Financial Condition Report

Fiscal Year 2006

Internal Audit Department Maricopa County, Arizona

The County Auditor is appointed by the Board of Supervisors. The mission of the Internal Audit Department is to provide objective, accurate, and meaningful information about County operations so the Board of Supervisors can make informed 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: Maricopa County Internal Audit 301 W. Jefferson, Suite 660 Phoenix, AZ 85003

(602) 506-1585

Many of our reports can be found in electronic format at: www.maricopa.gov/internal_audit

Maricopa County
Internal Audit Department

301 West Jefferson St Suite 660 Phx, AZ 85003-2143 Phone: 602-506-1585 Fax: 602-506-8957 www.maricopa.gov

April 18, 2008 Andrew Kunasek, Chairman, Board of Supervisors Fulton Brock, Supervisor, District I Don Stapley, Supervisor, District II Max Wilson, Supervisor, District IV Mary Rose Wilcox, Supervisor, District V We have completed the Fiscal Year (FY) 2006 edition of the Maricopa County Financial Condition Report based primarily on the FY 2006 CAFR issued in October 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 General Fund within the context of population growth that led the nation. The General Fund unreserved fund balance continued to grow, and long-term debt levels decreased. Key financial indicators compare very favorably to national and local benchmarks. This year we include a benchmark comparison of investment portfolios between the County Treasurer and the Arizona State Treasurer. Highlights include comparative analyses of investment yields and the composition of investment pool by asset type. We also provide updated information about County employee pension plans due to the deteriorating financial trends experienced locally and nationally since FY 2000. We would like to commend the Board of Supervisors and County leadership for the conservative fiscal policies that have led to the strong financial condition highlighted throughout this report. The foresight and restraint applied in prior years will significantly help soften the impact of the current economic downturn. Sincerely,

Ross L. Tate County Auditor

MaricopaCountyBasics
Westrivetoprotectandenhancethequalityoflifeinourcommunityandmeasurethe differencewemake.Westrivetocreatevaluewithourservicesandinfrastructureinvestments muchthesameasaprivatecorporationwoulddo.Weauditourselvesinternallyandexternally usingmeasuressuchasArizonaQualityAwards,MalcolmBaldrigeAwardcriteria,benchmarking, andvariousothercompetitivereviewprocesses.Wearefrequentlyaskedbyothergovernments foradviceandcounsel.Icanonlyassumeitisbecausewearedoingwhatwesaywewilldo.

DavidSmith,CountyManager ManagingforResultsAnnualReportFY07

Population[Source:U.S.CensusBureau]
3.77millionpeoplecallMaricopaCountyhome,the4thlargestpopulationinthenation behindLosAngelesCounty(California),CookCounty(Chicago,Illinois),andHarrisCounty (Houston,Texas). TheCountyspopulationincreasedby130,000fromJuly2005toJuly2006,thebiggest countypopulationincreaseinthenation. TheCountyspopulationgrewby596,000fromJuly2001toJuly2006.

Size[Source:MaricopaCountywebsite]
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.

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

TableofContents
GeneralFundKeyFinancialIndicators ..........................1 GeneralFundRevenueSources..................................... 4 LongTermDebt.............................................................. 4 GovernmentalFunds......................................................5 GovernmentalFundsTaxRevenues ............................. 9 TaxRevenueBudgettoActualVariance.......................10 NetAssets ....................................................................... 11 CountyTreasurer ............................................................13 ArizonaCountyBenchmarks .........................................17 MaricopaCountyRetirementPlans ..............................21 PopulationGrowthandEmploymentRates .................27 ReportMethodology ..................................................... 29

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

GeneralFund

GeneralFundKey FinancialIndicators

TheGeneralFundistheCountysprimaryoperatingfund. TheGeneralFundaccountsforallfinancialresourcesof thegeneralgovernment,exceptforthoserequiredtobe accountedforseparatelyinadifferentfund(suchas transportation,jailoperations,etc.).Theuseofseparate fundsmaybeusedforlegalrequirements(federaland state)andforfinancialadministrationpurposes.

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

GeneralFund

GeneralFundKeyFinancialIndicators
Unreserved General Fund Balance The unreserved fund balance represents the funds available to meet the Countys current and future financial needs. It is a useful measure of a governments liquidity. Conservative budget strategies, combined with conservative revenue estimates, have resulted in large General Fund balance increases. The County is setting aside resources to fund several large construction projects under a pay as you go policy.

$600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $

FY 97 FY 98

UnreservedGeneralFundBalance NotAdjustedforInflation(inmillions)

$539.6

$78.1

FY 99

FY 02

FY 03

FY 04

FY 00

FY 01

SOURCE: Maricopa County Comprehensive Annual Financial Reports (CAFRs)

The unreserved General Fund balance rose to $539.6 million in FY06, for an increase of $111.6 million, or 26% over the prior year. This is attributable primarily to increased revenue of $113.7 million from all sources; expenditures also increased by $33.3 million, for a net increase from operations of $80.4 million.

