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Fiscal Year 2006
Internal Audit Department
Maricopa County, Arizona
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The County Auditor is appointed by the Board of Supervisors. The mission of theInternal Audit Department is to provide objective, accurate, and meaningful information
about County operations so the Board of Supervisors can makeinformed decisions to better serve County citizens.
The mission of Maricopa County is to provide
regional leadership and fiscally responsible,
necessary public services so that residents can
enjoy living in a healthy and safe community.
Audit Team Members
Eve Murillo, CPA, CFE, MBA, Deputy County Auditor
Carla Harris, CPA, CIA, CFE, Audit Supervisor
Patra E. Carroll, CPA, CIA, Audit Supervisor
Kimmie Wong, MPA, Senior Auditor
Nic Harrison, CISA, Staff Auditor
Jenny Eng, Staff Auditor
Special Thanks to John Lewis, Financial Reporting Manager, Department of Finance
Copies of the County Auditors reports are available by request.
Please contact us at:
Many of our reports can be found in electronic format at:
www.maricopa.gov/internal_audit
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Maricopa CountyInternal Audit Department
301 West Jefferson StSuite 660
Phx, AZ 85003-2143
Phone: 602-506-1585
Fax: 602-506-8957
www.maricopa.gov
April 18, 2008
Andrew Kunasek, Chairman, Board of SupervisorsFulton Brock, Supervisor, District IDon Stapley, Supervisor, District IIMax Wilson, Supervisor, District IVMary Rose Wilcox, Supervisor, District V
We have completed the Fiscal Year (FY) 2006 edition of the Maricopa CountyFinancial Condition Report based primarily on the FY 2006 CAFR issued inOctober 2007. This work, which is part of our Board-approved audit plan,
provides information on current and historical County financial trends.
For FY 2006, we again highlight the financial strength of the Countys GeneralFund within the context of population growth that led the nation. The GeneralFund unreserved fund balance continued to grow, and long-term debt levelsdecreased. Key financial indicators compare very favorably to national andlocal benchmarks.
This year we include a benchmark comparison of investment portfolios betweenthe County Treasurer and the Arizona State Treasurer. Highlights includecomparative analyses of investment yields and the composition ofinvestment pool by asset type.
We also provide updated information about County employee pension plansdue to the deteriorating financial trends experienced locally and nationally sinceFY 2000.
We would like to commend the Board of Supervisors and County leadership forthe conservative fiscal policies that have led to the strong financial conditionhighlighted throughout this report. The foresight and restraint applied in prioryears will significantly help soften the impact of the current economic downturn.
Sincerely,
Ross L. Tate
County Auditor
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Maricopa County Internal Audit FY06 Financial Condition ReportApril 2008
Westrivetoprotectandenhancethequalityoflifeinourcommunityandmeasurethe
differencewemake.Westrivetocreatevaluewithourservicesandinfrastructureinvestments
muchthe
same
as
aprivate
corporation
would
do.
We
audit
ourselves
internally
and
externally
usingmeasuressuchasArizonaQualityAwards,MalcolmBaldrigeAwardcriteria,benchmarking,
andvariousothercompetitivereviewprocesses.Wearefrequentlyaskedbyothergovernments
foradviceandcounsel.Icanonlyassumeitisbecausewearedoingwhatwesaywewilldo.
DavidSmith,CountyManager
ManagingforResultsAnnualReportFY07
Population[Source:U.S.CensusBureau]3.77
million
people
call
Maricopa
County
home,
the
4th
largest
population
in
the
nation
behindLosAngelesCounty(California),CookCounty(Chicago,Illinois),andHarrisCounty
(Houston,Texas).
TheCountyspopulationincreasedby130,000fromJuly2005toJuly2006,thebiggest
countypopulationincreaseinthenation.
TheCountyspopulationgrewby596,000fromJuly2001toJuly2006.
Size
[Source:Maricopa
County
website]
At9,226squaremiles,MaricopaCountyislargerthanseveralstates,including
Connecticut,Delaware,Hawaii,Massachusetts,NewHampshire,NewJersey,RhodeIsland,
aswellastheDistrictofColombia.Financial [Source:MaricopaCountyFY06CAFR]
AsofJune30,2006,theCountyTreasurerheld$3.1billionincashandinvestments,
whichincludesspecialdistrictsandschooldistrictsalongwithCountyfunds.
TheCountyreceived$1.9billioninrevenueduringFY06.
TheUnreservedGeneralFundBalancereached$540millioninFY06,up$112millionfrom
thepreviousyear.
History[Source:MaricopaCountywebsite]Establishedin1871,Maricopawasthefifthcountytobeformedinwhatwasthenthe
ArizonaTerritory.
MaricopaCountyBasicsMaricopaCountyBasics
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Maricopa County Internal Audit FY06 Financial Condition ReportApril 2008
General
Fund
Key
Financial
Indicators..........................1
GeneralFundRevenueSources..................................... 4
LongTermDebt.............................................................. 4
GovernmentalFunds......................................................5
GovernmentalFundsTaxRevenues ............................. 9
TaxRevenueBudgettoActualVariance.......................10
NetAssets ....................................................................... 11
CountyTreasurer ............................................................13
ArizonaCountyBenchmarks .........................................17
MaricopaCountyRetirementPlans ..............................21
PopulationGrowthandEmploymentRates .................27
ReportMethodology ..................................................... 29
TableofContentsTableofContents
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Maricopa County Internal Audit 1 FY06 Financial Condition ReportApril 2008
GeneralFundKeyGeneralFundKey
FinancialIndicatorsFinancialIndicators
TheGeneralFundistheCountysprimaryoperatingfund.
