Comprehensive Annual Financial Report for the fiscal year ended June 30, 2008 State of Arizona Department of Transportation Comprehensive Annual Financial Report for the fiscal year ended June 30, 2008 Prepared by Financial Management Services Department of Transportation State of Arizona Arizona Department of Transportation Comprehensive Annual Financial Report for the fiscal year ended June 30, 2008 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 Funds 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 Funds 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 Funds Financial Statement Statement of Net Assets – Agency Funds (Exhibit 8) ..................................................................................28 Index of Notes to the Financial Statements ......................................................................................................29 Notes to the Financial Statements................................................................................................................30-54 Required Supplementary Information (Other than MD&A): Budgetary Comparison Schedule – General Fund (State Highway Fund)........................................................55 Note to Required Supplementary Information..................................................................................................56 Information About Infrastructure Assets Reported Using the Modified Approach .....................................57-61 2008 Comprehensive Annual Financial Report Arizona Department of Transportation Comprehensive Annual Financial Report for the fiscal year ended June 30, 2008 TABLE OF CONTENTS (Continued) Page Supplementary Information: Non-Major Governmental Funds Financial Statements: Combining Balance Sheet (Exhibit 9) ....................................................................................................62-63 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Exhibit 10) ..........64-65 Fiduciary Funds Financial Statements: Combining Statement of Net Assets – Agency Funds (Exhibit 11) .............................................................66 Statement of Changes in Assets and Liabilities – Agency Funds (Exhibit 12) ............................................67 STATISTICAL SECTION Overview ................................................................................................................................................................68 Index of Statistical Section.....................................................................................................................................69 Financial Trends: Change in Net Assets (Table 1) ...................................................................................................................70-71 Net Assets by Component (Table 2) .................................................................................................................72 Statement of Revenues, Expenditures, and Changes in Fund Balances (Table 3) ............................................73 Fund Balances of Governmental Funds (Table 4) ............................................................................................74 Expenditures of Federal Awards (Table 5) .......................................................................................................75 Government-wide Expenses by Function (Table 6)..........................................................................................76 Government-wide Revenues (Table 7) .............................................................................................................77 Revenue Capacity: Highway User Revenue Fund Collections (Table 8) ........................................................................................78 Highway User Revenue Fund Distributions (Table 9)......................................................................................79 Fuel Tax Rates (Table 10).................................................................................................................................80 Motor Vehicle Fuel Tax – Top Ten Suppliers (Table 11).................................................................................81 Gasoline Volume Sold – Top Twenty-Five Suppliers (Table 12)................................................................82-83 Debt Capacity: Highway User Revenue Fund – Legal Debt Margin (Table 13) .......................................................................84 Highway Revenue Bonds – Bond Coverage (Table 14) ...................................................................................85 Transportation Excise Tax Revenue Bonds – Bond Coverage (Table 15)........................................................86 Transportation Excise Tax Revenue Bonds – Debt Service Revenue and Cost Per Capita (Table 16) ............87 2008 Comprehensive Annual Financial Report Arizona Department of Transportation Comprehensive Annual Financial Report for the fiscal year ended June 30, 2008 TABLE OF CONTENTS (Continued) Demographic and Economic Information: Page Number of Vehicle Registrations Per Year (Table 17) .....................................................................................88 Vehicle Registrations Per Year Compared to Fuel Sales (Table 18) ................................................................89 Demographic and Economic Statistics (Table 19)............................................................................................90 Principal Employers (Table 20) ........................................................................................................................91 Operating Information: Appropriated Full Time Equivalents (FTEs) (Table 21)...................................................................................92 Capital Assets – Schedule by Function and Activity (Table 22) ......................................................................93 Capital Assets – Schedule of Changes by Function and Activity (Table 23)....................................................94 Total Public Road Mileage by Highway Class and Governmental Ownership (Table 24)...............................95 Daily Vehicle Miles Traveled with Population Data (Table 25).......................................................................96 Acknowledgments .......................................................................................................................................................97 2008 Comprehensive Annual Financial Report Introductory Section 2008 Comprehensive Annual Financial Report vi Arizona Department of Transportation List of Principal Officials Victor M. Mendez Director Richard L. Travis Deputy Director John A. Bogert Chief of Staff Floyd P. Roehrich, Jr. State Engineer Intermodal Transportation Division Stacey K. Stanton Assistant Director Motor Vehicle Division Rakesh Tripathi Assistant Director Multimodal Planning Division Barclay L. Dick Assistant Director Aeronautics Division John E. McGee Chief Financial Officer Arizona State Transportation Board Member Si L. Schorr, Chairman Delbert Householder, Vice Chairman Robert M. Montoya Felipe Andres Zubia William (Bill) J. Feldmeier Barbara (Bobbie) Ann Lundstrom Victor Flores Counties District 2 (Pima County) District 4 (Gila, Graham and Pinal Counties) District 5 (Navajo, Apache and Coconino Counties) District 1 (Maricopa County) District 6 (Yavapai, Yuma, Mohave, and LaPaz Counties) District 3 (Cochise, Greenlee, and Santa Cruz Counties) District 1 (Maricopa County) 2008 Comprehensive Annual Financial Report vii Term Expires 2009 2010 2011 2012 2012 2013 2014 State of Arizona Department of Transportation Organization Chart Citizens Governor Intermodal Transportation Division Motor Vehicle Division State Transportation Board Director Deputy Director Multimodal Planning Division Chief of Staff Aeronautics Division Transportation Services Group 2008 Comprehensive Annual Financial Report viii Financial Section Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 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, 2008. 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 $14.3 billion, compared to $13.5 billion for fiscal year 2007, an increase of 5.5 percent. Of this amount, $209.8 million represents unrestricted net assets and may be used to meet the Department’s ongoing obligations to citizens and creditors as compared to $236.3 million at the end of 2007. • The Department’s capital assets are $15.2 billion, compared to $14.3 billion for fiscal year 2007, an increase of 6.7 percent. This increase is primarily attributable to highway construction activity. The Department’s invested in capital assets, net of related debt, is $13.3 billion, compared to $12.2 billion for fiscal year 2007, an increase of 8.8 percent. • The Department’s non-current liabilities are $2.5 billion, compared to $2.0 billion in 2007. The Department had $499.7 million more in bonds outstanding in 2008 than in 2007. During 2008, there were $632.0 million in bonds issued and $132.3 million in bonds repaid. Fund Level: • As of the close of the fiscal year, the governmental funds of the Department reported combined ending fund balances of $1.4 billion, as compared to $1.0 billion in 2007, a 30.8 percent increase over the prior fiscal year. • The total reserved fund balance is $1.3 billion; of this, approximately $1.3 billion (97.6 percent) is reserved for capital projects. Approximately $83.3 million (6.1 percent) is available for spending at the government’s discretion (unreserved fund balance) as compared to $39.0 million (3.7 percent) in 2007. At the end of the fiscal year, the unreserved fund balance for the General Fund (State Highway Fund) was $57.9 million. • The proprietary funds reported net assets at year-end of $74.4 million, as compared to $72.0 million in 2007, an increase of 3.3 percent. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction of the Department’s basic financial statements. The Department’s basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other Required Supplementary Information in addition to the basic financial statements. Government-wide Financial Statements (Reporting the Department as a Whole) The government-wide financial statements are designed to present an overall picture of the financial position of the Department. These statements consist of the Statement of Net Assets and the Statement of Activities, and are prepared using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. The Statement of Net Assets combines and consolidates the Department’s current financial resources with capital assets and long-term obligations. This statement includes all of the Department’s non-fiduciary assets and liabilities. 2008 Comprehensive Annual Financial Report 3 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 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 businesstype); these costs are paid by the Department’s general tax and other revenues. This statement summarizes the cost of providing specific Department services and includes all current year revenues and expenses. The Statement of Net Assets and the Statement of Activities divide the Department’s activities into two types: Governmental Activities The Department’s basic services are reported here, including administration, aeronautics, highway, highway maintenance, motor vehicle division, and other activities. Taxes, fees, and federal grants finance most of these activities. Business-type Activities Activities for which the Department charges a fee to customers to pay most or all of the costs of certain services it provides are reported as business-type activities. The Department’s Arizona Highways Magazine and Highway Expansion and Extension Loan Program are reported here. The government-wide financial statements can be found on pages 15-16 of this report. This report includes two schedules (Exhibit 3.1 and Exhibit 4.1) that reconcile the amounts reported on the governmental fund financial statements (prepared using the modified accrual basis of accounting and current financial resources measurement focus) with governmental activities (prepared using the accrual basis of accounting and economic resources measurement focus) on the appropriate government-wide statements. The following summarizes the impact of utilizing Governmental Accounting Standards Board Statement 34 (GASB 34) reporting: • Capital assets used in governmental activities are not reported on governmental fund statements. • Other long-term assets that are not available to pay for current period expenditures are not reported on governmental fund statements. • Internal service fund activities are reported as governmental activities, but reported as proprietary funds in the fund financial statements. • Bond issuance costs are capitalized and amortized to expense as governmental activities, but reported as expenditures in the governmental fund statements. • Unless currently due and payable, long-term liabilities, such as capital lease obligations, compensated absences, notes payable, and others only appear as liabilities on the government-wide statements. • Capital outlay spending results in capital assets on the government-wide statements, but is reported as expenditures on the governmental fund statements. • Bond and note proceeds result in liabilities on the government-wide statements, but are recorded as other financing sources on the governmental fund statements. 2008 Comprehensive Annual Financial Report 4 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 • 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 reconciliations following the fund financial statements explain 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 funds financial statement can be found on page 28. 2008 Comprehensive Annual Financial Report 5 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 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 29-54 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 55-61 of this report. Supplementary Information Other Supplementary Information includes the combining statements for the nonmajor governmental funds and agency funds 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 62-67 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, 2008 and 2007. The Department’s combined net assets increased by $747.8 million over the course of this fiscal year’s operations, an increase of 5.5 percent. The net assets of the governmental activities increased by $745.4 million or 5.5 percent and business-type activities increased by $2.4 million, an increase of 3.3 percent over the previous year. The overall increase in the Department’s net assets was due to an increase in the Department’s infrastructure resulting from more construction and more money received in federal grants. The following table reflects the condensed Statement of Net Assets as of June 30, 2008 and 2007: Business-type Activities 2008 2007 Governmental Activities 2008 2007 Total 2008 2007 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 $ 1,791,104,044 15,249,215,994 17,040,320,038 $ 1,503,637,083 14,290,099,071 15,793,736,154 $ 129,735,062 172,725 129,907,787 $ 230,081,584 225,179 230,306,763 $ 1,920,839,106 15,249,388,719 17,170,227,825 $ 1,733,718,667 14,290,324,250 16,024,042,917 358,846,843 2,481,455,779 2,840,302,622 330,461,935 2,008,715,222 2,339,177,157 53,172,272 2,315,611 55,487,883 158,120,905 151,201 158,272,106 412,019,115 2,483,771,390 2,895,790,505 488,582,840 2,008,866,423 2,497,449,263 13,285,437,940 704,929,654 209,649,822 $14,200,017,416 12,211,861,155 1,006,511,853 236,185,989 $13,454,558,997 172,725 74,115,046 132,133 74,419,904 225,179 71,707,711 101,767 72,034,657 13,285,610,665 779,044,700 209,781,955 $14,274,437,320 12,212,086,334 1,078,219,564 236,287,756 $13,526,593,654 $ $ Prior year numbers have been reclassified to reflect current and non-current liabilities for the Board Funding Obligations. The total assets of the Department were $17.2 billion, while total liabilities were $2.9 billion, resulting in a net assets balance of $14.3 billion. By far, the largest portion of the Department’s net assets, $13.3 billion (93.0 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. 2008 Comprehensive Annual Financial Report 6 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 As of June 30, 2008, 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 governmental activities reported an increase in capital assets with the largest increase being in the area of construction in progress. The Department also issued new Highway Revenue Bonds and Transportation Excise Tax Revenue Bonds which caused the noncurrent liabilities to increase for the governmental activities. Both the current assets and other liabilities decreased for the business-type activities due to the repayment of $140 million and the issuance of $50 million in board funding obligations. The business-type activities also reported a small increase in unrestricted net assets for the second year in a row. The Arizona Highways Magazine Fund’s contribution to this increase was primarily due to improved earnings as a result of a reduction in workforce associated with outsourcing of several services, a reduction in the amount of inventory (both finished goods and creative content), revising contracts with key suppliers to achieve more competitive pricing, and a price increase in the magazine subscription rate. The benefit of these changes was reduced by an overall decline in magazine subscription revenue. 