Laws 2007, Chapter 255, Section 108 provides additional funding for the STAN in the form of a $62,000,000 appropriation from the State Highway Fund in the fiscal year ending June 30, 2008. Arizona Revised Statutes, §28-7009, also allows the State Transportation Board to invest STAN funds with the State Treasurer, and allows all monies earned on the investment of STAN funds to be deposited to the STAN Account. The State Transportation Board has approved 6 design projects, 10 construction projects, and 1 right-of-way project for STAN funding. 2007 Comprehensive Annual Financial Report 53 Arizona Department of Transportation Required Supplementary Information June 30, 2007 Budgetary Comparison Schedule General Fund (State Highway Fund) For the fiscal year ended June 30, 2007 Budgeted Amounts Original Final Expenditures appropriated by State legislature in 2007 budget Administration $ 41,392,500 Highways 235,670,400 Motor Vehicle 91,847,900 Total $ 368,910,800 $ $ 43,892,900 248,384,600 99,479,600 391,757,100 Actual Amounts $ Timing differences for Highway Maintenace: Prior year appropriation expenditures expended in current budgetary year Current year appropriation expenditures expended in future budgetary year Basis differences: Net increase from cash basis for budgeting purposes and modified accrual basis for financial reporting purposes Entity differences: Funds not appropriated, but included for financial reporting purposes Perspective differences: Expenditures on modified accrual basis and not recognized on budgetary basis: Capital outlay and asset preservation Distribution to cities and counties 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 The notes to required supplementary information are an integral part of this statement. 2007 Comprehensive Annual Financial Report 54 43,727,609 247,869,264 98,809,023 390,405,896 2,879,966 <2,203,883> <3,818,082> 9,793,706 407,461,171 22,299,364 14,992,487 2,472,429 $ 844,283,054 Variance with Final Budget Positive $ $ 165,291 515,336 670,577 1,351,204 Arizona Department of Transportation Required Supplementary Information June 30, 2007 Note 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 allocated within all divisions. In certain divisions, other specific programs are allocated 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, building, and improvements for the General Fund (State Highway Fund). A legal limitation is adopted for land, building, 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. 2007 Comprehensive Annual Financial Report 55 Arizona Department of Transportation Required Supplementary Information June 30, 2007 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 6,817 center lane miles (18,573 travel lane miles) of roads and 4,648 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 2008 and beyond was adopted by the Transportation Board on June 15, 2007. 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, with contracts that 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: 2007 Comprehensive Annual Financial Report 56 Arizona Department of Transportation Required Supplementary Information June 30, 2007 Information About Infrastructure Assets Reported Using the Modified Approach - continued Numerical Rating 5 4 3 2 1 0 Weaver/AASHTO Scale Perfect Very Good Good Fair Poor Very Poor PSR Excellent Good Fair Poor Very Poor Impassable 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 2007, an overall rating of 3.87 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 2003 2004 2005 2006 2007 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 2003 through 2007 were as follows: Fiscal Year 2003 2004 2005 2006 2007 Estimated Expenditures (in millions) $243.5 198.5 235.7 218.5 216.4 Actual Expenditures (in millions) $220.4 218.5 195.0 211.5 196.5 2007 Comprehensive Annual Financial Report 57 Arizona Department of Transportation Required Supplementary Information June 30, 2007 Information About Infrastructure Assets Reported Using the Modified Approach - continued Bridges The Department’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2007, the Department owns and maintains 4,648 bridges with an approximate total deck area of 44,356,907 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 2007, the CRI was computed at 93.6%. 