Performance audit, Arizona Tourism and Sports Authority

              A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Arizona Tourism and
Sports Authority
Performance Audit Division
MARCH • 2004
REPORT NO. 04 – 01
Performance Audit
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting servic-es
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Representative John Huppenthal, Chair Senator Robert Blendu, Vice Chair
Representative Tom Boone Senator Gabrielle Giffords
Representative Ken Clark Senator Peter Rios
Representative Ted Downing Senator Thayer Verschoor
Representative Steve Yarbrough Senator Jim Weiers
Representative Jake Flake (ex-officio) Senator Ken Bennett (ex-officio)
Audit Staff
Dale Chapman, Manager and Contact Person
Ryan Curtis, Team leader
Andrea Leder
Elizabeth Brandt
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44 th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553 -0333 • FAX (602) 553 -0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
March 25, 2004
Members of the Arizona Legislature
The Honorable Janet Napolitano, Governor
Mr. John Benton, Chairman
Arizona Tourism and Sports Authority
Mr. Ted Ferris, President/CEO
Arizona Tourism and Sports Authority
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona
Tourism and Sports Authority (TSA). This audit was conducted pursuant to Arizona Revised
Statutes (A.R.S.) §5-812. This statute requires a performance audit no later than 2004 and at least
every 5 years thereafter. This audit was conducted under the authority vested in the Auditor
General by A.R.S. §41-1279.03. I am also transmitting with this report a copy of the Report
Highlights for this audit to provide a quick summary for your convenience.
As outlined in its response, TSA agrees with 3 of the 4 the findings and indicates that it plans to
implement or implement in a different manner all of the recommendations addressed to it.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on March 26, 2004.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
Funding priorities and responsibilities:
The Arizona Tourism and Sports Authority (TSA) has the following statutory funding priorities and
responsibilities:
􀁺􇩄 Designing and constructing a new multipurpose facility, which will be the new home of
the Arizona Cardinals football team and the Tostito’s Fiesta Bowl, and which will also
host the 2008 Super Bowl. The facility is currently
under construction in Glendale;
􀁺􇩆 Funding tourism promotion in Maricopa County by
distributing monies to the Arizona Office of Tourism;
􀁺􇩁 Awarding monies to renovate existing or construct
new Cactus League spring training baseball facilities
in Maricopa County;
􀁺􇩁 Awarding grants for youth and amateur sports facili-ties
and programs in Maricopa County;
􀁺􇩆 Funding TSA operations, including staff salaries, trav-el,
and insurance, as well as funding the operations
of the multipurpose facility; and
􀁺􇩅 Establishing and funding reserves for its operations,
youth and amateur sports, and for repairs and other
long-term costs associated with the multipurpose
facility.
Funding sources:
TSA began receiving funding in 2001 from a variety of
sources. Specifically:
􀁺􇩈 Hotel bed tax increase—For 30 years, TSA receives
revenue from a 1 percent increase in Maricopa
County’s hotel bed tax. TSA expects to receive a total
of nearly $610 million from hotel bed taxes through
February 2031.
􀁺􇩃 Car rental surcharge—For 30 years, TSA receives a
portion of the revenues generated by a 3.25 percent
car rental surcharge in Maricopa County. TSA proj-ects
that it will receive over $382 million from this sur-charge
through February 2031.
PROGRAM FACT SHEET
Arizona Tourism and Sports Authority
$23,339,020 (fiscal year 2003)
Office of the Auditor General
TSA funding:
$21,912,704 (fiscal year 2002)
Hotel Bed Tax
$9,901,026
Car Rental
Surcharge
$6,505,525
NFL Income Tax
$4,420,872
Sales Tax
Recapture
$948,394
Other1
$136,887
Hotel Bed Tax
$10,228,577
Car Rental
Surcharge
$7,668,222
NFL Income Tax
$3,784,320
Sales Tax
Recapture
$959,610
Other1
$698,291
1 Includes interest received from investment activities. TSA received
substantially more interest income in fiscal year 2003 due to large
account balances associated with the sale and deposit of $222 million
in bond proceeds.
􀁺􇩓 Sales tax recapture—TSA recaptures all state sales tax paid at Cardinals games,
including those played at Arizona State University’s Sun Devil Stadium until the new
facility is constructed, as well as any sales taxes paid on materials purchased for the
new facility’s construction. TSA projects receiving approximately $130 million from this
revenue source through 2031; however, the sales tax recapture does not expire in 2031.
􀁺􇩎 NFL tax—TSA receives all state income taxes paid by the Cardinals’ corporate organi-zation,
its employees (including players), and their spouses. Statute guarantees a mini-mum
amount that TSA will receive, with this amount growing by 8 percent annually. TSA
receives additional money from the State General Fund if the income tax revenues col-lected
do not meet the required minimum amount. This distribution does not expire, but
through fiscal year 2031, TSA will receive at least $397.8 million in state income tax rev-enue.
􀁺􇩏 Other facility-generated revenue—Once the facility is constructed and operating, TSA
will also generate revenues from events held in the facility, including rent from the
Cardinals and other users of the facility, concessions, and parking revenues. TSA proj-ects
that it will receive approximately $115.2 million from facility-generated revenue
through 2031.
Personnel:
A nine-member board of directors, appointed to 5-year terms, governs TSA:
􀁺􇩔 The Governor appoints five board members, with one member representing the tourism
industry, one representing the hotel and motel industry, one representing youth sports
organizations, and one representing major league baseball spring training organiza-tions.
No more than three of these members may be from the same political party.
􀁺􇩔 The President of the Senate and the Speaker of the House each appoint two members
who cannot both be from the same political party.
As of July 2003, TSA had five staff, including a president/chief executive officer, vice president for
facilities, chief financial officer, and two administrative support staff.
Facilities and equipment:
TSA leases office space from a private company. TSA offices are located at 14500 North
Northsight Boulevard in Scottsdale. Its equipment includes typical office equipment.
Program goals and performance measures:
TSA has not developed program goals and performance measures, but it is not required to do
so since it is not a state agency. While TSA has specific statutory objectives it must meet, such
as designing, constructing, and operating a multipurpose facility, and has developed and tracks
completion of various action steps, measuring performance could help staff maintain its focus
on important TSA functions and activities, enhance service quality, and aid in budget develop-ment
and review.
State of Arizona
The Office of the Auditor General has conducted a performance audit of the Arizona
Tourism and Sports Authority (TSA) pursuant to Arizona Revised Statutes (A.R.S.) §5-
812. This statute requires a performance audit no later than 2004 and at least every
5 years thereafter. This audit was conducted under the authority vested in the Auditor
General by A.R.S. §41-1279.03.
Established in 2000, TSA is in charge of designing and constructing a multipurpose
facility in Glendale, which will be the new home of the Arizona Cardinals football team
and Tostito’s Fiesta Bowl, and which will host the 2008 Super Bowl. Construction of
the facility began in July 2003 and is scheduled for completion during the summer of
2006. TSA also funds tourism promotion, expansion and renovation of Cactus
League spring baseball facilities, and youth and amateur sports facilities and
programs. TSA’s responsibilities pertain only to Maricopa County. TSA’s funding
comes primarily from two voter-approved taxes in the County—a 1 percent increase
in hotel bed taxes and a 3.25 percent rental car surcharge. TSA also receives funding
from income taxes collected from the Cardinals’ corporate organization, its
employees (including players), and their spouses, and it will also receive all sales
taxes collected at Cardinals home games and other events held in the new facility.
Multipurpose facility cost at $370.6 million (see pages 15
through 21)
While TSA has taken steps to help protect the public’s interest during the
construction of the multipurpose facility, the facility’s total cost has increased by
nearly $40 million from the original estimate. The facility was originally estimated to
cost $331 million, but as of January 2004, was projected to cost $370.6 million.
Statute does not cap facility construction costs, and as design plans for the facility
were largely finalized in January 2004, construction costs increased. Specifically:
􀁺􇩄 Design-build agreement established construction price—In August 2003, TSA
entered into a design-build agreement with the facility’s contractor, which set a
guaranteed maximum price of $346.3 million for the multipurpose facility’s
Office of the Auditor General
SUMMARY
page i
construction. At this time, the design plans were not finalized. However, the
agreement required the contractor to be responsible for any planned
construction costs that exceeded the guaranteed maximum price. As such, the
price included $9 million in contingency that the contractor set aside to pay for
unexpected cost increases to the planned construction. The Cardinals also
committed an additional $9 million in contingency to pay for any new costs
associated with upgraded design changes or improvements they request that
were not in the facility designs at the time construction began, as well as any
other increases in the guaranteed maximum price. Finally, TSA was planning to
contribute an additional $6.5 million as part of a lease purchase of some cooling
and central plant equipment for the facility. Altogether, the facility cost was
budgeted at $361.8 million.
􀁺􇩄 Design-build agreement price revised—As facility design plans were largely
finalized in January 2004, the contractor was able to provide more information
regarding construction costs. TSA, in conjunction with the Cardinals, decided
which features to retain, add, or remove. While some significant changes were
made to try to stay within the original budget of $361.8 million, TSA and the
Cardinals agreed to retain facility features with the project design at a higher
cost or approved other changes. TSA modified the original design-build
agreement and increased the guaranteed maximum price to $357.8 million.
Additionally, there is nearly $12.9 million in costs for such things as city permit
fees, facility testing and inspection, and insurance not included in the design-build
agreement, bringing the total project cost to $370.6 million.
TSA has various mechanisms and a budget in place for overseeing construction that,
if used properly, can help limit TSA’s liability for future cost overruns, and ensure the
project is completed on time and with sufficient quality. In collaboration with the
Cardinals, TSA is overseeing the facility’s construction through an onsite staff
member, the use of construction consultants, and through budgeted allowances for
facility construction inspections, contingencies, and insurance. The original amount
budgeted for contingency was equal to about 5 percent of the original project
budget, but the Cardinals and the construction contractor have both used some of
their contingencies to cover some of the recent facility cost increases. However, a
TSA official stated that with the completion of the facility’s design, the risk of further
construction cost increases has been significantly reduced.
Review needed of General Fund support for TSA (see
pages 23 through 29)
The Legislature may wish to consider revising statute to reduce the burden placed
on the General Fund when shortfalls occur in the amount of NFL tax available to TSA.
Statute provides that TSA is to receive the greater of (1) all state income taxes paid
State of Arizona
page ii
by Cardinals players and other personnel, their spouses, and the Cardinals’
corporation each year; or (2) a guaranteed minimum that was $3.5 million in fiscal
year 2002 and rising at 8 percent a year. If NFL income tax collections do not equal
the guaranteed minimum amount, additional General Fund monies must make up
the difference, irrespective of whether they are needed to sustain TSA operations. By
2031, the minimum amount that must be transferred to TSA, either through actual
NFL tax collections or any necessary General Fund subsidy, will increase to nearly
$33 million and will continue growing after that as this tax does not expire.
For fiscal years 2003, 2004, and 2005, the NFL tax is expected to be over $2.6 million
less than the guaranteed minimum. To comply with the law, TSA will receive this
amount in General Fund revenues, although TSA’s other revenue is adequate to fund
all operations and begin establishing required reserves. Further payments from the
General Fund may be needed because in any given year, several factors could
negatively affect the amount of NFL tax collected. These factors include year-to-year
fluctuations in the Cardinals’ salaries, economic downturns that affect corporate and
employee earnings, and potential players’ strikes or other work stoppages.
The Legislature has several options available to limit or otherwise control General
Fund disbursements that may not be necessary to sustain TSA’s operations. These
include:
􀁺􇩒 Retaining the statutory minimum amount, but requiring that any NFL tax
collections above the minimum be maintained in the General Fund. This would
allow the General Fund to collect some additional revenues in years when the
NFL tax collections surpass the minimum amount.
􀁺􇩒 Requiring TSA to place any NFL tax collected in excess of the minimum in a
reserve account, and requiring that it be used to cover future shortfalls before
requesting any additional General Fund monies.
􀁺􇩄 Discontinuing the automatic transfer of non-NFL income tax General Fund
monies to cover shortfalls in the guaranteed minimum amount. Instead, when
shortfalls occur and TSA needs additional funding, it could still request General
Fund appropriations from the Legislature. This option would give the Legislature
greater discretion in providing funding based on the State’s budget, economic
conditions, and TSA’s needs.
While two of these options would retain the statutory minimum distribution to the TSA,
these options could potentially affect TSA’s ability to meet its funding obligations. For
example, TSA’s ability to establish and fund required reserves for operations, repairs,
and other long-term costs associated with the multipurpose facility could be affected.
Additionally, reduction in or elimination of non-NFL income tax General Fund monies
for TSA could affect its ability to adequately fund operations.
Office of the Auditor General
page iii
Defined processes will help TSA objectively evaluate
funding requests (see pages 31 through 37)
Greater specificity in evaluation processes will better enable TSA to objectively
evaluate funding requests for youth and amateur sports and Cactus League projects.