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 2008 2007 Business-type Activities 2008 2007 Total 2008 2007 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 Gain on sale of capital assets Other Total revenues Expenses: Administration Aeronautics Highway Highway maintenance Motor Vehicle Non-capital, including asset preservation Distributions to Arizona counties and cities Distributions to other state agencies Local governmental assistance 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 $ 150,024,350 79,747,102 523,727,885 253,741,944 1,033,504,644 766,393,661 13,821,790 59,528,386 30,515,557 8,256,693 2,919,262,012 $ 158,019,080 72,678,913 354,023,589 $ 9,379,457 - $ 10,969,360 - 262,263,939 - - 1,029,000,817 790,908,552 15,302,697 55,760,406 <464,317> 10,462,131 2,747,955,807 4,788,328 <17,518> 14,150,267 5,563,036 <2,749> 16,529,647 $ 159,403,807 79,747,102 523,727,885 253,741,944 1,033,504,644 766,393,661 13,821,790 64,316,714 30,498,039 8,256,693 2,933,412,279 $ 168,988,440 72,678,913 354,023,589 262,263,939 1,029,000,817 790,908,552 15,302,697 61,323,442 <467,066> 10,462,131 2,764,485,454 54,918,357 4,372,514 132,873,981 137,099,909 112,879,673 187,004,474 51,666,715 5,417,937 138,788,381 120,162,937 105,961,064 113,568,933 - - 54,918,357 4,372,514 132,873,981 137,099,909 112,879,673 187,004,474 51,666,715 5,417,937 138,788,381 120,162,937 105,961,064 113,568,933 1,238,382,891 176,691,851 37,285,011 92,294,932 - 1,219,208,067 114,795,378 48,760,126 82,449,597 - 7,711,629 8,071,836 1,238,382,891 176,691,851 37,285,011 92,294,932 7,711,629 1,219,208,067 114,795,378 48,760,126 82,449,597 8,071,836 2,173,803,593 2,000,779,135 4,053,391 11,765,020 4,354,619 12,426,455 4,053,391 2,185,568,613 4,354,619 2,013,205,590 745,458,419 - 747,176,672 245,000,000 2,385,247 - 4,103,192 - 747,843,666 - 751,279,864 245,000,000 745,458,419 13,454,558,997 $ 14,200,017,416 992,176,672 12,462,382,325 $ 13,454,558,997 2,385,247 72,034,657 $74,419,904 4,103,192 67,931,465 $ 72,034,657 747,843,666 13,526,593,654 $ 14,274,437,320 996,279,864 12,530,313,790 $ 13,526,593,654 2008 Comprehensive Annual Financial Report 7 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 Governmental Activities: The following chart depicts revenues of the governmental activities for the fiscal year ended June 30, 2008: Revenues - Governmental Activities $2,919,262,012 Fuel and motor carrier taxes and fees 26.3% Interest on investments 2.0% Gain on sale of capital assets 1.0% Transportation excise taxes 8.7% Other revenues including flight property taxes 0.8% Charges for services 5.1% Vehicle, registration, title, license and related taxes 35.4% Capital grants and contributions 17.9% Operating grants and contributions 2.7% $2.6 billion (or 88.3 percent) of the Department’s revenues are from the following four revenue sources: • Vehicle, registration, title, license, and related taxes comprise the Department’s largest revenue source of $1.0 billion (35.4 percent). • Fuel and motor carrier taxes and fees represent the Department’s second largest revenue source of $766.4 million (26.3 percent). • Capital grants and contributions total $523.7 million (17.9 percent). • Transportation excise taxes total $253.7 million (8.7 percent). The Department’s two main funding sources, the Highway User Revenue Fund (HURF) and the Maricopa County Transportation Excise Tax, posted no gains in fiscal year 2008. HURF collections totaled approximately $1.4 billion, basically the same as in fiscal year 2007. Maricopa County Transportation Excise Tax collections totaled $380.1 million, a decrease of 3.2 percent from fiscal year 2007, and 7.0 percent below the forecast. However, the Transportation Excise Tax distribution to the Department was $253.7 million compared to $262.3 million for fiscal year 2007. This decrease is the first year-over-year decrease in revenues since the inception of the tax in 1986. The Transportation Excise Tax revenues were negatively impacted by the persistently weak housing and credit markets, higher fuel and food prices, and slower employment and population growth. All of these factors caused consumers to restrain their spending in fiscal year 2008. The fuel and motor carrier tax percentage also decreased due to consumer restraint on spending. 2008 Comprehensive Annual Financial Report 8 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 Capital grants and contributions increased from fiscal year 2007 due to an increase in the amount received in federal aid for fiscal year 2008. The Grant Anticipation Notes Fund, General Fund (State Highway Fund), and Maricopa Regional Area Road Construction Fund each reported an increase in fiscal year 2008. The majority of the increase this fiscal year was due to using federal funding on a larger percentage of projects, and therefore, increasing the capital grants and contributions revenue figure. The Department also had a gain on sale of capital assets due to the sale of two parcels of land that were no longer needed for highway development. The following chart depicts expenses of the governmental activities for the fiscal year ended June 30, 2008: Expenses - Governmental Activities $2,173,803,593 Distributions to Arizona counties and cities 57.0% Distributions to other state agencies 8.1% Local governmental assistance 1.7% Interest on long-term debt 4.2% Administration 2.5% Highway 6.1% Highway maintenance 6.3% Non-capital, including asset preservation 8.6% Aeronautics 0.2% Motor Vehicle 5.2% $1.7 billion (or 80.0 percent) of the Department’s expenses were for the following: • Distributions to Arizona counties and cities $1.2 billion (57.0 percent). • Non-capital, including asset preservation $187.0 million (8.6 percent). • Distributions to other state agencies $176.7 million (8.1 percent). • Highway maintenance $137.1 million (6.3 percent). Distributions to Arizona counties and cities increased in fiscal year 2008. The distributions to Arizona counties and cities was impacted by a decline in Highway User Revenue Fund’s (HURF) collections, but was offset by an increase in grants to the Arizona counties and cities by the General Fund (State Highway Fund), Maricopa Regional Area Road Construction Fund, and State Aviation Fund. Non-capital, including asset preservation increased this fiscal year primarily due to the funds spent on pavement and bridge preservation. House Bill 2620 addressed statewide budget adjustments to help balance the State General Fund budget, in part by sweeping funds from state agencies. There was a $29.7 million sweep from the Department, which accounts for the Department’s increased distributions to other state agencies. The increase in Highway maintenance represents the Proposition 400 monies that the Department is now allowed to spend on landscape, litter, and sweeping and charge as maintenance expenses instead of as capital outlay. Local governmental assistance decreased in fiscal year 2008 primarily as a result of budget constraints and the availability of cash. 2008 Comprehensive Annual Financial Report 9 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 Business-type Activities: Net assets for business-type activities increased by $2.4 million in fiscal year 2008. Total revenues were $14.2 million, with charges for services representing 66.2 percent and interest on investments 33.8 percent. The total expenses for business-type activities were $11.8 million. The Highway Expansion and Extension Loan Program had a decrease in revenues of $1.9 million which was primarily due to the Department using cash to pay off the board funding obligations and, therefore, not having the funds available for investment purposes. Interest revenue decreased this fiscal year due to a lower average principal balance outstanding on loans that were issued by the Department. The Arizona Highways Magazine had a decrease in revenues of $476 thousand primarily due to a decline in the number of subscriptions for the monthly publication. This decline in demand is consistent with industry trending for many other consumer periodicals with revenues based predominantly on annual subscriptions. 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 62-65. As of the end of the fiscal year, the fund balances of the governmental funds totaled $1.4 billion, an increase of $322.0 million over the previous fiscal year. Of this $1.4 billion balance, $83.3 million or 6.1 percent constitutes the unreserved fund balance, which was available for spending for the general purposes of the Department. The remaining fund balance of $1.3 billion, or 93.9 percent, was reserved for the following: 1) $7.1 million for inventories, 2) $3.2 million to pay debt service, 3) $1.3 billion to pay for capital projects, and 4) $20 million for the repayment of an advance from the Highway Expansion and Extension Loan Program 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 $57.9 million and the reserved fund balance was $505.7 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 5.2 percent of total General Fund (State Highway Fund) expenditures, while total fund balance represents 50.8 percent of the same amount. The Maricopa Regional Area Road Construction Fund is a major special revenue fund that receives Maricopa County Transportation Excise Tax monies that are used to provide a funding source for the construction of new freeways and other routes, improvements to existing freeways and other routes, improvements to the arterial street system, regional bus service, and high capacity transit services such as light rail. Total revenues collected in fiscal year 2008 were $342.1 million; Transportation Excise Tax revenue of $253.7 million (or 74.2 percent) was the bulk of the revenue. The remaining revenue was mainly federal revenue and interest on investments. Fiscal year 2008 saw the first new Transportation Excise Tax Revenue Bonds issuance since August 1, 2002. 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 $231.6 million were transferred in from the General Fund (State Highway Fund) ($134.2 million), Maricopa Regional Area Road Construction Fund ($29.7 million), and Grant Anticipation Notes Fund ($67.6 million), and were used to pay the debt service. The remaining fund balance of $3.2 million is restricted for future debt service payments. 2008 Comprehensive Annual Financial Report 10 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 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 $326.3 million. Capital outlay expenditures of $263.6 million (80.8 percent) accounted for the majority of the expenditures in the Capital Projects 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 $348.8 million due to unspent bond proceeds from three new bond issues. Budget Variances As a consequence of lower revenue collections and legislative fund sweeps, the Department reduced its fiscal year 2008 spending levels in certain key areas in order to cover contractor payments and daily operational expenses. The actual expenditures for fiscal year 2008 were less than the Department’s final budgeted amounts. A factor that contributed to the reduction in expenditures was the Governor of the State issuing a hiring freeze on February 21, 2008. With the hiring freeze in place, only those positions that are directly involved in providing for the health or safety of the public, or the collection or investment of state revenues are exempt from the hiring freeze. 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, 2008, amounts to $15.2 billion (net of accumulated depreciation), a $950.8 million increase over the previous fiscal year. Business-type Activities 2008 2007 Governmental Activities 2008 2007 Land Buildings and improvements Improvements other than buildings Mobile fleet and aircraft Machinery and equipment Infrastructure Construction in progress Total $ 2,351,812,086 92,264,229 20,300,630 54,522,212 20,981,704 10,101,407,936 2,607,927,197 $ 15,249,215,994 $ 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 $ $ 7,900 136,315 28,510 172,725 $ $ 7,900 170,133 47,146 225,179 Total 2008 2007 $ 2,351,819,986 92,400,544 20,300,630 54,522,212 21,010,214 10,101,407,936 2,607,927,197 $ 15,249,388,719 $ 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 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 6,785 center lane miles (18,546 travel lane miles) and 4,637 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 adjustments are made monthly during the fiscal year, as circumstances may require. 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 3.91 was achieved for fiscal year 2008. 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 2008, a CRI of 93.4 percent was achieved. 2008 Comprehensive Annual Financial Report 11 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 In addition to many smaller projects, each of the following major highway construction contracts in excess of $20 million was started during fiscal year 2008: Description Major median widening on Interstate 10 from Sarival to State Route 101 loop in Maricopa County. Major widening of Interstate 17 from Jomax Road to Carefree Highway at State Route 74 in Maricopa County. Major widening of Interstate 17 from State Route 101 Loop to Jomax Road in Maricopa County. Construction of HOV lanes on State Route 101 from Princess Drive to State Route 202 Loop (Red Mountain Freeway) in Maricopa County. Major widening of Interstate 10 from the Picacho Peak traffic interchange to the Pinal Air Park in Pinal County north of Tucson. Construction of new roads at State Route 179 at the north forest boundary to city of Sedona in Coconino County. Major widening of State Route 101 from State Route 202 loop (Red Mountain) to State Route 202 Loop (Santan) in Maricopa County. Construction of a 3-way roadway and bridge approach on US 191 south of Clifton in Greenlee County. Construction of new roadway on US 93 at the Wickenburg bypass in Maricopa County. Construction of 64th Street traffic interchange on State Route 101 in Maricopa County. Capacity additions at the intersections of State Route 89 and State Route 69 in Yavapai County. Contract Start Date Contract Amount Fiscal Year 2008 Expenditures 12/24/2007 $ 80,600,323 01/23/2008 74,381,601 10,774,525 12/24/2007 67,864,266 14,407,578 07/24/2007 47,467,400 16,574,638 09/24/2007 44,121,695 11,534,408 10/22/2007 39,921,373 9,566,900 06/23/2008 31,241,376 - 08/20/2007 27,709,119 15,538,910 11/19/2007 26,970,653 7,077,969 09/24/2007 23,642,706 19,366,040 10/22/2007 23,589,901 8,239,964 $ 15,234,622 In addition to many smaller projects, the following major highway construction projects had expenditures in excess of $20 million in fiscal year 2008. These project expenditures include payments made to construction contractors (as shown above) as well as utility, design, right-of-way, and landscaping costs. Location Description Interstate 10 from Price Road to 29th Street within the City of Tucson in Pima County. State Route Loop 202 (Red Mountain) from Power Road to University Drive within the City of Mesa in Maricopa County. State Route Loop 101 (Agua Fria) and Interstate 17 interchange in Maricopa County. US 60 roadway widening from Apache Junction to Globe in Pinal County. State Route Loop 303 from Happy Valley Road to Interstate 17, north of Surprise in Maricopa County. Interstate 17 Jomax Road and Dixiletta Drive Interchanges in Maricopa County. State Route 179 south of Sedona in Coconino and Yavapai Counties. State Route 51 from Shea Boulevard to State Route Loop 101 (Pima) in Maricopa County Interstate 17 from Jomax Road to Carefree Highway in Maricopa County. Interstate 10 from the Marana interchange to the Cortaro Road interchange in Pima County State Route 101 (Pima) in the city of Phoenix in Maricopa County 2008 Comprehensive Annual Financial Report 12 Project Expenditures $ 80,225,610 71,499,641 39,308,201 38,736,599 34,906,259 34,461,667 32,046,857 28,445,574 28,325,870 20,443,465 20,232,600 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 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, 2008, amount to $2.5 billion, an increase of $474.9 million from the previous fiscal year. The decrease in advances and notes payable in governmental activities was due primarily to the repayment of loans to the Highway Expansion and Extension Loan Program by the General Fund (State Highway Fund). Governmental Activities Highway revenue bonds Transportation excise tax revenue bonds Grant anticipation notes (GARVEE bonds) Premium on bonds Compensated absences Capital leases Advances and notes payable Total governmental activities Business-type Activities Accrued interest payable Compensated absences Total business-type activities Total non-current liabilities 2008 2007 $1,623,905,000 350,955,000 298,280,000 128,586,354 15,455,342 7,535,394 56,738,689 2,481,455,779 $1,490,600,000 282,860,000 108,034,322 14,410,376 10,600,742 102,209,782 2,008,715,222 2,170,356 145,255 2,315,611 151,201 151,201 $ 2,483,771,390 $ 2,008,866,423 The Department has issued revenue bonds in 42 separate issues between 1980 and 2008. All bonds outstanding as of June 30, 2008, are scheduled to mature on various dates, but not later than July 1, 2033. The bonds are obligations of the Transportation Board of the State of Arizona Department of Transportation (Transportation Board) and are not obligations of the State of Arizona. This data was gathered from the various bond records on file since the 1980s. Of the $6.5 billion total in bonds issued between 1980 and 2008, $1.4 billion, or approximately 22 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 Revenue Bonds have been rated AAA/Aa1 by Standard & Poor’s Ratings Services and Moody’s Investors Service, respectively. The Department’s subordinate lien Highway Revenue Bonds, as a result of a rating increase on September 26, 2006, are rated AAA/Aa2. The Department’s Transportation Excise Tax Revenue bonds are rated AA+/Aa2. The Grant Anticipation Notes (GARVEE bonds) are rated AA-/Aa3/AA with the additional rating provided by Fitch Ratings. Arizona Revised Statutes, §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 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 fund established by this legislation. Because of State General Fund cash requirements, the Transportation Board lowered the amount of outstanding BFOs from $200 million, as of the end of fiscal year 2007, to $110 million as of the end of fiscal year 2008. In fiscal year 2008, the Department issued Highway