TheGeneralFundaccountsforallfinancialresourcesof
thegeneralgovernment,exceptforthoserequiredtobe
accountedforseparatelyinadifferentfund(suchas
transportation,jail
operations,
etc.).
The
use
of
separate
fundsmaybeusedforlegalrequirements(federaland
state)andforfinancialadministrationpurposes.
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Maricopa County Internal Audit 2 FY06 Financial Condition ReportApril 2008
Unreserved General Fund BalanceThe unreserved fund balance represents the funds available to meet the Countys currentand future financial needs. It is a useful measure of a governments liquidity. Conservativebudget strategies, combined with conservative revenue estimates, have resulted in largeGeneral Fund balance increases. The County is setting aside resources to fund severallarge construction projects under a pay as you go policy.
The unreserved General Fund balance rose to $539.6 million in FY06, for an increase of $111.6million, or 26% over the prior year. This is attributable primarily to increased revenue of $113.7million from all sources; expenditures also increased by $33.3 million, for a net increase fromoperations of $80.4 million.
UnreservedGeneralFundBalance
NotAdjusted
for
Inflation
(in
millions)
$78.1
$539.6
$
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
GeneralFundKeyFinancialIndicatorsGeneralFundKeyFinancialIndicators
GeneralFund
SOURCE: Maricopa County Comprehensive Annual Financial Reports (CAFRs)
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Maricopa County Internal Audit 3 FY06 Financial Condition ReportApril 2008
Since FY97, Maricopa Countys General Fund has achieved a healthy fund balance inrelation to its revenues. Maricopa has significantly surpassed the national benchmarkaverage for this financial measure for the past 10 years (see page 30 for a list of nationalbenchmark counties).
The liquidity ratio is a measure of theCountys ability to pay currentobligations, and is measured bydividing fund assets by fund liabilities.
Maricopa continues to significantlyoutperform the national benchmark
average with a liquidity ratio of over14-to-1. This means that there areample funds ($14.30) available in cashor equivalents to pay every $1 incurrent liabilities.
This measure reflectsthe availability offinancial reserves tomeet unforeseenneeds.
A ratio of 15% or more
is generally considereddesirable.
UnreservedGeneralFundBalance
asaPercentofRevenues
14%
47%
19%
13%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
Maricopa Avgof10BenchmarkCounties
GeneralFundLiquidityRatio
(excluding"DueTo/From"otherfunds)
4.2
14.3
3.02.3
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY01
FY02
FY03
FY04
FY05
FY06
Maricopa Benchmarks
GeneralFundKeyFinancialIndicatorsGeneralFundKeyFinancialIndicatorscontdcontd
SOURCE: Maricopa County CAFRs
SOURCE: Maricopa County CAFRs
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Maricopa County Internal Audit 4 FY06 Financial Condition ReportApril 2008
Intergovernmental revenues accounted for 61% of General Fund revenues, while taxesaccounted for 33%. Intergovernmental revenues are funds received from federal, stateand other local government sources in the form of grants, shared revenues, and paymentsin lieu of taxes. (For a breakdown of the composition of Intergovernmental and TaxRevenue sources, please refer to the Governmental Funds section, page 8.)
In FY06, General Fund revenuesincreased by $114 million, or11%, to $1.148 billion.
This increase was attributable toan increase in the sales taxapportionment of $60.1 millionand the vehicle license taxapportionment of $15.4 million. Inaddition, property tax revenuesincreased by $34.4 million (due toan increase in assessed valuesand new housing). Theseincreases can be attributed to theCountys continued strongeconomy throughout FY 2006,increasing population, and higherproperty values.
Maricopa Countys long-term debt per personhas decreased 59% since FY02. The Countyhas extremely low debt levels compared to thenational benchmark average. The Countys lowdebt level has resulted from a conservative pay
as you go policy.
FY04 was the last year of the Countys 1986voter-approved General Obligation debtfinancing for capital projects. On July 1, 2004,Maricopa County paid off the remaining $20.2million of General Obligation debt.
GeneralFundRevenueSourcesGeneralFundRevenueSources
GeneralFund
Long
Term
Debt LongLongTermDebtTermDebt
SOURCE: FY05 and FY06 CAFRs
SOURCE: Maricopa County CAFRs
LongTermDebtPerPerson
ComparisontoNationalBenchmarks
(adjustedforinflation)
$64
$609$671
$634$588 $595
$157$98 $80 $75
$0
$100
$200
$300
$400
$500
$600
$700
$800
FY02 FY03 FY04 FY05 FY06
Maricopa Avgof10BenchmarkCounties
$615
$695
$360 $379
$58 $74
$0
$100
$200
$300
$400
$500
$600
$700
Intergovernmental Taxes ChargesforService
andOtherMisc.
GeneralFundRevenueSourcesfor FY05&FY06
(in millions)
F Y05 F Y06
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Maricopa County Internal Audit 5 FY06 Financial Condition ReportApril 2008
GovernmentalFundsGovernmentalFunds
ThefocusoftheprecedingpageswasontheCountys
primaryoperatingfund,theGeneralFund. Thefollowing
pagesprovideamorecomprehensivelookatCounty
financialtrends,byfocusingonallGovernmentalFunds,whichincludethe:
GeneralFund
SpecialRevenueFunds
DebtServiceFunds
CapitalProjectsFunds
Governmental
funds
are
used
to
account
for
activities
thatareprincipallysupportedbytaxesand
intergovernmentalrevenues(governmentalactivities),as
opposedtootherbusinesstypeactivitiesthatare
supportedprimarilybyuserfees,suchasfeebased
departmentsliketheCountysHealthPlans.
