2020 State of Utah CAFR

State of Utah

COMPREHENSIVE ANNUAL FINANCIAL REPORT

For The Fiscal Year Ended June 30, 2020

CONSTITUTIONAL OFFICERS OF THE STATE OF UTAH

Gary R. Herbert..........................................................................................................................................................................................Governor Spencer J. Cox.......................................................................................................................................................................................Lt. Governor John Dougall.........................................................................................................................................................................................State Auditor David C. Damschen, CTP..................................................................................................................................................................State Treasurer Sean D. Reyes................................................................................................................................................................................Attorney General J. Stuart Adams.....................................................................................................................................................................President of the Senate Brad R. Wilson........................................................................................................................................................................Speaker of the House Matthew B. Durrant....................................................................................................................................................Chief Justice, Supreme Court

OTHER STATE OFFICIALS

Tani Pack Downing.....................................................................................................Executive Director, Department of Administrative Services Marilee P. Richins..........................................................................................................................................Interim Director, Division of Finance Phil V. Dean.......................................................................................Interim Executive Director, Governor's Office of Management and Budget Jonathan C. Ball..........................................................................................................................Director, Office of the Legislative Fiscal Analyst Kade R. Minchey, CIA, CFE.......................................................................................Auditor General, Office of the Legislative Auditor General John Q. Cannon.......................................................................................................Director, Office of Legislative Research and General Counsel

ACKNOWLEDGMENTS

Report prepared by: Janica M. Gines, CPA Patricia R. Nelson, CPA Sean M. Williford Julia A. D'Alesandro, CPA, CIA Jonathan K. Ellis, CPA Matthew B. Ferguson, CPA Darin C. Janzen Kurt M. Kleckner Lynda B. McLane, CPA Allyson C. Branch, CPA Scott R. Blackham, CPA emeritus Amanda L. Hensley Benjamin D. Higley

Special appreciation is given to all of the budget and accounting officers throughout the State whose extra time and effort has made this report possible. Thank you also to Clark Kidman at Design Type Service for providing images and captions displaying Utah's major events occurring in 2020.

Division of Finance Accounting Standards and Financial Reporting Section

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State of Utah COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30, 2020

Table of Contents

INTRODUCTORY SECTION

Page

Title page ? Acknowledgments................................................................................................................................................................... 1 Table of Contents........................................................................................................................................................................................ 2 Letter of Transmittal.................................................................................................................................................................................... 4 Certificate of Achievement for Excellence in Financial Reporting............................................................................................................ 10 State of Utah Organization Chart................................................................................................................................................................ 11

FINANCIAL SECTION

Independent State Auditor's Report............................................................................................................................................................ 14

Management's Discussion and Analysis..................................................................................................................................................... 17

Basic Financial Statements

Government-wide Financial Statements Statement of Net Position.............................................................................................................................................................. 35 Statement of Activities.................................................................................................................................................................. 36

Governmental Fund Financial Statements Balance Sheet................................................................................................................................................................................ 40 Reconciliation of the Balance Sheet ? Governmental Funds to the Statement of Net Position.................................................... 41 Statement of Revenues, Expenditures, and Changes in Fund Balances........................................................................................ 42

Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances ? Governmental Funds to the Statement of Activities.................................................................................................................................................................. 43

Proprietary Fund Financial Statements Statement of Net Position.............................................................................................................................................................. 46 Statement of Revenues, Expenses, and Changes in Net Position................................................................................................. 48 Statement of Cash Flows............................................................................................................................................................... 49

Fiduciary Fund Financial Statements Statement of Fiduciary Net Position............................................................................................................................................. 52 Statement of Changes in Fiduciary Net Position.......................................................................................................................... 53

Component Unit Financial Statements Combining Statement of Net Position........................................................................................................................................... 56 Combining Statement of Activities............................................................................................................................................... 58

Notes to the Financial Statements....................................................................................................................................................... 59

