Annual Financial Report 2003
w w w. s u n y. e d u
THE STATE UNIVERSITY of NEW YORK
Board of Trustees Thomas F. Egan, Chairman Randy A. Daniels, Vice Chairman Steven L. Alfasi Aminy I. Audi Edward F. Cox John J. Cremins Candace de Russy Gordon R. Gross Stephanie A. Gross Daniel J. Hogarty, Jr. Lou Howard Pamela R. Jacobs Celine R. Paquette Ronald B. Stafford Patricia Elliott Stevens Harvey F. Wachsman
Senior Management Robert L. King Chancellor Andrea E. Benshoff Special Assistant to the Chancellor R. Wayne Diesel Vice Chancellor for Business and Industry Relations D. Andrew Edwards, Jr. University Counsel John J. O’Connor Vice Chancellor and Secretary of the University Preston Pulliams Vice Chancellor for Community Colleges David M. Richter Vice Chancellor and Chief Financial Officer Peter D. Salins Provost and Vice Chancellor for Academic Affairs Brian T. Stenson Vice Chancellor for Finance and Business Michael C. Trunzo Senior Associate Vice Chancellor for State Relations Kevin O’Donoghue University Auditor Patrick J. Wiater University Controller
Message from the Chancellor New York State and the State University have encountered immense fiscal challenges in the wake of September 11, 2001 and the national economic downturn. Despite these challenges, the State University of New York completed the 2002-03 fiscal year in stable financial condition. Governor Pataki has reaffirmed his commitment to public higher education by providing the necessary State support for our campuses and continuing the State’s investment in research and economic development through New York’s Centers of Excellence. Importantly, we are on track to fulfill the objectives I outlined in December 2000 to move the State University of New York into the front ranks of public higher education. The information presented in the accompanying Annual Financial Report provides an overview of the State University of New York’s financial condition and operating results for the year ended June 30, 2003. Enrollment at the State University of New York’s campuses continues to grow and is expected to top 410,000 this fall, marking seven straight years of growth. I am pleased to report that as our enrollment has grown, our campuses are becoming more selective, attracting an increasing number of top high school graduates, our firstyear retention rates continue to improve and State University of New York students continue to graduate at rates higher than the national average. The annual undergraduate tuition for State residents at State-operated four-year colleges was increased beginning in the fall of 2003 to $4,350 from $3,400. This tuition level is the lowest of any public college system in the Northeast. A continuing challenge of the State University will be its ability to provide its faculty and staff with the resources necessary to enable them to improve the quality of education provided to its students, given anticipated enrollment increases and continued fiscal pressures on the State budget. Sponsored research and program revenue in the 2003 fiscal year jumped over $77 million, hitting an all-time high of over $771 million. The State University’s research funding has increased each year for the last seven years. This research leads to new discoveries and new patents, resulting in new products and services that improve the economy of New York. The State University continues to be a strong player in technology commercialization. In fiscal year 2003, it signed 33 licensing deals or options with businesses and was also awarded 51 patents by the U.S. Patent Office for technologies developed by University researchers. The State University now ranks 8th in the U.S. Patent and Trademark Office’s latest top 10 ranking of patent generating universities. This surge in research funding, technology commercialization, and patent awards is a result of the State University’s excellent and innovative faculty and its system-wide effort to build partnerships to attract federal, state, and private funds to the State University. More than 21,000 full- and part-time jobs statewide are supported by more than 9,000 State University research projects. The 2002-03 fiscal year represents the fifth year of the multi-year capital plan initiated by Governor Pataki, which provided funds for state-of-the-art facilities, as well as facility and infrastructure improvements to preserve and revitalize existing buildings. The funding has enhanced the State University’s ability to compete for students and faculty and provides an excellent framework for economic development for communities across the State. The fiscal pressures we expect to face in the coming years, along with the ambitious goals we have set for the State University of New York, will challenge our ability to sustain the University’s quality educational programs, fulfill our research initiatives and public service obligations. I am confident that all of us at the State University of New York will work together to meet these challenges.
Robert L. King
2003 ANNUAL FINANCIAL REPORT
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Management’s Discussion and Analysis Management’s discussion and analysis (the “MD&A”) provides a broad overview of The State University of New York’s (the “State University”) financial condition as of June 30, 2003, and its results of operations for the year then ended. Management has prepared the financial statements and related footnote disclosures along with this MD&A. The MD&A should be read in conjunction with the audited financial statements and related footnotes of the State University which directly follows the MD&A. For financial reporting purposes, the State University’s reporting entity consists of all sectors of the State University including the university centers, health science centers (including hospitals), colleges of arts and sciences, colleges of technology and agriculture, specialized colleges, and statutory colleges (located at the campuses of Cornell and Alfred Universities), but excluding community colleges. The financial statements also include the financial activity of The Research Foundation of State University of New York (the “Research Foundation”), which administers the sponsored program activity of the State University, the State University Construction Fund (the “Construction Fund”), which administers the capital program of the State University, and the auxiliary service corporations located at its campus locations. Financial Highlights At June 30, 2003, total assets reported by the State University were $8.141 billion and total liabilities were $6.987 billion. Net assets, which total $1.154 billion and represent the equity of the State University, experienced an increase of $66.6 million. The net assets at June 30, 2003 and 2002 are summarized in the following categories (in thousands): 2003 Net Assets (in thousands): Invested in capital assets, net of related debt Restricted - nonexpendable Restricted - expendable Unrestricted Total net assets
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$ 239,581 172,970 556,048 185,384 $ 1,153,983
2002
90,730 166,394 557,616 272,678 1,087,418
The change in net assets during the year was driven by operating and other supporting revenues over expenses and losses. Revenues, expenses, and the change in net assets for the 2003 fiscal year compared to the prior year are summarized as follows (in thousands): 2003 Operating revenues Nonoperating revenues Other revenues Total revenues Operating expenses Nonoperating expenses Total expenses Increase in net assets
$ 3,461,223 2,196,288 142,152 5,799,663 5,504,430 228,668 5,733,098 $ 66,565
2002 3,447,958 2,243,774 33,395 5,725,127 5,127,515 306,023 5,433,538 291,589
Total revenues reported in 2003 were $5.8 billion, an increase of $75 million compared to the prior year total of $5.725 billion. Total expenses grew $300 million to $5.733 billion. Revenue increases were experienced from grants and contracts of $107 million (including $77 million for sponsored research activities), capital gifts and grants of $108 million, net tuition and fees of $37 million, and an increase in sales and services activity of auxiliary enterprises of $29 million. These increases were offset by decreases in hospital revenue of $152 million, state appropriation revenue of $18 million, and investment income of $23 million. State University expense growth during the year was primarily the result of increases for hospital and clinic activity of $116 million, and instruction and research activity of $48 million and $50 million, respectively. Increases were also experienced in operation and maintenance of plant of $42 million, institutional support of $34 million, and auxiliary enterprises of $29 million. Overview of the Financial Statements The financial statements of the State University have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental
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Management’s Discussion and Analysis Accounting Standards Board (the “GASB”). The financial statement presentation consists of comparative balance sheets, statements of revenues, expenses, and changes in net assets, statements of cash flows, and accompanying notes for the June 30, 2003 and 2002 fiscal years. These statements provide information on the financial position of the State University and the financial activity and results of its operations during the years presented. A description of these statements follows: The Balance Sheet presents information on all of the State University’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the State University is improving or deteriorating. The Statement of Revenues, Expenses, and Changes in Net Assets presents information showing the change in the State University’s net assets during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses reported in this statement also include items that will result in cash received or disbursed in future fiscal periods (e.g., the receipt of amounts due from students and others for services rendered, or the payment accrued for compensated absences). The Statement of Cash Flows provides information on the major sources and uses of cash during the years presented. The cash flow statement portrays net cash provided or used from operating, investing, capital, and noncapital financing activities. Balance Sheet The balance sheet presents the financial position of the State University at the end of its 2003 and 2002 fiscal years. During 2002-03 fiscal year, the State University’s total assets increased $518 million, or 7 percent over the prior year, while total liabilities increased $451 million, or 7 percent. The following table reflects the financial position at June 30, 2003 and 2002 (in thousands):
2003 Current assets Capital assets, net Other noncurrent assets
$ 1,866,646 3,892,744 2,381,484
1,809,329 3,551,118 2,262,908
8,140,874
7,623,355
1,294,136 5,692,755
1,208,762 5,327,175
6,986,891
6,535,937
$ 1,153,983
1,087,418
Total assets Current liabilities Noncurrent liabilities Total liabilities Net assets
2002
Current Assets and Liabilities Current assets grew $57 million and current liabilities increased $85 million compared to the previous year. In general, current assets are those assets that are available to satisfy current liabilities, (i.e., those that will be paid within one year). Current assets at June 30, 2003 and 2002 consist primarily of cash and cash equivalents of $683 million and $538 million, short-term investments of $180 million and $115 million, and receivables (accounts, appropriations, grants, and interest) of $965 million and $1.116 billion, respectively. Cash and cash equivalents increased $144 million, primarily due to an increase in cash at the State University’s Health Science Centers (the “HSCs”) as the result of a payment of $271 million received ($208 million was in receivables at June 30, 2002) in September 2002 under the Medicaid disproportionate share (the “DSH Program”) for indigent care. Short-term investments increased $65 million, mainly due to a $46 million unexpended cash balance on a sponsored award for the International Sematech North Project. The current portion of appropriations receivable increased $22 million, primarily due to an increase in operating payables and litigation accruals of $15 million, and bond interest payable of $7 million funded by state appropriations. These increases were offset by decreases in net accounts, notes, and loans receivable of $171 million. Accounts receivable for patient services at
2003 ANNUAL FINANCIAL REPORT