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Maricopa County Internal Audit 6 FY06 Financial Condition ReportApril 2008
ExpendituresFY06 expenditures totaled$1.646 billion, an 8%increase from FY05.
A total of 71% ofexpenditures were forPublic Safety (45%) andHealth, Welfare andSanitation (26%).
Revenues
Total Governmental Fundsrevenues increased 12% inFY06 to $1.853 billion. Thisis attributed to the increasesto General Fund revenuesdiscussed on page 4.
Intergovernmental revenuescomprised 55% of totalrevenues, taxes comprised
33%, and other revenuescomprised 12%.
ExpendituresbyFunctionforGovernmentalFunds
(inmillions)
$113$130
$637
$438
$206
$119$131
$733
$431
$233
$0
$200
$400
$600
$800
PublicSafety Health,Welfare
andSanitation
CapitalOutlay G eneral
Government
Other
FY0 5 FY 06
GovernmentalFundsGovernmentalFundsRevenues&ExpendituresRevenues&Expenditures
GovernmentalFunds
RevenuebySourceforGovernmentalFunds
(inmillions)
$192
$557
$904
$226
$601
$1,026
$0
$200
$400
$600
$800
$1,000
$1,200
Intergovernmental Taxes Other
FY05 FY06
SOURCE: FY05 and FY06 CAFRs
SOURCE: FY05 and FY06 CAFRs
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Maricopa County Internal Audit 7 FY06 Financial Condition ReportApril 2008
Expenditures Per Person
Expenditures per person havedecreased 8% since FY97,and were down from the 10-year average of $440(adjusted for inflation).
The downward trend reversed
with a 4% increase in FY05.
Revenues Per Person
Revenues per person haveincreased 12% since FY97,and were 6.5% higher thanthe 10-year average of $458(adjusted for inflation).
This includes allGovernmental Funds
revenues (including taxes,intergovernmental revenues,and other sources).
Revenues&ExpendituresPerPersonRevenues&ExpendituresPerPersonGov
ernm
en
talF
un
ds
SOURCE: Maricopa County CAFRs
SOURCE: Maricopa County CAFRs
RevenuesPerPerson
GovernmentalFunds
(adjustedforinflation)
$433
$489
$460
$350
$400
$450
$500
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
ExpendituresPerPerson
GovernmentalFunds
(adjustedforinflation)
$434
$416
$454
$421
$471
$350
$400
$450
$500
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
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Maricopa County Internal Audit 8 FY06 Financial Condition ReportApril 2008
Intergovernmental revenues accounted for 55% of all governmental funds revenue. State-shared sales tax is the Countys largest source of intergovernmental revenue, as shown on thetop left, followed by vehicle license tax revenue, grants, and the highway user fund.
Tax revenues accounted for 33% of all governmental funds revenue. The composition of theserevenues is shown on the top right. For the first time since FY02, state-shared sales tax is theCountys largest source of tax revenue. The composition of all taxes revenues is shown below.
Total Tax Revenues - Governmental Funds
State-shared sales tax and general propertytax are the two largest sources of taxrevenue, accounting for 70% of all taxrevenue.
Tax revenues increased by $128 million from$1.179 billion in FY05 to $1.307 billion inFY06. Tax revenues increased primarily dueto increases in State-shared sales taxrevenue of $60 million and property taxrevenue of $25 million between FY05 andFY06.
FY06Intergovernmental RevenuesbySource
GovernmentalFunds
(in
millions)
Highway
UserFund
$97 (9%)Grants
$136(13%)
Vehicle
LicenseTax
$147(14%)
Other
$187(18%)
SalesTax
$458(46%)
FY06TaxRevenuesby Source
(excludingIntergovernmental
Revenues)
GovernmentalFunds (inmillions)
General
Property
Tax
$457
(76%)
JailExcise
Tax
$138
(23%)
Other
$6
(1%)
FY06TotalTaxRevenuesbySource
GovernmentalFunds
(inmillions) StateSharedSalesTax
$458
(35%)
General
PropertyTax
$457
(35%)
Other
$10
(1%)
HighwayUser
FuelTax
$97
(7%)
JailExcise
Tax
$138
(11%)
Vehicle
LicenseTax
$147
(11%)
GovernmentalFundsGovernmentalFundsRevenuebySourceRevenuebySource
GovernmentalFunds
SOURCE: Intergovernmental Revenue report, Department of Finance SOURCE: FY06 CAFR
SOURCE: FY06 CAFR
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Maricopa County Internal Audit 9 FY06 Financial Condition ReportApril 2008
Sales Tax and Property Tax asa Percent of Total Revenues
In FY06, property tax revenuesaccounted for 35% of all taxrevenues, or $456.9 million.
Sales tax revenues of $457.8million account for an increasingproportion of all tax revenues, at35%.
Tax Revenues Per Person
While total revenues per personhave increased 12% from FY97 toFY06 (as discussed on page 7), taxrevenues per person increased at aslower rate of 5% during the sameperiod (adjusted for inflation). The10-year average for tax revenuesper person was $327.
