THE CITY UNIVERSITY OF NEW YORK. Basic Financial Statements and Management s Discussion and Analysis. June 30, 2014

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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 15 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 25 of the 74 discretely presented component units, which represent approximately 92%, 92% and 69%, 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 25 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, 2014, 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 Matter Required Supplementary Information U.S. generally accepted accounting principles require that the management s discussion and analysis on pages 3 through 14 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. November 18,

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, a School of Professional Studies, a 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-three (23) 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 2014 and 2013) For fiscal year 2014, the State of New York appropriated $1.366 billion for CUNY. The increase of $38 million is the operating budget support for the senior and community colleges over the fiscal year 2013 level. For the community colleges, fiscal year 2014 State base aid per full-time equivalent (FTE) student increased by $150, resulting in an operating budget increase of $12.3 million. In fiscal year 2013, the State of New York appropriated $1.328 billion for CUNY. Two new science research buildings- one for The City College of New York science research program and a CUNY-wide Advanced Science Research Center (ASRC) that will serve scientists from throughout the City University system- called the Matthew Goldstein Science Complex at the City College of New York, will yield nearly 400,000 square feet for state-of-the-art laboratories and offices, imaging facilities, Electron Microscopy vivarium, as well as a café and lecture hall. The buildings will form a research hub that will provide outstanding opportunities for faculty and science students, and is expected to open in fiscal year During fiscal year 2014, the University implemented GASB Statement No. 70, Accounting and Financial Reporting for Non-Exchange Financial Guarantees (GASB 70). For further details, please see New Accounting Standards Adopted in note 2 of the financial statements. 3 (Continued)

6 Management s Discussion and Analysis (Unaudited) Financial Position An institution s net position (assets plus deferred outflows of resources less liabilities and deferred inflows of resources equals net position) is 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 decreased by $15.6 million, (2.0%), between fiscal years 2014 and The 2014 fiscal year variance was primarily due to the following: (i) a $73.1 million decrease in unrestricted net position mainly due to an increase in OPEB liability of $57.4 million, (ii) a $19.1 million increase in net investment in capital assets mainly due to paying down debt and capitalizing more capital assets and, (iii) a $36.7 million increase in restricted expendable net position mainly due to increases in scholarships and debt service. The major components of the University s net position at and 2013 follow: (in thousands) Net position: Net investment in capital assets $ 441, ,502 Restricted nonexpendable 64,240 62,528 Restricted expendable 305, ,949 Unrestricted (52,206) 20,927 Total net position $ 759, ,906 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, and 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. 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 ,544 29, , ,603 18, , ,671 30, , ,383 19, , ,863 32, , ,783 20, , ,211 33, , ,213 20, , ,681 33, , ,080 20, ,603 4 (Continued)

7 Management s Discussion and Analysis (Unaudited) The University s first year admissions and transfers for fiscal year 2014 showed a 2% increase over fiscal year In fiscal year 2014 first year and transfer students totaled 66,784 (undergraduate 58,486 and graduate 8,298) compared to 65,421 (undergraduate 57,299 and graduate 8,122) in fiscal year The retention rate for fiscal year 2014 was 86.6% for the senior colleges and 67.2% for the community colleges which is consistent with fiscal year Assets and Deferred Outflows of Resources At, the University s total assets and deferred outflows increased by $396.5 million, (5.5%). The variance was primarily attributable to increases in cash and cash equivalents, investments, restricted deposits held by bond trustees and net capital assets. The major components of the University s assets and deferred outflows of resources at and 2013 follow: (in thousands) Assets: Cash and cash equivalents $ 720, ,058 Investments 311, ,124 Restricted deposits held by bond trustees 427, ,814 Restricted amounts held by DASNY 56,153 50,370 Receivables, net 647, ,863 Capital assets, net 5,213,175 4,920,008 Prepaid expenses and other assets 49,530 43,611 Total assets 7,425,380 7,014,848 Deferred outflows of resources: Interest rate swap agreements 73,431 74,711 Deferred amount on debt refunding 64,679 77,425 Total deferred outflows of resources 138, ,136 Total assets and deferred outflows of resources $ 7,563,490 7,166,984 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 $46.5 million between fiscal year 2014 and fiscal year 2013 primarily due to the timing of the New York State grant payments of $64.0 million, and an increase in cash at RF-CUNY of $6.9 million. Investments are composed of debt and equity securities and certain other investments. The balance increased by $40.9 million between fiscal year 2014 and fiscal year 2013 due to the net gains in investments. 5 (Continued)

