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NORTH CAROLINA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1998 JAMES B. HUNT, JR. GOVERNOR EDWARD RENFROW STATE CONTROLLER Prepared by Statewide Accounting Division Office of the State Controller http:// www. state. nc. us/ OSC/ 2 State of North Carolina This report was prepared by the Statewide Accounting Division of the Office of the State Controller. Don Waugh ASSISTANT STATE CONTROLLER dwaugh@ controller. osc. state. nc. us Anne Godwin, CPA Statewide Accounting Manager agodwin@ controller. osc. state. nc. us John Barfield, CPA Financial Reporting Manager jbarfiel@ controller. osc. state. nc. us Robert Alford, CPA Melissa Lusk, CPA Cynthia Vincent Tammy Aycock, CPA Laketha Miller, CPA Helen Vozzo, CPA Carmen Dixon, CPA Clayton Murphy, CPA Jim White, CPA John Eliadis Terri Noblin, CPA Pam White, CPA Martha Hunt, CPA Melody Tart Amber Young Danielle Lowden, CPA Teresa Tate Special appreciation is given to the chief fiscal officers and the dedicated accounting personnel throughout the State. Their efforts to contribute accurate and timely financial data for their agencies, universities, community colleges, and institutions made this report possible. State of North Carolina 3 JAMES B. HUNT, JR. Governor of North Carolina 4 State of North Carolina TABLE OF CONTENTS Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 1998 INTRODUCTORY SECTION Letter of Transmittal.................................................................................................................... .......................... 8 Certificate of Achievement for Excellence in Financial Reporting......................................................................... 20 Organization of North Carolina State Government, including principal State officials.......................................... 22 FINANCIAL SECTION REPORT OF INDEPENDENT AUDITOR Report of Independent Auditor........................................................................................................................ ...... 26 GENERAL PURPOSE FINANCIAL STATEMENTS Exhibit A- 1 All Fund Types, Account Groups, and Discretely Presented Component Units — Combined Balance Sheet.......................................................................................................................... .. 30 Exhibit A- 2 All Governmental Fund Types and Expendable Trust Funds — Combined Statement of Revenues, Expenditures and Changes in Fund Balances.................................................................................. 32 Exhibit A- 3 General Fund and Special Revenue Funds — Combined Statement of Revenues, Expenditures and Changes in Unreserved Fund Balances — Budget and Actual ( Budgetary Basis — Non- GAAP)............ 33 Exhibit A- 4 All Proprietary Fund Types, Similar Trust Funds, and Discretely Presented Component Units — Combined Statement of Revenues, Expenses and Changes in Fund Equity................................................ 34 Exhibit A- 5 All Proprietary Fund Types, Nonexpendable Trust Funds, and Discretely Presented Component Units — Combined Statement of Cash Flows................................................................................................................. 36 Exhibit A- 6 Pension Trust Funds — Combining Statement of Plan Net Assets........................................................................ 40 Exhibit A- 7 Pension Trust Funds — Combining Statement of Changes in Plan Net Assets..................................................... 41 Exhibit A- 8 Investment Trust Fund — Statement of Net Assets............................................................................................... 42 Exhibit A- 9 Investment Trust Fund — Statement of Changes in Net Assets............................................................................. 43 Exhibit A- 10 Component Units — College and University Funds — Combined Statement of Changes in Fund Equity............. 44 Exhibit A- 11 Component Units — College and University Funds — Combined Statement of Current Funds Revenues, Expenditures and Transfers...................................................................................................................... ........ 45 Notes to the Financial Statements..................................................................................................................... ..... 48 REQUIRED SUPPLEMENTARY INFORMATION Year 2000 Issues......................................................................................................................... ........................... 108 Schedules of Funding Progress — All Pension Trust Funds................................................................................... 110 Schedule of Contributions from the Employers and Other Contributing Entities — All Pension Trust Funds............................................................................ 111 COMBINING, INDIVIDUAL FUND AND ACCOUNT GROUP STATEMENTS AND SCHEDULES SPECIAL REVENUE FUNDS 115 Exhibit B- 1 Combining Balance Sheet.......................................................................................................................... ............ 116 Exhibit B- 2 Combining Statement of Revenues, Expenditures and Changes in Fund Balances................................................. 118 Exhibit B- 3 Combining Schedule of Revenues, Expenditures and Changes in Unreserved Fund Balances — Budget and Actual ( Budgetary Basis — Non- GAAP)...................................................................................... 120 State of North Carolina 5 Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 1998 CAPITAL PROJECTS FUNDS 123 Exhibit C- 1 Combining Balance Sheet.......................................................................................................................... ............ 124 Exhibit C- 2 Combining Statement of Revenues, Expenditures and Changes in Fund Balances................................................. 125 ENTERPRISE FUNDS 127 Exhibit D- 1 Combining Balance Sheet.......................................................................................................................... ............ 128 Exhibit D- 2 Combining Statement of Revenues, Expenses and Changes in Fund Equity.......................................................... 129 Exhibit D- 3 Combining Statement of Cash Flows...................................................................................................................... 130 INTERNAL SERVICE FUNDS 133 Exhibit E- 1 Combining Balance Sheet.......................................................................................................................... ............ 134 Exhibit E- 2 Combining Statement of Revenues, Expenses and Changes in Fund Equity.......................................................... 136 Exhibit E- 3 Combining Statement of Cash Flows...................................................................................................................... 138 TRUST AND AGENCY FUNDS 142 Exhibit F- 1 Combining Balance Sheet— Trust and Agency Funds............................................................................................ 143 Expendable Trust Funds: Exhibit F- 2 Combining Balance Sheet.......................................................................................................................... .... 144 Exhibit F- 3 Combining Statement of Revenues, Expenditures and Changes in Fund Balances......................................... 145 Nonexpendable Trust Funds: Exhibit F- 4 Combining Balance Sheet.......................................................................................................................... .... 146 Exhibit F- 5 Combining Statement of Revenues, Expenses and Changes in Fund Balances............................................... 147 Exhibit F- 6 Combining Statement of Cash Flows.............................................................................................................. 148 Agency Funds: Exhibit F- 7 Combining Statement of Changes in Assets and Liabilities..................................................................... 150 GENERAL FIXED ASSETS ACCOUNT GROUP 153 Exhibit G- 1 Schedule of General Fixed Assets by Function....................................................................................................... 154 Exhibit G- 2 Schedule of Changes in General Fixed Assets by Function.................................................................................... 155 GENERAL LONG- TERM OBLIGATIONS ACCOUNT GROUP 156 Exhibit H- 1 Statement of General Long- Term Obligations........................................................................................................ 157 Exhibit H- 2 Schedule of General Obligation Bonds Payable..................................................................................................... 158 COMPONENT UNITS FUNDS 162 Proprietary Funds: Exhibit I- 1 Combining Balance Sheet.......................................................................................................................... ............ 164 Exhibit I- 2 Combining Statement of Revenues, Expenses and Changes in Fund Equity.......................................................... 168 Exhibit I- 3 Combining Statement of Cash Flows...................................................................................................................... 170 College and University Funds: Exhibit I- 4 Combining Balance Sheet.......................................................................................................................... ............ 174 Exhibit I- 5 Combining Statement of Changes in Fund Equity.................................................................................................. 175 Exhibit I- 6 Combining Statement of Current Funds Revenues, Expenditures and Transfers.................................................... 176 6 State of North Carolina TABLE OF CONTENTS ( continued) Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 1998 STATISTICAL SECTION Table 1 Revenues by Source and Expenditures by Function — All Governmental Fund Types ( GAAP Basis)................. 178 Table 2 Schedule of Revenues by Source — General Fund ( GAAP Basis)......................................................................... 180 Table 3 General Obligation Bonds Debt Ratios................................................................................................................... 183 Table 4 Revenue Bond Coverage....................................................................................................................... ................. 184 Table 5 Statewide Assessed Property Values — Real Property, Tangible Personal Property and Public Service Companies...................................................................................................................... ... 186 Table 6 Schedule of Bank and Savings and Loan Deposits of Financial Institutions Located in North Carolina................ 187 Table 7 Cash Receipts from Farming by Commodities........................................................................................................ 188 Table 8 Major Private Employers in North Carolina........................................................................................................... 189 Table 9 Schedule of Demographic Data........................................................................................................................... .. 190 Table 10 Ten Largest Non- Agricultural Industries by Number of Employees....................................................................... 192 Table 11 Required Supplementary Information — Claims Development Information — Public School Insurance Fund............................................................................ 194 Table 12 Required Supplementary Information — Claims Development Information Workers' Compensation Fund........................................................................................................................... 196 Table 13 Total Number of State Government Permanent Positions Funded in the State Budget by Agency........................ 197 Table 14 Schedule of Miscellaneous Statistics..................................................................................................................... 198 INTRODUCTORY SECTION 3512 Bush Street l Raleigh, North Carolina 27609- 7509 l Telephone ( 919) 981- 5454 State Courier 56- 50- 10 · FAX ( 919) 981- 5560 An Equal Opportunity/ Affirmative Action/ Americans With Disabilities Employer State of North Carolina Office of the State Controller James B. Hunt, Jr. Edward Renfrow Governor State Controller The Honorable James B. Hunt, Jr. Governor of the State of North Carolina, and Members of the North Carolina General Assembly It is our pleasure to furnish you with the 1998 Comprehensive Annual Financial Report ( CAFR) of the State of North Carolina in compliance with G. S. 143B- 426.39. This report has been prepared by the Office of the State Controller. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the State government and this office. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of operations of the various funds and account groups of the State of North Carolina. We believe all disclosures necessary to enable you to gain an understanding of the State's financial activities have been included. For the convenience of users we have divided this comprehensive annual financial report into three major sections, described as follows: · The introductory section includes this transmittal letter and the State's organization chart, including a listing of principal State officials. · The financial section includes the general purpose financial statements ( combined statements, the notes, and the required supplementary information), the combining and individual fund and account group financial statements, and schedules. · The statistical section includes selected financial, non- financial and demographic information, much of which is presented on a ten- year basis, as well as required supplementary information. The State of North Carolina entity as reported in the CAFR includes all fund types and account groups of the departments, agencies, boards, commissions and authorities governed and legally controlled by the State's executive, legislative and judicial branches. In addition, the reporting entity includes legally separate component units for which the State is financially accountable. Most component units are presented discretely in the financial statements. Two component units are blended into the financial statements because their activities are so intertwined with the State that they are substantively part of the State. The State's discretely presented component units are the University of North Carolina system, the State's community colleges, and various proprietary organizations providing specific services to the public and private sector. The criteria for inclusion in the reporting entity and its presentation are defined by the Governmental Accounting Standards Board ( GASB) in its GASB Codification Section 2100. These criteria are described in Note 1 of the accompanying financial statements. The State and its component units provide a broad range of services to its citizens, including public education; higher education; health and human services; economic development; environment and natural resources; public safety, corrections, and regulation; transportation; agriculture; and general government services. The costs of these services are reflected in detail and in summary in this report. State Reporting Entity and Its Services State of North Carolina 9 Major Initiatives During fiscal year 1997- 98, the Governor, the General Assembly, and the departments and agencies of State government worked to address key issues facing the citizens of North Carolina. The State Board of Education developed the ABCs of Public Education in response to the School- Based Management and Accountability Program ( Senate Bill 1139) enacted by the General Assembly in June 1996. The ABCs focuses on strong accountability with an emphasis on high educational standards; teaching the basics; and maximum local control. An accountability model for elementary and middle schools was implemented in 1996- 97. The high school accountability model was developed during 1996- 97, and was implemented for the first time in 1997- 98. The ABCs Accountability Model for K- 8 ( elementary and middle school) and the ABCs High School Accountability Model establish growth standards for each school in the State. Schools that attain specified levels of growth are eligible for incentive awards or other recognition. Schools where growth and performance fall below specified levels are designated as low- performing. The Clean Water Management Trust Fund approves grants across North Carolina. These projects are empowering local communities to work proactively to protect and restore water quality in the creeks and rivers of the State. The Clean Water Management Trust Fund is fulfilling the vision of the North Carolina General Assembly. In response to public concerns about water quality problems across the state, the Legislature established the Clean Water Management Trust Fund in 1996 to assist in financing projects to protect or restore water quality in the rivers, creeks, lakes, and estuaries of North Carolina. On November 3, 1998, North Carolina voters approved $ 800 million of new debt to finance grants and loans to local government units for water supply systems, wastewater collection systems, wastewater treatment works, and water conservation and water reuse projects. Effective January 1, 1999, the State will repeal the inheritance tax and levy an estate tax equal to the Federal state death tax credit. The net affect of this legislation will be a decrease in tax revenues of an estimated $ 310.2 million through fiscal year 2002- 03. Effective May 1, 1999, the State will repeal the sales tax on food. This is estimated to cost the State $ 790.2 million through fiscal year 2002- 03. The repeal of income tax ( result of Bailey Case, see Note 18) on the pension income of retired government employees is estimated to cost the State $ 128.6 million in fiscal year 1998- 99 and thereafter. The Department of Health and Human Services works in local offices, schools and hospitals, building a stronger North Carolina. Examples of the Department of Health and Human Services at work include: social workers finding families for children who need foster care or adoption; case workers helping people find their way to self- sufficiency; child support agents tracking down deadbeat parents and making them take responsibility for their children and for paying child support; rehabilitation specialists helping the disabled learn everyday skills so they can live life to the fullest; counselors motivating troubled youth and helping them avoid a life of crime; health professionals bringing services to families without access to health care in rural and urban communities; advisors helping families understand their options for home- based and community care for older relatives; public health nurses immunizing children to protect them from disease; teachers educating children who are deaf or blind to prepare them for the working world; licensing specialists overseeing the safety and proper management of child care centers, emergency medical services, hospitals, nursing homes or other health facilities. Education Environment Tax Relief Social Programs 10 State of North Carolina Throughout the State and nation, overall crime rates remain high. Younger offenders are committing more serious crimes. The juvenile population of North Carolina is expected to grow faster than the general population and additional efforts will be required to enhance prevention and promote more effective punishment among our adolescent population. Additional emphasis will be placed on the problem of youth access to drugs, alcohol and tobacco. Crime is on the increase in rural areas as drug dealers expand their operations from cities to the country. Prevention and enforcement programs involving more than one State agency can provide help to local law officers in problem areas. The State is shifting its philosophy of public safety to a more comprehensive, community- based approach and problem- oriented crime prevention. The demand from both the public and the private sectors for relevant, accurate and timely criminal justice information will continue to grow. Through initiatives like the Criminal Justice Information Network ( CJIN), the State has an opportunity to use technology to maximize existing resources. On July 23, 1998, Governor Hunt signed the Economic Opportunity Act of 1998. The law is designed to promote economic development throughout the State. It allows various credits and tax reductions for certain recycling facilities and allows various sales tax and property tax exemptions for air couriers. The new Economic Opportunity Act also provides for the designation of economically distressed areas located within municipalities as State Development Zones. It further authorizes enhanced incentives for businesses that locate in a development zone. In addition, the Industrial Development Fund has been enhanced to provide additional funds or to expand the availability of funds that can be used for equipment, capital improvements and utility distribution lines. The Fund also provides financial assistance to local government units of the most economically distressed counties in the State. To encourage the development of air courier hubs in North Carolina, the bill provides a reduction in the state's sales tax and property tax for interstate air couriers. Beginning with the 2001 property tax year, the bill provides a property tax exemption for aircraft owned by an air courier and apportioned for property tax purposes to the courier’s hub in North Carolina. On November 3, 1998, the North Carolina voters approved $ 200 million of new debt to finance grants, loans, or other financing to public or private entities for construction of natural gas facilities. The Year 2000 issue is the result of shortcomings in many electronic data processing systems and other equipment that make operations beyond the year 1999 troublesome. For many years, programmers eliminated the first two digits from a year when writing programs. Unfortunately, many programs ( if not corrected) will not be able to distinguish between the Year 2000 and the year 1900. This may cause the programs to process data inaccurately or to stop processing data altogether. All information systems in North Carolina that use dates to generate data will be affected by the new millennium: for example, kindergarten registration and blood supply could be affected. In addition, non- information systems such as forms need to be evaluated because they provide input to software applications. Mail processing equipment may need to be modified to handle the new millennium. Other areas such as elevators, security systems, and vaults will be affected by the Year 2000. In early 1997, the Year 2000 Project Team ( including a statewide Steering Committee and agency coordinators) was formed to manage the Year 2000 project from a statewide perspective. The Year 2000 Project Team is responsible for prioritizing systems statewide, developing and maintaining statewide conversion schedules, analyzing third- party product compliance, maintaining a statewide Year 2000 repository, defining the overall conversion approach and milestones, reporting the status of statewide conversion projects, providing statewide communications and coordination, reporting the status of statewide Year 2000 funding and use, reporting the status of statewide quality assurance, developing and maintaining a statewide risk Crime Economic Development Year 2000 State of North Carolina 11 management plan, coordinating the Year 2000 budget process, maintaining an evolving cost estimate, and analyzing the automated tool offerings. Economic Condition and Outlook For the seventh straight year, both the national and North Carolina economies grew in 1998. At the national level, Gross Domestic Product, the broadest measure of economic activity, grew an estimated 3.2% during the year. Over three million jobs were added, and the national unemployment rate fell to a twenty- eight year low of 4.5%. The pace of economic activity in North Carolina exceeded that for the nation. Gross State Product, a measure of economic output in the State, rose by over 5% in 1998. The State’s job market also improved, with over 40,000 net new jobs added to the labor force. The State’s unemployment rate fell to 3.5%, and in the State’s metropolitan areas, unemployment dropped to under 2.5%. Economic growth in North Carolina was widespread across most economic sectors. One exception was the textile and apparel sector, where 11,000 jobs were cut in 1998. Inflation and interest rates were helpful to the economy in 1998. As the year ended, the annual inflation rate at the retail level was running under 2%, less than 1997’ s rate. Both long and short- term interest rates also fell over one percentage point during the year. The improved interest rate situation was helped by a turnaround in federal fiscal affairs. For the first time in twenty- nine years, the unified federal budget ran a surplus. Growth in federal revenues ( over 7% annually) exceeding growth in federal spending ( 3% annually) was the major reason for the surplus. The surplus reduced the need for borrowing by the federal government and reduced the pressure on interest rates. Despite this rosy economic news, clouds formed over the economy in 1998. Financial problems in several foreign countries, including Japan, contributed to sharp declines in the U. S. stock market. Thus, as 1998 came to a close, more and more decision- makers were questioning whether the long economic expansion was about to be overtaken by a recession. There are two major issues facing today’s economy. One is the financial and economic decline in several foreign countries, including Japan, Russia, South Korea, Indonesia, and Brazil. These countries are in recession and their stock markets have tumbled. The concern is that these economic problems will spread to the United States and North Carolina. Although the decline of foreign economies can adversely affect the U. S. through reduced export sales and failed investments, these impacts can be overstated. U. S. exports to the troubled foreign economies account for less than 3% of total U. S. income, and U. S. bank investments in the same countries are also less than 3% of total bank assets. These percentages are even smaller for North Carolina. Therefore, it is unlikely that the current foreign economic troubles will send the United States and North Carolina economies into tailspins. The other major economic issue is the prospect for faster rising labor costs. Due to the tight labor market, labor costs have been rising at faster rates for several years. For example, labor costs rose an estimated 3.5% in 1998, up from 3.1% in 1997 and 2.8% in 1996. Thus far, improved labor productivity has offset the additional labor costs. But many economists think this fortunate circumstance will not continue. If businesses are faced with higher labor costs and are not compensated by improved labor productivity, then three outcomes are possible. Business can pass on the higher costs in the form of higher prices, thereby generating higher general inflation. Or, business can reduce labor costs by dismissing workers. The third possibility is that businesses can absorb the higher labor costs and reduce profits. All three possibilities are not good for the economy. Each would cause the economy to grow at a slower rate. The outlook is that the economy will indeed grow more slowly in 1999. Nationally, Gross Domestic Product will grow 2.5%, and no net new jobs will be added to the national payrolls. In North Carolina, Gross State Product will increase 3.5%, and job growth will be 1.5 %, down from 1998’ s 2% growth rate. Condition Outlook 12 State of North Carolina As the economy slows in 1999, businesses making durable goods, like manufacturing and construction, will be the most adversely affected. For example, job growth in North Carolina’s manufacturing sector is expected to be only 0.6% in 1999. The real ( inflation- adjusted) value of residential construction in the State rose 14% in 1998, but is forecasted to rise only 5.5% in 1999. Pushed by faster climbing labor costs, the inflation rate is projected to rise to between 2% and 2.5% in 1999, up from 1998’ s rate of 1.6%. Interest rates will either change little or edge up slightly. In conclusion, an economic slowdown is forecasted for the nation and for North Carolina in 1999. An economic slowdown is not a recession. A recession means the economy actually shrinks; a slowdown means the economy continues to grow, albeit at a slower pace. North Carolina’s economy will move forward in 1999, but at a walk, not a trot! — Economic analysis prepared by Dr. Michael L. Walden, Professor North Carolina State University November 2, 1998 Financial Information Management of the government is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the State are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: ( 1) the cost of a control should not exceed the benefits likely to be derived, and ( 2) the valuation of costs and benefits requires estimates and judgments by management. As a recipient of federal financial assistance, the State also is responsible for ensuring that an adequate internal control structure is in place to ensure compliance with applicable laws and regulations related to those programs. This internal control structure is subject to periodic evaluation by management, internal audit staff, and independent auditors of the government. In addition, the State maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the General Assembly. Activities of the General Fund and most departmental special revenue funds are included in the annual appropriated budget. The State Highway Fund and the Highway Trust Fund, the State's major special revenue funds, are primarily budgeted on a multi- year basis. Capital projects are funded and planned in accordance with the time it will take to complete the project. The level of budgetary control ( that is, the level at which expenditures cannot legally exceed the appropriated amount) is exercised at both the departmental and university level by way of quarterly allotments, with allotment control exercised by the State Controller, and on the program line- item levels requiring certain approvals by the Director of the Budget. Legislative authorization of departmental expenditures appears in the State Appropriation Bill. This " Certified Budget" is the legal expenditure authority; however, executive changes to the legal budget may be approved by the Office of State Budget and Management ( OSBM). This results in the " Final Budget" presented in the financial statements. Although the State budgets and manages its financial affairs on the cash basis of accounting, G. S. 143- 20.1 requires the Office of the State Controller to prepare a comprehensive annual financial report ( CAFR) in accordance with generally accepted accounting principles ( GAAP). Furthermore, the Governmental Accounting Standards Board and the nation's financial community have encouraged states to present, in their annual reports, financial statements of the Internal Control Budgetary Control GAAP Accounting State of North Carolina 13 governmental funds that are prepared on the modified accrual basis of accounting, following generally accepted accounting principles. Under this basis, which more adequately serves the financial community's analytical and other needs, revenues are recognized when they become both measurable and available to finance operations of the fiscal year, or to liquidate liabilities existing at fiscal year- end. Generally, expenditures are recognized when a liability is incurred. Except for exhibits and notes clearly labeled otherwise, this CAFR has been prepared in accordance with GAAP. Results of Operations General Governmental Funds Revenues and other financing sources for general governmental functions ( General Fund, special revenue funds, and capital projects funds) amounted to $ 23.4 billion for the fiscal year ended June 30, 1998, using the modified accrual basis of accounting. The major categories of revenues and other financing sources are shown in the following table. Amounts are expressed in millions. Percent of Amount Total Revenues: Taxes..................................................................... $ 13,288 56.8% Federal funds.......................................................... 