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

FY 05

FY 06

GeneralFundKeyFinancialIndicatorscontd
Since FY97, Maricopa Countys General Fund has achieved a healthy fund balance in relation to its revenues. Maricopa has significantly surpassed the national benchmark average for this financial measure for the past 10 years (see page 30 for a list of national benchmark counties).
UnreservedGeneralFundBalance asaPercentofRevenues
47%

GeneralFund

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

FY 98 FY 99

This measure reflects the availability of financial reserves to meet unforeseen needs. A ratio of 15% or more is generally considered desirable.

19% 14% 13%

FY 00

FY 97

Maricopa
SOURCE: Maricopa County CAFRs

FY 01

Avgof10BenchmarkCounties

FY 02

FY 03

FY 04

GeneralFundLiquidityRatio (excluding"DueTo/From"otherfunds)
The liquidity ratio is a measure of the Countys ability to pay current obligations, and is measured by dividing fund assets by fund liabilities. Maricopa continues to significantly outperform the national benchmark average with a liquidity ratio of over 14-to-1. This means that there are ample funds ($14.30) available in cash or equivalents to pay every $1 in current liabilities.
14.3
14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

4.2 2.3 3.0

FY 05

Maricopa
SOURCE: Maricopa County CAFRs

FY 06

Benchmarks

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

GeneralFund

GeneralFundRevenueSources
Intergovernmental revenues accounted for 61% of General Fund revenues, while taxes accounted for 33%. Intergovernmental revenues are funds received from federal, state and other local government sources in the form of grants, shared revenues, and payments in lieu of taxes. (For a breakdown of the composition of Intergovernmental and Tax Revenue sources, please refer to the Governmental Funds section, page 8.) In FY06, General Fund revenues increased by $114 million, or 11%, to $1.148 billion. This increase was attributable to an increase in the sales tax apportionment of $60.1 million and the vehicle license tax apportionment of $15.4 million. In addition, property tax revenues increased by $34.4 million (due to an increase in assessed values and new housing). These increases can be attributed to the Countys continued strong economy throughout FY 2006, increasing population, and higher property values.
$700 $600 $500 $360 $400 $300 $200 $58 $100 $0
Intergovernmental Taxes ChargesforService andOtherMisc.

GeneralFundRevenueSourcesforFY05&FY06 (inmillions)
$695 $615

$379

$74

FY05

FY06

SOURCE: FY05 and FY06 CAFRs

LongTermDebt

LongTermDebt
Maricopa Countys long-term debt per person has decreased 59% since FY02. The County has extremely low debt levels compared to the national benchmark average. The Countys low debt level has resulted from a conservative pay as you go policy. FY04 was the last year of the Countys 1986 voter-approved General Obligation debt financing for capital projects. On July 1, 2004, Maricopa County paid off the remaining $20.2 million of General Obligation debt.
LongTermDebtPerPerson ComparisontoNationalBenchmarks (adjustedforinflation)
$800 $700 $600 $500 $400 $300 $200 $157 $100 $0 FY02 FY03 FY04 FY05 FY06 $98 $80 $75 $64 $671 $609 $634 $588 $595

Maricopa

Avgof10BenchmarkCounties

SOURCE: Maricopa County CAFRs

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

GovernmentalFunds

GovernmentalFunds

ThefocusoftheprecedingpageswasontheCountys primaryoperatingfund,theGeneralFund.Thefollowing pagesprovideamorecomprehensivelookatCounty financialtrends,byfocusingonallGovernmentalFunds, whichincludethe: GeneralFund SpecialRevenueFunds DebtServiceFunds CapitalProjectsFunds Governmentalfundsareusedtoaccountforactivities thatareprincipallysupportedbytaxesand intergovernmentalrevenues(governmentalactivities),as opposedtootherbusinesstypeactivitiesthatare supportedprimarilybyuserfees,suchasfeebased departmentsliketheCountysHealthPlans.

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

GovernmentalFunds

GovernmentalFundsRevenues&Expenditures
RevenuebySourceforGovernmentalFunds (inmillions)
$1,200

Revenues Total Governmental Funds revenues increased 12% in FY06 to $1.853 billion. This is attributed to the increases to General Fund revenues discussed on page 4. Intergovernmental revenues comprised 55% of total revenues, taxes comprised 33%, and other revenues comprised 12%.

