How to pay for higher education is a topic of conversation in many households and in legislatures across the country. Yet even as these conversations take place - the cost of providing that education continues to increase.
Many of you are probably wondering why this happens.
Recently, CU has seen a shift in student enrollment to majors that simply cost more. They cost more due to a dependence on laboratory space, advancing technologies, or other market-driven costs. This contributes to an operating loss.
While it’s normal for a public university to have an operating loss, it is unusual for those operating losses to increase year after year. This is currently the case with CU.
Despite all of this, CU still works hard to keep education affordable by limiting tuition increases. Other revenue sources such as gifts and investment income are becoming increasingly important.
These revenue sources, however, are very dependent on conditions outside of CU's control. So what is the conclusion to the story of the cost of higher education? We don’t know yet. But we do know that CU is committed to exploring new revenue opportunities and to effectively and efficiently utilizing all the resources it has at hand.
We hope this Illustrated Guide serves as a starting point for answering some of your questions related to CU’s financial position.
Our starting point is where CU holds its resources and the claims against those resources. In the Annual Financial Report, this is reported in the Statements of Net Position, popularly known as the Balance Sheet.
The resources held by CU are called assets, the claims against those resources (assets) are called liabilities, and the difference between the two is called net position. Net position can either be positive (usually a good thing) or negative (probably a bad thing).
Assets and liabilities are broken into current and noncurrent. The ratio of current assets to current liabilities is one indicator of financial health. A ratio greater than 1 demonstrates an ability to pay obligations as they become due ... and is therefore favorable. CU has maintained a ratio greater than 1 for the past 10 years.
Now that we've reviewed the different types of assets, let's take a look at CU's total assets over the last 10 years ... These represent the sum of what the University owns - some of these assets (such as buildings) are recorded at historical cost - and others (such as investments) are recorded at fair value. Increases in total assets over time are generally indicative of a growing institution.
Next, the Balance Sheet presents the claims on the University's assets - otherwise known as liabilities.
CU's capital asset balance less debt issued to fund those capital assets - this is typically over 50% of CU's total net position but doesn't reflect spendable reserves.
Endowments received as gifts: only the investment earnings on the gift can be spent and then only on scholarships, endowed chairs, and the like.
Entire gift can be spent, not just the investment earnings. Funds can be spent only in accordance with restrictions established by external third parties.
Balances designated for use by leadership to address University needs.
The significant decrease in unrestricted net position between fiscal year 2014 and fiscal year 2015 is directly attributable to the implementation of the new pension standard. The impact on unrestricted net position was a reduction of approximately $989,588,000.
Now that we have covered the Balance Sheet, let's move on to the Statements of Revenues, Expenses, and Changes in Net Position, commonly referred to as the Income Statement. The Income Statement shows where the University gets its money (revenues) and how it spends its money (expenses).
Operating Revenues are received from what CU does as its primary missions: teach, conduct research, auxiliary enterprises, and health services. Operating Expenses are costs incurred in fulfilling its primary missions.
CU's operations are classified by function - instruction, research, and health services - so you can see where CU is focusing its efforts. These 3 functional expense areas reflect a direct correlation to the top 3 revenue sources (tuition; federal, state, and private grants/contracts; health services).
Nonoperating Revenues and Expenses are those amounts that are not directly related to the University's mission, but are important drivers of its financial results. Major nonoperating revenues are the federal Pell Grant, gifts, and investment income.
Major nonoperating expenses are investment losses and interest expense on the University's outstanding debt. Over the past several years, CU has refinanced much of its outstanding debt. So, while you were refinancing your home loan to save money, CU was doing essentially the same thing!
The main component of other revenues is capital gifts and grants. These are gifts made by donors to be used only for the construction of buildings or other capital assets. The gifts may also be donations of actual capital property.
You may have noticed that State appropriations are not among the major sources of nonoperating revenue.
In total, CU receives approximately five percent of its funding from the state. Absent changes in the state's fiscal structure, this amount is expected to remain low.
In the introduction, we stated our goal to present the University of Colorado's financial information in an easily understandable manner through the use of this website. So, how did we do? Is there something you think should be more fully explained? Please use this feedback form to let us know!
Transparency and clarity go hand-in-hand. We've taken an initial step to providing clarity to CU's financial statements. Now it is your turn to help us make additional strides in this ongoing effort. Thanks for your time and we look forward to reporting back to you next year!