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Management’s Discussion and Analysis June 30, 2003 at the HSCs decreased $187 million compared to the previous year. Payments under the DSH Program are contingent upon Federal approval of the State Medicaid plan and are generally received in September. The plan submitted by the State of New York (the “State”) for reimbursement under this program covering the last six months of the 2003 fiscal year has not yet been approved. As a result, revenue and related receivables in the current fiscal year for the DSH Program have not been recognized. In the prior year, patient accounts receivable included $208 million for amounts earned and recognized under the DSH Program through June 30, 2002 as this amount was received in September of the fiscal year 2003. Current liabilities consist principally of accounts payable and accrued expenses of $423 million, interest on debt of $281 million, deferred revenue of $174 million, and the current portion of longterm liabilities of $358 million. Increases in current liabilities were the result of an increase in accounts payable of $10 million, an increase of $46 million in deferred revenue pertaining primarily to research grants and tuition and fee amounts received and not yet earned, an increase in interest payable of $8 million and increases in the current portion of long-term liabilities of $16 million. Capital Assets, net The 2003 fiscal year represents the fifth year under the State University’s 1998-99 multi-year capital plan. Funding levels and bonding authority supporting the State University capital plan were provided to facilitate a multi-year planning and construction effort to modernize and rehabilitate facilities of the State University. Under this capital plan, $1.7 billion was earmarked for educational facilities and $250 million for residence halls. As a result of this program, capital assets, net of depreciation, increased $342 million, or 10 percent, compared to the previous year. The majority of the increase occurred at the State University campuses due to new building construction, improvements and rehabilitation totaling $276 million, primarily
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the result of building costs capitalized during the year totaling $246 million and land, land improvements, and infrastructure additions and improvements of $30 million. Equipment and library book additions of $169 million and $28 million, respectively, also contributed to the increase. In addition, the net interest cost on debt during the construction period related to capital projects is capitalized and totaled $19.1 million. Significant projects completed and capitalized during the year included a student union rehabilitation and addition at Binghamton University, an athletic stadium at the College at Cortland, a student activities center at the University at Stony Brook, renovation of an arts and sciences administrative building and rehabilitation and expansion of an academic incubator facility at the College of Technology at Farmingdale. Also, during the year an Asian Cultural and Studies Center (Wang Center) was gifted to the University at Stony Brook. Depreciation expense on capital assets for the years ended June 30, 2003 and 2002 was $229 million and $212 million, respectively. A summary of capital assets, by major classification, and related accumulated depreciation for both years is as follows (in thousands):
2003
2002
$ 208,417
194,490
434,321 4,459,624
420,842 4,229,006
1,679,925 814,531 7,596,818
1,545,601 710,739 7,100,678
Less accumulated depreciation: Infrastructure and land improvements 278,830 Buildings 2,257,454 Equipment and library books 1,167,790 Total accumulated depreciation 3,704,074
269,654 2,167,863 1,112,043
Capital assets, net
3,551,118
Land Infrastructure and land improvements Buildings Equipment, library books, and artwork Construction in progress Total capital assets
$ 3,892,744
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3,549,560
Management’s Discussion and Analysis Other Noncurrent Assets Other noncurrent assets, exclusive of capital assets, were $2.381 billion at June 30, 2003 compared to $2.263 billion in the previous year. Noncurrent assets at June 30, 2003 include deposits with trustees of $1.288 billion, long-term investments of $816 million and the noncurrent portion of receivables, deferred financing costs, and restricted cash of $277 million not expected to be received, recognized, or expended in the current year. Deposits with trustees increased $111 million, which generally represent funds available from the issuance of bonds by the Dormitory Authority of the State of New York (the “DASNY”) used to finance capital projects and establish debt service reserves for educational and residence hall facilities of the State University. Long-term investments at June 30, 2003 of $816 million represent endowment and similar funds held in separate and distinct investment pools of the State University campuses and the Cornell statutory colleges of $285 million and $351 million, respectively, and separately invested funds of $27 million. Long-term investments of the Research Foundation totaled $133 million, which includes $38 million in investments designated for its post-retirement benefit plan. Other long-term investments include investments of the statutory College of Ceramics at Alfred University of $11 million, and the auxiliary service corporations of $9 million. Long-term investments decreased by a total of $10 million or 1 percent due to the use of $13 million for spending needs and net realized and unrealized investment losses of $3 million. These decreases were offset by reinvested investment income, donations, and other additions in the 2003 fiscal year of $6 million. The noncurrent portion of receivables at June 30, 2003 consisted of notes and student loan receivables of $107 million, appropriations receivable of $81 million, and contributions receivable of $10 million. The increase in state appropriations
receivable of $18 million is due largely to expected unfavorable medical malpractice judgments against the State University hospitals funded by state appropriations when settled. Noncurrent Liabilities Noncurrent liabilities of $5.693 billion is largely comprised of debt on State University facilities, other long-term liabilities accrued for compensated absences and post-retirement benefits, and litigation, as well as an outstanding loan from the State short-term investment pool (STIP). The State University capital funding levels and bonding authority are subject to operating and capital appropriations of the State. Funding for capital construction and rehabilitation of educational and residence hall facilities of the State University is provided principally through the issuance of bonds by DASNY. The debt service for the educational facilities is provided through a direct appropriation of the State. The debt service on residence hall bonds is funded primarily from room rents. A summary of the long-term liabilities at June 30, 2003 compared to the previous year is as follows (in thousands):
2003 Educational facilities Residence hall facilities Compensated absences Loan - State STIP pool Other obligations
2002
$ 4,243,453 539,675 438,870 171,983 139,703
4,083,806 405,660 401,559 183,796 105,682
Total long-term liabilities $ 5,533,684
5,180,503
During the year, the State University entered into agreements with DASNY to issue obligations totaling $1,074.9 million in order to refinance $1,054 million of the State University’s existing educational facilities obligations for the purpose of reducing those future service payments. The refinancing resulted in an accounting loss of $14.6 million. The State University reduced its future aggregate debt service payments by $89.1 million through lower interest costs, resulting in an economic gain of $77.3 million.
2003 ANNUAL FINANCIAL REPORT
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Management’s Discussion and Analysis Prior to February 2003, a major portion of the State University’s capital program costs was financed by bonds issued by DASNY under the State University Educational Facilities Revenue Bond Program. Under this arrangement, the Construction Fund receives an annual debt service appropriation and is responsible for making semiannual debt service payments to DASNY. As of February 2003, bonds issued in support of programs for the State University are now sold under a new State financing program where bonds are backed by a dedicated portion of State personal income tax (“PIT”) revenues. Debt service payments for these bonds are supported directly by the State, and the State University and the Construction Fund receive no appropriation authority for debt service on these bonds. In February 2003, PIT bonds were issued for the purpose of financing capital construction and major rehabilitation for educational facilities for the State University in the amount of $241.4 million. Also in February, $22.9 million of PIT bonds was issued for the purpose of funding capital projects, including the acquisition of equipment, which will enhance the State University’s ability to do scientific research and to encourage and promote economic development within the State. Funding for capital construction and rehabilitation of residence halls is provided from the issuance of bonds by DASNY and from reserve funds accumulated by campuses from residence halls operating revenues. In September 2002, the State University also entered into agreements with DASNY to issue obligations totaling $154.5 million for the construction and rehabilitation of residential facilities. Capital disbursements made during the year for educational and residence hall facilities using the available funds on deposit with trustees were $311 million. Interest earnings on these funds during the year were approximately $28.8 million. The State University’s credit ratings were unchanged from the previous year for educational and residence hall bonds. The credit ratings at June 30, 2003 are as follows:
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Educational Facilities Moody’s Investors Service
A3
Residence Halls A1
Standard & Poor’s
AA-
AA-
Fitch IBCA
AA-
A+
Debt service principal payments on educational and residence hall facilities obligations made during the year totaled $126.4 million and $20.9 million, respectively. The State University has entered into contracts for the construction and improvement of various projects. At March 31, 2003, these outstanding contract commitments totaled approximately $293 million. The long-term portion of compensated absence liabilities (vacation and sick), including post-retirement benefit obligations of the Research Foundation, increased $37.3 million. The majority of the compensated absence liability balance, $327 million, is accrued sick leave that is available and estimated to be converted into post-retirement health benefits for eligible employees who retire from the State University. The percentage of sick leave credits that is estimated to be used to cover these costs upon retirement increased from 57 percent to 60.6 percent during the 2003 fiscal year, contributing to the overall increase in the recorded liability. In prior years, the State University experienced operating cash-flow deficits precipitated by cashflow difficulties experienced by its three hospitals. As a result, the State University borrowed funds with interest from the short-term investment pool of the State. The amount outstanding under this borrowing at June 30, 2003 was $186.7 million. During the year, the hospitals repaid $14.7 million of these loans. Refundable government loan funds at June 30, 2003 totaled $132.1 million compared to $129 million in the previous year. These revolving loan funds are principally those of the Federal Perkins and Nursing Loan programs established with an initial and continued Federal capital contribution. Repayments of principal and interest and new
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Management’s Discussion and Analysis contributions are deposited into a revolving loan fund for continual disbursement to students. The Federal share of these loan programs is ultimately repayable to the Federal government in the unlikely event that the State University ceases to exist or withdraws from the Federal loan programs. The increase in the recorded obligation represents the Federal share contributed and related interest earnings on student loans, net of program expenses.