$1,026
$1,000

$904

$800

$601
$600

$557

$400

$192
$200

$226

$0 Intergovernmental Taxes FY05

SOURCE: FY05 and FY06 CAFRs

Other

FY06

ExpendituresbyFunctionforGovernmentalFunds (inmillions)
$800

Expenditures FY06 expenditures totaled $1.646 billion, an 8% increase from FY05. A total of 71% of expenditures were for Public Safety (45%) and Health, Welfare and Sanitation (26%).

$733 $637

$600

$438 $431
$400

$206
$200

$233 $130 $131 $113 $119

$0 PublicSafety Health,Welfare andSanitation CapitalOutlay General Government Other

FY05
SOURCE: FY05 and FY06 CAFRs

FY06

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

GovernmentalFunds

Revenues&ExpendituresPerPerson

RevenuesPerPerson GovernmentalFunds (adjustedforinflation)

$500

Revenues Per Person Revenues per person have increased 12% since FY97, and were 6.5% higher than the 10-year average of $458 (adjusted for inflation). This includes all Governmental Funds revenues (including taxes, intergovernmental revenues, and other sources).

$489 $460

$450

$400

$433

$350 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06

SOURCE: Maricopa County CAFRs

ExpendituresPerPerson GovernmentalFunds (adjustedforinflation)

$500

Expenditures Per Person Expenditures per person have decreased 8% since FY97, and were down from the 10year average of $440 (adjusted for inflation).
$434

$471
$450

$454

The downward trend reversed with a 4% increase in FY05.

$416 $421

$400

$350 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06
FY06 Financial Condition ReportApril 2008

SOURCE: Maricopa County CAFRs

Maricopa County Internal Audit

GovernmentalFunds

GovernmentalFundsRevenuebySource
FY06IntergovernmentalRevenuesbySource GovernmentalFunds(inmillions)
SalesTax $458(46%) Other $187(18%)

FY06TaxRevenuesbySource (excludingIntergovernmentalRevenues) GovernmentalFunds(inmillions)

General Property Tax $457 (76%)

Highway UserFund $97(9%)

Grants $136(13%)

Vehicle LicenseTax $147(14%)

JailExcise Tax $138 (23%) Other $6 (1%)

SOURCE: Intergovernmental Revenue report, Department of Finance

SOURCE: FY06 CAFR

Intergovernmental revenues accounted for 55% of all governmental funds revenue. Stateshared sales tax is the Countys largest source of intergovernmental revenue, as shown on the top 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 these revenues is shown on the top right. For the first time since FY02, state-shared sales tax is the Countys 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 property tax are the two largest sources of tax revenue, accounting for 70% of all tax revenue. Tax revenues increased by $128 million from $1.179 billion in FY05 to $1.307 billion in FY06. Tax revenues increased primarily due to increases in State-shared sales tax revenue of $60 million and property tax revenue of $25 million between FY05 and FY06.

General PropertyTax $457 (35%)

FY06TotalTaxRevenuesbySource GovernmentalFunds StateShared (inmillions)

SalesTax $458 (35%)

Vehicle LicenseTax $147 (11%) Other $10 (1%) HighwayUser FuelTax $97 (7%) JailExcise Tax $138 (11%)

SOURCE: FY06 CAFR

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

GovernmentalFunds

GovernmentalFundsTaxRevenues

Sales Tax and Property Tax as a Percent of Total Revenues In FY06, property tax revenues accounted for 35% of all tax revenues, or $456.9 million. Sales tax revenues of $457.8 million account for an increasing proportion of all tax revenues, at 35%.
40% 37% 34% 31% 28% 25% FY97

StateSharedSalesTaxandPropertyTax asa%ofTotalTaxRevenues

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

PropertyTax
SOURCE: Maricopa County CAFRs

SalesTax

Tax Revenues Per Person While total revenues per person have increased 12% from FY97 to FY06 (as discussed on page 7), tax revenues per person increased at a slower rate of 5% during the same period (adjusted for inflation). The 10-year average for tax revenues per person was $327.

TaxRevenuesPerPerson GovernmentalFunds (adjustedforinflation)

$345 $327

$350 $330 $310 $290 $270 $250 $230

FY 97 FY 01 FY 98 FY 00 FY 02 FY 06 FY 03 FY 99 FY 04 FY 05

SOURCE: Maricopa County CAFRs

Maricopa County Internal Audit

FY06 Financial Condition ReportApril 2008

GovernmentalFunds

TaxRevenueBudgettoActualVariance
State-Shared Sales Tax Sales tax revenues can be difficult to predict, as they are subject to economic forces. In FY06, actual sales tax revenues exceeded the original budget by $50.5 million, or 12%.
StateSharedSalesTax VarianceBetweenOriginalBudgetandActual (inmillions)
$58 $48 $38 $28 $18 $8 $2 $12 $22