Revenue Bonds totaling $193,950,000 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 2008 Comprehensive Annual Financial Report 13 Arizona Department of Transportation Management’s Discussion and Analysis June 30, 2008 Highway Revenue Bonds with maturities up to 30 years in length, replacing the 20 year maturity requirement that had been in place since 1980, and these were the first bonds issued under this new authority. Also in fiscal year 2008, the Department issued Transportation Excise Tax Revenue bonds totaling $370,000,000 to pay (i) the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Maricopa County and (ii) the costs of issuing the bonds, and issued Grant Anticipation Notes (GARVEE bonds) totaling $68,000,000 for the purpose of (i) paying a portion of the costs of certain controlled-access highways in Maricopa County and (ii) paying the costs of issuing the note. Requests for Information This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with overview of the Department’s finances. Questions concerning any of the information provided in this report requests for additional financial information should be addressed to the Controller, Arizona Department Transportation, 206 S. 17th Avenue, Phoenix, Arizona, 85007 or by visiting our website http://www.azdot.gov/Inside_ADOT/fms/cafr/CAFR2008.pdf. 2008 Comprehensive Annual Financial Report 14 an or of at Basic Financial Statements Government-wide Financial Statements - include the Statement of Net Assets and the Statement of Activities and use the accrual basis of accounting for financial reporting. Governmental Funds Financial Statements - include the Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances for the major governmental funds and use the modified accrual basis of accounting for financial reporting. Also include the reconciliations to the government-wide financial statements. Proprietary Funds Financial Statements - include the Statement of Net Assets, the Statement of Revenues, Expenses, and Changes in Fund Net Assets and the Statement of Cash Flows for the business-type activities and use the accrual basis of accounting for financial reporting. Fiduciary Funds Financial Statement - includes the Statement of Net Assets for assets being held for parties outside of the Department. Notes to the Financial Statements 2008 Comprehensive Annual Financial Report Exhibit 1 Arizona Department of Transportation Statement of Net Assets June 30, 2008 Governmental Activities ASSETS Unrestricted cash on deposit with the State Treasurer Receivables: $ Business-type Activities Total 97,875,861 $ 1,963,752 10,921,678 - 68,005,408 226,753 78,927,086 226,753 Accrued interest Taxes and fees Other, net of allowance for doubtful accounts Due from U.S. Government for reimbursable costs 9,895,103 69,818,510 22,318,406 50,603,460 678,037 271,839 - 10,573,140 69,818,510 22,590,245 50,603,460 Internal balances Inventories 19,996,904 10,657,024 Prepaid items Deferred charges 32,024,532 247,820 - 247,820 32,024,532 1,466,992,566 15,061,147,219 77,630,108 7,900 1,544,622,674 15,061,155,119 188,068,775 17,040,320,038 164,825 129,907,787 188,233,600 17,170,227,825 LIABILITIES Accounts payable and other current liabilities Accrued payroll and other accrued expenses Contracts and retainage payable 14,743,230 20,329,156 117,849,488 99,438 98,932 - 14,842,668 20,428,088 117,849,488 Due to Arizona counties and cities Due to other state agencies Board funding obligations (Note 5H) 139,513,554 6,411,415 60,000,000 50,000,000 139,513,554 6,411,415 110,000,000 - 2,973,902 2,973,902 165,846,297 2,315,609,482 2,840,302,622 145,255 2,170,356 55,487,883 165,991,552 2,317,779,838 2,895,790,505 13,285,437,940 172,725 13,285,610,665 2,234,889 702,694,765 209,649,822 74,115,046 132,133 74,115,046 2,234,889 702,694,765 209,781,955 $ 14,200,017,416 $ 74,419,904 $ 14,274,437,320 Notes and loans Subscriptions, net of allowance for doubtful accounts 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 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 The notes to the financial statements are an integral part of this statement. 2008 Comprehensive Annual Financial Report 15 <19,996,904> 708,249 $ 99,839,613 11,365,273 Exhibit 2 Arizona Department of Transportation Statement of Activities for the fiscal year ended June 30, 2008 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 Local governmental assistance Interest on long-term debt Total governmental activities Business-type Activities: Arizona Highways Magazine Highway Expansion and Extension Loan Program Total business-type activities Total $ 54,918,357 4,372,514 132,873,981 137,099,909 112,879,673 187,004,474 $ Charges for Services Operating Grants and Contributions Capital Grants and Contributions 9,705,539 939,946 1,450,940 1,765,126 127,899,850 - $ $ 697,317 47,577,304 - 523,727,885 - Net Revenues $ <45,212,818> <2,735,251> 439,882,148 <135,334,783> 15,020,177 <187,004,474> 1,238,382,891 176,691,851 37,285,011 92,294,932 2,173,803,593 8,262,949 150,024,350 31,472,481 79,747,102 523,727,885 <1,238,382,891> <176,691,851> 2,450,419 <92,294,932> <1,420,304,256> 7,711,629 7,624,062 - - <87,567> 4,053,391 11,765,020 $ 2,185,568,613 1,755,395 9,379,457 $ 159,403,807 79,747,102 $ 523,727,885 <2,297,996> <2,385,563> $ <1,422,689,819> 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 Income from investments Gain on sale of capital assets Other Total general revenues $ <1,420,304,256> $ <2,385,563> $ <1,422,689,819> Change in net assets Net assets - July 1 Net assets - June 30 745,458,419 13,454,558,997 $ 14,200,017,416 253,741,944 1,033,504,644 766,393,661 13,821,790 59,528,386 30,515,557 8,256,693 2,165,762,675 The notes to the financial statements are an integral part of this statement. 2008 Comprehensive Annual Financial Report 16 4,788,328 <17,518> 4,770,810 2,385,247 72,034,657 $ 74,419,904 253,741,944 1,033,504,644 766,393,661 13,821,790 64,316,714 30,498,039 8,256,693 2,170,533,485 747,843,666 13,526,593,654 $ 14,274,437,320 Governmental Funds Financial Statements Major Funds General Fund (State Highway Fund) This fund is used to account for all financial transactions applicable to the general operations of the Department. The fund receives money from the Highway User Revenue Fund including vehicle registration, title, license, and related fees, and fuel and motor carrier taxes. Reimbursements for certain construction expenditures are received from the federal government, Arizona cities and counties, and other state agencies. The fund also receives interest and other revenues. The fund disburses money primarily for the engineering, construction, improvement, and maintenance of state highways, parts of highways forming state routes, and highways under cooperative agreements with the United States and day-to-day operating expenses. Maricopa Regional Area Road Construction Fund This fund receives certain Maricopa County transportation excise tax monies collected by the Department of Revenue. These monies are used for the construction of new freeways and other routes, improvements to existing freeways and other routes, and improvements to the arterial street system within Maricopa County. Motor Vehicle Division Clearing Fund This fund accounts for the collection and disbursement of Motor Vehicle Division revenues. Highway User Revenue Fund This fund receives all revenues collected by the Motor Vehicle Division and its agents that are not designated for other purposes. The revenues include: motor fuel taxes, a portion of vehicle license tax, vehicle registration fees, driver license fees, dealer fees, permits, and other miscellaneous fees. These monies are distributed to the General Fund (State Highway Fund), the Department of Public Safety, the Economic Strength Project Fund, incorporated cities, counties, and other legislatively appropriated distributions. Debt Service Fund This fund is used to administer all payments of principal and interest on bonds and notes issued by the Arizona Transportation Board for Highway Revenue Bonds, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes (GARVEE bonds). Capital Projects Fund This fund is used to administer bond proceeds for Arizona Transportation Board Highway Revenue Bonds, Arizona Transportation Board Transportation Excise Tax Revenue Bonds, Grant Anticipation Notes (GARVEE bonds), and Board Funding Obligations. These monies are expended for the construction of projects in the Five-Year Transportation Facilities Construction Program. Non-Major Funds Other Governmental Funds are the non-major funds and are all special revenue funds. These funds can be found on Exhibit 9 and Exhibit 10. 2008 Comprehensive Annual Financial Report Arizona Department of Transportation Balance Sheet Governmental Funds June 30, 2008 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 (net) Amounts due from: U.S. Government Inventories Advance to other funds Deferred charges Land held for resale 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 Board funding obligations Surety and rental deposits Deferred revenue Advances and 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 $ 65,523,282 Special Revenue Funds Motor Vehicle Division Clearing Fund Maricopa Regional Area Road Construction Fund $ - $ - Highway User Revenue Fund $ - 3,121,232 108,569,888 2,268,000 16,598,374 1,830,988 2,264,550 24,712 2,155,653 12,545,902 - 288,749 45,534,940 57,272,608 - $ 41,700,867 7,131,814 20,000,000 13,184,013 478,558,769 756,656,239 5,680,352 232,015,767 $ 243,972,022 $ 8,128,423 66,767,001 87,441,326 $ 110,972,849 214,069,146 $ 8,491,971 $ $ 4,998,424 $ - $ - 14,647,042 67,478,262 2,603,667 4,837,629 39,547,689 475 48,790,246 107,981,931 60,000,000 368,369 2,268,000 37,209,782 193,067,093 24,712 44,410,505 30,120,797 3,510,359 21,500 87,441,326 106,087,215 214,069,146 7,131,814 20,000,000 478,558,769 199,561,517 - - 57,898,563 563,589,146 756,656,239 199,561,517 $ 243,972,022 87,441,326 214,069,146 The notes to the financial statements are an integral part of this statement. 2008 Comprehensive Annual Financial Report 17 $ $ Exhibit 3 Debt Service Fund $ Total Non-Major Governmental Funds (See Exhibit 9) Capital Projects Fund - - $ 28,653,810 604,455 - 3,821,862 - 194,485 3,008,263 8,628,966 3,564,379 9,861,771 159,377,641 69,818,510 10,921,678 22,318,406 2,607,901 $ 3,212,356 559,614,482 $ 563,436,344 3,222,241 16,455,797 $ 63,727,941 $ 50,603,460 7,131,814 20,000,000 8,128,423 13,184,013 1,466,992,566 1,932,515,374 $ $ $ $ 14,317,479 - $ Total Governmental Funds - 827,084 $ 94,177,092 - 6,615,778 222 235,849 4,207,759 - 19,720,520 117,849,488 159,376,541 - 6,616,000 3,305,542 2,901,056 8,628,966 20,106,256 139,513,554 6,411,415 60,000,000 389,869 10,921,678 37,209,782 565,710,326 3,212,356 - 556,820,344 93 18,262,150 7,131,814 20,000,000 3,212,449 1,253,202,780 3,212,356 $ 3,212,356 556,820,344 $ 563,436,344 25,359,442 43,621,685 $ 63,727,941 57,898,563 25,359,442 1,366,805,048 1,932,515,374 $ 2008 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, 2008 $ 1,366,805,048 Total fund balances - governmental funds (Exhibit 3) Amounts reported for governmental activities in the Statement of Net Assets (Exhibit 1) are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds (Note 4 B). Internal service funds are used by management to charge the costs of equipment rentals to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the Statement of Net Assets (Exhibit 5). Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds (Note 4 B). Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds (Note 4 B). 15,193,591,198 55,601,234 10,921,678 <2,426,901,742> $ 14,200,017,416 Net assets of governmental activities (Exhibit 1) The notes to the financial statements are an integral part of this statement. 2008 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, 2008 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 Income from 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 - $ 253,741,944 309,114,851 373,892,981 - 503,866,928 5,918,026 335,712,838 353,582,197 350,402,640 47,577,304 30,224,757 462,792 255,493 25,847,077 1,089,766 2,827,413 1,141,695,074 76,582,391 121,812 148,002 10,751,043 276,832 440,018 342,062,042 509,784,954 2,684,248 2,854,331 694,833,614 43,517,358 130,300,418 124,325,879 105,258,378 403,402,033 303,054 3,548,739 5,108,014 8,959,807 - 1,821 1,821 The notes to the financial statements are an integral part of this statement. 2008 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 - $ 253,741,944 - - 10,779,391 34,653,057 1,159,474,008 768,046,261 2,446,021 2,446,021 15,539,226 15,539,226 67,599,433 32,169,798 8,262,949 293,242 1,929,609 13,821,790 939,946 84,288 170,533,503 494,584,464 79,747,102 38,609,518 462,792 696,737 59,197,224 13,821,790 939,946 1,366,598 6,206,050 2,876,894,434 48,475 48,475 453,237 6,195,246 6,648,483 4,088,494 37,285,011 5,722,144 47,095,649 44,322,124 4,088,494 171,134,168 135,629,139 110,982,343 466,156,268 (continued) 2008 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, 2008 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 Non-capital, including asset preservation Capital outlay Total expenditures $ Excess of revenues over expenditures Other financing sources : Transfers in Transfers out for debt service Transfers out other Sale of capital assets Insurance recovery Debt issuance Premium from debt issuance Total other financing sources Net change in fund balances Fund balances - July 1 Fund balances - June 30 $ 45,030,296 56,715,904 $ Special Revenue Funds Motor Vehicle Division Clearing Fund Highway User Revenue Fund 31,121,828 - $ 471,457,051 38,327,903 $ 674,427,121 20,404,672 60,393,159 1,416,562 76,222,090 466,501,003 1,109,681,047 30,106,228 259,809,925 329,997,788 509,784,954 694,833,614 32,014,027 12,064,254 - - 71,949,416 <134,245,911> 25,930,668 1,765,126 68,484,365 33,883,664 <29,718,101> <67,697,989> 2,302,732 11,044,542 <84,068,816> - - 65,897,691 497,691,455 563,589,146 <72,004,562> 271,566,079 $ 199,561,517 $ - - The notes to the financial statements are an integral part of this statement. 2008 Comprehensive Annual Financial Report 22 $ Exhibit 4 Debt Service Fund $ Total Non-Major Governmental Funds (See Exhibit 10) Capital Projects Fund - $ - $ Total Governmental Funds 19,073,388 57,956,972 $ 1,241,109,684 173,405,451 192,663,159 102,582,729 3,447,378 158,991,033 989,881,588 3,328,237,290 132,270,000 101,166,167 233,484,642 3,447,378 52,662,715 263,570,660 326,329,236 124,126,009 <231,038,621> <310,790,010> 46,407,494 <451,342,856> 231,563,445 231,563,445 <4,188,471> 631,950,000 31,861,772 659,623,301 <67,599,433> <62,956> <67,662,389> 303,512,861 <231,563,445> <71,949,416> 28,233,400 1,765,126 711,478,907 31,861,772 773,339,205 $ 524,824 2,687,532 3,212,356 348,833,291 207,987,053 $ 556,820,344 <21,254,895> 321,996,349 64,876,580 1,044,808,699 $ 43,621,685 $ 1,366,805,048 2008 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, 2008 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 4C). Bond proceeds provide current financial resources to governmental funds. However, issuing debt increases long-term liabilities in the statement of net assets. Governmental funds report the effect of issuance costs, premiums, discounts, and similar items when the debt is first issued, whereas these amounts are deferred and amortized in the statement of activities (Note 4C). Repayment of long-term debt is reported as an expenditure in governmental funds, but the repayment reduces long-term liabilities in the statement of net assets (Note 4C). Internal service funds are used by management to charge the cost of equipment rentals to individual funds. The net loss of the internal service funds is reported with governmental activities (Note 4C). 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 4C). $ 321,996,349 956,234,903 <743,340,679> 206,267,729 2,310,056 1,990,061 $ 745,458,419 Change in net assets of governmental activities (Exhibit 2) The notes to the financial statements are an integral part of this statement. 2008 Comprehensive Annual Financial Report 24 Proprietary Funds Financial Statements Major Funds Arizona Highways Magazine Fund The Department uses this fund in the publishing and marketing of the Arizona Highways Magazine and various other products that promote the State of Arizona. Highway Expansion and Extension Loan Program Fund This fund is an innovative financing mechanism to administer monies designated to provide loans and credit enhancement assistance to the Department and to sponsors of local transportation projects. Non-Major Fund Internal Service Fund The Department’s own internal service fund, known as the Equipment Fund, purchases and maintains equipment and materials to be used by other funds and state agencies. 2008 Comprehensive Annual Financial Report Exhibit 5 Arizona Department of Transportation Statement of Net Assets Proprietary Funds June 30, 2008 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 Inventories Prepaid items Total current assets $ 77,630,108 Arizona Highways Magazine Fund $ 1,963,752 - Total $ 1,963,752 77,630,108 Governmental Activities Internal Service Fund $ 3,698,769 - 669,877 47,732,252 126,032,237 226,753 8,160 271,839 708,249 247,820 3,426,573 226,753 678,037 47,732,252 271,839 708,249 247,820 129,458,810 33,332 3,525,210 7,257,311 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 20,273,156 - 7,900 20,273,156 7,900 - 20,273,156 146,305,393 164,825 172,725 3,599,298 164,825 20,445,881 149,904,691 55,624,796 55,624,796 62,882,107 LIABILITIES Current liabilities: Accounts payable Accrued payroll and other accrued expenses Interfund payables (Note 5E) Board Funding Obligations (Note 5H) Compensated absences Advance from other funds Deferred revenue Capital leases payable (Note 5F) Total current liabilities 6,170 50,000,000 13,821 20,000,000 70,019,991 99,438 92,762 131,434 2,973,902 3,297,536 99,438 98,932 50,000,000 145,255 20,000,000 2,973,902 73,317,527 35,882 608,636 1,100 522,149 2,768,919 3,936,686 Non-current liabilities: Accrued interest payable Compensated absences Capital leases payable (Note 5F) Total noncurrent liabilities Total liabilities 2,170,356 2,170,356 72,190,347 3,297,536 2,170,356 2,170,356 75,487,883 234,473 3,109,714 3,344,187 7,280,873 172,725 74,115,046 129,037 74,416,808 49,746,163 5,855,071 55,601,234 NET ASSETS Invested in capital assets, net of related debt 172,725 Restricted for loans and other financial assistance 74,115,046 Unrestricted 129,037 Total net assets $ 74,115,046 $ 301,762 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. 