8 Management s Discussion and Analysis (Unaudited) Restricted deposits held by bond trustees increased due to bonds issued in fiscal year 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. Capital assets increased by $293.2 million primarily due to capital asset additions of $533 million offset by depreciation and amortization expense of $243.3 million. The most significant addition in fiscal year 2014 is the ASRC, which is scheduled to be occupied during fiscal year Liabilities At, the University s total liabilities increased by $412.1 million, (6.4%), between fiscal years 2014 and The variance was primarily attributable to increases in long-term debt and OPEB liability. The following summarizes the liabilities at and 2013: (in thousands) Liabilities: Accounts payable and accrued expenses $ 641, ,454 Compensated absences 128, ,551 OPEB liability 523, ,181 Unearned tuition and fees revenue 75,924 73,270 Accrued interest payable 83,944 80,940 Long-term debt 5,034,503 4,753,923 Unearned grant revenue 100,893 74,432 Federal refundable loans 29,097 28,667 Interest rate swap agreements 73,431 74,711 Other liabilities 113,146 99,949 Total liabilities $ 6,804,194 6,392,078 The most significant fluctuations are discussed below: OPEB Liability increased by $57.4 million, (12.3%), between fiscal years 2014 and The 2014 increase was comprised of annual OPEB cost of $100 million, offset by payments made during the fiscal year of $32.7 million. Additionally, the OPEB liability at RF-CUNY decreased by $10 million due to an increase in the discount rate from 4.20% to 4.65%. Long-Term Debt increased by $280.6 million, (5.9%), between fiscal years 2014 and The 2014 variance is primarily due to DASNY issuing new debt of $613.5 million offset by $327.9 million in debt service payments and bond refundings. Additionally, a component unit of the University entered into a new mortgage loan for $70 million, a portion of which was used to pay the outstanding mortgage of $56.4 million. 6 (Continued)

9 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 included in operating activities, are presented as nonoperating revenues as prescribed by GASB. The major components of revenues are presented below: Revenues 2014 Revenues Capital appropriations $489,624 11% Investment return $30,469 1% Other revenues $54,342 1% New York City appropriations $327,023 8% Tuition and fees $776,241 18% New York State appropriations $1,366,001 32% Gifts, grants and contracts $1,262,974 29% 7 (Continued)

10 Management s Discussion and Analysis (Unaudited) 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) The University s revenues for the fiscal years ended and 2013 are presented below: (in thousands) Revenues: Operating revenues: Tuition and fees, net $ 776, ,167 Grants and contracts 1,250,108 1,213,512 Auxiliary enterprises 5,436 4,124 Other operating revenues 49,762 41,899 Total operating revenues 2,081,547 2,041,702 Nonoperating and other revenues: New York State appropriations 1,366,001 1,328,034 New York City appropriations 327, ,963 Capital appropriations 489, ,296 Investment income, net 3,057 3,493 Net appreciation in fair value of investments 27,412 12,172 Gain on sale of capital assets 50,382 Transfer (from) to University (856) 6,078 Gifts and grants 12,866 35,288 Total nonoperating and other revenues 2,225,127 2,271,706 Total revenues $ 4,306,674 4,313,408 The University s total revenues for fiscal year 2014 was $4.31 billion, which represents a decrease of $6.7 million, (0.2%) from the prior year. New York State appropriations accounted for 32% of revenues generated by the University, followed by gifts, grants, and contracts at 29%, tuition and fees at 18%, capital appropriations at 11%, and New York City appropriations at 8%. The most significant fluctuations are discussed below: New York State Appropriations increased by $38 million, (2.9%), between fiscal years 2014 and This amount is mainly comprised of $18 million in State aid for the senior colleges and, $21 million in State aid for the community colleges. Gain on Sale of Capital Assets was $50.4 million in fiscal year 2013 from the sale of a property. 9 (Continued)

12 Management s Discussion and Analysis (Unaudited) Expenses 2014 Expenses Scholarships and fellowships $326,801 8% Depreciation and amortization $243,337 6% OPEB expense $89,698 2% Other non-operating expense $198,171 5% Instruction $1,705,944 39% Operation and maintenance of plant $492,112 11% Institutional support $590,518 14% Student services $315,557 7% Other operating expense $167,235 4% Academic support $192,911 4% 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% 10 (Continued)

