CAFR Budget Analysis for the State of Arizona

Population

Arizona is the 48th state and the sixth largest state of the United States of America with 113,998 square miles. According to the Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2007, and based on demographic and economic statistics section for the last ten calendar years, in 2006 the population was 6,166,318. Annual estimates of the U.S. Census Bureau show that Arizona ranked second, nationally, in population growth, with a 2.7% increase, during fiscal year 2007. Additionally, according to a Phoenix accounting firm, Arizona’s population growth is expected to continue at about the same pace of 6.10% over two years. With a population growth, Arizona eventually believes to improve housing market concerns while decreasing the surplus of unsold homes.

Governmental Structure

The structure of the State of Arizona is broken down into three different branches with the governor of the state overseeing the proper running of each branch. The three branches are the Legislative Branch, the Executive Branch, and the Judicial Branch. The Legislative Branch consists of the State Senate, State House of Representatives, Legislative Council, Auditor General, Joint Legislative Budget Committee, and Board of Library, Archives, and Public Record. The Executive Branch consists of the Secretary of State, the Attorney General, the State Treasurer, Superintendent of Public Instruction, Corporation Commissioner, and State Mine Inspector. The third and final branch is the Judicial Branch, which consists of the Supreme Court, the Court of Appeals, Superior Courts, Municipal Courts, and Justice of the Peace Courts.

Size of Budget and its Interrelationship with the CAFR

As detailed in the financial statements, Management’s Discussion and Analysis (MD&A) of the State of Arizona 2007 CAFR provides required supplementary information including budgetary comparison schedules for the general fund and each major special revenue fund, plus a reconciliation of the schedules of statutory and GAAP expenditures for the fiscal year. In addition, a budgetary expenditure comparison schedule for non-major special revenue funds is also provided.

The size of the budget and its interrelationship with the CAFR is very well maintained, the relationship between the two is very well maintained. The state agencies and departments acknowledge that they are given a certain amount of funding to pay for their expenditures throughout the year. The State of Arizona agencies and departments make a strong effort to remain within budget for the fiscal year. When state organizations see that their financial needs will exceed the budget, state agencies and departments go to the legislature to request supplementary funds. The 2007 revised budget, in most cases, is nearly identical to the final expenditures.

Differences between the original budget of $15.2 billion and the final amended budget of $16.9 billion resulted in a $1.7 billion increase in appropriations for the general fund, before adjustments. Some of the primary reasons for the general fund appropriations include $251.162 million for prior fiscal year obligations, paid for in the current fiscal year per ARS §35-191; $191.294 million for the Department of Education’s Basic State Aid; $118.050 million to the Department of Education for full-day kindergarten funding; $191 million to the Department of Education to payoff K-12 rollover shifted from the FY06 appropriation; $100 million to the Department of Education for the additional 2.4 percent above the minimum inflation factor; $215.2 million to the Department of Education for Basic State Aid because the county equalization assistance rate did not exceed eight cents; $20 million for the Parks Board Growing Smarter transfer to the Land Conservation Fund per ARS §41-511.23; $86.284 million to the School Facilities Board for the Building Renewal Fund; $62. 066 million to the Department of Corrections primarily for increased correctional offices’ salaries, and engineering research programs and infrastructure to promote statewide economic development; and $50 million that was appropriated in advance to the School Facilities Board by Laws 2005, Chapter 287, and not included in the FY 2007 General Appropriation Act.

Major Industries

It is the responsibility of government to distribute funds among the major industries as fairly as possible. The industries that receive these funds are labeled into three categories; government, proprietary, and fiduciary. The major industries included for government funds are health and welfare, inspection and regulation, education, protection and safety, transportation, unemployment, and natural resources are just a few. Proprietary funds include industries that operate similar to a regular business such as the Arizona State Lottery and universities. Fiduciary funds include pensions, other employee benefit trust, investment, and agency funds.

Other Pertinent Demographic Information

At the end of the year 2006, the state of Arizona’s population increased by over 200,000 people, based on a midyear estimate by the Census Bureau. The unemployment rate was down by .05 percent. The state continues to rank number one in the total state employment.

As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $6.3 billion, an increase of $756.846 million from the beginning of the year. Approximately 30% of the combined fund balances, or $1.9 billion, is available to meet the State’s current and future needs. The unreserved fund balance for the General Fund was $1.1 billion, or 6%, of total General Fund expenditures. The enterprise funds reported net assets at year end of $3.1 billion, an increase of $316.864 million during the year. The Land Endowments Fund reported fund balance at year end of $2.5 billion, an increase of $410.968 million during the year. The Land Endowments Fund is used to help finance public education within the State as required by the federal government and the State’s Constitution.

With the state of Arizona continuously growing, a heavy strain is placed upon the three major branches of government – the Legislative Branch, the Executive Branch, and the Judicial Branch – to maintain budgetary concerns. According to the State of Arizona accounting in the 2007 CAFR the size of the state’s budget and its interrelationship with the CAFR shows that excellent management of funds was executed throughout the fiscal year. A difference of $1.7 billion between the original budget and the amended budget was mainly due to appropriations to the general fund according to the Phoenix CPA firm that conducted the analysis.

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