THE CITY UNIVERSITY OF NEW YORK. Basic Financial Statements and Management s Discussion and Analysis. June 30, 2013

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1 Basic Financial Statements and Management s Discussion and Analysis (With Independent Auditors Report Thereon)

2 Table of Contents Independent Auditors Report 1 Management s Discussion and Analysis (Unaudited) 3 Basic Financial Statements: Statement of Net Position as of 17 Statement of Revenues, Expenses, and Changes in Net Position for the year ended June 30, Statement of Cash Flows for the year ended Page

3 KPMG LLP 345 Park Avenue New York, NY Independent Auditors Report The Board of Trustees The City University of New York: We have audited the accompanying financial statements of the business-type activities and the aggregate discretely presented component units of The City University of New York (the University), as of and for the year ended, and the related notes to the financial statements, which collectively comprise the University s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of 22 of the 73 discretely presented component units, which represent approximately 78%, 93% and 64%, respectively, of the assets, net position, and revenues of the discretely presented component units. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the 22 discretely presented component units, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Opinions In our opinion, based on our report and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate discretely presented component units of The City University of New York as of June 30, 2013, and the respective changes in financial position and, where applicable, cash flows for the year then ended in accordance with U.S. generally accepted accounting principles. Other Matters Emphasis of Matter As discussed in note 2 to the financial statements, in 2013, the University adopted new accounting guidance Governmental Accounting Standards Board Statement No. 61, The Financial Reporting Entity: Omnibus. Our opinion is not modified with respect to this matter. Required Supplementary Information U.S. generally accepted accounting principles require that the management s discussion and analysis on pages 3 through 16 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. December 16,

5 Management s Discussion and Analysis (Unaudited) Introduction The intent of Management s Discussion and Analysis (MD&A) is to provide readers with an overview of the changes in the financial position of The City University of New York (the University or CUNY) as of and for the years ended and Prior year balances have been reclassified to conform to the current year presentation. The MD&A is designed to focus on current activities, resulting changes, and currently known facts with respect to the University s financial position. It should be read in conjunction with the accompanying basic financial statements and related footnotes. For financial reporting purposes, the University s reporting entity consists of eleven (11) senior colleges, seven (7) community colleges, three (3) Graduate and Professional Schools, School of Professional Studies, School of Biomedical Education, and an Honors College. The University s financial statements also include the financial activity of the following other related organizations: Research Foundation of the City University of New York (RF-CUNY), and its subsidiary 230 West 41st Street LLC, and the City University Construction Fund (CUCF). These entities are deemed includable in accordance with Governmental Accounting Standards Board (GASB) Statement No. 61 (GASB 61), the Financial Reporting Entity: Omnibus. The University is required to also include, as part of its reporting entity, twenty-two (22) college foundations, eighteen (18) auxiliary enterprise corporations, twenty-three (23) college associations and ten (10) child care centers of the individual colleges, as discretely presented component units. The financial activities of these organizations are not included in the discussion presented below. The basis for determining which University related organizations are considered to be part of the University s reporting entity is included in note 1 of the financial statements. Financial Highlights (Comparison of Fiscal Years 2013 and 2012) For fiscal year 2013, the State of New York appropriated $1.328 billion for CUNY, which represents an additional $102.3 million in operating budget support for the senior and community colleges over the fiscal year 2012 level. For the community colleges, fiscal year 2013 State base aid per full-time equivalent (FTE) student increased by $150, resulting in an operating budget increase of $21.9 million. In fiscal year 2012, the State of New York appropriated $1.226 billion for CUNY, which included a $95.1 million reduction in senior college State aid from the fiscal year 2011 level. Similar to the trends across the country, CUNY continued to experience a significant increase in fringe benefit costs. For fiscal year 2013, health insurance payments increased by $42 million, or 18.9% and pension payments increased by $38.6 million, or 18.4%. These costs represent 18% of the University s overall Fiscal Year 2013 operating budget, and has increased from 16% in fiscal year Governor Andrew M. Cuomo approved on September 20, 2011 an amendment to CUNY s Master Plan, establishing The New Community College at CUNY. This is the University s first new community college in more than 40 years. In April 2013, CUNY received a $25 million gift from the Stella and Charles Guttman Foundation to support the New Community College at CUNY and two other community college initiatives to boost student retention and graduation rates. In honor of the $15 million endowment gift to 3 (Continued)