2007 Comprehensive Annual Financial Report 58 Arizona Department of Transportation Required Supplementary Information June 30, 2007 Information About Infrastructure Assets Reported Using the Modified Approach – continued Condition Levels - Bridges 95% CRI 94% 93% Actual Level 92% Desired Level 91% 90% 2003 2004 2005 2006 2007 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 providing products and services for a safe, efficient, and cost effective transportation system. Figure 3 indicates that approximately 60% of the bridges in the state were constructed prior to the 1970s while only 20% have been constructed in the last two decades. Age of Department's Bridge Population 30% % of bridges built in corresponding decade 25% 20% 15% 10% 5% 0% < 1930 30s 40s 50s 60s 70s 80s 90s 2000s Figure 3 2007 Comprehensive Annual Financial Report 59 Arizona Department of Transportation Required Supplementary Information June 30, 2007 Information About Infrastructure Assets Reported Using the Modified Approach - continued 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 2003 through 2007 were as follows: Fiscal Year 2003 2004 2005 2006 2007 Estimated Expenditures (in millions) $13.6 8.7 7.4 10.6 17.1 Actual Expenditures (in millions) $16.2 9.2 11.0 11.3 22.5 2007 Comprehensive Annual Financial Report 60 Arizona Department of Transportation Combining Balance Sheet Non-Major Governmental Funds June 30, 2007 Safety Enforcement Motor Vehicle and Liability Transportation Insurance Infrastructure Enforcement Fund Fund Vehicle Inspection and Title Enforcement Fund $ 34,478,751 $ 3,339,089 $ 8,573,523 $ 3,518,555 104,553 61,117 5,902,173 547,306 16,907 91,444 - 99,119 - 61,205 - 63,029 - - - $ 41,156,929 $ 3,447,440 $ 8,672,642 $ 3,579,760 $ 1,787,926 $ $ $ 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 Interfund payables Amounts due to: Arizona counties and cities Other state agencies Deferred revenue Total liabilities FUND BALANCES Reserved for: Debt service Capital projects Unreserved special revenue funds Total fund balances Total liabilities and fund balances - - 42,909 - 54,067 - 56,265 265 42,205 - 5,902,173 7,733,008 54,067 56,530 42,205 33,423,921 33,423,921 $ 41,156,929 3,393,373 3,393,373 $ 3,447,440 8,616,112 8,616,112 $ 8,672,642 3,537,555 3,537,555 $ 3,579,760 2007 Comprehensive Annual Financial Report 61 - Exhibit 9 Motor Carrier Safety Revolving Fund $ Underground Storage Tank Fund 30,842 $ - Economic Strength Project Fund $ Grant Anticipation Notes Fund 4,935,312 $ Local Agency Deposits Fund - $ Total Non-Major Governmental Funds - $ 54,876,072 - 15,074 2,632,173 - 30,383 - - 19,807 3,665,554 166,917 2,964,865 5,902,173 4,212,860 - - - - 15,378,788 15,441,817 $ 30,842 3,250,095 $ 5,897,342 $ 4,965,695 $ 90 90 13,241,509 $ 32,305,658 16,491,694 $ 100,056,398 $ - $ $ - $ - $ $ $ - - - - - - 5,897,342 5,897,342 4,965,695 4,965,695 30,842 30,842 30,842 $ 5,897,342 4,965,695 $ $ - 1,787,926 15,963,032 467,939 195,446 15,963,032 468,204 - 16,430,971 4,965,695 5,897,342 5,902,173 35,179,818 90 90 90 15,874,687 15,874,687 $ 32,305,658 90 15,874,687 49,001,803 64,876,580 $ 100,056,398 2007 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, 2007 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 Other federal grants and reimbursements Reimbursements from Arizona counties and cities Interest on loans receivable Interest on investments Flight property taxes Grand Canyon National Park Airport Other Total revenues $ Expenditures: Current: Transportation Aeronautics Highway Motor Vehicle Total Transportation Intergovernmental: Distributions to Arizona counties and cities Distributions to other state agencies Total expenditures Excess of revenues over expenditures 8,037,419 438,862 $ Motor Vehicle Liability Insurance Enforcement Fund $ $ 3,332,926 - 3,036,703 Vehicle Inspection and Title Enforcement Fund $ 1,808,130 609,848 297,388 1,382,947 15,302,697 1,133,347 83,125 27,285,633 88,323 6,267 3,427,516 3,036,703 1,808,130 3,876,077 3,876,077 571,465 571,465 3,062,205 3,062,205 1,306,070 1,306,070 15,707,174 19,583,251 200,000 771,465 1,627,200 4,689,405 107,700 1,413,770 7,702,382 2,656,051 - - 7,702,382 25,721,539 33,423,921 2,656,051 737,322 3,393,373 Other financing sources : 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 Safety Enforcement and Transportation Infrastructure Fund $ 2007 Comprehensive Annual Financial Report 63 <1,652,702> <1,652,702> 10,268,814 $ 8,616,112 $ 394,360 394,360 3,143,195 3,537,555 Exhibit 10 Motor Carrier Safety Revolving Fund $ $ Underground Storage Tank Fund - $ 32,418,849 Economic Strength Project Fund $ Grant Anticipation Notes Fund 1,000,000 $ - Local Agency Deposits Fund $ Total Non-Major Governmental Funds - $ 11,370,345 38,702,544 4,050 4,050 90,125 32,508,974 233,813 1,233,813 57,148,219 3 57,148,222 40,558,982 12,238,611 8,838 52,806,431 57,148,219 41,168,830 12,238,611 297,388 1,795,211 15,302,697 1,133,347 102,280 179,259,472 - 1,373 1,373 3,579 3,579 - 48,760,126 48,760,126 3,876,077 48,760,126 4,944,692 57,580,895 - 32,507,601 32,508,974 1,230,234 1,233,813 - 48,760,126 16,937,408 34,442,501 108,960,804 4,050 - - 57,148,222 4,046,305 70,298,668 - - - <57,148,219> <57,148,219> 4,050 26,792 30,842 - - $ $ $ 3 87 90 <83,487> <83,487> 3,962,818 11,911,869 $ 