GovernmentalFundsGovernmentalFundsTaxRevenuesTaxRevenues
SOURCE: Maricopa County CAFRs
SOURCE: Maricopa County CAFRs
StateSharedSalesTaxandPropertyTax
asa%ofTotalTaxRevenues
25%
28%
31%
34%
37%
40%
FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06
PropertyTax SalesTax
TaxRevenuesPerPerson
GovernmentalFunds
(adjustedforinflation)
$345
$327
$230
$250
$270
$290
$310
$330
$350
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
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Maricopa County Internal Audit 10 FY06 Financial Condition ReportApril 2008
Property Tax
Property tax revenues are morepredictable and are thereforeeasier to budget.
In FY06, actual property taxrevenues exceeded the originalbudget by $8.9 million or less than2%.
State-Shared Sales Tax
Sales tax revenues can be
difficult to predict, as they aresubject to economic forces.
In FY06, actual sales taxrevenues exceeded the originalbudget by $50.5 million, or 12%.
Vehicle License Tax
Vehicle license tax revenues canbe difficult to predict, as citizenscan prepay for one or two years.
In FY06, actual vehicle licensetax revenues exceeded theoriginal budget by $12.7 million,or 9.5%.
StateSharedSalesTax
VarianceBetweenOriginalBudgetandActual
(inmillions)
$50.5
$22.8$22.5
($5.2)
($15.8)
$5.6
$22.4
$22
$12
$2
$8
$18
$28
$38
$48
$58
FY00
FY01
FY02
FY03
FY04
FY05
FY06
VehicleLicenseTax
VarianceBetweenOriginalBudgetandActual
(inmillions)
$12.7
$4.9
$7.4
$1.9
$6.0$6.0
$17.4
$0
$5
$10
$15
$20
FY00
FY01
FY02
FY03
FY04
FY05
FY06
PropertyTax
Variance BetweenOriginalBudgetandActual
(inmillions)
($0.3)
($2.4)
$0.1
$2.4$3.3
$1.6
$8.9
$4
$2
$0
$2
$4
$6
$8
$10
$12
FY00
FY01
FY02
FY03
FY04
FY05
FY06
TaxRevenueBudgetTaxRevenueBudgettotoActualVarianceActualVariance
GovernmentalFunds
SOURCE: Maricopa County CAFRs and Annual Business Strategy (Budget) Books
SOURCE: Maricopa County CAFRs and Annual Business Strategy (Budget) Books
SOURCE: Maricopa County CAFRs and Annual Business Strategy (Budget) Books
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Maricopa County Internal Audit 11 FY06 Financial Condition ReportApril 2008
NetAssetsNetAssets
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Maricopa County Internal Audit 12 FY06 Financial Condition ReportApril 2008
The Countys assets for governmental and business-type activities exceeded liabilities atyear end by over $3.3 billion (net assets). This is a 10% increase from FY05.
Over time, total net assets serve as a useful indicator of whether the financial condition of theCounty is improving or deteriorating. Total net assets increased 64% from FY02 to FY06.The total increase from FY05 to FY06 was $344.8 million.
Net assets are divided into three components: (1) Investments in capital assets, net ofrelated debt (such as land, building, machinery, and equipment); (2) Restricted Net Assets
(assets that are subject to external restrictions on how they may be used); and (3)Unrestricted Net Assets (assets not subject to external restrictions on how they may beused).
Just under 75% of net assets are invested in capital assets (net of related debt), 10% arerestricted (primarily for public safety and highways and streets functions), and 17% areunrestricted (these assets can be used to meet the Countys ongoing obligations).
TotalNet Assets
(inmillions)
$2,042$2,302
$2,942 $3,002
$3,347
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
FY02 FY03 FY04 FY05 FY06
NetAssetsNetAssets
NetAssets
SOURCE: Maricopa County CAFRs
SOURCE: FY06 CAFR
FY06CompositionofNetAssets
(inmillions)
Restricted
$345.2 (10%)
Unrestricted
$556.8 (17%)
InvestedIn
CapitalAssets
$2,445.2(73%)
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Maricopa County Internal Audit 13 FY06 Financial Condition ReportApril 2008
TheCountyTreasurerpoolsdepositsoftheCounty,
schooldistricts,andspecialdistricts. Cashnotrequired
forliquidityisinvestedinaccordancewithStatelawand
underastrategy
that
gives
highest
priority
to:
Safetyofprincipal
SufficientliquiditytomeettheneedsoftheCounty
anditssubdivisions
Returnoninvestment
Forthefirsttime,thisyearwehaveincludedabenchmark
comparisonof
investment
portfolios
between
the
County
TreasurerandtheArizonaStateTreasurer,includinga
comparativeanalysisofinvestmentyieldsandthe
compositionoftheinvestmentpoolsbyassettype.
CountyTreasurerCountyTreasurer
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Maricopa County Internal Audit 14 FY06 Financial Condition ReportApril 2008
Arizona Revised Statutes requirecommunity colleges, schooldistricts, and other localgovernments to deposit certainpublic monies with the CountyTreasurer.
Total cash and investments heldby the Treasurer increased to$3.1 billion in FY06.
County funds totaled $921 million, or 30%of the $3.1 billion held by the Treasureras of 6/30/06.