6 Management s Discussion and Analysis (Unaudited) the New Community College at CUNY, the CUNY Board of Trustees passed a resolution to rename the New Community College to The Stella and Charles Guttman Community College. Several new buildings were opened during fiscal year 2013 and the most significant are discussed below: Lehman College New Science Building Phase I The project constructed 55,000 square feet of a new science facility including laboratories for teaching, research and science learning centers. The building received the Gold Leadership in Energy & Environmental Design (LEED) certification. Borough of Manhattan Community College s Fiterman Hall located in Lower Manhattan, the 400,000 square-foot building includes an art center, café, approximately 80 Smart Classrooms and computer laboratories, as well as offices, library spaces, assembly rooms, music ensemble rooms and a rooftop conference center. This new facility replaces the original building which was destroyed in the 9/11 terrorist attacks. City College s Marshak Science Building provided a new and more thermally efficient exterior wall to the 13 story building. The 649,458 square foot building is the home of City College s Division of Science and contains teaching and research laboratories, classrooms, computer labs and gymnasiums. During fiscal year 2013, the University implemented GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements (GASB 60), and GASB Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34 (GASB 61), for further details, please see New Accounting Standards Adopted in note 2 of the financial statements.. Financial Position An institution s net position (assets plus deferred outflows of resources less liabilities and deferred inflows of resources equal net position) are one measure of financial health or financial position. Increases and decreases in the University s net position over time are indicators of whether its financial health is sound or not. CUNY s total net position increased by $139.5 million, or 22.0%, between fiscal years 2013 and The 2013 variance was primarily due to the following: (i) a $40 million increase in net investment in capital assets mainly due to paying down our debt by $229.7 million and capitalizing more capital assets, offset by depreciation and amortization expense of $240.1 million; and (ii) a $66.3 million increase in unrestricted net position mainly due to the gain on sale of capital assets of $50 million and decrease in the RF-CUNY s other post employment benefits (OPEB) expense of $26 million. 4 (Continued)

7 Management s Discussion and Analysis (Unaudited) The major components of the University s net position at and 2012 follow: (In thousands) Net position (deficit): Net investment in capital assets $ 422, ,549 Restricted nonexpendable 62,528 45,108 Restricted expendable 268, ,126 Unrestricted 20,927 (45,370) Total net position $ 774, ,413 Several nonfinancial factors are also relevant to the University s financial health. These include changes in the number and quality of its applicants, size of the first-year class, number of full-time faculty, student retention, graduation rates, building conditions, and campus safety. For example, an increase in the size of the first-year class could result in an increase of tuition and fees revenues. Assets and Deferred Outflows of Resources At, the University s total assets and deferred outflows increased by $373.6 million, or 5.5%. The variance was primarily attributable to increases in cash and cash equivalents, investments, and net capital assets, offset by interest rate swap agreements. 5 (Continued)

8 Management s Discussion and Analysis (Unaudited) The major components of the University s assets and deferred outflows of resources at and 2012 follow: (In thousands) Assets: Cash and cash equivalents $ 674, ,462 Investments 270, ,102 Restricted deposits held by bond trustees 375, ,103 Restricted amounts held by DASNY 50,370 36,845 Receivables, net 680, ,164 Capital assets, net 4,920,008 4,615,952 Prepaid expenses and other assets 43,611 39,874 Total assets 7,014,848 6,590,502 Deferred outflows of resources: Interest rate swap agreements 74, ,353 Deferred amount on debt refunding 77,425 94,542 Total deferred outflows of resources 152, ,895 Total assets and deferred outflows of resources $ 7,166,984 6,793,397 The most significant fluctuations are discussed below: Cash and cash equivalents are composed of highly liquid assets with original maturity dates of 90 days or less and include overnight purchase agreements, commercial paper and money market accounts. The balance increased by $76.6 million between Fiscal Year 2012 and Fiscal Year 2013 primarily due to proceeds from the sale of property of $53.4 million, and increases in cash at CUCF of $5.2 million. Investments are composed of debt and equity securities and certain other investments. The balance increased by $39 million between Fiscal Year 2012 and Fiscal Year 2013 primarily due to a gift for the Stella and Charles Guttman Community College of $24 million and an increase of $12 million from market appreciation. Capital Assets, net includes land, land improvements, buildings, building improvements, leasehold improvements, construction in progress, infrastructure, infrastructure improvements, intangible assets, artwork and historical treasures, and equipment, reduced by related depreciation. The 2013 variance was primarily due to capital asset additions of $544.2 million offset by depreciation and amortization expense of $240.1 million. The balance increased by $304.1 million, or 6.6%, between fiscal years 2013 and Several new buildings opened during fiscal year 2013 and the most significant were Borough of Manhattan Community College s Fitterman Hall, City College s Marshak Science Building and Lehman College s New Science Building. Interest Rate Swap Agreements are derivative instruments representing an agreement between two parties to exchange future cash flow. Fair value changes of effective derivative hedges are deferred on the statement of net 6 (Continued)