2008 Comprehensive Annual Financial Report 25 3,096 74,419,904 $ 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, 2008 Business-type Activities - Enterprise Funds Highway Expansion and Extension Loan Program Fund Operating revenues: Sales and charges for services (net of write off $89,207) 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 1,755,395 1,755,395 Arizona Highways Magazine Fund $ 319 146,321 229 2,477 24,759 254 3,795,890 891 3,971,140 Operating income Non-operating revenues : Interest on investments Investment expense Gain on sale/disposal of capital assets Insurance recoveries Interest on capital leases Distributions to other state agencies Total non-operating revenues $ 3,150,523 70,994 2,123,481 1,175,499 68,516 13,942 715,153 18,622 40,114 333,521 7,710,365 $ 40,268,274 35,111 40,303,385 3,150,523 71,313 2,269,802 1,175,728 70,993 13,942 739,912 18,876 3,795,890 40,114 334,412 11,681,505 2,811,109 9,708,534 14,439,277 312,421 133,577 156,249 605,300 70,173 9,030,352 1,407,077 38,674,069 <86,303> <2,302,048> 1,629,316 4,705,331 <80,251> <2,000> 82,997 <1,466> <17,518> - 4,788,328 <81,717> <17,518> <2,000> 337,257 <6,095> <126,784> 50,194 <262,554> <3,286,400> 4,623,080 64,013 4,687,093 <3,294,382> - - - 3,975,324 2,385,045 2,310,258 53,290,976 $ 55,601,234 2,407,335 71,707,711 $ 74,115,046 $ <22,290> 324,052 301,762 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. 2008 Comprehensive Annual Financial Report 26 6,943,929 1,755,395 680,133 9,379,457 <2,215,745> Capital contributions Changes in net assets Total net assets - July 1 Total net assets - June 30 6,943,929 680,133 7,624,062 Total Governmental Activities Internal Service Fund 202 2,385,247 Exhibit 7 Arizona Department of Transportation Statement of Cash Flows Proprietary Funds for the fiscal year ended June 30, 2008 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 Arizona counties and cities Payments to suppliers Payments to employees Payments to Arizona counties and cities Other receipts Net cash provided by operating activities Cash flows from non-capital financing activities: $ Distributions to other state agencies Repayment of Board Funding Obligations Issuance of Board Funding Obligations Net cash provided by non-capital financing activities 1,630,032 $ 6,626,529 $ 8,256,561 $ 65,000,000 65,000,000 30,562,735 7,715,250 7,715,250 9,705,539 <27,236> <5,368,804> <5,396,040> <15,928,211> <145,813> <2,162,297> <2,308,110> <14,412,675> <26,038,156> <26,038,156> 686,440 685,001 28,038 <1,439> <218,132> 47,914,506 9,955,426 48,132,638 <2,000> <156,160,000> 50,000,000 <106,162,000> 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 provided by capital and related financing activities - Cash flows from investing activities: Interest on investments Investment expense Net cash provided by investing activities 5,108,111 <80,251> 5,027,860 Net increase in cash Cash - July 1 Cash - June 30 <5,178> <5,178> 82,997 <1,466> 81,531 <2,000> <156,160,000> 50,000,000 <106,162,000> <3,286,400> <3,286,400> 724,359 <5,178> <9,477,239> 50,194 <2,934,743> <5,178> <14,923,829> 5,191,108 <81,717> 5,109,391 337,257 <6,095> 331,162 <53,001,502> <141,779> <53,143,281> <7,923,641> 2,105,531 132,737,141 8,336,010 130,631,610 $ 1,963,752 $ 79,593,860 $ 412,369 $ 77,630,108 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 $ <2,215,745> $ - $ 46,677,094 78,777 <204,140> 820 <58> 3,795,890 48,132,638 $ Non-cash capital and financing activities: Certain vehicles were contributed to the Equipment Fund by the General Fund totaling $3,975,324. The notes to the financial statements are an integral part of this statement. 2008 Comprehensive Annual Financial Report 27 <86,303> $ 40,114 <88,697> 348,644 <11,015> <159,663> <32,928> <5,888> <222,396> <218,132> $ <2,302,048> $ 1,629,316 40,114 9,030,352 46,588,397 <7,073> 78,777 <204,140> 348,644 <591,989> <11,015> <159,663> <201,955> <32,108> 60,072 <5,946> 36,703 3,795,890 <222,396> 47,914,506 $ 9,955,426 Fiduciary Funds Financial Statement Agency Funds Highway Properties - Privilege Tax Fund This fund collects monies from renters of properties previously acquired by the Department for use in future highway development. Monies collected are distributed to the Department of Revenue. Highway Properties - 24 Percent Fund This fund collects 24 percent of the Department’s rental income from properties for use in future highway development. Monies collected are distributed to the local counties. 2008 Comprehensive Annual Financial Report Exhibit 8 Arizona Department of Transportation Statement of Net Assets Agency Funds June 30, 2008 ASSETS Restricted cash on deposit with the State Treasurer Other receivables Total assets $136,434 $136,434 LIABILITIES Due to Arizona counties Other payables Total liabilities $136,434 $136,434 The notes to the financial statements are an integral part of this statement. 2008 Comprehensive Annual Financial Report 28 Notes to the Financial Statements 2008 Comprehensive Annual Financial Report Arizona Department of Transportation Index – Notes to the Financial Statements June 30, 2008 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 Funds 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 Funds to the 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................................................................................................................................47 H – Short-term Debt ...........................................................................................................................................52 I – Fund Balances ...............................................................................................................................................53 Note 6 – Other Information .........................................................................................................................................53 A – Subsequent Events .......................................................................................................................................53 B – Contingent Liabilities...................................................................................................................................53 C – Pension and Other Postemployment Benefits ..............................................................................................54 2008 Comprehensive Annual Financial Report 29 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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 requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. 2008 Comprehensive Annual Financial Report 30 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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 expended for the construction of new freeways and other routes, improvements to existing freeways and other routes, improvements to the arterial street system, regional bus service and high capacity transit services such as light rail, which are included in the Maricopa County Regional Transportation Plan. The Motor Vehicle Division Clearing Fund is a special revenue fund which accounts for the collection and disbursement of certain Motor Vehicle Division revenues. 2008 Comprehensive Annual Financial Report 31 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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 General Fund (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 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 a proprietary fund’s principal ongoing operations. The principal operating revenues are charges for services and magazine subscriptions. The Department also recognizes as operating revenues interest on loan receivables and other revenues intended to recover the cost of services. Operating expenses for the enterprise funds and the internal service fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, the Department generally expends the restricted resources first, and then unrestricted resources, as they are needed to maintain appropriate cash balances and finance the construction program. 2008 Comprehensive Annual Financial Report 32 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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, 2008, 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 account, and for loan repayments to the Highway Expansion and Extension Loan Program 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. For other receivables comprising recoverable insurance claims, the amount reserved for doubtful accounts is comprised of 100% of balances greater than six years old, 95% of balances from four to six years old, and a percentage of balances less than four years old. The subscriptions receivable allowance for doubtful accounts is equivalent to an estimated number of issues delivered on 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. 2008 Comprehensive Annual Financial Report 33 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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 (State Highway 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 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-ofway, or construction of controlled-access highways which are included in the regional transportation plan of counties with populations in excess of 400,000 (Maricopa and Pima counties). The debt service fund is used to report the resources set aside for payment of future debt service. Bond proceeds are deposited in the capital projects fund and are restricted for acquisitions of right-of-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 account, and for loan repayments to the Highway Expansion and Extension Loan Program 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. 2008 Comprehensive Annual Financial Report 34 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 The Department depreciates non-infrastructure capital assets on a straight-line basis using the following estimated useful lives. Modular buildings are included on the Statement of Net Assets under the machinery and equipment category; however, modular buildings have an estimated useful life of fifteen (15) years. Assets Buildings and improvements Improvements other than buildings 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 (State Highway 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. For the NonMajor 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. 2008 Comprehensive Annual Financial Report 35 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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. 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. Other long-term obligations also include amounts that other governmental entities advance the Department for highway road construction projects. 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. Advances from other governmental entities are recorded as debt issuance in other financing sources. 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, board funding obligations and capitalized leases. Capital outlay includes expenditures for real property or infrastructure (e.g. bridges and roads). Revenues and expenses of proprietary funds are classified as operating and non-operating and are sub-classified by object (e.g., salaries, equipment rental, depreciation, etc). Operating revenues and expenses generally result from providing services and producing and delivering goods. All other revenues and expenses are reported as nonoperating. 2008 Comprehensive Annual Financial Report 36 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 Other Financing Sources (Uses) 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 NON-MAJOR FUNDS Other Governmental Funds: Special Revenue Funds: State Aviation Fund Safety Enforcement and Transportation Infrastructure Fund Motor Vehicle Liability 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 Proprietary Funds: Arizona Highways Magazine Fund Highway Expansion and Extension Loan Program Fund FIDUCIARY FUNDS Agency Funds: Highway Properties–Privilege Tax Fund Highway Properties–24 Percent Fund 2008 Comprehensive Annual Financial Report 37 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 3. BUDGETING, BUDGETARY CONTROL, AND LEGAL COMPLIANCE Annual budgets for the operating expenditures for the General Fund (State Highway Fund), 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 FiveYear 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. 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 has implemented this Statement. 2008 Comprehensive Annual Financial Report 38 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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 has implemented this Statement. 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 post closure 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. 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. 2008 Comprehensive Annual Financial Report 39 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 Statement No. 52 Land and Other Real Estate Held as Investments by Endowments This statement establishes consistent standards for the reporting of land and other real estate held as investments by essentially similar entities. It requires endowments to report their land and other real estate investments at fair value. Governments also are required to report the changes in fair value as investment income and to disclose the methods and significant assumptions employed to determine fair value, and other information that they currently present for other investments reported at fair value. The provisions of this Statement are effective for periods beginning after June 15, 2008. This Statement is not applicable to the Department. Statement No. 53 Derivative Instruments This statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments. Governments enter into derivative instruments as investments; as hedges of identified financial risks associated with assets or liabilities, or expected transactions; or to lower the cost of borrowing. The requirements of this statement are effective for financial statements 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 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. Capital assets are not included on the fund statements, but are included on the government-wide statement as follows: 2. Capital assets not subject to depreciation Capital assets subject to depreciation $ 15,061,147,219 188,068,775 less Internal Service Fund (Equipment Fund) assets 15,249,215,994 <55,624,796> $ 15,193,591,198 Deferred revenues for assets shown in fund statements for the following funds: Governmental Funds: General Fund (State Highway Fund) Maricopa Regional Area Road Construction Fund State Aviation Fund $ 2,268,000 24,712 8,628,966 $10,921,678 2008 Comprehensive Annual Financial Report 40 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 3. Long-term liabilities, including bonds payable, are not due and payable in the current period and are not reported in the current period on the fund statements. The detail for the difference is as follows: Bonds payable Deferred charges - bond issuance costs - outstanding amount Capital leases Compensated absences Advances and notes payable Business activity share of Equipment Fund gain $ <2,401,726,354> 10,712,096 <1,656,761> <14,698,720> <19,528,907> <3,096> $ <2,426,901,742> 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 $ 989,881,588 <25,487,592> <8,159,093> $ 956,234,903 2008 Comprehensive Annual Financial Report 41 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 2. The issuance of long-term debt (e.g. bonds) provides current financial resources to governmental funds, while the repayment of principal of long-term debt consumes current financial resources of the governmental funds. Neither transaction, however, has any effect on net assets. Also, the government reports the effect of bond issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are amortized in the Statement of Activities. The details of this difference are as follows: Debt issued or incurred: Issuance of Highway Revenue Bonds Issuance of Transportation Excise Tax Revenue Bonds Issuance Grant Anticipation Notes (GARVEE bonds) Premium on bonds Issuance of Board Funding Obligations Advances and notes payable $<193,950,000> <370,000,000> <68,000,000> <31,861,772> <60,000,000> <19,528,907> $<743,340,679> Principal repayments: Highway Revenue Bonds Transportation Excise Tax Revenue Bonds Grant Anticipation Notes (GARVEE bonds) Board Funding Obligations Amortization of premium and discount Amortization of bond issuance costs $ 60,645,000 19,045,000 52,580,000 60,000,000 11,309,740 2,687,989 $ 206,267,729 3. The Internal Service Fund is used by the Department to charge the cost for purchases and maintenance of equipment and material to be used by other funds and state agencies. The gain in the Internal Service Fund represents over billing and must be eliminated from the government-wide Statement of Activities for the business activity. Internal Service Fund (Equipment Fund): Changes in net assets Business activity share of Equipment Fund loss $ 2,310,258 <202> $ 2,310,056 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: Capital lease Notes and loans Compensated absences Sale of capital assets Compensated absences-change in 60 day accrual $ $ 2008 Comprehensive Annual Financial Report 42 393,160 1,030,934 <1,008,264> 1,578,952 <4,721> 1,990,061 