SOURCE: FY06 CAFR
SOURCE: Maricopa County CAFRs
CashandInvestmentsHeldbytheCountyTreasurer
(inbillions)
$1.9 $2.0
$2.7
$3.1
$2.2
$
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
FY02 FY03 FY04 FY05 FY06
Who TheMoneyBelongsTo
(inmillions)
NonCounty
Funds
$2,158(70%)
OtherCounty
Funds
$464(15%)
County
GeneralFund
$457(15%)
AverageWeightedYieldtoMaturity(YTM)fortheTreasurer'sInvestments
byinvestmenttype(asof9/30/06)
5.20% 5.20% 5.18% 5.12% 5.07%
4.34%4.14%
3.84%3.76%
3.00%
4.00%
5.00%
6.00%
Federal
National
Discount
Note
Federal
Home
Discount
Note
Federal
Mortgage
Center
Discount
Note
FarmCredit
Discount
Note
Warrants Federal
HomeLoan
Mortgage
Center
Federal
National
Mortgage
Corporation
Federal
HomeLoan
Banks
Federal
FarmCredit
Banks
The yield to maturity foreach of the Treasurers
investments as of 9/30/06 isshown to the right.
The average weighted yieldto maturity across allinvestments is 4.6%.
SOURCE: Maricopa County
Internal Audit of County Treasurer ( FY07)
$3.1BillionManagedbyCountyTreasurer$3.1BillionManagedbyCountyTreasurer
Treasurer
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The Arizona StateTreasurers Officemanages $12 billiontotal, $3.1 billion ofwhich is invested in aLocal GovernmentInvestment Pool(LGIP). The LGIPprovides professionalshort-term investmentservices for a widearray of public entities.
The County Treasureroperates an investmentpool of $3.1 billion,comparable in functionto the LGIP fund. Annualyields for both funds have improved over the last three years, as shown above.
As of 12/31/07, State LGIP funds were held primarily in money market investments issued bygovernment sponsored enterprises (GSEs), with 59% held in Federal Mortgage investments(e.g. Fannie Mae, Freddie Mac), as shown on the left below. GSEs are privately-ownedcorporations authorized to make loans and loan guarantees, but are not backed or funded byU.S. government, nor do the securities they issue benefit from any explicit governmentguarantee or protection. As of 12/31/07, County Treasurers funds were invested in GSEs, with97% held in Federal Mortgage investments, as shown on the right below.
Maricopa County Internal Audit 15 FY06 Financial Condition ReportApril 2008
SOURCE: State Treasurer Market Report, 12/31/2007 SOURCE: County Treasurer Summary Report, 12/31/07
ComparativeInvestmentYieldsStateTreasurerLocalGovernmentInvestmentPoolvs.
MaricopaCounty
0%
1%
2%
3%
4%
5%
6%
7%
8%
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
StateTreasurerLocalGovernmentInvestmentPoolMaricopaCountyTreasurer
ArizonaStateTreasurer
LGIPPoolComposition(inmillions)
FederalHome
LoanMortgage
Center
$435.8(13%)
Commercial
Paper
$195.1(6%)
FederalFarm
CreditBanks
$177.8(5%)
CashDeposits
$45.0(1%)
FederalHome
LoanBanks
$993.9(30%)
Federal
National
Mortgage
Corporation
$554.4(17%)
Corporate
Notes
$942.0(28%)
MaricopaCountyTreasurer
Investment PoolComposition(inmillions)
FederalFarm
CreditBanks
$70.0(2%)
FarmCredit
DiscountNote
$30.0(1%)
FederalHome
DiscountNote
$212.2(6%)
Federal
Agricultural
Mortgage
Corporation
$20.6(1%)
FederalHome
LoanBanks
$1,101.0(33%)
Federal
Mortgage
Center
DiscountNote
$270.4(8%)
FederalHome
LoanMortgage
Center
$369.5(11%)
Federal
National
Mortgage
Corporation
$648.1(19%)
Federal
National
DiscountNote
$638.4(19%)
TreasurersInvestmentPoolTreasurersInvestmentPool
SOURCES: State Treasurer historical yield reports; County Treasurer Investment Officer
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Maricopa County Internal Audit 16 FY06 Financial Condition ReportApril 2008
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Maricopa County Internal Audit 17 FY06 Financial Condition ReportApril 2008
ToprovidelocalcontextforMaricopaCountys
performance,theFinancialConditionReportincludes
comparisonstosixArizonaCountybenchmarks. This
informationispresentedonthefollowingthreepages.
(Nationalbenchmarkcomparisonswerepresented
earlierinthisreport.)
ArizonaCountyArizonaCounty
BenchmarksBenchmarks
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Maricopa County Internal Audit 18 FY06 Financial Condition ReportApril 2008
Unreserved Fund Balance
Unreserved fund balances represent the monies available to meet the Countys current andfuture needs. Maricopa County continued to significantly outperform the Arizona bench-mark average for this financial measure from FY03 - FY06 (bottom left), as well as each ofthe benchmark counties individually in FY06 (bottom right).
