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LANE COMMUNITY COLLEGE
Management’s Discussion and Analysis
This section of Lane Community College’s (the College) annual financial report provides an overview and analysis of the College’s financial performance during the fiscal year ended June 30, 2003. This overview has been prepared by management, along with the financial statements and related footnote disclosures, and should be read in conjunction with them. The financial statements, footnotes and this discussion are the responsibility of management.
New Format and Content for Financial Statements
During 1999 the Governmental Accounting Standards Board (GASB) released two Statements which the College was required to implement for the fiscal year ended June 30, 2003. Statement 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments, and Statement 35, Basic Financial Statements and Management’s Discussion and Analysis for Public Colleges and Universities, have established a new reporting format for the College’s financial statements. These GASB Statements require a comprehensive presentation of financial position and results of operation of the College’s various funds from a single, entity-wide perspective, and also require recognition of depreciation on capital assets. Since this is a transition year, any comparative reporting or analysis could be misleading; consequently only one year of information is presented in the College’s financial statements and this Management’s Discussion and Analysis. Beginning next year the College will provide a comparison with prior year results.
Overview of the Financial Statements
This discussion and analysis serves as an introduction to the College’s basic entity-wide financial statements, which have been prepared in accordance with generally accepted accounting principles. The new entity-wide presentation is designed to provide readers with a broad overview of the College’s finances, in a manner similar to a private sector business. These financial statements focus on the College’s overall financial condition, its results of operations and its cash flows. The entity-wide financial statements consist of:
The Statement of Net Assets, which presents the College’s financial position at the end of the year, and includes all assets and liabilities. The difference between total assets and total liabilities – net assets – is an indicator of the College’s present financial condition. Over time, increases or decreases in the College’s net assets shows whether its financial health is improving or deteriorating. Assets and liabilities are generally measured using current values; capital assets are stated at historical cost, less an allowance for depreciation.
The Statement of Revenues, Expenses and Changes in Net Assets, which presents the College’s operating results for the year. Revenues and expenses are generally reported using the accrual method of accounting, which records transactions as soon as they occur, regardless of when cash is exchanged. Usage of capital assets is reported as depreciation expense, which amortizes the cost of assets over their estimated useful lives. Revenues and expenses are reported as either operating or nonoperating. Operating revenues come primarily from tuition, auxiliary enterprises (such as the Bookstore), and student financial aid grants. State appropriations and property taxes, while budgeted for operations, must be classified in the statement as non-operating revenues.
The Statement of Cash Flows, which presents information about cash receipts and cash payments during the year. This statement also assists users in assessing the College’s ability to generate net cash flows, its ability to meet its obligations as they come due, and its potential need for external financing.
Financial Highlights
As of June 30, 2003 the College’s assets exceeded its liabilities by $49,838,588 (net assets). Of this amount, $10,477,110 is classified as unrestricted net assets. These unrestricted net assets may be used to meet the College’s ongoing obligations. The Board may also choose to apportion these unrestricted assets to a number of uses, possibly including: a capital asset maintenance reserve, a financial stabilization reserve, and new program funds. The largest component ($34,695,426) of net assets is the College’s investment in capital assets, which represents its land, buildings, machinery and equipment, net of accumulated depreciation and related debt. The College uses these capital assets to provide educational services to its students; consequently these assets are not available for future spending.
In April 2003, the College issued $51.8 million in Limited Tax Pension Obligation Bonds to prepay approximately 75% of its unfunded actuarial liability, as determined by the Oregon Public Employees Retirement System (PERS).
In April 2002, the Board reluctantly raised tuition rates by $11, to $49 per credit, effective for all of the year ended
June 30, 2003. This increased total tuition and fees revenue to $20,888,674, an increase of $3,410,803 over 2002. The Board chose to raise tuition rather than further reduce academic programs and services during Oregon’s prolonged recession.
State community college support revenues decreased by approximately 36% to $19,646,961. This was the result in part of a delayed fourth quarter payment that is further explained on page vii.
The construction of new facilities, made possible by the construction bonds approved by the District’s taxpayers in 1995, has been largely completed. The last major component, the remodeled fourth floor of the
Center Building, was placed in service in September, 2003. At June 30, 2003 there was $3.3 million of construction bond proceeds remaining. Most of these funds are committed to an upgrade of the College’s sewage treatment system.