5,983 25.6% Local funds............................................................. 463 2.0% Investment earnings................................................. 576 2.5% Fees, licenses and fines.......................................... 826 3.5% Other..................................................................... 326 1.4% Total revenues........................................................... 21,462 91.8% Other Financing Sources: Operating transfers in and other sources..................... 1,232 5.3% Proceeds from bond sale........................................... 700 2.9% Total other financing sources...................................... 1,932 8.2% Total Revenues and Other Financing Sources........ $ 23,394 100.0% Tax Revenues. Tax revenues increased by $ 1.1 billion in 1998, reflecting a continuing favorable economic climate in North Carolina. Income tax collections increased by $ 800.2 million in 1998 to $ 7.1 billion, a 12.7% increase over 1997. Sales tax collections grew by $ 138 million in 1998, a 4.4% increase over 1997. Highway taxes were $ 1.477 billion in 1998, $ 89.9 million more than in 1997. Federal Funds. Federal funds revenues grew by $ 125 million in 1998, up by 2.1% over 1997. Increases in Federal revenues are due to increased Federal program expenditures for which the State is reimbursed. Revenues and Other Financing Sources 14 State of North Carolina Investment Earnings. Investment earnings reflect an increase of $ 121 million in 1998. Several factors contributed to this increase. In fiscal year 1998, the State implemented GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, which resulted in fair value accounting for investments, and an investment earnings increase of $ 7 million. Securities lending activity resulted in an increase of $ 40 million, while interest earnings on bond proceeds accounted for $ 51 million of the investment earnings increase. General growth in investment earnings accounts for the remaining increase of $ 23 million. The growth in 1998 can be directly attributed to the favorable investment climate through June 30, 1998, and the investment management strategies of the State Treasurer. Expenditures and other financing uses for general governmental purposes totaled $ 22.9 billion in 1998, using the modified accrual basis of accounting. The major categories of expenditures and other financing uses, by function, are shown in the following table. Amounts are expressed in millions. Percent of Expenditures: Amount Total Current: General government................................................. $ 1,116 4.9% Education............................................................... 5,416 23.7% Health and human services...................................... 7,300 31.9% Economic development............................................ 322 1.4% Environment and natural resources........................... 333 1.5% Public safety, corrections, and regulation.................. 1,579 6.9% Transportation......................................................... 2,384 10.4% Agriculture.............................................................. 69 0.3% Retiree tax judgments.............................................. 400 1.7% Capital outlay............................................................ 204 0.9% Debt service.............................................................. 170 0.7% Total expenditures..................................................... 19,293 84.3% Other Financing Uses: Operating transfers out.............................................. 1,218 5.3% Operating transfers to component units....................... 2,374 10.4% Total other financing uses.......................................... 3,592 15.7% Total Expenditures and Other Financing Uses........ $ 22,885 100.0% Significant changes in expenditures. The trend of increases in expenditures, an increase of $ 1.6 billion for 1998, was directly related to the continued emphasis on education, health and human services, and transportation. A large portion of the increase in governmental expenditures, retiree tax judgments, is the result of the North Carolina Supreme Court ruling in the Bailey case ( Note 18). On June 9, 1998, representatives of the State and the various retirees involved in the Bailey and Patton cases announced a settlement, which was later approved by the court, in the amount of $ 799 million. Of this amount, $ 400 million will be disbursed in refunds in fiscal year 1998- 99, and $ 399 million will be paid in refunds during fiscal year 1999- 2000. Educational expenditures increased by $ 640 million largely because of growth in dollars spent on State administered programs and the increasing costs associated with providing public education. Health and human services increased by $ 477 million in 1998 ($ 143 million when adjusted for reorganization), with this increase largely attributable to the reorganization of the State’s public health resources. An offsetting decrease in expenditures of $ 335 million occurred in expenditures for environment and natural resources. There was a decrease in spending for 1998 for public safety, corrections, and regulation of $ 35 million. This decrease compared to 1997 is the result of decreased emergency assistance payments ( hurricane relief) through June 30, 1998. Transportation expenditures increased in fiscal year 1998 by $ 179 million. Debt service will continue to climb, a $ 39 million increase from 1997 to 1998, as the State continues to issue general obligation debt to fund capital projects for education, highways and utilities. Additional information, in greater detail and for the past ten years, may be examined in the statistical section. Expenditures and Other Financing Uses State of North Carolina 15 General Fund The fund balance of the General Fund declined by $ 39 million in 1998. Although the growth in tax and other revenues once again exceeded expectations this year, which directly contributed to the strong condition of the General Fund at year end, expenditures and transfers out exceeded revenues and transfers in by $ 33.8 million. At June 30, 1998 the fund balance of the General Fund on the modified accrual basis was $ 1.665 billion, in comparison to a $ 1.704 billion balance at the end of 1997. The following chart illustrates the fund balances on the modified accrual ( GAAP) basis of the General Fund for the last ten fiscal years. FUND BALANCES OF THE GENERAL FUND ( GAAP basis) ( 300) ( 100) 100 300 500 700 900 1,100 1,300 1,500 1,700 1,900 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Reserved Unreserved Millions $ Fiscal Years 1994 to 1998 reflect implementation of GASB Statement No. 22, dealing with accrual of revenues. During the 1991 session, the General Assembly established a Savings Reserve Account as a restricted reserved portion of fund balance in the General Fund, becoming effective for the year ended June 30, 1992. Under this legislation, one- fourth of any unreserved credit balance ( defined by the General Statutes as "... the credit balance, as determined on a cash basis, not already reserved to the Savings Reserve Account.") remaining in the General Fund at the end of each fiscal year will be transferred to the Savings Reserve until the account contains funds equal to 5% of the amount appropriated to the General Fund operating budget for the preceding year. On June 30, 1998, $ 21.6 million was transferred into the Savings Reserve Account, bringing the total reserve to the 5% cap of $ 522.5 million. Summary of Savings Reserve Account ( in millions) : Increase/ Date Description ( Decrease) Balance Reserve - Budget Stabilization ( Rainy Day Fund) ........................................................... $ 0.4 $ 0.4 June 1992 Statutory Reservation - G. S. 143- 15.3 .............................. 41.2 41.6 June 1993 Statutory Reservation - G. S. 143- 15.3 .............................. 134.3 175.9 July 1993 Withdrawal from Reserve................................................... ( 121.0) 54.9 June 1994 Statutory Reservation - G. S. 143- 15.3 .............................. 155.7 210.6 January 1995 Budget Stabilization Appropriation..................................... 66.7 277.3 June 1995 Statutory Reservation - G. S. 143- 15.3 .............................. 146.3 423.6 June 1996 Statutory Reservation - G. S. 143- 15.3 .............................. 77.3 500.9 June 1997 Statutory Reservation - G. S. 143- 15.3 .............................. — 500.9 June 1998 Statutory Reservation - G. S. 143- 15.3 .............................. 21.6 $ 522.5 The 1993 General Assembly, in an effort to provide for the State's capital needs, established the Repairs and Renovations Reserve Account ( G. S. 143- 15.3A). Repairs and Renovations Reserve Account is defined to consist of 3.0% of the replacement value of all State buildings supported by the General Fund, at the end of each fiscal year. The funds in the Repairs GAAP Fund Balance Savings Reserve Repairs and Renovations Reserve 16 State of North Carolina and Renovations Reserve Account are to be used only for the repair and renovation of State buildings and related infrastructure that are supported by the General Fund. For fiscal year 1997- 98, the General Assembly placed $ 145 million into this reserve. The balance in the Repairs and Renovations Reserve at June 30, 1998 was $ 174.2 million. For fiscal year 1995- 96, the General Assembly established the Clean Water Management Trust Fund to finance projects to clean up or prevent surface water pollution ( G. S. 113- 145.3). The amount reserved in the General Fund each year is defined as 6.5% of any unreserved credit balance remaining in the General Fund at the end of the fiscal year or $ 30 million, whichever is greater. For the 1997- 98 fiscal year, $ 47.4 million was placed in this reserve. For fiscal year 1996- 97, the General Assembly established the Railroad Reserve Account. In order to help promote trade, industry, and transportation within the State of North Carolina and to advance the economic interests of the State and its citizens, the General Assembly determined it to be advantageous for the State to acquire the outstanding shares of the North Carolina Railroad Company not held by the State. At June 30, 1997, the amount of $ 61 million of the unreserved General Fund balance was placed in the Railroad Reserve Account. On April 1, 1998 the General Fund loaned the North Carolina Railroad Company $ 61 million for the retirement of non- State owned common stock shares of the Railroad. The $ 61 million will remain in reserve until the related debt is satisfied. At June 30, 1998, the balance in the reserve was $ 61 million. For the fiscal year 1997- 98, the General Assembly reserved $ 55 million of unexpended General Fund appropriations to be used by the Department of Public Instruction ( DPI) to fund public school employee performance bonuses, longevity payments, school bus purchases, and the purchase of additional school technology. Disproportionate share payments are Medicaid payments made to hospitals which serve a disproportionate share of indigent patients. This account was established to reserve for future appropriation any excess collection of disproportionate share revenues above those budgeted as departmental receipts or non- tax revenues. There was $ 35.4 million in this reserve at June 30, 1998. For the fiscal year 1997- 98, the General Assembly established the Work First Reserve Fund. At the end of each fiscal year, the State Controller shall reserve State funds in an amount equaling one- fourth of any Work First Program funds from General Fund appropriations remaining unexpended at the end of the fiscal year, up to a maximum balance in the account of $ 50 million. The General Assembly may appropriate additional funds into this reserve. The balance in this reserve at June 30, 1998 was $ 19.5 million. Other Funds Operating revenues and operating expenses for the State's enterprise funds were $ 23.7 million and $ 26.8 million, respectively, in 1998. Operating loss was $ 3.1 million. Combined operating results for the State's internal service funds exhibited continued strength in 1998. Operating revenues and expenses for these cost- reimbursement funds totaled $ 1.004 billion and $ 998 million, respectively, in 1998. Principal internal service fund operations include the State Health Plan, the Disability Income Plan, the Death Benefit Plan, Prison Clean Water Management Trust Fund North Carolina Railroad Acquisition DPI Allocation Disproportionate Share Work First Proprietary Funds State of North Carolina 17 Enterprises, the State Property Fire Insurance, Motor Fleet Management, Centralized Computing Services, and State Telecommunications. The operations of the Teachers' and State Employees' Retirement System continued its steady growth in 1998. The system's contributions increased by .6%. The system experienced a 10.4% increase in benefit payments to participants. For the fiscal year ended June 30, 1998, the State continued to fund the actuarial required contribution. The State also participates in the Consolidated Judicial Retirement System, the Legislative Retirement System, the Firemen's and Rescue Squad Workers' Pension Fund and the North Carolina National Guard Pension Fund. The Local Governmental Employees' Retirement System is administered by the State but the State is not a participant. Each of these systems continued to show a positive trend in funding. At June 30, 1998, the State had a number of debt issues outstanding. These issues included $ 2.1 billion in general obligation bonds, $ 1.3 billion in revenue bonds in the component unit proprietary funds and $ 839 million in revenue bonds in the university funds. North Carolina continues to have AAA bond ratings issued by Standard and Poor's Corporation and Moody's Investors Service, the highest ratings attainable. These favorable ratings have enabled the State to sell its bonds at interest rates considerably below the Bond Buyer's Index, thereby providing substantial savings to North Carolina taxpayers. North Carolina is one of only a very small number of states currently having the AAA ratings. In addition, approximately 25 percent of all AAA ratings for state and local governments nationwide are located in North Carolina. It is the policy of the State that all agencies, institutions, departments, bureaus, boards, commissions and officers of the State shall devise techniques and procedures for the receipt, deposit and disbursement of monies coming into their control and custody which are designed to maximize interest- bearing investment of cash, and to minimize idle and nonproductive cash balances. The State Controller, with the advice and assistance of the State Treasurer, the State Budget Officer, and the State Auditor, develops, implements, and amends the Statewide Cash Management Policy. All cash deposited with the State Treasurer by State entities is managed in pooled investment accounts to maximize interest earnings. During fiscal year 1998, uncommitted State funds were invested in short- term and medium- term U. S. Government notes and bonds, as well as other deposits, which had a composite average yield of 6.394%. The State has a limited risk management program for fire and other property losses. As part of this comprehensive plan, resources are being accumulated in an internal service fund to meet potential losses. See Note 12 of the Notes to the Financial Statements for a full description of the State's risk management program. Other Information In compliance with State statute, an annual financial audit of the State entity is completed each year by the North Carolina Office of the State Auditor. The Auditor's examination was conducted in accordance with generally accepted government auditing standards and his opinion has been included in this report. In addition, the State coordinates the " Single Audit" effort of all federal funds through the State Auditor. The Government Finance Officers Association of the United States and Canada ( GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the State of North Carolina for its comprehensive annual financial report ( CAFR) for the fiscal year ended June 30, 1997. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government financial reports. Pension Trust Funds Debt Administration Cash Management Risk Management Independent Audit Certificate of Achievement 18 State of North Carolina In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. The CAFR must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to GFOA. In conclusion, we believe this report provides useful data to all parties using it in evaluating the financial activity of the State of North Carolina. We in the Office of the State Controller express our appreciation to the financial officers throughout State government and to the Office of the State Auditor for their dedicated efforts in assisting us in the preparation of this report. Any questions concerning the information contained in this Comprehensive Annual Financial Report should be directed to the Office of the State Controller at ( 919) 981- 5454. Respectfully submitted, Edward Renfrow State Controller December 4, 1998 Acknowledgments State of North Carolina 19 General Governmental General, Special Revenue, and Capital Projects Funds For the Fiscal Year Ended June 30, 1998 Revenues and Other Financing Sources $ 23.394 billion Taxes $ 13,288 million 56% Fees, licenses, fines $ 826 million 4% Federal funds $ 5,983 million 26% Operating transfers in $ 1,233 million 5% Other $ 2,064 million 9% Expenditures and Other Financing Uses $ 22.885 billion Operating transfers out $ 1,218 million 5% Operating transfers to component units $ 2,374 million 10% Other $ 1,165 million 5% Education $ 5,416 million 24% Public safety, corrections, regulation $ 1,579 million 7% Health and human services $ 7,300 million 32% General government $ 1,116 million 5% ENR $ 333 million 2% Transportation $ 2,384 million 10% CERTIFICATE OF ACHIEVEMENT 22 State of North Carolina ORGANIZATION OF NORTH CAROLINA STATE GOVERNMENT INCLUDING PRINCIPAL STATE OFFICIALS EXECUTIVE BRANCH Council of State Governor James B. Hunt, Jr. Lieutenant Governor Dennis A. Wicker Secretary of State Elaine F. Marshall State Auditor Ralph Campbell, Jr. State Treasurer Harlan E. Boyles Superintendent of Public Instruction Dr. Michael E. Ward Attorney General Michael F. Easley Commissioner of Agriculture James A. Graham Commissioner of Labor Harry E. Payne, Jr. Commissioner of Insurance James E. Long Cabinet Secretaries — Appointed by the Governor Administration Katie G. Dorsett Correction Mack Jarvis Crime Control and Public Safety Richard H. Moore Cultural Resources Betty Ray McCain Commerce Rick Carlisle Environment & Natural Resources Wayne McDevitt Health and Human Services Dr. H. David Bruton Revenue Muriel K. Offerman Transportation E. Norris Tolson Appointed by Governor, confirmed by Legislature Office of the State Controller Edward Renfrow State Controller State Board of Education Phillip J. Kirk, Jr. Chairman H. Martin Lancaster President Molly C. Broad President Appointed by University Board of Governors Appointed by State Board of Community Colleges State of North Carolina 23 LEGISLATIVE BRANCH JUDICIAL BRANCH Component Units State of North Carolina Web Page http:// www. state. nc. us North Carolina Supreme Court Chief Justice Burley B. Mitchell, Jr. Associate Justices Henry E. Frye I. Beverly Lake, Jr. Robert F. Orr Sarah Parker John Webb Willis P. Whichard Administrative Office of the Courts Dallas A. Cameron, Jr. Director University of North Carolina System Community Colleges Proprietary Funds General Assembly Senate House of Representatives Speaker Harold J. Brubaker Speaker Pro Tempore Carolyn B. Russell Majority Leader N. Leo Daughtry Minority Leader James B. Black President Lieutenant Governor President Pro Tempore Marc Basnight Deputy Pres. Pro Tempore R. C. Soles, Jr. Majority Leader J. Richard Conder Minority Leader Betsy L. Cochrane 24 State of North Carolina THIS PAGE INTENTIONALLY LEFT BLANK. FINANCIAL SECTION 26 State of North Carolina State of North Carolina 27 28 State of North Carolina THIS PAGE INTENTIONALLY LEFT BLANK. GENERAL PURPOSE FINANCIAL STATEMENTS 30 State of North Carolina ALL FUND TYPES, ACCOUNT GROUPS, AND DISCRETELY PRESENTED COMPONENT UNITS COMBINED BALANCE SHEET June 30, 1998 ( Dollars in Thousands) Proprietary Governmental Fund Types Fund Types Special Capital Internal General Revenue Projects Enterprise Service ASSETS AND OTHER DEBITS Cash and cash equivalents ( Note 4)........................... $ 2,504,859 $ 2,409,353 $ 282,895 $ 29,123 $ 420,441 Investments ( Note 4).................................................. 3 ,019,561 1 ,044,896 — 41,632 6 71,024 Deposit with Federal government ( Note 4).................. — — — — — Receivables, net: Taxes receivable....................................................... 6 75,428 1 03,133 — — — Accounts receivable.................................................. 1 01,960 1 1,385 2 03 1,622 1 9,551 Intergovernmental receivables................................... 4 40,646 9 2,766 1 76 — 5 47 Interest receivable..................................................... 2 1,657 8 ,800 — 116 1 ,942 Premiums receivable................................................. — — — 812 4 97 Contributions receivable............................................ 1 4,519 — — — 5 ,044 Other receivables...................................................... — 6 ,962 — — — Due from other funds ( Note 8)..................................... 1 2,045 3 5,865 3 ,250 — 2 3,556 Due from component units ( Note 8)............................. 2 0,179 — — — 1 ,266 Due from primary government ( Note 8)....................... — — — — — Advances to component units ( Note 8)........................ 9 4,054 — — — — Notes receivable.......................................................... 4 97 1 12,371 — — — Inventories................................................................... 4 8,997 8 1,887 — 386 1 3,784 Food stamps............................................................... 9 3,695 — — — — Prepaid items.............................................................. 6 7 1 ,290 — 1,287 4 82 Fixed assets ( Note 5)................................................. — — — 23,225 1 65,678 Sureties....................................................................... — 3 2,802 — — — Amount available in other funds.................................. — — — — — Amount to be provided for retirement of general long- term obligations.............................. — — — — — Total Assets and Other Debits..................................... $ 7,048,164 $ 3,941,510 $ 286,524 $ 98,203 $ 1,323,812 LIABILITIES, FUND EQUITY AND OTHER CREDITS Liabilities: Accounts payable and accrued liabilities..................... $ 4 33,120 $ 2 33,036 $ 1 9,949 $ 267 $ 1 3,603 Tax refunds payable.................................................... 7 08,708 — — — — Obligations under securities lending............................ 2 ,958,149 1 ,022,734 — 17,443 2 99,771 Retiree tax judgements payable ( Note 7)..................... 4 00,000 — — — — Intangibles tax judgements payable ( Note 7)............... — — — — — Due to other funds ( Note 8)......................................... 2 3,939 4 1,758 7 0 9 2 ,900 Due to component units ( Note 8)................................. 4 ,278 4 6,984 2 21 — — Due to primary government ( Note 8)........................... — — — — — Advance from primary government ( Note 8)................ — — — — — Obligations under reverse repurchase agreements............................................................. — — — — — Contracts payable....................................................... — — — — — Notes payable ( Note 7)................................................ — — — 130 — Claims and benefits payable....................................... 4 44,171 5 5 — 9,024 3 46,622 Capital leases payable ( Note 6).................................. — — — — — Bonds payable ( Note 7).............................................. — — — — — Interest payable........................................................... — — — — — Deposits payable......................................................... — 9 3,837 7 ,700 — 6 3 Distributions payable................................................... — — — — — Accrued vacation leave............................................... — — — 300 2 ,876 Deferred revenue......................................................... 4 11,149 1 8,533 — 2,318 3 ,544 Total Liabilities............................................................ 5 ,383,514 1 ,456,937 2 7,940 29,491 6 69,379 Fund Equity and Other Credits: Contributed capital...................................................... — — — 36,365 5 8,850 Retained earnings....................................................... — — — 32,347 5 95,583 Investment in fixed assets........................................... — — — — — Fund balances: Reserved/ restricted ( Note 15).................................. 1 ,219,621 9 40,304 8 8,871 — — Unreserved/ unrestricted.......................................... 4 45,029 1 ,544,269 1 69,713 — — Total Fund Equity and Other Credits........................... 1 ,664,650 2 ,484,573 2 58,584 68,712 6 54,433 Total Liabilities, Fund Equity and Other Credits.................................................... $ 7,048,164 $ 3,941,510 $ 286,524 $ 98,203 $ 1,323,812 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 31 Exhibit A- 1 Fiduciary TOTAL TOTAL Fund Types Account Groups PRIMARY Component Units REPORTING General General GOVERNMENT ENTITY Trust and Fixed Long- Term ( Memorandum College and ( Memorandum Agency Assets Obligations only) Proprietary University only) $ 1 ,224,695 $ — $ — $ 6 ,871,366 $ 2 05,518 $ 1 ,551,580 $ 8,628,464 5 5,687,867 — — 6 0,464,980 7 62,590 2 ,561,331 63,788,901 1 ,285,741 — — 1 ,285,741 — — 1,285,741 2 03,260 — — 9 81,821 — — 981,821 1 5,155 — — 1 49,876 1 7,979 2 04,093 371,948 7 ,792 — — 5 41,927 8 ,135 1 18,841 668,903 8 ,147 — — 4 0,662 2 0,946 1 1,547 73,155 — — — 1 ,309 — — 1,309 1 27,847 — — 1 47,410 — — 147,410 — — — 6 ,962 — — 6,962 5 ,349 — — 8 0,065 — 6 6,637 146,702 — — — 2 1,445 — 1 ,753 23,198 — — — — 1 3,494 5 1,288 64,782 2 5,000 — — 1 19,054 — — 119,054 3 37,296 — — 4 50,164 1 ,300,877 8 4,127 1,835,168 1 ,433 — — 1 46,487 8 02 5 2,500 199,789 — — — 9 3,695 — — 93,695 — — — 3 ,126 5 ,552 7 ,744 16,422 — 3 ,178,549 — 3 ,367,452 1 88,374 5 ,772,790 9,328,616 5 08,872 — — 5 41,674 — — 541,674 — — 1 03 1 03 — — 1 03 — — 3 ,058,990 3 ,058,990 — — 3,058,990 $ 5 9,438,454 $ 3 ,178,549 $ 3 ,059,093 $ 7 8,374,309 $ 2 ,524,267 $ 10,484,231 $ 91,382,807 $ 5 38,041 $ — $ — $ 1 ,238,016 $ 2 8,037 $ 1 88,667 $ 1,454,720 — — — 7 08,708 — — 708,708 4 ,104,051 — — 8 ,402,148 1 70,406 7 26,748 9,299,302 — — 3 99,000 7 99,000 — — 799,000 — — 3 33,000 3 33,000 — — 333,000 1 1,389 — — 8 0,065 — 6 6,637 146,702 1 3,299 — — 6 4,782 1 13 1 ,640 66,535 — — — — 1 6,843 3 ,686 20,529 — — — — 5 8,054 — 58,054 — — — — — 1 61,152 161,152 — — — — 7 ,395 — 7,395 — — 4 ,166 4 ,296 9 2,022 4 3,520 139,838 1 63,592 — 7 ,401 9 70,865 1 6 3 9,014 1,009,895 — — 1 90 1 90 3 ,277 4 96 3,963 — — 2 ,123,944 2 ,123,944 1 ,328,636 8 38,993 4,291,573 — — — — 1 9,938 1 2,409 32,347 7 33,473 — — 8 35,073 6 2 3 96,447 1,231,582 1 ,454 — — 1 ,454 — — 1,454 — — 1 91,392 1 94,568 1 ,500 1 29,422 325,490 6 6,865 — — 5 02,409 7 ,903 2 5,962 536,274 5 ,632,164 — 3 ,059,093 1 6,258,518 1 ,734,202 2 ,634,793 20,627,513 — — — 9 5,215 2 03,496 — 298,711 — — — 6 27,930 5 86,569 — 1,214,499 — 3 ,178,549 — 3 ,178,549 — 4 ,977,606 8,156,155 5 2,164,871 — — 5 4,413,667 — 1 ,560,829 55,974,496 1 ,641,419 — — 3 ,800,430 — 1 ,311,003 5,111,433 5 3,806,290 3 ,178,549 — 6 2,115,791 7 90,065 7 ,849,438 70,755,294 $ 5 9,438,454 $ 3 ,178,549 $ 3 ,059,093 $ 7 8,374,309 $ 2 ,524,267 $ 10,484,231 $ 91,382,807 32 State of North Carolina ALL GOVERNMENTAL FUND TYPES AND EXPENDABLE TRUST FUNDS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES For the Fiscal Year Ended June 30, 1998 Exhibit A- 2 ( Dollars in Thousands) Fiduciary Governmental Fund Types Fund Type TOTALS Special Capital Expendable ( Memorandum General Revenue Projects Trust only) Revenues: Taxes............................................................. $ 11,679,679 $ 1,607,930 $ — $ 285,772 $ 1 3,573,381 Federal funds................................................ 