===== PAGE 1 ===== KENTUCKY STATE UNIVERSITY (A Component Unit of the Commonwealth of Kentucky) FINANCIAL STATEMENTS June 30, 2020 ===== PAGE 2 ===== ## KENTUCKY STATE UNIVERSITY FINANCIAL STATEMENTS June 30, 2020 ## CONTENTS INDEPENDENT AUDITOR'S REPORT ..... 1 MANAGEMENT'S DISCUSSION AND ANALYSIS ..... 3 FINANCIAL STATEMENTS KENTUCKY STATE UNIVERSITY STATEMENT OF NET POSITION ..... 15 KENTUCKY STATE UNIVERSITY FOUNDATION, INC. STATEMENT OF FINANCIAL POSITION ..... 16 KENTUCKY STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ..... 17 KENTUCKY STATE UNIVERSITY FOUNDATION, INC. STATEMENT OF ACTIVITIES ..... 18 KENTUCKY STATE UNIVERSITY STATEMENT OF CASH FLOWS ..... 20 KENTUCKY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS ..... 22 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE UNIVERSITY'S (KSU) PROPORTIONATE SHARE OF THE NET PENSION LIABILITY AND SCHEDULE OF UNIVERSITY'S CONTRIBUTIONS KENTUCKY EMPLOYEES' RETIREMENT SYSTEM ..... 66 KENTUCKY TEACHERS' RETIREMENT SYSTEM ..... 68 SCHEDULE OF THE UNIVERSITY'S (KSU) PROPORTIONATE SHARE OF THE NET OPEB LIABILITY AND SCHEDULE OF UNIVERSITY'S CONTRIBUTIONS KENTUCKY EMPLOYEES' RETIREMENT SYSTEM ..... 70 KENTUCKY TEACHERS' RETIREMENT SYSTEM ..... 72 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS ..... 73 ===== PAGE 3 ===== # INDEPENDENT AUDITOR'S REPORT Members of the Board of Regents Kentucky State University Frankfort, Kentucky Secretary of Finance and Administration Cabinet of the Commonwealth of Kentucky ## Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and discretely presented component unit of Kentucky State University (the University), a component unit of the Commonwealth of Kentucky, as of and for the year ended June 30, 2020, and the related notes to the financial statements which collectively comprise the University's basic financial statements as listed on the table of contents. ## Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. ## Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Kentucky State University Foundation, Inc. (Foundation) which represents the entire discretely presented component unit of the University. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Foundation 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 and the standards applicable to financial audit contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the Foundation were not audited in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. (Continued) ===== PAGE 4 ===== We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. ## Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and discretely presented component unit of the University as of June 30, 2020, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. ## Other Matter ## Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages 3 through 14 and required supplementary information on pages 66 through 72 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. ## Prior Year Comparative Information We have previously audited the University's fiscal year 2019 financial statements, and we expressed an unmodified audit opinion on the financial statements of the business-type activities of the University in our report dated December 3, 2019. In our opinion, the summarized comparative information presented herein for the business-type activities as of and for the year ended June 30, 2019, is consistent, in all material respects, with the audited financial statements from which it has been derived. Other auditors have previously audited the discretely presented component unit's fiscal year 2019 financial statements and they expressed an unmodified audit opinion on the financial statements in their report dated October 17, 2019. The summarized comparative information for the discretely presented component unit as of June 30, 2019 has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. ## Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 29, 2021 on our consideration of the University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the University's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University's internal control over financial reporting and compliance.