Required Supplementary Information

Budgetary Comparison Schedule ? General Fund.............................................................................................................................. 142 Budgetary Comparison Schedule ? Education Fund........................................................................................................................... 143 Budgetary Comparison Schedule ? Transportation Fund................................................................................................................... 144 Budgetary Comparison Schedule ? Budget to GAAP Reconciliation................................................................................................ 145 Information About Budgetary Reporting............................................................................................................................................ 146 Information About the State's Pension Plans ? Single-employer Plans............................................................................................. 147 Information About the State's Pension Plans ? Multiple-employer Systems..................................................................................... 153 Information About the State's Other Postemployment Benefit Plans ? Single-employer Plans........................................................ 156 Information About Infrastructure Assets Reported Using the Modified Approach............................................................................ 159

Supplementary Information ? Combining Statements and Individual Fund Statements and Schedules

Governmental Funds Nonmajor Governmental Funds Combining Balance Sheet....................................................................................................................................................... 164

Combining Statement of Revenues, Expenditures, and Changes in Fund Balances............................................................... 166

Continues on next page

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State of Utah COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30, 2020

Table of Contents

Supplementary Information ? Combining Statements and Individual Fund Statements and Schedules ? Governmental Funds

(continued)

Page

Budgetary Compliance Detail Schedule of Expenditures ? Budget and Actual Comparison ? General Fund................................................................... 168 Detail Schedule of Expenditures ? Budget and Actual Comparison ? Education Fund, Transportation Fund, Transportation Investment Fund, and Debt Service Funds.................................................................................................................................... 173

Proprietary Funds Nonmajor Enterprise Funds Combining Statement of Net Position..................................................................................................................................... 176 Combining Statement of Revenues, Expenses, and Changes in Net Position........................................................................ 178 Combining Statement of Cash Flows...................................................................................................................................... 180 Detail Schedule of Expenditures ? Budget and Actual Comparison ? Enterprise Funds with Legally Adopted Annual Budgets.................................................................................................................................................................................... 184 Internal Service Funds Combining Statement of Net Position..................................................................................................................................... 186 Combining Statement of Revenues, Expenses, and Changes in Net Position........................................................................ 187 Combining Statement of Cash Flows...................................................................................................................................... 188

Fiduciary Funds Pension and Other Employee Benefit Trust Funds Combining Statement of Fiduciary Net Position.................................................................................................................... 192 Combining Statement of Changes in Fiduciary Net Position................................................................................................. 195 Private Purpose Trust Funds Combining Statement of Fiduciary Net Position.................................................................................................................... 198 Combining Statement of Changes in Fiduciary Net Position................................................................................................. 199 Agency Funds Combining Statement of Fiduciary Assets and Liabilities...................................................................................................... 200 Combining Statement of Changes in Assets and Liabilities................................................................................................... 201

Component Units Nonmajor Component Units Combining Statement of Net Position..................................................................................................................................... 204 Combining Statement of Activities......................................................................................................................................... 207

STATISTICAL SECTION

Index to the Statistical Section.................................................................................................................................................................... 213

Schedule A-1 Net Position by Component........................................................................................................................................

214

Schedule A-2 Changes in Net Position..............................................................................................................................................

216

Schedule A-3 Fund Balances ? Governmental Funds ....................................................................................................................... 220

Schedule A-4 Changes in Fund Balances ? Governmental Funds ....................................................................................................

222

Schedule B-1 Revenue Base .............................................................................................................................................................

224

Schedule B-2 Revenue Payers by Industry ? Taxable Sales, Services, and Use Tax Purchases ......................................................

226

Schedule B-3 Revenue Payers ? Personal Income Tax ....................................................................................................................

226

Schedule B-4 Personal Income Tax Rates.........................................................................................................................................

227

Schedule C-1 Ratios of Outstanding Debt by Type...........................................................................................................................

228

Schedule C-2 Other Long-Term Liabilities.......................................................................................................................................

230

Schedule C-3 Legal Debt Margin......................................................................................................................................................

232

Schedule C-4 Statutory Debt Limit ...................................................................................................................................................

