Note 1 – Basis of Presentation and Summary of Significant Accounting Policies
The University of Colorado (the University) is a comprehensive degree-granting research university in the State of Colorado (the State). It is governed by a nine-member Board of Regents (the Regents) elected by popular vote in the State’s general elections. Serving staggered six-year terms, one member is elected from each of the State’s seven congressional districts with two Regents elected from the State at large. The University comprises the system office and the following three accredited campuses, each with its unique mission as detailed below:
- University of Colorado Boulder (CU Boulder)
Established in 1861, CU Boulder is a comprehensive graduate research university (with selective admission standards) offering a comprehensive array of undergraduate, master’s, and doctoral degree programs.
- University of Colorado Denver | Anschutz Medical Campus (CU Denver | Anschutz)
Originally operated as two separate campuses, the Health Sciences Center and the Denver campus were established in 1883 and 1974, respectively. In 2004, the two campuses were institutionally merged into the University of Colorado Denver. The consolidated institution is an urban comprehensive research university offering a full range of undergraduate, graduate, and professional degree programs in life sciences, professional programs, and liberal arts. The campuses are currently referred to collectively as CU Denver | Anschutz and separately as the University of Colorado Denver (CU Denver) and the University of Colorado Anschutz Medical Campus (CU Anschutz).
- University of Colorado Colorado Springs (UCCS)
Established as a separate campus in 1965, UCCS is a comprehensive graduate research university (with selective admission standards) offering a comprehensive array of undergraduate, master’s, and doctoral degree programs.
To accomplish its mission, the University has over 7,200 instructional faculty serving over 65,000 students through 467 degree programs in 26 schools and colleges.
BASIS OF PRESENTATION AND FINANCIAL REPORTING ENTITY
Blended Component Units
The University’s financial reporting entity includes the operations of the University and all related entities for which the University is financially accountable. Financial accountability may stem from the University’s ability to appoint a majority of the governing board of the related organization, its ability to impose its will on the related organization, its ability to access assets, or its responsibility for debts of the related organization. Blended component units generally include those entities (1) that provide services entirely to the University, (2) in which there is a financial benefit or burden relationship, or (3) in which management of the University has operational responsibility. The University has the following blended component units:
- University License Equity Holding, Inc. (ULEHI)
Originally established in 1992, with a significant reorganization in 2001, ULEHI facilitates certain licensing activities for the University. ULEHI is a nonprofit entity under Section 501(c)(3) of the Internal Revenue Code.The University appoints a voting majority of ULEHI’s governing body, is able to impose its will on the organization, and the organization provides services entirely to the University.
Detailed financial information may be obtained directly from ULEHI at 12635 East Montview Boulevard, Aurora, Colorado 80045.
- University of Colorado Medicine (CU Medicine)
University Physicians, Inc. d/b/a CU Medicine, is a Colorado non-profit corporation under Section 501(c)(3) of the Internal Revenue Code, organized to perform the billing, collection, and disbursement functions for professional services rendered for CU Anschutz as authorized in Section 23-20-114 of the Colorado Revised Statutes (C.R.S.). CU Medicine is the School of Medicine’s (SOM) faculty practice plan with approximately 3,300 member providers. CU Medicine does not employ physicians or practice medicine directly; it provides the business and administrative support for the clinical faculty employed by the SOM. The members’ primary sites of practice are at the UCHealth University of Colorado Hospital (UCH) and Children’s Hospital Colorado (Children’s Colorado), but members also provide limited clinical services at multiple hospital and clinic sites throughout the region, including other UCHealth locations, the National Jewish Medical and Research Center, the Veterans Administration Medical Center, and Denver Health and Hospital Authority. The majority of patients cared for reside within the Denver metropolitan area.
The University appoints a majority of CU Medicine’s governing body, and is able to impose its will. Additionally, CU Medicine exclusively benefits the University by providing the services described above.
Beginning in fiscal year 2018 , CU Medicine participated in a federally funded program available to physicians employed by state-owned medical schools. The Colorado Department of Health Care Policy & Financing (HCPF) filed a proposed state Medicaid plan amendment with the Centers for Medicare and Medicaid Services (CMS) on behalf of CU Medicine and the SOM to secure access to this program. The supplemental payment program is designed to expand patient access by providing enhanced payments to physicians and other qualifying providers. In July 2017, HCPF’s filing was approved by CMS and under the terms of the approved program, CU Medicine received $62.0 million in supplemental payments during Fiscal Year 2018. The supplemental funding will be used to maintain and increase patient access to CU Medicine’s services and for other programs defined in collaboration with HCPF, and is included in health services revenue in the University’s financial statements.
