©Office of University Controller 2014. This report must be considered in its entirety.
The University of Colorado and the Office of University Controller (OUC) are pleased to offer the 2014 Annual Financial Report. In an ongoing effort to increase the transparency and accessibilty of our financial reports, the 2014 Annual Financial Report has been produced as a website. Benefits to this format include:
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©Office of University Controller 2014. This report must be considered in its entirety.
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:
To accomplish its mission, the University’s 6,511 instructional faculty serve 58,166 students through 394 degree programs in 26 schools and colleges.
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) management of the University has operational responsibility. The University has the following blended component units:
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 4845 Pearl East Circle, Boulder, Colorado 80301.
Established in 1982, UPI performs the billing, collection, and disbursement services for the professional health services rendered for CU Anschutz Medical Campus as authorized in Section 23-20-114, Colorado Revised Statutes (CRS). UPI is the School of Medicine’s faculty practice plan with approximately 2,400 member physicians. It does not employ physicians or practice medicine directly; it provides the business and administrative support for the clinical faculty employed by the School of Medicine. It is a nonprofit entity under Section 501(c)(3) of the Internal Revenue Code. Medical care is provided to patients throughout the Rocky Mountain region through a statewide and regional network of services. The University appoints a majority of UPI’s governing body, and is able to impose its will. Additionally, UPI exclusively benefits the University by providing the services described above.
In 1997, UPI acquired a 30 percent interest in the University of Colorado Hospital Authority’s (the Hospital Authority) investment in TriWest Healthcare Alliance Corp. (TriWest). Since that time, the Hospital Authority sold 50 percent of the joint TriWest investment back to TriWest resulting in a revised ownership split between the Hospital Authority and UPI whereby UPI held 60 percent of the Hospital Authority’s 15 percent investment. UPI received $3,582,000 and $4,822,000 in dividends during the years ended June 30, 2014 and 2013, respectively. In April 2013, TriWest was replaced by United Health Care as the network management services provider under the Department of Defense’s TRICARE management contract. As a result of that event, TriWest recapitalized the corporation and completed a stock repurchase of all outstanding shares in February 2014. UPI received $17,151,000 for its ownership interest, which is included in investment income. A total of $9,731,000 was in the form of cash at closing, $3,250,000 of the proceeds were reinvested by UPI in the new TriWest entity, and the remaining $4,170,000 is a receivable from the Hospital Authority due in December 2014. UPI’s new interest in TriWest represents 35 percent of a combined $9,250,000 investment held by the Hospital Authority. UPI and the Hospital Authority’s investment in TriWest represented approximately 3 percent of the book value of the entity at closing of the transaction. UPI accounts for its participation in TriWest on the cost basis, and includes it in noncurrent other assets.
In December 2010, UPI, the Hospital Authority, and the University’s School of Medicine (SOM) entered into a joint operating agreement to develop and operate a radiology imaging facility. No contributions were made in 2014 or 2013. Capital contributions and division of revenue and expenses will be split between the partners based upon the operating agreement. The University did not contribute any funds to the facility and has no equity interest in it. UPI received $444,000 and $429,000 in dividends during the years ended June 30, 2014 and 2013, respectively.
During 2009, UPI purchased 49 units representing a 24.5 percent share in The Children’s Hospital North Surgery Center, LLC (Surgery Center) for $490,000. The Surgery Center was formed by the Children’s Hospital Colorado Association (Children’s Colorado), UPI, and individual community physicians for the purpose of owning and operating a multi-specialty ambulatory surgery center focused on pediatric care. UPI accounts for its participation in the Surgery Center on the cost basis and includes it in noncurrent other assets. Children’s Colorado has majority ownership of the Surgery Center and is the sole decision-making body regarding its operation. During 2012, UPI contributed $123,000 through capital calls, thereby maintaining UPI’s original ownership interest. There were no such capital calls during Fiscal Years 2014 or 2013. In addition to its equity interest in the entity, UPI has issued a guaranty for up to $1.2 million in support of a $4.7 million loan taken by the Surgery Center in support of its operations. In the event of default, UPI and Children’s Colorado would be responsible for their proportionate interest in this indebtedness to the extent it could not be satisfied by any equity remaining in the venture. UPI management believes the risk of default is unlikely. This guarantee expires in May 2019.
Detailed financial information may be obtained directly from UPI at P.O. Box 111719, Aurora, Colorado 80042-1719.
Additionally, financial statements for UPI’s joint ventures may be requested at the addresses listed below:
The University’s financial statements include certain supporting organizations as discretely presented component units (DPCU) of the University (labeled component units). The majority of the resources, or income thereon that the supporting organizations hold and invest, are restricted to the activities of the University by the donors.
Because these restricted resources held by the supporting organizations can only be used by, or for the benefit of, the University, the following supporting organizations are considered DPCU of the University (see Note 17 for additional information):
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 trustees of the CU Foundation selects the board of directors. 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.
In May 2013, at the request of the University, the CU Foundation Board of Directors passed a resolution directing the President/CEO and the staff of the CU Foundation to cooperate with the University in transitioning fundraising and other advancement activities to the University. Implementation of this request began in July 2013. All fundraising and certain other advancement employees are now staff at the University. The CU Foundation remains the fiduciary of gift assets, managing the investment portfolio as well as receiving and receipting new gifts.
Detailed financial information may be obtained directly from the CU Foundation at 1800 Grant Street, Suite 725, Denver, Colorado 80203.
Established in August 2002, CUREF solicits and manages real estate investments for the sole benefit of the University. CUREF, a nonprofit entity under Section 501(c)(3) and 509(a)(3) of the Internal Revenue Code, has up to a 14-member board of directors. Nine are voting members, of which four are appointed by the University. There are up to five ex-officio non-voting members.
Campus Village Apartments, LLC (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.
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 is 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.
33rd Street, LLC (33rd Street), 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. 33rd Street is organized, operated, and dedicated exclusively 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 industrial building in Boulder, Colorado.
Partnership Holdings Venture, LLC (PHV LLC), a Colorado limited liability company, was formed under the laws of the State of Colorado on January 10, 2008, with CUREF as the sole member. PHV LLC is organized, operated, and dedicated solely to promoting the general welfare, development, growth, and well-being of the University, and specifically for the primary purpose of acquiring, ownership, operation, management, sale, and disposition of investments including membership interest in real estate limited liability companies.
Land Holdings Venture, LLC (LHV LLC), a Colorado limited liability company, was formed under the laws of the State of Colorado on January 10, 2008, with CUREF as the sole member. LHV LLC is organized, operated, and dedicated solely to promoting the general welfare, development, growth, and well-being of the University, and specifically for the primary purpose of acquiring, ownership, operation, management, sale, and disposition of investments including holdings in land.
The University of Colorado UK Foundation Limited (CU UK), a charitable company with limited liability, was formed under the laws of England and Wales and incorporated February 25, 2010, with CUREF as the sole shareholder. CU UK’s purpose is to advance and promote education for the public benefit, in particular for any educational and charitable purposes connected with the University, its affiliates, and its past and present students and staff. CU UK owns property in London.
Foothills MOB, LLC (Foothills LLC), a Colorado limited liability company, was formed under the laws of the State of Colorado on December 10, 2012, with CUREF as the sole member. Foothills is organized, operated, and dedicated solely to promoting the general welfare, development, growth, and well-being of the University, and specifically for the primary purpose of developing, operating, and maintaining a medical office building in Boulder, Colorado.
Detailed financial information may be obtained directly from CUREF at 1800 Grant Street, Suite 725, Denver, Colorado 80203.
The University has associations with the following organizations for which it is not financially accountable, or 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.
Article VIII, Section 5 of the Colorado Constitution declares the University to be a state institution. The Board of Regents of the University is 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(a) 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, 2014 and 2013.
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. UPI 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, 2014 and 2013. 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, 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, or when contributed to the CU Foundation, at the fair values of the investment assets 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 publicly traded on national security exchanges are stated at their closing market prices at June 30, 2014 and 2013, respectively. 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, or on the basis of other information developed, obtained, and evaluated periodically by the CU Foundation. Because of the inherent uncertainties in the valuation of alternative investments, those estimated fair values may differ significantly from the values that would have been used had ready market for the investments existed. Included in the investments portfolio are real estate and note receivable assets. These assets are booked 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. Promises to give to CUREF are recorded at net realizable value 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. The CU Foundation uses the allowance method to determine the uncollectible portion of the unconditional contributions receivable. The allowance is based on management’s analysis of the historical collectability of contributions pledged. These promises to give are recorded at the net present value of the expected future cash flows.
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, patent acquisition costs, and other prepaid items.
Capital Assets are stated at cost at the date of acquisition or at fair 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 (including software) 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.
All collections, such as works of art and historical artifacts, have been capitalized at cost at the date of acquisition or fair 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, Asset Useful Lives.
Table 1.1. Asset Useful Lives |
|
| Asset Class | Years |
|---|---|
Buildings |
20 - 40 * |
Improvements other than buildings |
10 - 40 |
Equipment |
3 - 20 |
Library and other collections |
6 - 15 |
Software |
5 - 10 |
Intangibles |
Varies |
* Certain buildings are componentized and the components |
|
Compensated Absences and Other Postemployment Benefits 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, Compensated Absence Accrual Rates for Vacation. 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.
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 University-provided post-retirement healthcare and life insurance benefits for retired employees in accordance with the Regents’ authority, as a single-employer plan. Substantially all University employees may become eligible for those benefits if they reach normal retirement age while working for the University. The University’s contributions are made on a pay-as-you-go basis. The University’s annual OPEB expense is calculated based on the annual required contribution ARC of the University, an amount actuarially determined. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or fund excess) of the plan over a period not to exceed 30 years.
Table 1.2. Compensated Absence Accrual Rates for Vacation |
||
| Type of Employee | Days Earned Per Month* | Maximum Accrual |
|---|---|---|
Classified employees hired before January 1, 1968 |
1.25 - 1.75 days |
30 - 42 days |
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. |
||
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, and miscellaneous.
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 UPI.
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 UPI 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, UPI 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 UPI's medically indigent care policy as reimbursed with funds provided by the State processed by the Hospital Authority, and co-payments made by care recipients. In accordance with UPI's mission and philosophy, UPI 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, 2014 and 2013, the authorized spending rate was equal to the greater of 4 percent of the current market value of the endowment or 4.5 percent of the endowment’s trailing 36-month average fair market value. 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. In Fiscal Years 2014 and 2013, there was $9,941,000 and $9,426,000, 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.
NEW AND FUTURE ACCOUNTING PRONOUNCEMENTS
Effective July 1, 2013, the University adopted the provisions of Statement No. 70 Accounting and Financial Reporting for Nonexchange Financial Guarantees (Statement No. 70). Statement No. 70 establishes accounting and financial reporting standards for financial guarantees that are nonexchange transactions extended or received by a state or local government. The adoption of Statement No. 70 had no impact on the financial statements of the University as the University neither extends nor receives any financial guarantees subject to this standard.
The GASB issued Statement No. 68 Accounting and Financial Reporting for Pensions (Statement No. 68), which revises and establishes new financial reporting requirements for most governments that provide their employees with pension benefits. The University provides certain of its employees with pension benefits through the State’s multiple employer cost-sharing Public Employees’ Retirement Association (PERA) defined benefit retirement program.
Statement No. 68 requires cost-sharing employers participating in the PERA program, such as the University, to record their proportionate share, as defined in Statement No. 68, of PERA’s unfunded pension liability. The University has no legal obligation to fund this shortfall nor does it have any ability to affect funding, benefit, or annual required contribution decisions made by PERA or the General Assembly. The requirement of Statement No. 68 to record a portion of PERA’s unfunded liability will negatively impact the University’s future unrestricted net position. Statement No. 68 is effective for Fiscal Year 2015.
PERA is not yet required to adopt the provisions of Statement No. 67 Financial Reporting for Pension Plans (Statement No. 67), which replaces Statement No. 25 Financial Reporting for Defined Benefit Plans, and Statement No. 50, Pension Disclosures. As a result, the University is unable at this time to provide an estimate of the impact of the implementation of Statement No. 68 based on the net pension liability as it will be calculated under Statement No. 67. Under the guidance currently in effect (Statement No. 25) PERA’s unfunded actuarial accrued liability at December 31, 2013 is $9,714,265,000. It is anticipated the University’s proportionate share of the net pension liability will be based on its contributions to PERA divided by total contributions to PERA. The University’s contributions to PERA for the twelve-month period ending June 30, 2014 were $47,751,000. Total contributions to PERA for the twelve-month period ending December 31, 2013 were $401,658,000, resulting in an estimated proportionate share, prior to the impact of the adoption of Statement No. 67, of approximately 11.9 percent. All balances in this paragraph pertain only to PERA’s State Trust Division as the University does not participate in any other PERA divisions.