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 5. DETAILED NOTES ON ALL FUNDS A. Capital Assets Capital assets activity for the year ended June 30, 2008, was as follows: July 1, 2007 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 2,217,183,763 9,855,140,388 2,032,678,119 14,105,002,270 Increases $ June 30, 2008 Ending Balance Decreases 259,321,548 254,651,995 842,543,604 1,356,517,147 $ <124,693,225> $ 2,351,812,086 <8,384,447> 10,101,407,936 <267,294,526> 2,607,927,197 <400,372,198> 15,061,147,219 155,682,847 23,012,860 56,537,449 135,550,442 370,783,598 3,047,761 535,311 5,222,290 12,831,008 21,636,370 <2,627,108> <5,548,962> <8,176,070> 158,730,608 23,548,171 59,132,631 142,832,488 384,243,898 <62,867,208> <2,890,494> <35,510,954> <84,418,143> <185,686,799> <3,599,171> <357,047> <4,607,202> <8,626,025> <17,189,445> 1,967,229 4,733,892 6,701,121 <66,466,379> <3,247,541> <38,150,927> <88,310,276> <196,175,123> Total capital assets, being depreciated, net 185,096,799 4,446,925 <1,474,949> 188,068,775 Governmental activities capital assets, net $ 14,290,099,069 $ 1,360,964,072 Less accumulated depreciation for: Buildings and improvements Improvements other than buildings Machinery and equipment Mobile fleet and aircraft Total accumulated depreciation July 1, 2007 Beginning Balance Business-type Activities Capital assets, not being depreciated: Land $ Capital assets, being depreciated: Buildings and improvements Machinery and equipment Total capital assets, being depreciated 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 7,900 Increases $ June 30, 2008 Ending Balance Decreases - $ - $ 7,900 981,157 2,361,440 3,342,597 5,177 5,177 <175,176> <175,176> 981,157 2,191,441 3,172,598 <811,024> <2,314,294> <3,125,318> <33,818> <6,296> <40,114> 157,659 157,659 <844,842> <2,162,931> <3,007,773> <34,937> <17,517> 164,825 <34,937> $ <17,517> $ 172,725 217,279 $ $ <401,847,147> $ 15,249,215,994 225,179 $ 2008 Comprehensive Annual Financial Report 43 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 Depreciation expense was charged to functions/programs as follows: Governmental Activities: Administration Aeronautics Highway Highway maintenance Motor Vehicle $ Subtotal Capital assets held by the Department's internal service fund are charged to the various functions based on their usage of the assets Total depreciation expense - governmental activities Business-type Activities Arizona Highways Magazine Fund B. 1,810,753 279,988 2,668,969 1,713,245 1,686,138 8,159,093 9,030,352 $ 17,189,445 $ 40,114 Construction Commitments The Department’s outstanding commitments for contracts at June 30, 2008, were $1,052,592,818. Construction contracts: Rural roadways Small urban roadways Urban roadways Large urban roadways Sub-total Design contracts Other commitments Total C. Expenditures to Date Remaining Commitment $ 357,395,502 46,811,799 89,875,379 586,903,861 1,080,986,541 1,014,566,138 265,007,610 $ 2,360,560,289 $ 260,898,766 33,413,288 90,352,747 293,351,573 678,016,374 137,300,093 237,276,351 $ 1,052,592,818 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 State Aviation Fund amount represents loans to various local governments for construction of hangars, taxiway extensions, 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, 2008: Governmental Funds: General Fund (State Highway Fund) $ 2,268,000 Maricopa Regional Area Road Construction Fund 24,712 State Aviation Fund 8,628,966 $10,921,678 Proprietary Funds: Arizona Highways Magazine Fund $ 2,973,902 2008 Comprehensive Annual Financial Report 44 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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 a 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, 2008, the banks held assignment on securities aggregating approximately $0.8 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, 2008, were: Receivables Governmental activities: General Fund (State Highway Fund) Highway User Revenue Fund Maricopa Regional Area Road Fund Non-major Governmental Funds Amount Payables Highway User Revenue Fund Motor Vehicle Division Clearing Fund Maricopa Regional Area Road Fund Debt Service Fund Equipment Fund Motor Vehicle Division Clearing Fund General Fund (State Highway Fund) General Fund (State Highway Fund) Motor Vehicle Division Clearing Fund $ 107,981,931 586,160 475 222 1,100 45,195,823 339,117 2,264,550 3,008,263 $ 159,377,641 The General Fund (State Highway Fund) receivable of $107,981,931 is an accrual for fuel tax revenues imposed in fiscal year 2008 from the Highway User Revenue Fund that will be collected in fiscal year 2009. The Highway User Revenue Fund receivable of $45,195,823 is an accrual for vehicle license taxes due in fiscal year 2008 from the Motor Vehicle Division Clearing Fund that will be collected in fiscal year 2009. In a prior fiscal year, the General Fund (State Highway 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. Interfund transfers for the year ended June 30, 2008, consisted of the following: Interfund Transfers In: Interfund Transfers Out: General Fund (State Highway Fund) Capital Projects Fund Maricopa Regional Area Road Construction Fund Non-Major Governmental Funds Total General Fund (State Highway Fund) 4,188,471 Debt Service Fund $134,245,911 - Total $134,245,911 4,188,471 67,697,989 62,956 $ 71,949,416 29,718,101 67,599,433 $231,563,445 97,416,090 67,662,389 $303,512,861 $ 2008 Comprehensive Annual Financial Report 45 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 The General Fund (State Highway Fund) ($134,245,911) and Non-Major Governmental Funds - Grant Anticipation Notes Fund ($67,599,433) made transfers to the Debt Service Fund to pay bond debt service. The Maricopa Regional Area Road Construction Fund ($67,697,989) 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, 2008, 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: Fiscal year ending June 30 2009 2010 Future operating lease commitments Amount $ 899,965 940,872 $ 1,840,837 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: Fiscal year ending June 30 2009 2010 2011 2012 2013 Future operating lease commitments Amount $ 117,324 120,660 124,095 127,635 97,758 $ 587,472 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 <3,554,109> $ 12,008,279 2008 Comprehensive Annual Financial Report 46 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2008, were as follows: Fiscal year ending June 30 2009 2010 2011 2012 $ Total minimum lease payments Less amount representing interest Present value of minimum lease payments G. Governmental Activities $ 3,403,402 3,151,546 966,760 378,377 7,900,085 <364,691> 7,535,394 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 $1,490,600,000. During the year, Highway Revenue Bonds totaling $193,950,000 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 Governmental activities Governmental activities - refunding Interest Rates 3.3% - 5.5 % 3.8% - 6.0% Amount $ 1,259,490,000 364,415,000 $ 1,623,905,000 2008 Comprehensive Annual Financial Report 47 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 Annual debt service requirements to maturity for Highway Revenue Bonds are as follows: Fiscal year ending June 30 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2033 Highway Revenue Bonds Principal Interest $ 64,190,000 $ 82,897,389 68,140,000 78,624,156 71,770,000 74,923,125 75,415,000 71,325,075 79,230,000 67,551,715 460,280,000 273,392,181 489,215,000 149,895,661 214,630,000 49,761,598 15,647,500 101,035,000 $ 1,623,905,000 $ 864,018,400 The Department has pledged future motor vehicle and related fuel fees and taxes to repay $1,623,905,000 in outstanding Highway Revenue Bonds issued since 1993. Proceeds from the bonds finance portions of the Transportation Board’s Five-Year Transportation Facilities Construction Program. The bonds are payable solely from motor vehicle and related fuel fees and taxes and are payable through 2033. The total principal and interest remaining to be paid on the bonds is $2.5 billion. Principal and interest paid for the current year and total pledged revenues were $136.2 million and $658.6 million, respectively. The annual principal and interest payments on the bonds required 20.7 percent of the pledged revenues. Arizona Transportation Board Transportation Excise Tax Revenue Bonds The Maricopa County Regional Area Road Fund is used to record all payments of principal and interest for Transportation Excise Tax Revenue Bonds issued by the Transportation Board. These bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. There were no outstanding amounts of Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year. During the year, Transportation Excise Tax Revenue Bonds totaling $370,000,000 were issued 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 bonds. On September 21, 2007, the Transportation Board adopted a Master Resolution relating to Transportation Excise Tax Revenue Bonds. 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. No debt service reserve is required for the outstanding bonds. All Transportation Excise Tax Revenue Bonds mature no later than July 1, 2025. Transportation Excise Tax Revenue Bonds currently outstanding are as follows: Purpose Govermental activities Interest Rates 4.5% - 5.0% Amount $ 350,955,000 2008 Comprehensive Annual Financial Report 48 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 Annual debt service requirements to maturity for Transportation Excise Tax Revenue Bonds are as follows: Fiscal year ending June 30 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2025 Transportation Excise Tax Revenue Bonds Principal Interest $ 13,825,000 $ 17,192,950 14,445,000 16,570,825 15,095,000 15,920,800 15,820,000 15,195,850 16,585,000 14,433,700 95,710,000 59,373,650 121,800,000 33,282,250 57,675,000 4,360,750 $ 350,955,000 $ 176,330,775 Bonds aggregating $200,475,000 are subject to redemption prior to their maturity dates at the option of the Transportation Board in whole or in part, at any time, on or after July 1, 2017. These bonds may be redeemed at par, plus accrued interest to the date fixed for redemption. Bonds aggregating $150,480,000 are not subject to redemption. The Department has pledged future transportation excise taxes to repay $350,955,000 in outstanding Transportation Excise Tax Revenue Bonds issued since 2007. Proceeds from the bonds pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Maricopa County, Arizona. The bonds are payable solely from transportation excise taxes and are payable through 2025. The total principal and interest remaining to be paid on the bonds is $527.3 million. Principal and interest paid for the current year and total pledged revenues were $29.7 million and $253.7 million, respectively. The annual principal and interest payments on the bonds required 11.7 percent of the pledged revenues. 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 $282,860,000. Grant Anticipation Notes (GARVEE bonds) currently outstanding are as follows: Purpose Govermental activities Interest Rates 2.5% - 5.25% Amount $ 298,280,000 2008 Comprehensive Annual Financial Report 49 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 Annual debt service requirements to maturity for Grant Anticipation Notes (GARVEE bonds) are as follows: Fiscal year ending June 30 2009 2010 2011 2012 2013 2014-2016 Grant Anticipation Notes (GARVEE bonds) Principal Interest $ 24,050,000 $ 14,490,432 25,170,000 13,367,182 70,570,000 12,191,182 43,885,000 8,761,582 35,340,000 6,641,482 99,265,000 7,696,682 $298,280,000 $ 63,148,542 Advances and Notes Payable The Department’s outstanding advances and notes payable as of June 30, 2008, were $56,738,689 in governmental activities. The advances and notes payable represent the General Fund (State Highway Fund) loan payable to the Highway Expansion and Extension Loan Program Fund for $33,900,000 and a loan to the City of Goodyear, Arizona, for 5,947,938 for highway construction. The advances and notes payable amount also includes other intergovernmental advances for $16,890,751. Annual debt service requirements to maturity for advances and notes payable are as follows: Fiscal year ending June 30 2009 2010 2012 2021 Governmental Activities Principal Interest $ 37,209,782 $ 314,251 8,484,365 39,572 10,893,112 151,430 $ 56,738,689 $ 353,823 Business-type Activities Principal Interest $ - $ - Total - Principal $ 37,209,782 8,484,365 10,893,112 151,430 $ 56,738,689 $ $ $ Interest 314,251 39,572 353,823 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. 2008 Comprehensive Annual Financial Report 50 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 Refunded bonds of the Department deposited with escrow agents at June 30, 2008, are as follows: Original Issue 1999 Series - Senior 1999 Series - Senior 2001 Series - Senior 2002 Series B - Senior Escrow Maturity Date Type Highway Refunding Bonds July 1, 2009 Highway Refunding Bonds July 1, 2009 Highway Revenue Bonds July 1, 2011 Highway Revenue Bonds July 1, 2012 Total refunded bonds deposited with escrow agent Balance $ 64,130,000 13,985,000 86,170,000 48,595,000 $ 212,880,000 Changes in non-current liabilities The activity for the fiscal year ended June 30, 2008, was as follows: Beginning Balance July 1, 2007 Additions $ 1,490,600,000 $ 193,950,000 - 370,000,000 <19,045,000> 350,955,000 13,825,000 282,860,000 108,034,322 68,000,000 31,861,772 <52,580,000> <11,309,740> 298,280,000 128,586,354 24,050,000 13,002,887 Total bonds and notes Capital leases Compensated absences Advances and notes payable Total governmental activities 1,881,494,322 10,600,742 14,410,376 102,209,782 2,008,715,222 663,811,772 14,366,473 19,528,907 697,707,152 <143,579,740> <3,065,348> <13,321,507> <65,000,000> <224,966,595> 2,401,726,354 7,535,394 15,455,342 56,738,689 2,481,455,779 115,067,887 3,181,016 10,387,612 37,209,782 165,846,297 Business-type Activities: Accrued interest payable Compensated absences Total business-type activities 151,201 151,201 2,170,356 118,238 2,288,594 <124,184> <124,184> 2,170,356 145,255 2,315,611 145,255 145,255 $ 2,008,866,423 $ 699,995,746 $ <225,090,779> $ 2,483,771,390 $ 165,991,552 Governmental Activities: Bonds and notes: Highway Revenue Bonds Transportation Excise Tax Revenue Bonds Grant Anticipation Notes (GARVEE bonds) Premium on bonds Total non-current liabilities Reductions $ Ending Balance June 30, 2008 <60,645,000> $ 1,623,905,000 Due Within One Year $ 64,190,000 Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. At year-end, $756,622 of the internal service fund’s compensated absences and $7,535,394 of capital leases are included in the above amounts. 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 advances and notes payable will be repaid with funds from the General Fund (State Highway Fund) and the Maricopa Regional Area Road Construction Fund. 2008 Comprehensive Annual Financial Report 51 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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 – Board Funding Obligations The Transportation Board has issued Board Funding Obligations (BFOs) to the State Treasurer in accordance with Arizona Revised Statutes, §28-7678. The BFOs are nonnegotiable and are authorized by Transportation Board resolution specifying the rate(s) of interest, the date(s) of maturity, the terms of redemption, the form and manner of execution of the funding obligation, any terms necessary to secure credit enhancement or other sources of payment or security and any other item the Transportation Board determines is necessary. The total principal amount of BFOs at any one time shall not be more than $200 million and shall mature no later than four calendar years after the delivery. Up to $60 million of the proceeds shall be deposited into the General Fund (State Highway Fund) and up to $140 million shall be deposited into the Highway Expansion and Extension Loan Program Fund. The BFOs are special obligations of the Transportation Board; are not obligations that are general, special or otherwise of the State; are not a legal debt of the State; and are payable and enforceable only from the monies pledged and assigned in the authorizing resolutions of the Transportation Board. The State Treasurer shall provide written notice to the Transportation Board and the Department when the operating monies fall below $400 million. If operating monies fall below $200 million, the State Treasurer may call the investment in the BFOs in $25 million increments up to the amount that the operating monies are below $200 million. The State Treasurer shall give the Transportation Board and the Department at least fifteen days' notice of the call. The activity for the fiscal year ended June 30, 2008, was as follows: Beginning Balance July 1, 2007 Governmental Activities: Board Funding Obliations Total governmental activities Business-type Activities: Board Funding Obligations Total business-type activities Total short-term debt Additions 60,000,000 60,000,000 $ 60,000,000 60,000,000 140,000,000 140,000,000 50,000,000 50,000,000 $ 200,000,000 $ 110,000,000 $ Reductions $ Ending Balance June 30, 2008 <60,000,000> $ <60,000,000> <140,000,000> <140,000,000> 60,000,000 60,000,000 50,000,000 50,000,000 $ <200,000,000> $ 110,000,000 During fiscal year 2008, the Department repaid $60,000,000 in principal and $6,240,000 in accrued interest for the Series 2003 BFOs in the General Fund (State Highway Fund) and borrowed $60,000,000 of the Series 2007 BFOs in the General Fund (State Highway Fund). The Department also repaid $140,000,000 in principal and $14,534,466 in accrued interest for the Series 2003 BFOs in the Highway Expansion and Extension Loan Program Fund and borrowed $50,000,000 of the Series 2007 BFOs in the Highway Extension and Expansion Loan Program Fund. Interest accrued to date on the Series 2007 BFOs is $2,604,427 and $2,170,356, respectively. Both the principal and interest on the Series 2007 BFOs are due no later than August 8, 2011. During fiscal year 2007, there were no repayments and the Department accrued interest of $4,040,000 on the Series 2003 BFOs. 2008 Comprehensive Annual Financial Report 52 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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 (State Highway 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, 2008, approximately $155 million was reserved in the General Fund (State Highway Fund) for this purpose. In addition, the Statewide Transportation Acceleration Needs account held $302.7 million. The remaining $20.9 million was reserved for highway construction from federal highway 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, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes (GARVEE bonds). The Debt Service Fund reserve is for future debt service payments. 