15,874,687 2007 Comprehensive Annual Financial Report 64 <57,148,219> <83,487> <57,231,706> $ 13,066,962 51,809,618 64,876,580 Exhibit 11 Arizona Department of Transportation Combining Statement of Net Assets Agency Funds June 30, 2007 Highway Highway Properties Properties - 24 -Privilege Tax Fund Percent Fund ASSETS Restricted cash on deposit with the State Treasurer Other receivables Total assets $ $ LIABILITIES Due to Arizona counties Other payables Total liabilities $ $ 2007 Comprehsive Annual Financial Report 65 - $ - $ $ $ Total 172,526 204 172,730 $ 172,526 204 $ 172,730 169,916 2,814 172,730 $ 169,916 2,814 $ 172,730 Exhibit 12 Arizona Department of Transportation Statement of Changes in Assets and Liabilities Agency Funds For the fiscal year ended June 30, 2007 Balance July 1, 2006 Additions Deductions Balance June 30, 2007 Highway Properties - Privilege Tax ASSETS Restricted cash on deposit with the State Treasurer Total assets $ $ 148 148 $ $ 211 211 $ $ <359> $ <359> $ - LIABILITIES Due to Department of Revenue Total liabilities $ $ 148 148 $ $ 211 211 $ $ <359> $ <359> $ - $ 192,496 192,496 $ 178,675 204 178,879 $<198,645> $ $<198,645> $ 172,526 204 172,730 175,861 2,814 178,675 $<198,441> $ $<198,441> $ 169,916 2,814 172,730 178,886 204 179,090 $<199,004> $ $<199,004> $ 172,526 204 172,730 175,861 211 2,814 178,886 $<198,441> $ <359> $ $<198,800> $ 169,916 2,814 172,730 Highway Properties - 24 Percent Fund ASSETS Restricted cash on deposit with the State Treasurer Other receivables Total assets $ $ LIABILITIES Due to Arizona counties Other payables Total liabilities $ $ 192,496 192,496 $ $ Total ASSETS Restricted cash on deposit with the State Treasurer Other receivables Total assets $ $ 192,644 192,644 $ $ LIABILITIES Due to Arizona counties Due to Department of Revenue Other payables Total liabilities $ $ 192,496 148 192,644 $ $ 2007 Comprehensive Annual Financial Report 66 Exhibit 13 Arizona Department of Transportation Capital Assets Used in the Operation of Governmental Funds 1 Schedule by Source June 30, 2007 and 2006 2007 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 asset 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. 2007 Comprehensive Annual Financial Report 67 2006 $ $ 2,217,183,763 155,682,847 15,862,586 7,150,274 53,475,186 9,855,140,388 2,032,678,119 14,337,173,163 $ 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 $ $ 14,337,173,163 14,337,173,163 $ $ 13,656,388,315 13,656,388,315 Exhibit 14 Arizona Department of Transportation Capital Assets Used in the Operation of Governmental Funds Schedule By Function and Activity1 June 30, 2007 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 asset $ 1 879,017 - $ 935,955 2,198,110,222 710,073 4,907,328 11,641,168 2,217,183,763 Improvements other than Buildings Buildings and Improvements 17,250,995 94,506 $ 37,297,461 6,840,798 98,846 4,849,537 356,896 152,944 42,234,626 46,506,238 $ 155,682,847 This schedule presents only the capital asset 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. 1,104,381 - $ 1,784,945 384,415 350 7,077 21,667 122,946 8,865,022 3,571,783 $ 15,862,586 Machinery and Equipment Airport Facilities 7,150,274 $ $ 7,150,274 17,630,199 1,187,965 Infrastructure $ 5,151,139 6,969,026 2,544,888 3,659,681 1,274,090 322,686 7,225,774 7,509,738 $ 53,475,186 Construction in Progress 12,789,265 $ 9,842,351,123 $ 9,855,140,388 Total - $ 2,032,678,119 $ 2,032,678,119 36,864,592 21,222,010 45,169,500 14,087,333,703 3,354,157 8,516,295 1,652,653 598,576 63,232,750 69,228,927 $ 14,337,173,163 Exhibit 15 Arizona Department of Transportation Capital Assets used in the Operation of Governmental Funds 1 Schedule of Changes by Function and Activity For the fiscal year ended June 30, 2007 Governmental Funds Capital Assets July 1, 2006 Function and Activity Administration Aeronautics Highway: $ Additions 34,184,265 21,154,678 $ 4,280,614 72,902 Deductions $ <1,600,287> $ <5,570> Governmental Funds Capital Assets June 30, 2007 36,864,592 21,222,010 Administrative and other services Highway construction Highway development Materials engineering Traffic engineering Transportation planning and research Highway Maintenance Motor Vehicle 40,529,977 11,481,588,630 2,908,781 8,780,168 1,397,134 595,816 62,877,574 67,177,928 4,639,523 607,943,313 808,630 462,952 279,192 15,483 421,598 2,362,794 <34,876,359> <363,254> <726,825> <23,673> <12,723> <66,422> <311,795> 45,169,500 12,054,655,584 3,354,157 8,516,295 1,652,653 598,576 63,232,750 69,228,927 Functional sub-total 11,721,194,951 621,287,001 <37,986,908> 12,304,495,044 1,935,193,364 578,716,070 <481,231,315> 2,032,678,119 Construction in progress Total governmental funds capital assets $ $ 13,656,388,315 1,200,003,071 1 This schedule presents only the capital asset 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. 