9 Management s Discussion and Analysis (Unaudited) position until the hedged transactions occurs or the derivative ceases to be effective. Fair value changes of ineffective hedges are reported as investment income or loss on the statement of revenues, expenses, and changes in net position. The swap agreements entered into by the University were deemed to be effective. The balance decreased by $33.6 million, or 31%, between fiscal years 2013 and 2012, due to the changes in the fair value of the swap agreements. Liabilities At, the University s total liabilities increased by $233.1 million, or 3.8%, between fiscal years 2013 and The variance was primarily attributable to increases in long-term debt and, OPEB liability offset by interest rate swap agreements. The following summarizes the liabilities at and 2012: (In thousands) Liabilities: Accounts payable and accrued expenses $ 616, ,803 Compensated absences 123, ,341 OPEB liability 466, ,885 Unearned tuition and fees revenue 73,270 86,347 Accrued interest payable 80,940 79,605 Long-term debt 4,753,923 4,498,374 Unearned grant revenue 74,432 77,511 Federal refundable loans 28,667 28,763 Interest rate swap agreements 74, ,353 Other liabilities 99,949 84,002 Total liabilities $ 6,392,078 6,158,984 The most significant fluctuations are discussed below: OPEB Liability increased by $39.3 million, or 9.2%, between fiscal years 2013 and The 2013 increase was comprised of annual OPEB cost of $99.4 million, offset by payments made during the fiscal year of $33.8 million. Additionally, the OPEB liability at RF-CUNY decreased by $26.3 million due to the increase in the discount rate (from 4.10% to 4.65%). Long-Term Debt increased by $255.5 million, or 5.7%, between fiscal years 2013 and The 2013 variance reflects $444.5 in new debt issued through DASNY and $40.7 million in new capital lease obligations, offset by $229.7 million in debt service payments. Interest Rate Swap Agreements decreased by $33.6 million, or 31.0%, between fiscal years 2013 and The swap agreements entered into by the University were deemed to be effective. The decrease was due to the changes in the fair value of the swap agreements. 7 (Continued)

10 Management s Discussion and Analysis (Unaudited) Statement of Revenues, Expenses, and Changes in Net Position The Statement of Revenues, Expenses, and Changes in Net Position presents the operating results of the University, as well as nonoperating revenues and expenses. New York State and City appropriations, while budgeted for in operating activities, are presented as nonoperating revenues as prescribed by GASB. The major components of revenues are presented below: Revenues New York City appropriations $323,963 8% New York State appropriations $1,328,034 31% 2013 Revenues Capital appropriations Investment return $512,296 $15,665 12% 0% Gain on sale of capital assets $50,382 1% Transfer to University $6,078 0% Other revenues $46,023 1% Tuition and fees $782,167 18% Gifts, grants and contracts $1,248,800 29% 8 (Continued)

11 Management s Discussion and Analysis (Unaudited) 2012 Revenues New York City appropriations $325,155 8% Capital appropriations $501,313 12% Investment return $583 0% Other revenues $47,728 1% Tuition and fees $746,657 19% New York State appropriations $1,225,724 30% Gifts, grants and contracts $1,234,980 30% 9 (Continued)

12 Management s Discussion and Analysis (Unaudited) The University s revenues for the fiscal years ended and 2012 are presented below: (In thousands) Revenues: Operating revenues: Tuition and fees, net $ 782, ,657 Grants and contracts 1,213,512 1,205,404 Auxiliary enterprises 4,124 2,868 Other operating revenues 41,899 44,860 Total operating revenues 2,041,702 1,999,789 Nonoperating and other revenues: New York State appropriations 1,328,034 1,225,724 New York City appropriations 323, ,155 Capital appropriations 512, ,313 Investment income, net 3,493 4,761 Net appreciation (depreciation) in fair value of investments 12,172 (4,178) Gain on sale of capital assets 50,382 Transfer to University 6,078 Gifts and grants 35,288 29,576 Total nonoperating and other revenues 2,271,706 2,082,351 Total revenues $ 4,313,408 4,082,140 The University s total revenue for fiscal year 2013 was $4.31 billion, which represents an increase of $231.3 million, or 5.7% greater than the prior year. New York State appropriations accounted for 31% of revenues generated by the University, followed by gifts, grants, and contracts at 29%, tuition and fees at 18%, capital appropriations at 12%, and New York City appropriations at 8%. The most significant fluctuations are discussed below: Tuition and Fees, net, increased by $35.5 million, or 4.8%, between fiscal years 2013 and The fiscal year 2013 variance can be primarily attributed to increases in the undergraduate in-state tuition rate of $300 per year which was partially offset by a 1.63% decrease in average annual FTE enrollment for (Continued)

13 Management s Discussion and Analysis (Unaudited) The following depicts the University s enrollment trends for the past five years: Student enrollment Annual Average Headcount Enrollment and Full-Time Equivalent (FTE) Student Enrollment Headcount FTEs Undergraduate Graduate Total Undergraduate Graduate Total ,671 30, , ,383 19, , ,863 32, , ,783 20, , ,211 33, , ,213 20, , ,681 33, , ,080 20, , ,614 30, , ,329 18, ,247 New York State Appropriations increased by $102.3 million, or 8.3%, between fiscal years 2013 and This amount is mainly comprised of $71.8 million in State aid for the senior colleges and, $21.9 million in State aid for the community colleges. Gain on Sale of Capital Assets was $50.4 million in fiscal year 2013 resulting from the sale of property. Expenses 2013 Expenses Depreciation and amortization Scholarships and $240,112 fellowships 6% $330,325 8% Operation and maintenance of plant $471,120 11% Institutional support $576,557 14% OPEB expense $73,129 2% Student services $312,283 7% Other nonoperating expense $196,566 5% Other operating expense $162,713 4% Academic support $171,632 4% Instruction $1,639,478 39% 11 (Continued)