enrollment. For the year ended June 30, 2003, enrollment increased for the sixth consecutive year. Total undergraduate and graduate headcount increased from 199,270 in the fall of 2001 to 204,420 in the fall of 2002. Annual average fulltime equivalent students, including undergraduate and graduate, increased from 167,840 to 171,730 in the fiscal year ended June 30, 2003. Revenues (in thousands)
Statement of Revenues, Expenses, and Changes in Net Assets The statement of revenues, expenses, and changes in net assets presents the State University’s results of operations. Total operating revenues of the State University for 2003 were $3.461 billion, and remained relatively flat compared to the previous year. Nonoperating and other revenues totaled $2.338 billion, including State appropriations of $2.079 billion. Total expenses for 2003 were $5.733 billion, an increase of $300 million, or 6 percent, compared to the previous year. Revenue Overview
Other Nonoperating $259,276 Auxiliary Enterprises $494,784 State, Local, Private Grants, Contracts and Other Sources $554,228 Federal Grants and Contracts $755,549
State Appropriations for Operations $2,079,164
Hospitals and Clinics $1,003,838
Tuition and Fees $652,824
Hospitals
Revenues (in thousands): 2003 Tuition and fees, net $ 652,824 Hospitals and clinics 1,003,838 Federal grants and contracts 755,549 State, local, and private grants and contracts and other sources 554,228 Auxiliary enterprises 494,784 Operating revenues 3,461,223 State appropriations 2,079,164 Other nonoperating 259,276 Nonoperating and other revenues 2,338,440 Total revenue $ 5,799,663
2002 615,446 1,156,335 699,336 511,382 465,459 3,447,958 2,096,748 180,421 2,277,169 5,725,127
Tuition and Fees Tuition and fee revenue for the 2003 fiscal year, net of scholarship allowances provided to students of $245 million, was $653 million, an increase of $37 million, or 6 percent over the previous year. This growth was largely due to an increase in
The State University has three hospitals (each with academic medical centers) under its jurisdiction - the State University hospitals at Brooklyn, Stony Brook, and Syracuse. A supplement to the patient service revenue stream of the hospitals comes from the Medicaid DSH Program. The DSH Program is designed to help support “safety net” hospitals that serve large numbers of Medicaid and uninsured patients. As noted above, payments under the DSH Program are contingent upon federal approval of the State Medicaid plan. Because approval was not yet received covering the last six months of the State University’s 2003 fiscal year, revenue under the DSH Program has not yet been recognized. As a result, hospital and clinic revenue declined $152 million compared to the previous year. In the current year, the State University recorded revenue of $64 million under the DSH Program compared to $278 million in the prior year. This decrease was offset partly by an increase in revenue from outpatient and inpatient visits at the three University hospitals.
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Management’s Discussion and Analysis Sponsored Research, Grant and Contract Revenue During the 2003 fiscal year, the State University continued to increase its volume of sponsored program activity. Total revenue from federal, state, local and private grants and contracts administered by the Research Foundation was $634 million for the fiscal year ended June 30, 2003. This represents a $64.3 million increase in sponsored program revenue from the prior year total of $569.7 million. Facilities and administrative recoveries earned on grants and contracts administered by the Research Foundation were $109 million for the fiscal period ending June 30, 2003, an increase of 12.5 percent compared to the prior year. The volume of research and other sponsored programs reported by the statutory colleges at Cornell and Alfred Universities was $131.3 million and $5.6 million, respectively. Revenue from projects sponsored by the federal government and administered by the Research Foundation totaled $334 million. This represents an increase of over 11 percent compared to the prior year. Of these federally sponsored projects, 55 percent of the funding was received from the Public Health Service. Other major federal sponsors include the National Science Foundation, and the Departments of Education, Defense and Energy. Revenue from non-federal sponsors (including federal flow-through funds) administered by the Research Foundation totaled $300 million, an increase of $30.6 million compared to the prior year. The largest non-federal support of sponsored research programs was received from the State’s Office of Children and Family Services. Federal grants under the Pell and other federal student aid programs also increased $13 million over the previous year. Amounts received under the State’s Tuition Assistance Program increased $2 million over the previous fiscal year and revenue from other sources decreased $8 million due to a one-time payment received in the prior year. Auxiliary Enterprises The State University’s auxiliary enterprise activity is comprised of sales and service for residence halls, food service, campus store operations, intercolle-
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giate athletics, student health services, parking, and other activities. The residence halls are owned, operated and managed by the State University and its campuses. Generally, dining services, bookstore operations and other services are operated and managed by separately incorporated not-for-profit organizations, commonly referred to as Auxiliary Services Corporations. The residence hall operations and capital programs are financially self-sufficient. Each campus is responsible for the operation of its residence halls program including setting room rates and covering operating, maintenance, capital and debt service costs. Any excess funds generated by residence halls operating activities are separately maintained for improvements and necessary maintenance of the residence halls. Utilization rates at the residence halls have steadily increased over the past four years, from 93 percent in the fall of 1998 to 97 percent in the fall of 2002; occupancy has risen steadily to 61,134, an increase of over 4,700 students since the fall of 1998 and an increase of over 700 students compared to the previous year. Auxiliary enterprise sales and services revenue in the 2003 fiscal year increased $29 million, or 6 percent, over the previous year. This increase was primarily driven by residence halls operating revenue totaling $210 million, which grew $10 million, or 5 percent, largely due to increases in occupancy levels and modest increases in room rates. Food service revenue also experienced a $6 million, or 5 percent, increase as compared to the previous year. Other auxiliary revenue rose $13 million, primarily due to an increase in intercollegiate athletics and student health services revenue. Food service operations generated $135 million in revenue in fiscal year 2003. In addition to residence halls and food service activities, other auxiliary revenues totaled $151 million, including bookstores of $40 million, intercollegiate athletics of $37 million, student health services of $32 million, parking revenue of $25 million and other activities of $37 million, offset by scholarship allowances provided to students of $20 million.
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Management’s Discussion and Analysis Expenses (in thousands)
State Appropriations The State University’s single largest source of revenue is State appropriations, which for financial reporting purposes are classified as nonoperating revenues. State appropriations totaled $2.079 billion and represented approximately 36 percent of total revenues in the 2003 fiscal year. State support (both direct support for operations and indirect support for debt service and fringe benefits) for State University’s campus operations, statutory colleges, and hospitals and clinics decreased by $18 million. State support for operating expenses decreased $33 million, while indirect State support for debt service, fringe benefits, and litigation accruals increased $15 million. Nonoperating and Other Revenue Nonoperating and other revenue, excluding State appropriations, increased $79 million compared to the previous year. This increase was driven by an increase of $108 million in capital gifts principally due to the donation of the Wang Building valued at $52.2 million and computer software and equipment of $59.1 million. This increase was offset by a decrease in investment income of $23 million and a decline in non-capital gifts of $6 million. Expense Overview Expenses (in thousands): 2003 Instruction Research Public service Support services Scholarships Hospitals and clinics Auxiliary enterprises Depreciation Other nonoperating Total expenses
$ 1,374,314 523,261 239,740 1,356,380 100,023 1,184,617 497,478 228,617 228,668 $ 5,733,098
2002 1,326,065 473,279 231,044 1,260,458 87,461 1,068,866 468,312 212,030 306,023 5,433,538
The increase in instruction expense of $48 million is attributable to growth in personal service expenses and related fringe benefits, primarily due
Other Nonoperating $228,668 Scholarships and Fellowships $100,023 Depreciation $228,617
Instruction $1,374,314
Support Services $1,356,380
Auxiliary Enterprises $497,478 Research $523,261
Public Service $239,740 Hospitals and Clinics $1,184,617
to an increase in the fringe benefit rate from 31.86 percent to 33.96 percent. Research expense increased by $50 million. This growth was predominately from increased sponsored research activity. Notable increases were realized in arrangements with the federally funded grants from the Public Health Service of $21 million. Cornell statutory colleges also reported increases in research expenditure activity of $9 million. Public service expense also increased by $9 million over the prior year, attributable to growth in grants and contracts administered by the Research Foundation. Support services, which include expenses for academic support, student services, institutional support, and maintenance and operation of plant increased $96 million, or 8 percent. Institutional support increased $34 million due to an increase in general administrative costs, and additional expenditures incurred to upgrade business, administrative, and other computer support systems. Student services and academic support expense increased by $10 million. Operation and maintenance of plant increased $42 million, primarily due to increases in utility costs. In the State University’s financial statements, scholarships used to satisfy student tuition and fees (residence hall, food service, etc.) are reported as an allowance (offset) to the respective revenue classification up to the amount of the student charges. The amount reported as expense represents amounts provided to the student in excess of University
2003 ANNUAL FINANCIAL REPORT
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Management’s Discussion and Analysis charges. Scholarship and fellowship expense increased $13 million over the previous year. Total scholarships and fellowships, including federal and state grant programs were $420.9 million for the fiscal year ended June 30, 2003. Of this amount, $320.9 million was classified as a scholarship allowance and $100 million was classified as an expense. Major scholarships and grants received during the year include $141.9 million from the Federal Pell program, an increase of $13 million, the State Tuition Assistance Program of $123.5 million, and University-wide and campus-based scholarships and waivers of $43.3 million and $46.9 million, respectively, an increase for both programs of $10.1 million. Expenses at the State University’s hospitals and clinics increased $116 million over the prior year, largely due to an increase in core operating expenses, primarily personal service costs, of approximately $55 million. Also contributing to the growth in expenses was an increase of $27 million in fringe benefits and $12 million in accrued expenses associated with ongoing litigation, primarily related to malpractice claims. Auxiliary enterprise expenses increased $29 million. Due to increased enrollment and occupancy, residence halls and food service expenses increased $16 million and $4 million, respectively. Other auxiliary enterprises were $171 million, an increase of $9 million over the prior year. Increases in other auxiliary expenses were primarily the result of costs associated with upgrading intercollegiate athletics programs and expenditures associated with student health services. Depreciation and amortization expense recognized in the current year totaled $229 million. The State University recognized depreciation on buildings of $100 million, equipment of $87 million, library books of $26 million, and land improvements and infrastructure of $12 million. Amortization of deferred financing costs of $4 million was also recognized. Other nonoperating expenses of $229 million for the year ended June 30, 2003 represent interest expense on capital debt of $218 million, net realized and unrealized losses on investments of $3 million, and losses on disposal of capital assets of $8 million.