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Crowe LLP Lexington, Kentucky March 29, 2021 ===== PAGE 5 ===== # KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020 ## Introduction Management’s Discussion and Analysis of Kentucky State University’s (the University) financial statements provide an overview of the financial position and activities of the University for the year ended June 30, 2020, with comparative information for the year ended June 30, 2019. This discussion has been prepared by management and should be read in conjunction with the financial statements and the notes thereto, which follow this section. The financial statements and related notes and this discussion and analysis are the responsibility of management. Kentucky State University is a Commonwealth of Kentucky coeducational institution for higher education. The University's mission is to build on its legacy of achievement as a historically black, liberal arts, and 1890 land-grant university, afford access to and prepare a diverse student population of traditional and non-traditional students to compete in a multifaceted, ever-changing global society by providing student-centered learning while integrating teaching, research, and service through high-quality undergraduate and select graduate programs. Kentucky State University is committed to keeping relevant its legacy of service by proactively engaging the community in partnerships on civic projects driven by the objective of positively impacting the quality of life of the citizens of the Commonwealth. ## Basis of Presentation The annual financial report and statements include the University and Kentucky State University Foundation, a component unit of the University. Kentucky State University Foundation, Inc. (the Foundation) is a not-for-profit Kentucky corporation which was established to receive, invest and expend funds to promote and implement educational and developmental activities at Kentucky State University (the University). The Foundation is managed by a Board of Trustees independent from that of the University. The Foundation is supported primarily through contributions from alumni. ## Financial Highlights The University's financial position at June 30, 2020, reflected total assets and deferred outflows of $136.1 million and total liabilities and deferred inflows of $137.6 million. Total net position was ($1.6) million. Total assets and deferred outflows increased by $18.4 million or 16%, primarily due to an increase in capital assets. Total liabilities and deferred inflows increased by $16.1 million or 13% primarily due to increases in the net pension liability related to KTRS, accounts payable, and accrued liabilities. Unrestricted net position, which the University reserves for spending in programs and other capital-related contingencies, decreased $5.2 million. The University classifies amounts earned on endowments as spendable or non-spendable in accordance with the endowment's donor stipulations. Nonexpendable restricted net assets represent amounts, which must be maintained in perpetuity. Expendable restricted net assets include private grants and contributions restricted for specific purposes and accumulated earnings on endowment assets. Operating revenues were nearly $39.9 million and operating expenditures were $68.5 million, resulting in a loss from operations of $28.6 million. Net non-operating revenues were $30.9 million, including $25.8 million in state appropriations, which, when combined with the loss from operations and capital appropriations, resulted in an overall increase in net position of $2.3 million. ===== PAGE 6 ===== ## KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020 ## Using the Financial Statements The University’s Financial Statements consist of three financial statements: a Statement of Net Position (Balance Sheet); a Statement of Revenues, Expenses and Changes in Net Position (Income Statement); and a Statement of Cash Flows, along with the accompanying Notes to the Financial Statements. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities. Kentucky State University is a component unit of the Commonwealth of Kentucky. ## Statement of Net Position The Statement of Net Position presents the financial position of the University at the end of the fiscal year and includes all assets, deferred outflows of resources, liabilities, and deferred inflows of resources. Net position, the difference between total assets and deferred outflows and total liabilities and deferred inflows, is an important indicator of the current financial condition, while the change in net position is an indicator of whether the overall financial position has improved or worsened during the year.