14 Management s Discussion and Analysis (Unaudited) 2012 Expenses Scholarships and fellowships $356,154 9% Depreciation and amortization $215,126 5% OPEB expense $106,351 3% Other non-operating expense $165,715 4% Instruction $1,565,826 39% Operation and maintenance of plant $525,860 13% Institutional support $505,993 12% Student services $292,899 7% Other operating expense $160,780 4% Academic support $167,067 4% 12 (Continued)

15 Management s Discussion and Analysis (Unaudited) The University s expenses for the fiscal years ended and 2012 are presented below: (In thousands) Expenses: Operating expenses: Instruction $ 1,639,478 1,565,826 Research 122, ,737 Public service 36,663 36,940 Academic support 171, ,067 Student services 312, ,899 Institutional support 576, ,993 Operation and maintenance of plant 471, ,860 Scholarships and fellowships 330, ,154 Auxiliary enterprises 3,330 3,103 Depreciation and amortization expense 240, ,126 OPEB expense 73, ,351 Total operating expenses 3,977,349 3,896,056 Nonoperating expenses: Interest expense 199, ,190 Other nonoperating (revenues) expenses (2,789) 3,525 Total nonoperating expenses 196, ,715 Total expenses $ 4,173,915 4,061,771 Total expenses for fiscal year 2013 were $4.174 billion, which reflected an increase of $112.1 million, or 2.8%, over the prior year. Thirty-nine percent of the University s expenses were spent on instruction, followed by institutional support at 14%, operation and maintenance of plant at 11%, scholarships and fellowships at 8%, and student services at 7%. The 2013 increases can be attributed to overall increases in payroll and related fringe benefit costs and building rentals, somewhat offset by early retirement savings. The most significant fluctuations are discussed below: Instruction expenses increased by $73.7 million, or 4.7%, between fiscal years 2013 and The increase is mainly due to the addition of 169 full time faculty positions hired by CUNY s colleges and annual salary (i.e., step) increments as per contractual obligations and related fringe benefits. Efforts continue as part of the Master Plan to expand Academic Excellence and to hire more full time faculty. Institutional Support expenses increased by $70.6 million, or 13.9%, between fiscal years 2013 and This is due mainly to increases in contractual salary obligations (i.e. step), related fringe benefit costs, and first year operations of the Stella and Charles Guttman Community College. 13 (Continued)

16 Management s Discussion and Analysis (Unaudited) Operation and Maintenance of Plant expenses decreased by $54.7 million, or 10.4%, between fiscal years 2013 and The decrease is mainly due to a reduction in expenses related to non-capitalizable capital projects and, retroactive payments made in fiscal year 2012 for Laborer and City Laborer titles, as a result of a New York City Comptroller s wage determination, which increased the hourly rates for those titles and authorized retroactive payments back to These decreases are offset by increases in rental expenses in Fiscal Year Capital Assets At, the University had approximately $4.9 billion in capital assets, net of accumulated depreciation of $3.3 billion. Annual depreciation and amortization expense totaled $240.1 million for the year ended June 30, The University s capital program addresses the major new construction, rehabilitation, and capital equipment needs of its colleges and is developed in accordance with the University s established priority system as articulated in its Master Plan. Funding is based upon a five-year capital plan, which is subject to final approval by the State. A complete list of project and construction costs is included in the Master Plan. Most of CUNY s capital program is conducted through the Dormitory Authority of the State of New York (DASNY) on behalf of CUNY. The following depicts disbursements made by DASNY for the University s capital construction projects over the last five years: DASNY Capital Construction Disbursements (in thousands) $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 $693,550 $582,675 $470,197 $490,545 $490, (Continued)

17 Management s Discussion and Analysis (Unaudited) Capital construction disbursements remained consistent from prior year. Funding for capital construction and rehabilitation of educational facilities is provided principally through the issuance of bonds authorized by CUCF and funded through DASNY. Some rehabilitation projects are also funded through City and State appropriations. The following summarizes the University s long-term debt: Long-Term Debt (in thousands) $5,000,000 $4,750,000 $4,500,000 $4,250,000 $4,000,000 $3,750,000 $3,500,000 $3,250,000 $4,808,594 $4,753,923 $4,498,374 $4,030,253 $3,586, Debt increased by $255.5 million, or 5.7%, between fiscal years 2013 and The 2013 variance reflects $444.5 million in new debt issued through DASNY and the addition of new capital lease obligations of $40.7 million, offset by debt service payments of $229.7 million. 15 (Continued)