The University’s cash and cash equivalents are detailed in Table 2, Cash and Cash Equivalents.
| Table 2. Cash and Cash Equivalents (in thousands) | ||
| 2014 | 2013 | |
| University | ||
| Cash on hand (petty cash and change funds) | $374 | 363 |
| Deposits with U.S. financial institutions | 77,454 | 75,986 |
| Deposits with foreign financial institutions | 62 | 61 |
| Total Cash and Cash Equivalents - University | $77,890 | 76,410 |
Custodial credit risk for deposits is the risk that in the event of a bank failure, the University’s deposits may not be returned to it. To manage custodial credit risk, deposits with U.S. and foreign financial institutions are made in accordance with University and State policy, including the Public Deposit Protection Act (PDPA). PDPA requires all eligible depositories holding public deposits to pledge designated eligible collateral having market value equal to at least 102 percent of the deposits exceeding those amounts insured by federal depository insurance. Deposits collateralized under the PDPA are considered to be collateralized with securities held by the pledging institution in the University’s name. Deposits with foreign financial institutions are not PDPA-eligible deposits and thus are exposed to custodial credit risk and require separate authorization as depositories by the State. During the years ended June 30, 2014 and 2013, all deposits with foreign financial institutions were authorized.
The University’s investments generally include direct obligations of the U.S. government and its agencies, commercial paper, municipal and corporate bonds, asset-backed securities, mutual and commingled funds, repurchase agreements, corporate equities, certificates of deposit, and alternative non-equity securities. CU Foundation investments are similar to the University’s but also include alternative non-equity securities in hedge funds and oil and gas. Endowments are pooled to the extent possible under gift agreements. The CU Foundation manages certain of these endowments for the University in accordance with its investment policy. Details of investments by type for both the University and the CU Foundation are included in Table 3.1, Investments.
To the extent permitted, and excluding the University’s blended entities, the University pools cash balances for investment purposes. An investment policy statement approved by the Regents directs the Treasurer of the University to meet the following investment objectives:
For financial statement purposes, investment income (loss) is reported on a total return basis and is allocated among operational units based on average daily balances, using amortized costs. Average daily balances, based on amortized costs, approximated $1,429,711,000 and $1,348,543,000 for the years ended June 30, 2014 and 2013, respectively. The total return on this pool was 11.54 and 7.8 percent for the years ended June 30, 2014 and 2013, respectively.
Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the University will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Therefore, exposure arises if the securities are uninsured, not registered in the University’s name, and are held by either the counterparty to the investment purchase or the counterparty’s trust department or agent but not in the University’s name. Open-ended mutual funds and certain other investments are not subject to custodial risk because ownership of the investment is not evidenced by a security. None of the University’s investments are subject to custodial risk.
| Table 3. 1. Investments (in thousands) | ||
| Investment Type | 2014 | 2013 |
|---|---|---|
| University | ||
| U.S. government securities | $307,827 | 259,275 |
| Certificates of deposit | 1,987 | 2,480 |
| Commercial paper | 800 | 8,145 |
| Corporate bonds | 191,083 | 175,301 |
| Corporate equities | 5,168 | 155,535 |
| Municipal bonds | 9,205 | 7,608 |
| Mutual funds | 1,225,137 | 889,930 |
| Repurchase agreements | 234,912 | 237,264 |
| Asset-backed securities | 186,279 | 163,923 |
| Alternative non-equity securities: | ||
| Absolute return fund | 40,479 | 57,337 |
| Private equity | 43,652 | 39,010 |
| Real estate | 28,540 | 22,471 |
| Venture capital | 17,976 | 14,548 |
| Other | 12,283 | 11,659 |
| Total Investments - University | $2,305,328 | 2,044,486 |
| CU Foundation | ||
| Cash equivalents | $17,084 | 15,511 |
| Equity securities: | ||
| Domestic | 331,467 | 254,126 |
| International | 393,159 | 259,727 |
| Fixed-income securities | 152,863 | 167,081 |
| Alternative non-equity securities: | ||
| Real estate | 75,071 | 54,727 |
| Private equity | 175,571 | 160,681 |
| Hedge funds | 56,403 | 81,403 |
| Absolute return funds | 105,906 | 115,582 |
| Venture capital | 71,795 | 60,202 |
| Oil and gas | 29,623 | 26,113 |
| Commodities | 12,801 | 7,964 |
| Other | 972 | 869 |
| Total Investments - CU Foundation | $1,422,715 | 1,203,986 |
Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Credit risk only applies to debt investments. This risk is assessed by national rating agencies, which assign a credit quality rating for many investments. The University’s investment policies for the Treasury pool do not permit investments in debt securities that are below investment grade at the time the security is purchased. University policy allows no more than 20 percent of investments to be rated below A (Standard and Poor’s) or A3 (Moody’s) at the time of purchase. There are two other investment policies tailored to non-pooled investments. Those policies do not restrict investments to a particular credit quality standard. Credit quality ratings are not required for obligations of the U.S. government or obligations explicitly guaranteed by the U.S. Government. The CU Foundation does not have a policy concerning credit quality risk. A summary of the University’s debt investments and credit quality risk as of June 30, 2014, and 2013 is shown in Table 3.2, Debt Investments and Credit Quality Risk. The University obtains ratings from both Moody’s and Standard and Poors, and primarily reflects the Moody’s ratings in Table 3.2 unless S&P is lower. The ratings reflected are Moody’s for UPI, and S&P for the CU Foundation. Table 3.2 is a subset of Table 3.1 and does not include $932,418,000 of non-debt securities and $238,130,000 of debt investments that are backed by the full faith and credit of the U.S. government in Fiscal Year 2014, and does not include $762,738,000 of non-debt securities and $200,313,000 of debt investments that are backed by the full faith and credit of the U.S. government in Fiscal Year 2013.
| Table 3.2. Debt Investments and Credit Quality Risk (in thousands) | ||||||
| Investment Type | 2014 | 2013 | ||||
| Unrated | Rated | Unrated | Rated | |||
| Fair Value |
Fair Value |
% of Rated Value by Credit Rating |
Fair Value |
Fair Value |
% of Rated Value by Credit Rating |
|
| University | ||||||
| 99% Aa/AA | ||||||
| U.S. government securities | $ - | 69,697 | 100% AA | $ 5,722 | 105,356 | 1% A |
| Bond mutual funds | 167,082 | 50 | 8% Aa 23% A 69% Baa |
110,934 | - | - |
| Certificates of deposit | 1,987 | - | - | 2,480 | - | - |
| Corporate bonds | 4,741 | 107,562 | 3% Aaa 17% Aa 47% A 33% Baa/Ba/BB |
1,362 | 125,258 | 10% Aaa 19% Aa 47% A 24% Baa/Ba/B |
| Money market mutual funds | 48,827 | 224,856 | 97% Aaa 3% AA |
14,536 | 250,166 | 100% Aaa |
| Municipal bonds | 17 | 9,188 | 91% Aa/AA 9% A |
873 | 6,735 | 100% Aa |
| Repurchase agreements | 234,912 | - | - | 237,264 | - | - |
| Asset-backed securities | 16,379 | 117,109 | 31% Aaa 59% Aa/A 5% Baa/Ba/B 5% Caa/Ca |
81,706 | 42,089 | 37% Aaa 30% Aa/A 19% Baa/Ba/B 14% Caa/Ca |
| Commercial paper - UPI | - | 800 | 100% A | 8,145 | - | - |
| Corporate bonds - UPI | - | 78,780 | 33% Aaa/Aa 67% < Aa |
- | 48,682 | 33% Aaa/Aa 67% < Aa |
| Asset-backed securities - UPI | 9,919 | 42,874 | 100% Aaa | 30,612 | 9,515 | 100% Aaa/Aa |
| Total Debt Investments - University | $483,864 | 650,916 | $493,634 | 587,801 | ||
| CU Foundation | ||||||
| U.S. government agencies | $36,130 | - | 100% AA | $- | 47,420 | 100% AA |
| Corporate bonds | 6,810 | - | 60% AA/A 31% BBB 9% < BBB |
- | 8,190 | 8% AAA 41% AA/A 9% BBB 42% <BBB |
| Asset-backed securities | 6,960 | - | 28% AAA 69% AA/A 3% BBB / < BBB |
- | 4,930 | 37% AAA 61% AA/A 2% BBB/<BBB |
| Bond mutual funds | - | - | - | 12,680 | - | - |
| Money market mutual funds | 16,630 | - | 100% AAA | - | 15,440 | 100% AAA |
| Total Debt Investments - CU Foundation | $66,530 | - | $12,680 | 75,980 | ||
Interest rate risk is the risk that changes in the market rate of interest will adversely affect the value of an investment. Interest rate risk only applies to debt investments. The University, except for UPI, manages interest rate risk in its investment portfolios by managing the duration, the maximum maturity, or both. University investment policies establish duration and maturity guidelines for each portfolio. The duration method uses the present value of cash flows, weighted for those cash flows as a percentage of the investment’s full price. UPI manages interest rate risk using weighted average maturity. Weighted average maturity is a measure of the time to maturity in years that has been weighted to reflect the dollar size of the individual investment within an investment type. The University’s investment policy mitigates interest rate risk through the use of maturity limits for each of the investment segment pools.
A summary of the fair value of the University’s debt investments and interest rate risk as of June 30, 2014 and 2013 is shown in Table 3.3, Debt Investments and Interest Rate Risk. Table 3.3 is a subset of Table 3.1 and does not include $1,206,156,000 of non-debt securities in Fiscal Year 2014, and does not include $1,079,610,000 of non-debt securities in Fiscal Year 2013. The main difference in the amount of non-debt securities excluded in Table 3.2 and Table 3.3 is that money-market mutual funds are included in Table 3.2 as they have credit risk but they are excluded from Table 3.3 as they do not have interest rate risk. Also, U.S. backed securities are not subject to credit risks but are subject to interest rate risks and are included here but not in the credit quality risk section.
The University has investments in asset-backed securities, which consist mainly of mortgages, home equity loans, student loans, automobile loans, equipment trusts, and credit card receivables. These securities are based on cash flows from principal and interest payments on the underlying securities. An asset-backed security has repayments that are expected to significantly vary with interest rate changes. The variance may present itself in terms of variable repayment amounts and uncertain early or extended repayments.
| Table 3. 3. Debt Investments and Interest Rate Risk (in thousands and years) | |||||
| Investment Type | 2014 | 2014 | 2013 | 2013 | |
| University | Amount | Duration | Amount | Duration | |
| U.S. government securities | $257,337 | 4.3 | 229,395 | 5.6 | |
| Bond mutual funds | 167,132 | 2.8 | 110,934 | 3.5 | |
| Certificates of deposit | 1,987 | 2.6 | 2,480 | 3.5 | |
| Corporate bonds | 112,303 | 6.2 | 126,620 | 6.5 | |
| Municipal bonds | 9,205 | 7.7 | 7,608 | 5.8 | |
| Repurchase agreements | 234,912 | 1.7 | 237,264 | 1.1 | |
| Asset-backed securities: | |||||
| Fixed-rate securities | 77,697 | - | 92,011 | - | |
| Variable-rate securities | 33,890 | - | 27,258 | - | |
| Collateralized mortgage obligations | 21,901 | - | 4,526 | - | |
| Total asset-backed securities | 133,488 | 4.3 | 123,795 | 16.1 | |
| Amount | Weighted Average Maturity |
Amount | Weighted Average Maturity |
||
| U.S. government securities - UPI | $50,436 | 6.19 | 29,826 | 5.54 | |
| Commercial paper - UPI | 800 | 0.13 | 8,145 | 0.77 | |
| Corporate bonds - UPI | 78,780 | 3.04 | 48,682 | 2.95 | |
| Asset-backed securities - UPI | 52,792 | 3.86 | 40,127 | 6.3 | |
| Total Debt Investments - University | $1,099,172 | 964,876 | |||
| CU Foundation | Amount | Duration | Amount | Duration | |
| U.S. government securities | $36,130 | 3.72 | 47,420 | 7.53 | |
| Bond mutual funds | - | - | 12,680 | 4.8 | |
| Corporate bonds | 6,810 | 2.17 | 8,190 | 2.84 | |
| Asset-backed securities | 6,960 | 1.22 | 4,930 | 1.84 | |
| Total Debt Investments - CU Foundation | $49,900 | 73,220 | |||
Concentration of credit risk is the risk of loss attributed to magnitude of an entity’s investment in a single issuer other than the federal government. The University’s policy is that exposure of the portfolio to any one issuer, other than securities of the U.S. government or agencies, or government-sponsored corporations, shall not exceed 10 percent of the market value of the fixed income portfolio. The University had no investments exceeding 5 percent and is therefore not subject to concentration of credit risk.