Detailed financial information may be obtained directly from CU Medicine at P.O. Box 111719, Aurora, Colorado 80042-1719.
- University of Colorado Property Corporation, Inc. (CUPCO)
Incorporated in 2015 with operations starting in Fiscal Year 2017, CUPCO receives, holds, invests, and administers real and personal property for the benefit of the University. CUPCO carries out its real estate investing activities through direct ownership, management, and operation of certain real estate assets. CUPCO is a nonprofit entity under Section 501(c)(3) of the Internal Revenue Code. The University appoints CUPCO’s governing body, is able to impose its will on the organization, and the organization provides services entirely to the University.
Under transfer agreements effective July 1 and July 13, 2016 between CUPCO and Land Holding Venture, LLC, an entity formerly wholly owned by the University of Colorado Real Estate Foundation (CUREF), a discretely presented component unit of the University in Fiscal Year 2017, CUPCO obtained ownership of various vacant land holdings, a residential home, and an option agreement to purchase vacant land. On December 12, 2016, CUREF agreed to transfer ownership of Campus Village Apartments, LLC (CVA), to CUPCO, which included property and land, other assets, and the obligation of the Series 2008 Student Housing Revenue Bonds associated with CVA. The transfer of CVA occurred on December 31, 2016.
CVA, a Delaware limited liability company, was formed under the laws of the State of Delaware on May 25, 2005, with CUREF as the sole member. CVA is organized, operated, and dedicated exclusively to the charitable purposes of promoting the general welfare, development, growth, and well-being of the University, and specifically for the primary purpose of acquiring, constructing, improving, equipping, and operating a student housing facility located in Denver, Colorado, as well as improvements and amenities related to this facility.
Detailed financial information may be obtained directly from CUPCO at 1800 Grant Street, Suite 725, Denver, Colorado 80203.
- 18th Avenue, LLC (18th Avenue)
18th Avenue, LLC (18th Avenue), a Colorado limited liability company, was formed under the laws of the State of Colorado on April 26, 2006, with CUREF as the sole member. 18th Avenue was organized, operated, and dedicated exclusively to promoting CUREF’s charitable purposes and to promoting the general welfare, development, growth, and well-being of the University, and specifically for the primary purpose of acquiring, owning, operating, and maintaining real property consisting of an office building in Denver, Colorado.
Under a transfer agreement between the University and CUREF, the University was assigned the sole membership interest in 18th Avenue, which owns the real property, including the office building and related improvements, located at 1800 Grant Street (which houses the CU System offices), along with the existing loan encumbering the property. The transfer of 18th Avenue occurred on July 31, 2016.
Discretely Presented Component Unit
The University’s financial statements include a supporting organization as a discretely presented component unit (DPCU) of the University. The majority of the resources, or income thereon that the supporting organization holds and invests, are restricted to the activities of the University by the donors.
Because these restricted resources held by the supporting organization can only be used by, or for the benefit of, the University, the following supporting organization is considered a DPCU of the University (see Note 17 for additional information):
- University of Colorado Foundation (CU Foundation)
Established in 1967, the CU Foundation solicits, receives, holds, invests, and transfers funds for the benefit of the University. The CU Foundation, a nonprofit entity under Section 501(c)(3) of the Internal Revenue Code, has a 15-member board of directors, of which a member of the Regents, the president of the University, and another University designee serve as ex-officio non-voting members. The board of directors elects its own members, other than those serving as ex-officio non-voting members. The CU Foundation, as a not-for-profit entity, follows Financial Accounting Standards Board guidance in the preparation of its financial statements, which are then modified to match the University’s financial reporting format.
Under an agreement between the CU Foundation and the University, the CU Foundation provides certain development and investment services to the University in exchange for a fee.
Detailed financial information may be obtained directly from the CU Foundation at 1800 Grant Street, Suite 725, Denver, Colorado 80203.