Analysis of the Statement of Net Assets
As of June 30, 2003
This Statement includes all of the assets and liabilities of the College using the previously-described accrual method of accounting, which is similar to the accounting presentation used by businesses. Net Assets is a measure of the College’s financial condition. In summary form Net Assets consisted of:
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____2003____ |
Assets |
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Current assets |
$ 21,338,165 |
Noncurrent assets |
_118,906,953 |
Total assets |
$ 140,245,118 |
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Liabilities |
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Current liabilities |
$ 13,426,342 |
Noncurrent liabilities |
76,980,188 |
Total liabilities |
90,406,530 |
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Net Assets |
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Invested in capital assets, net of related debt |
34,695,426 |
Restricted |
4,666,052 |
Unrestricted |
_10,477,110 |
Total net assets |
_49,838,588 |
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Total liabilities and net assets |
$ 140,245,1 |
At June 30, 2003, the College owned $140,245,118 in total assets. Current assets included $3.3 million of cash and investments from the 1995 construction bond proceeds. Other current assets consist primarily of receivables from property taxes, student accounts, and grants, plus bookstore inventory. Unsurprisingly, the College’s largest noncurrent asset is its investment in capital assets (land, buildings, machinery and equipment), net of accumulated depreciation, used to provide services to students. A $51.2 million pension asset, created when the College paid a portion of its unfunded actuarial liability to PERS, is also included in noncurrent assets.
Current liabilities consisted primarily of payroll, interest and operating payables, plus the current portion ($5,315,559) of current maturities of long-term obligations. The College’s total current assets of $21,338,165 were sufficient to cover the current liabilities of $13,426,342. This represents a current ratio of 1.59; Board policy requires the College to maintain a current ratio of at least 2.00. The addition of the delayed fourth quarter State community college support payment would change the current ratio to 2.16 at June 30, 2003.
Within Net Assets, the “invested in capital assets” amount of $34,695,426 represents the total original cost of all of the College’s land, buildings, machinery and equipment, and infrastructure, less total accumulated depreciation on these assets, and also less debt related to their acquisition. Restricted net assets consisted of amounts legally restricted for student financial aid grants and loans, debt service and grants and contracts.
Analysis of The Statement of Revenues, Expenses and Changes in Net Assets
For the Year Ended June 30, 2003
The Statement of Revenues, Expenses and Changes in Net Assets presents the College’s operating results, as well as its nonoperating revenues and expenses, and reconciles the changes in Net Assets (discussed above). State appropriations and property taxes, while budgeted for operations, must be classified in the statement as non-operating revenues. In summary form the year’s results were:
Total operating revenues |
$ 72,088,504 |
Total operating expenses |
___115,747,722 |
Operating loss |
(43,659,218) |
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Net nonoperating revenues |
34,310,999 |
Capital contributions |
43,992 |
Total decrease in net assets |
(9,304,227) |
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Net assets, beginning of year |
____59,142,815 |
Net assets, end of year |
$ 49,838,588 |
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Revenues:
The largest sources of operating revenue for the College are: tuition and fees, financial aid, auxiliary enterprise activities, and grants and contracts. Tuition and fees increased for the year by 20%, to $20,888,674, due to the tuition rate increase of $11 per credit hour. State, Federal and other financial aid, and grants and contracts totaled $36,188,800. Auxiliary enterprise activities are College operations that provide goods and services to students, faculty, staff or the general public, and charge fees directly related to the cost of these goods and services. They include the Bookstore, Food Services, the Laundry and the Center for Meeting and Learning, and are intended to be self-supporting. Auxiliary enterprises generated $7,844,387 of revenue for the year.
Appropriations from the State of Oregon constitutes the largest share of nonoperating revenue. The College received $19,646,961 in state community college support in this fiscal year, which represented only 75% of its appropriation. During its 2003 session, the Oregon Legislature acted to defer the fourth quarterly payment of state support from April until July 2003. This reduced the College’s state support revenue by $7,648,410 and greatly contributed to the College’s overall decrease in net assets for the year. This payment was actually received in July 2003 and will be reported in the year to end June 30, 2004. 50% of the total property tax levy of Oregon Community Colleges is included by the state in the calculation of its appropriation; the College received directly additional nonoperating revenues of $16,247,883 from property tax levies, net of discounts and adjustments.
Expenses:
The College expended $115,747,722 on salaries and benefits, materials and services, utilities, scholarships and depreciation. Instructional expenses represent the largest percentage of total expenses at 33%, or $38,590,488, and include all three campuses, contracted trainings and open-entry programs. Instructional support services represent 3% of total expenses, or $3,533,114.
The largest nonoperating expense was interest paid on debt related to capital improvements and debt related to prepayment of the College’s PERS unfunded actuarial liability. Interest expense amounted to $1,914,800.