TSA’s decision-making process for committing approximately $5.2 million for three
youth and amateur sports projects in 2001 and 2002 was not clearly defined. The
three projects chosen are new sports fields at South Mountain YMCA, a regional
sports complex in Avondale, and sports fields that will double as overflow parking at
the new multipurpose facility in Glendale. However, the Glendale project is on hold
until Glendale acquires the land, and TSA and Glendale enter into another agreement
that will clarify the city’s match and identify the project’s total cost.
TSA has since implemented a new process for evaluating future requests to fund
youth and amateur sports projects. Under this new process, TSA received and
evaluated 92 grant applications requesting over $35.2 million. In February 2004, TSA
awarded 13 grants, totaling over $1.3 million to various communities and community
organizations in Maricopa County. However, this process can be improved. These
improvements include establishing grant administration and oversight requirements;
defining how long funded facilities must remain in existence and operational; and
further clarifying what costs will be considered for the applicant’s local match.
TSA should also develop and implement written guidelines for awarding Cactus
League monies to spring training baseball facilities in Maricopa County. As of
December 31, 2003, TSA had committed approximately one-quarter of the total
estimated $205 million that will be available for Cactus League facilities over 30 years.
The guidelines need to address the standards to which facilities will be built or
renovated, and the length of the baseball team’s lease extension. Guidelines could
also help direct decisions about whether to fund new facilities or renovate existing
ones. While TSA states that it considers some of these factors already, establishing
a more clearly defined set of guidelines would better ensure consistency and fairness
in the process.
TSA needs to make several changes to its administrative
practices (see pages 39 through 46)
Although TSA is not a state agency and is therefore exempt from some requirements
that state agencies must meet, it still should establish administrative policies to
provide adequate control and oversight of its functions. Improvements are needed in
the following areas:
State of Arizona
page iv
􀁺􇩐 Procurement practices—Since its inception, TSA has entered into agreements
totaling million of dollars in services, but it lacks a defined process for
conducting procurements and overseeing its contracts. Although TSA is exempt
from the State’s procurement code, other exempt or municipal organizations
have established their own procurement policies.
􀁺􇩁 Attorney use—Through June 30, 2003, TSA has spent nearly $4.1 million for
attorney services. While these attorneys have handled complicated matters, TSA
has also used them to draft board meeting minutes and to draft and review
relatively simple agreements with consultants, organizations, and TSA staff. To
the degree possible, TSA should have its own staff perform such tasks. TSA
should also evaluate the need for an in-house attorney to handle routine legal
matters and, except for litigation representation, issue requests for proposals for
outside legal services in the future.
􀁺􇩃 Controls over other expenditures—TSA should follow its policies and establish
some additional procedures to provide greater control over many of its other
expenditures, including travel and gifts.
􀁺􇩌 Luxury suite and ticket use—TSA should develop a policy to guide and control
the use of the luxury suite and tickets it will receive for all football events in the
new multipurpose facility. TSA will have one suite and 16 additional tickets for all
football events, including the Tostito’s Fiesta Bowl—a valuable resource that
requires clear policies to avoid potential misuse.
􀁺􇩏 Oversight of tourism promotion expenditures—TSA should continue to work with
the Arizona Office of Tourism to ensure all monies TSA distributes to this agency
are used solely to promote tourism in Maricopa County. Auditors reviewed the
tourism promotion expenditures for fiscal years 2002 and 2003, and found that
the Tourism Office used a small portion of these distributions to promote all of
Arizona, rather than Maricopa County as required by statute.
Other pertinent information (see pages 47 through 54)
During the audit, auditors developed information regarding the projected revenue
that the Arizona Tourism and Sports Authority expects to receive over the next several
years and gathered information related to the funding of the multipurpose facility
construction and surrounding infrastructure.
􀁺􇩐 Projected revenues—While TSA’s revenues for fiscal years 2002 and 2003 have
been sufficient to meet the agency’s many funding obligations, future sufficiency
is heavily dependent on the growth rate for key revenue sources—particularly for
the hotel bed tax and car rental surcharges, the two largest revenue sources.
Office of the Auditor General
page v
Thus far, hotel bed taxes have fallen below projections, while car rental
surcharges have exceeded projections. Projections prepared to accompany the
issuance of TSA’s bonds assumed an annual growth rate of 5 percent for the
hotel bed tax revenues in fiscal years 2005 through 2011, and for the car rental
surcharge revenues in fiscal years 2003 through 2011. While TSA has fully
funded its priorities to date, growth rates below 5 percent in the hotel bed tax
and car rental surcharge revenues could limit TSA’s ability to fund all activities
and sustain operations in the future. According to statute, the State is not
financially liable or responsible for any of TSA’s operations or projects, and
therefore, TSA is taking steps to prepare for possible revenue shortfalls. These
steps include working to obtain a $3 million line of credit to cover short-term
costs when revenue shortfalls occur and creating an operating reserve.
􀁺􇩍 Multipurpose facility funding—TSA, the Arizona Cardinals, and the City of
Glendale will each contribute millions of dollars toward the construction of the
multipurpose facility and its infrastructure, with TSA paying 72 percent of the
anticipated $370.6 million in construction costs. Once the facility is constructed,
TSA will own and operate it, and generate revenues from events held there. The
Arizona Cardinals will also pay for a significant portion of facility construction
costs, but will own the naming rights and receive concessions, advertising, and
ticket sales revenues from all Cardinals games held there. The City of Glendale
has established a Community Facilities District that will issue bonds to pay
Glendale’s costs for surrounding infrastructure, and plans to benefit from the
economic impact on neighboring businesses and from local sales taxes the
facility generates.
State of Arizona
page vi
Office of the Auditor General
TABLE OF CONTENTS
continued
1
15
15
18
21
23
23
24
27
29
31
31
35
37
Introduction & Background
Finding 1: Multipurpose facility cost at $370.6 million
Facility cost has increased, but various mechanisms should help
limit TSA’s liability for future cost overruns
Procedures and budget in place for overseeing facility
construction
Recommendation
Finding 2: Review needed of General Fund support
for TSA
TSA receiving General Fund monies
Statute’s minimum amount represents a future liability
Legislature could explore options to limit additional General Fund
contributions
Recommendations
Finding 3: Defined processes will help TSA objectively
evaluate funding requests
TSA developing youth sports grants process
Procedures needed for distributing Cactus League monies
Recommendations
page vii
State of Arizona
TABLE OF CONTENTS
Finding 4: TSA needs to make several changes to its
administrative practices
TSA is not a state agency
Procurement policies needed
TSA should take steps to more efficiently use attorney services
Policies needed to better control certain expenditures
TSA should help ensure monies spent on tourism promotion
benefit Maricopa County
Recommendations
Other Pertinent Information
Agency Response
Figures:
1 Arizona Tourism and Sports Authority
Revenue Distributions in Statutory Priority Order
2 Statutorily Guaranteed Minimum Distribution
Compared To Actual NFL Income Taxes Collected
Fiscal Years 2002 through 2005
3 Statutorily Guaranteed Minimum NFL
Income Tax/General Fund Distribution
Fiscal Year 2002 and Beyond
39
39
39
41
42
45
46
47
5
24
25
continued
page viii
Office of the Auditor General
TABLE OF CONTENTS
concluded
26
8
9
49
Figures (concl’d):
4 Arizona Cardinals’ Players Total Annual
Salary Compared To NFL Salary Cap
Calendar Years 1994 through 2001
Tables:
1 Schedule of Revenues, Expenses, and Changes in Net Assets
Years Ended June 30, 2002, and 2003
(As audited by Ernst & Young, LLP)
2 Statement of Cash Flows
Years Ended June 30, 2002 and 2003
(As audited by Ernst & Young, LLP)
3 Hotel Bed Tax and Car Rental Surcharge Collections
Projected vs. Actual
Fiscal Years 2002 and 2003
page ix
State of Arizona
page x
The Office of the Auditor General has conducted a performance audit of the Arizona
Tourism and Sports Authority (TSA), pursuant to Arizona Revised Statutes (A.R.S.) §5-
812. This statute requires a performance audit no later than 2004 and at least every
5 years thereafter. This audit was conducted under the authority vested in the Auditor
General by A.R.S. §41-1279.03.
History and responsibilities of TSA
The creation of TSA resulted from the Governor’s Stadium Plan “B” Advisory Task
Force (task force) established by Governor Jane Hull in 1999. The Governor
established this task force following the electoral defeat of an effort by the City of
Mesa to finance a new stadium for the Arizona Cardinals. The task force was charged
with studying funding options to construct a new football stadium, to prevent the
potential economic loss that might occur if the Cardinals relocated to another state,
to attract future Super Bowls, and to retain the Tostito’s Fiesta Bowl as a participant
in the Bowl Championship Series. The Governor directed the task force to research
the need for a new stadium, assess potential economic impacts, and devise a
possible funding package for stadium construction, but also stipulated that the
funding package minimize the impact to the average Arizona resident.
The task force, comprising 35 of Arizona’s business and community leaders, issued
its final report in January 2000. The report proposed new tourism taxes and other
revenue sources, including a contribution from the Cardinals, to finance a new
multipurpose facility. Additionally, the task force believed that other threats to the
State’s tourism tax base existed, such as competing tourism destinations and the
possible loss of Cactus League spring training teams to other states. It concluded
that any effort to finance and build a stadium should also include resources to
promote tourism in Arizona and protect and expand the Cactus League.
In response to the task force’s recommendations, the Legislature established TSA.
Legislation establishing TSA largely followed the task force’s recommendations, but
included some changes. For example, the legislation added youth and amateur
Governor’s task force
researched stadium
financing options.
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
sports as one of TSA’s funding priorities, increased the Cardinals’ minimum required
contribution by $10 million to $85 million, and stipulated that the Arizona School
Facilities Board certify, after review by the Joint Legislative Budget Committee, that
adequate financial resources be in place to bring Arizona’s schools up to standards
before TSA could begin receiving the new tax revenues. The School Facilities Board
provided this certification in May 2001 after Joint Legislative Budget Committee
review.
The Legislature established TSA in 2000 as a separate legal body of the State, and
Maricopa County voters subsequently approved TSA’s creation in the November
2000 election through the passage of Proposition 302. A.R.S. §5-802 establishes
TSA as a separate legal body with all of the rights, powers, and immunities of a
municipal corporation. Statute also recognizes TSA as a performing governmental
function with authority to sue and be sued, to acquire, hold, and dispose of property;
to hire attorneys and consultants; and to issue bonds, which according to statute, are
its own obligations and not the State’s. TSA has the following responsibilities, all of
which pertain to Maricopa County:
􀁺􇩄 Designing and constructing a new multipurpose facility, which will be the new
home of the Arizona Cardinals football team and Tostito’s Fiesta Bowl, and
which will also host the 2008 Super Bowl. The facility is currently under
construction in Glendale;
􀁺􇩄 Distributing monies to the Arizona Office of Tourism for tourism promotion;
􀁺􇩒 Reviewing, approving, and funding Cactus League baseball facility
improvements; and
􀁺􇩒 Reviewing, approving, and funding grants for youth and amateur sports facilities
and programs.
Funding sources
TSA receives funding from a variety of sources. A.R.S. §5-835 requires TSA to
maintain a tourism revenue clearing account consisting of monies generated by a
hotel bed tax and car rental surcharge. Specifically:
􀁺􇩈 Hotel bed tax increase—TSA receives revenue from a 1 percent increase in
Maricopa County’s hotel bed tax.1 The tax began on March 1, 2001, and will
continue through February 28, 2031. From the time this tax began until
December 31, 2003, TSA had received nearly $26.7 million. TSA expects to
receive a total of nearly $610 million from hotel bed taxes through 2031.
1 Hotel bed tax rates vary among cities in Maricopa County. For example, as of August 2003, hotel bed taxes were 12.07
percent in Phoenix and Tempe and 11.67 percent in Scottsdale.
State of Arizona
page 2
Maricopa County voters
approved the creation of
TSA in November 2000.
􀁺􇩃 Car rental surcharge—Proposition 302 established a 3.25 percent car rental
surcharge in Maricopa County, which also began on March 1, 2001, and expires
on February 28, 2031. Prior to the passage of Proposition 302, a flat surcharge
of $2.50 per car rental contract existed in Maricopa County. These revenues
were distributed to the Maricopa County Stadium District and used to renovate
existing and construct new Cactus League baseball facilities. The new 3.25
percent surcharge replaced the $2.50 surcharge, but the Maricopa County
Stadium District currently receives the first $2.50 from each rental car surcharge,
and TSA receives the remaining portion. Persons who are renting a car can be
exempted from paying this tax if the car rental serves as a replacement while
their own car is being repaired. From the inception of this tax until December 31,
2003, TSA had received over $19.1 million from the rental car surcharge.