6. OTHER INFORMATION A. Subsequent Events On September 25, 2008, the Transportation Board issued $181,050,000 of Highway Revenue Bonds, Series 2008B for the purposes of i) financing portions of the Transportation Board's five-year capital program and ii) paying costs of issuing the Series 2008B Bonds. The Series 2008B Bonds were issued as senior lien bonds and mature from July 1, 2023 through July 1, 2033. Net proceeds totaled $187,470,581 (after receipt of $7,550,366 reoffering premium and payment of $1,129,785 in underwriting fees and costs of issuance). The bonds were rated AAA and Aa1 by Standard & Poor's Ratings Services and Moody's Investors Service, respectively. On October 23, 2008, the State Treasurer notified the Department and the Transportation Board of the potential call of the $60 million of the Series 2007 Board Funding Obligations outstanding and deposited in the General Fund and the $50 million of the Series 2007 Board Funding Obligations outstanding and deposited in the Highway Expansion and Extension Loan Program Fund. Arizona Revised Statutes, §35-313(D) (3), requires that the State Treasurer provide this notice when operating monies of the State fall below $400 million. This statute further provides that the State Treasurer may call the Board Funding Obligations (BFOs) in $25 million increments if operating monies of the State fall below $200 million. The BFOs may only be called with 15 days' notice. Interest accrued on any BFOs that are called is not payable until maturity of the BFOs. B. Contingent Liabilities Risk Management Insurance Losses The Department is exposed to various risks of loss related to torts; thefts of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Department is a participant in the state’s selfinsurance program and, in the opinion of the Department’s management, any unfavorable outcomes from these claims and actions would be covered by the self-insurance program. Accordingly, the Department has no risk of loss beyond adjustments to future years’ premium payments to the state’s self-insurance program. All estimated losses for unsettled claims and actions of the state are determined on an actuarial basis and are included in the State of Arizona’s Comprehensive Annual Financial Report. Claims The Department has a variety of claims pending against it that arose during the normal course of its activities. Management of the Department believes, based on the advice of legal counsel, that losses, if any, resulting from settlement of these claims will not have a material effect on the financial position of the Department. 2008 Comprehensive Annual Financial Report 53 Arizona Department of Transportation Notes to the Financial Statements June 30, 2008 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. Pension and Other Postemployment Benefits Plan descriptions — The Department contributes to a cost-sharing, multiple-employer defined benefit pension plan; a cost-sharing, multiple-employer defined benefit health care plan; and a cost-sharing, multiple-employer defined benefit long-term disability plan, all of which are administered by the Arizona State Retirement (System). The System (through its Retirement Fund) provides retirement (i.e. pension), death, and survivor benefits; the Health Benefit Supplement Fund provides health insurance premium benefits (i.e. a monthly subsidy); and the Long-Term Disability Fund provides long-term disability benefits. Benefits are established by state statute. The System is governed by the Arizona State Retirement System Board according to the provisions of Arizona Revised Statutes, Title 38, Chapter 5, Article 2. The 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 Arizona State Retirement System, 3300 North Central Avenue, P.O. Box 33910, Phoenix, AZ 85067-3910 or by calling (602) 240-2000 or (800) 621-3778. Funding policy — The Arizona State Legislature establishes and may amend active plan members’ and the Department’s contribution rates. For the year ended June 30, 2008, active plan members were required by statute to contribute at the actuarially determined rate of 9.6 percent (9.1 percent for retirement and 0.5 percent for long-term disability) of the members’ annual covered payroll and the Department was required by statute to contribute at the actuarially determined rate of 9.6 percent (8.05 percent for retirement, 1.05 percent for health insurance premium, and 0.5 percent for long-term disability) of the members’ annual covered payroll. The Department’s contributions for the current and two preceding years, all of which were equal to the required contributions, were as follows: Fiscal year Health Benefit Long-Term ended Retirement Fund Supplement Fund Disability Fund June 30 2008 2007 2006 $ 15,697,915 $ 13,589,541 10,150,200 2,047,553 1,772,548 1,323,939 $ Total 975,019 $ 18,720,487 16,206,154 844,065 12,104,582 630,443 The Department's total payroll for fiscal year 2008 was $202.0 million. The System is funded through payroll deductions from employees' gross earnings and amounts contributed by the Department. Retirement benefits, health care benefits, and long term disability benefits are obligations of the System and not of the Department. The Arizona Revised Statutes provide statutory authority for employee and employer contributions. The contribution requirement for fiscal year 2008 was $18.7 million each by both the employees and the Department. 2008 Comprehensive Annual Financial Report 54 Required Supplementary Information (Other than MD&A) Budgetary Comparison Schedule - General Fund (State Highway Fund) Note to Required Supplementary Information Information About Infrastructure Assets Reported Using the Modified Approach 2008 Comprehensive Annual Financial Report Arizona Department of Transportation Required Supplementary Information June 30, 2008 Budgetary Comparison Schedule General Fund (State Highway Fund) for the fiscal year ended June 30, 2008 Actual Amounts Budgeted Amounts Final Original Expenditures appropriated by State legislature in 2008 budget Administration $ 45,462,200 Highways 267,610,900 Motor Vehicle 105,093,700 Total $ 418,166,800 $ 45,462,200 267,610,900 105,093,700 $ 418,166,800 Timing differences: 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 Distributions to Arizona counties and cities Distributions to other state agencies Interest expense Principal repayment of debt Total expenditures as reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds (General Fund) - Exhibit 4 The note to required supplementary information is an integral part of this statement. 2008 Comprehensive Annual Financial Report 55 $ 45,410,117 262,746,114 103,637,136 411,793,367 2,202,551 <3,204,965> <13,635,568> 6,246,648 542,723,093 45,030,296 56,715,904 1,416,562 60,393,159 $ 1,109,681,047 Variance with Final Budget Positive $ 52,083 4,864,786 1,456,564 $ 6,373,433 Arizona Department of Transportation Required Supplementary Information June 30, 2008 Note to Required Supplementary Information 1. Budgets and budgetary accounting Annual budgets for the operating expenditures for the General Fund (State Highway Fund), 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 (State Highway 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. 2008 Comprehensive Annual Financial Report 56 Arizona Department of Transportation Required Supplementary Information June 30, 2008 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 its roads and bridges using the modified approach. Assets accounted for under the modified approach include 6,785 center lane miles (18,546 travel line miles) of roads and 4,637 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 of the State of Arizona Department of Transportation (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 2009 and beyond was adopted by the Transportation Board on June 23, 2008. 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: 2008 Comprehensive Annual Financial Report 57 Arizona Department of Transportation Required Supplementary Information June 30, 2008 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 2008, an overall rating of 3.91 was achieved, as shown in the following graph: Condition Level - Roads 5 PSR 4 3 Actual Level 2 Desired Level 1 0 2004 2005 2006 2007 2008 Fiscal Year Figure 1 Preservation of the roads is accomplished through programs managed primarily by the Department’s 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 2004 through 2008 were as follows: Fiscal Year 2004 2005 2006 2007 2008 Estimated Expenditures (in millions) $198.5 235.7 218.5 216.4 260.7 Actual Expenditures (in millions) $218.5 195.0 211.5 196.5 247.9 2008 Comprehensive Annual Financial Report 58 Arizona Department of Transportation Required Supplementary Information June 30, 2008 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, 2008, the Department owns and maintains 4,637 bridges with an approximate total deck area of 44,440,010 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 sub-structure 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 2008, the CRI was computed at 93.4%. 2008 Comprehensive Annual Financial Report 59 Arizona Department of Transportation Required Supplementary Information June 30, 2008 Information About Infrastructure Assets Reported Using the Modified Approach – continued Condition Levels - Bridges 95% CRI 94% 93% Actual Level 92% Desired Level 91% 90% 2004 2005 2006 2007 2008 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 35% % of bridges built in corresponding decade 30% 25% 20% 15% 10% 5% 0% < 1930 30s 40s 50s 60s 70s 80s Figure 3 2008 Comprehensive Annual Financial Report 60 90s 2000s Arizona Department of Transportation Required Supplementary Information June 30, 2008 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 2004 through 2008 were as follows: Fiscal Year 2004 2005 2006 2007 2008 Estimated Expenditures (in millions) $8.7 7.4 10.6 17.1 13.4 Actual Expenditures (in millions) $9.2 11.0 11.3 22.5 18.1 2008 Comprehensive Annual Financial Report 61 Non-Major Governmental Funds Financial Statements Special Revenue Funds Special revenue funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes. The State Aviation Fund is appropriated by the legislature and receives monies from aviation gasoline taxes, sale of abandoned and seized aircraft, flight property taxes, and the operation of the Grand Canyon National Park Airport. The Aviation Fund monies are used to build and maintain airport facilities throughout Arizona. The Safety Enforcement and Transportation Infrastructure Fund is appropriated by the legislature and receives monies from the registration of vehicles of nonresidents for enforcement of vehicle safety requirements, maintenance of transportation facilities, and upgrades of transportation facilities, including roads, streets, and highways, approved by the Transportation Board within twenty-five miles of the border between Arizona and Mexico. The Motor Vehicle Liability Insurance Enforcement Fund receives fees and interest to administer the State’s Mandatory Liability Insurance Program. The Motor Vehicle Inspection and Title Enforcement Fund receives monies from a continuing appropriation to be used to defray the cost of investigations involving certificates of title, licensing fraud, registration enforcement, and other enforcement related issues. The Motor Carrier Safety Revolving Fund receives fees to administer and enforce the rules governing the safety operations of motor carriers, shippers, and vehicles transporting hazardous materials, substances, or waste. The Underground Storage Tank Fund receives certain Motor Vehicle Division revenues for distribution to the Department of Environmental Quality. The Economic Strength Project Fund receives monies from the Highway User Revenue Fund for use on approved economic strength projects recommended by the Department of Commerce and Economic Development Commission. The Grant Anticipation Notes Fund receives revenues from the Federal Highway Administration under various grant agreements for the repayment of Grant Anticipation Notes (GARVEE bonds). The Local Agency Deposits Fund receives monies from the U.S. Government and local agencies for the payment of local agency sponsored county secondary road construction projects. 2008 Comprehensive Annual Financial Report Arizona Department of Transportation Combining Balance Sheet Non-Major Governmental Funds June 30, 2008 Safety Enforcement Motor Vehicle and Liability Transportation Insurance Infrastructure Enforcement Fund Fund Vehicle Inspection and Title Enforcement Fund $ 16,574,708 $ 2,511,375 $ 3,826,451 $ 2,415,318 161,759 64,849 8,628,966 550,281 8,854 112,630 - 106,718 - 52,090 - - - - - $ 25,980,563 $ 2,632,859 $ 3,933,169 $ 2,467,408 $ $ $ $ State Aviation Fund ASSETS Unrestricted cash on deposit with the State Treasurer Receivables: Accrued interest Interfund Notes and loans Other Amounts due from U.S. Government Restricted cash on deposit with the State Treasurer Total assets LIABILITIES Accounts payable Accrued payroll and other accrued expenditures Contracts and retainage payable Amounts due to: Arizona counties and cities Other state agencies Deferred revenue Total liabilities FUND BALANCES Reserved for: Debt service Capital projects Unreserved special revenue funds Total fund balances Total liabilities and fund balances 826,785 - - 65,437 - 45,182 - 71,251 - 53,979 - 8,628,966 9,521,188 45,481 71,251 53,979 16,459,375 16,459,375 $ 25,980,563 2,587,378 2,587,378 $ 2,632,859 3,861,918 3,861,918 $ 3,933,169 2,413,429 2,413,429 $ 2,467,408 2008 Comprehensive Annual Financial Report 62 299 Exhibit 9 Motor Carrier Safety Revolving Fund $ Underground Storage Tank Fund 37,342 $ - Economic Strength Project Fund $ Grant Anticipation Notes Fund 3,288,616 $ Local Agency Deposits Fund - $ Total Non-Major Governmental Funds - $ 28,653,810 - 6,946 2,671,976 - 16,926 - - 3,014,098 194,485 3,008,263 8,628,966 3,564,379 - - - - 3,222,241 3,222,241 $ 37,342 222,134 $ 2,901,056 $ 3,305,542 $ 93 93 16,233,570 $ 22,469,909 16,455,797 $ 63,727,941 $ - $ $ - $ - $ $ $ - - 827,084 - - - - 4,207,759 235,849 4,207,759 - 2,901,056 2,901,056 3,305,542 3,305,542 - 4,207,759 3,305,542 2,901,056 8,628,966 20,106,256 37,342 37,342 37,342 $ 2,901,056 3,305,542 93 93 93 18,262,150 18,262,150 $ 22,469,909 93 18,262,150 25,359,442 43,621,685 $ 63,727,941 $ $ 2008 Comprehensive Annual Financial Report 63 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, 2008 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 Income from 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 $ 7,449,685 424,647 Motor Vehicle Liability Insurance Enforcement Fund $ $ 3,329,706 - 2,906,495 Vehicle Inspection and Title Enforcement Fund $ 1,652,600 697,317 293,242 1,448,624 13,821,790 939,946 77,788 25,153,039 130,573 3,460,279 2,906,495 1,652,600 4,088,494 4,088,494 2,087,874 2,087,874 2,096,315 2,096,315 1,532,026 1,532,026 19,912,291 18,116,800 42,117,585 2,178,400 4,266,274 5,564,374 7,660,689 1,244,700 2,776,726 <4,754,194> <1,124,126> <16,964,546> 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 <805,995> <16,964,546> 33,423,921 $ $ 16,459,375 - - <805,995> <4,754,194> <1,124,126> 3,393,373 8,616,112 3,537,555 2,587,378 $ 3,861,918 $ 2,413,429 2008 Comprehensive Annual Financial Report 64 - Exhibit 10 Motor Carrier Safety Revolving Fund $ $ Underground Storage Tank Fund - $ 28,669,315 Economic Strength Project Fund $ Grant Anticipation Notes Fund 1,000,000 $ - Local Agency Deposits Fund $ Total Non-Major Governmental Funds - $ 10,779,391 34,653,057 6,500 6,500 110,232 28,779,547 240,177 1,240,177 67,599,433 3 67,599,436 31,472,481 8,262,949 39,735,430 67,599,433 32,169,798 8,262,949 293,242 1,929,609 13,821,790 939,946 84,288 170,533,503 - 1,849 1,849 4,080 4,080 - 37,285,011 37,285,011 4,088,494 37,285,011 5,722,144 47,095,649 - 28,777,698 28,779,547 - 37,285,011 19,073,388 57,956,972 124,126,009 6,500 - - 67,599,436 2,450,419 46,407,494 - - - <67,599,433> <67,599,433> 6,500 30,842 37,342 - - $ <838,903> 2,075,000 1,240,177 $ 3 90 93 $ <62,956> <62,956> 2,387,463 15,874,687 $ 18,262,150 2008 Comprehensive Annual Financial Report 65 <67,599,433> <62,956> <67,662,389> <21,254,895> 64,876,580 $ 43,621,685 Fiduciary Funds Financial Statements Combining Statement of Net Assets Statement of Changes in Assets and Liabilities AGENCY FUNDS Highway Properties - Privilege Tax Fund collects monies from renters of properties previously acquired by the Department for use in future highway development. Monies collected are distributed to the Department of Revenue. Highway Properties - 24 Percent Fund collects 24 percent of the Department’s rental income from properties for use in future highway development. Monies collected are distributed to the local counties. 