232

Schedule C-5 Pledged Revenue Bond Coverage ..............................................................................................................................

234

Schedule D-1 Demographic and Economic Indicators .....................................................................................................................

236

Schedule D-2 Principal Employers ...................................................................................................................................................

237

Schedule D-3 Composition of Labor Force ......................................................................................................................................

238

Schedule D-4 Public Education Student Enrollment (K-12).............................................................................................................

240

Schedule D-5 Public Higher Education Enrollment .........................................................................................................................

240

Schedule E-1 Full-Time Equivalent State Employees by Function .................................................................................................

242

Schedule E-2 Operating Indicators by Function ...............................................................................................................................

244

Schedule E-3 Capital Asset Statistics by Function ...........................................................................................................................

246

Schedule F-1 Expenditures ? Historical and Constant Dollars ........................................................................................................

248

Schedule F-2 Per Capita Expenditures ? Historical and Constant Dollars ......................................................................................

249

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Department of Administrative Services

State of Utah

GARY R. HERBERT Governor

SPENCER J. COX Lieutenant Governor

Tani Pack Downing Executive Director

Division of Finance

Marilee Richins Interim Director

December 18, 2020

To the Citizens, Governor, and Members of the Legislature of the State of Utah:

It is our pleasure to present the 2020 Comprehensive Annual Financial Report of the State of Utah in accordance with Section 63A-3-204 of the Utah Code. Responsibility for the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the State's management. To the best of our knowledge and belief, the enclosed data accurately presents the State's financial position and results of operations in all material respects in accordance with generally accepted accounting principles (GAAP). We believe that all disclosures necessary to enable the reader to gain an understanding of the State's financial activities are included.

Internal Control ? The State's systems of internal control over assets recorded in the accounting system have been designed to provide reasonable, but not absolute, assurance of safeguarding assets against loss from unauthorized use or disposition and to ensure the reliability of financial records for preparing financial statements. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and that the evaluation of costs and benefits requires estimates and judgments by management.

Independent Auditors ? In compliance with state statute, an annual financial audit of the "State Reporting Entity" is completed each year by the Office of the State Auditor in conjunction with other independent audit firms. Their audits were conducted in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. The State Auditor's report and the opinion on the fair presentation of the Basic Financial Statements are included in the Financial Section of this report.

Single Audit ? Federal regulations also require the State to undergo an annual "Single Audit" in conformance with the Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Information related to the Single Audit, including the Schedule of Expenditures of Federal Awards, Schedule of Findings and Questioned Costs, Summary Schedule of Prior Audit Findings, and the State Auditor's report, is issued in a separate report.

Management's Discussion and Analysis (MD&A) ? The discussion and analysis provides an overview and analysis of the State's Basic Financial Statements. This letter of transmittal is intended to complement the MD&A and should be read in conjunction with it.

PROFILE OF THE GOVERNMENT

Structure ? As shown in the Organizational Chart, state government is divided into three separate branches: legislative, executive, and judicial. The duties of each branch are outlined in the Utah Constitution, which can be amended only by vote of the Legislature and a majority vote of the State's citizens, and in the Utah Code, which can be amended by the Legislature or by citizen initiatives. State government provides various services to over 3,250,000 citizens. Services include building and maintaining roads; providing public safety, health, and environmental protection services to protect the general welfare of the State's citizens; helping adults, children, and families through difficult times such as abuse, divorce, illness, death, and unemployment; fostering an attractive business climate to encourage economic growth; and protecting public lands and natural

DIVISION OF FINANCE, 4315 S. 2700 W., 3rd Floor, Taylorsville, UT 84129-2128, PO Box 141031, SLC, UT 84114 telephone 801-957-7780 ? facsimile 385-465-6012 ? finance.

resources for conservation and recreational activities. The State also provides significant financial support to its higher education institutions, local governments, and school districts to help those entities meet the specific needs of their constituents.