Condensed Statement of Net Position
20202019
ASSETS
Current assets$ 6,148,240$ 8,633,556
Noncurrent assets111,324,68193,824,063
Total assets117,472,921102,457,619
DEFERRED OUTFLOWS OF RESOURCES$ 18,594,11215,179,797
LIABILITIES
Current liabilities18,278,04712,346,476
Non-current liabilities92,294,26768,680,752
Total liabilities110,572,31481,027,228
DEFERRED INFLOWS OF RESOURCES$ 27,065,849$ 40,521,833
NET POSITION
Net investment in capital assets77,317,90069,736,441
Restricted
Nonexpendable - endowment3,562,2383,562,238
Expendable4,220,8064,800,330
Unrestricted(86,672,074)(82,010,654)
Total net position$ ($1,571,130)$ (3,911,645)
===== PAGE 7 ===== ## KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020 Assets and Deferred Outflows: As of June 30, 2020, total assets and deferred outflows amounted to $136.1 million. Of this amount, investment in capital assets (net of depreciation) of $93.5 million, or 79% of total assets, represented the largest asset class. Investments amounted to $17.2 million or 14% of total assets. During the year, total assets and deferred outflows increased by $18.4 million, primarily due to increases in capital assets. Liabilities and Deferred Inflows: As of June 30, 2020, total liabilities and deferred inflows amounted to $137.1 million. Net pension and OPEB liabilities amounted to $76.3 million. The University's proportion of the net pension liability and net OPEB liability of the Kentucky Employees Retirement System and the Kentucky Teachers' Retirement System was based on a projection of the University's long-term share of contributions to the pension and OPEB plans relative to the projected contributions of all participating universities, actuarially determined. Long-term debt includes bonds payable for the housing and dining system and energy-related equipment and technology equipment purchased under a Master Lease Agreement. During the year, total liabilities and deferred inflows increased by $16.1 million, primarily due to the decrease in the net pension liability and accounts payable and accrued liabilities. Net Position: Net position of the University was $(1.6) million at June 30, 2020 and was reported in three net position categories: net investment in capital assets $77.3 million, restricted nonexpendable $3.6 million, restricted expendable $4.2 million, and unrestricted $(86.7) million. ## Statement of Revenues, Expenses and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position is prepared on the accrual basis of accounting, whereby revenues and assets are recognized when the service is provided and expenses and liabilities are recognized when others provide the service, regardless of when cash is exchanged. All items that increase or decrease net position must appear on the Statement of Revenues, Expenses and Changes in Net Position as revenues, expenses, gains or losses. Financial activities are reported as either operating or non-operating. GASB Statement No. 35 requires state appropriations, gifts, investment income and endowment income to be classified as non-operating revenues. Accordingly, the University reports an operating loss prior to the addition of non-operating revenues. The utilization of long-lived capital assets is reflected in the financial statements as depreciation, which amortizes the cost of an asset over its expected useful life. Tuition revenue is reduced by gift scholarships and institutional aid and is reported net of scholarship allowances in the financial statements. A summarized comparison of the University's revenues, expenses and changes in net position for the years ended June 30, 2020 and 2019 is as follows. ===== PAGE 8 ===== ## KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020
Condensed Statement of Revenues, Expenses and Changes in Net Position
20202019
REVENUES
Student tuition and fees, net$ 10,290,971$ 9,710,046
Grants and contracts23,396,50419,615,052
Auxiliary enterprises5,263,4104,426,675
Other operating revenue971,9481,221,466
Total operating revenues39,922,83334,973,239
EXPENSES
Educational and general63,057,72565,992,835
Auxiliary enterprises5,466,8014,726,810
Total operating expenses68,524,52670,719,645
Operating loss(28,601,693)(35,746,406)
NONOPERATING REVENUES (EXPENSES)
State appropriations25,766,50025,749,000
Federal grants and contracts4,703,3084,261,886
Investment income590,615871,874
Interest on capital asset – related debt(118,215)(276,798)
Total non-operating revenues30,942,20830,605,962
Income before capital appropriations2,340,515(5,140,444)
Capital appropriations-151,277
Change in net position2,340,515(4,989,167)
NET POSITION
Net position, beginning of year(3,911,645)1,077,522
Net position, end of year$ (1,571,130)$ (3,911,645)
===== PAGE 9 ===== ## Figure1
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FY 2020 Operating Revenue Categories as a % of Total Operating Revenues
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===== PAGE 10 ===== ## KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020 ## Operating Revenue Total operating revenues were $39.9 million for the year ended June 30, 2020, as compared with $35.0 million in FY19. The primary components of operating revenue were federal, state and local grants and contracts of $23.4 million (58.6%), student tuition and fees, net, of $10.3 million (25.8%) and auxiliary services and other revenues of $6.2 million (15.6%). FY20 net student tuition and fees revenue increased by $0.6 million compared to FY19. FY20 grants and contracts of revenue increased $3.8 million compared to FY19 due to increased awards and spending. FY20 auxiliary services and other revenue increased $587,218 compared to FY19. Refer to Figure 1 for the two-year trend of the operating revenues as a percent to total operating revenues and revenue by category. ## Operating Expenses Operating expenses totaled $68.5 million, a decrease of $2.2 from last year. Of this amount, $41.7 million (60%) was expended directly for the primary mission of the University – instruction (13%), research (10%), student services (12%), student aid (12%), and public service (13%). Instruction is the main component of Primary Mission expenses amounting to $9.8 million in fiscal year 2020 or 13%. Refer to Figure 2 for the operating expenses categorized into the Primary Mission of the University. (Percentages below do not include depreciation or operations/maintenance allocations.)