Through 2031, TSA projects it will receive over $382 million from this surcharge.
In addition to these tax revenues, A.R.S. §5-834 requires TSA to maintain a facility
revenue clearing account consisting of the following revenues:
􀁺􇩓 Sales tax recapture—Beginning in July 2001, TSA recaptured all state sales
taxes paid at Cardinals games, including those played at Arizona State
University’s Sun Devil Stadium, until the new facility is constructed, as well as
any sales taxes paid on materials purchased for the construction of the new
facility in Glendale. This sales tax recapture does not have an expiration date. As
of December 31, 2003, TSA had received over $3.9 million from sales taxes paid
at Cardinals games and from sales taxes paid for the new facility’s construction.
It expects to receive much more from this source once the new facility is
completed, and projects receiving approximately $130 million through 2031.
􀁺􇩎 NFL tax—TSA received all state income taxes paid by the Cardinals’ corporate
organization, its employees (including players), and their spouses beginning in
July 2001. Specifically, A.R.S. §42-1116(C) requires the State Treasurer to give
TSA the greater of the amount collected from the NFL tax or $3.5 million in fiscal
year 2002, growing at 8 percent each year. If the tax revenues collected under
this category do not meet required minimum amounts, TSA is to receive the
remainder from the State General Fund. In fiscal year 2002, the amount of NFL
tax distributed to TSA was approximately $915,000 greater than the minimum
floor; therefore, no General Fund money was distributed to TSA. However, by the
end of fiscal year 2005, over $2.6 million in General Fund money will have gone
to TSA because NFL tax collections did not reach the required minimum
amounts. As of December 31, 2003, TSA had received over $10.2 million in NFL
tax and General Fund monies (see Finding 2, pages 23 through 29).
The distribution of NFL taxes and General Fund monies to TSA has no expiration
date. Given the statutory guarantee, TSA anticipates that this distribution will
provide at least $397.8 million from July 2001 through June 2031.
Office of the Auditor General
page 3
Sales tax recapture and
NFL tax revenues do not
expire.
􀁺􇩏 Other facility-generated revenue—Once the facility is constructed and
operating, TSA will also generate additional revenues from many of the events
held there. According to its agreement with the Cardinals, TSA will receive
$250,000 (increasing by 2 percent each year) in rent per year from the Cardinals
to play in the facility as long as the Cardinals play there. The Cardinals are
contractually obligated to pay this rent for the first 30 years after the stadium
opens, at which time the fee can be renewed for up to six 5-year periods. The
multipurpose facility will also host the Tostito’s Fiesta Bowl, an annual National
Collegiate Athletic Association post-season football game, for at least 30 years.
Per its agreement with the Fiesta Bowl, TSA will receive $2.50 for each Fiesta
Bowl ticket sold for the first game played at the multipurpose facility. This amount
increases by $0.20 per ticket annually. Finally, TSA will receive revenue from rent,
concessions, and parking from other events it stages at the facility. TSA projects
that it will receive approximately $115.2 million from facility-generated revenue
through 2031.
TSA’s funding priorities
As shown in Figure 1 (see page 5), statute directs the use and distribution of TSA’s
revenues in its tourism revenue clearing and facility revenue clearing accounts, and
specifies that certain projects and priorities cannot be funded until higher priorities
are fully funded. While revenues in the tourism clearing account are to be used to
fund all of TSA’s activities in a specified priority, the use of revenues in the facility
revenue clearing account is restricted. Specifically, these revenues are to be used to
make principal and interest payments on the multipurpose facility bond debt and the
Cactus League bond debt if there are insufficient monies in the tourism revenue
clearing account to satisfy these obligations. Additionally, facility revenue clearing
account monies help fund TSA operations and establish required reserves. TSA’s
funding priorities, in order of priority and the amount of funding they receive, are
outlined below.
􀁺􇩍 Multipurpose facility (facility)—TSA’s first funding priority is to pay existing debt
service on bonds it issued to pay its share of the design and construction of a
new multipurpose facility. In February 2003, TSA issued $222 million in bonds to
finance the majority of its share of facility construction costs. The bonds are due
to be retired in 2031. The amount of TSA money dedicated to paying debt
service for these bonds will vary during the 29-year period. For example, from
fiscal year 2005 through fiscal year 2007, TSA will need approximately $11.1
million per year to make principal and interest payments on the bonds. From
fiscal year 2018 through fiscal year 2032, TSA will need approximately $19
million per year to make these payments. In all, total principal and interest
payments are projected to cost approximately $457 million. Combined with
other facility costs, such as payments TSA made before issuing the bonds, TSA
will pay a total of over $500 million for the facility.
State of Arizona
page 4
Office of the Auditor General
page 5
Figure 1 Arizona Tourism and Sports Authority
Revenue Distributions in Statutory Priority Order
Source: Auditor General staff analysis of A.R.S. §§5-834 and 5-835.
Tourism Revenue Clearing Account Facility Revenue Clearing Account
Revenue:
1 percent hotel tax and
3.25 percent rental surcharge.
Revenue:
NFL income tax collections, recaptured sales tax,
and facility-generated revenue (revenue from
events held at the multipurpose facility).
Distributions:
Multipurpose facility debt service—principal and
interest payments on debt.
Tourism promotion—$4 million for the first 12
months beginning June 2001; amount increases
by 5 percent annually.
Youth and Amateur Sports—$1 million allocated
for the first 12 months beginning June 2001;
amount increases by $100,000 annually.
Reserves—Any money remaining after operating
costs are paid is directed into three reserve
accounts: Youth and Amateur Sports, Capital, and
Operating.
Cactus League promotion—$3 million allocated
annually for the first 7 years beginning June
2001; as specified in statute, annual allocation
increases up to $11 million annually for last 4
years; includes principal and interest payments on
debt.
Tourism and Sports Authority Operations
Revenue in the facility
revenue clearing account is
used first to make principal
and interest payments on the
multipurpose facility bond
debt and then the Cactus
League bond debt if the
tourism revenue clearing
account lacks sufficient
monies to make these
payments. Any facility
revenue clearing account
monies not needed for debt
payments are distributed to
TSA operations.
In addition to TSA’s contribution to the costs of facility construction, the
Cardinals will share in the facility construction, land acquisition, and
infrastructure development costs, while the City of Glendale will be primarily
responsible for infrastructure development. TSA will ultimately own and operate
the facility, and the Cardinals will be its primary occupant. Currently under
construction, the facility will be a 63,000-seat, enclosed, air-conditioned
structure with an opening roof and a natural grass playing surface that will roll
out of the facility so that the grass may grow in sunlight. TSA states that having
a removable field will also make it easier to use the facility for nonsporting
events, such as trade shows, conventions, and concerts. However, another
feature that would contribute to the facility’s multipurpose functionality may not
be fully developed when the facility opens. Specifically, over 100,000 square feet
that could be developed into meeting space will be undeveloped upon initial
occupancy due to budgetary constraints. However, in its facility management
and marketing request for proposals, TSA has asked responders to indicate
their willingness to fund the build out of some or all of this space. After more than
a year of delays related to flight hazard issues associated with the original site
in Tempe, a second site selection process, and a lawsuit from a Phoenix area
developer, construction began in July 2003 in Glendale. The facility is scheduled
to be completed during the summer of 2006 (see Finding 1, pages 15 through
21).
􀁺􇩔 Tourism promotion for Maricopa County—As part of the voter-approved
proposition, TSA will distribute monies to the Office of Tourism to promote
tourism in Maricopa County. According to A.R.S. §5-835, TSA must distribute $4
million annually, increasing by 5 percent each year. In fiscal year 2002, the Office
of Tourism received the entire amount. However, in fiscal year 2003, the
Legislature retained $2.2 million for use in balancing the State’s budget, which
left the Office of Tourism with only $2 million from this source. As of December
2003, nearly $8.6 million had been distributed for tourism promotion, and
through 2031, an estimated $264 million will be distributed for tourism
promotion.
The Office of Tourism has established a grants program to award these monies
to entities such as convention and visitors’ bureaus and cities in Maricopa
County. However, the Office of Tourism keeps 5 percent of these monies for its
own tourism promotion efforts (see Finding 4, pages 39 through 46).
􀁺􇩃 Cactus League baseball—As outlined in statute, TSA next funds the
construction, renovation, marketing, or promotion of new or existing Cactus
League baseball spring training facilities in an effort to lure new teams to and/or
keep existing teams in Maricopa County. As of December 2003, TSA had
distributed $32 million to the City of Surprise to build a new two-team training
facility, which brought two new teams from Florida—the Kansas City Royals and
the Texas Rangers. TSA had also distributed more than $4.3 million to the City
State of Arizona
page 6
TSA will own and
operate the
multipurpose facility.
of Phoenix to renovate Phoenix Municipal Stadium, which is the spring training
home of the Oakland Athletics. TSA plans to make awards for other training
facilities in Maricopa County as leases between the communities and teams
expire. For example, the San Francisco Giants’ lease at Scottsdale Stadium will
expire in 2007. Additionally, in December 2003, the TSA Board adopted a
resolution preliminarily approving $20 million in funding for the planned design
and construction of a new spring training facility in the City of Goodyear for the
Anaheim Angels. However, the resolution also stipulates that TSA must first enter
into intergovernmental agreements with the Cities of Tempe and Scottsdale
regarding TSA’s funding contribution towards those cities’ spring training
facilities. Further, it stipulates that a suitable replacement team must be identified
and committed to a minimum 20-year lease to conduct spring training at Tempe
Diablo Stadium.
To assist in financing such projects, in February 2003, TSA issued $32.4 million
in uninsured bonds, which are subordinate to both the bonds issued for the
multipurpose facility as well as to monies provided for tourism promotion
funding. As of December 31, 2003, TSA had distributed over $36.3 million for
Cactus League projects, and estimates that a total of $205 million will be spent
by 2031 (see Finding 3, pages 31 through 37).
􀁺􇩙 Youth and amateur sports—After Cactus League baseball, statute requires TSA
to fund youth and amateur sports facilities and programs. TSA will grant monies
for youth and amateur sports facilities and programs throughout Maricopa
County. In 2001 and 2002, TSA committed funding to three projects: the South
Mountain YMCA, a sports complex in Avondale, and youth sports fields in
Glendale, which will double as overflow parking at the new facility. In February
2004, TSA awarded grants for an additional 13 projects to communities and
community organizations in Maricopa County. According to A.R.S. §5-835,
youth and amateur sports will initially receive $1 million for the 12-month period
beginning June 2001, and this amount will increase by $100,000 each year. As
of February 2004, TSA had committed nearly $6.6 million for youth and amateur
sports facilities, and estimates that it will allocate $73.5 million through 2031.
􀁺􇩏 Operations and administration—After funding all of the program areas identified
above, remaining tax revenues are available for TSA operations. This includes
TSA staff salaries, travel, and insurance, and funding the multipurpose facility’s
operations. TSA had operating expenses of $1.9 million in fiscal year 2003. TSA
expects that its operating costs will remain at this level for fiscal years 2004 and
2005. However, TSA expects its operating costs to grow significantly in fiscal
year 2006 to an estimated $5 million and in fiscal year 2007 to an estimated
$11.6 million as it prepares to open and becomes responsible for operating the
multipurpose facility and expands its staff and other expenses to do so.
Information from TSA’s audited financial statements is presented in Tables 1 and
2 (see pages 8 and 9).
Office of the Auditor General
page 7
State of Arizona
page 8
Table 1: Schedule of Revenues, Expenses, and Changes in Net Assets
Years Ended June 30, 2002 and 2003
(As audited by Ernst & Young, LLP)
2002 2003
Operating revenues:
Other $ 494
Total operating revenues 494
Operating expenses:
Legal 1,390,313 $ 215,666
Arizona tourism distribution 4,033,333 4,235,000
Consulting 763,492 127,450
Payroll 707,331 581,988
Professional fees 568,624 268,875
Marketing and promotion 118,767 106,626
Bank management and service fees 16,537 199,905
Insurance 138,584 102,164
Travel 3,006 11,192
Meetings 9,555 10,901
Office 56,432 30,272
Site selection 172,973 51,626
Communications 38,420 26,549
Rent 93,591 104,981
Depreciation 27,628 31,944
Amortization of deferred bond issue costs 31,032
Total operating expenses 8,138,586 6,136,171
Operating loss (8,138,092) (6,136,171)
Nonoperating revenues (expenses):
Cactus League facility expense (3,600,000) (6,765,000)
City of Avondale facility income (expense) (3,430,820) 820
Hotel bed tax 9,811,027 10,281,047
Rental car tax 6,824,977 7,547,102
NFL income tax 4,420,872 3,784,320
Sales tax recapture 946,394 959,610
Interest income 136,887 869,291
Interest expense (58,011) (616,398)
Loss on disposal of property and equipment 1 (1,114,316)
Total nonoperating revenues 13,937,010 16,060,792
Net income before contributions 5,798,918 9,924,621
Capital contributions 3,570,523 1,061,189
Increase in net assets 9,369,441 10,985,810
Net assets, beginning of year (21,946,996) (12,577,555)
Net assets, end of year $(12,577,555) $(1,591,745)
1 This is primarily for a one-time write-off of the original stadium site in Tempe that was abandoned in
November 2001.