Assets held by the CU Foundation under split-interest agreements are included in investments and consisted of the following as of June 30, 2014 and 2013, as shown in Table 3.4, CU Foundation Investments Held under Split-interest Agreements.
| Table 3. 4. CU Foundation Investments Held under Split-interest Agreements (in thousands) | ||
| Type | 2014 | 2013 |
| Charitable remainder trusts | $43,224 | 38,979 |
| Charitable gift annuities and pooled income funds | 2,303 | 2,309 |
| Total Investments Held under Split-interest Agreements | $45,527 | 41,288 |
Table 4.1, Accounts, Contributions, and Loans Receivable, segregates receivables as of June 30, 2014 and 2013, by type.
| Table 4.1. Accounts, Contributions, and Loans Receivable (in thousands) | ||||
| 2014 | ||||
| Type of Receivable | Gross Receivables | Allowance | Net Receivables | Net Current Portion |
| University | ||||
| Student accounts | $ 57,992 | 20,122 | 37,870 | 37,870 |
| Federal government | 64,257 | - | 64,257 | 64,257 |
| Other governments | 31,582 | - | 31,582 | 31,582 |
| Private sponsors | 39,783 | - | 39,783 | 39,783 |
| Patient accounts | 85,698 | 7,327 | 78,371 | 78,371 |
| CU Foundation | 18,282 | - | 18,282 | 18,282 |
| Interest | 2,551 | - | 2,551 | 2,551 |
| Other | 37,983 | 1,446 | 36,537 | 35,732 |
| Total accounts receivable | 338,128 | 28,895 | 309,233 | 308,428 |
| Loans | 33,914 | 3,163 | 30,751 | 5,491 |
| Total Receivable - University | $ 372,042 | 32,058 | 339,984 | 313,919 |
| 2013 | ||||
| Type of Receivable | Gross Receivables | Allowance | Net Receivables | Net Current Portion |
| University | ||||
| Student accounts | $ 55,357 | 23,500 | 31,857 | 31,857 |
| Federal government | 58,779 | - | 58,779 | 58,779 |
| Other governments | 25,867 | - | 25,867 | 25,867 |
| Private sponsors | 46,068 | - | 46,068 | 45,371 |
| Patient accounts | 76,663 | 7,344 | 69,319 | 69,319 |
| CU Foundation | 15,485 | - | 15,485 | 15,485 |
| Interest | 3,007 | - | 3,007 | 3,007 |
| Other | 17,484 | 1,447 | 16,037 | 15,844 |
| Total accounts receivable | 298,710 | 32,291 | 266,419 | 265,529 |
| Loans | 35,721 | 3,026 | 32,695 | 5,899 |
| Total Receivable - University | $ 334,431 | 35,317 | 299,114 | 271,428 |
UPI grants credit without collateral to its patients. The mix of gross receivables from patients and third-party payers as of June 30, 2014 and 2013 is detailed in Table 4.2, UPI Concentration of Credit Risk.
| Table 4.2. UPI Concentration of Credit Risk | ||||
| Category | 2014 | 2013 | ||
| Managed care | 51.8 | % | 52.1 | % |
| Medicare | 16.4 | 15.5 | ||
| Medicaid | 17.6 | 17.1 | ||
| Other third-party payers | 7.3 | 6.4 | ||
| Self-pay | 6.9 | 8.9 | ||
| Total | 100.0 | % | 100.0 | % |
Table 5, Capital Assets, presents changes in capital assets and accumulated depreciation by major asset category for the years ended June 30, 2014 and 2013.
The total interest expense, net of premium amortization, related to capital asset debt incurred by the University during the years ended June 30, 2014 and 2013 approximated $58,717,000 and $53,612,000, respectively. Of this amount, approximately $15,094,000 and $12,335,000, respectively, was capitalized as part of the value of construction in progress.
The University had insurance recoveries of $2,085,000 and $1,395,000 in the years ended June 30, 2014 and 2013, respectively, which are included in nonoperating revenues.
| Table 5. Capital Assets (in thousands) | |||||
| Category | Balance 2013 | Additions | Retirements | Transfers | Balance 2014 |
| University | |||||
| Nondepreciable capital assets | |||||
| Land | $ 56,940 | 1,981 | 356 | - | 58,565 |
| Construction in progress | 251,891 | 289,001 | 1,619 | -273,044 | 266,229 |
| Collections | 16,066 | 361 | 8 | - | 16,419 |
| Total nondepreciable capital assets | 324,897 | 291,343 | 1,983 | -273,044 | 341,213 |
| Depreciable capital assets | |||||
| Buildings | 3,047,886 | - | 2,298 | 260,557 | 3,306,145 |
| Improvements other than buildings | 186,410 | 915 | - | 3,262 | 190,587 |
| Equipment | 442,467 | 33,193 | 13,799 | 4,818 | 466,679 |
| Software | 72,609 | 3,821 | - | 4,407 | 80,837 |
| Other intangibles | 1,910 | - | - | - | 1,910 |
| Library and other collections | 331,096 | 16,620 | 2,341 | - | 345,375 |
| Total depreciable capital assets | 4,082,378 | 54,549 | 18,438 | 273,044 | 4,391,533 |
| Less accumulated depreciation | |||||
| Buildings | 1,000,817 | 96,636 | 1,551 | - | 1,095,902 |
| Improvements other than buildings | 95,806 | 7,610 | - | - | 103,416 |
| Equipment | 320,133 | 37,444 | 11,795 | - | 345,782 |
| Software | 49,120 | 13,339 | - | - | 62,459 |
| Other intangibles | 95 | 76 | - | - | 171 |
| Library and other collections | 227,455 | 14,985 | 2,340 | - | 240,100 |
| Total accumulated depreciation | 1,693,426 | 170,090 | 15,686 | - | 1,847,830 |
| Net depreciable capital assets | 2,388,952 | -115,541 | 2,752 | 273,044 | 2,543,703 |
| Total Net Capital Assets - University | $ 2,713,849 | 175,802 | 4,735 | - | 2,884,916 |
| Table 5. Capital Assets (in thousands) | |||||
| Category | Balance 2012 | Additions | Retirements | Transfers | Balance 2013 |
| University | |||||
| Nondepreciable capital assets | |||||
| Land | $ 58,393 | - | 1,453 | - | 56,940 |
| Construction in progress | 114,160 | 201,018 | 37 | -63,250 | 251,891 |
| Collections | 13,925 | 2,141 | - | - | 16,066 |
| Total nondepreciable capital assets | 186,478 | 203,159 | 1,490 | -63,250 | 324,897 |
| Depreciable capital assets | |||||
| Buildings | 2,997,445 | 21,195 | 21,572 | 50,818 | 3,047,886 |
| Improvements other than buildings | 180,220 | 1,533 | 613 | 5,270 | 186,410 |
| Equipment | 471,791 | 28,744 | 65,230 | 7,162 | 442,467 |
| Software | 63,017 | 9,592 | - | - | 72,609 |
| Other intangibles | 1,910 | - | - | - | 1,910 |
| Library and other collections | 315,840 | 15,924 | 668 | - | 331,096 |
| Total depreciable capital assets | 4,030,223 | 76,988 | 88,083 | 63,250 | 4,082,378 |
| Less accumulated depreciation | |||||
| Buildings | 923,772 | 97,929 | 20,884 | - | 1,000,817 |
| Improvements other than buildings | 88,047 | 7,759 | - | - | 95,806 |
| Equipment | 345,072 | 36,665 | 61,604 | - | 320,133 |
| Software | 35,413 | 13,707 | - | - | 49,120 |
| Other intangibles | - | 95 | - | - | 95 |
| Library and other collections | 213,800 | 14,323 | 668 | - | 227,455 |
| Total accumulated depreciation | 1,606,104 | 170,478 | 83,156 | - | 1,693,426 |
| Net depreciable capital assets | 2,424,119 | -93,490 | 4,927 | 63,250 | 2,388,952 |
| Total Net Capital Assets - University | $ 2,610,597 | 109,669 | 6,417 | - | 2,713,849 |
Table 6, Accrued Expenses, details the accrued expenses as of June 30, 2014 and 2013 by type.
| Table 6. Accrued Expenses (in thousands) | ||
| Type | 2014 | 2013 |
| University | ||
| Accrued salaries and benefits | $210,802 | 184,595 |
| Accrued interest payable | 3,847 | 3,468 |
| Other accrued expenses | 1,283 | 1,317 |
| Total Accrued Expenses - University | $215,932 | 189,380 |
Table 7.1, Compensated Absences, and Table 7.2, Other Postemployment Benefits, present changes in compensated absences and postemployment benefits other than pension benefits for the years ended June 30, 2014 and 2013.
| Table 7.1 Compensated Absences (in thousands) | ||
| 2014 | 2013 | |
| University | ||
| Beginning of year | $157,540 | 143,471 |
| Additions | 134,950 | 123,198 |
| Reductions | (125,985) | (109,129) |
| End of year | $166,505 | 157,540 |
| Current compensated absences | 11,056 | 10,018 |
During the years ended June 30, 2014 and 2013, approximately 4,500 and 4,300 retirees, respectively, met the eligibility requirements and are receiving benefits under the University-administered single-employer postemployment benefit (non-pension) program. This program was established by the Regents who have the authority to amend the program provisions. Under this program, the University subsidizes a portion of healthcare and life insurance premiums on a pay-as-you-go basis. This program does not issue a separate financial report.
| Table 7.2 Other Postemployment Benefits (in thousands) | ||
| 2014 | 2013 | |
| University | ||
| Annual required contribution (ARC) | $49,553 | 49,553 |
| Interest on net obligation | 7,443 | 5,918 |
| Adjustment to ARC | (10,154) | (8,073) |
| Annual OPEB cost (expense) | 46,842 | 47,398 |
| Estimated benefit payments | (16,648) | (13,513) |
| Increase in OPEB | 30,194 | 33,885 |
| Beginning of year | 165,393 | 131,508 |
| End of year | $195,587 | 165,393 |
| Current OPEB | 14,076 | 12,706 |
Funded Status and Funding Progress. As of July 1, 2013, the most recent actuarial valuation date, the plan was 0 percent funded, and the actuarial accrued liability for benefits was $406,782,000. The actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $406,782,000. For the year ended June 30, 2014, the covered payroll (annual payroll of active employees covered by the program) was $1,253,260,000, and the ratio of the UAAL to the covered payroll was 32.46 percent.
For the years ended June 30, 2014, 2013 and 2012, the annual OPEB cost was $46,842,000, $47,398,000, and $38,986,000, respectively. The University contributed $12,529,000, $11,608,000, and $10,805,000, respectively, which was 27 percent, 25 percent, and 28 percent, respectively, of the annual OPEB cost. The net OPEB obligation was $195,587,000, $165,393,000, and $131,508,000, respectively.
Actuarial Methods and Assumptions. Actuarial valuations of an ongoing program involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the program and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.
Projections of benefits for financial reporting purposes are based on the substantive program (the program as understood by the employer and the program members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and program members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
The projected unit credit actuarial cost method is used. The discount rate used in the valuation is 4.5 percent based on the University’s expected long-term rate of return. The healthcare trend assumption reflects healthcare cost inflation expected to impact the plan based on forecast information in published papers from industry experts (actuaries, health economists, etc.). This research suggests a 8 percent long-term average increase for all healthcare benefits, trending down to an ultimate 5 percent increase for 2022 and later years. It was assumed that all members would be entitled to the maximum life insurance benefit amount; therefore, no salary increase rate is assumed. The UAAL is being amortized as a level dollar on an open basis over a period of 30 years.
The PERA Health Care Program began covering benefit recipients and qualified dependents on July 1, 1986. This benefit was developed after legislation in 1985 established PERA and the Health Care Fund; PERA was converted to a trust fund in 1999. The plan is a cost-sharing multiple-employer plan under which PERA subsidizes a portion of the monthly premium for health care coverage. The benefits and employer contributions are established in statute and may be amended by the General Assembly. PERA includes the Health Care Trust Fund in its Comprehensive Annual Financial Report, which may be obtained by writing PERA at P.O. Box 5800, Denver, Colorado 80217, by calling PERA at 1-800-759-PERA (7372), or by visiting http://www.copera.org.
After the PERA subsidy, the benefit recipient pays the balance of the premium through an automatic deduction from the monthly retirement benefit. Monthly premium costs for participants depend on the health care plan selected, the PERA subsidy amount, Medicare eligibility, and the number of persons covered. Effective July 1, 2000, the maximum monthly subsidy is $230 per month for benefit recipients who are under 65 years of age and who are not entitled to Medicare and $115 per month for benefit recipients who are 65 years of age or older or who are under 65 years of age and entitled to Medicare. The maximum subsidy is based on the recipient having 20 years of service credit and is subject to reduction by 5 percent for each year less than 20 years.
Employees are not required to contribute to the Health Care Trust Fund, which is maintained by employer’s contributions as discussed in Note 15, PERA-Defined Benefit Pension Plan. Beginning July 1, 2004, State agencies/institutions are required to contribute 1.02 percent of gross covered wages to the Health Care Trust Fund. The University contributed $2,947,000, $2,851,000, and $2,854,000 as required by statute in Fiscal Years 2014, 2013, and 2012, respectively. In each year the amount contributed was 100 percent of the required contribution.