2007 Comprehensive Annual Financial Report 69 $ <519,218,223> $ 14,337,173,163 Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007 Overview Statistical Section This part of the Arizona Department of Transportation’s (Department’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 well-being and performance over time. Revenue Capacity Information about the Motor Vehicle Fuel Tax and the Highway User 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 Department’s relationship of the financial report to the services provided 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. 2007 Comprehensive Annual Financial Report 70 Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007 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 2007 Comprehensive Annual Financial Report 71 Table 1 Arizona Department of Transportation Change in Net Assets For fiscal year ended June 30 (Thousands of Dollars) 72 Expenses: 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 Business-type activities: Arizona Highways Magazine Highway Expansion and Extension Loan Program Total business-type activities expenses Total primary government expenses Program Revenues: Governmental activities: Charges for services: Administration Aeronautics Highway Highway Maintenance Motor Vehicle Other Intergovernmental Operating grants and contributions Capital grants and contributions Total governmental activities program revenues 2003 2002 $ $ $ 57,864 3,751 46,543 91,570 82,904 6,844 96,629 915,219 149,341 24,791 89,605 1,565,061 10,711 5,265 15,975 1,581,036 974 104,298 3,341 4,111 56,481 470,772 639,977 $ $ $ 52,533 3,848 45,644 96,353 83,090 8,460 277,975 957,057 192,536 30,235 84,084 1,831,815 11,118 26,349 37,467 1,869,282 717 107,395 4,219 5,080 34,160 453,758 605,330 2004 $ $ $ 57,703 7,512 48,797 95,642 86,845 9,815 378,789 1,022,768 161,029 39,205 89,431 1,997,536 10,007 4,414 14,421 2,011,957 902 108,346 4,848 4,129 44,008 418,174 580,407 2005 $ $ $ 42,298 9,804 72,665 105,037 91,676 6,871 209,902 1,086,955 306,853 42,440 86,870 2,061,371 10,270 4,360 14,630 2,076,001 919 1,518 113,506 5,564 4,760 58,948 484,276 669,491 2006 $ $ $ 45,002 10,705 62,713 114,119 96,937 9,394 1,453 1,095,671 206,903 36,771 88,279 1,767,947 8,175 4,273 12,448 1,780,395 1,214 537 121,179 7,099 4,040 67,241 387,614 588,924 2007 $ $ $ 51,667 5,418 79,279 120,163 105,961 173,078 1,219,208 114,795 48,760 82,450 2,000,779 8,072 4,355 12,427 2,013,206 8,843 1,133 2,953 577 132,274 12,239 72,679 354,024 584,722 Business-type activities: Charges for services: Arizona Highways Magazine Highway Expansion and Extension Loan Program Total business-type activities program revenues Total primary governmental program revenues Net /revenues: Governmental activities Business-type activities Total primary government net expense 73 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 $ $ $ $ <925,084> $ <4,134> <929,218> $ <1,226,485> $ <23,989> <1,250,474> $ <1,417,129> $ <1,621> <1,418,750> $ 2,134,389 245,000 2,408,235 Business-type activities: Interest on investments Other Total business-type activities Total primary government 5,625 381 6,006 1,782,665 2,440 425 2,865 1,882,613 $ 1,588 505 2,093 1,943,204 2,764 380 3,144 2,106,013 $ 3,518 3,518 2,137,907 5,563 <3> 5,560 2,413,795 653,263 $ <21,124> 632,139 $ 523,982 472 524,454 710,989 $ <34> 710,955 $ 955,366 2,363 957,729 $ $ $ $ $ 316,491 994,052 770,596 13,686 28,538 11,026 2,134,389 - $ <1,416,057> <1,458> <1,417,515> 2,102,869 $ 316,806 966,885 759,633 13,180 19,245 27,120 2,102,869 - <1,179,023> $ <1,155> <1,180,178> $ 1,941,111 $ $ <1,391,880> $ <3,178> <1,395,058> $ $ 8,060 2,909 10,969 595,691 1,879,748 851,575 1,872 853,447 288,600 914,657 698,406 6,321 8,352 24,775 1,941,111 - $ 8,012 3,281 11,293 600,217 1,776,659 $ $ $ 8,443 3,009 11,452 680,943 1,776,659 - $ $ $ 9,271 3,529 12,800 593,207 Governmental activities before accounting change Cumulative effect of accounting change Special Item - State appropriation for Statewide Transportation Acceleration Needs (STAN) Total governmental activities $ 267,563 899,092 547,129 6,528 29,863 26,484 9,596 3,881 13,477 618,807 268,721 832,492 691,003 6,026 19,803 21,304 1,839,349 40,399 Change in Net Assets: Governmental activities Business-type activities Total primary government $ 9,614 2,227 11,841 651,818 $ $ $ 262,264 1,029,001 790,909 15,303 55,760 9,998 2,163,235 - 992,178 4,102 996,280 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 2007 $ 2006 2005 2004 2003 2002 12,211,861 11,806,376 10,780,474 10,179,585 9,621,204 8,998,742 Restricted $ 1,006,512 466,337 491,995 408,410 439,045 400,315 Business-type Activities Unrestricted $ 236,186 189,669 234,548 208,032 211,796 219,726 Total $ 13,454,559 12,462,382 