This year, Maricopa County was again benchmarked against the following six Arizonacounties:
Cochise 135
Mohave 198
Pima 981
Pinal 300
Yavapai 213
Yuma 196
Arizona Benchmarks - Population (in thousands)
UnreservedGeneralFundBalance
asa%ofRevenues
FourYearComparisontoArizonaBenchmark
Average
36.8%
41.4%
47.0%
36.7%
17.1%
18.7%
16.8%16.9%
0%
5%
10%
15%20%
25%
30%
35%
40%
45%
50%
FY03
FY04
FY05
FY06
Maricopa BenchmarkAvgs
UnreservedGeneralFundBalance
asa%ofRevenues
FY06ComparisontoArizonaBenchmarks
14.7%
34.1%
47.0%
29.7%26.9%
10.8%10.2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Yavapai
Pima
Mohave
Yuma
Cochise
Pinal
Maricopa
ComparisontoArizonaCountyBenchmarksComparisontoArizonaCountyBenchmarks
ArizonaBenchmarks
SOURCE: Maricopa and benchmark county CAFRs SOURCE: FY06 Maricopa and benchmark county CAFRs
SOURCE: State of Arizona Department of Economic Security, 7/1/2006
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Maricopa County Internal Audit 19 FY06 Financial Condition ReportApril 2008
In FY06, Maricopa Countys liquidityratio was very strong at 14.3-to-1,meaning that there were ample funds($14.30) in cash and equivalents forevery $1.00 in current liabilities.
Maricopas liquidity ratio continues tosurpass the benchmark average.
Individual liquidity ratios for MaricopaCounty and the Arizona benchmarkcounties are reflected below for FY06.
GeneralFundLiquidityRatio
(excluding
"Due
To/From"
other
funds)FourYearComparisontoArizonaBenchmark
Averages
6.6 6.6
14.313.4
2.8 3.03.1 3.0
0
2
4
6
8
10
12
14
16
FY03 FY04 FY05 FY06
Maricopa AZCountyBenchmarkAverage
GeneralFundLiquidityRatio
(excluding"DueTo/From"otherfunds)
FY06ComparisontoArizonaBenchmarkCounties
2.4
14.3
4.04.7
5.4
2.9
7.6
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Ya va pa i Pi ma Moha ve Yuma Cochi s e Pi na l Ma ri copa
ComparisontoArizonaBenchmarksComparisontoArizonaBenchmarkscontdcontd
SOURCE: Maricopa and benchmark county CAFRs
SOURCE: FY06 Maricopa and benchmark county CAFRs
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Maricopa County Internal Audit 20 FY06 Financial Condition ReportApril 2008
Maricopa County has a very low levelof debt per person.
Maricopa Countys long-term debt perperson has decreased 35% duringthe four years shown, while thebenchmark average increased 12%.
Maricopa County hasthe lowest level oflong-term debt perperson whencompared to theArizona benchmarkcounties.
LongTermDebtPer Person
MaricopaCounty
vs.
Arizona
Benchmarks
(adjustedforinflation)
$249 $246
$285 $278
$98$80
$75 $64
$0
$50
$100
$150
$200
$250
$300
FY03 FY04 FY05 FY06
AZCountyBenchmarkAverage MaricopaCounty
ComparisontoArizonaBenchmarksComparisontoArizonaBenchmarkscontdcontd
ArizonaBenchmarks
FY06LongTermDebtPerPerson
ComparisontoArizonaBenchmarks
$244
$168
$93 $94
$618
$455
$64
$0
$100
$200
$300
$400
$500
$600
$700
Mari copa Cochi s e Yava pai Mohave Yuma Pi ma Pi na l
SOURCE: Maricopa and benchmark county CAFRs
SOURCE: FY06 Maricopa and benchmark county CAFRs
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Maricopa County Internal Audit 21 FY06 Financial Condition ReportApril 2008
MaricopaCountyMaricopaCounty
RetirementPlansRetirementPlans
Countypensionplaninformationwasfirstincludedinthe
FinancialConditionreportlastyearduetodeteriorating
financialtrendsexperiencedlocallyandnationally.
Updatedinformationisprovidedinthefollowingsection,
basedontheFY06MaricopaCountyCAFR,andtheFY07
CAFRsissuedbytheArizonaStateRetirementSystem
(ASRS)andthePublicSafetyPersonnelRetirementSystem
(PSPRS). InformationforFY08wasobtainedfromother
sourcesandisalsoincludedherein.
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ASRSFundingRatio
82.8%
120%
70%
80%
90%
100%
110%
120%
130%
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
Maricopa County Internal Audit 22 FY06 Financial Condition ReportApril 2008
SURPLUS
DEFICIT
Funded Status Defined
Perhaps the most recognized measure of a public retirement plans health is its funding ratio,
derived by dividing the actuarial value of plan net assets by the present value of accruedliabilities (projected future retirement payments). A pension plan whose assets equal itsliabilities is 100% funded, or fully funded. A plan with assets that are less than its liabilities isconsidered to be underfunded.
The dollar difference between plan assets and accrued liabilities is the unfunded actuarialaccrued liability(UAAL), which is a common measure of a pension plans financial condition.
Methods used to value assets and liabilities can be complex and may vary from plan to plan,making direct comparisons among plans difficult or impossible. This report shows thefunding ratios based on the actuarial value of assets. The amount of accrued liabilities
depends on the assumptions and cost method. Actual calculations are very technical innature and are outside the scope of this report. It is noted, however, that ASRS discountsfuture benefits at 8.0% per year, while PSPRS discounts future benefits at 8.5%, whichprecludes a direct comparison of funding ratios.
ASRS Funding Status
ASRS reported a strong 17.8% rate of return on the total ASRS fund in FY07, as shown onpage 26, and was named a top performer in a nationwide pension plan study performed byan independent nonprofit charitable trust. However, the unfunded actuarial accrued liability(UAAL) grew by nearly $674 million, or 14%, to $5.5 billion in FY07, due largely to thedelayed recognition of losses that have occurred in earlier years (see lower rightgraph). Investment losses are recognized in actuarial assets over a 10-year period. Thefunded status of the total plan decreased from 83.7% for FY06 to 82.8% for FY07.