5,174,406 801,975 6 ,622 9,342 5 ,992,345 Local funds.................................................... 436,347 26,515 1 7 273 4 63,152 Investment earnings...................................... 447,669 128,232 — 409,444 9 85,345 Interest earnings on loans............................. — 5,676 — 6,640 1 2,316 Sales and services........................................ 67,533 16,037 5 17 29,199 1 13,286 Sale, rental, and lease of property................ 6,066 20,015 2 40 502 2 6,823 Fees, licenses, and fines............................... 244,674 581,817 — 8,871 8 35,362 Contributions, gifts, and grants...................... 13,206 29,194 1 8,789 193,520 2 54,709 Funds escheated........................................... — — — 18,866 1 8,866 Miscellaneous................................................ 137,269 11,426 9 9 413 1 49,207 Total revenues............................................... 18,206,849 3,228,817 2 6,284 962,842 2 2,424,792 Expenditures: Current: General government.................................. 1,079,048 36,715 — 12,686 1 ,128,449 Education.................................................. 5,017,690 398,796 — 19,287 5 ,435,773 Health and human services....................... 7,255,348 44,914 — 1,923 7 ,302,185 Economic development............................. 122,032 199,581 — — 3 21,613 Environment and natural resources................................... 206,945 125,858 — 8,986 3 41,789 Public safety, corrections, and regulation.. 1,403,276 175,709 — 29,451 1 ,608,436 Transportation........................................... — 2,384,455 — — 2 ,384,455 Agriculture................................................. 68,289 284 — 4,901 7 3,474 Claims and benefits................................... — — — 473,353 4 73,353 Retiree tax judgements............................. 400,000 — — — 4 00,000 Capital outlay................................................. — — 2 03,605 — 2 03,605 Debt service: Bond principal retirement.......................... 91,585 — — — 9 1,585 Bond interest............................................. 73,229 5,225 — — 7 8,454 Total expenditures......................................... 15,717,442 3,371,537 2 03,605 550,587 1 9,843,171 Excess revenues over ( under) expenditures.............................................. 2,489,407 ( 142,720) ( 177,321) 412,255 2 ,581,621 Other Financing Sources ( Uses): Operating transfers in.................................... 291,221 756,309 1 68,019 20,581 1 ,236,130 Operating transfers from component units................................. 14,692 724 1 ,207 — 1 6,623 Operating transfers out.................................. ( 470,456) ( 745,267) ( 2,030) ( 15,739) ( 1,233,492) Operating transfers to component units..................................... ( 2,358,657) ( 15,190) ( 350) ( 13,299) ( 2,387,496) Proceeds from bond sale.............................. — 700,000 — — 7 00,000 Total other financing sources ( uses)............. ( 2,523,200) 696,576 1 66,846 ( 8,457) ( 1,668,235) Excess revenues and other sources over ( under) expenditures and other uses......... ( 33,793) 553,856 ( 10,475) 403,798 9 13,386 Fund balances — July 1 ( Note 16)................ 1,707,418 1,936,458 2 80,444 3,349,203 7 ,273,523 Restatements ( Note 16)................................ 384 ( 210) — ( 1) 1 73 Residual equity transfers in ( Note 17)........... 55 37 — — 9 2 Residual equity transfers out ( Note 17)......... ( 9,769) ( 9,943) ( 11,385) ( 151) ( 31,248) Increase ( decrease) in reserve for related assets............................................. 355 4,375 — 100 4 ,830 Fund balances — June 30............................ $ 1,664,650 $ 2,484,573 $ 2 58,584 $ 3,752,949 $ 8 ,160,756 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 33 GENERAL FUND AND SPECIAL REVENUE FUNDS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN UNRESERVED FUND BALANCES — BUDGET AND ACTUAL ( BUDGETARY BASIS — NON- GAAP) For the Fiscal Year Ended June 30, 1998 Exhibit A- 3 ( Dollars in Thousands) General Fund Special Revenue Funds Variance- Variance- Final Favorable Final Favorable Budget Actual ( Unfavorable) Budget Actual ( Unfavorable) Revenues: Taxes: Individual income....................................... $ 5,546,500 $ 6,028,870 $ 4 82,370 $ — $ — $ — Corporate income...................................... 679,600 696,339 16,739 — — — Sales and use............................................ 3,249,100 3,255,372 6,272 — — — Franchise................................................... 409,900 407,257 ( 2,643) — — — Insurance................................................... 269,700 283,763 14,063 — — — Beverage.................................................... 152,700 153,724 1,024 — — — Intangibles................................................. — 320 320 — — — Other.......................................................... 253,800 266,802 13,002 — — — Non- Tax: Fees, licenses and fines............................. 116,800 112,790 ( 4,010) — — — Investment income..................................... 237,400 248,131 10,731 — — — Other.......................................................... 95,500 91,161 ( 4,339) — — — Transfers in...................................................... 182,600 182,600 — — — — Departmental: Federal funds............................................. 5,301,525 4,817,261 ( 484,264) 293,907 2 27,940 ( 65,967) Local funds................................................ 710,088 592,637 ( 117,451) 13,210 1 1,919 ( 1,291) Inter- agency grants and allocations........... 34,354 4,516 ( 29,838) 23,782 1 7,669 ( 6,113) Intra- governmental transactions................. 1,906,252 1,739,009 ( 167,243) 425,365 4 06,873 ( 18,492) Sales and services..................................... 64,421 66,499 2,078 11,786 1 2,785 9 99 Sale, rental and lease of property.............. 4,425 4,321 ( 104) 2,161 3 ,659 1 ,498 Fees, licenses and fines............................. 101,748 102,310 562 89,919 9 7,187 7 ,268 Contributions, gifts and grants................... 42,357 32,423 ( 9,934) 1,527 1 ,469 ( 58) Miscellaneous............................................ 73,517 52,972 ( 20,545) 14,924 1 0,883 ( 4,041) Universities...................................................... 472,182 457,332 ( 14,850) 87,449 8 7,801 3 52 Total Revenues................................................ 19,904,469 19,596,409 ( 308,060) 964,030 8 78,185 ( 85,845) Expenditures: Current: General government.................................. 552,558 534,563 17,995 154,603 7 7,972 7 6,631 Education................................................... 6,341,188 6,208,442 132,746 — — — Health and human services........................ 8,631,327 8,158,386 472,941 74,134 6 3,530 1 0,604 Environment and natural resources............................................... 281,513 252,300 29,213 157,645 1 33,396 2 4,249 Economic development.............................. 197,850 164,695 33,155 280,942 2 15,246 6 5,696 Public safety, corrections, and regulation... 1,760,590 1,490,821 269,769 260,153 2 33,123 2 7,030 Transportation............................................ 10,610 10,610 — — — — Agriculture.................................................. 75,791 70,706 5,085 — — — Capital outlay................................................... 327,252 327,252 — — — — Debt service..................................................... 166,035 164,814 1,221 — — — Universities...................................................... 1,951,989 1,922,830 29,159 124,492 8 8,975 3 5,517 Total Expenditures........................................... 20,296,703 19,305,419 991,284 1,051,969 8 12,242 2 39,727 Excess revenues over ( under) expenditures.............................................. ( 392,234) 290,990 683,224 ( 87,939) 6 5,943 1 53,882 Transfers from reserves ( Note 2C)................... 174,545 174,545 — — — — Transfers to reserves ( Note 2C)....................... — ( 268,995) ( 268,995) — — — Unreserved fund balances ( budgetary basis) at July 1, 1997................................. 318,690 318,690 — 192,498 1 92,498 — Unreserved fund balances ( budgetary basis) at June 30, 1998 ( Note 2B).............. $ 101,001 $ 515,230 $ 4 14,229 $ 104,559 $ 2 58,441 $ 1 53,882 The accompanying Notes to the Financial Statements are an integral part of this statement. 34 State of North Carolina ALL PROPRIETARY FUND TYPES, SIMILAR TRUST FUNDS, AND DISCRETELY PRESENTED COMPONENT UNITS COMBINED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND EQUITY For the Fiscal Year Ended June 30, 1998 ( Dollars in Thousands) TOTAL Fiduciary PRIMARY Proprietary Fund Types Fund Types GOVERNMENT Internal Nonexpendable ( Memorandum Enterprise Service Trust only) Operating Revenues: Sales and services.......................................................... $ 1,256 $ 2 68,310 $ 423 $ 2 69,989 Federal funds.................................................................. — — 25,273 2 5,273 Investment earnings........................................................ 5,687 8 5,328 13,661 1 04,676 Interest earnings on loans............................................... — — 7,271 7 ,271 Rental and lease earnings.............................................. 3,566 1 1 — 3 ,577 Fees, licenses and fines.................................................. 6,474 1 ,043 1,314 8 ,831 Contributions................................................................... — 6 5,459 4 6 5,463 Insurance premiums........................................................ 6,713 5 81,613 — 5 88,326 Miscellaneous.................................................................. 22 2 ,505 219 2 ,746 Total operating revenues................................................. 23,718 1 ,004,269 48,165 1 ,076,152 Operating Expenses: Personal services............................................................ 5,547 5 0,622 14 5 6,183 Supplies and materials.................................................... 534 1 3,548 5 1 4,087 Services........................................................................... 4,175 8 1,337 9 8 5,521 Interest............................................................................ 847 1 5,693 2,887 1 9,427 Cost of goods sold.......................................................... 465 3 8,983 — 3 9,448 Depreciation/ amortization................................................ 1,458 2 9,131 — 3 0,589 Grants to local governments........................................... — — 2,788 2 ,788 Claims and benefits......................................................... 10,152 7 31,608 — 7 41,760 Insurance and bonding.................................................... 2,579 1 0,916 — 1 3,495 Other............................................................................... 1,063 2 6,024 445 2 7,532 Total operating expenses................................................ 26,820 9 97,862 6,148 1 ,030,830 Operating income ( loss).................................................. ( 3,102) 6 ,407 42,017 4 5,322 Net Nonoperating Revenues ( Expenses)............ 334 1 06 — 4 40 Income ( loss) before operating transfers........................ ( 2,768) 6 ,513 42,017 4 5,762 Operating Transfers: Transfers in..................................................................... 290 2 ,822 14,499 1 7,611 Transfers from component units...................................... — — — — Transfers from primary government................................ — — — — Transfers out................................................................... ( 127) ( 16,941) ( 3,181) ( 20,249) Transfers to primary government.................................... — — — — Total operating transfers in ( out)..................................... 163 ( 14,119) 11,318 ( 2,638) Net income ( loss)............................................................ ( 2,605) ( 7,606) 53,335 4 3,124 Excess of revenues over ( under) expenditures from governmental operations.............................................. — — — — Fund equity — July 1 ( Note 16)....................................... 64,968 6 61,422 358,737 1 ,085,127 Restatements ( Note 16).................................................. — 5 73 ( 20) 5 53 Increase ( decrease) in contributed capital...................... 6,349 4 4 — 6 ,393 Fund equity — June 30................................................... $ 68,712 $ 6 54,433 $ 412,052 $ 1 ,135,197 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 35 Exhibit A- 4 TOTAL Component REPORTING Units ENTITY Proprietary ( Memorandum Fund Types only) $ 57,416 $ 3 27,405 — 2 5,273 44,943 1 49,619 98,293 1 05,564 5,556 9 ,133 183 9 ,014 — 6 5,463 — 5 88,326 6,245 8 ,991 212,636 1 ,288,788 40,083 9 6,266 11,688 2 5,775 30,273 1 15,794 85,164 1 04,591 — 3 9,448 18,170 4 8,759 — 2 ,788 631 7 42,391 1,529 1 5,024 13,171 4 0,703 200,709 1 ,231,539 11,927 5 7,249 ( 66,270) ( 65,830) ( 54,343) ( 8,581) — 1 7,611 9,531 9 ,531 113,621 1 13,621 — ( 20,249) ( 51) ( 51) 123,101 1 20,463 68,758 1 11,882 ( 1,086) ( 1,086) 707,920 1 ,793,047 ( 7,452) ( 6,899) 21,925 2 8,318 $ 790,065 $ 1 ,925,262 36 State of North Carolina ALL PROPRIETARY FUND TYPES, NONEXPENDABLE TRUST FUNDS, AND DISCRETELY PRESENTED COMPONENT UNITS COMBINED STATEMENT OF CASH FLOWS For the Fiscal Year Ended June 30, 1998 ( Dollars in Thousands) TOTAL Fiduciary PRIMARY Proprietary Fund Types Fund Types GOVERNMENT Internal Nonexpendable ( Memorandum Enterprise Service Trust Funds only) Cash Provided From ( Used For) Operations: Operating income ( loss)........................................................... $ ( 3,102) $ 6 ,407 $ 4 2,017 $ 4 5,322 Adjustments to reconcile operating income to net cash flows from operating activities: Depreciation/ amortization.................................................. 1 ,458 2 9,131 — 3 0,589 Investment earnings........................................................... ( 5,687) ( 85,328) ( 13,661) ( 104,676) Securities lending fees....................................................... 8 47 1 5,692 2 ,887 1 9,426 Construction projects expensed......................................... — — — — Mortgage/ loan/ note principal repayments........................... — — 1 5,421 1 5,421 Loan sales......................................................................... — — — — Mortgages/ loans/ notes issued............................................ — — ( 39,064) ( 39,064) Mortgage/ loan/ note cancellation and writeoffs.................... — — — — Allowances and uncollectible accounts.............................. — — — — Restatements and adjustments to cash............................. 3 5 6 09 6 7 7 11 Development stage expense.............................................. — — — — Nonoperating miscellaneous income/ expense................... ( 62) 1 67 — 1 05 Interest expense................................................................ — — — — ( Increases) decreases in assets: Receivables....................................................................... 5 ,468 ( 4,028) ( 34) 1 ,406 Due from other funds......................................................... — ( 4,454) — ( 4,454) Due from component units................................................. — ( 32) — ( 32) Due from primary government............................................ — — — — Inventories......................................................................... 1 5 ( 1,747) — ( 1,732) Prepaid items..................................................................... 3 53 ( 279) — 7 4 Increases ( decreases) in liabilities: Accounts payable and accrued liabilities............................ 4 8 2 ,838 ( 262) 2 ,624 Due to other funds............................................................. ( 1) 1 52 — 1 51 Due to component units..................................................... — ( 2,197) — ( 2,197) Due to primary government................................................ — — — — Claims and benefits payable.............................................. 1 ,158 2 1,017 — 2 2,175 Contracts payable.............................................................. — — — — Deposits payable............................................................... — 2 — 2 Accrued vacation leave...................................................... 3 5 1 97 — 2 32 Deferred revenue............................................................... 2 74 4 82 — 7 56 Total cash provided from ( used for) operations........................ 8 39 ( 21,371) 7 ,371 ( 13,161) Cash Provided From ( Used For) Noncapital Financing Activities: Proceeds from sale of bonds/ notes.......................................... — — — — Repayment of bond/ note principal............................................ — — — — Interest payments on bonds and notes.................................... — — — — Bond issuance cost.................................................................. — — — — Grants...................................................................................... — — — — Grants, aid and subsidies......................................................... — — — — Operating transfers in............................................................... 2 90 2 ,822 1 4,499 1 7,611 Operating transfers from component units............................... — — — — Operating transfers from primary government.......................... — — — — Operating transfers out............................................................ ( 12) ( 16,940) ( 3,181) ( 20,133) Operating transfers to primary government.............................. — — — — Advance from primary government.......................................... — — — — Nonoperating cash donations................................................... 1 72 — — 1 72 Increase in contributed capital.................................................. 4 ,614 — — 4 ,614 Decrease in contributed capital................................................ — — — — Long term contract payments .................................................. — — — — Total cash provided from ( used for) noncapital financing activities............................................... 5 ,064 ( 14,118) 1 1,318 2 ,264 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 37 Exhibit A- 5 TOTAL Component REPORTING Units ENTITY Proprietary ( Memorandum Fund Types only) $ 1 1,927 $ 5 7,249 1 8,170 4 8,759 ( 44,943) ( 149,619) 5 ,657 2 5,083 5 5 1 11,852 1 27,273 1 ,140 1 ,140 ( 308,890) ( 347,954) 6 ,984 6 ,984 1 ,944 1 ,944 ( 5,873) ( 5,162) ( 2,969) ( 2,969) 1 ,105 1 ,210 5 5,835 5 5,835 ( 8,732) ( 7,326) — ( 4,454) — ( 32) 1 08 1 08 ( 48) ( 1,780) ( 323) ( 249) 2 ,010 4 ,634 — 1 51 ( 58) ( 2,255) ( 10) ( 10) — 2 2,175 4 ,652 4 ,652 ( 259) ( 257) 1 66 3 98 ( 360) 3 96 ( 150,910) ( 164,071) 3 27,400 3 27,400 ( 103,040) ( 103,040) ( 61,159) ( 61,159) ( 2,787) ( 2,787) 3 ,398 3 ,398 ( 70,114) ( 70,114) — 1 7,611 9 ,531 9 ,531 1 13,621 1 13,621 — ( 20,133) ( 51) ( 51) 2 ,427 2 ,427 3 ,699 3 ,871 5 00 5 ,114 ( 3,898) ( 3,898) ( 4,115) ( 4,115) 2 15,412 2 17,676 Continued 38 State of North Carolina ALL PROPRIETARY FUND TYPES, NONEXPENDABLE TRUST FUNDS, AND DISCRETELY PRESENTED COMPONENT UNITS COMBINED STATEMENT OF CASH FLOWS ( continued) For the Fiscal Year Ended June 30, 1998 ( Dollars in Thousands) TOTAL Fiduciary PRIMARY Proprietary Fund Types Fund Types GOVERNMENT Internal Nonexpendable ( Memorandum Enterprise Service Trust Funds only) Cash Provided From ( Used For) Capital Financing Activities: Acquisition of fixed assets........................................................ ( 91) ( 38,748) — ( 38,839) Proceeds from the sale of fixed assets.................................... 1 9 2 ,817 — 2 ,836 Proceeds from sale of bonds/ notes.......................................... — — — — Repayment of bond/ note principal............................................ ( 40) — — ( 40) Interest payments on bonds, notes and capital leases............. ( 11) — — ( 11) Bond issuance cost.................................................................. — — — — Operating transfers out............................................................ ( 115) — — ( 115) Capital grants........................................................................... — — — — Principal payment on capital leases......................................... — — — — Dredging costs......................................................................... — — — — Total cash provided from ( used for).......................................... capital financing activities..................................................... ( 238) ( 35,931) — ( 36,169) Cash Provided From ( Used For) Investment Activities: Proceeds from the sale/ maturities of non- State Treasurer investments......................................................... 5 42 — 1 37 6 79 Redemptions from the State Treasurer Long- Term Investment Pool................................................. — 2 ,000 3 ,251 5 ,251 Purchase of non- State Treasurer investments......................... ( 811) — ( 126) ( 937) Purchase into State Treasurer Long- Term Investment Pool................................................. ( 7,500) ( 8,600) ( 1,470) ( 17,570) Investment earnings................................................................. 1 ,447 2 5,229 4 ,744 3 1,420 Total cash provided from ( used for) investment activities............................................................. ( 6,322) 1 8,629 6 ,536 1 8,843 Net increase ( decrease) in cash and cash equivalents........................................................... ( 657) ( 52,791) 2 5,225 ( 28,223) Deficit from governmental operations....................................... — — — — Cash and cash equivalents at July 1........................................ 2 9,780 4 73,232 8 2,508 5 85,520 Cash and cash equivalents at June 30..................................... $ 2 9,123 $ 4 20,441 $ 1 07,733 $ 557,297 Noncash Investing, Capital, and Financing Activities: Noncash distributions from the State Treasurer Long- Term Investment Pool................................................. $ 3 ,401 $ 4 4,636 $ 5 ,869 $ 5 3,906 Increase in contributed capital.................................................. 1 ,826 5 2 — 1 ,878 Decrease in contributed capital................................................ ( 91) ( 8) — ( 99) Assets acquired through the assumption of a liability.................................................................................. 1 7,443 2 99,771 7 4,069 3 91,283 Interest expense on advance from primary government.......................................................................... — — — — Cash and cash equivalents in the Fiduciary Fund Types on the Combined Balance Sheet include: Expendable Trust Funds........................................................ $ 4 09,311 Nonexpendable Trust Funds.................................................. 1 07,733 Pension Trust Funds.............................................................. 9 9,517 Investment Trust Fund........................................................... 3 ,959 Agency Funds........................................................................ 6 04,175 Total....................................................................................... $ 1 ,224,695 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 39 Exhibit A- 5 TOTAL Component REPORTING Units ENTITY Proprietary ( Memorandum Fund Types only) ( 45,206) ( 84,045) 4 ,220 7 ,056 6 3,360 6 3,360 ( 4,483) ( 4,523) ( 3,483) ( 3,494) ( 1,898) ( 1,898) — ( 115) 2 1,872 2 1,872 ( 3,730) ( 3,730) ( 337) ( 337) 3 0,315 ( 5,854) 5 07,616 5 08,295 — 5 ,251 ( 621,622) ( 622,559) ( 442) ( 18,012) 3 4,239 6 5,659 ( 80,209) ( 61,366) 1 4,608 ( 13,615) 1 ,086 1 ,086 1 89,824 7 75,344 $ 2 05,518 $ 7 62,815 $ 7 ,181 $ 6 1,087 — 1 ,878 — ( 99) 6 1,210 4 52,493 4 ,966 4 ,966 40 State of North Carolina PENSION TRUST FUNDS COMBINING STATEMENT OF PLAN NET ASSETS DEFINED BENEFIT PENSION PLANS June 30, 1998 Exhibit A- 6 ( Dollars in Thousands) Firemen's and North Teachers' Rescue Carolina Local and State Consolidated Squad National Governmental Employees' Judicial Legislative Workers' Guard Employees' Retirement Retirement Retirement Pension Pension Retirement System System System Fund Fund System Totals ASSETS Cash and cash equivalents............... $ 8 7,891 $ 5 61 $ 190 $ 268 $ 1 98 $ 10,409 $ 99,517 Receivables: Accounts receivable...................... 212 — — — — 2 02 414 Interest receivable......................... 470 3 1 3 1 3 03 781 Contributions receivable................ 9 2,389 9 16 87 — — 24,573 117,965 Investments, at fair value: State Treasurer investment pool... 4 1,849,894 3 10,446 24,034 2 29,701 4 2,103 10,389,827 52,846,005 Total Assets....................................... 4 2,030,856 3 11,926 24,312 2 29,972 4 2,302 10,425,314 53,064,682 LIABILITIES Obligations under securities lending......................... 2 ,850,420 2 1,233 1,799 15,704 3 ,073 711,399 3,603,628 Due to other funds............................. — — — 1 — — 1 Benefits payable................................ 1 26,275 — — — 1 9 8 126,374 Total Liabilities................................... 2 ,976,695 2 1,233 1,799 15,705 3 ,074 711,497 3,730,003 Fund Balance Reserved for employees' pension benefits ( Note 15)............ $ 3 9,054,161 $ 290,693 $ 22,513 $ 2 14,267 $ 3 9,228 $ 9,713,817 $ 49,334,679 A schedule of funding progress for each plan is presented on page 110 . The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 41 PENSION TRUST FUNDS COMBINING STATEMENT OF CHANGES IN PLAN NET ASSETS DEFINED BENEFIT PENSION PLANS For the Fiscal Year Ended June 30, 1998 Exhibit A- 7 ( Dollars in Thousands) Firemen's and North Teachers' Rescue Carolina Local and State Consolidated Squad National Governmental Employees' Judicial Legislative Workers' Guard Employees' Retirement Retirement Retirement Pension Pension Retirement System System System Fund Fund System Totals Additions: Contributions: Employer.................................... $ 616,736 $ 8 ,487 $ 801 $ — $ — $ 149,826 $ 775,850 Plan members............................ 488,212 2 ,466 257 2 ,781 — 180,474 674,190 Other contributions..................... — — — 1 1,735 2,533 — 14,268 Total contributions........................ 1,104,948 1 0,953 1,058 1 4,516 2,533 330,300 1,464,308 Investment Income: Investment earnings................... 6,512,033 4 8,109 3,662 3 5,162 6,355 1,607,972 8,213,293 Less investment expenses......... ( 161,473) ( 1,207) ( 100) ( 853) ( 167) ( 41,641) ( 205,441) Net investment income.............. 6,350,560 4 6,902 3,562 3 4,309 6,188 1,566,331 8,007,852 Fees, licenses and fines.............. — — — — — 4,590 4,590 Miscellaneous additions............... 1,379 — — 2 — 18 1,399 Total additions.............................. 7,456,887 5 7,855 4,620 4 8,827 8,721 1,901,239 9,478,149 Deductions: Administrative expense................ 4,531 4 0 4 3 54 1 9 1,617 6,565 Benefits........................................ 1,369,233 1 1,260 945 1 2,262 1,703 265,793 1,661,196 Refund of contributions................ 73,855 1 06 17 3 22 — 50,698 124,998 Total deductions........................... 1,447,619 1 1,406 966 1 2,938 1,722 318,108 1,792,759 Net increase ( decrease) 6,009,268 4 6,449 3,654 3 5,889 6,999 1,583,131 7,685,390 Fund balance reserved for employees' pension benefits Beginning of the year ( Note 16)... 33,044,893 2 44,244 1 8,859 178,378 32,229 8,130,686 41,649,289 End of year................................... $ 39,054,161 $ 2 90,693 $ 2 2,513 $ 214,267 $ 39,228 $ 9,713,817 $ 49,334,679 The accompanying Notes to the Financial Statements are an integral part of this statement. 42 State of North Carolina INVESTMENT TRUST FUND STATEMENT OF NET ASSETS June 30, 1998 Exhibit A- 8 ( Dollars in Thousands) Investment Trust Fund ASSETS Cash and cash equivalents.........................................$ 3,959 Investments................................................................. 509,527 Receivables: Interest receivable................................................... 4,063 Total Assets................................................................ 517,549 LIABILITIES Obligations under securities lending................................................... 209,485 Distributions payable................................................... 1,454 Total Liabilities............................................................ 210,939 NET ASSETS Held in trust for pool participants....................................................... $ 306,610 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 43 INVESTMENT TRUST FUND STATEMENT OF CHANGES IN NET ASSETS For the Fiscal Year Ended June 30, 1998 Exhibit A- 9 ( Dollars in Thousands) Investment Trust Fund Net increase in net assets resulting from operations: Revenues: Investment income................................................................ $ 2 7,083 Expenses: Investment expenses............................................................ 9 ,590 Net increase in net assets resulting from operations.............. 1 7,493 Distributions to participants: Distributions paid and payable................................................ ( 17,493) Share transactions: Reinvestment of distributions.................................................. 1 7,424 Net share purchases/( redemptions)........................................ 3 ,806 Total increase in net assets..................................................... 2 1,230 Net assets: Beginning of the year ( Note 16)............................................... 2 85,380 End of the year........................................................................ $ 3 06,610 The accompanying Notes to the Financial Statements are an integral part of this statement. 44 State of North Carolina COMPONENT UNITS — COLLEGE AND UNIVERSITY FUNDS COMBINED STATEMENT OF CHANGES IN FUND EQUITY For the Fiscal Year Ended June 30, 1998 Exhibit A- 10 ( Dollars in Thousands) Revenues and Other Additions: Tuition and fees..................................................................................................... $ 404,072 Federal appropriations........................................................................................... 21,937 County appropriations............................................................................................ 112,378 Federal contracts and grants................................................................................. 600,400 State contracts and grants..................................................................................... 78,231 Local contracts and grants..................................................................................... 45,108 Private gifts, contracts and grants......................................................................... 298,905 Endowment income............................................................................................... 21,052 Sales and services................................................................................................. 821,839 Investment earnings.............................................................................................. 175,092 Expended for plant facilities................................................................................... 460,016 Retirement of indebtedness................................................................................... 26,250 Proceeds of refunding debt.................................................................................... 75,113 Income from hospital operations............................................................................ 470,579 Other revenues and additions................................................................................ 46,256 Total Revenues and Other Additions..................................................................... 3,657,228 Expenditures and Other Deductions: Educational and general........................................................................................ 3,390,568 Auxiliary enterprises.............................................................................................. 474,293 Internal service...................................................................................................... 33,991 Independent operations......................................................................................... 12,060 Professional clinical services................................................................................. 208,085 Indirect cost recovered.......................................................................................... 86,050 Refunded to grantors............................................................................................. 866 Administrative and collection costs, loan cancellation and bad debts........................................................................ 2,457 Expended for plant facilities................................................................................... 407,768 Retirement of indebtedness................................................................................... 25,848 Payment to escrow agent...................................................................................... 75,125 Interest on indebtedness....................................................................................... 36,298 Disposal of plant facilities...................................................................................... 60,721 Loss on refunding of debt...................................................................................... 4,822 Hospital operations................................................................................................ 405,958 Other expenditures and deductions....................................................................... 4,785 Total Expenditures and Other Deductions............................................................. 5,229,695 Transfers- Additions ( Deductions): Operating transfers from primary government....................................................... 2,273,875 Operating transfers to primary government........................................................... ( 16,572) Operating transfers to component units................................................................. ( 9,531) Net transfers.......................................................................................................... 2,247,772 Net increase in fund equity.................................................................................... 675,305 Fund equity — July 1 ( Note 16)............................................................................. 7,178,460 Restatements ( Note 16)......................................................................................... ( 4,273) Residual equity transfers in ( Note 17)................................................................... 739 Residual equity transfers out ( Note 17)................................................................. ( 793) Fund equity — June 30.......................................................................................... $ 7,849,438 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 45 COMPONENT UNITS — COLLEGE AND UNIVERSITY FUNDS COMBINED STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND TRANSFERS For the Fiscal Year Ended June 30, 1998 Exhibit A- 11 ( Dollars in Thousands) Revenues: Tuition and fees..................................................................................................... $ 402,155 Federal appropriations........................................................................................... 21,937 County appropriations............................................................................................ 90,734 Federal contracts and grants................................................................................. 515,884 State contracts and grants..................................................................................... 70,127 Local contracts and grants..................................................................................... 5,857 Private gifts, contracts and grants......................................................................... 211,107 Endowment income............................................................................................... 21,867 Sales and services................................................................................................. 821,916 Investment earnings.............................................................................................. 66,171 Other revenues...................................................................................................... 34,078 Total Current Revenues......................................................................................... 2,261,833 Expenditures: Educational and general: Instruction.......................................................................................................... 1,515,443 Organized research........................................................................................... 368,829 Public service..................................................................................................... 237,278 Academic support.............................................................................................. 238,274 Student services................................................................................................ 123,924 Institutional support............................................................................................ 363,297 Physical plant operations................................................................................... 268,533 Student financial aid.......................................................................................... 274,989 Total educational and general....................................................................... 3,390,567 Auxiliary enterprises.............................................................................................. 474,293 Internal service...................................................................................................... 33,991 Independent operations......................................................................................... 12,060 Professional clinical services................................................................................. 208,085 Total Expenditures................................................................................................. 4,118,996 Transfers and Additions ( Deductions): Excess of restricted receipts over transfers to revenues....................................... 15,868 Refund to grantors................................................................................................. ( 856) Mandatory transfers............................................................................................... ( 61,173) Non- mandatory transfers....................................................................................... ( 13,970) Interinstitutional transfers....................................................................................... ( 4,323) Operating transfers from primary government....................................................... 1,998,719 Operating transfers to primary government........................................................... ( 1,336) Operating transfers to component units................................................................. ( 9,531) Net increase in fund equity.................................................................................... $ 66,235 The accompanying Notes to the Financial Statements are an integral part of this statement. 46 State of North Carolina NOTES TO THE FINANCIAL STATEMENTS INDEX Page Note 1— Summary of Significant Accounting Policies ................................................................................................. 48 A. Basis of Presentation ............................................................................................................................... ............ 48 B. Financial Reporting Entity ............................................................................................................................... ... 48 C. Fund Accounting ............................................................................................................................... ................... 52 D. Basis of Accounting ............................................................................................................................... ............. 54 E. Cash and Cash Equivalents ............................................................................................................................... . 54 F. Investments ............................................................................................................................... ............................ 55 G. Deposit with Federal Government..................................................................................................................... .... 55 H. Receivables and Due from Other Funds............................................................................................................... 55 I. Advances to Other Funds ............................................................................................................................... .... 55 J. Inventories.................................................................................................................... ......................................... 55 K. Food Stamps......................................................................................................................... ................................. 55 L. Fixed Assets ............................................................................................................................... ........................... 55 M. Tax Refund Liabilities.................................................................................................................... ..................... 56 N. Obligations Under Securities Lending ................................................................................................................... 56 O. Retiree and Intangibles Tax Judgements Payable .................................................................................................. 56 P. Lease Obligations.................................................................................................................... ............................. 56 Q. Compensated Absences....................................................................................................................... ................. 56 R. Long- Term Liabilities ............................................................................................................................... ........... 57 S. Sureties....................................................................................................................... ........................................... 57 T. Fund Equity......................................................................................................................... ................................. 57 U. Revenues ............................................................................................................................... ................................ 57 V. Interfund Transactions................................................................................................................... ....................... 57 W. Implementation of GASB Pronouncements ........................................................................................................ 58 X. Totals - Memorandum Only ............................................................................................................................... .. 58 Note 2— Budgetary Accounting and Reporting............................................................................................................. 59 A. Budgetary Process........................................................................................................................ ......................... 59 B. Reconciliation of Budget/ GAAP Reporting Differences........................................................................................ 59 C. Budgetary Reserves....................................................................................................................... ........................ 60 Note 3— Stewardship, Compliance, and Accountability ............................................................................................... 62 Retained Earnings / Fund Balance Deficit .................................................................................................................. 62 DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS Note 4— Deposits and Investments.................................................................................................................... .............. 63 A. Deposits and Investments with State Treasurer...................................................................................................... 63 B. Deposits Outside the State Treasurer ..................................................................................................................... 67 C. Investments Outside the State Treasurer ................................................................................................................ 68 Note 5— Fixed Assets......................................................................................................................... ................................ 72 Note 6— Lease Obligations— Operating and Capital .................................................................................................... 73 State of North Carolina 47 NOTES TO THE FINANCIAL STATEMENTS Page Note 7— Long- Term Obligations.................................................................................................................... .................. 74 A. Changes in Long- Term Liabilities.................................................................................................................... ..... 74 B. Retiree and Intangibles Tax Judgements Payable .................................................................................................. 74 C. Bonds and Notes Payable........................................................................................................................ .............. 75 D. Bonds Authorized But Unissued ............................................................................................................................ 75 E. Capital Appreciation Bonds ............................................................................................................................... ... 75 F. Demand Bonds.......................................................................................................................... ............................ 75 G. Debt Service Requirements ............................................................................................................................... .... 78 H. Arbitrage Rebate Payable........................................................................................................................ .............. 79 I. Bond Defeasances ............................................................................................................................... .................. 79 J. Bond Redemptions ............................................................................................................................... ................. 80 Note 8— Interfund Receivables and Payables................................................................................................................... 81 Note 9— Retirement Plans ............................................................................................................................... ................. 83 A. Plan Descriptions and Contribution Information.................................................................................................... 83 B. Summary of Significant Accounting Policies and Plan Asset Matters ................................................................... 85 C. Actuarial Methods and Assumptions.................................................................................................................... . 85 D. Annual Pension Cost and Net Pension Obligation ................................................................................................. 86 E. Optional Retirement Plan ............................................................................................................................... ....... 88 F. Special Separation Allowance...................................................................................................................... ......... 88 Note 10— Deferred Compensation Plans.......................................................................................................................... 88 Note 11— Other Postemployment Benefits....................................................................................................................... 90 A. Health Care for Long- Term Disability Beneficiaries and Retirees......................................................................... 90 B. Disability Income ............................................................................................................................... ................... 90 Note 12— Risk Management and Insurance ................................................................................................................... 92 A. Public Entity Risk Pools.......................................................................................................................... .............. 92 B. Employee Benefit Plans ............................................................................................................................... ......... 94 C. Other Risks.......................................................................................................................... .................................. 96 Note 13— Segment Information for Enterprise Funds.................................................................................................. 99 Note 14— Component Units— Condensed Financial Information................................................................................. 100 Note 15— Reserved Fund Balances ............................................................................................................................... ... 102 Note 16— Fund Equity Reclassifications and Restatements ......................................................................................... 103 Note 17— Residual Equity Transfers ............................................................................................................................... 103 Note 18— Commitments and Contingencies.................................................................................................................. .. 104 A. No Commitment Debt ............................................................................................................................... ............ 104 B. Litigation..................................................................................................................... .......................................... 104 C. Federal Grants ............................................................................................................................... ........................ 105 D. Highway Construction................................................................................................................... ........................ 105 E. USDA- Donated Commodities.................................................................................................................... ........... 105 F. Construction and Other Commitments ................................................................................................................... 105 Note 19— Subsequent Events......................................................................................................................... .................... 106 Note 20— Events Subsequent to the Issuance of the Original Independent Auditor’s Report ...................................... 106 48 State of North Carolina NOTES TO THE FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Presentation The accompanying financial statements of the State of North Carolina financial reporting entity have been prepared in conformity with generally accepted accounting principles, as prescribed by the Governmental Accounting Standards Board ( GASB), which consist of GASB Statements and Interpretations, as well as American Institute of Certified Public Accountants ( AICPA) and Financial Accounting Standards Board ( FASB) pronouncements specifically made applicable to state and local governmental entities by GASB Statements and Interpretations. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the State does not apply FASB pronouncements issued after November 30, 1989 for proprietary activities, unless the GASB amends its pronouncements to specifically adopt FASB pronouncements issued after that date. The financial statements of the college and university funds have been prepared in conformity with generally accepted accounting principles for colleges and universities as prescribed by GASB Statement No. 15, Governmental College and University Accounting and Financial Reporting Models. The financial statements of the North Carolina Railroad Company ( Railroad), a for- profit corporation ( discretely presented proprietary component unit), have been prepared based on FASB pronouncements. The Railroad’s financial statements have been incorporated into the State’s reporting entity based on the definition and display provisions of GASB Statement No. 14, The Financial Reporting Entity. The financial statements are presented as of and for the fiscal year ended June 30, 1998, except for the USS North Carolina Battleship Commission whose statements are as of and for the fiscal year ended September 30, 1997, and the North Carolina Deferred Compensation Plan, the 401( k) Supplemental Retirement Income Plan, and the North Carolina Railroad Company whose statements are as of and for the fiscal year ended December 31, 1997. Occupational licensing boards have financial statements with various fiscal year ending dates. B. Financial Reporting Entity The financial reporting entity includes ( 1) the primary government, ( 2) organizations for which the primary government is financially accountable, and ( 3) organizations for which the nature and significance of their relationships with the primary government are such that exclusion would cause the primary government's financial statements to be misleading or incomplete. The State of North Carolina, as primary government, consists of all organizations that make up its legal entity. All funds, organizations, agencies, boards, commissions, and authorities that are not legally separate are, for financial reporting purposes, part of the primary government. The primary government has a separately elected governing body ( the General Assembly) and the primary government must be both legally separate and fiscally independent. Component units are legally separate entities for which the State is financially accountable. Accountability is defined as the State's substantive appointment of a majority of the component unit's governing board. Furthermore, the State must be able to impose its will upon the component unit or there must be a possibility that the component unit may provide specific benefits to, or impose specific financial burdens on, the State. The State has applied the criteria outlined in GASB Statement No. 14, The Financial Reporting Entity, in determining financial accountability. As required by generally accepted accounting principles, these financial statements present the State ( the primary government) and its component units. The component units are included in the financial reporting entity because of the significance of their operational or financial relationships with the State, as described below. Blended Component Units Comprehensive Major Medical Plan The Comprehensive Major Medical Plan ( Plan) is a component unit that provides medical benefits to employees and retirees of the State, most of its component units, and local boards of education that are not part of the reporting entity. The Plan has corporate powers and is governed by a board whose members are appointed by either the Governor or the General Assembly. Provisions and contribution rates are approved by the General Assembly, with the State making significant contributions as an employer and through its funding of local boards of education. The Plan has been included in the financial statements using the blending method ( internal service fund) because it almost exclusively benefits the primary government. Even though a substantial number of covered participants are not employees of the primary government, the Plan essentially serves only the primary government by managing the risk associated with providing health insurance to eligible employees. The other employers in the Plan do not have risk since the primary government is responsible for funding the premiums of all covered employees. Disability Income Plan of North Carolina State of North Carolina 49 NOTES TO THE FINANCIAL STATEMENTS The Disability Income Plan of North Carolina ( Plan) is a component unit that provides disability benefits to employees of the State, most of its component units, and local boards of education that are not part of the reporting entity. The Plan has corporate powers and is governed by a fourteen- member board. Ten members are appointed by the Governor, two are appointed by the General Assembly, and two are elected State officials. Provisions and contribution rates are approved by the General Assembly, with the State making significant contributions as an employer and through its funding of local boards of education. The Plan has been included in the financial statements using the blending method ( internal service fund) because it almost exclusively benefits the primary government. Even though a substantial number of covered participants are not employees of the primary government, the Plan essentially serves only the primary government by managing the risk associated with providing disability insurance to eligible employees. The other employers in the Plan do not have risk since the primary government is responsible for funding the premiums of all covered employees. Discretely Presented Component Units The component units columns in the combined financial
Object Description
Description
Title | Comprehensive annual financial report for the year ended June 30,... |
Other Title | North Carolina comprehensive annual financial report |
Date | 1998 |
Description | 1998 |