Figure 2
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===== PAGE 11 =====
Fiscal Year 2020 Primary Mission Expenses as a % of Total Operating Expenses
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In addition to the Primary Mission expenses of the University, there are expenses from depreciation and operations & maintenance that are allocated to the various functional classifications (See Note 13 – Schedule of Expenses by Program). See below for the operating expenses categorized into the Functional Expenses of the University. (Percentages below include depreciation and operations/maintenance allocations.)
Fiscal Year 2020 Functional Expenses as a % of Total Operating Expenses
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===== PAGE 12 ===== ## KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020 The University continued to invest in student aid and support services to provide students with opportunities to be successful in fiscal year 2020. For the year ended June 30, 2020, student aid expenses totaled $6.4 million and scholarship allowances totaled $4.9 million. The University had an overall decrease in institutional support of $0.3 million, which was consistent with the overall expenditure decrease University wide. The large expenditures in the primary areas of instruction, research and student services, in conjunction with minimal increases to fixed cost areas, confirms the University resource allocations are clearly aligned with the University's strategic priorities to support academic and student excellence. The net loss from operations for the year amounted to ($28.6) million. Non-operating revenues, net of expenses, amounted to $30.9 million, resulting in an increase of net position of $2.3 million for the year. Non-operating revenues include state appropriations of $25.8 million and non-operating federal grants and contracts of $4.7 million. ## Statement of Cash Flows The Statement of Cash Flows presents information related to the University's cash inflows and outflows summarized by operating activities, noncapital financing activities, capital financing activities and investing activities. The primary purpose of the Statement of Cash Flows is to provide information about the cash receipts and cash payments made by the University during the year, to allow financial statement readers to assess the University's ability to generate future net cash flows, its ability to meet obligations as they become due and its possible need for external financing.
Condensed Statement of Cash Flows
20202019
Cash (used) provided by:
Operating activities$ (22,787,888)$ (40,996,680)
Non-capital financing activities31,301,87430,010,886
Capital and related financing activities(9,309,928)(1,085,825)
Investing activities1,032,29184,633
Change in cash balances236,349(11,986,986)
Cash and cash equivalents, beginning year2,909,50514,896,491
Cash and cash equivalents, end of year$ 3,145,854$ 2,909,505
## Cash and Investments Major sources of cash received from operating activities are student tuition and fees of $12.0 million and grants and contracts of $28.7 million. Major uses of cash for operating activities were payments to employees for salaries and benefits of $42.1 million and to vendors and contractors of $18.2 million. Noncapital financing activities included state appropriations from the Commonwealth of Kentucky of $25.8 million. Capital and related financing activities include purchases and payments of $9.3 million expended for construction and acquisition of capital assets and for principal and interest payments on the retirement of the University's bonds and other capital related debt. ===== PAGE 13 ===== # KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020 ## State Appropriations State appropriations represent approximately 35% of all operating and non-operating revenues. The level of state support is a key factor influencing the University's overall financial condition. State appropriation is unrestricted to revenue and is included as non-operating revenue. State appropriations are used to support payroll and benefits for University employees. The following details the net Commonwealth appropriations received by the University for fiscal years ending June 30, 2020 and 2019.