Source: Tourism and Sports Authority’s audited Financial Statements report for the years ended June
30, 2002 and 2003. The statements were audited by Ernst & Young, LLP.
Office of the Auditor General
page 9
Table 2: Statement of Cash Flows
Years Ended June 30, 2002 and 2003
(As audited by Ernst & Young, LLP)
2002 2003
Cash flows from operating activities
Payments to suppliers $(10,815,568) $(11,122,751)
Payments to employees (628,035) (581,988)
Other receipts 494
Net cash used in operating activities (11,443,109) (11,704,739)
Cash flows from noncapital financing activities
Payments for Cactus League facilities—City of Surprise (3,257,197) (28,742,803)
Payments for Cactus League—City of Phoenix (4,365,000)
Payments for Youth and Amateur Sports—City of Avondale (290,404)
Payments for Youth and Amateur Sports—South Mountain YMCA (150,000)
Receipts from hotel bed tax 9,901,026 10,228,577
Receipts from rental car tax 6,505,525 7,668,222
Receipts from NFL income tax 4,420,872 3,784,320
Receipts from sales tax recapture 948,394 959,610
Interest payments (39,807) (135,198)
Net cash (used in) provided by noncapital financing activities 18,478,813 (11,042,676)
Cash flows from capital and related financing activities
Capital contributions 3,570,523 1,061,189
Proceeds from line of credit 2,000,000
Payments on line of credit (3,000,000)
Proceeds from stadium term loan 8,087,500
Payments on stadium term loan (7,000,000) (5,000,000)
Proceeds from senior and subordinate bonds 255,890,434
Payments for bond issue costs (448,631)
Payments on capital leases (11,426) (12,748)
Acquisition and construction of capital assets (11,508,610) (2,285,857)
Net cash provided by (used in ) capital and related financing activities (7,862,013) 249,204,387
Cash flows from investing activities
Interest received 136,887 698,291
Net cash provided by investing activities 136,887 698,291
Net increase (decrease) in cash and cash equivalents (689,422) 227,155,263
Cash and cash equivalents at beginning of year 6,264,299 5,574,877
Cash at and cash equivalents at end of year $ 5,574,877 $232,730,140
Source: Tourism and Sports Authority’s audited Financial Statements report for the years ended June 30, 2002 and
2003. The statements were audited by Ernst & Young, LLP.
State of Arizona
page 10
In addition to these funding priorities, statute also requires TSA to establish and fund
reserves for its operations, youth and amateur sports, and for repairs and other long-term
costs associated with the multipurpose facility. Once these reserves are funded
at the minimum amounts required by statute, TSA can use excess monies for early
retirement of any outstanding bonds, including the multipurpose facility and Cactus
League bonds. Once all bond debt is retired, A.R.S. §5-835 requires TSA to spend
70 percent of its excess monies on Maricopa County tourism promotion and 30
percent of excess monies for further expansion and renovation of Cactus League
facilities.
Organization and staffing
TSA is governed by a nine-member board of directors. The Governor appoints five
board members, with one member representing the tourism industry, one
representing the hotel and motel industry, one representing youth sports
organizations, and one representing major league baseball spring training
organizations. The President of the Senate and the Speaker of the House each
appoint two members who cannot both be from the same political party. All members
serve 5-year terms and may be reappointed for one full subsequent term.
As of March 2004, TSA had five staff, including a president/chief executive officer,
vice president for facilities, chief financial officer, and two administrative support staff.
Additionally, TSA has contracted for various professional services, including legal,
engineering, construction management, and public relations. For fiscal year 2004,
TSA anticipates adding four full-time positions, including individuals to assist in TSA’s
marketing efforts for the multipurpose facility, manage and coordinate the youth and
amateur sports grant process, and assist with administrative and financial tasks. The
fourth position will be a physical plant specialist who will work with the vice president
for facilities during the multipurpose facility construction.
Scope and methodology
This audit focused on TSA’s efforts to oversee the multipurpose facility construction,
how shortfalls in the NFL tax have affected the General Fund, TSA’s processes for
distributing youth and amateur sports and Cactus League funding, administrative
practices, revenue projections, and funding of the multipurpose facility and
surrounding infrastructure. This report includes findings in the following four areas:
􀁺􇩔 The multipurpose facility’s cost has increased to $370.6 million. However, TSA
has various mechanisms and a budget in place for overseeing construction that,
if used properly, can help limit TSA’s liability for future cost overruns, and ensure
the project is completed on time and with sufficient quality.
Office of the Auditor General
page 11
􀁺􇩔 The Legislature may want to consider statutory changes to reduce the burden
that a shortfall in one of TSA’s revenue sources has placed on the General Fund.
􀁺􇩗 While TSA has developed a process for awarding grants to youth and amateur
sports projects, TSA should further enhance this process and also establish
criteria for awarding Cactus League monies to baseball spring training facilities
in Maricopa County.
􀁺􇩔 TSA needs to make several changes to its administrative practices to ensure the
most efficient and effective use of its operating funds, and to ensure that all
tourism promotion monies it distributes to the Arizona Office of Tourism are used
correctly.
This report also includes other pertinent information regarding the projected revenue
that TSA expects to receive over the next several years, as well as information related
to the funding of the multipurpose facility and surrounding infrastructure by TSA, the
Cardinals, and the City of Glendale, and the benefits those parties will receive from
the facility.
Auditors used a number of methods to study the issues addressed in this report.
They attended three TSA board meetings; interviewed TSA staff and six board
members; and reviewed statutes, TSA board meeting minutes from July 2000 to
December 2002, and TSA monthly reports from April 2001 through December 2002.
Auditors also reviewed documents related to Proposition 302 (2000) and the creation
of TSA, such as the final report of the Governor’s Stadium Plan “B” Advisory Task
Force, the Proposition 302 voter information pamphlet, and legislative meeting
minutes. Auditors also used the following methods:
􀁺􇩔 To determine the costs for constructing the multipurpose facility and the
mechanisms TSA has in place to help reduce its liability for future cost overruns
and to ensure the quality and timeliness of construction, auditors reviewed
project construction documents, including the project management agreement
and TSA’s construction agreement with the contractor and the Cardinals, as well
as TSA’s facility agreements with the Arizona Cardinals and the City of Glendale.
Auditors also interviewed TSA’s primary construction consultant, a
representative of the Department of Administration who specializes in
government construction projects, and representatives of similar sports-related
authorities in five states that have recently constructed football stadiums.1
Auditors also researched the design-build method of construction by
interviewing the director of the Alliance for Construction Excellence at Arizona
State University’s Del E. Webb School of Construction and reviewing information
from the Design-Build Institute of America’s Web site.
1 Auditors contacted sports authorities in Colorado, Florida, Michigan, Texas, and Washington.
􀁺􇩔 To determine the effect of potential shortfalls in NFL tax collections on the
General Fund, auditors analyzed NFL tax collection and distribution information
from the Department of Revenue and the State Treasurer’s Office, and a
National Football League Players Association report on salary information for
NFL teams, including the Arizona Cardinals.1 Auditors also reviewed the official
statements for TSA multipurpose facility bonds and a Court of Appeals ruling in
a lawsuit against TSA. Finally, auditors interviewed TSA consultants who were
involved in the NFL tax revenue projections, as well as the company that insured
the multipurpose facility bonds.
􀁺􇩔 To evaluate TSA’s processes for awarding youth and amateur sports and Cactus
League funding, auditors observed two meetings of the Youth and Amateur
Sports Advisory Committee, one meeting of the Committee’s Grant Process
subcommittee, TSA’s youth and amateur sports summit meeting in February
2003, and the TSA youth and amateur sports town hall meeting held in Peoria in
April 2003. Auditors also reviewed the 26 youth and amateur sports funding
requests received in calendar year 2001, TSA’s funding agreements with the
City of Avondale and South Mountain YMCA, TSA’s multipurpose facility
development agreement with the City of Glendale, the Arizona Cardinals’
original and restated agreements with Glendale, and the grant process
developed by the Youth and Amateur Sports Advisory Committee. Auditors also
obtained and reviewed granting criteria from the Arizona Commission on the
Arts, the Arizona State Parks Local, Regional and State Parks Heritage Fund
program, and the Maricopa County Stadium District. Finally, auditors interviewed
TSA’s youth and amateur sports consultant.
􀁺􇩔 To assess TSA’s administrative practices, auditors reviewed contract
documentation for 14 TSA vendors, 15 billing statements for attorneys who TSA
used, and documentation related to the Attorney General’s process for securing
outside legal counsel services. Auditors also interviewed officials at the Attorney
General’s Office and State Procurement Office. Additionally, auditors reviewed
TSA travel and credit card documentation, and TSA’s financial internal controls.
Further, auditors reviewed the portions of TSA’s agreements with the Arizona
Cardinals and the Fiesta Bowl related to the luxury suite and tickets it will receive
in the new multipurpose facility, and reviewed the Maricopa County Stadium
District’s agreement with two nonprofit organizations for the use of its suite for
all Diamondbacks baseball games played in Bank One Ballpark. Finally,
auditors reviewed statutes related to the manner in which tourism promotions
monies must be spent, and reviewed advertisements the Arizona Office of
Tourism placed using these monies.
􀁺􇩔 To develop information on TSA’s revenue projections, auditors reviewed and
analyzed revenue projections developed by the Governor’s Stadium Plan “B”
Advisory Task Force and by TSA for the voters’ pamphlet and multipurpose
1 Duberstein, M.J., NFL Economics Primer 2002, National Football League Players Association, www.nflpa.org, April 2002.
State of Arizona
page 12
facility bonds. In the absence of supporting documentation for these
projections, auditors interviewed TSA consultants who helped TSA develop
these projections.
􀁺􇩔 To develop information on the shared multipurpose facility costs and benefits,
auditors reviewed TSA’s facility agreements with the Arizona Cardinals and the
City of Glendale, the Cardinals’ original and restated agreements with the City of
Glendale, project construction documents, including the project management
agreement and TSA’s construction agreement with the contractor and the
Cardinals, and the Arizona Cardinals agreement with Arizona State University.
Auditors also interviewed an official with the Glendale City Attorney’s office.
This audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the Arizona Tourism and Sports
Authority Board of Directors, the president/CEO, and staff for their cooperation and
assistance throughout the audit.
Office of the Auditor General
page 13
State of Arizona
page 14
Multipurpose facility cost at $370.6 million
While TSA has undertaken steps to help protect the public’s
interest during construction of the multipurpose facility, the
facility’s estimated cost has increased to $370.6 million. The
facility was originally estimated to cost $331 million, but by the
time design plans were largely finalized in January 2004, the
facility cost increased to nearly $40 million more than the original
estimate. However, various mechanisms are in place that, if used
properly, should limit TSA’s liability for future cost overruns.
Additionally, in collaboration with the Cardinals, TSA is
overseeing the facility’s construction through an onsite staff
member, the use of construction consultants, and through
budgeted allowances for facility inspections, contingencies, and
insurance.
Facility cost has increased, but various
mechanisms should help limit TSA’s liability for future
cost overruns
Statutes do not cap the facility’s cost, and the facility’s overall expected cost has
increased; however, if used properly, TSA’s agreements with the construction
contractor and the Cardinals should help limit TSA’s responsibility for future cost
overruns. When voters approved Proposition 302, the facility was estimated to cost
$331 million, but as the design plans were largely finalized in January 2004, the total
facility cost increased to $370.6 million. However, if used properly, TSA’s use of the
design-build method of construction as well its agreement with the Cardinals that
requires the Cardinals to pay for facility changes that they request should help limit
TSA’s liability for future cost overruns. Further, the amount of funding TSA can
contribute is limited by TSA’s ability to sell additional bonds.
Office of the Auditor General
page 15
FINDING 1
Artist’s rendering of multipurpose facility.
Source: Arizona Tourism and Sports Authority.
State of Arizona
page 16
Statutes do not limit the facility’s cost—Although the voter publicity pamphlet
for Proposition 302 stated that “the cost of the facility is anticipated to be
approximately, but not in excess of $331 million,” statutes do not place a cap on the
cost. In January 2004, 6 months into the facility’s construction, the design plans were
largely finalized and the facility is now estimated to cost approximately $370.6 million.