Digital Characteristics-A | 2 KB; 199 p. |
Digital Format | application/pdf |
Pres Local File Path-M | \Preservation_content\StatePubs\pubs_borndigital\images_master\ |
Full Text | NORTH CAROLINA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1998 JAMES B. HUNT, JR. GOVERNOR EDWARD RENFROW STATE CONTROLLER Prepared by Statewide Accounting Division Office of the State Controller http:// www. state. nc. us/ OSC/ 2 State of North Carolina This report was prepared by the Statewide Accounting Division of the Office of the State Controller. Don Waugh ASSISTANT STATE CONTROLLER dwaugh@ controller. osc. state. nc. us Anne Godwin, CPA Statewide Accounting Manager agodwin@ controller. osc. state. nc. us John Barfield, CPA Financial Reporting Manager jbarfiel@ controller. osc. state. nc. us Robert Alford, CPA Melissa Lusk, CPA Cynthia Vincent Tammy Aycock, CPA Laketha Miller, CPA Helen Vozzo, CPA Carmen Dixon, CPA Clayton Murphy, CPA Jim White, CPA John Eliadis Terri Noblin, CPA Pam White, CPA Martha Hunt, CPA Melody Tart Amber Young Danielle Lowden, CPA Teresa Tate Special appreciation is given to the chief fiscal officers and the dedicated accounting personnel throughout the State. Their efforts to contribute accurate and timely financial data for their agencies, universities, community colleges, and institutions made this report possible. State of North Carolina 3 JAMES B. HUNT, JR. Governor of North Carolina 4 State of North Carolina TABLE OF CONTENTS Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 1998 INTRODUCTORY SECTION Letter of Transmittal.................................................................................................................... .......................... 8 Certificate of Achievement for Excellence in Financial Reporting......................................................................... 20 Organization of North Carolina State Government, including principal State officials.......................................... 22 FINANCIAL SECTION REPORT OF INDEPENDENT AUDITOR Report of Independent Auditor........................................................................................................................ ...... 26 GENERAL PURPOSE FINANCIAL STATEMENTS Exhibit A- 1 All Fund Types, Account Groups, and Discretely Presented Component Units — Combined Balance Sheet.......................................................................................................................... .. 30 Exhibit A- 2 All Governmental Fund Types and Expendable Trust Funds — Combined Statement of Revenues, Expenditures and Changes in Fund Balances.................................................................................. 32 Exhibit A- 3 General Fund and Special Revenue Funds — Combined Statement of Revenues, Expenditures and Changes in Unreserved Fund Balances — Budget and Actual ( Budgetary Basis — Non- GAAP)............ 33 Exhibit A- 4 All Proprietary Fund Types, Similar Trust Funds, and Discretely Presented Component Units — Combined Statement of Revenues, Expenses and Changes in Fund Equity................................................ 34 Exhibit A- 5 All Proprietary Fund Types, Nonexpendable Trust Funds, and Discretely Presented Component Units — Combined Statement of Cash Flows................................................................................................................. 36 Exhibit A- 6 Pension Trust Funds — Combining Statement of Plan Net Assets........................................................................ 40 Exhibit A- 7 Pension Trust Funds — Combining Statement of Changes in Plan Net Assets..................................................... 41 Exhibit A- 8 Investment Trust Fund — Statement of Net Assets............................................................................................... 42 Exhibit A- 9 Investment Trust Fund — Statement of Changes in Net Assets............................................................................. 43 Exhibit A- 10 Component Units — College and University Funds — Combined Statement of Changes in Fund Equity............. 44 Exhibit A- 11 Component Units — College and University Funds — Combined Statement of Current Funds Revenues, Expenditures and Transfers...................................................................................................................... ........ 45 Notes to the Financial Statements..................................................................................................................... ..... 48 REQUIRED SUPPLEMENTARY INFORMATION Year 2000 Issues......................................................................................................................... ........................... 108 Schedules of Funding Progress — All Pension Trust Funds................................................................................... 110 Schedule of Contributions from the Employers and Other Contributing Entities — All Pension Trust Funds............................................................................ 111 COMBINING, INDIVIDUAL FUND AND ACCOUNT GROUP STATEMENTS AND SCHEDULES SPECIAL REVENUE FUNDS 115 Exhibit B- 1 Combining Balance Sheet.......................................................................................................................... ............ 116 Exhibit B- 2 Combining Statement of Revenues, Expenditures and Changes in Fund Balances................................................. 118 Exhibit B- 3 Combining Schedule of Revenues, Expenditures and Changes in Unreserved Fund Balances — Budget and Actual ( Budgetary Basis — Non- GAAP)...................................................................................... 120 State of North Carolina 5 Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 1998 CAPITAL PROJECTS FUNDS 123 Exhibit C- 1 Combining Balance Sheet.......................................................................................................................... ............ 124 Exhibit C- 2 Combining Statement of Revenues, Expenditures and Changes in Fund Balances................................................. 125 ENTERPRISE FUNDS 127 Exhibit D- 1 Combining Balance Sheet.......................................................................................................................... ............ 128 Exhibit D- 2 Combining Statement of Revenues, Expenses and Changes in Fund Equity.......................................................... 129 Exhibit D- 3 Combining Statement of Cash Flows...................................................................................................................... 130 INTERNAL SERVICE FUNDS 133 Exhibit E- 1 Combining Balance Sheet.......................................................................................................................... ............ 134 Exhibit E- 2 Combining Statement of Revenues, Expenses and Changes in Fund Equity.......................................................... 136 Exhibit E- 3 Combining Statement of Cash Flows...................................................................................................................... 138 TRUST AND AGENCY FUNDS 142 Exhibit F- 1 Combining Balance Sheet— Trust and Agency Funds............................................................................................ 143 Expendable Trust Funds: Exhibit F- 2 Combining Balance Sheet.......................................................................................................................... .... 144 Exhibit F- 3 Combining Statement of Revenues, Expenditures and Changes in Fund Balances......................................... 145 Nonexpendable Trust Funds: Exhibit F- 4 Combining Balance Sheet.......................................................................................................................... .... 146 Exhibit F- 5 Combining Statement of Revenues, Expenses and Changes in Fund Balances............................................... 147 Exhibit F- 6 Combining Statement of Cash Flows.............................................................................................................. 148 Agency Funds: Exhibit F- 7 Combining Statement of Changes in Assets and Liabilities..................................................................... 150 GENERAL FIXED ASSETS ACCOUNT GROUP 153 Exhibit G- 1 Schedule of General Fixed Assets by Function....................................................................................................... 154 Exhibit G- 2 Schedule of Changes in General Fixed Assets by Function.................................................................................... 155 GENERAL LONG- TERM OBLIGATIONS ACCOUNT GROUP 156 Exhibit H- 1 Statement of General Long- Term Obligations........................................................................................................ 157 Exhibit H- 2 Schedule of General Obligation Bonds Payable..................................................................................................... 158 COMPONENT UNITS FUNDS 162 Proprietary Funds: Exhibit I- 1 Combining Balance Sheet.......................................................................................................................... ............ 164 Exhibit I- 2 Combining Statement of Revenues, Expenses and Changes in Fund Equity.......................................................... 168 Exhibit I- 3 Combining Statement of Cash Flows...................................................................................................................... 170 College and University Funds: Exhibit I- 4 Combining Balance Sheet.......................................................................................................................... ............ 174 Exhibit I- 5 Combining Statement of Changes in Fund Equity.................................................................................................. 175 Exhibit I- 6 Combining Statement of Current Funds Revenues, Expenditures and Transfers.................................................... 176 6 State of North Carolina TABLE OF CONTENTS ( continued) Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 1998 STATISTICAL SECTION Table 1 Revenues by Source and Expenditures by Function — All Governmental Fund Types ( GAAP Basis)................. 178 Table 2 Schedule of Revenues by Source — General Fund ( GAAP Basis)......................................................................... 180 Table 3 General Obligation Bonds Debt Ratios................................................................................................................... 183 Table 4 Revenue Bond Coverage....................................................................................................................... ................. 184 Table 5 Statewide Assessed Property Values — Real Property, Tangible Personal Property and Public Service Companies...................................................................................................................... ... 186 Table 6 Schedule of Bank and Savings and Loan Deposits of Financial Institutions Located in North Carolina................ 187 Table 7 Cash Receipts from Farming by Commodities........................................................................................................ 188 Table 8 Major Private Employers in North Carolina........................................................................................................... 189 Table 9 Schedule of Demographic Data........................................................................................................................... .. 190 Table 10 Ten Largest Non- Agricultural Industries by Number of Employees....................................................................... 192 Table 11 Required Supplementary Information — Claims Development Information — Public School Insurance Fund............................................................................ 194 Table 12 Required Supplementary Information — Claims Development Information Workers' Compensation Fund........................................................................................................................... 196 Table 13 Total Number of State Government Permanent Positions Funded in the State Budget by Agency........................ 197 Table 14 Schedule of Miscellaneous Statistics..................................................................................................................... 198 INTRODUCTORY SECTION 3512 Bush Street l Raleigh, North Carolina 27609- 7509 l Telephone ( 919) 981- 5454 State Courier 56- 50- 10 · FAX ( 919) 981- 5560 An Equal Opportunity/ Affirmative Action/ Americans With Disabilities Employer State of North Carolina Office of the State Controller James B. Hunt, Jr. Edward Renfrow Governor State Controller The Honorable James B. Hunt, Jr. Governor of the State of North Carolina, and Members of the North Carolina General Assembly It is our pleasure to furnish you with the 1998 Comprehensive Annual Financial Report ( CAFR) of the State of North Carolina in compliance with G. S. 143B- 426.39. This report has been prepared by the Office of the State Controller. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the State government and this office. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of operations of the various funds and account groups of the State of North Carolina. We believe all disclosures necessary to enable you to gain an understanding of the State's financial activities have been included. For the convenience of users we have divided this comprehensive annual financial report into three major sections, described as follows: · The introductory section includes this transmittal letter and the State's organization chart, including a listing of principal State officials. · The financial section includes the general purpose financial statements ( combined statements, the notes, and the required supplementary information), the combining and individual fund and account group financial statements, and schedules. · The statistical section includes selected financial, non- financial and demographic information, much of which is presented on a ten- year basis, as well as required supplementary information. The State of North Carolina entity as reported in the CAFR includes all fund types and account groups of the departments, agencies, boards, commissions and authorities governed and legally controlled by the State's executive, legislative and judicial branches. In addition, the reporting entity includes legally separate component units for which the State is financially accountable. Most component units are presented discretely in the financial statements. Two component units are blended into the financial statements because their activities are so intertwined with the State that they are substantively part of the State. The State's discretely presented component units are the University of North Carolina system, the State's community colleges, and various proprietary organizations providing specific services to the public and private sector. The criteria for inclusion in the reporting entity and its presentation are defined by the Governmental Accounting Standards Board ( GASB) in its GASB Codification Section 2100. These criteria are described in Note 1 of the accompanying financial statements. The State and its component units provide a broad range of services to its citizens, including public education; higher education; health and human services; economic development; environment and natural resources; public safety, corrections, and regulation; transportation; agriculture; and general government services. The costs of these services are reflected in detail and in summary in this report. State Reporting Entity and Its Services State of North Carolina 9 Major Initiatives During fiscal year 1997- 98, the Governor, the General Assembly, and the departments and agencies of State government worked to address key issues facing the citizens of North Carolina. The State Board of Education developed the ABCs of Public Education in response to the School- Based Management and Accountability Program ( Senate Bill 1139) enacted by the General Assembly in June 1996. The ABCs focuses on strong accountability with an emphasis on high educational standards; teaching the basics; and maximum local control. An accountability model for elementary and middle schools was implemented in 1996- 97. The high school accountability model was developed during 1996- 97, and was implemented for the first time in 1997- 98. The ABCs Accountability Model for K- 8 ( elementary and middle school) and the ABCs High School Accountability Model establish growth standards for each school in the State. Schools that attain specified levels of growth are eligible for incentive awards or other recognition. Schools where growth and performance fall below specified levels are designated as low- performing. The Clean Water Management Trust Fund approves grants across North Carolina. These projects are empowering local communities to work proactively to protect and restore water quality in the creeks and rivers of the State. The Clean Water Management Trust Fund is fulfilling the vision of the North Carolina General Assembly. In response to public concerns about water quality problems across the state, the Legislature established the Clean Water Management Trust Fund in 1996 to assist in financing projects to protect or restore water quality in the rivers, creeks, lakes, and estuaries of North Carolina. On November 3, 1998, North Carolina voters approved $ 800 million of new debt to finance grants and loans to local government units for water supply systems, wastewater collection systems, wastewater treatment works, and water conservation and water reuse projects. Effective January 1, 1999, the State will repeal the inheritance tax and levy an estate tax equal to the Federal state death tax credit. The net affect of this legislation will be a decrease in tax revenues of an estimated $ 310.2 million through fiscal year 2002- 03. Effective May 1, 1999, the State will repeal the sales tax on food. This is estimated to cost the State $ 790.2 million through fiscal year 2002- 03. The repeal of income tax ( result of Bailey Case, see Note 18) on the pension income of retired government employees is estimated to cost the State $ 128.6 million in fiscal year 1998- 99 and thereafter. The Department of Health and Human Services works in local offices, schools and hospitals, building a stronger North Carolina. Examples of the Department of Health and Human Services at work include: social workers finding families for children who need foster care or adoption; case workers helping people find their way to self- sufficiency; child support agents tracking down deadbeat parents and making them take responsibility for their children and for paying child support; rehabilitation specialists helping the disabled learn everyday skills so they can live life to the fullest; counselors motivating troubled youth and helping them avoid a life of crime; health professionals bringing services to families without access to health care in rural and urban communities; advisors helping families understand their options for home- based and community care for older relatives; public health nurses immunizing children to protect them from disease; teachers educating children who are deaf or blind to prepare them for the working world; licensing specialists overseeing the safety and proper management of child care centers, emergency medical services, hospitals, nursing homes or other health facilities. Education Environment Tax Relief Social Programs 10 State of North Carolina Throughout the State and nation, overall crime rates remain high. Younger offenders are committing more serious crimes. The juvenile population of North Carolina is expected to grow faster than the general population and additional efforts will be required to enhance prevention and promote more effective punishment among our adolescent population. Additional emphasis will be placed on the problem of youth access to drugs, alcohol and tobacco. Crime is on the increase in rural areas as drug dealers expand their operations from cities to the country. Prevention and enforcement programs involving more than one State agency can provide help to local law officers in problem areas. The State is shifting its philosophy of public safety to a more comprehensive, community- based approach and problem- oriented crime prevention. The demand from both the public and the private sectors for relevant, accurate and timely criminal justice information will continue to grow. Through initiatives like the Criminal Justice Information Network ( CJIN), the State has an opportunity to use technology to maximize existing resources. On July 23, 1998, Governor Hunt signed the Economic Opportunity Act of 1998. The law is designed to promote economic development throughout the State. It allows various credits and tax reductions for certain recycling facilities and allows various sales tax and property tax exemptions for air couriers. The new Economic Opportunity Act also provides for the designation of economically distressed areas located within municipalities as State Development Zones. It further authorizes enhanced incentives for businesses that locate in a development zone. In addition, the Industrial Development Fund has been enhanced to provide additional funds or to expand the availability of funds that can be used for equipment, capital improvements and utility distribution lines. The Fund also provides financial assistance to local government units of the most economically distressed counties in the State. To encourage the development of air courier hubs in North Carolina, the bill provides a reduction in the state's sales tax and property tax for interstate air couriers. Beginning with the 2001 property tax year, the bill provides a property tax exemption for aircraft owned by an air courier and apportioned for property tax purposes to the courier’s hub in North Carolina. On November 3, 1998, the North Carolina voters approved $ 200 million of new debt to finance grants, loans, or other financing to public or private entities for construction of natural gas facilities. The Year 2000 issue is the result of shortcomings in many electronic data processing systems and other equipment that make operations beyond the year 1999 troublesome. For many years, programmers eliminated the first two digits from a year when writing programs. Unfortunately, many programs ( if not corrected) will not be able to distinguish between the Year 2000 and the year 1900. This may cause the programs to process data inaccurately or to stop processing data altogether. All information systems in North Carolina that use dates to generate data will be affected by the new millennium: for example, kindergarten registration and blood supply could be affected. In addition, non- information systems such as forms need to be evaluated because they provide input to software applications. Mail processing equipment may need to be modified to handle the new millennium. Other areas such as elevators, security systems, and vaults will be affected by the Year 2000. In early 1997, the Year 2000 Project Team ( including a statewide Steering Committee and agency coordinators) was formed to manage the Year 2000 project from a statewide perspective. The Year 2000 Project Team is responsible for prioritizing systems statewide, developing and maintaining statewide conversion schedules, analyzing third- party product compliance, maintaining a statewide Year 2000 repository, defining the overall conversion approach and milestones, reporting the status of statewide conversion projects, providing statewide communications and coordination, reporting the status of statewide Year 2000 funding and use, reporting the status of statewide quality assurance, developing and maintaining a statewide risk Crime Economic Development Year 2000 State of North Carolina 11 management plan, coordinating the Year 2000 budget process, maintaining an evolving cost estimate, and analyzing the automated tool offerings. Economic Condition and Outlook For the seventh straight year, both the national and North Carolina economies grew in 1998. At the national level, Gross Domestic Product, the broadest measure of economic activity, grew an estimated 3.2% during the year. Over three million jobs were added, and the national unemployment rate fell to a twenty- eight year low of 4.5%. The pace of economic activity in North Carolina exceeded that for the nation. Gross State Product, a measure of economic output in the State, rose by over 5% in 1998. The State’s job market also improved, with over 40,000 net new jobs added to the labor force. The State’s unemployment rate fell to 3.5%, and in the State’s metropolitan areas, unemployment dropped to under 2.5%. Economic growth in North Carolina was widespread across most economic sectors. One exception was the textile and apparel sector, where 11,000 jobs were cut in 1998. Inflation and interest rates were helpful to the economy in 1998. As the year ended, the annual inflation rate at the retail level was running under 2%, less than 1997’ s rate. Both long and short- term interest rates also fell over one percentage point during the year. The improved interest rate situation was helped by a turnaround in federal fiscal affairs. For the first time in twenty- nine years, the unified federal budget ran a surplus. Growth in federal revenues ( over 7% annually) exceeding growth in federal spending ( 3% annually) was the major reason for the surplus. The surplus reduced the need for borrowing by the federal government and reduced the pressure on interest rates. Despite this rosy economic news, clouds formed over the economy in 1998. Financial problems in several foreign countries, including Japan, contributed to sharp declines in the U. S. stock market. Thus, as 1998 came to a close, more and more decision- makers were questioning whether the long economic expansion was about to be overtaken by a recession. There are two major issues facing today’s economy. One is the financial and economic decline in several foreign countries, including Japan, Russia, South Korea, Indonesia, and Brazil. These countries are in recession and their stock markets have tumbled. The concern is that these economic problems will spread to the United States and North Carolina. Although the decline of foreign economies can adversely affect the U. S. through reduced export sales and failed investments, these impacts can be overstated. U. S. exports to the troubled foreign economies account for less than 3% of total U. S. income, and U. S. bank investments in the same countries are also less than 3% of total bank assets. These percentages are even smaller for North Carolina. Therefore, it is unlikely that the current foreign economic troubles will send the United States and North Carolina economies into tailspins. The other major economic issue is the prospect for faster rising labor costs. Due to the tight labor market, labor costs have been rising at faster rates for several years. For example, labor costs rose an estimated 3.5% in 1998, up from 3.1% in 1997 and 2.8% in 1996. Thus far, improved labor productivity has offset the additional labor costs. But many economists think this fortunate circumstance will not continue. If businesses are faced with higher labor costs and are not compensated by improved labor productivity, then three outcomes are possible. Business can pass on the higher costs in the form of higher prices, thereby generating higher general inflation. Or, business can reduce labor costs by dismissing workers. The third possibility is that businesses can absorb the higher labor costs and reduce profits. All three possibilities are not good for the economy. Each would cause the economy to grow at a slower rate. The outlook is that the economy will indeed grow more slowly in 1999. Nationally, Gross Domestic Product will grow 2.5%, and no net new jobs will be added to the national payrolls. In North Carolina, Gross State Product will increase 3.5%, and job growth will be 1.5 %, down from 1998’ s 2% growth rate. Condition Outlook 12 State of North Carolina As the economy slows in 1999, businesses making durable goods, like manufacturing and construction, will be the most adversely affected. For example, job growth in North Carolina’s manufacturing sector is expected to be only 0.6% in 1999. The real ( inflation- adjusted) value of residential construction in the State rose 14% in 1998, but is forecasted to rise only 5.5% in 1999. Pushed by faster climbing labor costs, the inflation rate is projected to rise to between 2% and 2.5% in 1999, up from 1998’ s rate of 1.6%. Interest rates will either change little or edge up slightly. In conclusion, an economic slowdown is forecasted for the nation and for North Carolina in 1999. An economic slowdown is not a recession. A recession means the economy actually shrinks; a slowdown means the economy continues to grow, albeit at a slower pace. North Carolina’s economy will move forward in 1999, but at a walk, not a trot! — Economic analysis prepared by Dr. Michael L. Walden, Professor North Carolina State University November 2, 1998 Financial Information Management of the government is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the State are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: ( 1) the cost of a control should not exceed the benefits likely to be derived, and ( 2) the valuation of costs and benefits requires estimates and judgments by management. As a recipient of federal financial assistance, the State also is responsible for ensuring that an adequate internal control structure is in place to ensure compliance with applicable laws and regulations related to those programs. This internal control structure is subject to periodic evaluation by management, internal audit staff, and independent auditors of the government. In addition, the State maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the General Assembly. Activities of the General Fund and most departmental special revenue funds are included in the annual appropriated budget. The State Highway Fund and the Highway Trust Fund, the State's major special revenue funds, are primarily budgeted on a multi- year basis. Capital projects are funded and planned in accordance with the time it will take to complete the project. The level of budgetary control ( that is, the level at which expenditures cannot legally exceed the appropriated amount) is exercised at both the departmental and university level by way of quarterly allotments, with allotment control exercised by the State Controller, and on the program line- item levels requiring certain approvals by the Director of the Budget. Legislative authorization of departmental expenditures appears in the State Appropriation Bill. This " Certified Budget" is the legal expenditure authority; however, executive changes to the legal budget may be approved by the Office of State Budget and Management ( OSBM). This results in the " Final Budget" presented in the financial statements. Although the State budgets and manages its financial affairs on the cash basis of accounting, G. S. 143- 20.1 requires the Office of the State Controller to prepare a comprehensive annual financial report ( CAFR) in accordance with generally accepted accounting principles ( GAAP). Furthermore, the Governmental Accounting Standards Board and the nation's financial community have encouraged states to present, in their annual reports, financial statements of the Internal Control Budgetary Control GAAP Accounting State of North Carolina 13 governmental funds that are prepared on the modified accrual basis of accounting, following generally accepted accounting principles. Under this basis, which more adequately serves the financial community's analytical and other needs, revenues are recognized when they become both measurable and available to finance operations of the fiscal year, or to liquidate liabilities existing at fiscal year- end. Generally, expenditures are recognized when a liability is incurred. Except for exhibits and notes clearly labeled otherwise, this CAFR has been prepared in accordance with GAAP. Results of Operations General Governmental Funds Revenues and other financing sources for general governmental functions ( General Fund, special revenue funds, and capital projects funds) amounted to $ 23.4 billion for the fiscal year ended June 30, 1998, using the modified accrual basis of accounting. The major categories of revenues and other financing sources are shown in the following table. Amounts are expressed in millions. Percent of Amount Total Revenues: Taxes..................................................................... $ 13,288 56.8% Federal funds.......................................................... 