18 Management s Discussion and Analysis (Unaudited) Economic Factors that may Affect the Future For the past number of years, the University has advanced a funding model known as the CUNY Compact. Now in its eighth year, funding is shared by the State and the City, the University, (through internal efficiencies), philanthropic sources and students, through managed enrollment growth and modest, predictable tuition increases. In 2011, the State enacted legislation authorizing the University to implement a rational tuition policy that consists of modest annual tuition increases. The legislation includes a maintenance of effort provision requiring that State support for the senior colleges not be less than the amount provided the previous year. A similar provision exists for the City support level for the community colleges. The tuition increase plus the maintenance of effort provisions enable multiyear planning and position CUNY to compete more effectively in the national and international marketplace. It sends a powerful signal to families, donors, and the business community that New York is investing in its students and its future through stable support of its public university systems. However, while there is a measure of stability in terms of funding, the University faces ever increasing fixed costs, including those for health insurance and pensions, and contractually mandated annual incremental salary increases. While the State and City have cut costs to balance their financial plans in 2014, gaps exist in 2015 and beyond. The result of budget pressures at the State and City level will have an impact on CUNY s budget. 16

19 Statement of Net Position (In thousands) Discretely presented Business-type component activities units Supporting University organizations Total Assets: Current assets: Cash and cash equivalents (note 3) $ 674,058 85, ,322 Short-term investments (note 3) 23,139 79, ,701 Restricted deposits held by bond trustees (note 8) 175, ,427 Restricted amounts held by the Dormitory Authority of the State of New York (note 8) 50,370 50,370 Receivables (net of allowance for doubtful accounts of $97,227) (note 4) 649,322 54, ,527 Prepaid expenses and other current assets 10,186 4,059 14,245 Total current assets 1,582, ,090 1,805,592 Noncurrent assets: Restricted cash (note 3) 29,606 29,606 Long-term investments, unrestricted (note 3) 88,991 37, ,471 Long-term investments, restricted (note 3) 157, , ,419 Restricted deposits held by bond trustees (note 8) 200,387 28, ,608 Long-term receivables (net of allowance for doubtful accounts of $5,188) (note 4) 31,541 80, ,755 Capital assets, net (note 5) 4,920, ,190 5,064,198 Other noncurrent assets 3, ,879 Total noncurrent assets 5,432, ,590 6,193,936 Total assets 7,014, ,680 7,999,528 Deferred outflows of resources: Interest rate swap agreements (note 7) 74,711 4,067 78,778 Deferred amount on debt refundings 77,425 1,737 79,162 Total deferred outflows of resources 152,136 5, ,940 Liabilities: Current liabilities: Accounts payable and accrued expenses (note 6) 616,454 37, ,170 Compensated absences (note 7) 93, ,540 Unearned tuition and fees revenue 73,270 4,893 78,163 Accrued interest payable 80,940 80,940 Current portion of long-term debt (note 7) 217,021 1, ,478 Unearned grant revenue 74,432 74,432 Other current liabilities 36,853 4,733 41,586 Deposits held in custody for others 47,843 1,790 49,633 Total current liabilities 1,240,008 50,934 1,290,942 Noncurrent liabilities (note 7): Compensated absences 30,356 30,356 OPEB liability (note 10) 466, ,181 Long-term debt 4,536, ,308 4,671,210 Federal refundable loans 28,667 28,667 Interest rate swap agreements 74,711 6,792 81,503 Other noncurrent liabilities 15,253 17,038 32,291 Total noncurrent liabilities 5,152, ,138 5,310,208 Total liabilities 6,392, ,072 6,601,150 Net position: Net investment in capital assets 422,502 26, ,828 Restricted: Nonexpendable 62, , ,320 Expendable: Debt service 87,201 87,201 Scholarships and general educational support 103, , ,748 Loans 13, ,597 Other 64,571 27,838 92,409 Unrestricted 20, , ,215 Total net position $ 774, ,412 1,556,318 See accompanying notes to financial statements. 17

20 Statement of Revenues, Expenses, and Changes in Net Position Year ended (In thousands) Discretely presented Business-type component activities units Supporting University organizations Eliminations Total Revenues: Operating revenues: Tuition and fees (net of allowance of $623,548) $ 782,167 31,805 (52) 813,920 Grants and contracts: Federal 722,690 2, ,120 New York State 325,096 2, ,934 New York City 62,272 2,387 64,659 Private 103, ,653 Total grants and contracts 1,213,512 7,854 1,221,366 Sales and services of auxiliary enterprises 4,124 22,515 (14) 26,625 Other operating revenues 41,899 31,366 (11,662) 61,603 Total operating revenues 2,041,702 93,540 (11,728) 2,123,514 Expenses: Operating expenses: Instruction 1,639,478 (776) 1,638,702 Research 122, ,720 Public service 36, (92) 36,669 Academic support 171,632 45, ,705 Student services 312,283 36,303 (4,958) 343,628 Institutional support 576,557 18,900 (131) 595,326 Operation and maintenance of plant 471,120 (2,718) 468,402 Scholarships and fellowships 330,325 24, ,457 Auxiliary enterprises 3,330 43,554 (3,053) 43,831 Depreciation and amortization expense 240,112 3, ,476 OPEB expense (note 10) 73,129 73,129 Total operating expenses 3,977, ,424 (11,728) 4,137,045 Operating loss (1,935,647) (77,884) (2,013,531) Nonoperating revenues (expenses): Government appropriations/transfers: New York State 1,328,034 1,328,034 New York City 323, ,973 Gifts and grants 10, , ,500 Investment income, net 3,493 12,293 15,786 Gain on sale of capital assets 50,382 50,382 Interest expense (199,355) (556) (199,911) Net appreciation in fair value of investments 12,172 43,454 55,626 Other nonoperating revenues, net 2, ,639 Net nonoperating revenues 1,532, ,589 1,696,029 (Loss) income before other revenues (403,207) 85,705 (317,502) Capital appropriations 512, ,296 Additions to permanent endowments 24,326 24,326 Transfer to University (from Foundation) 6,078 (6,078) Total other revenues 542,700 (6,078) 536,622 Increase in net position 139,493 79, ,120 Net position at beginning of year 681, ,933 1,337,198 Effect of adoption of GASB 61 (notes 2 and 17) (45,852) 45,852 Net position at beginning of year, as restated 635, ,785 1,337,198 Net position at end of year $ 774, ,412 1,556,318 See accompanying notes to financial statements. 18