The Health Care Trust Fund offers two general types of plans: fully-insured plans offered through health care organizations and self-insured plans administered for PERA by third- party vendors. As of December 31, 2013, there were 53,041 enrolled participants including spouses and dependents, from all contributors to the plan. At December 31, 2013, the Health Care Trust Fund had an unfunded actuarial accrued liability of $1.26 billion, a funded ratio of 18.8 percent and a 30-year amortization period.
As of June 30, 2014 and 2013, the types and amounts of Unearned revenue are shown in Table 8, Unearned revenue.
| Table 8. Unearned Revenue (in thousands) | ||||
| 2014 | 2013 | |||
| Type | Total | Current Portion |
Total | Current Portion |
| University | ||||
| Tuition and fees | $27,657 | 27,657 | 26,385 | 26,385 |
| Auxiliary enterprises | 16,699 | 16,670 | 15,714 | 15,684 |
| Grants and contracts | 69,539 | 69,539 | 66,961 | 66,961 |
| Miscellaneous | 9,766 | 8,146 | 7,348 | 7,348 |
| Total Unearned Revenue - University | $123,661 | 122,012 | 116,408 | 116,378 |
As of June 30, 2014 and 2013, the categories of long-term obligations are summarized in Table 9.1, Bonds and Capital Leases.
| Table 9.1. Bonds and Capital Leases (in thousands) | ||||
| Type | Interest Rates | Final Maturity | 2014 | 2013 |
| University | ||||
| Enterprise system revenue bonds (including premium | ||||
| of $96,529 in 2014 and $96,571 in 2013) | 0.76-6.26% | 6/1/43 | $1,478,084 | 1,372,711 |
| UPI variable bonds | 0.06%* | 1/1/25 | 15,195 | 15,985 |
| Total revenue bonds | 1,493,279 | 1,388,696 | ||
| Capital leases | 1.29%-11.83% | Various | 15,618 | 16,408 |
| Total Bonds and Capital Leases - University | $1,508,897 | 1,405,104 | ||
| * Interest on the UPI Variable Rate Bonds is set at an adjustable rate as discussed below under Revenue Bonds. The rate reflected in this table is as of June 30, 2014; however, the average interest rate for 2014 was also 0.06%. | ||||
Table 9.2, Changes in Bonds and Capital Leases, presents changes in bonds and capital leases for the years ended June 30, 2014 and 2013.
| Table 9.2. Changes in Bonds and Capital Leases (in thousands) | |||||
| Type | Balance 2013 |
Additions | Retirements | Balance 2014 | Current Portion |
| University | |||||
| Revenue bonds | $ 1,292,125 | 153,705 | 49,080 | 1,396,750 | 52,580 |
| Plus unamortized premiums | 96,571 | 10,209 | 10,251 | 96,529 | 9,880 |
| Net revenue bonds | 1,388,696 | 163,914 | 59,331 | 1,493,279 | 62,460 |
| Capital leases | 16,408 | 1,242 | 2,032 | 15,618 | 1,877 |
| Total Bonds and Capital Leases - University | $ 1,405,104 | 165,156 | 61,363 | 1,508,897 | 64,337 |
| Type | Balance 2012 |
Additions | Retirements | Balance 2013 | Current Portion |
| University | |||||
| Revenue bonds | $ 1,263,383 | 195,870 | 167,128 | 1,292,125 | 48,390 |
| Plus unamortized premiums | 79,077 | 30,457 | 12,963 | 96,571 | 9,832 |
| Net revenue bonds | 1,342,460 | 226,327 | 180,091 | 1,388,696 | 58,222 |
| Capital leases | 17,740 | 696 | 2,028 | 16,408 | 1,874 |
| Total Bonds and Capital Leases - University | $ 1,360,200 | 227,023 | 182,119 | 1,405,104 | 60,096 |
A general description of each revenue bond issue, original issuance amount, and the amount outstanding as of June 30, 2014 and 2013 is detailed in Table 9.3, Revenue Bonds Detail.
| Table 9.3. Revenue Bonds Detail (in thousands) | |||||
| Issuance Description | Original Issuance At Par |
Outstanding Balance 2014 | Outstanding Balance 2013 |
||
| University Enterprise system revenue bonds: |
|||||
| Series 2004 - | |||||
| Used to fund capital improvements at CU-Boulder and UCCS | $24,360 | - | 1,045 | ||
| Series 2005A - | |||||
| Used to fund capital improvements at CU-Boulder, UCCS, and CU Anschutz Medical Campus, and refund 1995 Research Building Fund Act Bonds | 230,025 | 11,096 | 19,562 | ||
| Series 2005B - | |||||
| Used to fund capital improvements at UCCS and CU Anschutz Medical Campus | 25,225 | 13,191 | 13,848 | ||
| Series 2006A - | |||||
| Used to fund capital improvements at CU-Boulder, UCCS, and CU Denver | 101,425 | 35,389 | 38,450 | ||
| Refunding Series 2007A - | |||||
| Used to refund all of the revenue bond Refunding Series 1999A and Certificates of Participation Series 2003A and 2003B and a portion of revenue bond Refunding Series 1995A, Refunding and Improvement Series 2001B, Series 2002A, and 2002B | 184,180 | 158,900 | 164,866 | ||
| Series 2007B - | |||||
| Used to fund acquisition and capital improvements at CU-Boulder | 63,875 | 43,614 | 45,500 | ||
| Series 2009A - | |||||
| Used to fund acquisition and capital improvements at CU-Boulder, UCCS and CU Denver | 165,635 | 150,165 | 154,569 | ||
| Series 2009B-1 - | |||||
| Used to fund capital improvements at CU-Boulder and CU Anschutz Medical Campus | 76,725 | 31,229 | 39,608 | ||
| Series 2009B-2 - | |||||
| Used to fund capital improvements at CU-Boulder and CU Anschutz Medical Campus | 138,130 | 138,130 | 138,130 | ||
| Series 2009C - | |||||
| Used to refund Enterprise System Refund Series 1997, Enterprise System Revenue Refund Bonds Series 2001A for years 2012 through 2026, and Enterprise System Revenue Bonds Series 2002A for years 2014 through 2018 | 24,510 | 20,592 | 24,830 | ||
| Series 2010A - | |||||
| Used to fund acquisition and capital improvements at CU Anschutz Medical Campus | 35,510 | 31,635 | 32,885 | ||
| Series 2010B - | |||||
| Used to refund Enterprise System Revenue Bonds Series 2002A and Enterprise System Revenue Bonds Series 2003A | 56,905 | 45,296 | 48,784 | ||
| Series 2010C - | |||||
| Used to fund capital improvements at CU Anschutz Medical Campus | 4,375 | 3,740 | 3,990 | ||
| Series 2011A - | |||||
| Used to fund capital improvements at CU-Boulder and UCCS | 203,425 | 216,460 | 220,577 | ||
| Series 2011B - | |||||
| Used to partially refund Enterprise System Revenue Bonds Series 2002B, 2003A, 2004, and 2005A | 52,600 | 54,791 | 59,813 | ||
| Series 2012A-1 - | |||||
| Used to partially refund Enterprise System Revenue Bonds Series 2003A, 2004, 2005A, 2005B, 2006A, and 2007B | 121,850 | 140,839 | 142,945 | ||
| Series 2012A-2 - | |||||
| Used to partially refund Enterprise System Revenue Bonds Series 2004, 2005A, and 2005B | 53,000 | 59,941 | 60,525 | ||
| Series 2012A-3 - | |||||
| Used to partially refund Enterprise System Revenue Bonds Series 2005A, 2005B, 2006A, and 2007B | 47,165 | 52,007 | 52,863 | ||
| Series 2012B - | |||||
| Used to fund capital improvements at CU-Boulder, CU Denver and UCCS | 95,705 | 108,263 | 109,921 | ||
| Series 2013A - | |||||
| Used to fund capital improvements at CU-Boulder, CU Anschutz Medical Campus and UCCS | 142,460 | 151,561 | - | ||
| Series 2013B - | |||||
| Used to fund capital improvements at the CU Anschutz Medical Campus | 11,245 | 11,245 | - | ||
| Total enterprise system revenue bonds | 1,858,330 | 1,478,084 | 1,372,711 | ||
| Series 2002 - UPI Variable Rate Bonds - | |||||
| Used to fund capital improvements at UPI | 20,500 | 15,195 | 15,985 | ||
| Total revenue bonds | 1,493,279 | 1,388,696 | |||
| Less premium | 96,529 | 96,571 | |||
| Total Outstanding Revenue Bond Principal - University | $1,396,750 | 1,292,125 | |||
The University’s revenue bonds are payable semiannually, have serial and term maturities, and contain optional redemption provisions. The optional redemption provisions allow the University to redeem, at various dates, portions of the outstanding revenue bonds at prices varying from 100 to 101 percent of the principal amount of the revenue bonds redeemed.
The Enterprise System Revenue Bonds are secured by a pledge of all net revenues of auxiliary services, other self-funded services, and research services, in addition to 10 percent of the University’s tuition, 100 percent of the University’s capital student fees, and 100 percent of the University’s indirect cost recoveries. All University revenue bonds are special limited obligations of the Regents and are payable solely from the pledged revenues (or the net income of the facilities as defined in the bond resolution). The revenue bonds are not secured by any encumbrance, mortgage, or other pledge of property, except pledged revenues, and do not constitute general obligations of the Regents.
The University’s bonds are payable through June 1, 2043. As of June 30, 2014 and 2013, the total principal and interest paid on the University’s bonds was $114,917,000 and $124,870,000, respectively, which is 39 percent and 43 percent of the total net pledged revenues of $296,084,000 and $288,468,000, respectively. Net pledged revenues are 10 percent and 11 percent of the total specific revenue streams, respectively.
On October 9, 2013, the University issued $142,460,000 of Tax-Exempt University Enterprise Revenue Bonds, Series 2013A, and $11,245,000 of Taxable University Enterprise Revenue Bonds, Series 2013B, and used the proceeds to defray a portion of the cost of financing certain capital improvement projects, and to pay certain costs related to the issuance. These special limited obligations are payable solely from the net revenues as defined. Series 2013A has rates ranging from 2 percent to 5 percent, and Series 2013B has rates ranging from 1.088 percent to 5.177 percent. Both series mature through June 1, 2043.
The University’s revenue bonds contain provisions to establish and maintain reasonable fees, rates, and other charges to ensure gross revenues are sufficient for debt service coverage. The University is also required to comply with various other covenants while the bonds are outstanding. These covenants, among other things, restrict the disposition of certain assets, require the Regents to maintain adequate insurance, and require the Regents to continue to operate the underlying programs. Management believes the University has met all debt service coverage ratios and has complied with all bond covenants.
UPI variable rate bonds, Series 2002, were issued on behalf of UPI by the Fitzsimons Redevelopment Authority in the amount of $20,500,000. The bonds are currently rated AA-. The bonds bear interest at a variable municipal bond interest rate that is reset weekly and are estimated to have an average interest rate of 3.50 percent over the life of the bonds. The variable weekly interest rate was 1.25 percent at December 19, 2002 (bond issuance date) and was 0.06 percent at June 30, 2014, and the average interest rate for 2014 was also 0.06 percent. The interest payments in the debt service requirements schedule are calculated based on the interest rate at June 30, 2014. Proceeds from the sale of these bonds were used to fund the development, construction, and equipping of UPI’s administrative office building. UPI’s public variable rate debt is supported by a letter of credit with US Bank, which was executed in December 2010 and includes a four-year term with an option for a one-year extension which expires in December 2015. Under this agreement, UPI is subject to certain financial covenants, including the maintenance of 60 days cash on hand (defined as cash plus readily marketable securities) and a debt service coverage ratio of 1.25. UPI management believes it is in compliance with its debt service requirements and financial covenants.
Future minimum payments for revenue bonds are detailed in Table 9.4, Revenue Bonds Future Minimum Payments.
| Table 9.4. Revenue Bonds Future Minimum Payments (in thousands) | |||
| University | |||
| Years Ending June 30 | Principal | Interest | Total |
| 2015 | $52,580 | 67,817 | 120,397 |
| 2016 | 54,210 | 65,629 | 119,839 |
| 2017 | 53,810 | 63,446 | 117,256 |
| 2018 | 55,800 | 61,195 | 116,995 |
| 2019 | 58,755 | 58,753 | 117,508 |
| 2020 - 2024 | 318,055 | 251,202 | 569,257 |
| 2025 - 2029 | 308,255 | 171,990 | 480,245 |
| 2030 - 2034 | 271,095 | 97,909 | 369,004 |
| 2035 - 2039 | 160,495 | 36,837 | 197,332 |
| 2040 - 2043 | 63,695 | 6,898 | 70,593 |
| Total | $1,396,750 | 881,676 | 2,278,426 |
Previous revenue bond issues considered to be extinguished through in-substance defeasance under generally accepted accounting principles, are not included in the accompanying financial statements. The amount of debt in this category, covered by assets placed in trust to be used solely for future payments, amounted to approximately $234,000,000 and $249,785,000 as of June 30, 2014 and 2013, respectively. In Fiscal Year 2014, there was no debt defeased, and escrow agent payments were $15,785,000. In Fiscal Year 2013, the amount of debt defeased totaled $100,115,000 with escrow agent payments of $107,735,000.