11,507,017 10,796,027 10,272,045 9,618,783 Invested in Capital Assets, net of related debt $ 225 249 499 810 1,126 1,439 Restricted $ 71,708 67,713 65,273 63,900 63,225 83,293 Primary Government Unrestricted $ Total 102 $ <30> <204> 892 780 1,522 72,035 67,932 65,568 65,602 65,131 86,254 Invested in Capital Assets, net of related debt $ 12,212,086 11,806,625 10,780,973 10,180,395 9,622,330 9,000,181 Restricted $ 1,078,220 534,050 557,268 472,310 502,270 483,608 Unrestricted $ 236,288 189,639 234,344 208,924 212,576 221,248 Total $ 13,526,594 12,530,314 11,572,585 10,861,629 10,337,176 9,705,037 Primary Government Net Assets By Type 74 $14,000,000 $12,000,000 Thousands of Dollars $10,000,000 $8,000,000 Unrestricted Restricted $6,000,000 Invested in Capital Assets, net of related debt $4,000,000 $2,000,000 $0 2002 2003 2004 2005 Fiscal Year 2006 2007 Table 3 Arizona Department of Transportation Statement of Revenues, Expenditures, and Changes in Fund Balances For fiscal year ended June 30 (Thousands of Dollars) 2003 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: Administration Aeronautics Highway Highway Maintenance Motor Vehicle Other Total Transportation 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 Capital Leases 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 Special item - State appropriation for Statewide Transportation Acceleration Needs (STAN) 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 Revenues $ $ $ $ $ 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 2,369 300,785 $ $ 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 2,304 308,107 $ $ 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 2,940 331,975 $ $ 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 2,309 368,789 $ $ 44,875 3,876 124,731 118,940 103,801 396,223 957,057 189,784 1,022,768 160,029 1,086,955 306,852 1,190,962 206,903 1,217,883 114,795 208,820 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 2,994,154 100,395 88,364 1,592 2,472 122,782 741,506 2,786,012 $ - 262,264 1,159,379 792,717 334,376 72,548 34,971 1,799 928 55,393 15,303 1,133 1,434 7,088 2,739,333 1,038,314 28,880 $ - 2007 9,594 $ - 2006 7,480 $ <352,159> <351,196> <372,558> <234,170> 300,563 $ <291,854> <8,709> 142,000 74,250 10,142 <77,135> 149,257 383,136 $ <321,327> <61,809> 7,229 1,082 331,475 90,530 28,147 <107,735> 350,728 449,100 $ <374,852> <74,249> 16,023 1,407 319,942 130,573 31,647 <145,965> 353,626 388,046 $ <374,162> <13,885> 18,392 1,518 292,645 24,726 337,280 <202,902> - $ 2004 <468> 40,399 39,931 421,954 461,885 <202,902> 615,856 412,954 $ 16.8% 12.2% 17.2% 13.8% 75 $ - $ (192,629) 262,216 $ <251,891> <10,325> 11,118 537 118,250 147,400 22,407 <161,726> 137,986 <18,932> - 103,110 - <54,643> - <18,932> 452,884 433,952 $ 103,110 433,952 537,062 <54,643> 537,062 482,419 $ 16.7% 15.2% 16.9% 14.5% $ 11.1% 9.2% (46,679) 225,499 <186,856> <38,643> 2,129 10,162 577 325,000 26,201 364,069 317,390 245,000 562,390 482,419 1,044,809 9.4% 7.0% Table 4 Arizona Department of Transportation Fund Balances of Governmental Funds For fiscal year ended June 30 (Thousands of Dollars) 2003 2002 General fund Reserved Unreserved Total general fund $ $ All other governmental funds Reserved Debt service Capital projects Unreserved, reported in: Non-major special revenue funds Total all other governmental funds Total general and other governmental funds $ 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 $ $ 2007 172,784 9,342 182,126 $ 2,159 258,236 $ 507,723 <10,032> 497,691 $ 2,688 495,428 $ 23,395 224,626 $ 16,386 269,251 $ 20,346 229,578 $ 33,348 313,520 $ 39,898 300,293 $ 49,002 547,118 $ 412,954 $ 452,885 $ 433,952 $ 537,063 $ 482,419 $ 1,044,809 Fund Balances of Governmental Funds $1,200,000 Thousands of Dollars $1,000,000 $800,000 Unreserved $600,000 Reserved $400,000 $200,000 $0 2002 2003 2004 2005 Fiscal Year 76 2006 2007 Table 5 Arizona Department of Transportation Expenditures of Federal Awards1 For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 FAA $ FRA 610 4,338 4,203 480 242 6 6,278 2,379 $ SOURCE: NOTES: 3 14 2 69 14 FTA NHTSA FHWA FMCSA BLM $ 10,169 8,837 8,466 5,549 6,618 5,264 4,746 3,717 5,107 3,392 $ 101 69 96 84 87 83 65 65 275 49 $ 353,192 389,575 456,924 384,416 433,472 496,509 390,204 393,958 371,013 278,148 $ 1,769 2,231 282 434 466 282 - $ 544 162 152 79 30 47 - BIA $ Sub-total <21> $ 366,364 405,212 278 470,401 391,042 440,915 502,188 395,029 1,048 398,796 974 383,716 283,982 2 FHWA Total $ 40,559 33,268 42,323 36,324 25,439 19,848 33,261 15,219 17,748 - $ 406,923 438,480 512,724 427,366 466,354 522,036 428,290 414,015 401,464 283,982 Single Audit Reports - fiscal years 1998 through 2007. 