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Economic Factors That Will Affect the Future The State University’s enrollment is directly influenced by State demographics, as the majority of students attending the State University are New York residents. The number of high school graduates in New York State is expected to rise over the next several years. Further, the State University’s on-campus residential living continues to be in high demand. In addition to revenues generated from enrollment, the State University’s revenue stream to support operations is significantly dependent on the level of ongoing State support. For the most recent fiscal year, State appropriations represented 36 percent of the total revenues of the State University. The State is expected to continue to face economic pressure that may affect the level of State support available to the State University. This underscores the importance of current University-wide efforts to increase other funds, including philanthropy, sponsored programs, and auxiliary revenues. Debt service on educational facilities is paid by the State in an amount sufficient to cover annual principal and interest requirements. Subject to State funding levels and bonding authority in support of its capital program, the State University will continue its efforts to modernize and enhance the academic and residential facilities for its students and faculty. The 2003-04 State budget did not include additional capital appropriation authority for the educational facilities program; however it included, on a multi-year basis, a total of $350 million in new state funding authority for hospital capital projects and $335 million for residence halls. The State University hospitals at Brooklyn, Stony Brook and Syracuse will continue to be challenged by industry deregulation and managed care. Also, their dependency on the Medicaid DSH Program revenue stream is critical to their continued viability as these hospitals serve large numbers of Medicaid and uninsured patients. Reimbursement under the Medicaid program is subject to federal and state legislation and appropriation. Federal approval of the 2003-04 Medicaid plan submitted by the State could restore all or part of the revenue decline experienced by the hospitals in 2003 – in effect, some portion of that may be viewed as a timing issue.
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Independent Auditors’ Report 515 Broadway Albany, NY 12207
The Board of Trustees State University of New York We have audited the accompanying balance sheet of The State University of New York (“the University”) as of June 30, 2003, and the related statements of revenues, expenses, and changes in net assets and cash flows for the year then ended. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year comparative information has been derived from the University’s 2002 financial statements and, in our report dated October 9, 2002, we express an unqualified opinion on those statements. We did not audit the financial statements of The Research Foundation of State University of New York, nor the State University Construction Fund, which statements reflect total assets constituting 5% and total revenues constituting 17% of the related totals. Those financial 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 Research Foundation of State University of New York and the State University Construction Fund, 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion. As discussed in Note 1, the University is included in the primary government reporting entity of the State of New York as an enterprise fund. The accompanying balance sheet, statements of revenues, expenses, and changes in net assets, and cash flows represent only the financial statements of the University and do not purport to, and do not, present fairly the financial statements of the State of New York in conformity with accounting principles generally accepted in the United States of America. In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2003, and the changes in its financial position and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The Management’s Discussion and Analysis (MD&A) on pages 2 through 10 is not a required part of the financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. October 17, 2003
KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG International, a Swiss association
2003 ANNUAL FINANCIAL REPORT
11
Balance Sheet June 30, 2003 (with comparative totals at June 30, 2002) In thousands 2003
2002
682,558 179,738 348,739 9,241 453,393 153,561 30,874 8,542 1,866,646
538,374 114,826 519,911 16,861 431,232 148,348 33,887 5,890 1,809,329
13,511 1,288,128 106,554 9,844 81,458 65,791 816,198 3,892,744 6,274,228 $ 8,140,874
13,306 1,177,557 112,307 13,302 62,964 57,182 826,290 3,551,118 5,814,026 7,623,355
423,188 280,926 11,954 21,070 173,997 357,528 25,473 1,294,136
413,476 273,080 10,979 19,941 128,345 341,196 21,745 1,208,762
5,533,684 132,060 27,011 5,692,755 6,986,891
5,180,503 128,947 17,725 5,327,175 6,535,937
239,581
90,730
40,389 68,890 63,691
39,386 58,807 68,201
259,284 61,110 85,656 19,854 130,144 185,384 1,153,983
277,818 65,604 72,566 19,489 122,139 272,678 1,087,418
$ 8,140,874
7,623,355
Assets Current Assets: Cash and cash equivalents Short-term investments Accounts, notes, and loans receivable, net Interest receivable Appropriations receivable Grants receivable Inventories Other assets Total current assets Noncurrent Assets: Restricted cash and cash equivalents Deposits with trustees Accounts, notes, and loans receivable, net Contributions receivable Appropriations receivable Deferred financing costs Long-term investments Capital assets, net Total noncurrent assets Total assets
$
Liabilities and Net Assets Current Liabilities: Accounts payable and accrued liabilities Interest payable Student deposits Deposits held in custody for others Deferred revenue Long-term liabilities-current portion Other liabilities Total current liabilities Noncurrent Liabilities: Long-term liabilities Refundable government loan funds Other liabilities Total noncurrent liabilities Total liabilities Net Assets: Invested in capital assets, net of related debt Restricted - nonexpendable: Scholarships and fellowships Instruction and departmental research General operations and other Restricted - expendable: Instruction and departmental research Scholarships and fellowships Capital projects Loans General operations and other Unrestricted Total net assets Total liabilities and net assets See accompanying notes to financial statements.
12
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Statement of Revenues, Expenses, and Changes in Net Assets For the Year Ended June 30, 2003 (with comparative totals for the year ended June 30, 2002) In thousands Operating revenues: Tuition and fees Less scholarship allowances Net tuition and fees Federal grants and contracts State grants and contracts Local grants and contracts Private grants and contracts Sales and services: University hospitals and clinics Educational activities Sales and services of auxiliary enterprises: Residence halls, net Food service, net Other, net Other sources Total operating revenues Operating expenses: Instruction Research Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships and fellowships Hospitals and clinics Auxiliary enterprises: Residence halls Food service Other Depreciation and amortization expense Other operating expenses Total operating expenses Operating loss Nonoperating revenues (expenses): State appropriations: University operations Hospitals and clinics Federal appropriations Investment income, net of investment fees Net realized and unrealized losses Gifts Interest expense on capital related debt Loss on disposal of plant assets Other nonoperating revenues, net Net nonoperating revenues Income (loss) before other revenues and gains Capital appropriations Capital gifts and grants Additions to permanent endowments Increase in net assets Net assets at the beginning of year Net assets at the end of year
$
2003
2002
897,479 (244,655) 652,824 755,549 223,725 18,460 226,050
846,716 (231,270) 615,446 699,336 196,321 17,815 203,298
1,003,838 41,259
1,156,335 41,318
209,643 134,603 150,538 44,734 3,461,223
200,136 128,197 137,126 52,630 3,447,958
1,374,314 523,261 239,740 268,043 178,444 502,287 388,694 100,023 1,184,617
1,326,065 473,279 231,044 261,912 174,647 467,832 346,987 87,461 1,068,866
188,904 137,191 171,383 228,617 18,912 5,504,430
172,772 132,815 162,725 212,030 9,080 5,127,515
(2,043,207)
(1,679,557)
1,933,518 145,646 18,769 64,772 (3,214) 31,368 (217,998) (7,456) 2,215 1,967,620
1,945,116 151,632 19,495 87,932 (69,702) 37,810 (230,004) (6,317) 1,789 1,937,751
(75,587)
258,194
21,598 116,049 4,505 66,565
19,190 7,621 6,584 291,589
1,087,418 $ 1,153,983
795,829 1,087,418
See accompanying notes to financial statements.