13 Management s Discussion and Analysis (Unaudited) The University s expenses for the fiscal years ended and 2013 are presented below: (in thousands) Expenses: Operating expenses: Instruction $ 1,705,944 1,639,478 Research 115, ,720 Public service 46,846 36,663 Academic support 192, ,632 Student services 315, ,283 Institutional support 590, ,557 Operation and maintenance of plant 492, ,120 Scholarships and fellowships 326, ,325 Auxiliary enterprises 4,621 3,330 Depreciation and amortization expense 243, ,112 OPEB expense 89,698 73,129 Total operating expenses 4,124,113 3,977,349 Nonoperating expenses: Interest expense 196, ,355 Other nonoperating expenses (revenues) 1,505 (2,789) Total nonoperating expenses 198, ,566 Total expenses $ 4,322,284 4,173,915 Total expenses for fiscal year 2014 were $4.322 billion, which reflected an increase of $148.4 million, (3.6%), 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 2014 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 fluctuation is discussed below: Instruction expenses increased by $66.5 million, or 4.1%, between fiscal years 2014 and The increase is mainly due to the addition of 210 new full time faculty positions hired by CUNY s colleges and annual salary (i.e., step) increments as per contractual obligations and related fringe benefits. Full-time faculty at CUNY is 7,352 in fiscal year 2014, compared to 7,142 in fiscal year Increasing the full-time faculty continues to be one of the University s top priorities. 11 (Continued)

14 Management s Discussion and Analysis (Unaudited) Capital Assets At, the University had approximately $5.2 billion in capital assets, net of accumulated depreciation of $3.8 billion. Annual depreciation and amortization expense totaled $243.3 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 $490,545 $490,640 $475, 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. 12 (Continued)

15 Management s Discussion and Analysis (Unaudited) The following summarizes the University s long-term debt: Long-Term Debt (in thousands) $5,250,000 $5,000,000 $4,750,000 $4,500,000 $4,250,000 $4,000,000 $3,750,000 $3,500,000 $3,250,000 $5,034,503 $4,808,594 $4,753,923 $4,498,374 $4,030, Debt increased by $280.6 million, (5.9%), between fiscal years 2014 and The 2014 variance is primarily due to DASNY issuing new debt of $613.5 million offset by $327.9 million in debt service payments. Additionally, a component unit of the University entered into a new mortgage loan for $70 million a portion of which was used to pay the outstanding mortgage of $56.4 million. 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. The University is in the process of completing a $3 billion comprehensive capital campaign which is scheduled to end in fiscal year The total raised to-date is $2.7 billion. 13 (Continued)

16 Management s Discussion and Analysis (Unaudited) In 2011, the State enacted legislation authorizing the University to implement a rational tuition policy that consists of modest annual tuition increases of $300 for five years, ending in June 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 2016 and beyond. The University has opened collective bargaining negotiations with the Professional Staff Congress (PSC), which represents the faculty. The current labor agreement expired in

17 Statement of Net Position (In thousands) Discretely presented component Business-type units activities Supporting University organizations Total Assets: Current assets: Cash and cash equivalents (note 3) $ 720,523 80, ,917 Short-term investments (note 3) 19,342 69,088 88,430 Restricted deposits held by bond trustees (note 8) 182, ,787 Restricted amounts held by the Dormitory Authority of the State of New York (note 8) 56,153 56,153 Receivables, net (note 4) 617,446 50, ,823 Prepaid expenses and other current assets 17,201 4,565 21,766 Total current assets 1,613, ,424 1,817,876 Noncurrent assets: Restricted cash (note 3) 25,614 25,614 Long-term investments, unrestricted (note 3) 107,647 59, ,064 Long-term investments, restricted (note 3) 184, , ,417 Restricted deposits held by bond trustees (note 8) 244,992 9, ,974 Long-term receivables, net (note 4) 29,737 84, ,569 Capital assets, net (note 5) 5,213, ,025 5,363,200 Other noncurrent assets 6,715 6,715 Total noncurrent assets 5,811, ,625 6,688,553 Total assets 7,425,380 1,081,049 8,506,429 Deferred outflows of resources: Interest rate swap agreements (note 7) 73,431 3,524 76,955 Deferred amount on debt refundings 64,679 1,644 66,323 Total deferred outflows of resources 138,110 5, ,278 Liabilities: Current liabilities: Accounts payable and accrued expenses (note 6) 641,367 16, ,086 Compensated absences (note 7) 96, ,759 Unearned tuition and fees revenue 75,924 2,810 78,734 Accrued interest payable 83,944 83,944 Current portion of long-term debt (note 7) 228,604 1, ,489 Unearned grant revenue 100, ,959 Other current liabilities 43,052 4,307 47,359 Deposits held in custody for others 53,918 2,597 56,515 Total current liabilities 1,324,144 28,701 1,352,845 Noncurrent liabilities (note 7): Compensated absences 31,851 31,851 OPEB liability (note 10) 523, ,596 Long-term debt 4,805, ,624 4,952,523 Federal refundable loans 29,097 29,097 Interest rate swap agreements 73,431 5,552 78,983 Other noncurrent liabilities 16,176 1,804 17,980 Total noncurrent liabilities 5,480, ,980 5,634,030 Total liabilities 6,804, ,681 6,986,875 Net position: Net investment in capital assets 441,610 5, ,378 Restricted: Nonexpendable 64, , ,666 Expendable: Debt service 91,245 91,245 Scholarships and general educational support 126, , ,139 Loans 13, ,153 Other 74,291 47, ,911 Unrestricted (52,206) 152, ,340 Total net position $ 759, ,536 1,662,832 See accompanying notes to financial statements. 15