$50.5

$22.4 $5.6

$22.5

$22.8

($5.2) ($15.8)
FY 00 FY 02 FY 03 FY 04 FY 05 FY 06 FY 01

SOURCE: Maricopa County CAFRs and Annual Business Strategy (Budget) Books

Vehicle License Tax Vehicle license tax revenues can be difficult to predict, as citizens can prepay for one or two years. In FY06, actual vehicle license tax revenues exceeded the original budget by $12.7 million, or 9.5%.
$20 $15 $10

VehicleLicenseTax VarianceBetweenOriginalBudgetandActual (inmillions) $17.4

$12.7 $7.4 $4.9 $1.9

$6.0
$5 $0

$6.0

FY 04

FY 00

FY 01

FY 02

FY 03

FY 05

SOURCE: Maricopa County CAFRs and Annual Business Strategy (Budget) Books

Property Tax Property tax revenues are more predictable and are therefore easier to budget. In FY06, actual property tax revenues exceeded the original budget by $8.9 million or less than 2%.
$12 $10 $8 $6 $4 $2 $0 $2 $4

PropertyTax VarianceBetweenOriginalBudgetandActual (inmillions) $8.9

$2.4 $0.1 ($0.3) ($2.4)

FY 00 FY 03 FY 01 FY 02

$3.3 $1.6

SOURCE: Maricopa County CAFRs and Annual Business Strategy (Budget) Books

Maricopa County Internal Audit

10

FY06 Financial Condition ReportApril 2008

FY 04

FY 05

FY 06

FY 06

NetAssets

NetAssets

Maricopa County Internal Audit

11

FY06 Financial Condition ReportApril 2008

NetAssets

NetAssets
The Countys assets for governmental and business-type activities exceeded liabilities at year 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 the County is improving or deteriorating. Total net assets increased 64% from FY02 to FY06. The total increase from FY05 to FY06 was $344.8 million.
TotalNetAssets (inmillions)
$3,347 $2,942 $2,302 $3,002

$4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 FY02

$2,042

FY03

FY04

FY05

FY06

SOURCE: Maricopa County CAFRs

Net assets are divided into three components: (1) Investments in capital assets, net of related 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 be used). Just under 75% of net assets are invested in capital assets (net of related debt), 10% are restricted (primarily for public safety and highways and streets functions), and 17% are unrestricted (these assets can be used to meet the Countys ongoing obligations).
FY06Compositio nofNetAssets (inmillions)
InvestedIn CapitalAssets $2,445.2(7 3%) Restricted $345.2(10%)

Unrestricted $556.8(17%)

SOURCE: FY06 CAFR

Maricopa County Internal Audit

12

FY06 Financial Condition ReportApril 2008

Treasurer

CountyTreasurer

TheCountyTreasurerpoolsdepositsoftheCounty, schooldistricts,andspecialdistricts.Cashnotrequired forliquidityisinvestedinaccordancewithStatelawand underastrategythatgiveshighestpriorityto: Safetyofprincipal SufficientliquiditytomeettheneedsoftheCounty anditssubdivisions Returnoninvestment Forthefirsttime,thisyearwehaveincludedabenchmark comparisonofinvestmentportfoliosbetweentheCounty TreasurerandtheArizonaStateTreasurer,includinga comparativeanalysisofinvestmentyieldsandthe compositionoftheinvestmentpoolsbyassettype.

Maricopa County Internal Audit

13

FY06 Financial Condition ReportApril 2008

Treasurer

$3.1BillionManagedbyCountyTreasurer
Arizona Revised Statutes require community colleges, school districts, and other local governments to deposit certain public monies with the County Treasurer. Total cash and investments held by the Treasurer increased to $3.1 billion in FY06.
$3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $ FY02 FY03 FY04 FY05 FY06 $1.9 $2.0 $2.2

CashandInvestmentsHeldbytheCountyTreasurer (inbillions)
$3.1 $2.7

SOURCE: Maricopa County CAFRs

WhoTheMoneyBelongsTo (inmillions)
County GeneralFund $457(15%)

NonCounty Funds $2,158(70%)

OtherCounty Funds $464(15%)

County funds totaled $921 million, or 30% of the $3.1 billion held by the Treasurer as of 6/30/06.

SOURCE: FY06 CAFR

AverageWeightedYieldtoMaturity(YTM)fortheTreasurer'sInvestments byinvestmenttype(asof9/30/06)
6.00%

The yield to maturity for each of the Treasurers investments as of 9/30/06 is shown to the right. The average weighted yield to maturity across all investments is 4.6%.
SOURCE: Maricopa County Internal Audit of County Treasurer ( FY07) Maricopa County Internal Audit

5.20% 5.00%

5.20%

5.18%

5.12%

5.07%

4.34% 4.14% 4.00% 3.84% 3.76%

3.00%
Federal National Discount Note Federal Home Discount Note Federal FarmCredit Discount Mortgage Note Center Discount Note Warrants Federal Federal Federal Federal HomeLoan National HomeLoan FarmCredit Banks Banks Mortgage Mortgage Center Corporation