2003 ANNUAL FINANCIAL REPORT
13
Statement of Cash Flows For the Year Ended June 30, 2003 (with comparative totals for the year ended June 30, 2002) In thousands 2003 Cash flows from operating activities: Tuition and fees $ 662,366 Grants and contracts: Federal 767,588 State and local 315,980 Private 227,402 Hospital and clinics 1,178,999 Personal service payments (2,638,271) Other than personal service payments (1,704,052) Payments for fringe benefits (217,033) Payments for scholarships and fellowships (60,654) Loans issued to students (31,277) Collection of loans to students 28,935 Auxiliary enterprise charges: Residence halls 211,447 Food service 132,209 Other (intercollegiate athletics, bookstore, fees, and vending) 148,379 Sales and service of educational activities 43,725 Other receipts 19,761 Net cash used by operating activities (914,496)
2002 632,108 731,275 219,083 215,064 963,858 (2,485,265) (1,606,434) (193,207) (62,427) (27,120) 23,746 199,166 128,196 127,662 24,406 39,728 (1,070,161)
Cash flows from noncapital financing activities: State appropriations: Operations Debt service Federal appropriations Private gifts and grants Proceeds from short-term loans Repayment of short-term loans Direct loan receipts Direct loan disbursements Other receipts Net cash flows provided by noncapital financing activities
1,154,200 278,062 29,452 33,115 88,726 (82,478) 248,240 (248,240) 8,640 1,509,717
1,191,110 315,979 20,228 40,396 43,079 (36,975) 235,725 (235,725) 10,730 1,584,547
Cash flows from capital and related financing activities: Proceeds from capital debt Capital appropriations Capital grants and gifts received Proceeds from sale of capital assets Purchases of capital assets Payments to contractors Principal paid on capital debt and leases Interest paid on capital debt and leases Other payments Deposits with trustees Net cash used by capital and related financing activities
477,133 34,199 13,367 125 (88,303) (353,144) (182,517) (230,510) (24,520) (110,570) (464,740)
362,531 23,622 13,492 1,095 (76,652) (369,579) (187,675) (247,077) (4,967) (43,792) (529,002)
4,162,989 42,349 (4,191,430) 13,908 144,389 551,680 $ 696,069
4,699,511 72,105 (4,776,876) (5,260) (19,876) 571,556 551,680
Cash flows from investing activities: Proceeds from sales and maturities of investments Interest, dividends, and realized gains on investments Purchases of investments Net cash provided (used) by investing activities Net change in cash Cash - beginning of year Cash - end of year
(continued)
14
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Statement of Cash Flows (continued) For the Year Ended June 30, 2003 (with comparative totals for the year ended June 30, 2002) In thousands Reconciliation of net operating loss to net cash used by operating activities: Operating loss $(2,043,207) Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation expense 228,617 Bad debt expense 2,000 Fringe benefits provided by State 583,708 Litigation costs provided by State 59,097 Change in assets and liabilities: Receivables, net 142,135 Inventories 3,013 Other assets (2,652) Accounts payable, accrued expenses, and other liabilities 65,037 Deferred revenue 45,652 Student deposits 975 Deposits held for others 1,129 Net cash used by operating activities $ (914,496)
(1,679,557) 212,030 1,000 523,797 49,400 (254,578) 2,618 4,315 67,597 1,589 1,087 541 (1,070,161)
Supplemental disclosures for noncash transactions: New capital leases / debt agreements
$
32,941
14,018
Fringe benefits provided by the State
$
583,708
523,797
Litigation costs provided by the State
$
59,097
49,400
Noncash gifts
$
111,950
7,060
See accompanying notes to financial statements.
2003 ANNUAL FINANCIAL REPORT
15
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 1.Summary of Significant Accounting Policies and Basis of Presentation Reporting Entity - for financial reporting purposes, The State University of New York (the “State University”) consists of all sectors of the State University including the university centers, health science centers (including hospitals), colleges of arts and sciences, colleges of technology and agriculture, specialized colleges, statutory colleges (located at the campuses of Cornell and Alfred Universities), central services and other affiliated entities determined to be includable in the State University’s financial reporting entity. Inclusion in the entity is based primarily on the notion of financial accountability. Governmental Accounting Standards Board (the “GASB”) Statement No. 14, The Financial Reporting Entity, defines financial accountability in terms of a primary government (State University) that is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organizations if its officers appoint a voting majority of an organization’s governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. A primary government may also be financially accountable for governmental organizations that are fiscally dependent on it. The State University is included in the financial statements of the State of New York (the “State”) as an enterprise fund as the State is the primary government of the State University. The Research Foundation of State University of New York (the “Research Foundation”) is a separate not-for-profit educational corporation that operates as the fiscal administrator for the majority of the State University’s sponsored programs. The programs include research, training, and public service activities of the State-operated campuses supported by sponsored funds other than State appropriations. The activity of the Research Foundation has been included in these financial statements. All of the financial activity was derived from audited financial statements of the Research Foundation for the years ended June 30, 2003 and 2002.
16
Almost all of the State University’s campuses maintain auxiliary services corporations. These corporations are campus-based, not-for-profit corporations which, as independent contractors, operate, manage, and promote educationally related services for the benefit of the campus community. Although separate and independent legal entities, these corporations carry out operations which are integrally related to the State University and, therefore, are included in the financial statements of the State University. All of the financial data for these corporations was derived from each entity’s individual financial statements, the majority of which have a June 30 fiscal year end. The State University Construction Fund (the “Construction Fund”) is a public benefit corporation that designs, constructs, reconstructs and rehabilitates facilities of the State University pursuant to an approved master plan. Although the Construction Fund is a separate legal entity, it carries out operations which are integrally related to the State University and, therefore, the financial activity related to the Construction Fund, which administers the capital program of the State University, is included in the State University’s financial statements as of the Construction Fund’s fiscal years end of March 31, 2003 and 2002. The State statutory colleges at Cornell University and Alfred University are an integral part of, and are administered by, those universities. The statutory colleges are fiscally dependent on State appropriations through the State University. The statutory colleges financial statements of Cornell University and Alfred University for the years ended June 30, 2003 and 2002 have been included in the accompanying financial statements. The operations of certain related but independent organizations such as campus-related foundations, clinical practice management plans, alumni associations, and student associations, are not included in the accompanying financial statements as such organizations do not meet the definition for inclusion under GASB Statement No. 14. The State University also administers State financial assistance to the community colleges
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 1. Summary of Significant Accounting Policies and Basis of Presentation, continued
appropriations, nonexchange receipts, net investment income, gifts, and interest expense.
in connection with its general supervision responsibilities pursuant to State Education Law. However, since these community colleges are sponsored by local governmental entities and are included in their financial statements, the community colleges are not considered part of the State University’s financial reporting entity and, therefore, are not included in the accompanying financial statements.
Resources are classified for accounting and financial reporting purposes into the following four net asset categories:
The accompanying financial statements of the State University have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with the accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB). The State University applies all applicable pronouncements of the Financial Accounting Standards Board (FASB) issued on or before November 30, 1989 that do not conflict or contradict GASB pronouncements. The State University has elected not to apply FASB pronouncements issued after November 30, 1989. The State University reports as a special-purpose government engaged in business-type activities, as defined by GASB. Business-type activities are those that are financed in whole or in part by fees charged to external parties for goods or services. The financial statements of the State University consist of a classified balance sheet; a statement of revenues, expenses, and changes in net assets, that distinguishes between operating and nonoperating revenues and expenses; and a statement of cash flows, using the direct method of presenting cash flows from operations and other sources. The State University’s policy for defining operating activities in the statement of revenues, expenses, and changes in net assets are those that generally result from exchange transactions such as the payments received for services and payments made for the purchase of goods and services. Certain other transactions are reported as nonoperating activities and include the State University’s operating and capital appropriations from the State, federal
Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, repair or improvement of those assets. Restricted - nonexpendable: Net assets subject to externally imposed conditions that the State University must maintain them in perpetuity. Restricted - expendable: Net assets whose use is subject to externally imposed conditions that can be fulfilled by the actions of the State University or by the passage of time. Unrestricted: All other categories of net assets. Included in unrestricted net assets are amounts provided for specific use by the State University’s colleges and universities, hospitals and clinics, and separate legal entities included in the State University’s reporting entity that are designated for those entities and, therefore, not available for other purposes. The State University has adopted a policy of generally utilizing restricted - expendable funds, when available, prior to unrestricted funds. Revenues Revenues are recognized in the accounting period when earned. State appropriations are recognized when they are made legally available for expenditure. Revenues and expenditures arising from nonexchange transactions are recognized when all eligibility requirements, including time requirements, are met. Promises of private donations are recognized at fair value. Tuition and fees and auxiliary sales and services revenue are reported net of scholarship discounts and allowances. Auxiliary sales and services revenue classifications for 2003 and 2002 were reported net of the following scholarship discount and allowance amounts (in thousands):
2003 ANNUAL FINANCIAL REPORT
17
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 1. Summary of Significant Accounting Policies and Basis of Presentation, continued
2003
2002
$ 38,091
36,002
Food service
18,025
16,455
Other auxiliary
20,154
17,617
Residence halls
Cash and cash equivalents Cash and cash equivalents are defined as current operating assets that include investments with original maturities of less than 90 days, except for cash and cash equivalents held in investment pools which are included in short-term and long-term investments in the accompanying balance sheet. Investments Investments in marketable securities are stated at fair value. Investment income is recorded on the accrual basis, and purchases and sales of investment securities are reflected on a trade date basis. Any net earnings not expended are included as increases in restricted – nonexpendable net assets if the terms of the gift require that such earnings be added to the principal of a permanent endowment fund, or as increases in restricted – expendable net assets as provided for under the terms of the gift. At June 30, 2003 and 2002, the State University had $9.4 million and $8.8 million available for authorization for expenditure, respectively, $6.6 million and $6.7 million from restricted funds and $2.8 million and $2.1 million from unrestricted funds, respectively. The State University’s Board of Trustees has the responsibility of oversight for the State University’s endowment and similar funds, including the establishment of investment objectives and guidelines. The primary investment objective is to preserve the purchasing power of fund assets while providing a relatively predictable, stable, and constant stream of earnings in line with spending needs. The expenditure of available endowment and similar funds income is subject to State appropriation and may be spent at an annual rate of 5 percent increase
18
per unit value per year, subject to certain minimum and maximum spending parameters. The State University is currently authorized by its Board of Trustees to invest in domestic and international equity and fixed income securities, subject to asset allocation parameters established in the State University’s investment objectives and guidelines. The Investment Committee of the Cornell Board of Trustees establishes the investment policy of the Cornell statutory colleges. Distributions from the pool are approved by the Cornell Board of Trustees and are provided for program support independent of the cash yield and appreciation of investments in that year. Investments in the pool are stated at fair value and include limited use of derivative instruments, including leverage futures, options and other similar vehicles to manage market exposure and to enhance the total return. Capital Assets Capital assets are stated at cost, or in the case of gifts, fair value at the date of receipt. Building renovations and additions costing over $100,000 and equipment items with a unit cost of more than $5,000 are capitalized. Plant and equipment under capital leases are stated at the present value of minimum lease payments at the inception of the lease. Generally, the net interest cost on debt during the construction period related to capital projects is capitalized and totaled $19.1 million and $22.6 million during the 2003 and 2002 fiscal years, respectively. Library materials are capitalized and amortized over a ten-year period. Works of art or historical treasures that are held for public exhibition, education, or research in furtherance of public service are capitalized. Capital assets, with the exception of land, construction in progress, and inexhaustible works of art, are depreciated on a straight-line basis over their estimated useful lives, which range from 5 to 50 years. Deferred Financing Costs Deferred financing costs represent costs incurred for the issuance of bonds that are capitalized and amortized over the life of the related debt.