21 Statement of Cash Flows Year ended (In thousands) Business-type activities University Cash flows from operating activities: Collection of tuition and fees $ 757,771 Collection of grants and contracts 1,217,383 Collection of loans from students 7,523 Sales and services of auxiliary enterprises 4,124 Collection of other operating revenues 29,923 Payments to suppliers (281,235) Payments for utilities (139,131) Payments to employees (2,087,757) Payments for benefits (801,887) Payments for scholarships and fellowships (330,325) Payments for OPEB (33,833) Loans issued to students (7,425) Net cash flows used by operating activities (1,664,869) Cash flows from noncapital financing activities: New York State and New York City appropriations/transfers 1,670,053 Gifts and grants for other than capital purposes 10,962 Private gifts for endowment purposes 24,326 Decrease in deposits held in custody for others 13,851 Receipts from third parties 3,150 Net cash flows provided by noncapital financing activities 1,722,342 Cash flows from capital and related financing activities: Proceeds from capital debt 444,520 Capital appropriations 512,296 Proceeds from sale of capital assets 53,423 Purchases of capital assets (549,255) Principal paid on capital debt (215,184) Principal amount refunded (155) Interest paid on capital debt (195,670) Amounts paid for bond issuance costs (4,361) Decrease in restricted deposits held by bond trustees 14,289 Increase in restricted amounts held by the Dormitory Authority of the State of New York (13,525) Net cash flows provided by capital and related financing activities 46,378 Cash flows from investing activities: Investment income 3,493 Proceeds from sales and maturities of investments 70,887 Purchases of investments (97,739) Increase in restricted cash (3,896) Net cash flows used by investing activities (27,255) Increase in cash and cash equivalents 76,596 Cash and cash equivalents at beginning of year 597,462 Cash and cash equivalents at end of year $ 674, (Continued)

22 Statement of Cash Flows Year ended (In thousands) Business-type activities University Reconciliation of operating loss to net cash flows used by operating activities: Operating loss $ (1,935,647) Adjustments to reconcile operating loss to net cash flows used by operating activities: Depreciation and amortization 240,112 Bad debt expense 5,888 Change in operating assets and liabilities: Receivables (25,736) Prepaid expenses and other assets 2,106 Accounts payable and accrued expenses 26,963 Unearned tuition and fees revenue (13,077) Compensated absences (3,790) OPEB liability 39,296 Unearned grant revenue (3,079) Other liabilities 2,095 Net cash flows used by operating activities $ (1,664,869) Noncash transactions: Purchase of capital assets through capital lease $ 40,737 Net appreciation in fair value of investments 12,172 See accompanying notes to financial statements. 20

23 (1) Organization and Reporting Entity The City University of New York (the University or CUNY) is a public urban university located in the City of New York and founded in 1847 as the Free Academy. On April 11, 1961, governor Nelson A. Rockefeller signed the legislation to formally establish CUNY, uniting seven public urban colleges into a formally integrated system. The following colleges comprise the University: Senior Colleges Bernard M. Baruch College Brooklyn College The City College The College of Staten Island Hunter College John Jay College of Criminal Justice Herbert H. Lehman College Medgar Evers College New York City College of Technology Queens College York College Community Colleges Borough of Manhattan Community College Bronx Community College Eugenio María de Hostos Community College Kingsborough Community College Fiorello H. LaGuardia Community College Queensborough Community College Stella and Charles Guttman Community College Graduate and Professional Schools The Graduate School and University Center CUNY School of Law The CUNY Graduate School of Journalism Other Schools The William E. Macaulay Honors College The Sophie Davis School of Biomedical Education The CUNY School of Professional Studies In addition to the colleges and schools listed above, it was determined that two other related organizations, including the Research Foundation of The City University of New York (RF-CUNY) and the City 21 (Continued)