5,983 25.6% Local funds............................................................. 463 2.0% Investment earnings................................................. 576 2.5% Fees, licenses and fines.......................................... 826 3.5% Other..................................................................... 326 1.4% Total revenues........................................................... 21,462 91.8% Other Financing Sources: Operating transfers in and other sources..................... 1,232 5.3% Proceeds from bond sale........................................... 700 2.9% Total other financing sources...................................... 1,932 8.2% Total Revenues and Other Financing Sources........ $ 23,394 100.0% Tax Revenues. Tax revenues increased by $ 1.1 billion in 1998, reflecting a continuing favorable economic climate in North Carolina. Income tax collections increased by $ 800.2 million in 1998 to $ 7.1 billion, a 12.7% increase over 1997. Sales tax collections grew by $ 138 million in 1998, a 4.4% increase over 1997. Highway taxes were $ 1.477 billion in 1998, $ 89.9 million more than in 1997. Federal Funds. Federal funds revenues grew by $ 125 million in 1998, up by 2.1% over 1997. Increases in Federal revenues are due to increased Federal program expenditures for which the State is reimbursed. Revenues and Other Financing Sources 14 State of North Carolina Investment Earnings. Investment earnings reflect an increase of $ 121 million in 1998. Several factors contributed to this increase. In fiscal year 1998, the State implemented GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, which resulted in fair value accounting for investments, and an investment earnings increase of $ 7 million. Securities lending activity resulted in an increase of $ 40 million, while interest earnings on bond proceeds accounted for $ 51 million of the investment earnings increase. General growth in investment earnings accounts for the remaining increase of $ 23 million. The growth in 1998 can be directly attributed to the favorable investment climate through June 30, 1998, and the investment management strategies of the State Treasurer. Expenditures and other financing uses for general governmental purposes totaled $ 22.9 billion in 1998, using the modified accrual basis of accounting. The major categories of expenditures and other financing uses, by function, are shown in the following table. Amounts are expressed in millions. Percent of Expenditures: Amount Total Current: General government................................................. $ 1,116 4.9% Education............................................................... 5,416 23.7% Health and human services...................................... 7,300 31.9% Economic development............................................ 322 1.4% Environment and natural resources........................... 333 1.5% Public safety, corrections, and regulation.................. 1,579 6.9% Transportation......................................................... 2,384 10.4% Agriculture.............................................................. 69 0.3% Retiree tax judgments.............................................. 400 1.7% Capital outlay............................................................ 204 0.9% Debt service.............................................................. 170 0.7% Total expenditures..................................................... 19,293 84.3% Other Financing Uses: Operating transfers out.............................................. 1,218 5.3% Operating transfers to component units....................... 2,374 10.4% Total other financing uses.......................................... 3,592 15.7% Total Expenditures and Other Financing Uses........ $ 22,885 100.0% Significant changes in expenditures. The trend of increases in expenditures, an increase of $ 1.6 billion for 1998, was directly related to the continued emphasis on education, health and human services, and transportation. A large portion of the increase in governmental expenditures, retiree tax judgments, is the result of the North Carolina Supreme Court ruling in the Bailey case ( Note 18). On June 9, 1998, representatives of the State and the various retirees involved in the Bailey and Patton cases announced a settlement, which was later approved by the court, in the amount of $ 799 million. Of this amount, $ 400 million will be disbursed in refunds in fiscal year 1998- 99, and $ 399 million will be paid in refunds during fiscal year 1999- 2000. Educational expenditures increased by $ 640 million largely because of growth in dollars spent on State administered programs and the increasing costs associated with providing public education. Health and human services increased by $ 477 million in 1998 ($ 143 million when adjusted for reorganization), with this increase largely attributable to the reorganization of the State’s public health resources. An offsetting decrease in expenditures of $ 335 million occurred in expenditures for environment and natural resources. There was a decrease in spending for 1998 for public safety, corrections, and regulation of $ 35 million. This decrease compared to 1997 is the result of decreased emergency assistance payments ( hurricane relief) through June 30, 1998. Transportation expenditures increased in fiscal year 1998 by $ 179 million. Debt service will continue to climb, a $ 39 million increase from 1997 to 1998, as the State continues to issue general obligation debt to fund capital projects for education, highways and utilities. Additional information, in greater detail and for the past ten years, may be examined in the statistical section. Expenditures and Other Financing Uses State of North Carolina 15 General Fund The fund balance of the General Fund declined by $ 39 million in 1998. Although the growth in tax and other revenues once again exceeded expectations this year, which directly contributed to the strong condition of the General Fund at year end, expenditures and transfers out exceeded revenues and transfers in by $ 33.8 million. At June 30, 1998 the fund balance of the General Fund on the modified accrual basis was $ 1.665 billion, in comparison to a $ 1.704 billion balance at the end of 1997. The following chart illustrates the fund balances on the modified accrual ( GAAP) basis of the General Fund for the last ten fiscal years. FUND BALANCES OF THE GENERAL FUND ( GAAP basis) ( 300) ( 100) 100 300 500 700 900 1,100 1,300 1,500 1,700 1,900 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Reserved Unreserved Millions $ Fiscal Years 1994 to 1998 reflect implementation of GASB Statement No. 22, dealing with accrual of revenues. During the 1991 session, the General Assembly established a Savings Reserve Account as a restricted reserved portion of fund balance in the General Fund, becoming effective for the year ended June 30, 1992. Under this legislation, one- fourth of any unreserved credit balance ( defined by the General Statutes as "... the credit balance, as determined on a cash basis, not already reserved to the Savings Reserve Account.") remaining in the General Fund at the end of each fiscal year will be transferred to the Savings Reserve until the account contains funds equal to 5% of the amount appropriated to the General Fund operating budget for the preceding year. On June 30, 1998, $ 21.6 million was transferred into the Savings Reserve Account, bringing the total reserve to the 5% cap of $ 522.5 million. Summary of Savings Reserve Account ( in millions) : Increase/ Date Description ( Decrease) Balance Reserve - Budget Stabilization ( Rainy Day Fund) ........................................................... $ 0.4 $ 0.4 June 1992 Statutory Reservation - G. S. 143- 15.3 .............................. 41.2 41.6 June 1993 Statutory Reservation - G. S. 143- 15.3 .............................. 134.3 175.9 July 1993 Withdrawal from Reserve................................................... ( 121.0) 54.9 June 1994 Statutory Reservation - G. S. 143- 15.3 .............................. 155.7 210.6 January 1995 Budget Stabilization Appropriation..................................... 66.7 277.3 June 1995 Statutory Reservation - G. S. 143- 15.3 .............................. 146.3 423.6 June 1996 Statutory Reservation - G. S. 143- 15.3 .............................. 77.3 500.9 June 1997 Statutory Reservation - G. S. 143- 15.3 .............................. — 500.9 June 1998 Statutory Reservation - G. S. 143- 15.3 .............................. 21.6 $ 522.5 The 1993 General Assembly, in an effort to provide for the State's capital needs, established the Repairs and Renovations Reserve Account ( G. S. 143- 15.3A). Repairs and Renovations Reserve Account is defined to consist of 3.0% of the replacement value of all State buildings supported by the General Fund, at the end of each fiscal year. The funds in the Repairs GAAP Fund Balance Savings Reserve Repairs and Renovations Reserve 16 State of North Carolina and Renovations Reserve Account are to be used only for the repair and renovation of State buildings and related infrastructure that are supported by the General Fund. For fiscal year 1997- 98, the General Assembly placed $ 145 million into this reserve. The balance in the Repairs and Renovations Reserve at June 30, 1998 was $ 174.2 million. For fiscal year 1995- 96, the General Assembly established the Clean Water Management Trust Fund to finance projects to clean up or prevent surface water pollution ( G. S. 113- 145.3). The amount reserved in the General Fund each year is defined as 6.5% of any unreserved credit balance remaining in the General Fund at the end of the fiscal year or $ 30 million, whichever is greater. For the 1997- 98 fiscal year, $ 47.4 million was placed in this reserve. For fiscal year 1996- 97, the General Assembly established the Railroad Reserve Account. In order to help promote trade, industry, and transportation within the State of North Carolina and to advance the economic interests of the State and its citizens, the General Assembly determined it to be advantageous for the State to acquire the outstanding shares of the North Carolina Railroad Company not held by the State. At June 30, 1997, the amount of $ 61 million of the unreserved General Fund balance was placed in the Railroad Reserve Account. On April 1, 1998 the General Fund loaned the North Carolina Railroad Company $ 61 million for the retirement of non- State owned common stock shares of the Railroad. The $ 61 million will remain in reserve until the related debt is satisfied. At June 30, 1998, the balance in the reserve was $ 61 million. For the fiscal year 1997- 98, the General Assembly reserved $ 55 million of unexpended General Fund appropriations to be used by the Department of Public Instruction ( DPI) to fund public school employee performance bonuses, longevity payments, school bus purchases, and the purchase of additional school technology. Disproportionate share payments are Medicaid payments made to hospitals which serve a disproportionate share of indigent patients. This account was established to reserve for future appropriation any excess collection of disproportionate share revenues above those budgeted as departmental receipts or non- tax revenues. There was $ 35.4 million in this reserve at June 30, 1998. For the fiscal year 1997- 98, the General Assembly established the Work First Reserve Fund. At the end of each fiscal year, the State Controller shall reserve State funds in an amount equaling one- fourth of any Work First Program funds from General Fund appropriations remaining unexpended at the end of the fiscal year, up to a maximum balance in the account of $ 50 million. The General Assembly may appropriate additional funds into this reserve. The balance in this reserve at June 30, 1998 was $ 19.5 million. Other Funds Operating revenues and operating expenses for the State's enterprise funds were $ 23.7 million and $ 26.8 million, respectively, in 1998. Operating loss was $ 3.1 million. Combined operating results for the State's internal service funds exhibited continued strength in 1998. Operating revenues and expenses for these cost- reimbursement funds totaled $ 1.004 billion and $ 998 million, respectively, in 1998. Principal internal service fund operations include the State Health Plan, the Disability Income Plan, the Death Benefit Plan, Prison Clean Water Management Trust Fund North Carolina Railroad Acquisition DPI Allocation Disproportionate Share Work First Proprietary Funds State of North Carolina 17 Enterprises, the State Property Fire Insurance, Motor Fleet Management, Centralized Computing Services, and State Telecommunications. The operations of the Teachers' and State Employees' Retirement System continued its steady growth in 1998. The system's contributions increased by .6%. The system experienced a 10.4% increase in benefit payments to participants. For the fiscal year ended June 30, 1998, the State continued to fund the actuarial required contribution. The State also participates in the Consolidated Judicial Retirement System, the Legislative Retirement System, the Firemen's and Rescue Squad Workers' Pension Fund and the North Carolina National Guard Pension Fund. The Local Governmental Employees' Retirement System is administered by the State but the State is not a participant. Each of these systems continued to show a positive trend in funding. At June 30, 1998, the State had a number of debt issues outstanding. These issues included $ 2.1 billion in general obligation bonds, $ 1.3 billion in revenue bonds in the component unit proprietary funds and $ 839 million in revenue bonds in the university funds. North Carolina continues to have AAA bond ratings issued by Standard and Poor's Corporation and Moody's Investors Service, the highest ratings attainable. These favorable ratings have enabled the State to sell its bonds at interest rates considerably below the Bond Buyer's Index, thereby providing substantial savings to North Carolina taxpayers. North Carolina is one of only a very small number of states currently having the AAA ratings. In addition, approximately 25 percent of all AAA ratings for state and local governments nationwide are located in North Carolina. It is the policy of the State that all agencies, institutions, departments, bureaus, boards, commissions and officers of the State shall devise techniques and procedures for the receipt, deposit and disbursement of monies coming into their control and custody which are designed to maximize interest- bearing investment of cash, and to minimize idle and nonproductive cash balances. The State Controller, with the advice and assistance of the State Treasurer, the State Budget Officer, and the State Auditor, develops, implements, and amends the Statewide Cash Management Policy. All cash deposited with the State Treasurer by State entities is managed in pooled investment accounts to maximize interest earnings. During fiscal year 1998, uncommitted State funds were invested in short- term and medium- term U. S. Government notes and bonds, as well as other deposits, which had a composite average yield of 6.394%. The State has a limited risk management program for fire and other property losses. As part of this comprehensive plan, resources are being accumulated in an internal service fund to meet potential losses. See Note 12 of the Notes to the Financial Statements for a full description of the State's risk management program. Other Information In compliance with State statute, an annual financial audit of the State entity is completed each year by the North Carolina Office of the State Auditor. The Auditor's examination was conducted in accordance with generally accepted government auditing standards and his opinion has been included in this report. In addition, the State coordinates the " Single Audit" effort of all federal funds through the State Auditor. The Government Finance Officers Association of the United States and Canada ( GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the State of North Carolina for its comprehensive annual financial report ( CAFR) for the fiscal year ended June 30, 1997. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government financial reports. Pension Trust Funds Debt Administration Cash Management Risk Management Independent Audit Certificate of Achievement 18 State of North Carolina In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. The CAFR must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to GFOA. In conclusion, we believe this report provides useful data to all parties using it in evaluating the financial activity of the State of North Carolina. We in the Office of the State Controller express our appreciation to the financial officers throughout State government and to the Office of the State Auditor for their dedicated efforts in assisting us in the preparation of this report. Any questions concerning the information contained in this Comprehensive Annual Financial Report should be directed to the Office of the State Controller at ( 919) 981- 5454. Respectfully submitted, Edward Renfrow State Controller December 4, 1998 Acknowledgments State of North Carolina 19 General Governmental General, Special Revenue, and Capital Projects Funds For the Fiscal Year Ended June 30, 1998 Revenues and Other Financing Sources $ 23.394 billion Taxes $ 13,288 million 56% Fees, licenses, fines $ 826 million 4% Federal funds $ 5,983 million 26% Operating transfers in $ 1,233 million 5% Other $ 2,064 million 9% Expenditures and Other Financing Uses $ 22.885 billion Operating transfers out $ 1,218 million 5% Operating transfers to component units $ 2,374 million 10% Other $ 1,165 million 5% Education $ 5,416 million 24% Public safety, corrections, regulation $ 1,579 million 7% Health and human services $ 7,300 million 32% General government $ 1,116 million 5% ENR $ 333 million 2% Transportation $ 2,384 million 10% CERTIFICATE OF ACHIEVEMENT 22 State of North Carolina ORGANIZATION OF NORTH CAROLINA STATE GOVERNMENT INCLUDING PRINCIPAL STATE OFFICIALS EXECUTIVE BRANCH Council of State Governor James B. Hunt, Jr. Lieutenant Governor Dennis A. Wicker Secretary of State Elaine F. Marshall State Auditor Ralph Campbell, Jr. State Treasurer Harlan E. Boyles Superintendent of Public Instruction Dr. Michael E. Ward Attorney General Michael F. Easley Commissioner of Agriculture James A. Graham Commissioner of Labor Harry E. Payne, Jr. Commissioner of Insurance James E. Long Cabinet Secretaries — Appointed by the Governor Administration Katie G. Dorsett Correction Mack Jarvis Crime Control and Public Safety Richard H. Moore Cultural Resources Betty Ray McCain Commerce Rick Carlisle Environment & Natural Resources Wayne McDevitt Health and Human Services Dr. H. David Bruton Revenue Muriel K. Offerman Transportation E. Norris Tolson Appointed by Governor, confirmed by Legislature Office of the State Controller Edward Renfrow State Controller State Board of Education Phillip J. Kirk, Jr. Chairman H. Martin Lancaster President Molly C. Broad President Appointed by University Board of Governors Appointed by State Board of Community Colleges State of North Carolina 23 LEGISLATIVE BRANCH JUDICIAL BRANCH Component Units State of North Carolina Web Page http:// www. state. nc. us North Carolina Supreme Court Chief Justice Burley B. Mitchell, Jr. Associate Justices Henry E. Frye I. Beverly Lake, Jr. Robert F. Orr Sarah Parker John Webb Willis P. Whichard Administrative Office of the Courts Dallas A. Cameron, Jr. Director University of North Carolina System Community Colleges Proprietary Funds General Assembly Senate House of Representatives Speaker Harold J. Brubaker Speaker Pro Tempore Carolyn B. Russell Majority Leader N. Leo Daughtry Minority Leader James B. Black President Lieutenant Governor President Pro Tempore Marc Basnight Deputy Pres. Pro Tempore R. C. Soles, Jr. Majority Leader J. Richard Conder Minority Leader Betsy L. Cochrane 24 State of North Carolina THIS PAGE INTENTIONALLY LEFT BLANK. FINANCIAL SECTION 26 State of North Carolina State of North Carolina 27 28 State of North Carolina THIS PAGE INTENTIONALLY LEFT BLANK. GENERAL PURPOSE FINANCIAL STATEMENTS 30 State of North Carolina ALL FUND TYPES, ACCOUNT GROUPS, AND DISCRETELY PRESENTED COMPONENT UNITS COMBINED BALANCE SHEET June 30, 1998 ( Dollars in Thousands) Proprietary Governmental Fund Types Fund Types Special Capital Internal General Revenue Projects Enterprise Service ASSETS AND OTHER DEBITS Cash and cash equivalents ( Note 4)........................... $ 2,504,859 $ 2,409,353 $ 282,895 $ 29,123 $ 420,441 Investments ( Note 4).................................................. 3 ,019,561 1 ,044,896 — 41,632 6 71,024 Deposit with Federal government ( Note 4).................. — — — — — Receivables, net: Taxes receivable....................................................... 6 75,428 1 03,133 — — — Accounts receivable.................................................. 1 01,960 1 1,385 2 03 1,622 1 9,551 Intergovernmental receivables................................... 4 40,646 9 2,766 1 76 — 5 47 Interest receivable..................................................... 2 1,657 8 ,800 — 116 1 ,942 Premiums receivable................................................. — — — 812 4 97 Contributions receivable............................................ 1 4,519 — — — 5 ,044 Other receivables...................................................... — 6 ,962 — — — Due from other funds ( Note 8)..................................... 1 2,045 3 5,865 3 ,250 — 2 3,556 Due from component units ( Note 8)............................. 2 0,179 — — — 1 ,266 Due from primary government ( Note 8)....................... — — — — — Advances to component units ( Note 8)........................ 9 4,054 — — — — Notes receivable.......................................................... 4 97 1 12,371 — — — Inventories................................................................... 4 8,997 8 1,887 — 386 1 3,784 Food stamps............................................................... 9 3,695 — — — — Prepaid items.............................................................. 6 7 1 ,290 — 1,287 4 82 Fixed assets ( Note 5)................................................. — — — 23,225 1 65,678 Sureties....................................................................... — 3 2,802 — — — Amount available in other funds.................................. — — — — — Amount to be provided for retirement of general long- term obligations.............................. — — — — — Total Assets and Other Debits..................................... $ 7,048,164 $ 3,941,510 $ 286,524 $ 98,203 $ 1,323,812 LIABILITIES, FUND EQUITY AND OTHER CREDITS Liabilities: Accounts payable and accrued liabilities..................... $ 4 33,120 $ 2 33,036 $ 1 9,949 $ 267 $ 1 3,603 Tax refunds payable.................................................... 7 08,708 — — — — Obligations under securities lending............................ 2 ,958,149 1 ,022,734 — 17,443 2 99,771 Retiree tax judgements payable ( Note 7)..................... 4 00,000 — — — — Intangibles tax judgements payable ( Note 7)............... — — — — — Due to other funds ( Note 8)......................................... 2 3,939 4 1,758 7 0 9 2 ,900 Due to component units ( Note 8)................................. 4 ,278 4 6,984 2 21 — — Due to primary government ( Note 8)........................... — — — — — Advance from primary government ( Note 8)................ — — — — — Obligations under reverse repurchase agreements............................................................. — — — — — Contracts payable....................................................... — — — — — Notes payable ( Note 7)................................................ — — — 130 — Claims and benefits payable....................................... 4 44,171 5 5 — 9,024 3 46,622 Capital leases payable ( Note 6).................................. — — — — — Bonds payable ( Note 7).............................................. — — — — — Interest payable........................................................... — — — — — Deposits payable......................................................... — 9 3,837 7 ,700 — 6 3 Distributions payable................................................... — — — — — Accrued vacation leave............................................... — — — 300 2 ,876 Deferred revenue......................................................... 4 11,149 1 8,533 — 2,318 3 ,544 Total Liabilities............................................................ 5 ,383,514 1 ,456,937 2 7,940 29,491 6 69,379 Fund Equity and Other Credits: Contributed capital...................................................... — — — 36,365 5 8,850 Retained earnings....................................................... — — — 32,347 5 95,583 Investment in fixed assets........................................... — — — — — Fund balances: Reserved/ restricted ( Note 15).................................. 1 ,219,621 9 40,304 8 8,871 — — Unreserved/ unrestricted.......................................... 4 45,029 1 ,544,269 1 69,713 — — Total Fund Equity and Other Credits........................... 1 ,664,650 2 ,484,573 2 58,584 68,712 6 54,433 Total Liabilities, Fund Equity and Other Credits.................................................... $ 7,048,164 $ 3,941,510 $ 286,524 $ 98,203 $ 1,323,812 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 31 Exhibit A- 1 Fiduciary TOTAL TOTAL Fund Types Account Groups PRIMARY Component Units REPORTING General General GOVERNMENT ENTITY Trust and Fixed Long- Term ( Memorandum College and ( Memorandum Agency Assets Obligations only) Proprietary University only) $ 1 ,224,695 $ — $ — $ 6 ,871,366 $ 2 05,518 $ 1 ,551,580 $ 8,628,464 5 5,687,867 — — 6 0,464,980 7 62,590 2 ,561,331 63,788,901 1 ,285,741 — — 1 ,285,741 — — 1,285,741 2 03,260 — — 9 81,821 — — 981,821 1 5,155 — — 1 49,876 1 7,979 2 04,093 371,948 7 ,792 — — 5 41,927 8 ,135 1 18,841 668,903 8 ,147 — — 4 0,662 2 0,946 1 1,547 73,155 — — — 1 ,309 — — 1,309 1 27,847 — — 1 47,410 — — 147,410 — — — 6 ,962 — — 6,962 5 ,349 — — 8 0,065 — 6 6,637 146,702 — — — 2 1,445 — 1 ,753 23,198 — — — — 1 3,494 5 1,288 64,782 2 5,000 — — 1 19,054 — — 119,054 3 37,296 — — 4 50,164 1 ,300,877 8 4,127 1,835,168 1 ,433 — — 1 46,487 8 02 5 2,500 199,789 — — — 9 3,695 — — 93,695 — — — 3 ,126 5 ,552 7 ,744 16,422 — 3 ,178,549 — 3 ,367,452 1 88,374 5 ,772,790 9,328,616 5 08,872 — — 5 41,674 — — 541,674 — — 1 03 1 03 — — 1 03 — — 3 ,058,990 3 ,058,990 — — 3,058,990 $ 5 9,438,454 $ 3 ,178,549 $ 3 ,059,093 $ 7 8,374,309 $ 2 ,524,267 $ 10,484,231 $ 91,382,807 $ 5 38,041 $ — $ — $ 1 ,238,016 $ 2 8,037 $ 1 88,667 $ 1,454,720 — — — 7 08,708 — — 708,708 4 ,104,051 — — 8 ,402,148 1 70,406 7 26,748 9,299,302 — — 3 99,000 7 99,000 — — 799,000 — — 3 33,000 3 33,000 — — 333,000 1 1,389 — — 8 0,065 — 6 6,637 146,702 1 3,299 — — 6 4,782 1 13 1 ,640 66,535 — — — — 1 6,843 3 ,686 20,529 — — — — 5 8,054 — 58,054 — — — — — 1 61,152 161,152 — — — — 7 ,395 — 7,395 — — 4 ,166 4 ,296 9 2,022 4 3,520 139,838 1 63,592 — 7 ,401 9 70,865 1 6 3 9,014 1,009,895 — — 1 90 1 90 3 ,277 4 96 3,963 — — 2 ,123,944 2 ,123,944 1 ,328,636 8 38,993 4,291,573 — — — — 1 9,938 1 2,409 32,347 7 33,473 — — 8 35,073 6 2 3 96,447 1,231,582 1 ,454 — — 1 ,454 — — 1,454 — — 1 91,392 1 94,568 1 ,500 1 29,422 325,490 6 6,865 — — 5 02,409 7 ,903 2 5,962 536,274 5 ,632,164 — 3 ,059,093 1 6,258,518 1 ,734,202 2 ,634,793 20,627,513 — — — 9 5,215 2 03,496 — 298,711 — — — 6 27,930 5 86,569 — 1,214,499 — 3 ,178,549 — 3 ,178,549 — 4 ,977,606 8,156,155 5 2,164,871 — — 5 4,413,667 — 1 ,560,829 55,974,496 1 ,641,419 — — 3 ,800,430 — 1 ,311,003 5,111,433 5 3,806,290 3 ,178,549 — 6 2,115,791 7 90,065 7 ,849,438 70,755,294 $ 5 9,438,454 $ 3 ,178,549 $ 3 ,059,093 $ 7 8,374,309 $ 2 ,524,267 $ 10,484,231 $ 91,382,807 32 State of North Carolina ALL GOVERNMENTAL FUND TYPES AND EXPENDABLE TRUST FUNDS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES For the Fiscal Year Ended June 30, 1998 Exhibit A- 2 ( Dollars in Thousands) Fiduciary Governmental Fund Types Fund Type TOTALS Special Capital Expendable ( Memorandum General Revenue Projects Trust only) Revenues: Taxes............................................................. $ 11,679,679 $ 1,607,930 $ — $ 285,772 $ 1 3,573,381 Federal funds................................................ 