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); and Bureau of Indian Affairs (BIA) 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 1998 1999 2000 2001 2002 2003 Fiscal Year 77 2004 2005 2006 2007 Table 6 Arizona Department of Transportation Government-wide Expenses by Function For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Administration 2007 2006 2005 2004 2003 2002 $ 51,667 45,002 42,298 57,703 52,533 57,864 Highway Aeronautics $ 5,418 10,705 9,804 7,512 3,848 3,751 Highway $ 79,279 62,713 72,665 48,797 45,644 46,543 Maintenance $ 78 NOTE: 1 Includes Non-capital, including asset preservation 1 293,241 115,572 314,938 474,430 374,328 188,198 Motor Vehicle $105,961 96,937 91,676 86,845 83,090 82,904 Distributions to Arizona counties, cities Interand other State governmental agencies $ 1,334,003 1,394,609 1,393,808 1,183,797 1,149,593 1,064,560 $ 48,760 36,771 42,440 39,205 30,235 24,791 Interest on long-term debt $ 82,450 88,278 86,870 89,431 84,084 89,605 Other $ 9,394 6,871 9,815 8,460 6,844 Arizona Highways Magazine $ 8,072 8,175 10,270 10,007 11,118 10,711 Highway Expansion and Extension Loan Program Total $ 4,355 4,273 4,360 4,414 26,349 5,265 $ 2,013,206 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 2007 2006 2005 2004 2003 2002 Charges for Services $ 158,019 134,068 126,267 118,225 117,412 112,724 Program Revenues Governmental Business-Type Operating Capital Grants Charges for Grants and and Services Contributions Contributions $ 72,679 67,241 58,948 44,008 34,160 56,481 $ 354,024 387,614 484,276 418,174 453,758 470,772 $ 10,969 11,293 11,452 12,800 13,477 11,841 Total General Revenues Governmental Taxes $ 2,097,476 2,186,859 2,056,503 1,907,984 1,798,243 1,720,313 Other Revenues Interest on Investments $ $ 9,998 11,026 27,120 24,775 21,304 26,484 55,760 28,538 19,245 8,352 19,803 29,863 Business-Type Other Revenues $ Interest on Investments <3> $ 380 505 425 381 5,563 3,518 2,764 1,588 2,440 5,625 Government-wide Revenues $ 2,764,485 2,830,157 2,786,956 2,536,411 2,461,022 2,434,484 79 Table 8 Arizona Department of Transportation Highway User Revenue Fund Collections For the fiscal year ended June 30 (Thousands of Dollars) Motor Veh. Fuel Tax Revenue Fiscal Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 $ 725,787 710,115 701,965 656,881 633,826 629,360 566,115 545,901 636,117 508,544 Motor Veh. Reg. Fee Revenues $ Motor Veh. Operators' License Fees and Other Fees Motor Carrier Tax Revenues 194,308 178,112 163,463 163,689 158,726 151,437 148,336 158,424 145,340 109,445 $ 22,473 20,824 18,573 16,623 23,302 11,896 15,094 15,040 14,409 56,123 $ Total Deposited To Arizona Hwy. User Rev. Fund Motor Veh. License (In Lieu) Tax Revenues 57,085 56,495 50,789 42,829 39,906 40,122 43,248 43,508 15,939 36,426 $ 389,503 372,168 318,689 309,688 276,279 259,308 251,496 235,287 217,905 176,950 $ 1,389,156 1,337,714 1,253,479 1,189,710 1,132,039 1,092,123 1,024,289 998,160 1,029,710 887,488 SOURCES: Basic Financial Statements - Fiscal Years 2002 through 2007, General Purpose Financial Statements - Fiscal Years 1998 through 2001, Arizona Highway User Revenue Fund Revenue Collections by Category - Fiscal Year 1998 Thousands of Dollars Highway User Revenue Fund Collections $1,500,000 $1,350,000 $1,200,000 $1,050,000 $900,000 $750,000 $600,000 $450,000 $300,000 $150,000 $0 1998 1999 2000 2001 2002 2003 Fiscal Year 80 2004 2005 2006 2007 Table 9 Arizona Department of Transportation Highway User Revenue Fund Distributions For the fiscal year ended June 30 (Thousands of Dollars) Fiscal State Highway Cities and Year Fund Towns Counties 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 $ 688,451 636,094 483,047 570,801 537,668 519,837 503,611 493,697 512,149 435,882 $ 417,541 385,759 362,965 344,699 324,431 312,252 305,009 323,798 295,879 263,220 $ 260,107 240,309 226,110 214,731 202,105 195,530 188,982 157,594 199,591 163,973 Department of Public Economic Strength Safety Project Fund $ 10,000 63,999 52,216 48,698 54,416 37,066 10,937 13,622 12,630 14,688 $ 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1 Other Total $ 12,057 10,553 128,141 9,781 12,419 26,438 14,750 8,449 8,461 8,519 $ 1,389,156 1,337,714 1,253,479 1,189,710 1,132,039 1,092,123 1,024,289 998,160 1,029,710 887,282 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 2007, General Purpose Financial Statements - Fiscal Years 1998 through 2001, Monthly Reports MV675580-01 fiscal years 1998 through 2007 (adjusted for accrual basis). 1 NOTES: In fiscal years 1998 through 2007, an appropriation for Arizona State Parks is included. Fiscal years 2002 and 2005 include distributions to State General Fund. 81 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 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 07/01/2000 12/31/1997 $ 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 Use Fuel Tax $ 1 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.27 0.27 0.27 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. 