24 University Construction Fund (CUCF), should be included in the University s financial reporting entity as blended component units. The key elements for inclusion in the reporting entity as blended component units is based primarily on fiscal dependency and a relationship of financial benefit/burden. Governmental Accounting Standards Board (GASB) Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34 (GASB 61), modifies certain requirements for inclusion of component units in the financial reporting entity. This Statement also amends the criteria for reporting component units as if they were part of the primary government (that is, blending) in certain circumstances. For component units that currently are blended based on the substantively the same governing body criterion, it additionally requires that (1) the primary government and the component unit have a financial benefit or burden relationship or (2) management (below the level of the elected officials) of the primary government have operational responsibility for the activities of the component unit. The University may also be financially accountable for governmental organizations that are fiscally dependent on it. Other organizations for which the nature and significance of their relationships with the University are such that exclusion from the financial reporting entity would render the reporting entity s financial statements to be misleading or incomplete may also be included in the financial reporting entity. The State of New York presents the senior colleges as part of the primary government of the State of New York, in its financial statements. Similarly, the City of New York presents CUCF as a component unit in its financial statements. In addition, the community colleges are reported as part of the primary government of the City of New York. Separate legal entities meeting the criteria for inclusion in the blended totals of the University reporting entity are described below: (a) RF-CUNY RF-CUNY is a separate not-for-profit educational corporation and legal entity, which operates as the fiscal administrator for the majority of University-sponsored programs financed by grants and contracts. These programs are for the exclusive benefit of the University and programs include research, training, and public service activities. 230 West 41st Street LLC (the Company) was established on May 7, 2004 as a Delaware limited liability company. The Company was organized pursuant to the Limited Liability Operating Agreement (the Agreement) dated July 14, 2004 by RF-CUNY with a 100% interest in the Company. The Company was formed to acquire, own, and operate an approximately 300,000 square foot office building located at 230 West 41st Street in New York, New York. The Company will continue indefinitely, unless terminated sooner pursuant to the Agreement. The University has a financial benefit/burden relationship with RF-CUNY and RF-CUNY is fiscally dependent on the University. Accordingly, financial activity related to RF-CUNY is included in the accompanying basic financial statements. (b) CUCF CUCF is a public benefit corporation, which has the authority to design, construct, reconstruct, and rehabilitate facilities of the University pursuant to an approved master plan. CUCF carries out operations which are integrally related and for the exclusive benefit to the University. The University 22 (Continued)

25 has a financial benefit/burden relationship with CUCF and CUCF is fiscally dependent on the University, and therefore, the financial activity related to CUCF is included in the accompanying basic financial statements. (c) Discretely Presented Component Units The majority of the University s colleges maintain auxiliary services, association organizations and child care centers. These entities are campus-based, not-for-profit corporations, which operate, manage, and promote educationally related services for the benefit of the campus community. Separate financial statements are issued for each of these organizations and may be obtained from the individual colleges. Almost all of the University s colleges also maintain foundations, which are legally separate, nonprofit, affiliated organizations that receive and hold economic resources that are significant to, and that are entirely for the benefit of the colleges. Foundations carry out a variety of campus related activities such as soliciting and accepting donations, gifts, and bequests for University-related use and in some instances administering grants from governmental and private foundations for research and scholarships. Copies of the audit reports can be obtained by sending an inquiry to The City University of New York, Office of the University Controller, 230 West 41st Street, 5th floor, New York, New York As a result, the combined totals of the campus related auxiliary services corporations, associations, child care centers and foundations are separately presented as discretely presented component units in the University s financial statements in accordance with presentation requirements prescribed by GASB. Under GASB Statement No. 39, legally separate organizations meeting certain criteria should be discretely presented as component units. The criteria are: 1. The economic resources received or held by the separate organization are entirely or almost entirely for the direct benefit of the University/college, its component units or its constituents (e.g., students, faculty, and staff). 2. The University/college, or its component units, is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the separate organization. 3. The economic resources received or held by an individual organization that the University/college, or its component units, is entitled to, or has the ability to otherwise access, are significant to the University. Each of the 22 foundations, 18 Auxiliary Enterprise Corporations, 23 Student Association Organizations, and 10 Child Care Centers listed below met these criteria, and are, therefore, discretely presented in the University s basic financial statements. All of the discretely presented component units (which are collectively called Supporting Organizations) listed below are June 30 year-ends. 23 (Continued)

26 Foundations Senior College Foundations: The Baruch College Fund The Brooklyn College Foundation, Inc. The City College 21st Century Foundation, Inc. The City College Fund The City University School of Law Foundation, Inc. The Graduate Center Foundation, Inc. The Hunter College Foundation, Inc. John Jay College Foundation, Inc. Herbert H. Lehman College Foundation, Inc. Macaulay Honors College Foundation Medgar Evers Educational Foundation, Inc. New York City College of Technology Foundation, Inc. Queens College Foundation, Inc. The College of Staten Island Foundation, Inc. School of Professional Studies Foundation, Inc. York College Foundation Community College Foundations: Borough of Manhattan Community College Foundation, Inc. Bronx Community College Foundation, Inc. Eugenio María de Hostos Community College Foundation Kingsborough Community College Foundation, Inc. Fiorello H. LaGuardia Community College Foundation, Inc. Queensborough Community College Fund, Inc. Auxiliary Enterprise Corporations Senior College Auxiliary Corporations: Bernard M. Baruch College Auxiliary Enterprises Corporation Brooklyn College Auxiliary Enterprise Corporation 24 (Continued)