20202019
Commonwealth appropriations$ 25,766,500$ 25,749,000
## Capital Appropriations for the Commonwealth The University faces financial challenges to maintain and upgrade its capital assets including its infrastructure, buildings and grounds. A combination of revenue sources funds the University's investment in capital improvements, including appropriations provided by the Commonwealth of Kentucky. In fiscal year 2020, the Commonwealth provided capital appropriations of $0 to the University. State capital appropriations plus federal sources play an important role in the University's efforts to address deferred maintenance projects. ## Grant and Contract Revenue The following table details the University's grant and contract revenue for fiscal years ended June 30, 2020 and 2019.
20202019
Federal grants and contracts, operating$ 21,403,764$ 18,007,131
Federal grants and contracts, non-operating4,703,3084,261,886
State grants and contracts1,992,7401,607,921
Total grants and contracts$ 28,099,812$ 23,876,938
## Capital Plan The University continues to face financial challenges to maintain and upgrade its capital assets including its infrastructure, buildings and grounds. A combination of revenue sources fund the University's investment in capital improvements. Those include appropriations provided by the Commonwealth of Kentucky. In fiscal year 2016-17, the Commonwealth funded one capital project, appropriating state bond funds toward Repair Boilers and Aging Distribution Lines. As of June 30, 2020, $8.9 million has been expended on this project. State capital appropriations for deferred maintenance were not appropriated. Federal funds are the primary source for the University's College of Agriculture and Land Grant departments. ===== PAGE 14 ===== ## Designated and Non-designated Spending In the tables below, expenses have been categorized into designated or non-designated spending categories. The designated spending category includes funds expended by function from contracts and grants, land grant, auxiliary and depreciation. These funds must be expended for the purposes for which the funds were received or budgeted. This category also includes funds for student aid. All other spending is categorized as non-designated spending. Total spending for all functions in 2020 in the non-designated category is consistent with 2019.
2020
Designated SpendingNon-designated SpendingCombined Spending
Instruction$ 434,006$ 8,588,467$ 9,022,473
Research7,479,608(550,253)6,929,355
Public service9,214,216(339,101)8,875,115
Academic support100,537177,823278,360
Student services809,6887,836,7268,646,414
Institutional support3,456,96911,043,95414,500,923
Operation and maintenance of plant-4,997,7654,997,765
Student aid6,361,73058,9996,420,729
Auxiliary5,167,732-5,167,732
Depreciation3,685,660-3,685,660
Total$ 36,710,146$ 31,814,380$ 68,524,526
2019
Designated SpendingNon-designated SpendingCombined Spending
Instruction$ 1,130,410$ 9,200,223$ 10,330,633
Research8,418,721(969,604)7,449,117
Public service11,171,830(1,084,496)10,087,334
Academic support54,114571,470625,584
Student services620,4506,703,1567,323,606
Institutional support2,988,82911,850,13914,838,968
Operation and maintenance of plant-5,399,9495,399,949
Student aid5,898,427465,5366,363,963
Auxiliary4,423,814-4,423,814
Depreciation3,876,677-3,876,677
Total$ 38,583,272$ 32,136,373$ 70,719,645
===== PAGE 15 ===== ## KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020 The graph in Figure 3 shows a two-year trend of designated, non-designated, and combined spending. Designated spending decreased $1.9 million in 2020. Non-designated spending increased $1.4 million in 2020. Combined spending decreased 0.4 million in 2020. < div style = "text-align: center;" > Figure 3 < /div > < div style = "text-align: center;" > < img src = "imgs/imginchartbox53576420281839.jpg" alt = "Image" width = "58%" / > < /div > ## Capital Asset and Debt Administration ## Capital Assets Capital assets, net of accumulated depreciation, totaled93.4 million at June 30, 2020, an increase of $18.2 million. Capital assets as of June 30, 2020 and significant changes in capital assets during the year are as follows (in millions):