ASRSFundingStatusASRSFundingStatus
RetirementPlans
ASRSUnfundedLiabilities
(inmillions)
($6,000)
($4,000)
($2,000)
$0
$2,000
$4,000
$6,000
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
SURPLUS
DEFICIT
SOURCE: ASRS CAFRs and annual actuarial reports SOURCE: ASRS CAFRs and annual actuarial reports
FULLYFUNDED
UNDERFUNDED
(belowtheline)
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PSPRSActuarialAssetsvs.Liabilities
(inmillions)
$2,600
$2,200$1,800
$1,400
$1,000
$600
$200
$200
$600
$1,000
$1,400
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
PublicSafety Correct ionsOfficers ElectedOfficials
Maricopa County Internal Audit 23 FY06 Financial Condition ReportApril 2008
PublicSafetyPersonnelRetirementSystem
(includes
PSPRS,
CORP,
and
EORP)
PSPRS Funding Status
The funding ratios of the threePSPRS plans have declinedsignificantly since FY01.Funding ratios as of 6/30/07were:
66.4% - Public Safety84.6% - Corrections Officers74.6% - Elected Officials
The UAAL (unfunded liability)for each of the three PSPRSplans as of 6/30/07 was:
(in millions)
$2,182 - Public Safety$ 122 - Corrections Officers$ 102 - Elected Officials
PSPRSFundingStatusPSPRSFundingStatus
PSPRS HistoricalFundingRatios
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
PublicSafety CorrectionsOfficers ElectedOfficials
SURPLUS
DEFICIT
SOURCE: FY07 PSPRS CAFR
SOURCE: PSPRS CAFRs
FULLYFUNDED
(abovetheline)
UNDERFUNDED
(belowtheline)
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Maricopa County Internal Audit 24 FY06 Financial Condition ReportApril 2008
Plan Participation
Maricopa County employees and electedofficials participate in two State retirementplans:
About 9,500 County employees participatein the Arizona State Retirement System(ASRS)
About 3,000 County employees participatein the Public Safety Personnel RetirementSystem (PSPRS), which includes:
Elected Officials Retirement Plan Corrections Officers Retirement Plan Public Safety Personnel Plan
PSPRS Contribution Rates
Employee contribution rates arefixed by State statute based upon
a set percentage of employeecompensation. Any changesrequire legislation. Thus,employee contribution rates for thethree plans remain relativelystable. Employer contributionrates, however, have increasedsignificantly since 2003. Thecombined contribution rates(employee + employer) are shownin the graph on the right.
FY07 contribution rates for thePSPRS plans are shown below:
Plan Employee % Employer %Public Safety Personnel 7.65% 26.06%*Elected Officials 7.00% 11.00%Corrections Officers 7.96% 5.00%
*Weighted average
PlanParticipationandContributionRatesPlanParticipationandContributionRates
RetirementPlans
PSPRSCombinedContributionRates
forMaricopaCountyMembers
5%
10%
15%
20%
25%
30%
FY00 FY01 FY02 FY03 F Y04 FY05 FY06 FY07 FY08
PublicSafety(WeightedAvg)ElectedOfficialsCorrections
Officers
FY07CountyRetirementPlan
Participation
ASRS
Membership
9,499(76%)
PSPRS
Membership
2,997(24%)
About 76% of County retirement planparticipants are ASRS members.
SOURCE: Maricopa County Human Resources
SOURCE: Maricopa County Human Resources; PSPRS staff
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Maricopa County Internal Audit 25 FY06 Financial Condition ReportApril 2008
Since FY00, total County
pension plan contributions toASRS and PSPRS haveincreased 289%, from $15.7million in FY00 to $61.1million in FY07, as shown onthe graph to the right.
From FY06 to FY07, Countycontributions increased 44%overall, or $15.5 million.(Does not include employee
contributions.)
MaricopaCountyPSPRSPlanContributions(FY00 FY07)
$
$1,500,000
$3,000,000
$4,500,000
$6,000,000
$7,500,000
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
ElectedOfficials CorrectionsOffi cer s P ub li cSafety
Since FY00, County contributionsinto PSPRS have increased 164%,from $5.8 million in FY00 to $15.3million in FY07. Total Countycontributions for the three PSPRSplans are shown on the graph to theleft.
From FY06 to FY07, Countycontributions to PSPRS increased13% overall, or about $1.7 million.
CountyPensionContributionsCountyPensionContributions
SOURCE: Maricopa County CAFRs and unaudited FY07 CAFR Notes
SOURCE: Maricopa County CAFRs and unaudited FY07 CAFR Notes
MaricopaCountyASRSPlanContributions(FY00FY07)
$12,352,160
$45,806,290
$9,916,689
$29,855,413
$
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
SOURCE: Maricopa County CAFRs and unaudited FY07 CAFR Notes
Since FY00, County contributionsinto ASRS have increased 362%,from $9.9 million in FY00 to $45.8million in FY07, as shown on thegraph to the left.
From FY06 to FY07, County
contributions to ASRS increased43% overall, or about $13.7 million.
MaricopaCountyTotalPensionPlanContributions(FY00 FY07)
$15,713,277
$36,791,353
$16,767,539
$61,115,738
$
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
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PSPRS Investment Returns
For FY07, the three PSPRS fundsexperienced rates of return between16% - 17%, which exceeded theassumed rate of 8.5%. However,overall fund performance declinedbecause the recognized rate of return(based on the smoothedmarket valueof assets discussed below) was lessthan the assumed rate.