27 The City College Auxiliary Enterprises Corporation Auxiliary Enterprises of the City University of New York Graduate School and University Fiduciary Accounts Hunter College Auxiliary Enterprises Corporation John Jay College of Criminal Justice Auxiliary Services Corporation, Inc. Herbert H. Lehman College Auxiliary Enterprises Corporation, Inc. Medgar Evers College Auxiliary Enterprises Corporation Auxiliary Enterprise Board of New York City College of Technology, Inc. Queens College Auxiliary Enterprises Association The College of Staten Island Auxiliary Services Corporation, Inc. and Subsidiary York College Auxiliary Enterprises Corporation Community College Auxiliary Corporations: Borough of Manhattan Community College Auxiliary Enterprise Corporation Bronx Community College Auxiliary Enterprises Corporation Eugenio Maria De Hostos Community College Auxiliary Enterprises Corporation Kingsborough Community College Auxiliary Enterprises Corporation Fiorello H. LaGuardia Community College Auxiliary Enterprises Corporation Queensborough Community College Auxiliary Enterprise Association, Inc. Student Association Organizations Senior College Association Organizations: Bernard M. Baruch College Association, Inc. Brooklyn College Student Services Corporation Brooklyn College Central Depository and Brooklyn College Athletics and Recreation Association College of Staten Island Association, Inc. The City College Student Services Corporation Doctoral and Graduate Students Council of the City University of New York Graduate School and University Center Fiduciary Accounts Undergraduate and Graduate Student Government of Hunter College of the City University of New York John Jay College of Criminal Justice Student Activities Association, Inc. 25 (Continued)

28 CUNY School of Law Student Association, Inc. Herbert H. Lehman College Association for Campus Activities, Inc. Medgar Evers College Student Faculty Association, Inc. College Association of the New York City College of Technology, Inc. Queens College Association Queens College Athletic and Recreational Funds Queens College Student Services Corporation SOJ Graduate Council York College Association, Inc. Community College Association Organizations: Borough of Manhattan Community College Association, Inc. Bronx Community College Association, Inc. Eugenio Maria De Hostos Community College Association, Inc. Kingsborough Community College Association, Inc. Fiorello H. LaGuardia Community College Association, Inc. Queensborough Community College Student Activity Association Child Care Centers Senior College Child Care Centers: Baruch College Early Learning Center, Inc. Brooklyn College Child Care Services, Inc. City College Child Development Center, Inc. The Children s Learning Center at Hunter College, Inc. Ella Baker/Charles Romain Child Development Center of Medgar Evers College Child Development Center at Queens College, Inc. York College Child and Family Center, Inc. Community College Child Care Centers: Borough of Manhattan Community College Early Childhood Center, Inc. Hostos Community College Children s Center, Inc. Fiorello H. LaGuardia Community College Early Childhood Learning Center Programs, Inc. 26 (Continued)

29 The above organizations are discretely presented to allow the financial statement users to distinguish between the University and the supporting organizations. None of the supporting organizations are considered individually significant compared to the University and the total discretely presented component units. All significant inter-entity transactions have been eliminated. (2) Summary of Significant Accounting Policies In addition to GASB Statement Nos. 14, 39, and 61, which were discussed previously, the significant accounting policies followed by the University are described below: (a) Measurement Focus and Basis of Accounting For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University s basic financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America, as promulgated by the GASB. Revenues are recognized in the accounting period in which they are earned and become measurable; expenses are recognized when incurred, if measurable. GASB Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments (GASB 34), establishes financial reporting requirements that require the basic financial statements and required supplementary information (RSI) for general purpose governments should consist of: management s discussion and analysis, basic financial statements, and required supplementary information. GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities an amendment of GASB Statement No. 34 (GASB 35), establishes accounting and financial reporting standards for public colleges and universities within the financial reporting guidelines of GASB 34. In accordance with this statement, the University presents statements of net position, revenues, expenses, and changes in net position, and cash flows on a University-wide basis. The objective of this statement is to enhance the understandability and usefulness of the external financial reports issued by public colleges and universities. (b) New Accounting Standards Adopted In fiscal year 2013, the University adopted two new accounting standards as follows: GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements (GASB 60), requires governments to account for and disclose any service concession arrangements (SCA). The purpose of this statement is to establish reporting standards for SCAs and to differentiate between SCAs and other contractual service or management agreements with third parties. There was no impact on the University s financial statements as a result of the adoption of GASB 60. GASB 61 modifies certain requirements for inclusion of component units in the financial reporting entity. This Statement also amends the criteria for reporting component units as if they were part of the primary government (that is, blending) in certain circumstances. For component units that currently are blended based on the substantively the same governing body criterion, it additionally requires that (1) the primary government and the component unit have a financial benefit or burden 27 (Continued)