14

FY06 Financial Condition ReportApril 2008

TreasurersInvestmentPool
The Arizona State Treasurers Office manages $12 billion total, $3.1 billion of which is invested in a Local Government Investment Pool (LGIP). The LGIP provides professional short-term investment services for a wide array of public entities.
ComparativeInvestmentYields StateTreasurerLocalGovernmentInvestmentPoolvs. MaricopaCounty

Treasurer

8% 7% 6% 5% 4% 3% 2% 1% 0%

The County Treasurer StateTreasurerLocalGovernmentInvestmentPool operates an investment MaricopaCountyTreasurer pool of $3.1 billion, comparable in function SOURCES: State Treasurer historical yield reports; County Treasurer Investment Officer to the LGIP fund. Annual yields for both funds have improved over the last three years, as shown above.

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

As of 12/31/07, State LGIP funds were held primarily in money market investments issued by government 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-owned corporations authorized to make loans and loan guarantees, but are not backed or funded by U.S. government, nor do the securities they issue benefit from any explicit government guarantee or protection. As of 12/31/07, County Treasurers funds were invested in GSEs, with 97% held in Federal Mortgage investments, as shown on the right below.
ArizonaStateTreasurer LGIPPoolComposition(inmillions)
FederalHome LoanBanks $993.9(30%) Corporate Notes $942.0(28%)

MaricopaCountyTreasurer InvestmentPoolComposition(inmillions)
Federal Agricultural Mortgage Corporation $20.6(1%) FarmCredit DiscountNote $30.0(1%) FederalFarm CreditBanks $70.0(2%) FederalHome DiscountNote $212.2(6%) FederalHome LoanBanks $1,101.0(33%)

CashDeposits $45.0(1%)

FederalFarm CreditBanks $177.8(5%) Commercial Paper $195.1(6%) FederalHome LoanMortgage Center $435.8(13%)

Federal National Mortgage Corporation $648.1(19%)

Federal National Mortgage Corporation $554.4(17%)

Federal Mortgage Center DiscountNote $270.4(8%)

Federal National DiscountNote $638.4(19%) FederalHome LoanMortgage Center $369.5(11%)

SOURCE: State Treasurer Market Report, 12/31/2007

SOURCE: County Treasurer Summary Report, 12/31/07

Maricopa County Internal Audit

15

FY06 Financial Condition ReportApril 2008

Maricopa County Internal Audit

16

FY06 Financial Condition ReportApril 2008

ArizonaBenchmarks

ArizonaCounty Benchmarks

ToprovidelocalcontextforMaricopaCountys performance,theFinancialConditionReportincludes comparisonstosixArizonaCountybenchmarks.This informationispresentedonthefollowingthreepages. (Nationalbenchmarkcomparisonswerepresented earlierinthisreport.)

Maricopa County Internal Audit

17

FY06 Financial Condition ReportApril 2008

ArizonaBenchmarks

ComparisontoArizonaCountyBenchmarks
This year, Maricopa County was again benchmarked against the following six Arizona counties: Arizona Benchmarks - Population (in thousands) Cochise Mohave Pima Pinal Yavapai Yuma 135 198 981 300 213 196

SOURCE: State of Arizona Department of Economic Security, 7/1/2006

Unreserved Fund Balance Unreserved fund balances represent the monies available to meet the Countys current and future needs. Maricopa County continued to significantly outperform the Arizona benchmark average for this financial measure from FY03 - FY06 (bottom left), as well as each of the benchmark counties individually in FY06 (bottom right).

UnreservedGeneralFundBalance asa%ofRevenues FourYearComparisontoArizonaBenchmark Average

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% FY03 FY04 FY05 FY06 16.9% 16.8% 18.7% 17.1% 36.7% 41.4% 36.8% 47.0%

UnreservedGeneralFundBalance asa%ofRevenues FY06ComparisontoArizonaBenchmarks

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Pima Yuma Mohave Cochise Pinal Maricopa Yavapai

47.0%

34.1% 29.7% 26.9%

14.7% 10.2% 10.8%

Maricopa

BenchmarkAvgs
SOURCE: FY06 Maricopa and benchmark county CAFRs

SOURCE: Maricopa and benchmark county CAFRs

Maricopa County Internal Audit

18

FY06 Financial Condition ReportApril 2008

ArizonaBenchmarks

ComparisontoArizonaBenchmarkscontd
In FY06, Maricopa Countys liquidity ratio was very strong at 14.3-to-1, meaning that there were ample funds ($14.30) in cash and equivalents for every $1.00 in current liabilities. Maricopas liquidity ratio continues to surpass the benchmark average. Individual liquidity ratios for Maricopa County and the Arizona benchmark counties are reflected below for FY06.
GeneralFundLiquidityRatio (excluding"DueTo/From"otherfunds) FourYearComparisontoArizonaBenchmark Averages
13.4 14.3