Joint Ventures and Related Organizations
The University has associations with the following organizations for which it is not financially accountable nor has primary access to the resources. Accordingly, these organizations have not been included in the University’s financial statements. Information regarding the nature of the relationships is included in Note 18.
- UCHealth University of Colorado Hospital (UCH)
- Auraria Higher Education Center (AHEC)
- University of Colorado Health and Welfare Trust (the Trust)
Relationship to State of Colorado
Article VIII, Section 5 of the Colorado Constitution declares the University to be a state institution. The Regents of the University are elected by popular vote of the citizens of the State. Therefore, the Board of the University is entirely different from the governing board of the State. Management of the University is completely separate and distinct from management of the State. The services provided by the University benefit the citizens of the State, rather than serving the State government. The services include provisions of undergraduate and graduate education to the citizens of the State, and conducting extensive amounts of federally and other funded research for the benefit of the citizens of the State, the nation and the world. Additionally, the University offers more than 200 public outreach programs serving Coloradans and their communities. All outstanding debt of the University is expected to be repaid entirely with resources generated by the University. No State funds are used to repay any debt issued by the University.
The income generated by the University, as an instrumentality of the State, is generally excluded from federal income taxes under Section 115(1) of the Internal Revenue Code. The University also has a determination letter from the Internal Revenue Service stating it is exempt under Section 501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3). Income generated from activities unrelated to the University’s exempt purpose is subject to tax under Internal Revenue Code Section 511(a)(2)(B). There was no tax liability related to income generated from activities unrelated to the University’s exempt purpose as of June 30, 2018 and 2017.
BASIS OF ACCOUNTING
For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University’s financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned, and expenses are recorded when an obligation is incurred.
The University applies all applicable Governmental Accounting Standards Board (GASB) pronouncements.
Cash and Cash Equivalents are defined for the purposes of reporting cash flows as cash on hand and deposit accounts. Investments in mutual funds and money market funds and securities are presented as investments. CU Medicine and the CU Foundation consider money market funds and securities with a maturity, when acquired, of three months or less to be cash equivalents.
Investments are reported in the financial statements at fair value, which is determined primarily based on quoted market prices as of June 30, 2018 and 2017. Contract value is used for the guaranteed investment agreement and amortized costs (which approximate fair value) are used for money market investments. These money market accounts are held with Securities and Exchange Commission (SEC) registered investment companies under Rule 2a7 of the Investment Company Act of 1940.
The classification of investments as current or noncurrent is based on the underlying nature and restricted use of the asset. Current investments are those without restrictions imposed by third parties that can be used to pay current obligations of the University. Noncurrent investments include investments with a maturity in excess of one year, restricted investments (which includes unspent bond proceeds), and those investments designated to be used for long-term obligations.
The University’s investment policies permit investments in fixed-income and equity securities and alternative strategies. These policies are implemented using individual securities, mutual funds, commingled funds, and alternative investments for the endowments. All of the University’s alternative investments are held at the CU Foundation and follow its valuation methods.
Investments of the CU Foundation include those held as agency funds for the University. The CU Foundation records investment purchases and contributions at the fair values of the investment received at the date of contribution. Investments in equity securities with readily determinable fair values and all investments in debt securities are stated at their fair values. The fair values of alternative investments not publicly traded on national security exchanges represent the CU Foundation’s pro-rata interest in the net assets of each investment and are based on financial information determined and reported by investment managers, subject to review, evaluation, and adjustment by the management of the CU Foundation. Because of inherent uncertainties in the valuation of alternative investments, those estimated fair values may differ significantly from the values that would have been used had a ready market for the investments existed. Included in the investments portfolio are real estate and note receivable assets. These assets are stated at cost and present value, respectively.
Endowments and similar gift instruments owned by the University and the CU Foundation are primarily recorded as investments in the accompanying financial statements. Endowment funds are subject to the restrictions of donor gift instruments requiring the principal to be invested in perpetuity. Life income funds are used to account for cash or other property contributed to the University subject to the requirement that the University periodically pay the income earned on such assets to a designated beneficiary. The assets of life income funds become the property of the University or the CU Foundation upon the death of the designated beneficiary. Annuity funds are used to account for property contributed to the University or the CU Foundation in exchange for a promise to pay a fixed amount to the donor for a specified period of time. In addition, certain funds have been established by the Regents to function as endowment funds until the restrictions are lifted by the Regents. Gifts-in-kind are recorded at the fair market value as of the date of donation.