Of this amount, TSA plans to contribute approximately $266.6 million and the
Cardinals will pay approximately $104 million, although statutorily the Cardinals are
required to contribute only $85 million. Statutes allow TSA to issue bonds in whatever
amounts it deems necessary, and TSA can also use monies left over after fully
funding other priorities to help pay the cost.1 TSA officials have stated that the cost
listed in the voters’ pamphlet was only an estimate, and that is was not possible to
have a more accurate cost estimate because no detailed plans existed at that time.
Facility cost has increased—In August 2003, TSA entered into a design-build
agreement with the contractor, which set a guaranteed maximum price of $346.3
million for the multipurpose facility’s construction. At the time this agreement was
entered into, the design plans were not finalized. However, the agreement required
the contractor to be responsible for any planned construction costs that exceeded
that amount. As such, included in this price was $9 million that the contractor set
aside, referred to as contractor contingency, to pay for unexpected cost increases
during construction. Unexpected costs could include delays due to design flaws or
items either not budgeted or budgeted too low by the contractor.
The Cardinals also committed an additional $9 million in contingency to pay for items
not included in the agreed upon scope of the project, but necessary to complete the
project, or for potential facility upgrades that may be requested to the approved
design. TSA also planned to contribute approximately $6.5 million as part of a lease
purchase of some cooling and central plant equipment for the facility. This actually
brought the overall construction budget for the facility to $361.8 million.
However, total project costs have increased to approximately $370.6 million.
Specifically, as the design plans were largely finalized in January 2004, the contractor
was able to provide more information regarding the facility construction costs. TSA,
in conjunction with the Cardinals, decided which features it wanted to retain, add, or
remove. While some significant changes were made to try to stay within the original
construction budget, TSA and the Cardinals agreed to retain facility features within
the project design at a higher cost or approved other changes. For example, the roof
opening will now be smaller and simpler than originally planned; however, TSA has
added plans for a utility grid in the floor of the facility intended to make it easier to
host nonsporting events such as trade shows, conventions, and concerts. Once
these changes were finalized, TSA modified the original design-build agreement with
the contractor and set a new guaranteed maximum price of $357.8 million.
1 A.R.S. §5-835(B)(1) refers to a facility cost of $331 million, but this sets the limit for only the amount of hotel tax and car
rental tax revenue that is designated to service the debt. That amount is one-half of $331 million paid over 30 years, but
TSA will have revenue from other sources, such as the sales tax recapture or the NFL tax, that it can contribute to the
facility’s cost.
Statute does not cap
the cost of the
multipurpose facility.
The multipurpose facility
construction cost is now
estimated at $370.6
million.
Office of the Auditor General
page 17
In addition to the $357.8 million in construction costs, there is nearly $12.9 million in
costs for such things as city permit fees, facility testing and inspection, and
insurance. This amount also includes over $3.2 million of the Cardinals original $9
million in contingency monies that remain available for use in the project. As a result,
total project costs are now estimated at approximately $370.6 million.
The total project cost has increased $8.8 million from August 2003 to January 2004.
TSA will pay $7.8 million of this increase and the Cardinals are paying $1 million of it.
TSA also required the contractor to reduce its fees by $500,000 and use over $5.1
million of the contingency it set aside under the original agreement to help prevent a
further increase in construction costs.
TSA using design-build method for construction—Design-build
construction agreements enable an owner to enter a contract with one “designer-builder”
who then coordinates with architects, consultants, and other subcontractors,
and acts as a single point of contact for the owner. This allows the owner to interact
with and oversee just one entity who is accountable for all aspects of the project,
including keeping it within budget. Generally, design-build projects also include a
guaranteed maximum price or lump-sum amount and require the contractor to cover
any cost overruns not included in the scope of the
contracted work. This type of arrangement can be
especially helpful to ownership entities with small staffs and
limited resources to oversee large-scale projects such as
the multipurpose facility because the contractor handles
day-to-day project administration. Also, with contractor
involvement in both design and construction, project
design changes and associated costs can be better
managed. Finally, projects can often avoid delays that
occur with other types of construction when the owner must
manage separate contracts and possible disputes between
the architect and the contractor.
Cardinals responsible for added costs through
project management agreement—While the
contractor is required to pay for construction cost overruns,
the project management agreement between TSA and the Cardinals requires the
team to pay for all other cost increases. If project savings are not available, the
Cardinals must pay for design changes they request that upgrade or otherwise
improve upon the originally agreed-upon design and that increase the project
budget. Some design changes are possible during construction that were not in the
original plans with the guaranteed maximum price. For example, as the facility is
nearly completed, the Cardinals could decide that they want to upgrade locker room
or press box facilities. Additionally, if for some reason the guaranteed maximum price
must be increased further during construction and the increased costs are not the
responsibility of the contractor or TSA, and TSA does not have excess monies to
contribute, the Cardinals would be required to cover the full amount of that increase.
The Arizona Cardinals
must pay for upgrades
or improvements they
request to facility
design.
Design-Build Construction
A construction method in which the owner, such
as the TSA, enters into a single contract with a
design-builder entity to provide architectural,
engineering, design, and construction services.
This provides for a more simple construction
process for the owner. Guaranteed construction
costs are also known earlier than other
construction methods, while total design and
construction time can be significantly reduced.
Source: Design-Build Institute of America, www.dbia.org.
State of Arizona
page 18
TSA has limited ability to contribute additional funding—Even though
TSA will contribute additional monies to cover most of the January 2004 cost increase
for facility construction, it will be limited in its ability to further contribute funding to the
project. TSA has identified additional funding sources that it has designated to cover
the majority of the facility’s cost increase. This includes additional sales tax recapture
revenues from the increased facility construction costs and facility infrastructure
development, additional monies that TSA will make available through its planned
lease purchase of some cooling and central plant equipment for the facility, and
contingency monies that TSA will receive from the City of Glendale related to the
City’s construction of a pedestrian plaza.
However, further TSA contributions may be limited. First, when TSA issued facility
construction bonds in February 2003, it issued the maximum amount of bonds it
could while still receiving the highest bond rating. These bonds received a AAA rating
because they are fully insured, meaning bond investors are guaranteed a specified
rate of return and return of their principal investment. While TSA can issue additional
bonds, according to its project management agreement with the Cardinals, these
bonds must also be insured. According to a TSA official, given its many funding
obligations, including making principal and interest payments on its facility bonds,
TSA will not have the ability to issue additional insured bonds until at least 2008.
Facility construction is scheduled for completion in 2006. Additionally, TSA cannot
contribute more monies from its various revenue streams until it fully funds all of its
other obligations.
Procedures and budget in place for overseeing facility
construction
TSA has processes and a budget in place to oversee the construction of the facility
to help ensure that the project is completed on time, within budget, and with sufficient
quality. TSA is collaborating oversight of the project with the Cardinals, and is using
a qualified staff member and several construction consultants to help oversee daily
progress. Additionally, as part of the overall cost of constructing the facility, TSA
established budgets for insurance and construction contingencies. However, some
of the contingency has already been used to help offset the January 2004 facility
construction cost increases.
TSA collaborating on construction oversight with the Cardinals—
Because both TSA and the Cardinals are contributing significantly to the cost of the
facility and have substantial interests in construction costs and quality, both are
involved in oversight. Both have designated representatives for construction matters
who are onsite and have unlimited access to the facility during construction. TSA’s
Office of the Auditor General
page 19
vice president for facilities has 25 years of design and construction oversight
experience, including experience overseeing large-scale municipal projects, and
represents TSA’s interest during construction. In September 2003, the contractor
began to provide TSA and the Cardinals with monthly reports that summarize
construction progress and the costs being incurred. These reports also provide
information on the procurement of materials and subcontractor services, the quality
control and testing inspections conducted, updated schedule information, and a
cost management section that includes the contractor’s application for payment and
an associated payment schedule. The TSA and Cardinals’ representatives also meet
twice a month with representatives of the contractor to review construction progress
and to discuss potential solutions to problems that arise. Finally, TSA’s executive
director and board members with expertise in construction meet periodically to
receive updates from TSA staff and consultants on construction progress.
Consultants to help oversee facility construction—To assist in
construction oversight, TSA and the Cardinals have set aside $3.1 million of the
construction budget, and TSA has set aside additional monies for the use of
consultants. Specifically, the project is using testing consultants to help ensure that
the project is carried out with proper building techniques. For example, TSA has
retained a consultant that is performing stress tests on samples of concrete used
during facility construction to ensure that they were poured correctly and that the
proper-strength grade of concrete was used.
TSA also contracted with a recently retired division president of one of the United
States’ largest construction firms to assist in reviewing project designs and
developing the design-build agreement. This consultant is also helping to oversee
construction. Before working for TSA, the principal construction consultant oversaw
large-scale construction projects, such as Sky Harbor Airport’s Terminal 4 and the
new Arizona State Hospital that was completed in 2003. Finally, TSA is in the process
of identifying a qualified firm to provide construction auditing services. Services
provided by a construction auditor would include periodically reviewing billing
statements to ensure that a proper amount was charged for the type of work and
materials used.
Facility budget includes money for contingency and insurance—In
addition to budgeting for the use of construction consultants, monies have been set
aside for construction contingencies and insurance.
􀁺􇩃 Contingency budget—At the start of facility construction in July 2003, the original
$361.8 million facility construction budget included a total of $18 million to cover
unexpected construction costs. This amount included $9 million in the design-build
agreement with the contractor to cover cost overruns, and the $9 million
The contractor is
providing monthly
construction reports.
that the Cardinals would control for facility upgrades. However, after
approximately 6 months into construction, both contingencies have been
significantly reduced to help prevent further cost increases. Specifically:
􀂍􈵃 Contractor contingency—Included in the original $346.3 million guaranteed
maximum price was $9 million in contractor contingency to pay for
unexpected cost increases during construction. Unexpected costs could
include delays due to design flaws or items either not budgeted or
budgeted too low by the contractor. As mentioned previously, during the
first 6 months of construction and while facility design plans were finalized,
cost increases did occur, resulting in the guaranteed maximum price
increasing to $357.8 million. To help retain as much of the facility design as
possible, over $5.1 million in contractor contingency was used, reducing
the remaining available amount to approximately $3.9 million as of January
2004. Should the project be completed under the guaranteed maximum
price of $357.8 million, the contractor will keep 25 percent of the amount
saved. This acts as an incentive to help reduce costs.
􀂍􈵃 Cardinals’ contingency—As mentioned previously, separate from the
$346.3 million was an additional $9 million in contingency that is part of the
Cardinals’ contribution. This was to be used for change orders to the
construction plans, which the Cardinals controlled, or for any costs arising
from upgrades or improvements to the facility or increases in the
guaranteed maximum price. The Cardinals agreed to commit
approximately $5.8 million of their contingency to help pay for the recent
construction cost increases. Because the Cardinals are paying more than
is required by law, the Cardinals will keep any unused portion of their
contingency.
The $18 million originally budgeted for contingency was equal to about 5 percent of
the original project budget and appeared to be in-line with amounts recommended
by the Arizona Department of Administration (DOA) and other recent stadium
construction projects in the U.S. According to DOA, state government construction
projects should reserve approximately 5 percent of the overall budget for
contingencies. Additionally, according to representatives of five authorities who
constructed football stadiums since 1998, contingency budgets for their projects
ranged from approximately 3 percent to approximately 6 percent of the total stadium
project budgets.1 However, because much of the monies set-aside for contingency
has been used for construction cost increases as of January 2004, the remaining
contingency budget represents only 1.9 percent of the total project cost. The
budgeted contingency has been reduced by over 60 percent; however, according to
a board official, since the facility’s design has mostly been completed, the risk of
further construction cost increases has been significantly reduced.
State of Arizona
page 20
1 Auditors contacted officials from organizations that built National Football League stadiums in Denver, Detroit, Houston,
Seattle, and Tampa.
􀁺􇩉 Insurance budget and coverage—The facility project costs include
approximately $12.5 million for insurance coverage to cover costs that may arise
from construction errors, catastrophic damage, and other liabilities during
construction. TSA established this amount in consultation with the contractor’s
insurance broker, TSA’s chief construction consultant, and an insurance
company that has insured various stadium projects, and the Cardinals. The
following insurance coverages have been obtained:
􀂍􈵅 Errors and omissions—This type of insurance covers any losses due to
architectural design inadequacies or construction errors. The contractor
has obtained $50 million in coverage at a cost of nearly $4.1 million.
􀂍􈵂 Builders’ risk—This insurance covers the complete value of the facility in
case of catastrophic damage due to fire and other natural disasters. TSA
has obtained builders’ risk insurance at a cost of $1.56 million. This
insurance does not cover losses due to mold growth or terrorism.
􀂍􈵇 General liability—The contractor has also obtained insurance to cover its
liability in general areas such as workers’ compensation, auto insurance,
and other damage to property or materials related to construction. Primary
coverage limits for bodily injury, including death resulting from injury, and
property damage are $2 million per occurrence with an annual maximum of
$4 million. Premiums for these insurance coverages cost $6.84 million.