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 1. Summary of Significant Accounting Policies and Basis of Presentation, continued
Compensated Absences Employees accrue annual leave based primarily on the number of years employed up to a maximum rate of 21 days per year up to a maximum of 40 days. Employees also earn sick leave credits, which are considered termination payments and may be used to pay the employee’s share of postemployment health insurance. Inventories Inventories held by the State University are primarily stated at the lower of cost or market value on a first-in, first-out basis. Fringe Benefits Employee fringe benefit costs (e.g., health insurance, worker’s compensation, retirement and post-retirement benefits) are paid by the State on behalf of the State University (except for the State University hospitals which pay their own fringe benefit costs) based on a fringe benefit cost rate determined by the State. The State University records an expense and a corresponding state appropriation revenue for fringe benefit costs based on the fringe benefit cost rate applied to total eligible personal service costs incurred.
agement to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain amounts displayed in the 2002 financial statements have been reclassified to conform to the 2003 presentation. 2.Cash and Cash Equivalents Cash and cash equivalents represent State University funds held in the State treasury or local depositories, and cash held by affiliated organizations. Cash held in the State treasury beyond immediate need is pooled with other State funds for short-term investment purposes. The pooled balances are limited to legally-stipulated investments which include obligations of, or guaranteed by, the United States, obligations of the State and its political subdivisions, and repurchase agreements. These investments are reported at cost (which approximates fair value) and are held by the State’s agent in its name on behalf of the State University.
Tax Status The State University and the Construction Fund are political subdivisions of the State and, are therefore, generally exempt from federal and state income taxes under applicable federal and state statutes and regulations. The Research Foundation and campus auxiliary services corporations are not-for-profit corporations as described in Section 501(c)(3) of the Internal Revenue Service Code and are tax-exempt pursuant to Section 501(a) of the Code. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires man-
3.Investments Investments of the State University are recorded at fair value, net of investment fees of $2.6 and $2.8 million for 2003 and 2002, respectively. Investments are comprised of investments of the State University’s endowment and similar funds, the statutory colleges at Cornell University and Alfred University (“Alfred Ceramics”), the Research Foundation, the Construction Fund, and the auxiliary services corporations. Pooled investments are held in two separate and distinct investment pools - the State University’s investment pool and Cornell’s long-term investment pool. The investments of the State University’s investment pool are held by the State University’s agent in the
2003 ANNUAL FINANCIAL REPORT
19
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 3. Investments, continued
State University’s name. Disclosures required by GASB Statement No. 3 for investments are unavailable. The Research Foundation maintains a diverse investment portfolio and with respect to debt instruments, has a policy of investing in primarily high quality securities. Investments are held with the investment custodian in the Research Foundation’s name. Investments include $40.6 million and $41.8 million of investments designated for their post-retirement benefit plan for 2003 and 2002, respectively. Investments of the Construction Fund have been made in accordance with the applicable provisions of the laws of the State and the Construction Fund’s investment policy. Investments are limited to obligations of, or guaranteed by, the United States and obligations of the State and its political subdivisions. The investments of the Construction Fund are as of March 31 and consisted of United States government obligations of approximately $21.5 million and $27 million, at March 31, 2003 and 2002, respectively. These investments are held by the State’s agent in the State University’s name. The composition of investments is as follows:
20
2003
2002
State University Campuses Pooled funds: Non-equities Equities - domestic Equities - international Total pooled funds
$ 62,305 204,229 30,097 296,631
59,328 213,652 32,229 305,209
Separately invested fundsnon-equities Total invested funds
92 296,723
98 305,307
Cornell Statutory Colleges Pooled funds: Non-equities Equities - domestic Equities - international Total pooled funds
191,066 131,007 29,152 351,225
192,356 136,505 21,962 350,823
Short-term and separately invested funds: Non-equities 41,520 48,098 Equities 30,777 18,889 Total short-term and separately invested funds 72,297 66,987 Total invested funds 423,522 417,810 Alfred Ceramics Non-equities Equities Total invested funds
9,435 1,207 10,642
9,848 1,026 10,874
Research Foundation Non-equities Equities Total invested funds
138,636 68,616 207,252
76,753 71,048 147,801
Auxiliary Service Corporations Non-equities 26,760 Equities 9,511 Total invested funds 36,271
22,966 9,371 32,337
State University Construction Fund Total invested funds non-equities 21,526
26,987
Total investments
$ 995,936
941,116
Classified as short-term $ 179,738
114,826
Pooled investments of the State University campuses and the Cornell statutory colleges are described in the following paragraphs. The fair values per unit for the respective pools are not comparable, as initial unit values were determined at the inception of each pool based on the number of units. Substantially all of the investments of the State University’s endowment and similar funds are pooled on a fair value basis. Individual funds subscribe to or dispose of units on the basis of the market value per unit at the beginning of the month within which the transaction takes place. The following summarizes changes in the relationship between cost and fair value of the pooled investments of the State University’s endowment and similar funds and fair value per unit (in thousands): Gains Fair Value Cost (Losses) End of year $ 296,631 301,539 (4,908) Beginning of year 305,209 320,803 (15,594) Unrealized net gain 10,686 Realized net loss (13,895) Total net loss $ (3,209)
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Unit Value 8.01 7.94
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 3. Investments, continued
Investments of the endowment and similar funds of the Cornell statutory colleges, except for separately invested funds with a fair value of $27 million and $24.3 million at June 30, 2003 and 2002, respectively, are pooled on a fair value basis in Cornell’s long-term investment pool and living trust fund. Individual funds enter or withdraw from the pool based on each fund’s share of the fair value of the pool’s investments. The following summarizes changes in the relationship between cost and fair value of the portion of Cornell’s statutory colleges long-term investment pool and fair value per unit (in thousands): Gains Fair Value Cost (Losses) End of year $ 351,225 323,092 28,133 Beginning of year 350,823 332,222 18,601 Unrealized net gain 9,532 Realized net loss (10,293) Total net loss $ (761)
Unit Value 42.65 44.95
At June 30, accounts, notes, and loans receivable were summarized as follows (in thousands):
Net tuition and fees
2003 $ 39,425 (6,883) 32,542
6,024 (1,797) 4,227
6,255 (1,795) 4,460
283,344 (62,555) 220,789 69,859
473,456 (65,701) 407,755 72,405
327,417
503,337
Student loans 151,361 Allowance for uncollectibles (23,485) Total student loans receivable 127,876 Total, net $ 455,293
152,735 (23,854) 128,881 632,218
Other accounts receivable consist primarily of funds due to the State University from federal and state government agencies and private sources. 5.Capital Assets
4. Accounts, Notes, and Loans Receivable
Tuition and fees Allowance for uncollectibles
Room Rent Allowance for uncollectibles Net room rent Patient fees, net of contractual allowances Allowance for uncollectibles Net patient fees Other, net Total accounts and notes receivable
2002 25,275 (6,558) 18,717
Capital assets, net of accumulated depreciation, totaled $3.89 billion and $3.55 billion at fiscal year end 2003 and 2002, respectively. Capital asset activity for fiscal years 2003 and 2002 is reflected in Table A below. In the table, closed projects and retirements represent capital assets retired and assets transferred from construction in progress for projects completed and the related capital assets placed in service.
Table A (in thousands) July 1, 2001
Additions
Closed Projects & Retirements
June 30, 2002
21,591 41,258 296,984 128,739 336,754 825,326
133 628 19,040 50,065 331,460 401,326
194,490 420,842 4,229,006 1,545,601 710,739 7,100,678
13,927 15,820 246,132 197,391 307,008 780,278
2,341 15,514 63,067 203,216 284,138
208,417 434,321 4,459,624 1,679,925 814,531 7,596,818
259,328 2,086,733 1,055,938 3,401,999
10,348 97,120 101,654 209,122
22 15,990 45,549 61,561
269,654 2,167,863 1,112,043 3,549,560
11,518 100,106 111,966 223,590
2,342 10,515 56,219 69,076
278,830 2,257,454 1,167,790 3,704,074
$ 3,274,679
616,204
339,765
3,551,118
556,688
215,062
3,892,744
Land $ 173,032 Infrastructure and land improvements 380,212 Buildings 3,951,062 Equipment, library books, and artwork 1,466,927 Construction in progress 705,445 Total capital assets 6,676,678
Closed Projects June 30, 2003 Additions & Retirements
Less accumulated depreciation: Infrastructure and land improvements Buildings Equipment and library books Total accumulated depreciation Capital assets, net
2003 ANNUAL FINANCIAL REPORT
21
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 6. Long-term Liabilities The State University has entered into capital leases and other financing agreements with the Dormitory Authority of the State of New York (the “DASNY”) to finance most of its capital facilities and equipment, and has also entered into various arrangements for the purchase of equipment through the issuance of certificates of participation. The Research Foundation has entered into financing arrangements through the City of Albany Industrial Development Agency (“IDA”). At June 30, 2003 and 2002, other than facilities obligations, which are included as of March 31, 2003 and 2002, total obligations are summarized in Table B below. Educational Facilities - the State University, through DASNY, has entered into financing agreements to finance various educational facilities and an athletic facility, which have a maximum 30-year life. Athletic facility debt is aggregated with educational facility debt. Debt service is paid from specific appropriations of the State. In September 2002, the State University entered into agreements with DASNY to issue obligations totaling $1,074.9 million in order to refinance $1,054 million of the State University’s existing
educational obligations. The refinancing resulted in an accounting loss of $14.6 million. The State University reduced its future aggregate debt service payments by $89.1 million through lower interest costs, resulting in an economic gain of $77.3 million. In February 2003, DASNY Personal Income Tax Revenue Bonds (“PIT”) were issued for the purpose of financing capital construction and major rehabilitation for educational facilities in the amount of $241.4 million. Also in February, PIT bonds were issued for the purpose of funding capital projects, including the acquisition of equipment, principally for scientific research and economic development projects for use by the State University totaling $22.9 million. During the year and in prior years, the State University defeased various obligations whereby proceeds of new obligations were placed in an irrevocable trust to provide for all future debt service payments on the defeased obligations. Accordingly, the trust account assets and liabilities for the defeased obligations are not included in the State University’s financial statements. As of March 31, 2003, $1.637 billion of such obligations outstanding were considered defeased.