18 Statement of Revenues, Expenses, and Changes in Net Position Year ended (In thousands) Discretely presented component Business-type units activities Supporting University organizations Eliminations Total Revenues: Operating revenues: Tuition and fees (net of allowance of $720,302) $ 776,241 33,467 (309) 809,399 Grants and contracts: Federal 727,460 2,665 (87) 730,038 New York State 350,413 2,508 (389) 352,532 New York City 64,640 1,785 (560) 65,865 Private 107, ,828 Total grants and contracts 1,250,108 7,191 (1,036) 1,256,263 Sales and services of auxiliary enterprises 5,436 29,248 (28) 34,656 Other operating revenues 49,762 41,654 (13,630) 77,786 Total operating revenues 2,081, ,560 (15,003) 2,178,104 Expenses: Operating expenses: Instruction 1,705,944 1,705,944 Research 115, ,768 Public service 46, (162) 46,788 Academic support 192,911 64, ,999 Student services 315,557 41,072 (7,193) 349,436 Institutional support 590,518 21,295 (181) 611,632 Operation and maintenance of plant 492, ,239 Scholarships and fellowships 326,801 16,499 (89) 343,211 Auxiliary enterprises 4,621 46,497 (7,553) 43,565 Depreciation and amortization expense 243,337 6, ,500 OPEB expense (note 10) 89,698 89,698 Total operating expenses 4,124, ,845 (15,178) 4,304,780 Operating loss (2,042,566) (84,285) 175 (2,126,676) Nonoperating revenues (expenses): Government appropriations/transfers: New York State 1,366, (175) 1,366,001 New York City 327, ,033 Gifts and grants 12, , ,343 Investment income, net 3,057 20,059 23,116 Interest expense (196,666) (5,202) (201,868) Net appreciation in fair value of investments 27,412 67,067 94,479 Other nonoperating (expenses) revenues, net (1,505) 3,858 2,353 Net nonoperating revenues, net 1,538, ,553 (175) 1,743,457 (Loss) income before other revenues (504,487) 121,268 (383,219) Capital appropriations 489, ,624 Additions to permanent endowments Transfer (from University) to Foundation (856) 856 Total other revenues 488, ,733 (Decrease) increase in net position (15,610) 122, ,514 Net position at beginning of year 774, ,412 1,556,318 Net position at end of year $ 759, ,536 1,662,832 See accompanying notes to financial statements. 16