June 30, 2020Net Additions (Reductions) FY 19-20June 30, 2019
Land and land improvements$ 6.3$ -$ 6.3
Buildings, fixed equipment and infrastructure155.8-155.8
Equipment, vehicles and capitalized software32.60.831.8
Library materials and art10.6-10.6
Construction in progress31.821.110.7
Accumulated depreciation(143.7)(3.7)(140.0)
Total$ 93.4$ 18.2$ 75.2
===== PAGE 16 ===== # KENTUCKY STATE UNIVERSITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2020 ## Long-Term Debt At June 30, 2020, bonds and lease payable amounted to $16.1 million, as summarized below:
20202019
Lease obligations$ 14,133,959$ 1,170,167
General receipts bonds2,035,0002,285,000
Bond discount(27,377)(31,861)
Total$ 16,141,582$ 3,423,306
## Economic Factors Impacting Future Periods University management continues its strategic mission to uniquely position Kentucky State University as Kentucky's small public liberal arts institution of excellence for the citizens of the Commonwealth and for advancing higher education in Kentucky by inspiring innovation, growing leaders and advancing Kentucky. Executive management continues to work with the Council on Postsecondary Education to address the needs of the Commonwealth and believe it is positioning the University to become a strong, financially viable and efficient institution of higher learning. Future economic factors impacting Kentucky State University include the following known facts: Tuition and costs of attendance – Kentucky State University continues to weigh its costs of attendance with the funding provided by the General Assembly to successfully deliver its programs and remain one of the most affordable public institutions in the Commonwealth. Funding levels and methodologies used for institutions of higher education in the Commonwealth are developed and approved by the Council on Postsecondary Education. - Enrollment growth and student retention – Kentucky State University recruits a diverse student body of traditional, nontraditional and transfer students seeking baccalaureate and advanced degrees. Enrollment stabilization is a priority of University management and specifically, an increased strategy for recruiting in-state students. Program expansion – the University is well positioned to meet the needs of Kentuckians through its programs and educational activities. The University offers the following programs: Bachelors in Mass Communications and Journalism, a Masters in Special Education, and a Master in Business Administration, a Master in Public Administration, a Master in Computer Science, a Master in Environmental Studies, a Master in Science in Interdisciplinary Behavioral Studies and a Doctorate in Nursing Practice. Regional Stewardship – Kentucky State University continues to meet the economic and community needs of its area of geographic responsibility through collaborative initiatives with businesses, community-based organizations, schools and other educational agencies, citizens and local and state officials. Land Grant – Kentucky State University continues to fulfill its mission as a land grant institution providing innovative research opportunities on its research vessel, the Kentucky River Thorobred and community-based extension through the Rosenwald Center for Families and Children The overall financial position of the University was stable during fiscal year 2020. Revenue streams were stressed. As the University adapts to present economic environments, new opportunities for funding will be explored to complement state support. Executive management's goal is to deliver exceptional programs and services to students and constituents while maintaining financial stability. Management believes Kentucky State University is able to sustain its financial position and solidify its standing as a regional university of excellence. ===== PAGE 17 ===== ## KENTUCKY STATE UNIVERSITY STATEMENTS OF NET POSITION June 30, 2020 (with summarized comparative amounts at June 30, 2019)
20202019
ASSETS
Current assets
Cash and cash equivalents$ 3,145,854$ 2,002,952