5,174,406 801,975 6 ,622 9,342 5 ,992,345 Local funds.................................................... 436,347 26,515 1 7 273 4 63,152 Investment earnings...................................... 447,669 128,232 — 409,444 9 85,345 Interest earnings on loans............................. — 5,676 — 6,640 1 2,316 Sales and services........................................ 67,533 16,037 5 17 29,199 1 13,286 Sale, rental, and lease of property................ 6,066 20,015 2 40 502 2 6,823 Fees, licenses, and fines............................... 244,674 581,817 — 8,871 8 35,362 Contributions, gifts, and grants...................... 13,206 29,194 1 8,789 193,520 2 54,709 Funds escheated........................................... — — — 18,866 1 8,866 Miscellaneous................................................ 137,269 11,426 9 9 413 1 49,207 Total revenues............................................... 18,206,849 3,228,817 2 6,284 962,842 2 2,424,792 Expenditures: Current: General government.................................. 1,079,048 36,715 — 12,686 1 ,128,449 Education.................................................. 5,017,690 398,796 — 19,287 5 ,435,773 Health and human services....................... 7,255,348 44,914 — 1,923 7 ,302,185 Economic development............................. 122,032 199,581 — — 3 21,613 Environment and natural resources................................... 206,945 125,858 — 8,986 3 41,789 Public safety, corrections, and regulation.. 1,403,276 175,709 — 29,451 1 ,608,436 Transportation........................................... — 2,384,455 — — 2 ,384,455 Agriculture................................................. 68,289 284 — 4,901 7 3,474 Claims and benefits................................... — — — 473,353 4 73,353 Retiree tax judgements............................. 400,000 — — — 4 00,000 Capital outlay................................................. — — 2 03,605 — 2 03,605 Debt service: Bond principal retirement.......................... 91,585 — — — 9 1,585 Bond interest............................................. 73,229 5,225 — — 7 8,454 Total expenditures......................................... 15,717,442 3,371,537 2 03,605 550,587 1 9,843,171 Excess revenues over ( under) expenditures.............................................. 2,489,407 ( 142,720) ( 177,321) 412,255 2 ,581,621 Other Financing Sources ( Uses): Operating transfers in.................................... 291,221 756,309 1 68,019 20,581 1 ,236,130 Operating transfers from component units................................. 14,692 724 1 ,207 — 1 6,623 Operating transfers out.................................. ( 470,456) ( 745,267) ( 2,030) ( 15,739) ( 1,233,492) Operating transfers to component units..................................... ( 2,358,657) ( 15,190) ( 350) ( 13,299) ( 2,387,496) Proceeds from bond sale.............................. — 700,000 — — 7 00,000 Total other financing sources ( uses)............. ( 2,523,200) 696,576 1 66,846 ( 8,457) ( 1,668,235) Excess revenues and other sources over ( under) expenditures and other uses......... ( 33,793) 553,856 ( 10,475) 403,798 9 13,386 Fund balances — July 1 ( Note 16)................ 1,707,418 1,936,458 2 80,444 3,349,203 7 ,273,523 Restatements ( Note 16)................................ 384 ( 210) — ( 1) 1 73 Residual equity transfers in ( Note 17)........... 55 37 — — 9 2 Residual equity transfers out ( Note 17)......... ( 9,769) ( 9,943) ( 11,385) ( 151) ( 31,248) Increase ( decrease) in reserve for related assets............................................. 355 4,375 — 100 4 ,830 Fund balances — June 30............................ $ 1,664,650 $ 2,484,573 $ 2 58,584 $ 3,752,949 $ 8 ,160,756 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 33 GENERAL FUND AND SPECIAL REVENUE FUNDS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN UNRESERVED FUND BALANCES — BUDGET AND ACTUAL ( BUDGETARY BASIS — NON- GAAP) For the Fiscal Year Ended June 30, 1998 Exhibit A- 3 ( Dollars in Thousands) General Fund Special Revenue Funds Variance- Variance- Final Favorable Final Favorable Budget Actual ( Unfavorable) Budget Actual ( Unfavorable) Revenues: Taxes: Individual income....................................... $ 5,546,500 $ 6,028,870 $ 4 82,370 $ — $ — $ — Corporate income...................................... 679,600 696,339 16,739 — — — Sales and use............................................ 3,249,100 3,255,372 6,272 — — — Franchise................................................... 409,900 407,257 ( 2,643) — — — Insurance................................................... 269,700 283,763 14,063 — — — Beverage.................................................... 152,700 153,724 1,024 — — — Intangibles................................................. — 320 320 — — — Other.......................................................... 253,800 266,802 13,002 — — — Non- Tax: Fees, licenses and fines............................. 116,800 112,790 ( 4,010) — — — Investment income..................................... 237,400 248,131 10,731 — — — Other.......................................................... 95,500 91,161 ( 4,339) — — — Transfers in...................................................... 182,600 182,600 — — — — Departmental: Federal funds............................................. 5,301,525 4,817,261 ( 484,264) 293,907 2 27,940 ( 65,967) Local funds................................................ 710,088 592,637 ( 117,451) 13,210 1 1,919 ( 1,291) Inter- agency grants and allocations........... 34,354 4,516 ( 29,838) 23,782 1 7,669 ( 6,113) Intra- governmental transactions................. 1,906,252 1,739,009 ( 167,243) 425,365 4 06,873 ( 18,492) Sales and services..................................... 64,421 66,499 2,078 11,786 1 2,785 9 99 Sale, rental and lease of property.............. 4,425 4,321 ( 104) 2,161 3 ,659 1 ,498 Fees, licenses and fines............................. 101,748 102,310 562 89,919 9 7,187 7 ,268 Contributions, gifts and grants................... 42,357 32,423 ( 9,934) 1,527 1 ,469 ( 58) Miscellaneous............................................ 73,517 52,972 ( 20,545) 14,924 1 0,883 ( 4,041) Universities...................................................... 472,182 457,332 ( 14,850) 87,449 8 7,801 3 52 Total Revenues................................................ 19,904,469 19,596,409 ( 308,060) 964,030 8 78,185 ( 85,845) Expenditures: Current: General government.................................. 552,558 534,563 17,995 154,603 7 7,972 7 6,631 Education................................................... 6,341,188 6,208,442 132,746 — — — Health and human services........................ 8,631,327 8,158,386 472,941 74,134 6 3,530 1 0,604 Environment and natural resources............................................... 281,513 252,300 29,213 157,645 1 33,396 2 4,249 Economic development.............................. 197,850 164,695 33,155 280,942 2 15,246 6 5,696 Public safety, corrections, and regulation... 1,760,590 1,490,821 269,769 260,153 2 33,123 2 7,030 Transportation............................................ 10,610 10,610 — — — — Agriculture.................................................. 75,791 70,706 5,085 — — — Capital outlay................................................... 327,252 327,252 — — — — Debt service..................................................... 166,035 164,814 1,221 — — — Universities...................................................... 1,951,989 1,922,830 29,159 124,492 8 8,975 3 5,517 Total Expenditures........................................... 20,296,703 19,305,419 991,284 1,051,969 8 12,242 2 39,727 Excess revenues over ( under) expenditures.............................................. ( 392,234) 290,990 683,224 ( 87,939) 6 5,943 1 53,882 Transfers from reserves ( Note 2C)................... 174,545 174,545 — — — — Transfers to reserves ( Note 2C)....................... — ( 268,995) ( 268,995) — — — Unreserved fund balances ( budgetary basis) at July 1, 1997................................. 318,690 318,690 — 192,498 1 92,498 — Unreserved fund balances ( budgetary basis) at June 30, 1998 ( Note 2B).............. $ 101,001 $ 515,230 $ 4 14,229 $ 104,559 $ 2 58,441 $ 1 53,882 The accompanying Notes to the Financial Statements are an integral part of this statement. 34 State of North Carolina ALL PROPRIETARY FUND TYPES, SIMILAR TRUST FUNDS, AND DISCRETELY PRESENTED COMPONENT UNITS COMBINED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND EQUITY For the Fiscal Year Ended June 30, 1998 ( Dollars in Thousands) TOTAL Fiduciary PRIMARY Proprietary Fund Types Fund Types GOVERNMENT Internal Nonexpendable ( Memorandum Enterprise Service Trust only) Operating Revenues: Sales and services.......................................................... $ 1,256 $ 2 68,310 $ 423 $ 2 69,989 Federal funds.................................................................. — — 25,273 2 5,273 Investment earnings........................................................ 5,687 8 5,328 13,661 1 04,676 Interest earnings on loans............................................... — — 7,271 7 ,271 Rental and lease earnings.............................................. 3,566 1 1 — 3 ,577 Fees, licenses and fines.................................................. 6,474 1 ,043 1,314 8 ,831 Contributions................................................................... — 6 5,459 4 6 5,463 Insurance premiums........................................................ 6,713 5 81,613 — 5 88,326 Miscellaneous.................................................................. 22 2 ,505 219 2 ,746 Total operating revenues................................................. 23,718 1 ,004,269 48,165 1 ,076,152 Operating Expenses: Personal services............................................................ 5,547 5 0,622 14 5 6,183 Supplies and materials.................................................... 534 1 3,548 5 1 4,087 Services........................................................................... 4,175 8 1,337 9 8 5,521 Interest............................................................................ 847 1 5,693 2,887 1 9,427 Cost of goods sold.......................................................... 465 3 8,983 — 3 9,448 Depreciation/ amortization................................................ 1,458 2 9,131 — 3 0,589 Grants to local governments........................................... — — 2,788 2 ,788 Claims and benefits......................................................... 10,152 7 31,608 — 7 41,760 Insurance and bonding.................................................... 2,579 1 0,916 — 1 3,495 Other............................................................................... 1,063 2 6,024 445 2 7,532 Total operating expenses................................................ 26,820 9 97,862 6,148 1 ,030,830 Operating income ( loss).................................................. ( 3,102) 6 ,407 42,017 4 5,322 Net Nonoperating Revenues ( Expenses)............ 334 1 06 — 4 40 Income ( loss) before operating transfers........................ ( 2,768) 6 ,513 42,017 4 5,762 Operating Transfers: Transfers in..................................................................... 290 2 ,822 14,499 1 7,611 Transfers from component units...................................... — — — — Transfers from primary government................................ — — — — Transfers out................................................................... ( 127) ( 16,941) ( 3,181) ( 20,249) Transfers to primary government.................................... — — — — Total operating transfers in ( out)..................................... 163 ( 14,119) 11,318 ( 2,638) Net income ( loss)............................................................ ( 2,605) ( 7,606) 53,335 4 3,124 Excess of revenues over ( under) expenditures from governmental operations.............................................. — — — — Fund equity — July 1 ( Note 16)....................................... 64,968 6 61,422 358,737 1 ,085,127 Restatements ( Note 16).................................................. — 5 73 ( 20) 5 53 Increase ( decrease) in contributed capital...................... 6,349 4 4 — 6 ,393 Fund equity — June 30................................................... $ 68,712 $ 6 54,433 $ 412,052 $ 1 ,135,197 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 35 Exhibit A- 4 TOTAL Component REPORTING Units ENTITY Proprietary ( Memorandum Fund Types only) $ 57,416 $ 3 27,405 — 2 5,273 44,943 1 49,619 98,293 1 05,564 5,556 9 ,133 183 9 ,014 — 6 5,463 — 5 88,326 6,245 8 ,991 212,636 1 ,288,788 40,083 9 6,266 11,688 2 5,775 30,273 1 15,794 85,164 1 04,591 — 3 9,448 18,170 4 8,759 — 2 ,788 631 7 42,391 1,529 1 5,024 13,171 4 0,703 200,709 1 ,231,539 11,927 5 7,249 ( 66,270) ( 65,830) ( 54,343) ( 8,581) — 1 7,611 9,531 9 ,531 113,621 1 13,621 — ( 20,249) ( 51) ( 51) 123,101 1 20,463 68,758 1 11,882 ( 1,086) ( 1,086) 707,920 1 ,793,047 ( 7,452) ( 6,899) 21,925 2 8,318 $ 790,065 $ 1 ,925,262 36 State of North Carolina ALL PROPRIETARY FUND TYPES, NONEXPENDABLE TRUST FUNDS, AND DISCRETELY PRESENTED COMPONENT UNITS COMBINED STATEMENT OF CASH FLOWS For the Fiscal Year Ended June 30, 1998 ( Dollars in Thousands) TOTAL Fiduciary PRIMARY Proprietary Fund Types Fund Types GOVERNMENT Internal Nonexpendable ( Memorandum Enterprise Service Trust Funds only) Cash Provided From ( Used For) Operations: Operating income ( loss)........................................................... $ ( 3,102) $ 6 ,407 $ 4 2,017 $ 4 5,322 Adjustments to reconcile operating income to net cash flows from operating activities: Depreciation/ amortization.................................................. 1 ,458 2 9,131 — 3 0,589 Investment earnings........................................................... ( 5,687) ( 85,328) ( 13,661) ( 104,676) Securities lending fees....................................................... 8 47 1 5,692 2 ,887 1 9,426 Construction projects expensed......................................... — — — — Mortgage/ loan/ note principal repayments........................... — — 1 5,421 1 5,421 Loan sales......................................................................... — — — — Mortgages/ loans/ notes issued............................................ — — ( 39,064) ( 39,064) Mortgage/ loan/ note cancellation and writeoffs.................... — — — — Allowances and uncollectible accounts.............................. — — — — Restatements and adjustments to cash............................. 3 5 6 09 6 7 7 11 Development stage expense.............................................. — — — — Nonoperating miscellaneous income/ expense................... ( 62) 1 67 — 1 05 Interest expense................................................................ — — — — ( Increases) decreases in assets: Receivables....................................................................... 5 ,468 ( 4,028) ( 34) 1 ,406 Due from other funds......................................................... — ( 4,454) — ( 4,454) Due from component units................................................. — ( 32) — ( 32) Due from primary government............................................ — — — — Inventories......................................................................... 1 5 ( 1,747) — ( 1,732) Prepaid items..................................................................... 3 53 ( 279) — 7 4 Increases ( decreases) in liabilities: Accounts payable and accrued liabilities............................ 4 8 2 ,838 ( 262) 2 ,624 Due to other funds............................................................. ( 1) 1 52 — 1 51 Due to component units..................................................... — ( 2,197) — ( 2,197) Due to primary government................................................ — — — — Claims and benefits payable.............................................. 1 ,158 2 1,017 — 2 2,175 Contracts payable.............................................................. — — — — Deposits payable............................................................... — 2 — 2 Accrued vacation leave...................................................... 3 5 1 97 — 2 32 Deferred revenue............................................................... 2 74 4 82 — 7 56 Total cash provided from ( used for) operations........................ 8 39 ( 21,371) 7 ,371 ( 13,161) Cash Provided From ( Used For) Noncapital Financing Activities: Proceeds from sale of bonds/ notes.......................................... — — — — Repayment of bond/ note principal............................................ — — — — Interest payments on bonds and notes.................................... — — — — Bond issuance cost.................................................................. — — — — Grants...................................................................................... — — — — Grants, aid and subsidies......................................................... — — — — Operating transfers in............................................................... 2 90 2 ,822 1 4,499 1 7,611 Operating transfers from component units............................... — — — — Operating transfers from primary government.......................... — — — — Operating transfers out............................................................ ( 12) ( 16,940) ( 3,181) ( 20,133) Operating transfers to primary government.............................. — — — — Advance from primary government.......................................... — — — — Nonoperating cash donations................................................... 1 72 — — 1 72 Increase in contributed capital.................................................. 4 ,614 — — 4 ,614 Decrease in contributed capital................................................ — — — — Long term contract payments .................................................. — — — — Total cash provided from ( used for) noncapital financing activities............................................... 5 ,064 ( 14,118) 1 1,318 2 ,264 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 37 Exhibit A- 5 TOTAL Component REPORTING Units ENTITY Proprietary ( Memorandum Fund Types only) $ 1 1,927 $ 5 7,249 1 8,170 4 8,759 ( 44,943) ( 149,619) 5 ,657 2 5,083 5 5 1 11,852 1 27,273 1 ,140 1 ,140 ( 308,890) ( 347,954) 6 ,984 6 ,984 1 ,944 1 ,944 ( 5,873) ( 5,162) ( 2,969) ( 2,969) 1 ,105 1 ,210 5 5,835 5 5,835 ( 8,732) ( 7,326) — ( 4,454) — ( 32) 1 08 1 08 ( 48) ( 1,780) ( 323) ( 249) 2 ,010 4 ,634 — 1 51 ( 58) ( 2,255) ( 10) ( 10) — 2 2,175 4 ,652 4 ,652 ( 259) ( 257) 1 66 3 98 ( 360) 3 96 ( 150,910) ( 164,071) 3 27,400 3 27,400 ( 103,040) ( 103,040) ( 61,159) ( 61,159) ( 2,787) ( 2,787) 3 ,398 3 ,398 ( 70,114) ( 70,114) — 1 7,611 9 ,531 9 ,531 1 13,621 1 13,621 — ( 20,133) ( 51) ( 51) 2 ,427 2 ,427 3 ,699 3 ,871 5 00 5 ,114 ( 3,898) ( 3,898) ( 4,115) ( 4,115) 2 15,412 2 17,676 Continued 38 State of North Carolina ALL PROPRIETARY FUND TYPES, NONEXPENDABLE TRUST FUNDS, AND DISCRETELY PRESENTED COMPONENT UNITS COMBINED STATEMENT OF CASH FLOWS ( continued) For the Fiscal Year Ended June 30, 1998 ( Dollars in Thousands) TOTAL Fiduciary PRIMARY Proprietary Fund Types Fund Types GOVERNMENT Internal Nonexpendable ( Memorandum Enterprise Service Trust Funds only) Cash Provided From ( Used For) Capital Financing Activities: Acquisition of fixed assets........................................................ ( 91) ( 38,748) — ( 38,839) Proceeds from the sale of fixed assets.................................... 1 9 2 ,817 — 2 ,836 Proceeds from sale of bonds/ notes.......................................... — — — — Repayment of bond/ note principal............................................ ( 40) — — ( 40) Interest payments on bonds, notes and capital leases............. ( 11) — — ( 11) Bond issuance cost.................................................................. — — — — Operating transfers out............................................................ ( 115) — — ( 115) Capital grants........................................................................... — — — — Principal payment on capital leases......................................... — — — — Dredging costs......................................................................... — — — — Total cash provided from ( used for).......................................... capital financing activities..................................................... ( 238) ( 35,931) — ( 36,169) Cash Provided From ( Used For) Investment Activities: Proceeds from the sale/ maturities of non- State Treasurer investments......................................................... 5 42 — 1 37 6 79 Redemptions from the State Treasurer Long- Term Investment Pool................................................. — 2 ,000 3 ,251 5 ,251 Purchase of non- State Treasurer investments......................... ( 811) — ( 126) ( 937) Purchase into State Treasurer Long- Term Investment Pool................................................. ( 7,500) ( 8,600) ( 1,470) ( 17,570) Investment earnings................................................................. 1 ,447 2 5,229 4 ,744 3 1,420 Total cash provided from ( used for) investment activities............................................................. ( 6,322) 1 8,629 6 ,536 1 8,843 Net increase ( decrease) in cash and cash equivalents........................................................... ( 657) ( 52,791) 2 5,225 ( 28,223) Deficit from governmental operations....................................... — — — — Cash and cash equivalents at July 1........................................ 2 9,780 4 73,232 8 2,508 5 85,520 Cash and cash equivalents at June 30..................................... $ 2 9,123 $ 4 20,441 $ 1 07,733 $ 557,297 Noncash Investing, Capital, and Financing Activities: Noncash distributions from the State Treasurer Long- Term Investment Pool................................................. $ 3 ,401 $ 4 4,636 $ 5 ,869 $ 5 3,906 Increase in contributed capital.................................................. 1 ,826 5 2 — 1 ,878 Decrease in contributed capital................................................ ( 91) ( 8) — ( 99) Assets acquired through the assumption of a liability.................................................................................. 1 7,443 2 99,771 7 4,069 3 91,283 Interest expense on advance from primary government.......................................................................... — — — — Cash and cash equivalents in the Fiduciary Fund Types on the Combined Balance Sheet include: Expendable Trust Funds........................................................ $ 4 09,311 Nonexpendable Trust Funds.................................................. 1 07,733 Pension Trust Funds.............................................................. 9 9,517 Investment Trust Fund........................................................... 3 ,959 Agency Funds........................................................................ 6 04,175 Total....................................................................................... $ 1 ,224,695 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 39 Exhibit A- 5 TOTAL Component REPORTING Units ENTITY Proprietary ( Memorandum Fund Types only) ( 45,206) ( 84,045) 4 ,220 7 ,056 6 3,360 6 3,360 ( 4,483) ( 4,523) ( 3,483) ( 3,494) ( 1,898) ( 1,898) — ( 115) 2 1,872 2 1,872 ( 3,730) ( 3,730) ( 337) ( 337) 3 0,315 ( 5,854) 5 07,616 5 08,295 — 5 ,251 ( 621,622) ( 622,559) ( 442) ( 18,012) 3 4,239 6 5,659 ( 80,209) ( 61,366) 1 4,608 ( 13,615) 1 ,086 1 ,086 1 89,824 7 75,344 $ 2 05,518 $ 7 62,815 $ 7 ,181 $ 6 1,087 — 1 ,878 — ( 99) 6 1,210 4 52,493 4 ,966 4 ,966 40 State of North Carolina PENSION TRUST FUNDS COMBINING STATEMENT OF PLAN NET ASSETS DEFINED BENEFIT PENSION PLANS June 30, 1998 Exhibit A- 6 ( Dollars in Thousands) Firemen's and North Teachers' Rescue Carolina Local and State Consolidated Squad National Governmental Employees' Judicial Legislative Workers' Guard Employees' Retirement Retirement Retirement Pension Pension Retirement System System System Fund Fund System Totals ASSETS Cash and cash equivalents............... $ 8 7,891 $ 5 61 $ 190 $ 268 $ 1 98 $ 10,409 $ 99,517 Receivables: Accounts receivable...................... 212 — — — — 2 02 414 Interest receivable......................... 470 3 1 3 1 3 03 781 Contributions receivable................ 9 2,389 9 16 87 — — 24,573 117,965 Investments, at fair value: State Treasurer investment pool... 4 1,849,894 3 10,446 24,034 2 29,701 4 2,103 10,389,827 52,846,005 Total Assets....................................... 4 2,030,856 3 11,926 24,312 2 29,972 4 2,302 10,425,314 53,064,682 LIABILITIES Obligations under securities lending......................... 2 ,850,420 2 1,233 1,799 15,704 3 ,073 711,399 3,603,628 Due to other funds............................. — — — 1 — — 1 Benefits payable................................ 1 26,275 — — — 1 9 8 126,374 Total Liabilities................................... 2 ,976,695 2 1,233 1,799 15,705 3 ,074 711,497 3,730,003 Fund Balance Reserved for employees' pension benefits ( Note 15)............ $ 3 9,054,161 $ 290,693 $ 22,513 $ 2 14,267 $ 3 9,228 $ 9,713,817 $ 49,334,679 A schedule of funding progress for each plan is presented on page 110 . The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 41 PENSION TRUST FUNDS COMBINING STATEMENT OF CHANGES IN PLAN NET ASSETS DEFINED BENEFIT PENSION PLANS For the Fiscal Year Ended June 30, 1998 Exhibit A- 7 ( Dollars in Thousands) Firemen's and North Teachers' Rescue Carolina Local and State Consolidated Squad National Governmental Employees' Judicial Legislative Workers' Guard Employees' Retirement Retirement Retirement Pension Pension Retirement System System System Fund Fund System Totals Additions: Contributions: Employer.................................... $ 616,736 $ 8 ,487 $ 801 $ — $ — $ 149,826 $ 775,850 Plan members............................ 488,212 2 ,466 257 2 ,781 — 180,474 674,190 Other contributions..................... — — — 1 1,735 2,533 — 14,268 Total contributions........................ 1,104,948 1 0,953 1,058 1 4,516 2,533 330,300 1,464,308 Investment Income: Investment earnings................... 6,512,033 4 8,109 3,662 3 5,162 6,355 1,607,972 8,213,293 Less investment expenses......... ( 161,473) ( 1,207) ( 100) ( 853) ( 167) ( 41,641) ( 205,441) Net investment income.............. 6,350,560 4 6,902 3,562 3 4,309 6,188 1,566,331 8,007,852 Fees, licenses and fines.............. — — — — — 4,590 4,590 Miscellaneous additions............... 1,379 — — 2 — 18 1,399 Total additions.............................. 7,456,887 5 7,855 4,620 4 8,827 8,721 1,901,239 9,478,149 Deductions: Administrative expense................ 4,531 4 0 4 3 54 1 9 1,617 6,565 Benefits........................................ 1,369,233 1 1,260 945 1 2,262 1,703 265,793 1,661,196 Refund of contributions................ 73,855 1 06 17 3 22 — 50,698 124,998 Total deductions........................... 1,447,619 1 1,406 966 1 2,938 1,722 318,108 1,792,759 Net increase ( decrease) 6,009,268 4 6,449 3,654 3 5,889 6,999 1,583,131 7,685,390 Fund balance reserved for employees' pension benefits Beginning of the year ( Note 16)... 33,044,893 2 44,244 1 8,859 178,378 32,229 8,130,686 41,649,289 End of year................................... $ 39,054,161 $ 2 90,693 $ 2 2,513 $ 214,267 $ 39,228 $ 9,713,817 $ 49,334,679 The accompanying Notes to the Financial Statements are an integral part of this statement. 42 State of North Carolina INVESTMENT TRUST FUND STATEMENT OF NET ASSETS June 30, 1998 Exhibit A- 8 ( Dollars in Thousands) Investment Trust Fund ASSETS Cash and cash equivalents.........................................$ 3,959 Investments................................................................. 509,527 Receivables: Interest receivable................................................... 4,063 Total Assets................................................................ 517,549 LIABILITIES Obligations under securities lending................................................... 209,485 Distributions payable................................................... 1,454 Total Liabilities............................................................ 210,939 NET ASSETS Held in trust for pool participants....................................................... $ 306,610 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 43 INVESTMENT TRUST FUND STATEMENT OF CHANGES IN NET ASSETS For the Fiscal Year Ended June 30, 1998 Exhibit A- 9 ( Dollars in Thousands) Investment Trust Fund Net increase in net assets resulting from operations: Revenues: Investment income................................................................ $ 2 7,083 Expenses: Investment expenses............................................................ 