Analysis of the Statement of Cash Flows
For the Year Ended June 30, 2003
This statement provides a measurement of the College’s financial health by supplying information about cash receipts and cash payments during the year. It also assists users in assessing the College’s ability to generate net cash flows, its ability to meet its obligations as they come due, and its potential need for external financing. This statement is reported on the direct method, which portrays net cash flows from operations as major classes of operating receipts (e.g. tuition and fees) and payments (e.g. cash paid to employees). GASB Statements 34 and 35 require the use of this method for reporting cash flows. In summary form the cash flows for the year were:
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_____2003___ |
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Cash Provided By (Used In): |
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Operating Activities |
$ (39,528,014) |
Noncapital Financing Activities |
35,938,305 |
Capital Financing Activities |
(9,163,573) |
Investing Activities |
_ 12,649,965 |
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Net (decrease) in cash |
(103,317) |
Cash – Beginning of year |
13,019,946 |
Cash – End of year |
$12,916,629 |
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The largest sources of cash from operating activities were student tuition and fees, federal student financial aid, auxiliary enterprises and grants and contracts. Major uses of cash were payments made to employees, vendors, and student financial aid.
The primary source and use of noncapital financing cash was the April 2003 sale of $51.8 million of bonds, the proceeds of which were used to partially prepay the College’s PERS unfunded actuarial liability.
State community college support and property taxes are also primary sources of noncapital financing cash. GASB Statements 34 and 35 require the College to report these sources as nonoperating even though the College’s budget depends on these sources to continue to provide our current level of educational offerings.
Cash payments for the acquisition of capital assets and principal and interest payments on long-term debt are the primary uses of capital financing cash.
A decrease in investments with original maturities greater than three months provided most of the cash from investing activities.
Budgetary Highlights
The College budgets all College funds required to be budgeted in accordance with the Oregon Local Budget Law. The budget is prepared on the modified accrual basis of accounting. All differences between the original budget and the final amended budget, except for the Supplemental Budget described below, arose from relatively minor changes in operating requirements. For more detailed information, please refer to the budgetary statements appearing as Supplementary Information in the Financial Section of this report.
Supplemental Budget:
In April 2003 the Board approved a supplemental budget for the Debt Service Fund of $51,803,948 to authorize receipt and disbursement of bond proceeds. These funds were used to make a partial payment (approximately 75%) to PERS of the College’s unfunded actuarial liability, as determined by PERS.
Delayed State Community College Support Payment:
During its 2003 session, the Oregon State Legislature approved a one-time delay of the fourth quarterly payment (April 15) of State community college support. Consequently, the College did not receive this payment of $7,648,410 in its General Fund until July 15, 2003, after the end of its fiscal year. Generally accepted accounting principles require that this delayed payment not be reported as revenue during fiscal year 2003. The College will report this revenue during fiscal year 2004.
Capital Assets and Debt Administration
Capital Assets:
The College’s investment in capital assets at
June 30, 2003 amounts to $61.0 million, net of accumulated depreciation. Investment in capital assets includes land, buildings, machinery and equipment, library collections and infrastructure.
During the current fiscal year the College substantially completed construction and rehabilitation on most of the projects financed by the 1995 voter-approved capital improvement bonds. Remaining bond proceeds of $3.3 million were used subsequent to year-end to complete one main campus building remodeling (the Center Building) and will be used to upgrade the College’s sewage treatment system and acquire instructional equipment and furnishings for new and remodeled space.
Debt:
At June 30, 2003 the College had total bonds, debt obligations and pension bonds outstanding of $81,133,948. This represented a net increase in debt of $48,393,948. The net increase resulted from the $51,803,948 issuance of pension bonds to finance a partial payment of approximately 75% of the College’s unfunded actuarial liability, as determined by PERS, less payments on other bonds and debt obligations of $3,410,000. Additional information pertaining to the College’s long-term debt is located in the notes to these financial statements.
Economic Factors and Next Year’s Budget
The next few years will be very challenging for the College. Lane must continue to find the proper balance between affordability for its students and the accessibility and quality of its instructional programs and services. It is evident that the College cannot rely solely upon the State for additional resources, but must continue to align its expenses with available resources. Some of the factors that will financially affect the College during fiscal year 2004 include:
The outcome of Ballot Measure 30 on the February 2004 ballot: This proposal, to be financed by a temporary state income tax surcharge, would provide additional state resources of approximately $300 million. The College stands to receive approximately $900,000 more in state support in fiscal years 2004 and 2005 if this measure passes.
Increased tuition rates: In April 2003, the Board approved a $14 per credit increase to tuition for fiscal year 2004. This increase is expected to generate an additional $4.2 million of tuition revenue next year, and was the primary reason that the College did not have to eliminate more programs and services in the development of its fiscal year 2004 budget.
Continuing pension unfunded actuarial liability: Legislative changes to PERS are now being challenged in the courts. The financial impact of a final court decision cannot be determined at this time, but could be substantial.
Contacting the College’s Financial Management
This financial report is designed to provide our stakeholders, taxpayers and creditors with a general overview of the College’s finances. Questions concerning any of the information in this report or requests for additional financial information should be addressed to:
College Finance
Lane Community College
4000 E. 30th Avenue
Eugene, OR 9740 |