Accounts, Contributions, and Loans Receivable are recorded net of estimated uncollectible amounts, approximating anticipated losses.
Contributions receivable for the CU Foundation are unconditional promises to give that are recorded at their estimated net realizable value, discounted using risk-free interest rates effective at the date of the promise to give, if expected to be collected within one year and at the present value of their expected future cash flows if expected to be collected in more than one year. Subsequent to the initial recording of the contribution receivable, the CU Foundation uses the allowance method to record amounts estimated to be uncollectible. The allowance is based on the historical collectability of contributions promised to the CU Foundation and on management’s analysis of specific promises outstanding.
For all other receivables, individual accounts are written off against the allowance when collection of the account appears doubtful. Bad debts substantially consist of write-offs for uncollectible balances on self-pay patients and contributions receivable.
Inventories are primarily accounted for using the consumption method and are stated at the lower of cost or market. Cost is determined using either first-in, first-out, average cost, or retail method.
Other Assets consists of prepaid expenses, travel advances, and an option to purchase land.
Capital Assets are stated at cost at the date of acquisition or at acquisition value at the date of donation. For equipment, the capitalization policy includes all items with a value of $5,000 or more, and an estimated useful life of greater than one year.
Intangibles and renovations to buildings and other improvements that significantly increase the value or extend the useful life of the structure are capitalized. For intangibles and renovations and improvements, the capitalization policy includes items with a value of $75,000 or more. Routine repairs and maintenance are charged to operating expense. Major outlays for capital assets and improvements are capitalized as construction in progress throughout the building project. Interest incurred during the construction phase is included as part of the value of the construction in progress. Beginning July 1, 2017, interest was no longer capitalized (see Adoption of New Accounting Standards section of Note 1). Software, both externally purchased and internally developed, with a value of $5,000 or more is capitalized.
All collections, such as works of art and historical artifacts, have been capitalized at cost at the date of acquisition or acquisition value at the date of donation. The nature of certain collections is such that the value and usefulness of the collections does not decrease over time. These collections have not been depreciated in the accompanying financial statements.
Assets under capital leases are recorded at the present value of future minimum lease payments and are amortized using the straight-line method over the shorter of the lease term or the estimated useful life. Such amortization is included as depreciation expense in the accompanying financial statements.
Depreciation is computed using the straight-line method and monthly convention over the estimated useful lives of the assets as displayed in Table 1.1.
Table 1.1. Asset Useful Lives
|Buildings||20 – 40 *|
|Improvements other than buildings||10 – 40|
|Equipment||3 – 20|
|Library and other collections||6 – 15|
|Software||5 – 10|
|* Certain buildings are componentized and the components may have useful lives similar to improvements or equipment.|
Compensated Absences and related personnel expenses are recognized based on estimated balances due to employees upon termination or retirement. The limitations on such payments are defined by the rules associated with the personnel systems at the University. Employees accrue and vest in vacation and sick leave earnings based on their hire date and length of service. Professional exempt and 12-month faculty employees accrue sick leave with pay at the rate of 10 hours per month with a maximum accrual of 960 hours while classified employees earn 6.67 hours per month with a maximum accrual of 360 hours for employees hired after June 30, 1988. Employees hired before June 30, 1988, can accrue up to 360 hours in excess of amount of sick leave earned as of June 30, 1988. Employees earn and accrue vacation leave per the rates in Table 1.2. Vacation accruals are paid in full upon separation, whereas only a portion of sick leave is paid upon specific types of separation, such as retirement.
Table 1.2. Compensated Absence Accrual Rates for Vacation
|Type of Employee||Days Earned Per Month*||Maximum Accrual|
|Classified employees hired on or after January 1, 1968||1-1.75 days||24 – 42 days|
|Professional exempt and 12-month faculty employees||1.83 days||44 days**|
|* Rates are for full-time employees; part-time employees earn at pro-rata based on percentage of appointment.|
|** Vacation accrual in excess of 44 days, is deducted to meet the 44 day limit.|
The liability for compensated absences is expected to be funded by various sources of revenue that are available in future years when the liability is paid.