2008 Comprehensive Annual Financial Report Exhibit 11 Arizona Department of Transportation Combining Statement of Net Assets Agency Funds June 30, 2008 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 $ $ 2008 Comprehensive Annual Financial Report 66 - $ - $ $ $ Total 136,434 136,434 $ 136,434 $ 136,434 136,434 136,434 $ 136,434 $ 136,434 Exhibit 12 Arizona Department of Transportation Statement of Changes in Assets and Liabilities Agency Funds for the fiscal year ended June 30, 2008 Balance July 1, 2007 Additions Deductions Balance June 30, 2008 Highway Properties - Privilege Tax Fund ASSETS Restricted cash on deposit with the State Treasurer Total assets $ $ - $ $ 3,039 3,039 $ $ <3,039> $ <3,039> $ - LIABILITIES Due to Department of Revenue Total liabilities $ $ - $ $ 3,039 3,039 $ $ <3,039> $ <3,039> $ - $ 172,526 204 172,730 $ 144,163 144,163 $ <180,255> $ <204> $ <180,459> $ 136,434 136,434 169,916 2,814 172,730 $ 146,977 146,977 $ <180,459> $ <2,814> $ <183,273> $ 136,434 136,434 147,202 147,202 $ <183,294> $ <204> $ <183,498> $ 136,434 136,434 146,977 3,039 150,016 $ <180,459> $ <3,039> <2,814> $ <186,312> $ 136,434 136,434 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 $ $ $ Total ASSETS Restricted cash on deposit with the State Treasurer Other receivables Total assets $ $ 172,526 204 172,730 $ 169,916 2,814 172,730 $ $ LIABILITIES Due to Arizona counties Due to Department of Revenue Other payables Total liabilities $ $ $ 2008 Comprehensive Annual Financial Report 67 Statistical Section Arizona Department of Transportation Overview – Statistical Section for the fiscal year ended June 30, 2008 This part of the Arizona Department of Transportation’s (Department) 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. 2008 Comprehensive Annual Financial Report 68 Arizona Department of Transportation Index – Statistical Section for the fiscal year ended June 30, 2008 Page Financial Trends Table 1 – Change in Net Assets.............................................................................................................................70-71 Table 2 – Net Assets by Component ..........................................................................................................................72 Table 3 – Statement of Revenues, Expenditures, and Changes in Fund Balances......................................................73 Table 4 – Fund Balances of Governmental Funds......................................................................................................74 Table 5 – Expenditures of Federal Awards.................................................................................................................75 Table 6 – Government-wide Expenses by Function ...................................................................................................76 Table 7 – Government-wide Revenues.......................................................................................................................77 Revenue Capacity Table 8 – Highway User Revenue Fund Collections.................................................................................................78 Table 9 – Highway User Revenue Fund Distributions ..............................................................................................79 Table 10 – Fuel Tax Rates ...........................................................................................................................................80 Table 11 – Motor Vehicle Fuel Tax – Top Ten Suppliers ...........................................................................................81 Table 12 – Gasoline Volume Sold – Top Twenty-Five Suppliers ..........................................................................82-83 Debt Capacity Table 13 – Highway User Revenue Fund – Legal Debt Margin..................................................................................84 Table 14 – Highway Revenue Bonds – Bond Coverage..............................................................................................85 Table 15 – Transportation Excise Tax Revenue Bonds – Bond Coverage ..................................................................86 Table 16 – Transportation Excise Tax Revenue Bonds – Debt Service Revenue and Cost Per Capita.......................87 Demographic and Economic Information Table 17 – Number of Vehicle Registrations Per Year ...............................................................................................88 Table 18 – Vehicle Registrations Per Year Compared to Fuel Sales...........................................................................89 Table 19 – Demographic and Economic Statistics ......................................................................................................90 Table 20 – Principal Employers ..................................................................................................................................91 Operating Information Table 21 – Appropriated Full Time Equivalents (FTEs) .............................................................................................92 Table 22 – Capital Assets – Schedule by Function and Activity.................................................................................93 Table 23 – Capital Assets – Schedule of Changes by Function and Activity..............................................................94 Table 24 – Total Public Road Mileage by Highway Class and Governmental Ownership .........................................95 Table 25 – Daily Vehicle Miles Traveled with Population Data .................................................................................96 2008 Comprehensive Annual Financial Report 69 Table 1 Arizona Department of Transportation Change in Net Assets for fiscal year ended June 30 (Thousands of Dollars) $ Highway1 Highway maintenance Motor Vehicle Other 70 Program Revenues: Governmental activities: Charges for services: Administration Aeronautics Highway Highway maintenance Motor Vehicle Other Local governmental assistance Operating grants and contributions Capital grants and contributions Total governmental activities program revenues 57,864 3,751 $ 52,533 3,848 2004 $ 57,703 7,512 2005 $ 42,298 9,804 2006 $ 46,543 91,570 82,904 6,844 45,644 96,353 83,090 8,460 93,656 95,642 86,845 9,815 125,889 105,037 91,676 6,871 96,629 915,219 149,341 24,791 89,605 1,565,061 277,975 957,057 192,536 30,235 84,084 1,831,815 333,930 1,022,768 161,029 39,205 89,431 1,997,536 156,678 1,086,955 306,853 42,440 86,870 2,061,371 10,711 5,265 15,975 $ 1,581,036 11,118 26,349 37,467 $ 1,869,282 10,007 4,414 14,421 $ 2,011,957 10,270 4,360 14,630 $ 2,076,001 $ $ $ $ $ $ Non-capital, including asset preservation1 Distributions to Arizona counties and cities Distributions to other state agencies Local governmental assistance 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 2003 2002 Expenses: Governmental activities: Administration Aeronautics 974 104,298 3,341 4,111 56,481 470,772 639,977 717 107,395 4,219 5,080 34,160 453,758 605,330 902 108,346 4,848 4,129 44,008 418,174 580,407 919 1,518 113,506 5,564 4,760 58,948 484,276 669,491 45,002 10,705 2007 $ 118,147 114,119 96,937 9,394 51,667 5,418 2008 $ 54,918 4,373 138,788 120,163 105,961 - 132,874 137,100 112,880 - <53,981> 1,095,671 206,903 36,771 88,279 1,767,947 113,569 1,219,208 114,795 48,760 82,450 2,000,779 187,004 1,238,383 176,692 37,285 92,295 2,173,804 8,175 4,273 12,448 1,780,395 8,072 4,355 12,427 2,013,206 7,712 4,053 11,765 2,185,569 1,214 537 121,179 7,099 4,040 67,241 387,614 588,924 $ $ 8,843 1,133 2,953 577 132,274 12,239 72,679 354,024 584,722 $ $ 9,706 940 1,451 1,765 127,900 8,263 79,747 523,728 753,500 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 $ <925,084> $ <1,226,485> $ <1,417,129> $ <1,391,880> $ <4,134> <23,989> <1,621> <3,178> $ <929,218> $ <1,250,474> $ <1,418,750> $ <1,395,058> $ 71 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 and fees Flight property taxes Interest on investments Other $ Governmental activities before accounting change Cumulative effect of accounting change Special Item - State appropriation for Statewide Transportation Acceleration Needs (STAN) Total governmental activities Business-type activities: Interest on investments Other Total business-type activities Total primary government Change in Net Assets: Governmental activities Business-type activities Total primary government 9,614 2,227 11,841 651,818 267,563 899,092 547,129 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 $ $ 9,271 3,529 12,800 593,207 288,600 914,657 698,406 6,321 8,352 24,775 $ $ 8,443 3,009 11,452 680,943 316,806 966,885 759,633 13,180 19,245 27,120 $ $ 8,012 3,281 11,293 600,217 $ 8,060 2,909 10,969 595,691 $ 7,624 1,755 9,379 762,879 <1,179,023> $ <1,416,057> $ <1,420,304> <1,155> <1,458> <2,386> <1,180,178> $ <1,417,515> $ <1,422,690> 316,491 994,052 770,596 13,686 28,538 11,026 $ 262,264 1,029,001 790,909 15,303 55,760 9,998 $ 253,742 1,033,505 766,394 13,822 59,528 38,772 1,776,659 - 1,839,349 40,399 1,941,111 - 2,102,869 - 2,134,389 - 2,163,235 - 2,165,763 - 1,776,659 1,879,748 1,941,111 2,102,869 2,134,389 245,000 2,408,235 2,165,763 5,625 381 6,006 $ 1,782,665 2,440 425 2,866 $ 1,882,614 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 $ 4,788 <17> 4,771 2,170,534 $ $ 710,989 $ <34> 710,955 $ 955,366 2,363 957,729 $ 851,575 1,872 853,447 $ 653,263 $ <21,124> 632,140 $ 523,982 472 524,454 $ $ $ $ $ NOTE: 1Adjustments were made to Highway and Non-capital, including asset preservation, for the years 2004 - 2007 to conform to the current year's presentation. 992,178 4,102 996,280 $ $ 745,459 2,385 747,844 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 Restricted Unrestricted Total $ 704,929 1,006,512 466,337 491,995 408,410 439,045 400,315 $ 209,650 236,186 189,669 234,548 208,032 211,796 219,726 $ 14,200,017 13,454,559 12,462,382 11,507,017 10,796,027 10,272,045 9,618,783 $ 173 225 249 499 810 1,126 1,439 Restricted Unrestricted $ 74,115 71,708 67,713 65,273 63,900 63,225 83,293 $ Primary Government Total 132 $ 74,420 102 72,035 <30> 67,932 <204> 65,568 892 65,602 780 65,131 1,522 86,254 Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total $ 13,285,611 12,212,086 11,806,625 10,780,973 10,180,395 9,622,330 9,000,181 $ 779,044 1,078,220 534,050 557,268 472,310 502,270 483,608 $ 209,782 236,288 189,639 234,344 208,924 212,576 221,248 $ 14,274,437 13,526,594 12,530,314 11,572,585 10,861,629 10,337,176 9,705,037 Primary Government Net Assets By Type $16,000,000 $14,000,000 Thousands of Dollars 72 2008 $ 13,285,438 2007 12,211,861 2006 11,806,376 2005 10,780,474 2004 10,179,585 2003 9,621,204 2002 8,998,742 Business-type Activities Invested in Capital Assets, Net of Related Debt Unrestricted $12,000,000 $10,000,000 Restricted $8,000,000 $6,000,000 $4,000,000 Invested in Capital Assets, net of related debt $2,000,000 $0 2002 2003 2004 2005 Fiscal Year 2006 2007 2008 Table 3 Arizona Department of Transportation Statement of Revenues, Expenditures, and Changes in Fund Balances for fiscal year ended June 30 (Thousands of Dollars) 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 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 2002 2003 2004 2005 2006 2007 2008 $ 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 $ 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 $ 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 $ 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 $ 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 $ 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 $ 253,742 1,159,474 768,046 494,584 79,747 38,609 463 697 59,197 13,822 940 1,367 6,206 2,876,894 56,230 3,491 68,369 89,314 81,012 2,369 300,785 51,485 74,244 94,978 81,517 3,579 2,304 308,107 56,484 7,228 130,117 95,144 84,921 2,940 376,834 40,599 9,517 159,408 105,887 90,208 1,802 407,421 43,372 10,470 161,496 111,378 95,198 2,309 424,223 44,875 3,876 184,240 118,940 103,801 455,732 44,322 4,089 171,134 135,629 110,982 466,156 7,480 9,594 1,038,314 28,880 957,057 189,784 1,022,768 160,029 1,086,955 306,852 1,190,962 206,903 1,217,883 114,795 1,241,110 173,405 208,820 85,387 1,049 89,147 1,009,290 2,769,152 248,055 84,928 2,424 146,168 833,731 2,779,848 284,815 92,371 2,546 333,929 599,819 2,873,111 302,202 94,344 1,996 156,678 623,829 2,980,277 173,745 83,017 1,252 250,736 663,316 2,994,154 100,395 90,836 1,592 63,273 741,506 2,786,012 192,663 102,583 3,447 158,991 989,882 3,328,237 <352,159> <351,196> <372,558> <234,170> <192,629> <46,679> <451,343> 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 24,726 337,280 262,216 <251,891> <10,325> 11,118 537 118,250 147,400 22,407 <161,726> 137,986 225,499 <186,856> <38,643> 2,129 10,162 577 325,000 26,201 364,069 303,513 <231,563> <71,950> 28,233 1,765 711,479 31,862 773,339 <202,902> - <468> 40,399 <18,932> - 103,110 - <54,643> - 317,390 - 321,996 - 245,000 <54,643> 562,390 537,062 482,419 $ 482,419 $1,044,809 321,996 1,044,809 $1,366,805 <202,902> 39,931 615,856 421,954 $ 412,954 $ 461,885 16.8% 12.2% 17.2% 13.8% 73 - - <18,932> 103,110 452,884 433,952 $ 433,952 $ 537,062 16.7% 15.2% 16.9% 14.5% - 11.1% 9.2% - 9.4% 7.0% - 12.8% 10.4% Table 4 Arizona Department of Transportation Fund Balances of Governmental Funds for fiscal year ended June 30 (Thousands of Dollars) 2003 2002 General Fund (State Highway Fund): Reserved Unreserved Total General Fund $ $ $ Total general and other governmental funds 24,986 176,245 $ 23,395 224,626 $ 412,954 $ $ $ 134,938 48,696 183,634 20,786 232,079 $ 16,386 269,251 $ 452,885 $ $ $ 2005 155,755 48,619 204,374 $ $ 18,592 190,640 $ 20,346 229,578 $ 433,952 $ 166,420 57,123 223,543 2,288 277,884 $ 33,348 313,520 $ 537,063 2006 $ $ $ 172,784 9,342 182,126 2,159 258,236 $ $ $ 2007 2008 507,723 $ <10,032> 497,691 $ 505,691 57,899 563,590 2,688 495,428 3,212 774,644 $ 39,898 300,293 49,002 547,118 $ $ 482,419 $ 1,044,809 $ $ 25,359 803,215 $ 1,366,805 Fund Balances of Governmental Funds $1,600,000 $1,400,000 Thousands of Dollars 74 All other governmental funds Reserved: Debt service Capital projects Unreserved, reported in: Non-major special revenue funds Total all other governmental funds 121,075 67,253 188,328 2004 $1,200,000 $1,000,000 Unreserved $800,000 Reserved $600,000 $400,000 $200,000 $0 2002 2003 2004 2005 Fiscal Year 2006 2007 2008 Table 5 Arizona Department of Transportation Expenditures of Federal Awards 1 for the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ FAA FRA 715 610 4,338 4,203 480 242 6 6,278 $ 3 14 2 69 FTA NHTSA FHWA $15,530 10,169 8,837 8,466 5,549 6,618 5,264 4,746 3,717 5,107 $ 106 101 69 96 84 87 83 65 65 275 $523,810 353,192 389,575 456,924 384,416 433,472 496,509 390,204 393,958 371,013 FMCSA BLM $ 2,642 1,769 2,231 282 434 466 282 - $ 57 544 162 152 79 30 47 - BIA Sub-total FHWA Total - $542,860 <21> 366,364 405,212 278 470,401 391,042 440,915 502,188 395,029 1,048 398,796 974 383,716 $31,472 40,559 33,268 42,323 36,324 25,439 19,848 33,261 15,219 17,748 $574,332 406,923 438,480 512,724 427,366 466,354 522,036 428,290 414,015 401,464 $ SOURCE: Single Audit Reports - fiscal years 1999 through 2008 1 NOTES: 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) Total Expenditures of Federal Awards $600,000 Thousand of Dollars $500,000 $400,000 $300,000 $200,000 $100,000 $0 1999 2000 2001 2002 2003 2004 Fiscal Year 75 2005 2006 2007 2008 Table 6 Arizona Department of Transportation Government-wide Expenses by Function for the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Administration 2008 2007 2006 2005 2004 2003 2002 $ 54,918 51,667 45,002 42,298 57,703 52,533 57,864 Highway Aeronautics $ 4,373 5,418 10,705 9,804 7,512 3,848 3,751 Highway $ 132,874 138,788 118,147 125,889 93,656 45,644 46,543 Maintenance $ Motor Vehicle 1 324,104 233,732 60,138 261,714 429,571 374,328 188,198 $ 112,880 105,961 96,937 91,676 86,845 83,090 82,904 Distributions to Arizona Counties, Cities Local Interest on and Other State Governmental Long-Term Agencies Assistance Debt $ 1,415,075 1,334,003 1,394,609 1,393,808 1,183,797 1,149,593 1,064,560 $ 37,285 48,760 36,771 42,440 39,205 30,235 24,791 $ 92,295 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 Highway Expansion and Extension Loan Program Total $ 7,712 8,072 8,175 10,270 10,007 11,118 10,711 $ 4,053 4,355 4,273 4,360 4,414 26,349 5,265 $ 2,185,569 2,013,206 1,872,429 2,076,000 2,011,956 1,869,282 1,581,036 76 NOTE: 1 Includes Non-capital, including asset preservation Government-wide Expenses by Function Thousands of Dollars $2,500,000 $2,000,000 $1,500,000 Total Expenses $1,000,000 $500,000 $0 2002 2003 2004 2005 Fiscal Year 2006 2007 2008 Table 7 Arizona Department of Transportation Government-wide Revenues for the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year $ 150,024 158,019 134,068 126,267 118,225 117,412 112,724 $ 79,747 72,679 67,241 58,948 44,008 34,160 56,481 $ 523,728 354,024 387,614 484,276 418,174 453,758 470,772 $ 9,379 10,969 11,293 11,452 12,800 13,477 11,841 General Revenues Governmental Taxes $ 2,067,464 2,097,476 2,186,859 2,056,503 1,907,984 1,798,243 1,720,313 Other Revenues Interest on Investments $ $ 38,772 9,998 11,026 27,120 24,775 21,304 26,484 59,528 55,760 28,538 19,245 8,352 19,803 29,863 Total Business-Type Other Revenues $ Interest on Investments <18> $ <3> 380 505 425 381 4,788 5,563 3,518 2,764 1,588 2,440 5,625 Government-wide Revenues $ 2,933,412 2,764,485 2,830,157 2,786,956 2,536,411 2,461,022 2,434,484 Government-wide Revenues $3,500,000 Thousands of Dollars 77 2008 2007 2006 2005 2004 2003 2002 Charges for Services Program Revenues Governmental Business-Type Operating Capital Grants Charges for Grants and and Services Contributions Contributions $3,000,000 $2,500,000 $2,000,000 Total Revenues $1,500,000 $1,000,000 $500,000 $0 2002 2003 2004 2005 Fiscal Year 2006 2007 2008 Table 8 Arizona Department of Transportation Highway User Revenue Fund Collections for the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Motor Vehicle Fuel Tax Revenue Motor Vehicle Operators' Motor Vehicle Motor License Reg. Fee Carrier Tax Fees and Revenues Revenues Other Fees Motor Vehicle License (In Lieu) Tax Revenues $ $ $ 697,771 725,787 710,115 701,965 656,881 633,826 629,360 566,115 545,901 636,117 196,151 194,308 178,112 163,463 163,689 158,726 151,437 148,336 158,424 145,340 $ 21,758 22,473 20,824 18,573 16,623 23,302 11,896 15,094 15,040 14,409 $ 60,630 57,085 56,495 50,789 42,829 39,906 40,122 43,248 43,508 15,939 400,787 389,503 372,168 318,689 309,688 276,279 259,308 251,496 235,287 217,905 Total Deposited to Arizona Hwy. User Rev. Fund $ 1,377,097 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 SOURCES: Basic Financial Statements - fiscal years 2002 through 2008; General Purpose Financial Statements - fiscal years 1999 through 2001 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 1999 2000 2001 2002 2003 2004 Fiscal Year 78 2005 2006 2007 2008 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 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ 680,530 688,451 636,094 483,047 570,801 537,668 519,837 503,611 493,697 512,149 $ 415,556 417,541 385,759 362,965 344,699 324,431 312,252 305,009 323,798 295,879 $ 258,871 260,107 240,309 226,110 214,731 202,105 195,530 188,982 157,594 199,591 Department of Public Economic Strength Safety Project Fund $ 10,000 10,000 63,999 52,216 48,698 54,416 37,066 10,937 13,622 12,630 $ 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1 Other Total $ 11,140 12,057 10,553 128,141 9,781 12,419 26,438 14,750 8,449 8,461 $ 1,377,097 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 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 2008; General Purpose Financial Statements - fiscal years 1999 through 2001 1 NOTE: In fiscal years 1999 through 2008, an appropriation for Arizona State Parks is included. Fiscal years 2002 and 2005 include distributions to State General Fund. 79 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 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 07/01/2000 - $ 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 0.26 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. 