Included in this insurance coverage is an umbrella liability policy for $50
million.
Recommendation
This finding presents information only. Therefore, no recommendations are
presented.
Office of the Auditor General
page 21
State of Arizona
page 22
Office of the Auditor General
page 23
Review needed of General Fund support for TSA
The Legislature may wish to consider revising statute to reduce the burden placed
on the General Fund when shortfalls occur in the amount of NFL tax available to TSA.
The NFL tax consists of all state income taxes paid by the Cardinals’ corporate
organization, its employees (including players), and their spouses. Statute
guarantees a minimum amount that TSA will receive from the tax and provides for
additional General Fund monies to make up any shortfalls. By the end of fiscal year
2005, TSA will have received over $2.6 million in additional General Fund monies,
and such distributions may also be needed in future years. Several options exist for
modifying the current statutory requirement.
TSA receiving General Fund monies
The General Fund has already provided monies to TSA that do not include NFL
income tax collections and may need to provide additional funding in the future if NFL
tax collections continue to fall short of the required minimum amount. Under current
statute, TSA receives these General Fund monies, even if the TSA has excess
revenues from other sources and does not need these additional General Fund
monies to sustain operations.
TSA receives General Fund monies—While TSA activities are projected to
generate revenue for the General Fund, statute requires that TSA receive a minimum
amount in NFL tax collections each year. If there are shortfalls in NFL tax collections,
additional General Fund monies must make up the difference. Specifically, TSA was
to receive a minimum of approximately $3.5 million in NFL tax revenues for fiscal year
2002. This amount increases by 8 percent each year, and this statutory requirement
does not have an end date. If NFL tax collections are greater than the minimum
amount, TSA receives the full amount collected. When the NFL tax collections are
less than the minimum amount, TSA receives the NFL tax collected and additional
General Fund monies necessary to total the minimum amount required by statute.
Each fiscal year, the State Treasurer transfers to TSA prior calendar year income tax
collected or the required minimum distribution.1
1 Each month, the State Treasurer remits one-twelfth of the total amount to be distributed to TSA during the fiscal year.
FINDING 2
Although NFL tax collections exceeded the required
minimum amount to be distributed in fiscal year 2002
by more than $915,000, collections in subsequent
years fell short of the statutory minimum by more than
$2.6 million, and additional money has had to be paid
from the General Fund to ensure that TSA receives the
minimum amount prescribed by statute. As shown in
Figure 2, the General Fund made up the difference to
TSA during fiscal years 2003 and 2004 because NFL
tax collections did not meet the required minimum
amounts. Specifically, the NFL income taxes collected
for fiscal year 2003 fell short of the statutory minimum
by $205,376. The NFL income taxes collected for fiscal
year 2004 fell short of the minimum by more than $1.2
million, while in fiscal year 2005, another nearly $1.2
million in additional tax General Fund monies may be
needed to make up a shortfall. For fiscal year 2006, the
NFL tax collections must increase by nearly 48 percent
over the actual collections of the prior year, or
additional General Fund monies will again have to
make up the shortfall.
TSA receives additional General Fund
monies while establishing reserves—TSA
receives monies from the General Fund even during fiscal years when TSA’s
revenues from all sources are greater than distributions. As required by statute,
monthly revenues in excess of distributions are deposited in TSA’s operating reserve.
Statute requires TSA to establish and fund reserves for its operations, youth and
amateur sports, and for repairs and other long-term costs associated with the
multipurpose facility. TSA must also establish reserves for its Cactus League bonds.
However, as of the end of fiscal year 2003, TSA had fully funded the youth and
amateur sports reserve and had begun to fund its Cactus League bond reserves.
Additionally, in fiscal year 2004, the General Fund will contribute more than $1.2
million in non-NFL income tax monies to TSA to meet the statutory minimum amount,
although TSA had established an operating reserve of over $2.5 million at the end of
fiscal year 2003.
Statute’s minimum amount represents a future liability
This liability to the General Fund could increase significantly in the future. As shown
in Figure 3 (see page 25), the minimum guaranteed amount that TSA will receive from
a combination of the NFL tax and additional General Fund coverage of shortfalls
increases from $3.5 million in fiscal year 2002 to nearly $33 million in 2031, and
State of Arizona
page 24
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
2002 2003 2004 2005
Fiscal Year
Millions of Dollars
Statutorily Guaranteed Minimum
Actual NFL Income Tax Collected
Additional Amount Transferred from General Fund
Figure 2 Statutorily Guaranteed Minimum Distribution
Compared To Actual NFL Income Taxes Collected
Fiscal Years 2002 through 2005
Source: Auditor General staff analysis of A.R.S. §§42-1116(C) and 43-209(C), and
information provided by the Arizona State Treasurer.
General Fund will
contribute more than
$1.2 million in additional
monies to TSA in fiscal
year 2004.
$205,000 $1.2 million
$1.2 million
continues to grow by 8 percent each year thereafter. As the minimum amount
required to be distributed to TSA increases, so does the potential for future additional
transfers of General Fund monies. In a given year, several factors could affect the
amount of monies the General Fund must transfer to TSA.
􀁺􇩁 Arizona Cardinals players’ salaries fluctuate too much to project 8 percent
annual growth—Arizona Cardinals players’ salaries have historically fluctuated
annually, and such fluctuation makes it difficult to project growth. When
reviewing salary (salaries and bonus) information for the Arizona Cardinals
players from 1994 to 2001, auditors found that the Cardinals’ organization total
player salaries fluctuated significantly until 1999, as illustrated in Figure 4 (see
page 26). For example, in 1998, salaries grew by 129 percent over the previous
year, while in 1999, the total salaries dropped by 31 percent from the previous
year. However, in 2000 salaries increased by about 1.5 percent, and in 2001,
salaries increased by more than 15.5 percent, for an average increase of 8.5
percent.
Governor’s Stadium Plan “B” Advisory Task Force consultants who assisted in
developing the amount of revenue that the TSA would receive from the NFL tax
Office of the Auditor General
page 25
$0
$5
$10
$15
$20
$25
$30
$35
2002 2007 2012 2017 2022 2027 2032
Fiscal Year
Millions of Dollars
Figure 3 Statutorily Guaranteed Minimum NFL
Income Tax/General Fund Distribution
Fiscal Year 2002 and Beyond
Source: Auditor General staff analysis of A.R.S. §42-1116(C).
NFL tax collections are
affected by the
Cardinals’ total payroll.
used 8 percent growth as a basis for annual growth. However, the rate was not
based on actual Cardinals’ salaries and other income, but on growth rates in the
NFL salary cap, which follows a more linear upward trend than Cardinals’
salaries. Since Cardinals’ salaries have not exhibited consistent growth, in years
when the Cardinals’ salaries decline from previous levels or do not meet a
projected growth target, the State Treasurer may need to transfer additional
monies from the General Fund to ensure the TSA receives the required minimum
distribution.
􀁺􇩅 Economic downturn—The NFL tax collection is affected not only by players’
salaries, but also by the negative impact of economic downturns on the income
tax collected from the Cardinals’ organization, its employees, and their spouses.
The income taxes paid from these sources can decrease during economic
downturns, and TSA officials have speculated that NFL income tax collections
have been lower than expected because the recent economic downturn has
affected employees’ other income, such as from investments. However,
economic downturns also negatively affect the General Fund due to the
decrease in income tax collections. Therefore, the State could be contributing
monies to TSA at the same time it is facing budget difficulties, as has been the
case in fiscal years 2003 and 2004.
State of Arizona
page 26
NFL tax shortfalls could
coincide with state
budget shortfalls.
$79.1
$54.8
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
94 95 96 97 98 99 00 01
Years
Millions of Dollars
Arizona Cardinals Players Salaries NFL Salary Cap
Figure 4 Arizona Cardinals’ Players Total Annual
Salary Compared To NFL Salary Cap
Calendar Years 1994 through 2001
Source: Auditor General staff analysis of the NFL Economic Primer 2002 report prepared by the National
Football League Players Association.
􀁺􇩗 Work stoppages or loss of Cardinals—The statutory minimum amount as
currently outlined in statute is guaranteed, regardless of the reasons for lower-than-
anticipated revenues. For example, the General Fund obligation could
potentially be significantly and negatively affected by an NFL work stoppage, or
if the Cardinals were to move to another state. The NFL’s last work stoppage
happened in 1987, and its current labor agreement expires in 2007. Additionally,
although the Cardinals have strong incentives not to leave town because of a
requirement to pay off the balance of bond debt if they do so before 2031, this
possibility exists. In any case, the statutorily guaranteed minimum amount that
is transferred to TSA is supported by General Fund monies when necessary and
does not expire—even if the Cardinals decide to leave town before 2031.
Despite these reasons for potential continued payments from the General Fund to
TSA, TSA officials expect NFL tax collection revenues to increase, thereby minimizing
the amount of additional General Fund monies needed to reach the statutory
minimum amount. Specifically, according to a TSA representative, the new facility in
Glendale will generate additional income for the Cardinals, and in turn, the Cardinals
will likely pay more in player salaries. As both the Cardinals’ corporate earnings and
the players’ salaries increase, they will pay more in income tax, which will be turned
over to TSA in the form of the NFL tax.
Legislature could explore options to limit additional
General Fund contributions
The Legislature could explore several options to potentially limit or otherwise control
General Fund disbursements consisting of non-NFL income tax monies that may not
be necessary to sustain TSA operations. Specifically, the Legislature could consider
three options or a combination of these options:
􀁺􇩇 General Fund could keep excess revenues—The Legislature could amend
A.R.S. §42-1116(C) to require NFL income tax collections in excess of the
minimum to be deposited into the General Fund, while retaining provisions for
General Fund contributions to TSA to cover NFL tax shortfalls. Under this option,
TSA would continue to receive the minimum amount, which increases by 8
percent annually, but would not receive any NFL tax collected that is above the
minimum amount. This option would allow the General Fund to collect some
additional revenues in years when the NFL tax collections surpass the minimum
amount. However, as previously mentioned, there is the potential that NFL tax
collections will continue to fall short of the required minimum amount.
􀁺􇩒 Require TSA to establish an NFL tax reserve—The Legislature could amend
A.R.S. §42-1116(C) to require TSA to hold NFL tax revenues that exceed the
Office of the Auditor General
page 27
statutory minimum amount in a separate account for use during years that NFL
tax collections do not meet the required minimum amount. Then, the Legislature
could require that monies from this newly created reserve account be used to
cover any NFL tax shortfalls before TSA would receive additional monies from
the General Fund. TSA could also be allowed to use these monies during
periods when other revenue sources fall short of projections and TSA has
difficulty meeting operating expenses (see Other Pertinent Information, pages
47 through 54). Under this option, after the reserve funds are exhausted, the
Legislature could either continue to fund shortfalls in NFL income tax revenues
automatically, or require TSA to ask the Legislature to cover the remaining
shortfall.
􀁺􇩒 Restrict distribution to actual NFL tax collections—The Legislature could amend
A.R.S. §42-1116(C) to restrict the TSA distribution to only the actual NFL income
tax collections, and eliminate the requirement for a minimum distribution
amount, annual growth, and additional General Fund contributions. Under this
option, TSA would no longer be guaranteed a minimum amount, but would still
receive actual NFL tax collections. The General Fund would no longer be
obligated to cover a revenue shortfall if NFL tax collections were insufficient to
meet a required minimum amount. However, TSA would still have the option of
requesting additional funding through specific legislation. This would give the
Legislature the discretion to provide funding based on the State’s budget,
economic conditions, and TSA’s needs.
While two of these options would retain the statutory minimum distribution to the TSA,
these options could potentially affect TSA’s ability to meet its funding obligations.
This could include TSA’s ability to establish and fund required reserves for operations
and repairs, and other long-term costs associated with the multipurpose facility.
Reduction in or elimination of the additional General Fund monies for TSA could also
affect its ability to adequately fund current operations. The statutorily established
minimum amount that TSA is to receive from NFL income tax collections represents
its only guaranteed level of funding. Should revenues from its other sources of
funding fall short of projections and thus affect its ability to make required bond debt
payments and distribute required monies to its other funding priorities, such as youth
and amateur sports and the Cactus League, TSA could use monies received from
the NFL tax to assist in meeting these obligations.
If it so decides, the Legislature could amend statute, since there are no legal or other
circumstances that would limit its ability to do so. Specifically, the Legislature is not
limited by the following:
􀁺􇩐 Proposition 105—A constitutional amendment approved in 1998 limited the
Legislature’s ability to alter voter-approved initiatives or referendums. However,
when Maricopa County voters approved Proposition 302 in November 2000,
they approved an additional hotel tax and a car rental surcharge, but not
State of Arizona
page 28
General Fund contributions. The NFL tax was not part of the referendum
authorizing the car rental surcharge and the hotel tax to fund a new facility, but
rather was part of a legislative bill. Therefore, Proposition 105 does not apply
and does not affect the Legislature’s ability to change statute.