Other postemployment benefits (OPEB) consist of post-retirement healthcare and life insurance benefits for retired employees. Substantially all University employees may become eligible for those benefits if they reach normal retirement age while working for the University. The University participates in both a single-employer plan as well as a cost-sharing plan. The University’s contributions to the single-employer plan are made on a pay-as-you-go basis, and are set by statute for the cost-sharing plan. The University’s liability is measured as the portion of the present value of projected benefit payments to be provided to active and inactive employees that is attributable to those employees’ past period of service, less the amount of the plan’s fiduciary net position, based on actuarial valuations. See Note 7 for more information on both plans.
Unearned Revenue consists of amounts received for the provision of education, research, auxiliary goods and services, and royalties that have not yet been earned.
Bonds, Leases, and Notes Payable are debt by borrowing or financing usually for the acquisition of buildings, equipment, or capital construction. Bonds are addressed in Note 9.
Capital leases consist of various lease-purchase contracts and other lease agreements. Such contracts provide that any commitments beyond the current year are contingent upon funds being appropriated for such purposes by the Regents. It is reasonably assured that such leases will be renewed in the normal course of business and, therefore, are treated as non-cancelable for financial reporting purposes.
Split-interest Agreements are beneficial interests in various agreements which include gift annuities, charitable remainder annuity trusts and unitrusts, and a pooled income fund. The CU Foundation typically serves as trustee, although certain trusts are administered by outside trustees.
For trusts administered by the CU Foundation, specified earnings are typically paid to a named beneficiary. After termination of the trusts, the assets revert to the CU Foundation to create an endowment to support University activities or to be temporarily restricted for other purposes at the University. Assets received under such agreements are typically marketable equity and fixed-income securities, are recorded at their market value, and are included in investments in the accompanying financial statements. The estimated net present value of the obligation to named beneficiaries is recorded as a liability under split-interest agreements. A risk-free rate, using U.S. Treasury bonds at the date of the gift, is used in conjunction with actuarially determined life expectancies to calculate present values. The fair value of assets received in excess of the obligation is recognized as contribution revenue at the date of the gift. Changes in the value of the investments are combined with the changes in the estimated liability and are recorded in the accompanying financial statements.
In cases where a split-interest agreement is administered by an outside trustee, the CU Foundation records the estimated fair value of future cash flows from the trust as a contribution receivable from charitable remainder trusts at the point at which the CU Foundation becomes aware of its interest in the trust. Under certain circumstances, the CU Foundation accepts and manages trust funds for which the University or the CU Foundation has beneficial interest but is not the sole beneficiary of the trust. Funds received for which the University or the CU Foundation is not the ultimate beneficiary are included as other liabilities in the accompanying financial statements and are not included in contributions revenue.
Custodial Funds consist of funds held by the CU Foundation for endowments legally owned by other entities, including the University.
Alternate Medicare Plan is described in Note 15.
Early Retirement Incentive Plan is described in Note 15.
Other Liabilities are addressed in Note 10 and consist of risk financing, construction contract retainage, funds held for others, the Federal share of Perkins Loans, and miscellaneous.
Certain loans to students are administered by the University with funding primarily supported by the federal government. The University’s statement of net position includes both the loans receivable and the related federal refundable loan liability representing federal capital contributions owed upon termination of the program.
Deferred Outflows of Resources and Deferred Inflows of Resources. Deferred outflows of resources represent consumption of net position that is applicable to a future period. Deferred inflows of resources represent acquisition of net position that is applicable to a future period. For the University, refunds related to debt defeasance are included in deferred outflows of resources. The deferred amount will be amortized over the remaining life of the debt refunded. Changes in net pension liability not included in pension expense, and changes in net OPEB liability not included in OPEB expense, are reported as deferred outflows of resources or deferred inflows of resources. Employer contributions subsequent to the measurement date are reported as deferred outflows of resources.
Net Pension Liability is the liability of the University, the employer, to employees for the PERA defined-benefit pension plan, which is measured as the portion of the present value of projected benefit payments to be provided through the pension plan to current active and inactive employees that is attributed to those employees’ past periods of service (total pension liability), less the amount of the pension plan’s fiduciary net position.
Net Position is classified in the accompanying financial statements as follows:
Net investment in capital assets represents the total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of net investment in capital assets.