The State Reporting Entity ? The State Reporting Entity includes the primary government and its discretely presented component units. The primary government of the State of Utah includes all funds, departments, boards, and commissions that make up its legal entity. In addition to these primary government activities, this report includes information related to discretely presented component units for which the primary government is financially accountable. Although such information is provided in this report, the MD&A and Basic Financial Statements focus on the primary government and its activities. Separately issued financial statements are available from the significant discretely presented component units and should be read to obtain a better understanding of their financial conditions. Additional information on all discretely presented component units can be found in Note 1. A. to the financial statements.

Budgetary Process and Control ? The Utah Constitution requires that budgeted expenditures not exceed estimated revenues and other sources of funding, including beginning fund balances. Annually, the Governor is required to submit a balanced budget for the governmental funds with an annual appropriated budget (General, Education, Transportation, Transportation Investment, and Debt Service Funds), by function (e.g., health), and activity (e.g., medical assistance) to the Legislature. The Legislature authorizes expenditures by line item in the annual Appropriations Acts. Line item is the legal level of budgetary control. The Acts also identify the sources of funding for budgeted expenditures. In the event actual revenues are insufficient to cover budgeted expenditures, the Governor must order budget reductions or call a special session of the Legislature to address budget issues. Adjustments to the budget may also be made throughout the year for changes in departmental or fund revenues so that line items and funds will not end the fiscal year in a deficit position. For additional information on the budgetary process and control, see the Required Supplementary Information and related notes.

INFORMATION USEFUL IN ASSESSING A GOVERNMENT'S ECONOMIC CONDITION

Local Economy ? As the nation faces unprecedented challenges posed by the COVID-19 pandemic that began in the spring of 2020, multiple economic indicators show Utah is solidly in the recovery phase. Utah's economy is expected to continue to grow, but certain sectors impacted by the pandemic, such as leisure and hospitality, are expected to be constrained through 2021.

Utah's unemployment rate averaged 2.6 percent in calendar year 2019, and is expected to increase to an average of 4.9 percent in 2020, and 4 percent in 2021. In 2019, personal income increased by 5.8 percent and nonagricultural wages increased by 7.1 percent. In 2020, personal income is expected to increase by 8.8 percent and nonagricultural wages are expected to increase by 6.0 percent. Taxable retail sales increased by 7.5 percent in 2019 and are expected to increase by 13.3 percent in 2020.

Total construction value was $9.8 billion in 2019, a 15.3 percent increase from the prior year. In 2020, total construction value is expected to increase to $10.3 billion, a 5.1 percent increase due to continued strength in residential construction. Residential construction was $5.8 billion in 2019, an 11.5 percent increase from the prior year due to an increase in multifamily units. Residential permit value is expected to increase 8.6 percent to $6.3 billion in 2020. Nonresidential construction was $2.6 billion in 2019, an 18.2 percent increase from the prior year, and second year of record activity. Nonresidential construction is expected to decrease 11.5 percent to $2.3 billion in 2020, which is still above average and more reflective of the record activity in the two prior years.

Utah had positive net migration of approximately 20,200 people in 2019 and is expected to grow by 16,600 in 2020. Utah has had positive net migration for the past 30 years and this trend is expected to continue in the coming years.

Utah Economic Indicators Annual Calendar Year Percentage Change

Population

Personal Income

Nonagricultural Wages

Retail Sales

Unemployment (Annual Average)

1.7% 1.4% 1.1%

1.6%

5.8%

8.8%

7.1% 6.0%

7.9%

7.5%

4.9%

2.6% 4.9%

4%

13.3%

2019 Actual 2020 Estimate 2021 Forecast

In 2020, Utah's population is estimated at 3,250,000, which is an increase of 1.4 percent over the prior year.

Source: State of Utah Revenue Assumptions Working Group, Moody's , and IHS Markit.