The smoothedmarket value spreadsthe difference between the actual andassumed return over seven years.
Like ASRS, although the actual returnexceeded the assumed rate duringFY07, this is offset by negativeexperience carried forward from prioryears.
Maricopa County Internal Audit 26 FY06 Financial Condition ReportApril 2008
ASRS Investment Returns
For FY07, ASRS reported a strong17.8% rate of return on the total ASRSfund in FY07; however, overall fundperformance declined. This isbecause the recognizedrate of returnis based on the smoothedmarketvalue of assets, as discussed below,which was less than the assumed rateof 8%.
The smoothedmarket value spreads
the difference between the actual andassumed return over 10 years.Although the actual return exceededthe assumed rate during FY07, this isoffset by negative experience carriedforward from prior years.
InvestmentReturnsInvestmentReturns
RetirementPlans
ASRSInvestment
Return
Actualvs.Assumed
20%
10%
0%
10%
20%
30%
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
ActualRateofReturn AssumedRateofReturn
SOURCE: FY07 PSPRS CAFRs and PSPRS staff
SOURCE: ASRS historical yields report
PSPRSInvestmentReturn
Actualvs.
Assumed
20%
10%
0%
10%
20%
30%
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
PublicSafety CorrectionsOfficersElectedOfficials AssumedRate
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Maricopa County Internal Audit 27 FY06 Financial Condition ReportApril 2008
PopulationGrowthPopulation
Growth
andand
EmploymentRatesEmploymentRates
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Maricopa County Internal Audit 28 FY06 Financial Condition ReportApril 2008
Maricopa Countyspopulation increased innumber more than anyother county in thenation from July 2005 toJuly 2006.
Maricopa Countycontinues to enjoy
unemployment ratesbelow national andState averages.
In 2006, MaricopaCounty was ranked thefourth most populous ofall 3,141 counties in thenation.
TopFiveCountieswithLargestNumericalIncreaseinPopulation
July2005toJuly2006
68,175
123,363129,642
81,411
51,629
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Maricopa
County
Harris County,TX
Riverside
County,CA ClarkCounty,NV TarrantCounty,TX
UnemploymentRateHistory
3.6%
4.2%
4.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
County State UnitedStates
PopulationGrowthandEmploymentPopulationGrowthandEmployment
PopulationandEmployment
SOURCE: 2006 U.S. Census Bureau reports
SOURCE: 2006 U.S. Census Bureau reports
SOURCE: Maricopa County CAFRs
TopFiveU.S.CountiesbyTotalPopulation
July2006
9,948,081
3,886,207 3,768,1235,288,655
3,002,048
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
Los Angeles
County,CA
CookCounty,IL HarrisCounty,
TX
Maricopa
County
Orange
County,CA
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Maricopa County Internal Audit 29 FY06 Financial Condition ReportApril 2008
ReportMethodologyReportMethodology
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Definition
Financial Condition is defined as a local governments ability to finance services on a
continuing basis. A county in good financial condition can sustain existing services to thepublic, withstand economic slumps, and meet the demands of changing service needs.
Objectives, Scope, and Methodology
The objective of this report is to evaluate Maricopa Countys financial condition using keyfinancial indicators. Indicators were selected from authoritative sources on evaluatinggovernmental entity financial condition, and were judged to be the most indicative of acountys overall financial health.
Our primary information sources were the audited Comprehensive Annual FinancialReports (CAFR) issued by the Arizona State Retirement System, Public Safety PersonnelRetirement System, ten national benchmark counties, six Arizona counties, and MaricopaCounty. The benchmark counties are:
Other sources include actuarial reports, the U.S. Census Bureau, GovernmentalAccounting Standards Board, the International City/County Managers Association,Arizona Department of Economic Security Research Administration, Maricopa CountysStrategic Plans (budgetary documents), Auditor General Reports, and correspondencewith internal and external staff.
Trend analysis is used in this report. Trend analysis involves examining historical data.Adjustments for inflation were made according to the U.S. Consumer Price IndexAllItems.
Arizona Benchmarks
County Population
Cochise 135 thousand Mohave 198 Pima 981
Pinal 300 Yavapai 213
Yuma 196
Maricopa County Internal Audit 30 FY06 Financial Condition ReportApril 2008
National Benchmarks
County Population Major Metro Area
Clark 1.9 million Las Vegas, NV
Harris 3.7 Houston, TX
King 1.8 Seattle, WA
Los Angeles 10.2 Los Angeles, CAMultnomah 0.7 Portland, OR
Orange 3.1 Santa Ana/Anaheim, CA
Pima 0.9 Tucson, AZ
Salt Lake 1.0 Salt Lake City, UT
San Diego 3.1 San Diego, CA
Santa Clara 1.8 San Jose, CA
ReportMethodologyReportMethodology
Methodology
SOURCE: State of Arizona Department of
Economic Security, 7/1/2006
SOURCE: Respective Counties FY06 CAFRs
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Maricopa County Internal Audit
301 W. Jefferson, Suite 660
Phoenix, AZ 85003
Telephone: (602) 506-1585
Facsimile: (602) 506-8957E-Mail: [email protected]
ApictureoftheSecuritybuildinginthe1940s,takenfromthecornerofVanBurenandCentralAve.Builtin1928,thebuildingwaspurchasedbytheCountyin2001andiscurrentlyundergoinghistoricalrenovations.