Restricted for nonexpendable purposes consists of endowments and similar instruments in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal.
Restricted for expendable purposes represents net resources in which the University or the DPCU is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties.
Unrestricted net position represents net resources derived from student tuition and fees, fee-for-service contracts, and sales and services of educational departments. These resources are used for transactions relating to the educational and general operations of the University and may be used at the discretion of the Regents to meet current expenses for any purpose. These resources also include those from auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty, and staff.
Internal Transactions occur between University operating units, including its formal self-funded internal service units and blended component units. Examples of self-funded operating units are telecommunications, cogeneration, and storerooms. Transactions include the recognition of revenues, expenses, receivables, and payables in the appropriate accounts of the operating units. To accommodate external financial reporting, the internal revenues and receivables are netted against expenses and payables, respectively, and are eliminated at year end.
Classification of Revenues and Expenses in the accompanying financial statements has been made according to the following criteria:
Operating revenues are derived from activities associated with providing goods and services for instruction, research, public service, health services, or related support to entities separate from the University and that are exchange transactions. Examples include student tuition and fees, fee-for-service contracts, sales and services of auxiliary enterprises, healthcare and patient services, grants, and contracts. Tuition and fee revenue for sessions that are conducted over two fiscal years are allocated on a pro-rata basis. Operating revenues of the DPCU also include contributions, which are derived from their fundraising mission.
Other operating revenues include rental income, charges for services, transcript and diploma fees, other miscellaneous fees, and miscellaneous revenues from CU Medicine.
Operating expenses are paid to acquire or produce goods and services provided in return for operating revenues and to carry out the mission of the University.
Nonoperating revenues and expenses include all revenues and related expenses that do not meet the definition of operating revenues, capital revenues, or endowment additions. They are primarily derived from activities that are non-exchange transactions (e.g., gifts, including those from the CU Foundation), from activities defined as such by the GASB cash flow standards (e.g., investment income) and also federal funds allocated to state governments, such as the Pell Grant, and insurance recoveries.
Scholarship Allowances are the difference between the stated charge for the goods and services provided by the University and the amount that is paid by the students or by other third parties making payments on the students’ behalf. Tuition and fee revenue and certain other auxiliary enterprise revenues are reported net of scholarship allowance in the accompanying financial statements. Certain grants from external governmental and private programs are recorded as either operating or nonoperating revenues in the accompanying financial statements. To the extent that such grant revenues are used to satisfy tuition and fees and other student charges, the University records scholarship allowances. The student aid line under operating expenses represents the amount of financial aid disbursed to students net of the aid applied to the student’s account to pay for tuition and fees.
Health Services Revenue from Contractual Arrangements is recognized by CU Medicine as a result of providing care to patients covered under various third parties such as Medicare and Medicaid, private insurance companies, and managed care programs, primarily from fixed-rate agreements. The federal and state governments annually update fixed-rate agreements for Medicare and Medicaid, respectively. In addition to the standard Medicaid program, CU Medicine provides substantial care to Medicaid patients under the Colorado Access program. Contractual arrangements with insurance companies and managed care plans are negotiated periodically for future years.
Health services revenue is reported at the estimated net realizable amounts due from third-party payers and others for services rendered. Net patient services revenue includes care provided to patients who meet certain criteria under CU Medicine’s medically indigent care policy as reimbursed with funds provided by the State processed by UCH, and co-payments made by care recipients. In accordance with CU Medicine’s mission and philosophy, CU Medicine members annually provide substantial levels of charity care to patients who meet certain defined criteria. Charity care relates to services rendered for which no payment is expected.
Donor Restricted Endowment disbursements of the net appreciation (realized and unrealized) of investments of endowment gifts are permitted by state law, except where a donor has specified otherwise. The amount of earnings and net appreciation available for spending by the University and the CU Foundation is based on a spending rate set by the CU Foundation board on an annual basis. For the years ended June 30, 2018 and 2017, the authorized spending rate was equal to 4 percent of the endowment’s trailing 36-month average fair market value as of December 31 for the year preceding the distribution.