16 14 12 10 8 6 4 2 0

6.6

6.6 3.0 3.1 3.0

2.8

FY03

FY04

FY05

FY06

Maricopa

AZCountyBenchmarkAverage

SOURCE: Maricopa and benchmark county CAFRs

GeneralFundLiquidityRatio (excluding"DueTo/From"otherfunds) FY06ComparisontoArizonaBenchmarkCounties

16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Ya va pa i Pi ma Moha ve Yuma Cochi s e Pi na l Ma ri copa

14.3

7.6 5.4 4.0 2.4 2.9 4.7

SOURCE: FY06 Maricopa and benchmark county CAFRs

Maricopa County Internal Audit

19

FY06 Financial Condition ReportApril 2008

ArizonaBenchmarks

ComparisontoArizonaBenchmarkscontd
LongTermDebtPerPerson MaricopaCountyvs.ArizonaBenchmarks (adjustedforinflation)

Maricopa County has a very low level of debt per person. Maricopa Countys long-term debt per person has decreased 35% during the four years shown, while the benchmark average increased 12%.

$300 $249 $250 $200 $150 $100 $50 $0 FY03 FY04 AZCountyBenchmarkAverage $98 $80 $246

$285

$278

$75

$64

FY05 FY06 MaricopaCounty

SOURCE: Maricopa and benchmark county CAFRs

FY06LongTermDebtPerPerson ComparisontoArizonaBenchmarks
$700

$618
$600 $500 $400 $300 $200 $100 $0 Ma ri copa Cochi s e Ya va pa i Moha ve Yuma Pi ma Pi na l

$455

Maricopa County has the lowest level of long-term debt per person when compared to the Arizona benchmark counties.

$244 $168 $64 $93 $94

SOURCE: FY06 Maricopa and benchmark county CAFRs

Maricopa County Internal Audit

20

FY06 Financial Condition ReportApril 2008

RetirementPlans

MaricopaCounty RetirementPlans

Countypensionplaninformationwasfirstincludedinthe FinancialConditionreportlastyearduetodeteriorating financialtrendsexperiencedlocallyandnationally. Updatedinformationisprovidedinthefollowingsection, basedontheFY06MaricopaCountyCAFR,andtheFY07 CAFRsissuedbytheArizonaStateRetirementSystem (ASRS)andthePublicSafetyPersonnelRetirementSystem (PSPRS).InformationforFY08wasobtainedfromother sourcesandisalsoincludedherein.

Maricopa County Internal Audit

21

FY06 Financial Condition ReportApril 2008

RetirementPlans

ASRSFundingStatus
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 accrued liabilities (projected future retirement payments). A pension plan whose assets equal its liabilities is 100% funded, or fully funded. A plan with assets that are less than its liabilities is considered to be underfunded. The dollar difference between plan assets and accrued liabilities is the unfunded actuarial accrued 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 the funding 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 in nature and are outside the scope of this report. It is noted, however, that ASRS discounts future benefits at 8.0% per year, while PSPRS discounts future benefits at 8.5%, which precludes 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 on page 26, and was named a top performer in a nationwide pension plan study performed by an 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 the delayed recognition of losses that have occurred in earlier years (see lower right graph). Investment losses are recognized in actuarial assets over a 10-year period. The funded status of the total plan decreased from 83.7% for FY06 to 82.8% for FY07.

ASRSFundingRatio
130% 120% 120% 110%
$2,000
FULLYFUNDED

ASRSUnfundedLiabilities (inmillions)
$6,000

SURPLUS
$4,000

SURPLUS

100% 90% 80% 70%

UNDERFUNDED (belowtheline)

$0 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 ($2,000) ($4,000) ($6,000) FY07

82.8%

DEFICIT DEFICIT

SOURCE: ASRS CAFRs and annual actuarial reports

FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07

SOURCE: ASRS CAFRs and annual actuarial reports

Maricopa County Internal Audit

22

FY06 Financial Condition ReportApril 2008

PSPRSFundingStatus
PublicSafetyPersonnelRetirementSystem
(includesPSPRS,CORP,andEORP)
PSPRSHistoricalFundingRatios
150%

RetirementPlans

PSPRS Funding Status The funding ratios of the three PSPRS plans have declined significantly since FY01. Funding ratios as of 6/30/07 were: 66.4% - Public Safety 84.6% - Corrections Officers 74.6% - Elected Officials

140% 130% 120% 110% 100% 90% 80% 70% 60% FY98 FY99 FY00 FY01

FULLYFUNDED (abovetheline)

UNDERFUNDED (belowtheline)