The University’s capital leases are primarily equipment. The University also has a capital lease with a related party. During the year ended June 30, 2009, CU Denver entered into a $10,272,000 site lease agreement with AHEC associated with the build-out of educational space for CU Denver. As of June 30, 2014, and 2013, the University paid base rent to AHEC of approximately $837,000 and $838,000, respectively.
As of June 30, 2014 and 2013, the University had an outstanding liability for all its capital leases approximating $15,618,000 and $16,408,000, respectively, with underlying gross capitalized asset cost approximating $22,230,000 and $21,999,000, respectively, with amortization of $8,638,000 and $7,265,000 respectively, resulting in underlying net capitalized assets of $13,592,000 and $14,734,000, respectively.
Future minimum payments for all the University’s capital lease obligations are detailed in Table 9.5, Capital Leases.
| Table 9.5. Capital Leases (in thousands) | |||
| University | |||
| Years Ending June 30 | Principal | Interest | Total |
| 2015 | $1,877 | 705 | 2,582 |
| 2016 | 1,801 | 639 | 2,440 |
| 2017 | 1,576 | 575 | 2,151 |
| 2018 | 1,185 | 518 | 1,703 |
| 2019 | 1,024 | 471 | 1,495 |
| 2020 - 2024 | 4,346 | 1,675 | 6,021 |
| 2025 - 2029 | 3,809 | 427 | 4,236 |
| Total | $15,618 | 5,010 | 20,628 |
On December 14, 2005, the State, acting by and through the Regents, issued Certificates of Participation, Series 2005B, with a par value of $192,625,000 and a premium of $7,568,000. The certificates have interest rates ranging from 3.75 to 5.25 percent and mature in November 2030. On December 17, 2009, the University issued Refunding Certificates of Participation, Series 2009, with a par value of $23,110,000. The net proceeds were used to advance refund $18,525,000 principal amount of the Series 2005B Certificates and pay costs of issuance of the Series 2009 Certificates.
On April 18, 2012, the University issued Refunding Certificates of Participation, Series 2012, with a par value of $56,095,000. The net proceeds were used to advance refund $57,595,000 principal amount of the Series 2005B, outstanding in the aggregate principal amount of $151,550,000 and pay costs of issuance of the Series 2012. The old debt had interest rates ranging from 5.00 to 5.25 percent, and the new debt has interest rates ranging from 4.25 to 5.25 percent. The refunding resulted in an economic gain of $2,771,000 and an accounting loss of $7,701,000, which the State deferred and will amortize over the life of the new bonds. The debt service cash flow decreased by $3,342,000.
On March 7, 2013, the University issued Refunding Certificates of Participation, Series 2013, with a par value of $70,910,000. The net proceeds were used to advance refund $71,275,000 principal amount of the Series 2005B, outstanding in the aggregate principal amount of $88,685,000 and pay costs of issuance of the Series 2013. The old debt had interest rates ranging from 4.375 to 5.00 percent, and the new debt has interest rates ranging from 4.00 to 5.00 percent. The refunding resulted in an economic gain of $3,971,000 and an accounting loss of $7,857,000, which the State deferred and will amortize over the life of the new debt. The debt service cash flow decreased by $4,765,000.
Annual lease payments are made by the State and are subject to annual appropriations by the Legislature. As a result, this liability is recognized by the State and not included in the University’s financial statements. As of June 30, 2014, the University had underlying gross capitalized assets consisting of seven academic buildings on the CU Anschutz Medical Campus costing approximately $188,801,000, amortized by $32,082,000 resulting in an underlying net capitalized asset of $156,719,000.
On October 23, 2008, the State issued State of Colorado Higher Education Capital Construction Lease Purchase Financing Program Certificates of Participation, Series 2008, with a par value of $230,845,000, at a net premium of $181,000. The certificates have interest rates ranging from 3.0 to 5.5 percent and mature in November 2027. Annual lease payments are made by the State and are subject to annual appropriations by the Legislature. As a result, this liability is recognized by the State and not included in the University’s financial statements.
The certificates are secured by the buildings or equipment acquired with the lease proceeds and any unexpended lease proceeds. The proceeds are being used to fund various capital projects for the benefit of certain State-supported institutions of higher education in Colorado, including UCCS. The underlying capitalized assets are contributed to the University from the State. The University has recognized capital contributions from the State and related capital assets of approximately $0 and $314,000, during the years ended June 30, 2014 and 2013, respectively. During Fiscal Year 2013, the State reallocated $6.1 million of unspent Colorado Certificates of Participation proceeds, of which CU-Boulder received $1.3 million for two capital construction projects that had to be completed by November 2013. During Fiscal Years 2014 and 2013, CU-Boulder spent $260,000 and $593,000, respectively, which was recognized as capital contributions from the State.
Table 10.1, Other Liabilities, details other liabilities as of June 30, 2014 and 2013.
| Table 10.1. Other Liabilities (in thousands) | ||||
| 2014 | 2013 | |||
| Type | Total | Current Portion | Total | Current Portion |
| University | ||||
| Risk financing | $23,294 | 12,880 | 17,795 | 9,747 |
| Construction contract retainage | 10,502 | 10,502 | 6,036 | 6,036 |
| Funds held for others | 16,102 | 16,102 | 16,707 | 16,707 |
| Miscellaneous | 9,454 | 6,646 | 6,852 | 6,226 |
| Total Other Liabilities - University | $59,352 | 46,130 | 47,390 | 38,716 |
The University is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; medical malpractice; employee occupational injuries; graduate medical students’ health; and natural disasters. The University finances these risks through various self-insurance programs. The University finances the cost and risks associated with employee health benefit programs through the Trust, a related organization as discussed in Note 18 to the financial statements. Under the terms of the Trust, the University is self-insured for medical claims beginning July 1, 2010. However, the risk of loss has been transferred to the Trust. Therefore, no liability was reported as of June 30, 2014 or 2013 for unpaid claims.
The University utilizes a protected self-insurance program for its property, liability, and workers’ compensation risks. The University has established a separate self-insurance program for the purpose of providing professional liability coverage for CU Denver and the Hospital Authority. A separate self-insurance program has also been established to provide health insurance for graduate medical students and eligible dependents at CU Denver.
All self-insurance programs, other than employee health benefit programs, assume losses up to certain limits and purchase a defined amount of excess insurance for losses over those limits. These limits range from $100,000 to $1,000,000 per occurrence.
Reserves for unpaid claims under these programs are actuarially reviewed and evaluated for adequacy each year. The Property, General Liability, and Workers’ Compensation reserve is reported on an undiscounted basis, and the CU Denver Professional Liability reserve of $7,139,000 is reported at a discount basis using 4.01 percent. Settlements have not exceeded coverages for each of the past three fiscal years. There were no significant reductions or changes in insurance coverage from the prior year.
The amount recorded as risk financing-related liabilities represents reserves based upon the annual actuarial valuation and includes reserves for incurred but not reported claims. Such liabilities depend on many factors, including claims history, inflation, damage awards, investment return, and changes in legal doctrine. Accordingly, computation of the claims liabilities requires an annual estimation process. Claims liabilities are reevaluated on a periodic basis and take into consideration recently settled claims, frequency of claims, and other relevant factors.
Changes in the balances of risk financing-related liabilities for the years ended June 30, 2014 and 2013 are presented in Table 10.2, Risk Financing-related Liabilities.
| Table 10.2. Risk Financing-related Liabilities (in thousands) | ||||
| Property, General Liability, and Workers’ Compensation | CU Denver Professional Liability | Graduate Medical Student Health Benefits | Total | |
| University | ||||
| Balance as of June 30, 2012 | $10,015 | 5,655 | 1,408 | 17,078 |
| Fiscal Year 2013: | ||||
| Claims and changes in estimates | 7,693 | 1,196 | 6,805 | 15,694 |
| Claim payments | (6,746) | (1,403) | (6,828) | (14,977) |
| Balance as of June 30, 2013 | $10,962 | 5,448 | 1,385 | 17,795 |
| Fiscal Year 2014: | ||||
| Claims and changes in estimates | 11,714 | 3,798 | 8,595 | 24,107 |
| Claim payments | (8,231) | (2,107) | (8,270) | (18,608) |
| Balance as of June 30, 2014 | $14,445 | 7,139 | 1,710 | 23,294 |
The University participates in two student lending programs operated by the federal government, Direct Student Loan and the State School as Lender. These programs enable eligible students or parents to obtain a loan to pay for the student’s cost of attendance directly through the University rather than through a private lender. The University is responsible for handling the complete loan process, including funds management as well as promissory note functions.
For the Direct Lending program, the University is not responsible for collection of these loans or for defaults by borrowers; therefore, these loans are not recognized as receivables in the accompanying financial statements. Direct lending activity during the years ended June 30, 2014 and 2013 was $363,156,000 and $369,274,000, respectively.
Unrestricted Net Position is one component of the University’s financial statements, which represents the net position held by the collective units of the University as of June 30. Balances fluctuate throughout the year and can only be measured as of a point-in-time. The University designates unrestricted net position by their intended purpose. Unobligated funds are generally available for campus use or support of schools, colleges, departments, or units. These funds are generated by nonrecurring revenue surpluses (such as departmental share unspent indirect cost recoveries) or year-end balances resulting from lower than expected spending levels (such as vacancy savings from an unfilled position). Campus leadership holds these funds in general categories based on internal policy or intended use. Their designation may change in accordance with directives from leadership, including Regent directives. Obligated Funds are unrestricted net position that are obligated to specific projects or are held for contractual payments (such as faculty start-up).
As of June 30, 2014, all of the University’s unrestricted net position has been designated by management for the following purposes and amounts detailed in Table 11, Designations of Unrestricted Net Position.
| Table 11. Designations of Unrestricted Net Position (in thousands) | |
| Designation Description | 2014 |
| Unobligated | |
| Auxiliary facilities nonpledged | $123,559 |
| Campus designated capital | 58,710 |
| Unobligated capital reserves | 140,851 |
| Obligated | |
| Accounts receivable | 59,556 |
| Approved capital | 93,281 |
| Faculty startup and research initiatives | 166,687 |
| Inventory and prepaid expenditures | 18,667 |
| Investment pool | 273,342 |
| Risk financing activities - professional risk management | 12,548 |
| Service center reserves | 2,272 |
| Technology Transfer Office | 6,063 |
| University Physicians Inc. | 204,590 |
| University risk management | 17,524 |
| Total Designated Unrestricted Net Position - University | $1,177,650 |
In November 1992, the Colorado voters passed Section 20, Article X of the Colorado Constitution, commonly known as the Taxpayer’s Bill of Rights (TABOR). TABOR contains revenue, spending, tax, and debt limitations that apply to all local governments and the State of Colorado, including the University. In Fiscal Year 2005, the Colorado State Legislature determined in Section 23-5-101.7 of the Colorado Revised Statutes that an institution of higher education may be designated as an enterprise for the purposes of TABOR so long as the institution’s governing board retains authority to issue revenue bonds on its behalf and the institution receives less than 10 percent of its total annual revenues in grants as defined by TABOR. Further, so long as it is so designated as an enterprise, the institution shall not be subject to any of the provisions of TABOR.
In July 2005, the Regents designated the University as a TABOR enterprise pursuant to the statute. During the years ended June 30, 2014 and 2013, the University believes it has met all requirements of TABOR enterprise status. Specifically, the Regents retain the authority to issue revenue bonds and the amount of State grants received by the University was 1.05 percent and 1.09 percent during the years ended June 30, 2014 and 2013, respectively, as shown in Table 12.1, TABOR Enterprise State Support Calculation.
| Table 12.1. TABOR Enterprise State Support Calculation (in thousands) | ||
| 2014 | 2013 | |
| University | ||
| Capital appropriations | $6,183 | 2,269 |
| Tobacco Litigation Settlement Appropriation | 13,720 | 14,172 |
| State COP annual debt service payments for CU Anschutz Medical Campus | 14,366 | 13,987 |
| State COP annual debt service payments for UCCS | 1,548 | 1,548 |
| State COP annual debt service payments for CU-Boulder | 61 | 61 |
| Total State Support | $35,878 | 32,037 |
| Total TABOR enterprise revenues | $3,421,880 | 2,950,000 |
| Ratio of State support to total revenues | 1.05% | 1.09% |
A portion of the University is subject to revenue and expense limitations imposed by the Colorado State Legislature through the annual appropriation process. For the years ended June 30, 2014 and 2013, the University’s appropriated funds included $52,810,000 and $50,941,000, respectively, received for students that qualified for stipends from the College Opportunity Fund and $97,445,000, and $92,901,000, respectively, as fee-for-service contract revenue, as well as certain cash funds as specified in the State’s annual appropriations bill.