Earnings in excess of the amount authorized for spending are available in future years and are included in the value of the related investment. Earnings authorized to be spent are recognized in the University’s financial statements as investment or gift revenue for University or CU Foundation-owned endowments, respectively. As of June 30, 2018 and 2017, there was $16,111,000 and $15,045,000, respectively, in net appreciation of investments available for authorization for expenditure as reported in restricted expendable net position.
Application of Restricted and Unrestricted Resources is made on a case-by-case basis by management depending on overall program resources.
Use of Estimates is made in order to prepare financial statements in conformity with accounting principles generally accepted in the United States of America. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ significantly from those estimates.
Reclassifications of certain prior year balances have been made to conform to the current year’s financial statement presentation.
ADOPTION OF NEW ACCOUNTING STANDARDS
Effective July 1, 2017, the University adopted the provisions of GASB Statement No. 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (Statement No. 75). Statement No. 75 replaces the requirements of GASB Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended (Statement No. 45). Statement No. 75 addresses accounting and financial reporting for OPEB and establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense.
The University participates in two types of OPEB plans – a single employer plan and a cost-sharing plan administered by the Public Employees’ Retirement Association of Colorado (PERA). Statement No. 75 requires the liability of employers for defined benefit (net OPEB liability) to be actuarially measured as the portion of the present value of projected benefit payments to be provided to active and inactive employees that is attributable to those employees’ past period of service (total OPEB liability), less the amount of the OPEB plan’s fiduciary net position. The University does not maintain assets in a trust for the single-employer plan so the total OPEB liability and net OPEB liability are equal.
As of June 30, 2017 (Fiscal Year 2017), the University recorded an OPEB liability of $343,570,000 for its single-employer plan based on the guidance prescribed in Statement No. 45. The adoption of Statement No. 75 increased the estimated OPEB liability for the single employer plan at July 1, 2017 to $820,297,000. The increase in the OPEB liability and corresponding decrease in unrestricted net position offset by contributions made after the measurement date has been recorded as a cumulative effect adjustment in Fiscal Year 2018 of $459,516,000. Statement No. 75 was not implemented retroactively as information required from PERA for the cost-sharing plan was not available.
As noted above, the University also participates in PERA’s postemployment benefit plan referred to as PERACare, which is a cost-sharing multiple-employer defined benefit plan. As such, the University is now required to record its proportionate share of the unfunded liability for this plan. As of July 1, 2017, the net OPEB liability for PERACare per PERA was $1,297,000,000. The University’s proportionate share, based on its contributions to the plan in relation to total plan contributions was $49,379,000. PERA’s fiscal year end is December 31 and contributions subsequent to that date are considered a deferred outflow for financial reporting purposes. The University’s deferred outflow related to PERACare at July 1, 2017 was $1,287,000, resulting in a decrease to beginning unrestricted net position of $48,092,000, which is reported as part of the cumulative effect of adoption of Statement No. 75.
The University also adopted the provisions of GASB Statement No. 81 Irrevocable Split-Interest Agreements (Statement No. 81) effective July 1, 2017. Statement No. 81 requires a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, Statement No. 81 requires a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party. The impact of adoption of Statement No. 81 was a decrease of $1,705,000 to beginning net position restricted for nonexpendable purposes. Fiscal Year 2017 was not adjusted for the adoption of Statement No. 81 as the amount is not considered material to the University’s financial statements.
In summary, the adoption of these standards resulted in the following changes to beginning net position:
Table 1.3. Impact of New Accounting Statements (in thousands)
|Beginning net position, as previously reported||$||2,358,412|
|GASB 75 implementation|
|Reversal of OPEB under GASB 45||343,570|
|Less: beginning balance of University OPEB plan||(820,297)|
|Less: beginning balance of PERACare||(49,379)|
|Plus related deferred outflows||18,498|
|GASB 81 implementation|
|Less related deferred inflow||(1,705)|
|Cumulative effect of adoption of new accounting standards||(509,313)|
|Beginning net position, as restated||$||1,849,099|
Effective July 1, 2017, the University early-implemented the provisions of GASB Statement No. 89 Accounting for Interest Cost Incurred before the End of a Construction Period (Statement No. 89). Statement No. 89 requires interest costs incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset. Statement No. 89 is to be applied prospectively so there is no prior period adjustment. Approximately $10,198,000 of interest cost that would have been capitalized under previous guidance was expensed in Fiscal Year 2018.
© Office of University Controller 2018