82 Table 11 Arizona Department of Transportation Motor Vehicle Fuel Tax - Top Ten Suppliers For fiscal year ended June 30 (Thousands) Gallons From Top Fiscal Year Ten Suppliers 2007 2006 2005 2004 2003 2002 1,915,247 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 344,744 302,288 304,483 332,723 339,236 321,852 $ Revenue Percentage from Top Ten Suppliers 725,787 710,115 701,965 656,881 633,826 629,360 47.5% 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 2005 2006 Fiscal Year All Fuel Tax Revenue 83 Top Ten Suppliers 2007 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 2007 2001 2002 2003 2004 2005 2006 2000 Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Percentage of Suppliers Percentage of Within Total Gallons Within Total Gallons Within Total Gallons Within Total Gallons Within Total Gallons Within Total Gallons Suppliers Total Gallons Within Total Gallons Within Range Range sold Range sold Range sold Range sold Range sold Range sold 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% 2 10 6 3 3 1 1.6% 11.8% 16.7% 14.3% 25.6% 17.4% 25 93.8% 25 92.1% 25 92.1% 25 89.6% 25 89.0% 25 89.0% 25 89.4% 25 87.4% 84 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 2,851,893 Gasoline % of Total 87.0% 84.9% 79.7% 81.0% 79.9% 77.4% 76.4% 77.7% 369,033 445,453 652,439 616,165 672,345 799,351 843,445 817,099 13.0% 15.1% 20.3% 19.0% 20.1% 22.6% 23.6% 22.3% 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 $ $ 1,2 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 NOTE: Debt Limit Total Principal Applicable to Limit 1,300,000 1,300,000 1,300,000 1,300,000 1,000,000 800,000 800,000 800,000 800,000 1,490,600 1,223,425 1,161,355 1,017,360 932,700 734,155 700,280 608,500 524,345 568,150 Legal Debt Margin $ 76,575 138,645 282,640 367,300 265,845 99,720 191,500 275,655 231,850 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% 1 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. 2 As stated in House Bill 2206 if 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 was September 21, 2006. 85 Table 14 Arizona Department of Transportation Highway User Revenue Fund Series Bond Coverage For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Principal Interest Total Pledged 1 Revenues Coverage 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 $ 57,825 54,830 44,265 51,155 44,490 45,365 52,055 46,270 43,805 43,405 $ 73,785 62,222 60,459 53,149 41,932 38,534 36,581 33,994 31,090 33,266 $ 131,610 117,052 104,724 104,304 86,422 83,899 88,636 80,264 74,895 76,671 $ 635,140 624,408 461,763 557,854 540,540 523,326 513,890 528,721 509,935 468,240 4.8 5.3 4.4 5.3 6.3 6.2 5.8 6.6 6.8 6.1 SOURCES: Highway User Revenue Fund Schedule 1 Summary For Revenue Collected Monthly Reports MV675577-1 fiscal years 1998 through 2007; Debt Service Funds - fiscal years 1998 through 2007 1 NOTE: Includes 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. Thousands of Dollars Highway User Revenue Fund Series Bond Coverage $650,000 $600,000 $550,000 $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 1998 1999 2000 2001 2002 2003 2004 Fiscal Year REVENUE 86 DEBT SERVICE 2005 2006 2007 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 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Principal $ 80,375 208,625 199,400 190,415 163,455 156,865 128,805 106,765 82,765 Interest $ 1,566 14,318 23,553 31,533 35,445 40,035 42,609 43,251 40,512 $ Total Revenues Coverage 81,941 222,943 222,953 221,948 198,900 196,900 171,414 150,016 123,277 $ 262,264 316,491 316,806 288,600 268,721 267,563 264,722 248,596 229,470 209,263 N/A 3.9 1.4 1.3 1.2 1.3 1.3 1.5 1.5 1.7 SOURCE: Maricopa County Regional Area Road Fund Report NOTE: Bond coverage ratio is based upon total Maricopa County Transportation Excise Tax collections. Thousands of Dollars Regional Area Road Fund Series Bond Coverage $300,000 $200,000 $100,000 $0 1998 1999 2000 2001 2002 2003 2004 Fiscal Year REVENUE 87 DEBT SERVICE 2005 2006 2007 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 Interest 2006 2005 2004 2003 2002 $ 80,375 208,625 199,400 190,415 163,455 $ 1,567 14,318 23,553 31,533 35,445 Revenue Maricopa County Population $ 316,491 316,806 288,600 268,721 267,563 3,793 3,649 3,538 3,406 3,296 Total Cost $ 81,942 222,943 222,953 221,948 198,900 Cost Per Capita Revenue Per Capita $ $ 22 61 63 65 60 83 87 82 79 81 SOURCE: Maricopa County Regional Area Road Fund Report Population data from the Department of Economic Security only available through 2006 NOTE: Based upon total Maricopa County Transportation Excise Tax collections. Thousands of Dollars Regional Area Road Fund Revenue and Cost Per Capita $100 $80 Cost Revenue $60 $40 $20 $0 2002 2003 2004 Year 88 