9 ,590 Net increase in net assets resulting from operations.............. 1 7,493 Distributions to participants: Distributions paid and payable................................................ ( 17,493) Share transactions: Reinvestment of distributions.................................................. 1 7,424 Net share purchases/( redemptions)........................................ 3 ,806 Total increase in net assets..................................................... 2 1,230 Net assets: Beginning of the year ( Note 16)............................................... 2 85,380 End of the year........................................................................ $ 3 06,610 The accompanying Notes to the Financial Statements are an integral part of this statement. 44 State of North Carolina COMPONENT UNITS — COLLEGE AND UNIVERSITY FUNDS COMBINED STATEMENT OF CHANGES IN FUND EQUITY For the Fiscal Year Ended June 30, 1998 Exhibit A- 10 ( Dollars in Thousands) Revenues and Other Additions: Tuition and fees..................................................................................................... $ 404,072 Federal appropriations........................................................................................... 21,937 County appropriations............................................................................................ 112,378 Federal contracts and grants................................................................................. 600,400 State contracts and grants..................................................................................... 78,231 Local contracts and grants..................................................................................... 45,108 Private gifts, contracts and grants......................................................................... 298,905 Endowment income............................................................................................... 21,052 Sales and services................................................................................................. 821,839 Investment earnings.............................................................................................. 175,092 Expended for plant facilities................................................................................... 460,016 Retirement of indebtedness................................................................................... 26,250 Proceeds of refunding debt.................................................................................... 75,113 Income from hospital operations............................................................................ 470,579 Other revenues and additions................................................................................ 46,256 Total Revenues and Other Additions..................................................................... 3,657,228 Expenditures and Other Deductions: Educational and general........................................................................................ 3,390,568 Auxiliary enterprises.............................................................................................. 474,293 Internal service...................................................................................................... 33,991 Independent operations......................................................................................... 12,060 Professional clinical services................................................................................. 208,085 Indirect cost recovered.......................................................................................... 86,050 Refunded to grantors............................................................................................. 866 Administrative and collection costs, loan cancellation and bad debts........................................................................ 2,457 Expended for plant facilities................................................................................... 407,768 Retirement of indebtedness................................................................................... 25,848 Payment to escrow agent...................................................................................... 75,125 Interest on indebtedness....................................................................................... 36,298 Disposal of plant facilities...................................................................................... 60,721 Loss on refunding of debt...................................................................................... 4,822 Hospital operations................................................................................................ 405,958 Other expenditures and deductions....................................................................... 4,785 Total Expenditures and Other Deductions............................................................. 5,229,695 Transfers- Additions ( Deductions): Operating transfers from primary government....................................................... 2,273,875 Operating transfers to primary government........................................................... ( 16,572) Operating transfers to component units................................................................. ( 9,531) Net transfers.......................................................................................................... 2,247,772 Net increase in fund equity.................................................................................... 675,305 Fund equity — July 1 ( Note 16)............................................................................. 7,178,460 Restatements ( Note 16)......................................................................................... ( 4,273) Residual equity transfers in ( Note 17)................................................................... 739 Residual equity transfers out ( Note 17)................................................................. ( 793) Fund equity — June 30.......................................................................................... $ 7,849,438 The accompanying Notes to the Financial Statements are an integral part of this statement. State of North Carolina 45 COMPONENT UNITS — COLLEGE AND UNIVERSITY FUNDS COMBINED STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND TRANSFERS For the Fiscal Year Ended June 30, 1998 Exhibit A- 11 ( Dollars in Thousands) Revenues: Tuition and fees..................................................................................................... $ 402,155 Federal appropriations........................................................................................... 21,937 County appropriations............................................................................................ 90,734 Federal contracts and grants................................................................................. 515,884 State contracts and grants..................................................................................... 70,127 Local contracts and grants..................................................................................... 5,857 Private gifts, contracts and grants......................................................................... 211,107 Endowment income............................................................................................... 21,867 Sales and services................................................................................................. 821,916 Investment earnings.............................................................................................. 66,171 Other revenues...................................................................................................... 34,078 Total Current Revenues......................................................................................... 2,261,833 Expenditures: Educational and general: Instruction.......................................................................................................... 1,515,443 Organized research........................................................................................... 368,829 Public service..................................................................................................... 237,278 Academic support.............................................................................................. 238,274 Student services................................................................................................ 123,924 Institutional support............................................................................................ 363,297 Physical plant operations................................................................................... 268,533 Student financial aid.......................................................................................... 274,989 Total educational and general....................................................................... 3,390,567 Auxiliary enterprises.............................................................................................. 474,293 Internal service...................................................................................................... 33,991 Independent operations......................................................................................... 12,060 Professional clinical services................................................................................. 208,085 Total Expenditures................................................................................................. 4,118,996 Transfers and Additions ( Deductions): Excess of restricted receipts over transfers to revenues....................................... 15,868 Refund to grantors................................................................................................. ( 856) Mandatory transfers............................................................................................... ( 61,173) Non- mandatory transfers....................................................................................... ( 13,970) Interinstitutional transfers....................................................................................... ( 4,323) Operating transfers from primary government....................................................... 1,998,719 Operating transfers to primary government........................................................... ( 1,336) Operating transfers to component units................................................................. ( 9,531) Net increase in fund equity.................................................................................... $ 66,235 The accompanying Notes to the Financial Statements are an integral part of this statement. 46 State of North Carolina NOTES TO THE FINANCIAL STATEMENTS INDEX Page Note 1— Summary of Significant Accounting Policies ................................................................................................. 48 A. Basis of Presentation ............................................................................................................................... ............ 48 B. Financial Reporting Entity ............................................................................................................................... ... 48 C. Fund Accounting ............................................................................................................................... ................... 52 D. Basis of Accounting ............................................................................................................................... ............. 54 E. Cash and Cash Equivalents ............................................................................................................................... . 54 F. Investments ............................................................................................................................... ............................ 55 G. Deposit with Federal Government..................................................................................................................... .... 55 H. Receivables and Due from Other Funds............................................................................................................... 55 I. Advances to Other Funds ............................................................................................................................... .... 55 J. Inventories.................................................................................................................... ......................................... 55 K. Food Stamps......................................................................................................................... ................................. 55 L. Fixed Assets ............................................................................................................................... ........................... 55 M. Tax Refund Liabilities.................................................................................................................... ..................... 56 N. Obligations Under Securities Lending ................................................................................................................... 56 O. Retiree and Intangibles Tax Judgements Payable .................................................................................................. 56 P. Lease Obligations.................................................................................................................... ............................. 56 Q. Compensated Absences....................................................................................................................... ................. 56 R. Long- Term Liabilities ............................................................................................................................... ........... 57 S. Sureties....................................................................................................................... ........................................... 57 T. Fund Equity......................................................................................................................... ................................. 57 U. Revenues ............................................................................................................................... ................................ 57 V. Interfund Transactions................................................................................................................... ....................... 57 W. Implementation of GASB Pronouncements ........................................................................................................ 58 X. Totals - Memorandum Only ............................................................................................................................... .. 58 Note 2— Budgetary Accounting and Reporting............................................................................................................. 59 A. Budgetary Process........................................................................................................................ ......................... 59 B. Reconciliation of Budget/ GAAP Reporting Differences........................................................................................ 59 C. Budgetary Reserves....................................................................................................................... ........................ 60 Note 3— Stewardship, Compliance, and Accountability ............................................................................................... 62 Retained Earnings / Fund Balance Deficit .................................................................................................................. 62 DETAIL NOTES ON ALL FUNDS AND ACCOUNT GROUPS Note 4— Deposits and Investments.................................................................................................................... .............. 63 A. Deposits and Investments with State Treasurer...................................................................................................... 63 B. Deposits Outside the State Treasurer ..................................................................................................................... 67 C. Investments Outside the State Treasurer ................................................................................................................ 68 Note 5— Fixed Assets......................................................................................................................... ................................ 72 Note 6— Lease Obligations— Operating and Capital .................................................................................................... 73 State of North Carolina 47 NOTES TO THE FINANCIAL STATEMENTS Page Note 7— Long- Term Obligations.................................................................................................................... .................. 74 A. Changes in Long- Term Liabilities.................................................................................................................... ..... 74 B. Retiree and Intangibles Tax Judgements Payable .................................................................................................. 74 C. Bonds and Notes Payable........................................................................................................................ .............. 75 D. Bonds Authorized But Unissued ............................................................................................................................ 75 E. Capital Appreciation Bonds ............................................................................................................................... ... 75 F. Demand Bonds.......................................................................................................................... ............................ 75 G. Debt Service Requirements ............................................................................................................................... .... 78 H. Arbitrage Rebate Payable........................................................................................................................ .............. 79 I. Bond Defeasances ............................................................................................................................... .................. 79 J. Bond Redemptions ............................................................................................................................... ................. 80 Note 8— Interfund Receivables and Payables................................................................................................................... 81 Note 9— Retirement Plans ............................................................................................................................... ................. 83 A. Plan Descriptions and Contribution Information.................................................................................................... 83 B. Summary of Significant Accounting Policies and Plan Asset Matters ................................................................... 85 C. Actuarial Methods and Assumptions.................................................................................................................... . 85 D. Annual Pension Cost and Net Pension Obligation ................................................................................................. 86 E. Optional Retirement Plan ............................................................................................................................... ....... 88 F. Special Separation Allowance...................................................................................................................... ......... 88 Note 10— Deferred Compensation Plans.......................................................................................................................... 88 Note 11— Other Postemployment Benefits....................................................................................................................... 90 A. Health Care for Long- Term Disability Beneficiaries and Retirees......................................................................... 90 B. Disability Income ............................................................................................................................... ................... 90 Note 12— Risk Management and Insurance ................................................................................................................... 92 A. Public Entity Risk Pools.......................................................................................................................... .............. 92 B. Employee Benefit Plans ............................................................................................................................... ......... 94 C. Other Risks.......................................................................................................................... .................................. 96 Note 13— Segment Information for Enterprise Funds.................................................................................................. 99 Note 14— Component Units— Condensed Financial Information................................................................................. 100 Note 15— Reserved Fund Balances ............................................................................................................................... ... 102 Note 16— Fund Equity Reclassifications and Restatements ......................................................................................... 103 Note 17— Residual Equity Transfers ............................................................................................................................... 103 Note 18— Commitments and Contingencies.................................................................................................................. .. 104 A. No Commitment Debt ............................................................................................................................... ............ 104 B. Litigation..................................................................................................................... .......................................... 104 C. Federal Grants ............................................................................................................................... ........................ 105 D. Highway Construction................................................................................................................... ........................ 105 E. USDA- Donated Commodities.................................................................................................................... ........... 105 F. Construction and Other Commitments ................................................................................................................... 105 Note 19— Subsequent Events......................................................................................................................... .................... 106 Note 20— Events Subsequent to the Issuance of the Original Independent Auditor’s Report ...................................... 106 48 State of North Carolina NOTES TO THE FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Presentation The accompanying financial statements of the State of North Carolina financial reporting entity have been prepared in conformity with generally accepted accounting principles, as prescribed by the Governmental Accounting Standards Board ( GASB), which consist of GASB Statements and Interpretations, as well as American Institute of Certified Public Accountants ( AICPA) and Financial Accounting Standards Board ( FASB) pronouncements specifically made applicable to state and local governmental entities by GASB Statements and Interpretations. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the State does not apply FASB pronouncements issued after November 30, 1989 for proprietary activities, unless the GASB amends its pronouncements to specifically adopt FASB pronouncements issued after that date. The financial statements of the college and university funds have been prepared in conformity with generally accepted accounting principles for colleges and universities as prescribed by GASB Statement No. 15, Governmental College and University Accounting and Financial Reporting Models. The financial statements of the North Carolina Railroad Company ( Railroad), a for- profit corporation ( discretely presented proprietary component unit), have been prepared based on FASB pronouncements. The Railroad’s financial statements have been incorporated into the State’s reporting entity based on the definition and display provisions of GASB Statement No. 14, The Financial Reporting Entity. The financial statements are presented as of and for the fiscal year ended June 30, 1998, except for the USS North Carolina Battleship Commission whose statements are as of and for the fiscal year ended September 30, 1997, and the North Carolina Deferred Compensation Plan, the 401( k) Supplemental Retirement Income Plan, and the North Carolina Railroad Company whose statements are as of and for the fiscal year ended December 31, 1997. Occupational licensing boards have financial statements with various fiscal year ending dates. B. Financial Reporting Entity The financial reporting entity includes ( 1) the primary government, ( 2) organizations for which the primary government is financially accountable, and ( 3) organizations for which the nature and significance of their relationships with the primary government are such that exclusion would cause the primary government's financial statements to be misleading or incomplete. The State of North Carolina, as primary government, consists of all organizations that make up its legal entity. All funds, organizations, agencies, boards, commissions, and authorities that are not legally separate are, for financial reporting purposes, part of the primary government. The primary government has a separately elected governing body ( the General Assembly) and the primary government must be both legally separate and fiscally independent. Component units are legally separate entities for which the State is financially accountable. Accountability is defined as the State's substantive appointment of a majority of the component unit's governing board. Furthermore, the State must be able to impose its will upon the component unit or there must be a possibility that the component unit may provide specific benefits to, or impose specific financial burdens on, the State. The State has applied the criteria outlined in GASB Statement No. 14, The Financial Reporting Entity, in determining financial accountability. As required by generally accepted accounting principles, these financial statements present the State ( the primary government) and its component units. The component units are included in the financial reporting entity because of the significance of their operational or financial relationships with the State, as described below. Blended Component Units Comprehensive Major Medical Plan The Comprehensive Major Medical Plan ( Plan) is a component unit that provides medical benefits to employees and retirees of the State, most of its component units, and local boards of education that are not part of the reporting entity. The Plan has corporate powers and is governed by a board whose members are appointed by either the Governor or the General Assembly. Provisions and contribution rates are approved by the General Assembly, with the State making significant contributions as an employer and through its funding of local boards of education. The Plan has been included in the financial statements using the blending method ( internal service fund) because it almost exclusively benefits the primary government. Even though a substantial number of covered participants are not employees of the primary government, the Plan essentially serves only the primary government by managing the risk associated with providing health insurance to eligible employees. The other employers in the Plan do not have risk since the primary government is responsible for funding the premiums of all covered employees. Disability Income Plan of North Carolina State of North Carolina 49 NOTES TO THE FINANCIAL STATEMENTS The Disability Income Plan of North Carolina ( Plan) is a component unit that provides disability benefits to employees of the State, most of its component units, and local boards of education that are not part of the reporting entity. The Plan has corporate powers and is governed by a fourteen- member board. Ten members are appointed by the Governor, two are appointed by the General Assembly, and two are elected State officials. Provisions and contribution rates are approved by the General Assembly, with the State making significant contributions as an employer and through its funding of local boards of education. The Plan has been included in the financial statements using the blending method ( internal service fund) because it almost exclusively benefits the primary government. Even though a substantial number of covered participants are not employees of the primary government, the Plan essentially serves only the primary government by managing the risk associated with providing disability insurance to eligible employees. The other employers in the Plan do not have risk since the primary government is responsible for funding the premiums of all covered employees. Discretely Presented Component Units The component units columns in the combined financial |
OCLC number | 21060442 |