80 Table 11 Arizona Department of Transportation Motor Vehicle Fuel Tax - Top Ten Suppliers for fiscal year ended June 30 (Thousands) Fiscal Year Gallons from Top Ten Suppliers 2008 2007 2006 2005 2004 2003 2002 1,883,959 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 $ $ 339,113 344,744 302,288 304,483 332,723 339,236 321,852 Revenue Percentage from Top Ten Suppliers 697,771 725,787 710,115 701,965 656,881 633,826 629,360 48.6% 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 2007 Fiscal Year All Fuel Tax Revenue 81 Top Ten Suppliers 2008 Arizona Department of Transportation Gasoline Volume Sold - Top Twenty-Five Suppliers for fiscal year ended June 30 2001 2000 Range - in Millions of Gallons < 25 26 - 50 51 - 100 101 - 200 201 - 300 > 300 2002 2003 Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of within Total Gallons within Total Gallons within Total Gallons within Total Gallons Range Sold Range Sold Range Sold Range Sold 8 6 3 3 3 2 5.6% 8.3% 8.7% 14.8% 32.1% 24.4% 11 4 2 3 3 2 8.4% 5.5% 4.6% 18.0% 30.7% 24.8% 8 6 2 5 3 1 6.1% 9.4% 4.5% 29.3% 29.6% 13.2% 7 5 6 2 4 1 5.5% 6.9% 14.1% 11.9% 39.4% 11.8% 25 93.8% 25 92.1% 25 92.1% 25 89.6% Total Gallons of Gasoline 2,479,233 2,501,654 2,554,032 2,631,239 Gasoline % of Total 87.0% 84.9% 79.7% 81.0% 369,033 445,453 652,439 616,165 13.0% 15.1% 20.3% 19.0% Total Gallons of Use Fuel Diesel % of Total 82 Table 12 2004 2005 2006 2007 2008 Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of Suppliers Percentage of within Total Gallons within Total Gallons within Total Gallons within Total Gallons within Total Gallons Sold Range Sold Range Sold Range Sold Range Sold Range 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% 2 11 5 4 2 1 1.8% 13.5% 14.5% 21.5% 19.0% 16.5% 25 89.0% 25 89.0% 25 89.4% 25 87.4% 25 86.8% 2,678,174 2,745,186 2,726,776 2,851,893 2,824,924 79.9% 77.4% 76.4% 77.7% 79.5% 672,345 799,351 843,445 817,099 728,017 20.1% 22.6% 23.6% 22.3% 20.5% 83 Table 13 Arizona Department of Transportation Highway User Revenue Fund Legal Debt Margin for the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Debt Limit 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 N/A N/A $ 1,300,000 1,300,000 1,300,000 1,300,000 1,000,000 800,000 800,000 800,000 Total Principal Applicable to Limit 1 2 $ 1,623,905 1,490,600 1,223,425 1,161,355 1,017,360 932,700 734,155 700,280 608,500 524,345 Legal Debt Margin $ N/A N/A 76,575 138,645 282,640 367,300 265,845 99,720 191,500 275,655 Total Principal Applicable to the Limit as a Percentage of Debt Limit N/A N/A 94.11% 89.34% 78.26% 71.75% 73.42% 87.54% 76.06% 65.54% NOTES: 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 of the Second Regular Session of the Fortyseventh Legislature, the $1.3 billion debt limit is eliminated from ARS §28-7510. The general effective date of this change was September 21, 2006. 84 Table 14 Arizona Department of Transportation Highway Revenue Bonds Bond Coverage for the fiscal year ended June 30 (Thousands of Dollars) Fiscal Pledged Year Principal 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ 60,645 57,825 54,830 44,265 51,155 44,490 45,365 52,055 46,270 43,805 Interest Total $ 75,538 73,785 62,222 60,459 53,149 41,932 38,534 36,581 33,994 31,090 $ 136,183 131,610 117,052 104,724 104,304 86,422 83,899 88,636 80,264 74,895 1,2 Revenues $ 658,616 635,140 624,408 461,763 557,854 540,540 523,326 513,890 528,721 509,935 Coverage 4.8 4.8 5.3 4.4 5.3 6.3 6.2 5.8 6.6 6.8 SOURCES: Highway User Revenue Fund Schedule fiscal years 1999 through 2008; Debt Service Funds - fiscal years 1999 through 2008 1 NOTES: 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. 2 The Highway Revenue Bonds are secured by a prior lien on and pledge of motor vehicle and related fuel fees and taxes. 85 Table 15 Arizona Department of Transportation Transportation Excise Tax Revenue Bonds Bond Coverage for the fiscal year ended June 30 (Thousands of Dollars) Fiscal Pledged 1 Year Principal Interest Total Revenues 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ 19,045 80,375 208,625 199,400 190,415 163,455 156,865 128,805 106,765 $ 10,673 1,566 14,318 23,553 31,533 35,445 40,035 42,609 43,251 $ 29,718 81,941 222,943 222,953 221,948 198,900 196,900 171,414 150,016 $ 253,742 262,264 316,491 316,806 288,600 268,721 267,563 264,722 248,596 229,470 Coverage 8.5 N/A 3.9 1.4 1.3 1.2 1.3 1.3 1.5 1.5 SOURCE: Maricopa County Regional Area Road Fund Report NOTE: Bond coverage ratio is based upon total Maricopa County Transportation Excise Tax collections. 1 The Transportation Excise Tax Revenue Bonds are secured by transportation excise taxes collected by the Department of Revenue on behalf of Maricopa County. Transportation Excise Tax Revenue Bonds - Bond Coverage $350,000 Thousands of Dollars $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 1999 2000 2001 2002 2003 2004 2005 2006 Fiscal Year REVENUE 86 DEBT SERVICE 2007 2008 Table 16 Arizona Department of Transportation Transportation Excise Tax Revenue Bonds Debt Service Revenue and Cost Per Capita for the fiscal year ended June 30 (Thousands) Fiscal Year Principal 2007 2006 2005 2004 2003 $ 80,375 208,625 199,400 190,415 Interest $ 1,567 14,318 23,553 31,533 Revenue Maricopa County Population $ 262,264 316,491 316,806 288,600 268,721 3,907 3,793 3,649 3,538 3,406 Total Cost $ 81,942 222,943 222,953 221,948 Cost per capita $ 22 61 63 65 Revenue per capita $ 67 83 87 82 79 SOURCES: Maricopa County Regional Area Road Fund Report; population data from the Department of Commerce available through July 2007 NOTE: Based upon total Maricopa County Transportation Excise Tax collections. Thousands of Dollars Transportation Excise Tax Revenue and Cost Per Capita $100 $80 $60 Cost Revenue $40 $20 $0 2003 2004 2005 Fiscal Year 87 2006 2007 Table 17 Arizona Department of Transportation Number of Vehicle Registrations Per Year for fiscal year ended June 30 (Thousands) Change in Number of Registered Fiscal Year Total Vehicles Vehicles 2007 2006 2005 2004 2003 2002 6,609 6,318 5,945 5,639 5,312 5,118 290 373 306 327 193 479 Arizona Population Change in 1 Population 6,339 6,166 5,952 5,744 5,579 5,445 173 214 208 165 134 144 SOURCE: Vehicle registrations from Motor Vehicle Division's annual reports NOTE: 1 The Arizona population data are midyear population estimates of the U.S. Bureau of the Census. Years 2002 through 2006 have been revised to reflect revisions made by the U.S. Bureau of the Census. 600,000 Change in Vehicles Registered Compared to Population Change Change 500,000 400,000 300,000 200,000 100,000 0 2002 2003 2004 2005 Fiscal Year Vehicles 88 Population 2006 2007 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 2008 2007 2006 2005 2004 2003 2002 6,734 6,609 6,318 5,945 5,639 5,312 5,118 1.9% 4.6% 6.3% 5.4% 6.2% 3.8% 10.3% 3,707,315 3,737,123 3,636,195 3,542,631 3,429,136 3,339,089 3,245,274 1 Percentage Change <0.8%> 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: 1 Fuel 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% -2.0% 2002 2003 2004 2005 Fiscal Year Vehicle Registrations 89 2006 2007 2008 Fuel Sales Table 19 Arizona Department of Transportation Demographic and Economic Statistics for the Last Ten Calendar Years Calendar Personal Per Capita Year Ended Income 2 Personal December 31 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Population 6,338,755 6,165,689 5,952,083 5,744,367 5,579,307 5,444,881 5,301,097 5,167,260 5,023,823 4,883,342 1 (in thousands) $ 208,544,895 199,480,082 182,564,435 164,922,611 150,582,313 144,150,287 138,853,800 132,557,859 120,857,125 113,370,224 Income $ 3 32,900 32,353 30,672 28,710 26,989 26,474 26,193 25,653 24,057 23,216 Unemployment Rate 4 3.8% 4.1% 4.7% 4.9% 5.7% 6.0% 4.7% 4.0% 4.5% 4.3% SOURCES: U.S. Bureau of Economic Analysis (for population, personal income, and per capita personal income figures); U.S. Bureau of the Census (also for population); Arizona Department of Economic Security's website, www.workforce.az.gov (for unemployment rates) NOTES: 1 The Arizona population data are midyear population estimates of the U.S. Bureau of the Census. Years 2000 through 2006 have been revised to reflect revisions made by the U.S. Bureau of the Census. 2 Personal income estimates for years 2004 through 2006 were revised to reflect revisions made by the U.S. Bureau of the Census. 3 Per capita personal income is total personal income divided by total midyear population estimates of the U.S. Bureau of the Census. Years 2000 through 2006 have been revised to reflect revisions in personal income and population estimates. 4 The unemployment rate for the year 2005 was revised to reflect a revision made by the Arizona Department of Economic Security website, www.workforce.az.gov. 90 Arizona Department of Transportation Principal Employers Current and Nine Years Ago Calendar Year Ended December 31, 2007 Full-Time Percentage Equivalent of Total State Employer Employees Rank Employment State of Arizona 50,079 1 1.88% Wal-Mart Stores Inc. 30,174 2 1.13% Banner Health (1) 17,020 3 0.64% City of Phoenix 14,453 4 0.54% Maricopa County 14,057 5 0.53% Wells Fargo & Co. 14,000 6 0.53% Arizona State University 12,727 7 0.48% Fry's Food & Drug Stores 11,780 8 0.44% Raytheon Missile Systems 11,184 9 0.42% U.S. Postal Service 11,000 10 0.41% Motorola University of Arizona Fort Huachuca Army Base Allied Signal Inc. American Express Corp. Banc One Corp. Total 186,474 7.00% Table 20 Calendar Year Ended December 31, 1998 Full-Time Percentage Equivalent of Total State Employees Rank Employment 63,961 1 3.03% 11,900 5 0.56% 9,000 9 0.43% 13,300 3 0.63% 12,963 4 0.61% 10,772 6 0.51% 18,500 2 0.88% 10,520 7 0.50% 10,312 8 0.49% 9,000 9 0.43% 9,000 9 0.43% 9,000 9 0.43% 188,228 8.93% (1) Formerly known as Samaritan Health Systems. SOURCES: Business Journal, Book of Lists 2008 and 1999 (for Maricopa County employers); Arizona Daily Star's Star 200 report for 2008 and 1999 (for Pima County employers, which include the U.S. Army Intelligence Center and Fort Huachuca, Raytheon Missile Systems, and the University of Arizona); Arizona Department of Economic Security's website, www.workforce.az.gov (for annual State employment) 91 Table 21 Arizona Department of Transportation Appropriated Full-Time Equivalents (FTEs) for fiscal year ended June 30 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-State 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 Abandoned Vehicle Fraud Investigation 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 2002 2003 2004 2005 2006 2007 2008 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 33.0 412.0 707.0 616.0 932.0 44.0 2.0 247.0 33.0 1,587.0 29.0 16.0 17.0 4,153.0 1,534.0 29.0 16.0 17.0 3,983.0 1,585.5 29.0 16.0 17.0 1.5 4,605.0 1,598.5 31.0 17.0 17.0 1.5 4,626.0 1,606.5 22.0 29.0 21.0 1.5 5.0 3.0 4,649.0 1,638.5 50.0 21.0 1.5 3.0 16.0 4,691.0 1,620.5 22.0 28.0 24.0 1.5 3.0 18.0 23.0 11.0 4,744.0 72.0 619.0 2.0 - 72.0 619.0 2.0 - 72.0 2.0 - 72.0 2.0 21.0 72.0 2.0 19.0 60.0 2.0 16.0 28.0 7.0 - 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 3.0 108.0 8.0 4.0 3.0 1.0 1.0 3.0 113.0 11.0 8.0 7.0 3.0 1.0 1.0 3.0 112.0 17.0 52.0 4,858.0 4,688.0 4,693.0 4,734.0 4,762.0 4,803.0 4,796.0 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 22 Arizona Department of Transportation Capital Assets Used in the Operation of Governmental Funds 1 Schedule by Function and Activity June 30, 2008 Land Function and Activity Administration Aeronautics Highway: Administrative and other services Highway construction Highway development Materials engineering Traffic engineering Transportation planning and research Highway maintenance Motor Vehicle $ 879,017 - Total governmental funds capital assets $ 2,351,812,086 Improvements other than Buildings Buildings and Improvements $ 935,955 2,332,738,545 710,073 4,907,328 11,641,168 20,392,810 411,037 $ 37,363,037 6,852,067 98,846 4,849,537 356,896 152,944 41,747,196 46,506,238 Airport Facilities Machinery and Equipment 7,150,274 $ 17,764,711 1,355,942 1,786,229 384,415 350 7,077 21,667 122,946 8,984,545 3,571,783 - 5,135,205 7,103,032 2,723,262 3,812,358 1,275,464 325,148 8,099,553 7,936,099 10,088,618,671 - 2,607,927,197 - 45,220,426 15,043,623,927 3,532,531 8,668,972 1,654,027 601,038 63,738,622 69,655,288 16,397,897 $ 7,150,274 $ 55,530,774 $ 10,101,407,936 $ 2,607,927,197 $ 15,298,956,772 1,117,827 401,058 $ Construction in Progress Infrastructure $ 12,789,265 $ Total - $ 40,154,365 22,107,576 93 $ 158,730,608 $ NOTE: 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. Table 23 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, 2008 Governmental Funds Capital Assets Function and Activity Administration Aeronautics Governmental Funds Capital Assets July 1, 2007 $ 36,864,591 Additions $ 5,083,965 Deductions $ June 30, 2008 <1,794,191> $ - 40,154,365 21,222,010 885,566 22,107,576 45,169,500 12,054,655,584 3,354,157 8,516,295 1,652,653 598,576 63,232,750 69,228,927 137,011 514,213,168 281,650 224,813 42,663 66,166 776,747 487,684 <86,085> <133,172,022> <103,276> <72,136> <41,289> <63,704> <270,875> <61,323> 45,220,426 12,435,696,730 3,532,531 8,668,972 1,654,027 601,038 63,738,622 69,655,288 Functional sub-total 12,304,495,043 522,199,433 <135,664,901> 12,691,029,575 Construction in progress 2,032,678,119 842,543,604 <267,294,526> 2,607,927,197 $ 14,337,173,162 $ 1,364,743,037 Highway: Administrative and other services Highway construction Highway development Materials engineering Traffic engineering Transportation planning and research Highway maintenance Motor Vehicle Total governmental funds capital assets $ <402,959,427> $ 15,298,956,772 1 NOTE: 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. 94 Arizona Depa rtment of Tr anspor ta tion T ota l Public R oad Milea ge by Highway C la ss and Gove rnme nta l Ownership for the ca le nda r ye ar ended Dec embe r 31 ( In C enter Lane M iles) Table 24 2002 2003 2004 2005 2006 2007 R ural: Inter state fr eeway P rinc ipal ar te rial M inor ar te rial M ajor collector M inor collec tor Loca l T ota l Rura l 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 37,816 980 1,167 1,357 4,301 2,185 27,685 37,675 Ur ban: Inter state fr eeway Urba n expr esswa y P rinc ipal ar te rial M inor ar te rial Urba n collec tor Loca l T ota l Urba n 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 1,791 1,632 17,380 22,559 188 171 1,400 1,792 1,632 17,735 22,918 S ta te wide C omposite : F ree wa ys and e xpressways Arter ia ls C ollec tor s Loca ls T ota l Statewide Com posite 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 5,718 8,121 45,199 60,375 1,339 5,716 8,118 45,420 60,593 F unc tional C lassific ation S OURC E: Ar iz ona's Highwa y Pe rform ance M onitoring S ystem ( HPM S) Total Public Road Mileage 70,000 60,000 Miles 50,000 40,000 Urban 30,000 Rural 20,000 10,000 0 2002 2003 2004 2005 Calendar Year 95 2006 2007 Table 25 Arizona Department of Transportation Daily Vehicle Miles Traveled with Population Data for calendar year ended December 31 (Thousands) Calendar Year Ended December 31 Non-State Highways State Highways All Public Highways Arizona Population Daily Miles per capita 2007 2006 2005 2004 2003 89,293 87,212 80,400 75,070 75,396 83,228 83,934 83,425 81,808 72,258 172,521 171,146 163,825 156,878 147,654 6,339 6,166 5,952 5,744 5,579 27.2 27.8 27.5 27.3 26.5 SOURCES: Arizona's Highway Performance Monitoring System (HPMS); ADOT Transportation Planning Division office records NOTE: The Arizona population data are midyear population estimates of the U.S. Bureau of the Census. Years 2003 through 2006 have been revised to reflect revisions made by the U.S. Bureau of the Census. 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 2003 2004 2005 2006 State Highways Highways CalendarNon-State Year 96 2007 ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by Financial Management Services, Fiscal Operations: Craig Rudolphy, CPA, CPFO, CGFM Sheryl Bodmer, CPA Diane Wascher, CPA Lawrence H. Ehrke, Jr. Jennifer Crummey Joel Konopken 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 Creative Services of Communication and Community Partnerships for their graphic design. 2008 Comprehensive Annual Financial Report 97 State of Arizona Department of Transportation 206 South 17th Avenue Phoenix, Arizona 85007 www.azdot.gov