Non-appropriated funds include certain grants and contracts, gifts, indirect cost recoveries, certain auxiliary revenues, in addition to the student-paid portion of tuition, certain fees, and certain other revenue sources. All other revenues and expenses reported by the University represent non-appropriated funds and are excluded from the annual appropriations bill.
For the years ended June 30, 2014 and 2013, expenses were within the appropriated spending authority. Table 12.2, Appropriated Funds, details the related activities for the years ended June 30, 2014 and 2013.
| Table 12.2. Appropriated Funds (in thousands) | ||
| 2014 | 2013 | |
| University | ||
| Total appropriation | $164,785 | 158,423 |
| Actual appropriated revenues | 163,976 | 158,013 |
| Actual appropriated expenditures and transfers | 163,976 | 158,013 |
| Net increase (decrease) in appropriated net position | $- | - |
During the years ended June 30, 2014 and 2013, scholarship allowances were provided by the following funding sources in amounts detailed in Table 13, Scholarship Allowances.
| Table 13. Scholarship Allowances (in thousands) | ||||||
| For years ended June 30 | 2014 | 2013 | ||||
| Funding Source Description | Tuition and Fees |
Auxiliary Enterprise Revenues | Total | Tuition and Fees |
Auxiliary Enterprise Revenues | Total |
| University | ||||||
| University general resources | $60,415 | 1,453 | 61,868 | 59,698 | 1,432 | 61,130 |
| University auxiliary resources | 10,507 | 329 | 10,836 | 9,556 | 300 | 9,856 |
| Colorado Commission on Higher Education financial aid program | 14,242 | 233 | 14,475 | 12,688 | 193 | 12,881 |
| Federal programs, including Federal Pell grants | 50,559 | 948 | 51,507 | 43,909 | 751 | 44,660 |
| Other State of Colorado programs | 112 | 3 | 115 | 102 | 2 | 104 |
| Private programs | 451 | (4) | 447 | 3,118 | 81 | 3,199 |
| Gift fund | 15,560 | 327 | 15,887 | 14,093 | 278 | 14,371 |
| Total Scholarship Allowances - University |
$151,846 | 3,289 | 155,135 | 143,164 | 3,037 | 146,201 |
Health services revenue of $648,768,000 and $561,249,000 is recorded net of contractual adjustments approximating $933,770,000 and $819,613,000 and bad debt expense on uncollectible patient account receivables approximating $21,819,000 and $18,193,000 for the years ended June 30, 2014 and 2013, respectively. Charity care provided during the years ended June 30, 2014 and 2013, for which no reimbursement was received, measured at established rates, totaled approximately $18,766,000 and $23,105,000, respectively.
Employees of the University eligible for retirement benefits participate in one of four retirement plans. Eligible student employees participate in a student retirement plan that is funded solely by contributions from the student employees. The student retirement plan is a defined contribution plan administered by a consortium of higher educational institutions in the State. All other eligible employees of the University participate in one of the three additional plans, the Public Employees’ Retirement Association (PERA) plan, the University’s optional retirement plan, and UPI’s retirement plan. The CU Foundation and CUREF offer a retirement plan for certain employees.
The PERA plan provides income to members and their families at retirement or in case of death or disability. The plan is a cost-sharing multiple-employer plan administered by PERA. PERA was established by State statute in 1931. Responsibility for the organization and administration of the plan is placed with the PERA Board of Trustees. Changes to the plan require an actuarial assessment and legislation by the General Assembly. The State plan and other divisions’ plans are included in PERA’s financial statements, which may be obtained by writing PERA at P.O. Box 5800, Denver, Colorado 80217, by calling PERA at 1-800-759-PERA (7372), or by visiting http://www.copera.org.
The University of Colorado has both classified and non-classified employees. All classified employees participate in PERA. Prior to legislation passed during the 2006 session, higher education employees may have participated in social security, PERA’s defined benefit plan, or the institution’s optional retirement plan. Currently, the University’s employees, except classified employees, are required to participate in their institution’s optional plan, if available, unless they are active or inactive members of PERA with at least one year of service credit. In that case, they may elect either PERA or their institution’s optional plan.
PERA members electing the defined contribution plan are allowed an irrevocable election between the second and fifth year to use their defined contribution account to purchase service credit and be covered under the defined benefit retirement plan. However, making this election subjects the member to the rules in effect for those hired on or after January 1, 2007, as discussed below. Employer contributions to the defined contribution plan are the same as the contributions to the PERA defined benefit plan.
Defined benefit plan members are eligible to vest after five years of service and are eligible for full retirement based on their original hire date as follows:
Members are also eligible for retirement benefits without a reduction for early retirement based on their original hire date as follows:
Members automatically receive the higher of the defined retirement benefit or money purchase benefit at retirement. Defined benefits are calculated as 2.5 percent times the number of years of service times the highest average salary (HAS). For retirements before January 1, 2009, HAS is calculated as one-twelfth of the average of the highest salaries on which contributions were paid, associated with three periods of 12 consecutive months of service credit and limited to a 15-percent increase between periods. For retirements after January 1, 2009, or persons hired on or after January 1, 2007, more restrictive limits are placed on salary increases between periods used in calculating HAS.
Retiree benefits are increased annually in July based on the member’s original hire date as follows:
Members who are disabled, who have five or more years of service credit, six months of which has been earned since the most recent period of membership, may receive retirement benefits if determined to be permanently disabled. If a member dies before retirement, their spouse or their eligible children under the age of 18 (23 if a full-time student) may be entitled to a single payment or monthly benefit payments. If there is no eligible child or spouse then financially dependent parents, beneficiaries, or the member’s estate, may be entitled to a survivor’s benefit.
The contribution requirements of plan members and their employers are established, and may be amended, by the General Assembly. Salary subject to PERA contributions is gross earnings less any reduction in pay to offset employer contributions to the State sponsored IRC 125 plan established under Section 125 of the Internal Revenue Code.
Most employees contribute 8.0 percent of their salary, as defined in CRS 24-51-101(42), to an individual account in the plan. Effective July 1, 2012, the temporary contribution rate increase of 2.5 percent for members in the State and Judicial Divisions to replace the 2.5 percent reduction in employer contributions effective for Fiscal Years 2011 and 2012 expired.
From July 1, 2013, to December 31, 2013, the State contributed 16.55 percent of the employee’s salary. From January 1, 2014, through June 30, 2014, the State contributed 17.45 percent. During all of Fiscal Year 2014, 1.02 percent of the employees’ total salary was allocated to the Health Care Trust Fund.
The total PERA-defined payroll of employees covered by this plan was approximately $288,904,000 and $279,476,000 for the years ended June 30, 2014 and 2013, respectively. The University contributed a total of 17.55 percent and 16.48 percent, respectively, of the employee’s gross covered wages to PERA in accordance with the following allocations and amounts detailed in Table 15.1, University Contributions to PERA. These contributions met the contribution requirement for each year.
| Table 15.1 University Contributions to PERA (in thousands) | ||||
| Program | Basis | 2014 | 2013 | 2012 |
| Health Care Trust Fund | 1.02% after July 1, 2004 | $2,947 | 2,851 | 2,854 |
| Defined Benefit Plan | The balance remaining | 47,751 | 43,219 | 33,381 |
| Total University Contribution | $50,698 | 46,070 | 36,235 | |
Per Colorado Revised Statutes, an amortization period of 30 years is deemed actuarially sound. As of December 31, 2013, the division of PERA in which the State participates has a funded ratio of 57.5 percent and a 60-year amortization period based on current contribution rates. The funded ratio on the market value of assets is slightly higher at 61.0 percent.
In the 2004 and 2010 legislative sessions, the General Assembly authorized an Amortization Equalization Disbursement (AED) to address a pension-funding shortfall. The AED requires PERA employers to pay an additional 0.5 percent of salary for calendar years 2006 and 2007, with subsequent year increases of 0.4 percent of salary through 2017, to a maximum of 5 percent.
In the 2006 and 2010 legislative sessions, the General Assembly authorized a Supplemental Amortization Equalization Disbursement (SAED) that requires PERA employers to pay an additional one-half percentage point of total salaries, for calendar years 2008 through 2017, to a maximum of 5 percent. The SAED will be deducted from the amount otherwise available to increase State employee’s salaries.
At 103 percent funding ratio, both the AED and the SAED will be reduced by one-half percentage point, and for subsequent declines to below 90 percent funded both the AED and SAED will be increased by one-half percentage point.
Historically members have been allowed to purchase service credit at reduced rates. However, legislation passed in the 2006 session required that future agreements to purchase service credit be sufficient to fund the related actuarial liability.
The PERA Defined Contribution Retirement Plan was established January 1, 2006, as an alternative to the defined benefit plan. The PERA Board has the authority to establish and amend the plan pursuant to CRS 24-51-1601. All employees, with the exception of certain higher education employees, have the option of participating in the plan. At July 1, 2009, the State’s administrative functions for the defined contribution plan were transferred to PERA. Contribution requirements are established in CRS 24-51-1605, and may be amended by the PERA Board. New member contributions to the plan vest from 50 percent to 100 percent evenly over 5 years. Participants in the plan are required to contribute 8 percent of their salary. The temporary contribution rate increase to 10.5 percent effective in Fiscal Years 2011 and 2012 expired on July 1, 2012. The employer contributes 3.4 percent in AED and 3.0 percent in SAED. At December 31, 2013, the plan had 4,719 participants.
The PERA Deferred Compensation Plan (457) was established July 1, 2009, as a continuation of the State’s deferred compensation plan, which was established for state and local government employees in 1981. At July 1, 2009, the State’s administrative functions for the 457 plan were transferred to PERA, where all costs of administration and funding are borne by the plan participants. In calendar year 2013, participants were allowed to make contributions of up to 100 percent of their annual gross salary (reduced by their 8 percent PERA contribution) to a maximum of $17,500. The reduction for the 8 percent PERA contribution reflects the expiration of the temporary contribution rate increase to 10.5 percent effective in Fiscal Year 2011 and 2012. Participants who are age 50 and older, and contributing the maximum amount allowable, were allowed to make an additional $5,500 contribution in 2013 for total contributions of $23,000. Contributions and earnings are tax deferred. At December 31, 2013, the plan had 17,462 participants.
PERA also offers a voluntary 401(k) plan entirely separate from the defined benefit pension plan. The State offers a 457 deferred compensation plan and certain agencies and institutions of the State offer 403(b) or 401(a) plans.
Under the University’s optional retirement plan (ORP), certain members of the University are required to participate in a defined contribution retirement plan administered by the University for the benefit of full-time faculty and exempt staff members. The State constitution assigns the authority to establish and amend plan provisions to the Regents. The contribution requirements of plan members and the University are established and may be amended by the Regents. Generally, employees are eligible for participation in the ORP after completing one year of service and are vested immediately upon participation. For the years ended June 30, 2014 and 2013, the University’s contribution to the defined contribution retirement plan was equal to 10 percent of covered payroll, and the employee contribution was equal to 5 percent of covered payroll. The University’s contribution under the ORP approximated $98,925,000 and $82,060,000 during the years ended June 30, 2014 and 2013, respectively. The employees’ contribution under the ORP approximated $49,319,000 and $40,887,000 during the years ended June 30, 2014 and 2013, respectively.
Participants in the University’s ORP choose to invest all contributions with one or more of three designated vendors. In addition, participants in the University’s ORP are covered under federal Social Security. Federal Social Security regulations require both the employer and employee to contribute a percentage of covered payroll to Social Security. The first half of Fiscal Year 2011 the Social Security rate was 6.2 percent of covered payroll. The second half of Fiscal Year 2011, the employee percentage dropped temporarily to 4.2 percent which remained in effect until December 31, 2012. The employee percentage of Social Security rate returned to 6.2 percent January 1, 2013.