19 Statement of Cash Flows Year ended (In thousands) 17 Business-type activities University Cash flows from operating activities: Collection of tuition and fees $ 831,717 Collection of grants and contracts 1,256,687 Collection of loans from students 7,053 Sales and services of auxiliary enterprises 5,436 Collection of other operating revenues 55,688 Payments to suppliers (253,097) Payments for utilities (70,925) Payments to employees (2,187,579) Payments for benefits (933,379) Payments for scholarships and fellowships (326,801) Payments for OPEB (32,281) Loans issued to students (4,170) Net cash flows used by operating activities (1,651,651) Cash flows from noncapital financing activities: New York State and New York City appropriations/transfers 1,684,566 Gifts and grants for other than capital purposes 12,757 Private gifts for endowment purposes 109 Decrease in deposits held in custody for others 6,076 Payment to third parties 3,387 Net cash flows provided by noncapital financing activities 1,706,895 Cash flows from capital and related financing activities: Proceeds from capital debt 684,750 Capital appropriations 489,624 Purchases of capital assets (525,630) Principal paid on capital debt (268,747) Principal amount refunded (120,790) Interest paid on capital debt (195,966) Amounts paid for bond issuance costs (7,618) Decrease in restricted deposits held by bond trustees (51,965) Increase in restricted amounts held by the Dormitory Authority of the State of New York (5,782) Net cash flows used by capital and related financing activities (2,124) Cash flows from investing activities: Investment income 3,057 Proceeds from sales and maturities of investments 257,939 Purchases of investments (271,644) Increase in restricted cash 3,993 Net cash flows used by investing activities (6,655) Increase in cash and cash equivalents 46,465 Cash and cash equivalents at beginning of year 674,058 Cash and cash equivalents at end of year $ 720,523 (Continued)

20 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 $ (2,042,566) Adjustments to reconcile operating loss to net cash flows used by operating activities: Depreciation and amortization expense 243,337 Bad debt expense 987 Change in operating assets and liabilities: Receivables 40,761 Prepaid expenses and other assets (7,017) Accounts payable and accrued expenses 14,452 Unearned tuition and fees revenue 2,654 Compensated absences 4,742 OPEB liability 57,417 Unearned grant revenue 26,461 Other liabilities 7,121 Net cash flows used by operating activities $ (1,651,651) Noncash transactions: Net appreciation in fair value of investments $ 27,412 See accompanying notes to financial statements. 18

21 (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 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 are based primarily on fiscal dependency and a relationship of financial benefit/burden. 19 (Continued)

22 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 has 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 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. 20 (Continued)

23 (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, Determining Certain Organizations are Component Units, (GASB 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 23 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 30th year-ends. 21 (Continued)

24 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. CUNY TV Foundation 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. 22 (Continued)

25 Auxiliary Enterprise Corporations Senior College Auxiliary Corporations: Bernard M. Baruch College Auxiliary Enterprises Corporation Brooklyn College Auxiliary Enterprise Corporation 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. 23 (Continued)

26 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. 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 Queens College Special Projects Fund 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 24 (Continued)

27 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. 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 aggregate discretely presented component units. All significant inter-entity transactions have been eliminated. (2) Summary of Significant Accounting Policies In addition to GASB Statement Nos. 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 U.S. generally accepted accounting principles (GAAP), 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. 25 (Continued)

28 (b) New Accounting Standards Adopted In fiscal year 2014, the University adopted one new accounting standard as follows: GASB Statement No. 70, Accounting and Financial Reporting for Non-Exchange Financial Guarantees (GASB 70) requires some governments that extend financial guarantees for the obligations of another government, a not-for-profit entity, or a private entity without directly receiving equal or approximately equal value in exchange (a nonexchange transaction) to record a liability for the guarantee. As a part of this nonexchange financial guarantee, a government commits to indemnify the holder of the obligation if the entity that issued the obligation does not fulfill its payment requirements. Also, some governments issue obligations that are guaranteed by other entities in a nonexchange transaction. There was no impact on the University s financial statements as a result of the adoption of GASB 70. (c) (d) (e) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. Cash Equivalents Cash equivalents are composed of highly liquid assets with original maturities of 90 days or less, and include overnight repurchase agreements, commercial paper, and money market accounts. Investments and Restricted Deposits Held by Bond Trustees Debt and equity securities and certain other investments with readily determinable fair values are required to be reported at fair value. Accordingly, the University s investments and restricted deposits held by bond trustees are reported at fair value, which is based upon values provided by the University s custodian or current market quotations and assessed by the University for reasonableness, in the accompanying statement of net position. Nonmarketable investments such as hedge funds or other investment funds are carried at estimated fair value based on the net asset values reported by the fund managers. All investment income, including changes in the fair value of investments, is recognized as gain (loss) in the accompanying statement of revenues, expenses, and changes in net position. If a derivative s hedge is effective in significantly reducing an identified risk of rising or falling cash flows or fair values, then its fair value changes are deferred on the statement of net position until the hedged transaction occurs or the derivative ceases to be effective. If a derivative hedge is not effective in reducing an identified risk of rising or falling cash flows or fair values, then the change in the fair value is reported as investment income or loss on the statement of revenues, expenses, and changes in net position. 26 (Continued)