Table B (in thousands) For the 2003 Fiscal Year
July1, 2002
Additions
Reductions
June 30, 2003
Current Portion
$ 4,210,212 426,525 26,651 7,901 6,500 9,895
1,339,125 154,520 32,941 11,173
1,180,406 20,865 18,630 3,201 120 9,912
4,368,931 560,180 40,962 4,700 6,380 11,156
125,478 20,505 12,668 1,975 3,204
4,687,684
1,537,759
1,233,134
4,992,309
163,830
519,028 198,495 90,508 25,984
172,857 2,886 67,658 13,097
132,031 14,699 34,183 10,697
559,854 186,682 123,983 28,384
120,984 14,699 43,497 14,518
834,015
256,498
191,610
898,903
193,698
$ 5,521,699
1,794,257
1,424,744
5,891,212
357,528
Long-term debt: Educational facilities Residential facilities Equipment capital leases Certificates of participation IDA agreement - building IDA agreement - information system Total long-term debt Other long-term liabilities: Compensated absences Loan - State STIP pool Litigation Other long-term liabilities Total other long-term liabilities Total long-term liabilities
22
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) Table B, continued (in thousands) July 1, 2001
For the 2002 Fiscal Year
Additions
Reductions
June 30, 2002
Current Portion
$ 4,095,529 348,890 43,075 16,209 12,067
249,630 99,405 7,518 6,500 -
134,947 21,770 23,942 8,308 2,172
4,210,212 426,525 26,651 7,901 6,500 9,895
126,406 20,865 13,004 3,201 2,287
4,515,770
363,053
191,139
4,687,684
165,763
486,521 208,950 73,298 19,107
160,636 4,745 49,400 12,184
128,129 15,200 32,190 5,307
519,028 198,495 90,508 25,984
117,469 14,699 29,502 13,763
787,876
226,965
180,826
834,015
175,433
$ 5,303,646
590,018
371,965
5,521,699
341,196
Long-term debt: Educational facilities Residence hall facilities Equipment capital leases Certificates of participation IDA agreement - building IDA agreement - information system Total long-term debt Other long-term liabilities: Compensated absences Loan - State STIP pool Litigation Other long-term liabilities Total other long-term liabilities Total long-term liabilities
6. Long Term Liabilities, continued
Residence Hall Facilities - the State University has entered into capital lease agreements for residence hall facilities. DASNY bonds for residence hall facilities, which have a maximum 30-year life, are repaid from room rentals and other residence hall revenues. Upon repayment of the bonds, including interest thereon, and the satisfaction of all other obligations under the lease agreements, DASNY shall convey to the State University all rights, title, and interest in the assets financed by the capital lease agreements. Residence hall facilities revenue realized during the year from facilities from which there are bonds outstanding is pledged as a security for debt service and is assigned to DASNY to the extent required for debt service purposes. Any excess funds pledged to DASNY are available for residence hall capital and operating purposes. In 1996, the State University defeased various obligations whereby proceeds of new obligations were placed in an irrevocable trust to provide for all future debt service payments on the defeased obligations. Accordingly, the trust account assets and liabilities for the defeased obligations are not included in the State University’s financial state-
ments. As of March 31, 2003, $19.4 million of such obligations outstanding were considered defeased. In September 2002, the State University entered into agreements with DASNY to issue obligations totaling $154.5 million for the construction and rehabilitation of residential facilities. Equipment Capital Leases and Certificates of Participation - the State University leases equipment under various capital lease arrangements and has entered into various arrangements for the refinancing and purchase of equipment through the issuance of certificates of participation, which are accounted for in the same manner as equipment capital leases. The certificates are issued through a trustee and the State University is responsible for payments to the trustee sufficient to cover the interest and principal payments made by the trustee to the certificate holders. Industrial Development Agency Agreements In fiscal 2002, the Research Foundation entered into an arrangement with the City of Albany IDA, where the IDA issued both taxable and tax-exempt series of bonds for the purpose of providing funds to acquire a parcel of real estate, together with the
2003 ANNUAL FINANCIAL REPORT
23
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) Table C Future debt service requirements of the long-term debt as of June 30, 2003 are as follows (in thousands): Fiscal year(s) 2004 2005 2006 2007 2008 2009-13 2014-18 2019-23 2024-28 2029-33 Total
Educational Facilities
Residential Facilities
Other
Total
Interest 254,694 244,227 241,479 235,841 237,101 968,415 467,304 221,207 88,021 14,022
Principal 20,505 19,345 20,195 19,195 18,925 91,865 94,895 87,110 104,810 83,335
Interest 28,974 27,909 26,869 25,841 24,884 110,474 86,203 61,540 36,041 9,025
Principal 17,847 13,900 11,876 9,171 1,853 3,521 965 1,145 1,340 1,580
Interest 2,078 1,397 902 498 222 460 224 166 97 21
Principal Interest 163,830 285,746 185,106 273,533 188,655 269,250 181,388 262,180 173,822 262,207 1,069,337 1,079,349 1,361,976 553,731 824,477 282,913 591,513 124,159 252,205 23,068
$ 4,368,931 2,972,311
560,180
437,760
63,198
6,065
4,992,309
$
Principal 125,478 151,861 156,584 153,022 153,044 973,951 1,266,116 736,222 485,363 167,290
Interest rates range from 1.9% to 7.5%
Interest rates range from 3.0% to 6.25%
6. Long Term Liabilities, continued
existing building thereon. In fiscal 1999, the Research Foundation also entered into a financing arrangement through the IDA to finance the development of a new information system. In prior years, the State University experienced operating cash-flow deficits precipitated by cashflow difficulties experienced by its hospitals. In connection with these cash-flow deficits, as authorized by State Finance Law, the State University borrowed funds with interest from the short-term investment pool (STIP) of the State. The amount outstanding under this borrowing from the State at June 30, 2003 was $186.7 million. During the year, the hospitals paid $14.7 million on these loans. The State University incurred an interest cost of $2.9 million at an average interest rate of 1.5 percent.