The University provides an Alternate Medicare Plan (AMP) to retirees aged 65 and over. The AMP was established by the University who also administers and has the authority to amend benefits. The AMP is available to the employee and eligible spouse/same gender domestic partner. Coverage is not provided for dependent children. The AMP provides a monthly cash payment of approximately $140 for a retiree and approximately $238 for a retiree plus spouse/same gender domestic partner to offset medical plan costs for non-university Medicare Risk or Medicare-Eligible plan. No retiree contribution is permitted. As these monthly cash payments are not restricted as to use, they are considered a pension rather than a postemployment benefit. As of June 30, 2014 and 2013, based on the July 1, 2013 actuarial valuation, the unfunded actuarial accrued liability was $28,100,000 and $28,100,000, and the associated pension liability was $8,200,000 and $6,700,000, respectively. Table 15.2, Alternate Medicare Plan presents changes in the AMP for the years ended June 30, 2014 and 2013.
| Table 15.2. Alternate Medicare Plan (in thousands) | ||
| 2014 | 2013 | |
| University | ||
| Annual required contribution (ARC) | $2,700 | $2,700 |
| Interest on net obligation | 300 | 200 |
| Adjustment to ARC | (400) | (300) |
| Net pension cost (expense) | 2,600 | 2,600 |
| Contributions made during the year | (1,100) | (1,100) |
| Increase in AMP | 1,500 | 1,500 |
| Beginning of year | 6,700 | 5,200 |
| End of year | $8,200 | 6,700 |
| Current AMP | 1,380 | 1,411 |
The University provides an early retirement incentive program (ERIP) to tenured professors who are at least 55 years of age and whose age and years of service total at least 70. These professors must also be participants in the University’s Optional Retirement Plan. The ERIP provides eligible participants with an incentive equal to twice the professor’s base salary and supplemental pay. In return, the participants will retire and relinquish tenure immediately. There were 31 new participants added in Fiscal Year 2014. Benefits under the ERIP are payable over a five-year period. Participation in this program does not impact the Optional Retirement Plan or OPEB. The liability for Fiscal Year 2014 and Fiscal Year 2013 was $10,851,000 and $6,245,000, respectively, measured at a discounted present value using a rate of 5 percent. Table 15.3, Early Retirement Incentive Program, presents changes in the ERIP for the years ended June 30, 2014 and 2013.
| Table 15.3. Early Retirement Incentive Program (in thousands) | ||
| 2014 | 2013 | |
| University | ||
| Beginning of year | $6,245 | 7,973 |
| Additions | 6,210 | - |
| Reductions | (1,604) | (1,728) |
| End of year | $10,851 | 6,245 |
| Current ERIP | 2,463 | 1,858 |
UPI sponsors a defined contribution retirement plan for its permanent employees that is administered by the Teachers Insurance Annuities Association's College Retirement Equities Fund. The board of directors for UPI has the authority to amend plan provisions. Employees are eligible for participation in the plan after completing one year of service. On behalf of eligible employees, UPI contributed an amount equal to 7 percent of eligible employees' salaries for the years ended June 30, 2014 and 2013. UPI's contributions for covered payroll to the retirement plan for the years ended June 30, 2014 and 2013, approximated $1,836,000 and $1,756,000, respectively.
The University’s contributions to its various health insurance programs approximated $127,951,000 and $124,515,000 during the years ended June 30, 2014 and 2013, respectively.
As of June 30, 2014 and 2013, the University has one segment, UPI. UPI is also a blended component unit of the University.
UPI has identifiable activities for which UPI Variable Rate bonds approximating $15,195,000 and $15,985,000 are outstanding as of June 30, 2014 and 2013, respectively. The activities of this segment include all the UCD SOM’s faculty practice plan.
The University paid UPI rental amounts of $1,883,000 in Fiscal Year 2014 and $1,670,000 in Fiscal Year 2013. As UPI is a blended component unit, these amounts are eliminated during consolidation.
Summary financial information as of and for the years ended June 30, 2014 and 2013, is presented in Table 16, Segment Financial Information.
| Table 16. Segment Financial Information (in thousands) | ||
| As of and for the year ended June 30 | 2014 | 2013 |
| Condensed Statement of Net Position | ||
| Assets | ||
| Cash and cash equivalents | $67,125 | 66,903 |
| Short-term investments | 24,806 | 31,972 |
| Other current assets | 89,740 | 72,862 |
| Total current assets | 181,671 | 171,737 |
| Investments | 166,542 | 104,149 |
| Capital assets, net | 45,166 | 45,226 |
| Other noncurrent assets | 5,253 | 2,997 |
| Total noncurrent assets | 216,961 | 152,372 |
| Total Assets | $398,632 | 324,109 |
| Liabilities | ||
| Accounts payable and accrued expenses | $41,750 | 36,043 |
| Accounts payable to University of Colorado | 3,092 | 2,122 |
| Bonds, leases, and notes payable | 1,063 | 920 |
| Total current liabilities | 45,905 | 39,085 |
| Bonds, leases, and notes payable | 14,879 | 15,488 |
| Total noncurrent liabilities | 14,879 | 15,488 |
| Total Liabilities | $60,784 | 54,573 |
| Net Position | ||
| Net investment in capital assets | $29,224 | 28,818 |
| Unrestricted | 308,624 | 240,718 |
| Total Net Position | $337,848 | 269,536 |
| Condensed Statement of Revenues, Expenses, and Changes in Net Position | ||
| Operating revenues (expenses) | ||
| Patient revenues | $621,303 | 550,812 |
| Depreciation expense | (3,944) | (3,342) |
| Other operating expenses | (564,322) | (496,811) |
| Operating income | 53,037 | 50,659 |
| Nonoperating revenues (expenses) | ||
| Investment income | 25,175 | 5,682 |
| Interest expense on capital asset-related debt | (24) | (41) |
| Other nonoperating expenses | (9,876) | (12,964) |
| Total nonoperating revenues (expenses) | 15,275 | (7,323) |
| Increase in Net Position | 68,312 | 43,336 |
| Net Position, beginning of year | 269,536 | 226,200 |
| Net Position, end of year | $337,848 | 269,536 |
| Condensed Statement of Cash Flows | ||
| Net cash flows provided by (used for) | ||
| Operating activities | $53,175 | 44,987 |
| Non-capital financing activities | (9,889) | (12,963) |
| Capital and related financing activities | (4,353) | (6,455) |
| Investing activities | (38,711) | (3,555) |
| Net Increase in Cash and Cash Equivalents | 222 | 22,014 |
| Cash and cash equivalents, beginning of year | 66,903 | 44,889 |
| Cash and Cash Equivalents, End of Year | $67,125 | 66,903 |
Summary financial information as of and for the years ended June 30, 2014 and 2013, for the University’s DPCU are presented in Table 17, DPCU Summary Financial Statements.
| Table 17. DPCU Summary Financial Statements (in thousands) | |||
| Condensed Statement of Net Position | As of June 30, 2014 | ||
| CU Foundation | CUREF | Total | |
| Assets | |||
| Current assets | |||
| Cash and cash equivalents | $17,291 | 8,279 | 25,570 |
| Restricted cash | - | 808 | 808 |
| Short-term investments | - | 2,609 | 2,609 |
| Accounts and contributions receivable, net | 19,783 | 177 | 19,960 |
| Other current assets | 444 | 1,043 | 1,487 |
| Total current assets | 37,518 | 12,916 | 50,434 |
| Noncurrent assets | |||
| Investments | 1,422,715 | 6,130 | 1,428,845 |
| Assets held under split-interest agreements | 45,527 | - | 45,527 |
| Contributions receivable, net | 57,795 | 465 | 58,260 |
| Other assets | 6,144 | 977 | 7,121 |
| Capital assets, net | 1,060 | 58,863 | 59,923 |
| Total noncurrent assets | 1,533,241 | 66,435 | 1,599,676 |
| Total Assets | $1,570,759 | 79,351 | 1,650,110 |
| Liabilities | |||
| Current liabilities | |||
| Accounts payable | $866 | 727 | 1,593 |
| Accounts payable - University | 8,294 | - | 8,294 |
| Unearned revenue | - | 967 | 967 |
| Bonds, leases, and notes payable | 256 | 501 | 757 |
| Split-interest agreements | 2,998 | - | 2,998 |
| Custodial funds | 9,240 | - | 9,240 |
| Total current liabilities | 21,654 | 2,195 | 23,849 |
| Noncurrent liabilities | |||
| Bonds, leases, and notes payable | - | 69,718 | 69,718 |
| Split-interest agreements | 18,349 | - | 18,349 |
| Custodial funds | 324,769 | - | 324,769 |
| Other liabilities | 2,731 | 606 | 3,337 |
| Total noncurrent liabilities | 345,849 | 70,324 | 416,173 |
| Total Liabilities | $367,503 | 72,519 | 440,022 |
| Net Position | |||
| Net investment in capital assets | $- | (3,284) | (3,284) |
| Restricted for nonexpendable purposes | 426,733 | - | 426,733 |
| Restricted for expendable purposes | 702,078 | 2,308 | 704,386 |
| Unrestricted | 74,445 | 7,808 | 82,253 |
| Total Net Position | $1,203,256 | 6,832 | 1,210,088 |
| Statement of Revenues, Expenses, and Changes in Net Position | For the Year Ended June 30, 2014 | ||
| CU Foundation | CUREF | Total | |
| Operating revenues | |||
| Contributions | $148,898 | 177 | 149,075 |
| University support | - | - | - |
| Other revenue | 4,002 | 10,616 | 14,618 |
| Total operating revenues | 152,900 | 10,793 | 163,693 |
| Operating expenses | |||
| Institutional support | |||
| Gifts and income distributed to University and related parties | 109,172 | 570 | 109,742 |
| Other program services | 5,088 | 4,350 | 9,438 |
| Support services | 15,860 | 261 | 16,121 |
| Depreciation and amortization | 595 | 2,404 | 2,999 |
| Total operating expenses | 130,715 | 7,585 | 138,300 |
| Operating Income | 22,185 | 3,208 | 25,393 |
| Nonoperating revenues (expenses) | |||
| Investment income | 164,129 | 257 | 164,386 |
| Pledges assigned to affiliate | - | - | - |
| Interest expense on capital asset-related debt | (84) | (3,800) | (3,884) |
| Increase (Decrease) in Net Position | 186,230 | (335) | 185,895 |
| Net Position, beginning of year | 1,017,026 | 7,167 | 1,024,193 |
| Net Position, End of Year | $1,203,256 | 6,832 | 1,210,088 |
| Condensed Statement of Cash Flows | |||
| Net cash flows provided by (used for) | |||
| Operating activities | $39,718 | 1,135 | 40,853 |
| Non-capital financing activities | 22,340 | (2,913) | 19,427 |
| Capital and related financing activities | (1,315) | - | (1,315) |
| Investing activities | (58,484) | 381 | (58,103) |
| Net Increase in Cash and Cash Equivalents | 2,259 | (1,397) | 862 |
| Cash and cash equivalents, beginning of year | 15,032 | 9,676 | 24,708 |
| Cash and Cash Equivalents, End of Year | $17,291 | 8,279 | 25,570 |
| Table 17. DPCU Summary Financial Statements (in thousands) | |||
| Condensed Statement of Net Position | As of June 30, 2013 | ||
| CU Foundation | CUREF | Total | |
| Assets | |||
| Current assets | |||
| Cash and cash equivalents | $ 15,032 | 9,676 | 24,708 |
| Restricted cash | - | 966 | 966 |
| Short-term investments | - | 2,044 | 2,044 |
| Accounts and contributions receivable, net | 15,652 | 203 | 15,855 |
| Other current assets | 466 | 817 | 1,283 |
| Total current assets | 31,150 | 13,706 | 44,856 |
| Noncurrent assets | |||
| Investments | 1,203,986 | 6,801 | 1,210,787 |
| Assets held under split-interest agreements | 41,288 | - | 41,288 |
| Contributions receivable, net | 43,214 | 691 | 43,905 |
| Other assets | 5,543 | 1,237 | 6,780 |
| Capital assets, net | 2,685 | 59,852 | 62,537 |
| Total noncurrent assets | 1,296,716 | 68,581 | 1,365,297 |
| Total Assets | $ 1,327,866 | 82,287 | 1,410,153 |
| Liabilities | |||
| Current liabilities | |||
| Accounts payable | $2,749 | 794 | 3,543 |
| Accounts payable - University | 5,995 | - | 5,995 |
| Unearned revenue | - | 1,064 | 1,064 |
| Bonds, leases, and notes payable | 951 | 406 | 1,357 |
| Split-interest agreements | 2,718 | - | 2,718 |
| Custodial funds | 8,089 | - | 8,089 |
| Total current liabilities | 20,502 | 2,264 | 22,766 |
| Noncurrent liabilities | |||
| Bonds, leases, and notes payable | 257 | 70,166 | 70,423 |
| Split-interest agreements | 16,869 | - | 16,869 |
| Custodial funds | 270,842 | - | 270,842 |
| Other liabilities | 2,370 | 2,690 | 5,060 |
| Total noncurrent liabilities | 290,338 | 72,856 | 363,194 |
| Total Liabilities | $310,840 | 75,120 | 385,960 |
| Net Position | |||
| Net investment in capital assets | $- | -1,011 | -1,011 |
| Restricted for nonexpendable purposes | 397,990 | - | 397,990 |
| Restricted for expendable purposes | 551,738 | 2,741 | 554,479 |
| Unrestricted | 67,298 | 5,437 | 72,735 |
| Total Net Position | $ 1,017,026 | 7,167 | 1,024,193 |
| Statement of Revenues, Expenses, and Changes in Net Position | For the Year Ended June 30, 2013 | ||
| CU Foundation | CUREF | Total | |
| Operating revenues | |||
| Contributions | $127,619 | 422 | 128,041 |
| University support | 5,100 | - | 5,100 |
| Other revenue | 3,814 | 9,636 | 13,450 |
| Total operating revenues | 136,533 | 10,058 | 146,591 |
| Operating expenses | |||
| Institutional support | |||
| Gifts and income distributed to University and related parties | 116,342 | 1,021 | 117,363 |
| Other program services | 8,694 | 4,238 | 12,932 |
| Support services | 15,269 | 272 | 15,541 |
| Depreciation and amortization | 611 | 2,646 | 3,257 |
| Total operating expenses | 140,916 | 8,177 | 149,093 |
| Operating Income (Loss) | -4,383 | 1,881 | -2,502 |
| Nonoperating revenues (expenses) | |||
| Investment income | 99,822 | 272 | 100,094 |
| Pledges assigned to affiliate | - | -296 | -296 |
| Interest expense on capital asset-related debt | (179) | -5,996 | -6,175 |
| Increase (Decrease) in Net Position | 95,260 | -4,139 | 91,121 |
| Net Position, beginning of year | 921,766 | 11,306 | 933,072 |
| Net Position, End of Year | $1,017,026 | 7,167 | 1,024,193 |
| Condensed Statement of Cash Flows | |||
| Net cash flows provided by (used for) | |||
| Operating activities | $(5,136) | -1,926 | -7,062 |
| Non-capital financing activities | 36,441 | 4,837 | 41,278 |
| Capital and related financing activities | (827) | - | (827) |
| Investing activities | (29,172) | 1,889 | -27,283 |
| Net Increase in Cash and Cash Equivalents | 1,306 | 4,800 | 6,106 |
| Cash and cash equivalents, beginning of year | 13,726 | 4,876 | 18,602 |
| Cash and Cash Equivalents, End of Year | $15,032 | 9,676 | 24,708 |
Distributions made by the CU Foundation to the University were approximately $110,088,000 and $122,657,000 during the years ended June 30, 2014 and 2013, respectively. This amount has been recorded as University grant or gift revenue and DPCU operating expense in the accompanying financial statements and does not include undistributed income on University endowments.