􀁺􇩇 General Fund monies not pledged to bonds—TSA’s issuance of tax revenue
bonds does not limit the Legislature’s ability to amend statute. In fact, the official
statement of the revenue bonds notifies bond buyers that the statute providing
for General Fund subsidy of the NFL tax shortfall may be reduced or eliminated
by the Legislature. Due to a 2002 Court of Appeals ruling, the TSA cannot
pledge or guarantee General Fund monies for payment of tax revenue bonds.
Recommendations
1. The Legislature may want to consider amending A.R.S. §42-1116(C) to
implement one of the following options to help minimize the impact that
continued NFL tax collection shortfalls could have on the General Fund:
􀁺􇩒 Require the State Treasurer to distribute only the required minimum amount
in tax collections and maintain any excess NFL tax collections in the
General Fund to offset the disbursement of additional General Fund monies
to cover the NFL tax shortfall in other years;
􀁺􇩒 Require TSA to deposit monies in excess of the minimum NFL tax
collections amount in a separate reserve account to be used during years
when NFL tax collections are less than the required minimum amount.
Then, only after monies in that account have been used, additional General
Fund monies would be distributed to TSA, or TSA could be required to
request any needed monies; or
􀁺􇩒 Remove the requirement that the State Treasurer distribute additional
General Fund monies to TSA in the event that NFL tax collections do not
meet the required minimum amount and instead require TSA to request any
needed monies through specific legislation.
Office of the Auditor General
page 29
State of Arizona
page 30
Defined processes will help TSA objectively evaluate
funding requests
Greater specificity in evaluation processes will better enable TSA to objectively
evaluate funding requests for youth and amateur sports and Cactus League projects.
TSA lacked a clear process when it initially awarded more than $5.2 million toward
youth and amateur sports projects, and for one of the three projects chosen, there
are uncertainties about total project costs and the availability of sufficient matching
monies from the local sponsor. Since that time, TSA has developed a new granting
process for evaluating funding requests and awarded 13 grants under this process
in February 2004, but this process could be further enhanced through additional
changes. Such changes are important to ensure the most benefit is realized from the
limited funding available for youth and amateur sports. Additionally, TSA should
develop and implement written guidelines for awarding Cactus League monies to
baseball spring training facilities in Maricopa County.
TSA developing youth sports grants process
TSA’s decision-making process for committing $5.2 million in initial funding for youth
and amateur sports projects in 2001 and 2002 was not clearly defined. The
procedures that TSA has since developed could be improved through greater
monitoring of recipients, establishing minimum lengths of time that facilities must
remain in existence, and defining the kinds of contributions that are acceptable as
part of the local match.
Decision-making process unclear for initially approved projects—
TSA’s Board of Directors first issued a request for proposals for youth and amateur
sports projects in the fall of 2000, and received 26 funding requests during calendar
year 2001. From these requests, TSA selected and approved two proposed projects
and approved a separate project for the City of Glendale. TSA committed
approximately $5.2 million of the anticipated $73 million it will have for youth and
Office of the Auditor General
page 31
FINDING 3
No documented
process existed for initial
award decisions.
amateur sports projects through 2031 to these three projects.
While TSA lacked a documented process for reviewing, evaluating,
and awarding funding for these projects, four board members
stated that an important reason they selected two projects was
due to their locations outside of the East Valley, since the Cardinals
stadium was initially going to be built in Tempe. TSA selected and
committed funding to the following three projects:
􀁺􇩎 New sports fields at South Mountain YMCA—In May 2001, the
Board approved $150,000 for new sports fields at South
Mountain YMCA in Phoenix. The complex opened in June
2003, with a football/soccer field and a baseball field.
According to a Valley of the Sun YMCA official, other funding
sources for the project included the Arizona Diamondbacks,
the National Football League, a Community Development
Block Grant, and several individuals. Valley of the Sun YMCA
officials also indicated that TSA’s contribution represented
approximately 18 percent of the project’s total estimated
costs, and that it helped generate additional contributions.
􀁺􇩒 Regional sports complex in Avondale—In September 2001, TSA’s Board
approved approximately $3.4 million toward the development of an estimated
$5.5 million regional sports complex in Avondale. According to a city official, the
City of Avondale paid cash for its portion and per the agreement, TSA’s
contribution will be paid over a 12-year period. In addition to its $3.4 million
contribution, TSA will also give Avondale approximately $666,000 to make
interest payments on bonds issued by the City to assist in making monies
immediately available to construct the sports complex.1 The complex, which is
anticipated to be completed by spring 2004, will include nine soccer/football
fields and two youth baseball fields. According to Avondale’s proposal, the
quality of the site would place it in demand to host regional and potentially multi-state
tournaments.
􀁺􇩔 Turf fields/overflow parking at new multipurpose facility—In August 2002, as part
of TSA’s agreement with the City of Glendale for the development of the
multipurpose facility, the Board approved $1 million in youth and amateur sports
monies for turf fields that will double as overflow parking and event staging at
the new facility. According to a TSA official, as of September 24, 2003, TSA has
not provided Glendale with any of these monies because negotiations for this
land continue, but TSA continues to keep these monies set aside for Glendale.
These fields are anticipated to be completed in conjunction with the
multipurpose facility and will help Glendale to meet its requirement to provide
facility infrastructure, including parking (see Other Pertinent Information, pages
43 through 50). Glendale’s agreement with the Arizona Cardinals states that the
use of this space as fields could end within 10 years after the multipurpose
State of Arizona
page 32
1 Per A.R.S. §5-809, financing is a statutorily permitted use for youth and amateur sports monies.
Youth and Amateur Sports
Purpose—To acquire land or construct, finance,
furnish, maintain, improve, operate, market, or
promote the use of community youth and amateur
sports facilities, recreational facilities, and other
community facilities or programs in Maricopa
County.
Funding—First-year funding of $1 million
growing at $100,000 annually for 30 years.
Total Funding—Over life of funding, $73.5 million
estimated.
TSA Contribution—Up to two-thirds of a project’s
cost.
Office of the Auditor General
page 33
facility opens, and the Cardinals will have property development rights. Statute
does not specify how long a facility receiving TSA monies must be used for
youth and amateur sports.
A.R.S. §5-809(B) requires youth and amateur sports funding recipients to
contribute at least one-third of a project’s costs. TSA’s development agreement
with Glendale does not indicate a Glendale match for the project. Further, it is
unclear how much the fields will cost. However, according to a TSA official, TSA
will enter into a separate agreement with Glendale that will clarify the City’s
match and identify the project’s total cost. Additionally, A.R.S. §5-809(D)
requires that TSA give priority to recreational facilities located near or of benefit
to public schools. However, since a proposal was not submitted for this project,
auditors could not assess whether TSA determined if any schools would benefit.
TSA develops grant process—Since these initial
awards, TSA postponed further grants and developed a
process for evaluating future requests to fund youth and
amateur sports projects. In May 2002, TSA formed the
Youth and Amateur Sports Advisory Committee, which
includes 20 members, to assist TSA in establishing and
prioritizing youth and amateur sports facility needs. With a
consultant’s assistance, the committee developed a
process for reviewing proposed projects and granting
awards. The committee has developed six criteria for
consideration when reviewing applications, including the
project’s benefit to a local school, which is a statutory
requirement. TSA solicited applications under its new
process in July 2003. In response to the solicitation, TSA
received and reviewed 92 grant applications requesting
over $35.2 million in assistance. In February 2004, TSA
awarded 13 grants totaling over $1.3 million to communities
and community organizations in Maricopa County.
In addition to the grant process, the Advisory Committee is
helping TSA to create a database of existing youth and
amateur sports facilities in Maricopa County. This database,
which is being developed through an agreement with
Arizona State University, will assist TSA in evaluating the
need for facilities in particular areas in Maricopa County.
When completed, this database will show existing facility
locations and include demographic census data. TSA then
plans to use the database when evaluating funding
requests to determine, for example, the number of fields
that already exist in an area and the population that will be
served.
Youth and Amateur Sports
Grant Criteria in Priority Order
􀁺􇩓 Statement of Need—Describes the
community’s or organization’s needs, how the
proposed project will benefit the community,
and its potential economic impact.
􀁺􇩂 Budget and Ability To Maintain/Operate—
Addresses the project’s cost and proof of the
applicant’s ability to provide continued project
support.
􀁺􇩐 Partnerships—Describes the project’s outside
funding support, including in-kind and
matching donations.
􀁺􇩄 Documentation of Support—Describes public
and organizational input and involvement in the
project.
􀁺􇩂 Benefit To a Local School—Statutory
requirement that considers whether the project
is near or of benefit to schools.
􀁺􇩆 First-Time TSA Grant Recipient—Considers
whether the applicant has previously received
TSA grant monies.
Separate agreement
should indicate the
required one-third
match.
Changes could enhance new granting process—Because funding for
youth and amateur sports projects is limited and is only provided after the
multipurpose facility, tourism promotion, and Cactus League projects are adequately
funded, it is important that TSA uses youth and amateur sports project monies as
effectively as possible. Therefore, as part of its granting process, TSA should
establish additional procedures to help ensure grant projects are properly overseen
and administered, and further define grant requirements. Specifically, TSA, in
consultation with the Youth and Amateur Sports Advisory Committee, should
establish and implement policies and procedures for the following:
􀁺􇩇 Guidelines for grant administration and oversight—TSA could benefit from
guidelines for grant administration and oversight. These guidelines would not
only inform grant recipients up-front of TSA’s expectations for administering
grants, but also guide TSA’s efforts to monitor and oversee recipients’ use of
grant monies. While TSA lacks defined administrative guidelines, it has used a
consultant to monitor construction of the Avondale Sports Complex because of
its high dollar value. However, other entities have developed administration and
monitoring guidelines for all grant recipients. For example, Arizona State Parks
(Parks) has developed an oversight process for its Local, Regional, and State
Parks Heritage Fund grants program that includes regular progress reports
submitted by the recipient, staff site inspection visits during the project, and
inspection reports that the recipient must submit after the project is completed
to ensure compliance with Parks’ maintenance requirements. The Commission
on the Arts (Arts) requires program grant recipients to submit within 30 days of
a project’s completion a report describing program accomplishments and
benefits. These processes could possibly serve as starting points for TSA in
developing a structure that meets its needs.
􀁺􇩅 Establishing facility length of use—TSA should define its expectation for how
long facilities that it helps fund must remain in existence and operational. TSA
asks applicants to comment on how long the applicant anticipates supporting a
facility. However, TSA has not defined its expectations for applicants. Other
programs that provide monies for facilities have established time frames for how
long these facilities must be maintained. For example, facilities built with Parks’
Heritage Fund monies must be available for public recreational use for 25 years.
Since TSA is making an investment of public monies in youth and amateur
sports facilities, it should define how long these facilities must remain in
existence and operational.
􀁺􇩄 Defining contributions—TSA could also benefit from further defining what the
applicant may count for its local match. TSA’s application packet mentions that
the applicant’s match may take many forms, including cash, donations, or in-kind
contributions. However, as part of an earlier project evaluation, a TSA
consultant suggested that TSA’s Board define which expenditures will count
toward the local match and which ones will not. Specifically, the consultant
State of Arizona
page 34
raised three issues, including whether expenditures for existing development
should be counted toward the local match and whether applicant personnel
expenses for planning and/or maintaining a project should be included. As of
July 2003, TSA’s Board had not developed guidelines.
Procedures needed for distributing Cactus League
monies
In addition to developing guidelines for youth and amateur sports funding, TSA
should develop and implement written guidelines for awarding Cactus League
monies to spring training baseball facilities in Maricopa County. As of December 31,
2003, TSA had committed approximately one-quarter of the
total estimated funding that will be available through 2031
for Cactus League facilities. However, for future requests,
TSA should establish written procedures to guide its
funding efforts.
Two spring training facilities receive funding—As
of December 31, 2003, TSA had committed approximately
$51.4 million of the estimated $205 million that will be
available for Cactus League facilities over 30 years. TSA
awarded funding to two projects:
􀁺􇩎 New stadium in Surprise—TSA provided $32 million
toward the approximately $48 million in construction
costs of a new spring training facility in Surprise. This
facility was built for two new Cactus League teams—
the Kansas City Royals and the Texas Rangers. The
Surprise project, which was completed in December
2002, includes a 10,500-seat baseball stadium and 14
practice fields.
􀁺􇩒 Renovations at Phoenix Municipal Stadium—TSA provided two-thirds of the
costs toward the $6.5 million renovation project at Phoenix Municipal Stadium,
which is the spring training home of the Oakland Athletics. The Phoenix project
includes new dugouts and field improvements, clubhouse improvements, and a
new press box. The renovations were completed in February 2004.