2005 2006 Table 17 Arizona Department of Transportation Number of Vehicle Registrations Per Year For fiscal year ended June 30 (Thousands) Fiscal Year 2006 2005 2004 2003 2002 Total Vehicles Change in Number of Registered Vehicles Arizona Population Change in Population 6,318 5,945 5,639 5,312 5,118 373 306 327 193 479 6,305 6,045 5,845 5,643 5,471 260 200 203 172 151 SOURCES: Vehicle registrations from Motor Vehicle Division's annual reports Population data from the Department of Economic Security only available through 2006 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 2005 Fiscal Year Vehicles Population 89 2006 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 Fuel Sales 2007 2006 2005 2004 2003 2002 6,609 6,318 5,945 5,639 5,312 5,118 4.6% 6.3% 5.4% 6.2% 3.8% 10.3% 3,738,667 3,640,854 3,542,631 3,429,136 3,339,089 3,245,274 1 Percentage Change 2.7% 2.8% 3.3% 2.7% 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 Vehicle Registrations Compared to Fuel Sales 12.0% Percentage Change 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2002 2003 2004 2005 Fiscal Year Vehicle Registrations 90 2006 2007 Fuel Sales 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 2006 RURAL: Interstate Freeway Principal Arterial Minor Arterial Major Collector Minor Collector Local TOTAL RURAL 996 1,187 1,274 4,473 2,289 27,450 37,669 980 1,141 1,276 4,233 2,117 26,004 35,751 980 1,187 1,343 4,301 2,210 26,016 36,037 981 1,167 1,363 4,332 2,188 27,015 37,046 981 1,168 1,359 4,303 2,186 27,819 37,816 URBAN: Interstate Freeway Urban Expressway Principal Arterial Minor Arterial Urban Collector Local TOTAL URBAN 172 153 1,000 1,274 1,732 15,188 19,519 187 145 1,087 1,189 2,200 16,969 21,777 188 150 1,156 1,279 2,161 17,142 22,076 188 156 1,400 1,790 1,645 17,564 22,743 188 168 1,400 1,792 1,632 17,380 22,560 STATEWIDE COMPOSITE: Freeways and Expressways Arterials Collectors Locals TOTAL STATEWIDE 1,321 4,735 8,494 42,638 57,188 1,312 4,693 8,550 42,973 57,528 1,318 4,965 8,672 43,158 58,113 1,325 5,720 8,165 44,579 59,789 1,337 5,719 8,121 45,199 60,376 SOURCE: Arizona's Highway Performance Monitoring System (HPMS) Miles Total Public Road Mileage 100,000 50,000 0 2002 2003 2004 Calendar Year 91 2005 2006 Urban Rural 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 Public Transit - State Highway 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 User Revenue Fund (HURF) Driving Under the Influence Fund (DUI) Third Party Special Line Item 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) NAFTA Grant FundingInternational Registration Plan/International Fuel Tax Agreement Motor Vehicle Division (Federal) Fuel Tax Evasion Public Transportation Division (Federal) Underground Storage - MVD 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 2005 2006 2007 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 33.0 412.0 682.0 616.0 925.0 43.0 2.0 1.0 247.0 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 1,638.5 50.0 21.0 1.5 3.0 16.0 4,691.0 72.0 619.0 2.0 - 72.0 619.0 2.0 - 72.0 2.0 - 72.0 2.0 19.0 72.0 2.0 21.0 33.0 2.0 16.0 4.0 4.0 1.0 3.0 705.0 4.0 4.0 1.0 3.0 705.0 2.0 4.0 4.0 1.0 3.0 88.0 5.0 4.0 1.0 3.0 106.0 8.0 4.0 3.0 1.0 1.0 3.0 115.0 11.0 8.0 7.0 3.0 1.0 17.0 3.0 101.0 4,858.0 4,688.0 4,693.0 4,732.0 4,764.0 4,792.0 SOURCE: Arizona Department of Transportation 10-Year FTE History Report NOTE: All FTE Operating positions shown above are approved annually by the State legislature. 92 Table 21 Arizona Department of Transportation Daily Vehicle Miles Traveled with Population Data For calendar year ended December 31 (Thousands) Fiscal Year Non-State Highways State Highways All Public Highways Arizona Population Daily Miles Per Capita 2006 2005 2004 2003 2002 87,212 80,400 75,070 75,396 73,192 83,934 83,425 81,808 72,258 69,311 171,146 163,825 156,878 147,654 142,503 6,305 6,045 5,845 5,643 5,471 27.1 27.1 26.8 26.2 26.0 SOURCES: Arizona's Highway Performance Monitoring System (HPMS) ADOT Transportation Planning Division office records Population data from the Department of Economic Security only available through 2006 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 93 2005 2006 ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by Financial Management Services, Fiscal Operations: Craig Rudolphy, CPA, CPFO, CGFM Diane Wascher, CPA Lawrence H. Ehrke, Jr. Jennifer Crummey Matthew Bailey Joel Konopken Sheryl Bodmer, CPA Winifred Gettings Patricia Markiw, CPA Special acknowledgment goes to: All Financial Management Services staff whose cooperation and hard work contributed to the financial information that appears in this report. compilation of A special thank you to David McDarby of Communications and Community Partnerships for his graphic design. 2007 Comprehensive Annual Financial Report 94