FY02

FY03

FY04

FY05

FY06

FY07

PublicSafety
SOURCE: FY07 PSPRS CAFR

CorrectionsOfficers

ElectedOfficials

PSPRSActuarialAssetsvs.Liabilities (inmillions)
$1,400 $1,000 $600 $200

SURPLUS

The UAAL (unfunded liability) for each of the three PSPRS plans as of 6/30/07 was: (in millions) $2,182 - Public Safety $ 122 - Corrections Officers $ 102 - Elected Officials

$200 $600 $1,000 $1,400 $1,800 $2,200 $2,600

DEFICIT

03

99

05

97

98

00

01

02

04

06 FY

FY

FY

PublicSafety
SOURCE: PSPRS CAFRs

FY

FY

FY

CorrectionsOfficers

FY

FY

FY

FY

ElectedOfficials

Maricopa County Internal Audit

23

FY06 Financial Condition ReportApril 2008

FY

07

RetirementPlans

PlanParticipationandContributionRates
Plan Participation Maricopa County employees and elected officials participate in two State retirement plans: About 9,500 County employees participate in the Arizona State Retirement System (ASRS) About 3,000 County employees participate in the Public Safety Personnel Retirement System (PSPRS), which includes:

FY07CountyRetirementPlan Participation
PSPRS Membership 2,997(24%)

ASRS Membership 9,499(76%)

Elected Officials Retirement Plan Corrections Officers Retirement Plan Public Safety Personnel Plan

SOURCE: Maricopa County Human Resources

About 76% of County retirement plan participants are ASRS members.

PSPRS Contribution Rates Employee contribution rates are fixed by State statute based upon a set percentage of employee compensation. Any changes require legislation. Thus, employee contribution rates for the three plans remain relatively stable. Employer contribution rates, however, have increased significantly since 2003. The combined contribution rates (employee + employer) are shown in the graph on the right. FY07 contribution rates for the PSPRS plans are shown below: Plan Public Safety Personnel Elected Officials Corrections Officers
*Weighted average Maricopa County Internal Audit

PSPRSCombinedContributionRates forMaricopaCountyMembers
30% 25% 20% 15% 10% 5% FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

PublicSafety(WeightedAvg) ElectedOfficials CorrectionsOfficers

SOURCE: Maricopa County Human Resources; PSPRS staff

Employee % 7.65% 7.00% 7.96%

Employer % 26.06%* 11.00% 5.00%

24

FY06 Financial Condition ReportApril 2008

CountyPensionContributions
Since FY00, total County pension plan contributions to ASRS and PSPRS have increased 289%, from $15.7 million in FY00 to $61.1 million in FY07, as shown on the graph to the right. From FY06 to FY07, County contributions increased 44% overall, or $15.5 million. (Does not include employee contributions.)
MaricopaCountyTotalPensionPlanContributions(FY00FY07)
$70,000,000 $60,000,000 $50,000,000

RetirementPlans

$61,115,738

$36,791,353
$40,000,000 $30,000,000 $20,000,000 $10,000,000 $ FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

$16,767,539 $15,713,277

SOURCE: Maricopa County CAFRs and unaudited FY07 CAFR Notes

MaricopaCountyASRSPlanContributions(FY00FY07)
$50,000,000

$45,806,290

$40,000,000

$29,855,413
$30,000,000

Since FY00, County contributions into ASRS have increased 362%, from $9.9 million in FY00 to $45.8 million in FY07, as shown on the graph to the left. From FY06 to FY07, County contributions to ASRS increased 43% overall, or about $13.7 million.

$20,000,000

$10,000,000

$12,352,160 $9,916,689

$ FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

SOURCE: Maricopa County CAFRs and unaudited FY07 CAFR Notes

MaricopaCountyPSPRSPlanContributions(FY00FY07)
$7,500,000 $6,000,000 $4,500,000 $3,000,000 $1,500,000 $ FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

Since FY00, County contributions into PSPRS have increased 164%, from $5.8 million in FY00 to $15.3 million in FY07. Total County contributions for the three PSPRS plans are shown on the graph to the left. From FY06 to FY07, County contributions to PSPRS increased 13% overall, or about $1.7 million.