In addition to the combined contributions of over $36.3 million to these projects, TSA
has also obligated additional monies to pay interest on Cactus League bonds it
issued. Statute permits TSA to issue bonds to build or improve Cactus League spring
training facilities. In February 2003, TSA issued $32.4 million in bonds, which along
Office of the Auditor General
page 35
Cactus League
Purpose—To acquire land or construct, finance,
furnish, improve, market or promote the use of
existing or proposed major league baseball spring
training facilities in Maricopa County and other
structures, utilities, roads, parking areas, or
buildings necessary for full use of the training
facilities for sports and other purposes.
Funding—$3 million each year in the first 7 years,
growing to $11 million each year in the last 4
years over a 30-year period.
Total Funding—Over life of funding, $205 million
estimated.
TSA Contribution—Up to two-thirds of a project’s
cost.
TSA has committed
one-quarter of expected
Cactus League monies.
with available cash, funded these two projects. Over the 14-year term of the bonds,
TSA will also pay approximately $15 million in interest.
Finally, in December 2003, the TSA Board adopted a resolution preliminarily
approving $20 million in funding for the planned design and construction of a new
spring training facility in the City of Goodyear for the Anaheim Angels. The Anaheim
Angels currently conduct spring training at Tempe Diablo Stadium, but their lease
expires in 2007. However, the resolution also stipulates that TSA must first enter into
intergovernmental agreements with the Cities of Tempe and Scottsdale regarding
TSA’s funding contribution towards those cities’ spring training facilities. Further, it
stipulates that a suitable replacement team must be identified and committed to a
minimum 20-year lease to conduct spring training at Tempe Diablo Stadium.
Procedures would help guide funding efforts—TSA should develop Cactus
League funding guidelines to help ensure its future award decisions use the monies
as effectively as possible. Prior to awarding monies to build the new Surprise stadium
and renovate Phoenix Municipal Stadium, TSA consulted with the host city and a
consultant with sports-related management experience, but it did not have a written
process to guide its decisions. TSA states it will meet with other host cities as their
leases with Cactus League teams come up for renewal to determine their needs and
appropriate TSA funding amounts. However, a more clearly defined set of guidelines
could help host cities know how to obtain assistance and help ensure a consistent
review of funding requests. For example, the Maricopa County Stadium District,
which also provides monies for Cactus League facilities, developed procedures for
its process. The District’s Citizens’ Advisory Committee adopted guidelines that
addressed its funding priorities, evaluation process and criteria, and the types of
projects and costs that could be funded. Specifically, the District’s advisory
committee identified 12 criteria to use when evaluating proposals, including the
length of the community’s lease with the Cactus League team, the size and type of
the community’s match, and Cactus League facility standards. Additionally, the
District’s Citizens’ Advisory Committee defined the information it expected
communities to include in their preliminary applications.
TSA states that it considers some of these factors already, but a formal set of
guidelines and processes would better ensure consistency and fairness. In
developing its guidelines, TSA could address such things as how it determines what
standard spring training facilities will be built or renovated to, what it will consider for
matching monies, and how long the baseball team’s lease extension must be relative
to TSA’s contribution and the facility renovation. Further, these guidelines and
processes could help guide TSA Board decisions regarding funding new facilities
versus renovating existing facilities. The District’s Citizens’ Advisory Committee
stated that the District’s top priority should be providing adequate facilities necessary
to retain current Cactus League teams. Additionally, since TSA and the Maricopa
County Stadium District are developing an agreement that would allow TSA to begin
receiving and distributing the District’s excess revenues from the car rental surcharge
State of Arizona
page 36
TSA should adopt
guidelines and
procedures for awarding
Cactus League monies.
for Cactus League facility improvements, TSA should consider modeling its
procedures after those the District uses.1
Recommendations
1. In consultation with the Youth and Amateur Sports Advisory Committee, TSA
should develop and implement policies and procedures that:
a. Establish grant administration, oversight, and funding distribution
requirements;
b. Define how long funding youth and amateur sports facilities must remain in
existence and operational; and
c. Define further what expenditures will be considered for the applicant’s local
match.
2. TSA should develop and implement written Cactus League funding guidelines
to help ensure its future award decisions for spring training facilities in Maricopa
County use the funds as effectively as possible. These guidelines could address
such things as how it determines what standard facilities will be built or
renovated to, sources of matching monies, length of team leases, and funding
new stadiums versus renovating existing facilities.
Office of the Auditor General
page 37
1 Under this agreement TSA would not receive monies needed for district operations or for principal and interest payments
and other costs related to the District’s bonds.
State of Arizona
page 38
TSA needs to make several changes to its
administrative practices
To ensure the most efficient and effective use of its operating funds, which consist of
public monies, and to ensure the appropriate use of monies it provides for tourism
promotion, TSA needs to make several changes to its administrative practices.
Although TSA is not a state agency and is therefore exempt from some requirements
that state agencies must meet, it still should establish administrative policies to
provide adequate control and oversight of its functions. TSA should establish policies
and procedures to guide its procurement, use of attorneys, and use of its game
tickets and luxury suite. Finally, TSA should work with the Arizona Office of Tourism to
ensure all monies TSA distributes to this agency are used solely to promote tourism
in Maricopa County, as required by statute.
TSA is not a state agency
As a separate legal body, TSA is exempt from some requirements that state agencies
must follow. Specifically, A.R.S. §5-802 established TSA as a separate legal body with
all of the rights, powers, and immunities of a municipal corporation. While TSA must
comply with open meeting and public records laws, its status as a separate legal
body exempts it from other state requirements. For instance, TSA is exempted from
procurement laws. Further, its status as a tax-levying public improvement district
exempts it from the State Constitution’s ban on providing gifts.
Procurement policies needed
TSA should establish policies and procedures to guide its procurement and contract
oversight activities. Since its inception, TSA has entered into several agreements
totaling millions of dollars in services, yet has lacked a defined process for
Office of the Auditor General
page 39
FINDING 4
TSA is exempt from
several state
requirements.
conducting procurements and monitoring its contracts. TSA has contracted for
various services, including legal, engineering, construction management, and other
professional services. However, without a defined process, TSA’s procurements may
not have been consistently conducted or services may not have been obtained at the
best price possible. For example, TSA has issued requests for proposals for some
contracts, including the review and evaluation of multipurpose facility design and
planning and management and marketing services. In other cases, according to a
TSA official, TSA has selected contractors and entered into contracts based on direct
selection or on the contractor’s prior experience with related entities that predated
TSA’s formation. However, there was no available documentation that showed how
these services were procured or how responses to the request for proposal were
evaluated.
State agencies that are exempt from the State’s procurement code have developed
procurement policies, and TSA should similarly develop policies and procedures to
guide its procurement and contract oversight activities. For example, the Arizona
Health Care Cost Containment System (AHCCCS), which is Arizona’s Medicaid
agency, is exempt from state procurement statutes for its medical services
contracting, but is statutorily required to adopt administrative rules for its request for
proposal process. AHCCCS has established these rules and also established
procurement policies and procedures that are consistent with the requirements
imposed on other state agencies. Similarly, according to information obtained from
two other municipal corporations in the State, these municipal corporations have
established procurement policies, even though they are not required to do so by
statute. Establishing and following procurement and contract oversight policies helps
to ensure the highest-quality product or service is received at the most economical
price, and helps to ensure fair competition, prevent fraudulent activities, and protect
the entity from the appearance of fraud. In establishing procurement and contract
monitoring policies and procedures, TSA should consider several factors:
􀁺􇩐 Procurement thresholds and processes—TSA’s policy should establish
procurement thresholds and request-for-proposal and review processes. These
thresholds would specify the process TSA will follow, depending on the total
dollar value of the goods or services being purchased. For example, under the
State’s procurement code, purchases between $10,000 and $25,000 require the
governmental entity to issue a request for proposals, while verbal or written
quotations from at least three bidders are acceptable for purchases totaling
$1,001 to $5,000.
􀁺􇩁 Agreement ratification time frames—TSA’s policy should establish time frames
on how soon an agreement TSA staff enter into must be brought to the Board
for its ratification. While the Board has authorized TSA’s president/CEO to enter
into any contract up to $100,000 without prior board approval, the Board must
ratify these contracts. However, in some instances, these contracts have not
been provided to the Board in a timely manner for its ratification. For example,
State of Arizona
page 40
Other municipal
corporations have
established
procurement guidelines.
at its February 2003 meeting, the Board was asked to ratify an agreement that
TSA entered into in September 2002 that would expire at the end of March 2003.
􀁺􇩁 Agreement monitoring procedures—TSA’s policy should provide procedures for
overseeing agreements once they are in place. While procedures have been
included within specific agreements, TSA should develop guidelines for
monitoring all contractors, including those providing consulting services. For
example, TSA could establish guidelines for reviewing contractor invoices and
the services provided to ensure that the contract terms have been met before
payment is made.
􀁺􇩐 Process for smaller purchases—Finally, TSA’s policy should establish a
preapproval process for purchases of lesser dollar values and establish
guidelines for appropriate credit card use. While TSA has issued credit cards to
several of its staff, it has not defined the types of purchases for which they may
be used. As a result, staff have used the credit cards to make purchases that
could have been made through a purchase order process or otherwise be
approved prior to the purchase. For example, TSA used its credit cards to
purchase U.S., Arizona, and TSA flags; to upgrade cell phones; and to frame
multipurpose facility groundbreaking photographs for board members. Using
purchase orders would allow TSA to review the need for and preapprove the
purchase, whereas approval of credit card purchases comes after the purchase
has already been made. While auditors found evidence that preapproval was
obtained for some computer software and hardware purchases, this evidence
was lacking for other purchases. However, a TSA official said approval was
given for all purchases.
TSA should take steps to more efficiently use attorney
services
TSA could save costs by more strictly limiting and monitoring the types of services it
pays attorneys to perform. Statute permits TSA to retain legal counsel, and TSA has
used private law firms for its legal services. Statute does not give the Office of the
Attorney General authority to represent TSA. From its inception through June 30,
2003, TSA has spent nearly $4.1 million for attorney services. These services include
assistance in preparing documents related to the bonds it has issued and providing
representation against a lawsuit. Much of TSA’s legal expenses have been paid to
the firm that serves as TSA’s general legal counsel, and this firm has assisted TSA
with developing several complicated, one-time agreements. For example, the law
firm assisted TSA with the site selection process, the facility use agreement with the
Arizona Cardinals, and other agreements related to the facility’s construction, and
TSA’s relationship with the facility host city, Glendale.
Office of the Auditor General
page 41
However, the firm that serves as TSA’s general counsel has also provided services
that could have been accomplished more cost-effectively through other means. For
example, TSA’s general counsel billed between $120 and $160 per hour to draft TSA
Board meeting minutes, and $160 per hour to draft TSA’s agreement with its youth
and amateur sports consultant and to develop the agreement for one of its first youth
and amateur sports grants. It also billed $200 per hour to draft a conflict-of-interest
policy, and up to $325 per hour to draft or review agreements with consultants,
organizations, and TSA staff.
TSA should take steps to ensure it makes the most effective and efficient use of its
attorneys in the future. For example, TSA staff should take and record board meeting
minutes and develop TSA policies instead of paying attorneys to perform these
functions. TSA should also evaluate the need for an in-house attorney who could
handle routine legal matters, such as simpler agreements, rather than paying high
hourly rates for these services. Additionally, with the exception of litigation
representation where time constraints possibly would not permit it, TSA should issue
requests for proposals for legal services it requires in the future. The Office of the
Attorney General annually issues a request for proposal for outside legal services that
it may need during the year, and this document could serve as a starting point for
TSA to similarly issue a request for proposal for legal services.
Policies needed to better control certain expenditures
TSA should establish policies to provide greater control over many of its other
expenditures. TSA should ensure that all of its staff follow its travel policy. Further,
although TSA is allowed to use its monies for gifts, it needs to establish guidelines
regarding its gift giving. Finally, TSA should take additional steps to strengthen its
internal controls over its finances.
TSA should ensure travel policy followed—TSA needs to ensure all TSA staff
adhere to its travel policy and that all travel is properly approved. Although TSA is
exempt from the State’s travel policy, it established its own out-of-town travel policy
for its staff in January 2003, which required that all travel outside of Maricopa County
be approved by TSA’s president/CEO or his designee and that wherever possible,
lodging costs should conform to the State’s travel policy. From its inception through
December 2002, TSA operated without a travel policy. Auditors reviewed some of
TSA’s travel receipts from trips prior to this policy’s establishment and found that
TSA’s travel did not conform to the State’s travel policy. For example, in February
2002, one TSA staff member stayed overnight in a Scottsdale hotel approximately 3
miles from TSA’s offices so that he would be available to pick up photocopies from
a printing company early the next day. The staf