Since July 1, 2007, the University has contracted with the CU Foundation to manage a portion of its investments. As of June 30, 2014 and 2013, respectively, $155,518,000 and $131,394,000 is being managed by the CU Foundation. The University is the ultimate beneficiary of substantially all restricted and trust funds held by the CU Foundation and is income beneficiary of a significant portion of endowment funds held by the CU Foundation. In addition, the University contracts with the CU Foundation to manage its endowments. The University has endowments and other assets held by the CU Foundation approximating $165,081,000 and $133,259,000 as of June 30, 2014 and 2013, respectively. The CU Foundation retained an investment management fee equal to 1 percent.
The University paid a fee to the CU Foundation for development services of $5,100,000 during the year ended June 30, 2013, however as development staff became University employees effective July 1, 2013 the CU Foundation paid the University $16,096,000 to help cover development costs during the year ended June 30, 2014, which is reported as other operating revenue.
As of June 30, 2014 and 2013, the University recorded an accounts receivable from the CU Foundation of $18,282,000 and $15,485,000, respectively. As of June 30, 2014 and 2013, the University recorded an account payable to the CU Foundation of $950,000 and $270,000, respectively.
For the years ended June 30, 2014 and 2013, CUREF distributed approximately $570,000 and $1,021,000, respectively, reported as operating expense, to the University, which recognized an equal amount of gift revenue.
CUREF has a line of credit with the University in the amount of $7,000,000, which expires on July 1, 2023. The outstanding balance as of June 30, 2013 of $2,500,000 was paid in full on April 30, 2014. During the year ended June 30, 2014, CUREF drew an additional $300,000 which was still outstanding at year-end at a rate of 1.03 percent. Interest rates are determined at the time a draw on the line of credit is made. Interest only payments on the draw are due semiannually on June 30 and December 31, until December 2016, when semiannual payments of principal and interest are due until maturity on December 31, 2023.
CUREF has a long-term agreement with the University to rent portions of facilities from 18th Avenue and 33rd Street. For the years ended June 30, 2014 and 2013, the University paid approximately $2,346,000 and $2,560,000, respectively, in base rent of which approximately $429,000 and $362,000, respectively was prepaid at June 30, 2014 and 2013, to CUREF, which recognized an equal amount of other operating revenues.
As of June 30, 2014 and 2013, the University had no accounts receivable owed from and no accounts payable due to CUREF.
In accordance with 1991 State legislation, the Hospital Authority was established as a separate and distinct entity. Detailed financial information may be obtained directly from the Hospital Authority at Mail Stop F-401, P.O. Box 6506, Aurora, Colorado 80045.
CU Denver and UPI have several types of financial transactions with the Hospital Authority. On an annual basis, CU Denver or UPI and the Hospital Authority enter into agreements specifying the fees to be charged for services and the allocation of expenses between the two organizations. In certain circumstances, CU Denver may bear the entire cost of certain services in exchange for educational or other services provided by the Hospital Authority. In some instances, the fee charged by CU Denver, UPI, or the Hospital Authority is a set amount for specific services to be provided. In other circumstances, the fee charged is based upon the amount or type of services requested by either CU Denver or the Hospital Authority.
Examples of services provided by CU Denver to the Hospital Authority include telecommunications services, rental of office space, and resident doctors. Examples of services provided by the Hospital Authority to CU Denver include medical and patient services for sponsored research projects. In general, amounts receivable from, or payable to, the Hospital Authority are settled within the following calendar quarter.
Total payments issued by the Hospital Authority to CU Denver approximated $47,510,000 and $37,796,000 for years ended June 30, 2014 and 2013, respectively. Total payments issued by CU Denver to the Hospital Authority for the years ended June 30, 2014 and 2013 approximated $10,952,000 and $9,943,000, respectively.
During the years ended June 30, 2014 and 2013, UPI recognized approximately $31,643,000 and $27,762,000, respectively, in health services revenue from the Hospital Authority in support of clinical and academic missions. UPI also received approximately $42,948,000 and $40,264,000 during the years ended June 30, 2014 and 2013, respectively, from the Hospital Authority for amounts earned for services performed by UPI faculty members but required to be processed through the Hospital Authority (such as the State of Colorado medically indigent program, Ryan White, and other miscellaneous programs).
As of June 30, 2014 and 2013, the University recorded an accounts receivable from the Hospital Authority of $2,886,000 and $3,417,000, respectively, for various services provided. As of June 30, 2014 and 2013, the University recorded an accounts payable to the Hospital Authority of $30,000 and $73,000, respectively. Generally, amounts due are paid during the current or subsequent month.
AHEC, established by legislation in 1974, is jointly governed and utilized by CU Denver, the Community College of Denver, and Metropolitan State University of Denver. The institutions share the costs of operating common educational, library, and other auxiliary facilities. Costs of the common facilities are shared in accordance with an operating agreement between AHEC and the respective institutions. During the years ended June 30, 2014 and 2013, the University incurred expenses related to the common facilities approximating $10,871,000 and $8,562,000, respectively, for payments to AHEC.
At June 30, 2014 and 2013, the University recorded an accounts payable to AHEC of $694,000 and $152,000, respectively, for services rendered but not yet paid, and for fees collected for the spring end of term but not yet paid. At June 30, 2014 and 2013, the University had no accounts receivable due from AHEC. For related party lease transactions, see Note 9.
Detailed financial information may be obtained directly from AHEC at 1201 5th Street Suite 370, Denver, Colorado 80217-336.
The Trust was formed June 28, 2010. Trust members are the University, the Hospital Authority, and UPI. The purpose of the Trust is to provide healthcare benefits to the employees of the Trust members on a self-insured basis effective July 1, 2010. The University does not have financial accountability over the Trust. Self-insured risks are transferred to the pool.
The Trust paid medical claims on behalf of the University of $121,653,000 and $109,044,000 for Fiscal Year 2014 and Fiscal Year 2013, respectively. The University’s contributions to the Trust were $135,494,000 and $117,153,000 for the years ended June 30, 2014 and 2013, respectively, and the employees’ contributions were $16,131,000 and $19,641,000, respectively. As of June 30, 2014 and 2013, the University had accounts receivable owed from the Trust of $302,000 and $550,000, respectively, and accounts payable due to the Trust of $396,000 and $40,000, respectively.
Detailed financial information may be obtained directly from the Trust at 1800 Grant Street, Suite 225, Denver, Colorado 80203.
The University leases various buildings and equipment under operating lease rental agreements. Operating leases do not give rise to property rights or meet other capital lease criteria and, therefore, the related assets and liabilities are not recorded in the accompanying financial statements. For the years ended June 30, 2014 and 2013, total rental expense under these agreements approximated $11,015,000 and $11,329,000 for the University, respectively. Future minimum payments for these operating leases are shown in Table 19, University Operating Leases Minimum Lease Obligations.
| Table 19. University Operating Leases Minimum Lease Obligations (in thousands) | ||
| University | ||
| Years Ending June 30 | Minimum Lease Obligation | |
| 2015 | $9,804 | |
| 2016 | 7,409 | |
| 2017 | 6,373 | |
| 2018 | 5,554 | |
| 2019 | 4,250 | |
| 2020-2024 | 13,127 | |
| 2025-2029 | 2,701 | |
| Total Operating Lease Obligations | $49,218 | |
Contracts have been entered into for the purpose of planning, acquiring, constructing, and equipping certain building additions and other projects with outstanding amounts totaling approximately $182,607,000 and $195,756,000, as of June 30, 2014 and 2013, respectively. These additions will be funded or financed by donor contributions, appropriations from the State, issuance of revenue bonds, and other financings. As of June 30, 2014 and 2013, the amount of capital construction appropriations authorized from the State for these projects approximated $18,657,000 and $14,476,000, respectively.
Substantial amounts are received and expended by the University under federal and state grants and contracts, and are subject to audit by cognizant governmental agencies. This funding relates to research, student aid, and other programs. University management believes that any liabilities arising from such audits will not have a material effect on the University’s financial position or operations.
UPI, as a member of the healthcare industry, is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, and government healthcare program participation requirements; reimbursement for patient services; and Medicare and Medicaid fraud and abuse. Government activity has continued to increase with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs, together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. UPI management believes that UPI is in substantial compliance with fraud and abuse statutes as well as other applicable government laws and regulations. While no regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.
On June 17, 2013, a buyer purchased 6.74 acres (Residential Parcel) of the 28.55 acres of the former Ninth Avenue campus for $9,215,000. $1,000,000 of that purchase price was escrowed and is being used by the buyer to reimburse it for the University’s share of demolition and infrastructure construction costs that will benefit the remaining parcel. In addition to the purchase price, the University will be the recipient of any Tax Increment Financing (TIF) proceeds that are generated from the Residential Parcel. On August 25, 2014 the Denver Urban Renewal Authority (DURA) board approved the intergovernmental agreement between DURA and the University pertaining to the TIF. On February 19, 2014, a buyer signed on the purchase and sale contract for the remaining 21.81 acre parcel to purchase the property for $30 million. $15 million of that will be payable at closing with $2.5 million by payment of the earnest money by the escrow agent to the University, as a credit against the purchase price. The balance of the purchase price shall be payable 18 months after the closing date secured by a promissory note provided by the buyer at closing in the amount of $15 million. The contract is expected to be closed in December of 2014.
In September 2013, CU-Boulder incurred water damage to 110 of its buildings, two of its parking lots, a pedestrian bridge over Boulder Creek became unsafe, and several of the campus’ underground tunnels were flooded due to the record rainfall within a 7-day period. FM Global, the University’s reinsurer, sent an experienced team and hired an environmental firm to assess the damage. It was determined that since the damage was caused by rain and ground water that all of the work within the buildings would be considered an environmental hazard. Insurance recoveries are expected to cover the full cost, which is estimated to be $6,162,000.
The University is a defendant in a number of legal actions. While the final outcome of many of these legal actions cannot be determined at this time, management is of the opinion that the ultimate liability not covered by insurance, if any, for these legal actions will not have a material effect on the University’s financial position or operations.
On August 21, 2014, the University issued $203,485,000 of Tax-Exempt University Enterprise Revenue Bonds, Series 2014A and used the proceeds to defray a portion of the cost of financing certain capital improvement projects, and to pay certain costs related to the issuance. At the same time, the University issued $100,440,000 of Tax-Exempt Refunding Revenue Bonds, Series 2014B-1, and used the proceeds to refund portions of prior obligations, and to pay certain costs related to the issuance. These special limited obligations are payable solely from the net revenues as defined. Series 2014A has an interest rate of 5 percent, and the bonds mature through June 1, 2046. Series 2104B-1 has rates ranging from 1 percent to 5 percent, and the bonds mature through June 1, 2034.
In October 2014, UPI replaced its adjustable rate debt with a fixed-rate direct purchase obligation financed by US Bank. The new borrowing will carry a ten-year term at a fixed rate of 2.3%.
In March 2014, the University leased space at The Wildlife Experience in south Denver to launch a higher education expansion. At this educational facility, two of University's campuses (CU Anschutz Medical Campus and CU Denver) started offering programs in fall 2014 that are in demand among south Denver residents, including courses in business, education, computer science, nursing and public health. The agreement provides use of 12,500 square feet of space at an annual cost of $87,500. In September 2014 the University executed phase 2 of the agreement with The Wildlife Experience which transfers control of operations to the University effective December 31, 2014, and gives the property to the University effective May 1, 2015. This gift has been appraised at $40 million.