ElectedOfficials

CorrectionsOfficers

PublicSafety

SOURCE: Maricopa County CAFRs and unaudited FY07 CAFR Notes

Maricopa County Internal Audit

25

FY06 Financial Condition ReportApril 2008

RetirementPlans

InvestmentReturns
ASRS Investment Returns For FY07, ASRS reported a strong 17.8% rate of return on the total ASRS fund in FY07; however, overall fund performance declined. This is because the recognized rate of return is based on the smoothed market value of assets, as discussed below, which was less than the assumed rate of 8%. The smoothed market value spreads the difference between the actual and assumed return over 10 years. Although the actual return exceeded the assumed rate during FY07, this is offset by negative experience carried forward from prior years.
ASRSInvestmentReturn Actualvs.Assumed
30%

20%

10%

0% FY99 10% FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

20%

ActualRateofReturn
SOURCE: ASRS historical yields report

AssumedRateofReturn

PSPRS Investment Returns For FY07, the three PSPRS funds experienced rates of return between 16% - 17%, which exceeded the assumed rate of 8.5%. However, overall fund performance declined because the recognized rate of return (based on the smoothed market value of assets discussed below) was less than the assumed rate. The smoothed market value spreads the difference between the actual and assumed return over seven years. Like ASRS, although the actual return exceeded the assumed rate during FY07, this is offset by negative experience carried forward from prior years.
Maricopa County Internal Audit

30%

PSPRSInvestmentReturn Actualvs.Assumed

20%

10%

0%

10%

20% FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 PublicSafety ElectedOfficials
SOURCE: FY07 PSPRS CAFRs and PSPRS staff

CorrectionsOfficers AssumedRate

26

FY06 Financial Condition ReportApril 2008

PopulationandEmployment

PopulationGrowth and EmploymentRates

Maricopa County Internal Audit

27

FY06 Financial Condition ReportApril 2008

PopulationandEmployment

PopulationGrowthandEmployment
TopFiveU.S.CountiesbyTotalPopulation July2006

In 2006, Maricopa County was ranked the fourth most populous of all 3,141 counties in the nation.

12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0

9,948,081 5,288,655

3,886,207

3,768,123

3,002,048

LosAngeles County,CA

CookCounty,IL HarrisCounty, TX

Maricopa County

Orange County,CA

SOURCE: 2006 U.S. Census Bureau reports

140,000

Maricopa Countys population increased in number more than any other county in the nation from July 2005 to July 2006.

TopFiveCountieswithLargestNumericalIncreaseinPopulation July2005toJuly2006 129,642 123,363 81,411 68,175 51,629

120,000 100,000 80,000 60,000 40,000 20,000 0 Maricopa County HarrisCounty, TX Riverside County,CA ClarkCounty, NV Tarrant County,TX

SOURCE: 2006 U.S. Census Bureau reports

7.0%

UnemploymentRateHistory

Maricopa County continues to enjoy unemployment rates below national and State averages.

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 County
SOURCE: Maricopa County CAFRs

4.6% 4.2% 3.6%

State

UnitedStates

Maricopa County Internal Audit

28

FY06 Financial Condition ReportApril 2008

Methodology

ReportMethodology

Maricopa County Internal Audit

29

FY06 Financial Condition ReportApril 2008

Methodology

ReportMethodology
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 the public, 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 key financial indicators. Indicators were selected from authoritative sources on evaluating governmental entity financial condition, and were judged to be the most indicative of a countys overall financial health. Our primary information sources were the audited Comprehensive Annual Financial Reports (CAFR) issued by the Arizona State Retirement System, Public Safety Personnel Retirement System, ten national benchmark counties, six Arizona counties, and Maricopa County. The benchmark counties are:

County Clark Harris King Los Angeles Multnomah Orange Pima Salt Lake San Diego Santa Clara

National Benchmarks Population Major Metro Area 1.9 million Las Vegas, NV 3.7 Houston, TX 1.8 Seattle, WA 10.2 Los Angeles, CA 0.7 Portland, OR 3.1 Santa Ana/Anaheim, CA 0.9 Tucson, AZ 1.0 Salt Lake City, UT 3.1 San Diego, CA 1.8 San Jose, CA

Arizona Benchmarks County Population Cochise Mohave Pima Pinal Yavapai Yuma 135 thousand 198 981 300 213 196

SOURCE: State of Arizona Department of Economic Security, 7/1/2006

SOURCE: Respective Counties FY06 CAFRs

Other sources include actuarial reports, the U.S. Census Bureau, Governmental Accounting Standards Board, the International City/County Managers Association, Arizona Department of Economic Security Research Administration, Maricopa Countys Strategic Plans (budgetary documents), Auditor General Reports, and correspondence with 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 IndexAll Items.
Maricopa County Internal Audit 30 FY06 Financial Condition ReportApril 2008

ApictureoftheSecuritybuildinginthe1940s,takenfromthecornerofVanBurenand CentralAve.Builtin1928,thebuildingwaspurchasedbytheCountyin2001andis currentlyundergoinghistoricalrenovations.

Maricopa County Internal Audit 301 W. Jefferson, Suite 660 Phoenix, AZ 85003 Telephone: (602) 506-1585 Facsimile: (602) 506-8957 E-Mail: Thielew@mail.maricopa.gov
Maricopa County Internal Audit FY06 Financial Condition ReportApril 2008