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Industries ? At the end of fiscal year 2020, job losses caused by the COVID-19 pandemic stabilized and jobs began to return across many sectors of the economy. Utah's unemployment rate continues to be among the lowest in the nation. Utah's nonagricultural employment opportunities are expected to decrease by 1.4 percent in 2020 due to the impact of the COVID-19 pandemic. In 2021, nonagricultural employment opportunities are expected to increase by 3.8 percent, which exceeds the Utah average yearly rate of 3.1 percent (1950 through June 2020). Four industrial sectors added jobs to Utah's employment base. Construction added 7,500 jobs, with construction of buildings adding the most. Trade, Transportation, and Utilities added 6,900 jobs, with retail trade contributing most of the gains. Local and federal government added 3,500 jobs. Other services added 3,300 jobs. Financial Activities added 2,900 jobs, primarily in finance and insurance. The results for September 2019 to September 2020 are presented in the following table:

Jobs by Industry of Utah's Labor Force (expressed in thousands)

Number of Jobs

September (p) September (r)

2020

2019

Trade, Transportation, and Utilities................ Professional and Business............................... Education and Health Services........................ Government (Local/Federal)........................... Leisure and Hospitality................................... Manufacturing................................................. Construction.................................................... Financial Activities......................................... Government (State/Higher Ed.)....................... Other Services................................................. Information...................................................... Natural Resources and Mining........................

Total.............................................................

297.30 222.40 206.40 173.90 130.70 135.80 120.30 93.60 85.80 45.70 39.30

8.40 1,559.60

290.40 226.90 211.60 170.40 155.00 137.50 112.80 90.70 87.00 42.40 40.20

9.50 1,574.40

Numerical Change

6.90 (4.50) (5.20) 3.50 (24.30) (1.70) 7.50 2.90 (1.20) 3.30 (0.90) (1.10) (14.80)

Percentage Change

Components of Labor Force

September (p) 2020

2.38 % (1.98) % (2.46) % 2.05 % (15.68) % (1.24) % 6.65 % 3.20 % (1.38) % 7.78 % (2.24) % (11.58) % (0.94)%

19.07 % 14.26 % 13.23 % 11.15 % 8.38 % 8.71 % 7.71 % 6.00 % 5.50 % 2.93 % 2.52 % 0.54 % 100.00 %

Source: Utah Department of Workforce Services and the U.S. Bureau of Labor Statistics, September 2020. (p) = preliminary (r) = revised

Outlook ? The economic outlook for the national economy will likely depend on the path of the COVID-19 pandemic. If the pandemic is contained, the economic recovery is likely to accelerate. If it is not contained, the recovery will likely stagnate. As in prior downturns, Utah's economy is recovering faster than the nation's. Utah's prudent fiscal management, diverse mix of industries, young, educated workforce, business-friendly policies, and low tax rates will provide strong support for continued economic recovery. In addition, it is possible that a future round of federal fiscal stimulus could boost Utah's economic prospects. Although Utah has fared much better than the nation from the impacts of the COVID-19 pandemic, downside risks remain. These risks include sluggish growth, higher-than-optimal unemployment, depressed consumer sentiment, and a second wave of lock-downs. Overall, economic growth in Utah is expected to continue, but growth in certain sectors, such as leisure and hospitality, is expected to be constrained through 2020 and 2021.

FINANCIAL PLANNING AND POLICIES

General Obligation Debt Administration ? As part of long-term financial planning, the State has used a combination of bonding and pay-as-you-go methods to meet its infrastructure needs. In fiscal years 2010 through 2014, under budget constraints coupled with a low interest rate environment, the State elected to increase its debt by issuing bonds for highway and/or building projects that otherwise would have been funded from current resources. During the years debt was issued, the State continued to fund some projects with cash. In fiscal years 2015 and 2016, the State continued its prudent fiscal management by paying cash for most building, highway, and other projects.

Net General Obligation Debt per Capita

$1,500 $1,250 $1,000

$750 $500 $250

$0

$571

2010

$1,282 $1,111

$849

2012 2014 2016

$792

2018

$942

2020

In fiscal year 2015, the State authorized $474.7 million in general obligation debt for the new prison project. There were no general obligation bond issuances, authorizations, or refundings in fiscal year 2016. In fiscal year 2017, the State authorized

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