3,416,136
Interest rates range from 1.05% to 5.9%
included are non-bond proceeds, which have been designated for capital projects and equipment. In accordance with GASB Statement No. 3, the State University has categorized its investments, which comprise deposits with trustees, into two groups. Category 1 includes investments that are insured or registered in the State University’s name, or held by an agent in the State University’s name. Category 2 includes investments that are uninsured but which were purchased through trustees acting as purchasing agents and are held in trust accounts in the State University’s name (in thousands). Category 1 U.S. government obligations $ 1,008,009
Category 2 280,119
8.Retirement Plans Retirement Benefits
7.Deposits with Trustees Deposits with trustees primarily represent DASNY bond proceeds needed to finance capital projects and to establish required building and equipment replacement and debt service reserves. Pursuant to financing agreements with DASNY, bond proceeds, including interest income, are restricted for capital projects or debt service. Also
24
There are three major retirement plans for State University employees. The New York State and Local Employees’ Retirement System (“ERS”), the New York State Teachers’ Retirement System (“TRS”), and the Teachers Insurance and Annuity Association - College Retirement Equities Fund (“TIAA/CREF”). ERS is a cost-sharing, multipleemployer, defined benefit public plan administered
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 8. Retirement Plans, continued
by the State Comptroller. TRS is a cost-sharing, multiple-employer, defined benefit public plan separately administered by a nine-member board. TIAA/CREF is a multiple-employer, defined contribution plan administered by separate boards of trustees. Substantially all full-time employees participate in the plans. Obligations of employers and employees to contribute and related benefits are governed by the New York State Retirement and Social Security Law (“NYSRSSL”) and Education Law. These plans offer a wide range of programs and benefits. ERS and TRS benefits are related to years of credited service and final average salary, vesting of retirement benefits, death and disability benefits, and optional methods of benefit payments. TIAA/CREF is a State University Optional Retirement Program (“ORP”) and offers benefits through annuity contracts. ERS and TRS provide retirement benefits as well as death and disability benefits. Benefits generally vest after 5 years of credited service. The NYSRSSL provides that all participants in ERS and TRS are jointly and severally liable for any actuarial unfunded amounts. Such amounts are collected through annual billings to all participating employers. Employees who joined ERS and TRS after July 27, 1976, and have less than 10 years of service or membership are required to contribute 3 percent of their salary. Employee contributions are deducted from their salaries and remitted on a current basis to ERS and TRS. TIAA/CREF provides benefits through annuity contracts and provides retirement and death benefits to those employees who elected to participate in the ORP. Benefits are determined by the amount of individual accumulations and the retirement income option selected. All benefits generally vest after the completion of one year of service if the employee is retained thereafter. TIAA/CREF is contributory for employees who joined after July 27, 1976, who contribute 3 percent of their salary. Employer contributions range from 8 percent to 15 percent depending upon when the employee was
hired. Employee contributions are deducted from their salaries and remitted on a current basis to TIAA/CREF. The State University’s total retirement-related payroll was $1.96 billion and $1.79 billion for the June 30, 2003 and 2002 fiscal years, respectively. The payroll for 2003 and 2002 for State University employees covered by TIAA/CREF was $1.25 billion and $1.16 billion, ERS was $636 million and $561 million and TRS was $74 and $73 million, respectively. Employer and employee contributions under each of the plans were as follows (in millions): 2003
2002
2001
122.5 3.5 3.8
111.4 1.4 4.8
30.6 5.2 0.8
27.2 9.8 1.1
Employer contributions: TIAA- CREF ERS TRS
$135.1 5.1 3.3
Employee contributions: TIAA- CREF ERS TRS
$ 34.8 6.7 0.6
The employer contributions are equal to 100 percent of the required contributions under each of the respective plans. The Research Foundation maintains a separate non-contributory plan through TIAA/CREF for substantially all of its employees. Employees become fully vested in contributions made by the Research Foundation after five years of service which are allocated to individual employee accounts. Employer contributions are based on a percentage of regular salary and range from 8 percent to 15 percent. The payroll for Research Foundation employees covered by TIAA/CREF for its fiscal year ended June 30, 2003 and 2002 was $271.8 million and $255.7 million, respectively. The Research Foundation pension contributions for fiscal years 2003, 2002, and 2001 were $20.5 million, $18.6 million, and $17.6 million, respectively. These contributions are equal to 100 percent of the required contributions for each year. Each retirement system issues a publicly-available financial report that includes financial statements
2003 ANNUAL FINANCIAL REPORT
25
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 8. Retirement Plans, continued
and supplementary information. The reports may be obtained by writing to: New York State and Local Employees’ Retirement System 110 State Street Albany, New York 12244 New York State Teachers’ Retirement System 10 Corporate Woods Drive Albany, New York 12211 Teachers Insurance and Annuity Association/ College Retirement Equities Fund 730 Third Avenue New York, New York 10017 Post-retirement Benefits
Contributions by the Research Foundation are made pursuant to a funding policy established by its Board of Directors and were $3 million and $2.5 million during the years ended June 30, 2003 and 2002, respectively. Amounts recognized in the June 30, 2003 and 2002 financial statements include an accrued benefit cost of $55.7 million and $47.8 million, respectively, and investments designated for the plan of $40.6 million and $41.8 million, respectively. The investments are held in an unrestricted account, designated by the Research Foundation Board of Directors, consisting primarily of equity securities. 9. Commitments
The State, on behalf of the State University, provides health insurance coverage and survivor benefits for retired State University employees and their survivors. Substantially all of the State University’s employees become eligible for these benefits if they reach normal retirement age while working for the State University. Currently, 15,513 retirees and 1,743 dependent survivors meet the eligibility requirements. The State University recognizes the cost of providing post-retirement health insurance and death benefits on a pay-as-you-go basis. For the fiscal year ended June 30, 2003 and 2002, the State, on behalf of the State University, paid health insurance premiums of $102.7 million and $90.5 million, respectively, and survivor benefits of $1 million in both years. The Research Foundation sponsors a separate plan that provides health insurance and medical benefits for retired employees and their spouses. Substantially all of the Research Foundation employees who meet age and service requirements become eligible for these benefits. There are approximately 5,940 participants in the plan. Employees hired after 1985, upon retirement, contribute to cover the cost of plan benefits provided. The cost of the benefits provided under this plan is recognized on an actuarially-determined basis using the projected unit cost method. Under this method, actuarial assumptions are made based
26
on employee demographics and medical trend rates to calculate the accrued benefit cost.
The State University has entered into contracts for the construction and improvement of various projects. At March 31, 2003, these outstanding contract commitments totaled approximately $293 million. The State University is also committed under numerous operating leases covering real property and equipment. Rental expenditures reported for the years ended June 30, 2003 and 2002 under such operating leases were approximately $19.3 million and $18.4 million, respectively. The following is a summary of the future minimum rental commitments under noncancelable real property and equipment leases with terms exceeding one year (in thousands): Year ending June 30, 2004 2005 2006 2007 2008 2009-13 2014-18
$ 19,099 16,502 11,578 8,798 4,555 1,989 794 $ 63,315
10. Contingencies The State is contingently liable in connection with claims and other legal actions involving the State University, including those currently in
T H E S TAT E U N I V E R S I T Y O F N E W YO R K
Notes to Financial Statements June 30, 2003 (with comparative information for June 30, 2002) 10. Contingencies, continued
litigation arising in the normal course of State University activities. The State University does not carry malpractice insurance and, instead, administers these types of cases in the same manner as all other claims against the State involving State University activities in that any settlements of judgments and claims are paid by the State from an account established for this purpose. With respect to pending and threatened litigation, the State University has recorded a liability and a corresponding appropriation receivable of approximately $124 million at June 30, 2003 ($120.6 million related to hospitals and clinics) for unfavorable judgments, both anticipated and awarded but not yet paid. The State University is exposed to various risks of loss related to damage and destruction of assets, injuries to employees, damage to the environment or noncompliance with environmental requirements, and natural and other unforeseen disasters. The State University has insurance coverage for its residence hall facilities. However, in general, the State University does not insure its educational buildings, contents or related risks and does not insure its vehicles and equipment for claims and assessments arising from bodily injury, property damages, and other perils. Unfavorable judgments, claims, or losses incurred by the State University are covered by the State on a self-insured basis. The State does have fidelity insurance on State employees. 11. Related Parties The State University’s single largest source of revenue is State appropriations which represents approximately 36 percent and 37 percent of total revenues for the 2003 and 2002 fiscal years, respectively. The State University is dependent on this appropriation to carry on its operations. 12. Federal Grants and Contracts and Third-Party Reimbursement Substantially all federal grants and contracts are subject to financial and compliance audits by the grantor agencies of the federal government.
Disallowances, if any, as a result of these audits may become liabilities of the State University. State University management believes that no material disallowances will result from audits by the grantor agencies. The State University hospitals have agreements with third-party payors which provide for reimbursement to the hospitals at amounts different from their established charges. Contractual service allowances and discounts (reflected through State University hospitals and clinics sales and services) represent the difference between the hospitals established rates and amounts reimbursed by third-party payors. The State University has made provision in the accompanying financial statements for estimated retroactive adjustments relating to third-party payors cost reimbursement items. 13. Campus-related Foundations [Unaudited] The campus-related foundations are not-forprofit organizations exempt from federal income taxes under section 501(c)(3) of the Internal Revenue Code. Each foundation is responsible for the fiscal administration of revenues and support received for the promotion, development, and advancement of the welfare of its campus, the State University, its students, faculty, staff, and alumni. The foundations receive the majority of their support and revenues through contributions, gifts, and grants and provide benefits to their campus, students, faculty, staff and alumni. Summarized below is selected unaudited financial information of the State University’s campus-related foundations as of June 30, 2003 and 2002 (in thousands): 2003 Investments (at fair value) Other assets Total assets Liabilities Net assets Contributions and other revenues Distributions and other expenditures Change in net assets
2003 ANNUAL FINANCIAL REPORT
2002
$518,884 266,625 785,509 199,502 $586,007
507,816 207,683 715,499 157,192 558,307
187,498
138,211
159,798 $ 27,700
145,390 (7,179)
27
Report of Management on Internal Control To the Residents of the State of New York: The State University of New York is responsible for the preparation, integrity and fair presentation of its published financial statements. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles and, as such, include amounts based on judgments and estimates made by management. The State University of New York also prepared the other information included in the annual report and is responsible for its accuracy and consistency with the financial statements. The accompanying financial statements of the State University of New York have been audited by the independent accounting firm of KPMG LLP. The independent auditors’ report, which appears prior to the financial statements, expresses an independent opinion on the fairness of presentation of these financial statements. The State University of New York has established and maintains a system of internal control over financial reporting and over safeguarding of assets against unauthorized acquisition, use or disposition which is designed to provide reasonable assurance to management and the Board of Trustees regarding the preparation of reliable, published financial statements and such asset safeguarding. The system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. In addition, the State University of New York’s internal audit staff monitor the operation of the internal control system and report findings and recommendations to management and the Board of Trustees; corrective actions are taken to address control deficiencies and other opportunities for improving the system are pursued as they are identified. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Furthermore, the effectiveness of an internal control system can change with circumstances. The State University of New York assessed its internal control system as of June 30, 2003 in relation to the requirements of the New York State Governmental Accountability, Audit and Internal Control Act and criteria for effective internal control over financial reporting described in “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, the State University of New York believes that, as of June 30, 2003, its system of financial reporting met those criteria.
Robert L. King Chancellor
28
Brian T. Stenson Vice Chancellor for Finance and Business
Additional copies of this report are available from The State University of New York Office of the University Controller State University Plaza - Room S421 Albany, NY 12246 518-443-5463
Annual Financial Report 2003 THE STATE UNIVERSITY of NEW YORK State University Plaza Albany, New York 12246 www.suny.edu