This report is presented in three sections: 1) the Introductory Section; 2) the Financial Section which includes the independent auditor's report, the general-purpose financial statements, required supplemental information and the combining and individual fund and account group financial statements and schedules; and 3) the Statistical Section which includes selected financial and demographic information, generally presented on a multi-year basis.

Arizona is emerging from one of the worst state budget crises in the nation. Entering 2003, its projected deficit, measured as a percentage of the general fund, was the fifth largest in the country.1 The state had slashed spending in 2002 in the face of a $900 million deficit, but still faced a $400 million shortfall for fiscal year 2003 and an estimated $1 billion deficit in fiscal 2004. Although improved revenues have reduced the anticipated gap, fundamental underlying problems remain concerning the ability of lawmakers to control the budget. Some observers consider this a revenue problem, others a spending problem. Our concern in this paper is whether state lawmakers have enough control over either revenue or spending.