Accounts, grants and loans receivable, net3,002,3866,630,604
Total current assets6,148,2408,633,556
Noncurrent assets
Accounts, grants and loans receivable, net692,39681,633
Investments17,172,80318,521,033
Capital assets, net93,459,48275,221,397
Total noncurrent assets111,324,68193,824,063
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows – pension15,184,31713,661,275
Deferred outflows – other postemployment benefits3,409,7951,518,522
Total deferred outflows18,594,11215,179,797
Total assets and deferred outflows of resources136,067,033117,637,416
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities10,698,0787,407,298
Accrued compensated absences2,338,5151,726,772
Unearned revenue1,009,463184,492
Line of credit2,893,7162,061,650
Deposits and other current liabilities195,887148,079
Long-term debt, current portion1,142,388818,185
Total current liabilities18,278,04712,346,476
Non-current liabilities
Net pension liability64,627,26354,555,554
Net OPEB liability11,656,17310,962,235
Long-term debt, non-current portion14,999,1942,605,121
Federal grants refundable525,758557,842
Other noncurrent liabilities485,879-
Total noncurrent liabilities92,294,26768,680,752
DEFERRED INFLOWS OF RESOURCES
Deferred inflows – pension24,290,63439,161,111
Deferred inflows – other postemployment benefits2,775,2151,360,722
Total deferred inflows27,065,84940,521,833
Total liabilities and deferred inflows of resources137,638,163121,549,061
NET POSITION
Net investment in capital assets77,317,90069,736,441
Restricted
Nonexpendable - endowment3,562,2383,562,238
Expendable4,220,8064,800,330
Unrestricted(86,672,074)(82,010,654)
Total net position$ (1,571,130)$ (3,911,645)
See accompanying notes to financial statements. ===== PAGE 18 ===== ### KENTUCKY STATE UNIVERSITY FOUNDATION, INC. STATEMENTS OF FINANCIAL POSITION June 30, 2020 (with summarized comparative amounts at June 30, 2019)
20202019
ASSETS
Current assets
Cash and cash equivalents$ 1,205,650$ 1,705,717
Total current assets1,205,6501,705,717
Investments, at fair value9,658,6759,722,111
Property and equipment
Equipment140,400140,400
Buildings and improvements65,52665,526
205,926205,926
Accumulated depreciation(189,634)(186,759)
Property and equipment, net16,29219,167
Other assets32,11937,833
Total assets$ 10,912,736$ 11,484,828
LIABILITIES AND NET ASSETS
Current liabilities
Accounts payable$ 12,250$ 3,463
Accrued liabilities4,6973,618
Total liabilities16,9477,081
Net assets
Without donor restrictions:
Undesignated85,268192,739
Board Designated for endowment1,884,7742,240,078
Total without donor restrictions1,970,0422,432,817
With donor restrictions:
Purpose restriction4,837,2225,052,179
Time-restricted for future periods82,00082,000
Perpetual in nature4,006,5253,910,751
Total with donor restrictions8,925,7479,044,930
Total net assets10,895,78911,477,747
Total liabilities and net assets$ 10,912,736$ 11,484,828
===== PAGE 19 ===== ## KENTUCKY STATE UNIVERSITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Year ended June 30, 2020 (with summarized comparative amounts for the year ended June 30, 2019)
20202019
REVENUES
Operating revenues
Student tuition and fees (net of scholarship allowances of $4,880,611 and $6,392,830)$ 10,290,971$ 9,710,046
Federal grants and contracts21,403,76418,007,131
State and local grants and contracts1,992,7401,607,921
Other operating revenues971,9481,221,466
Auxiliary enterprises:
Residence halls2,675,9322,244,306
Dining2,552,3422,055,561
Bookstore35,136113,190
Other auxiliaries-13,618
Total operating revenues39,922,83334,973,239
EXPENSES
Operating expenses
Educational and general
Instruction9,022,47310,330,633
Research6,929,3557,449,117
Public service8,875,11510,087,334
Academic support278,360625,584
Student services8,646,4147,323,606
Institutional support14,500,92314,838,968
Operation and maintenance of plant4,997,7655,399,949
Student aid6,420,7296,363,963
Depreciation3,386,5913,573,681
Auxiliary enterprises
Residence halls1,212,849406,049
Dining1,944,3082,147,410
Other auxiliaries1,003,413800,293
Bookstore1,007,1621,070,062
Depreciation299,069302,996
Total operating expenses68,524,52670,719,645
Operating loss(28,601,693)(35,746,406)
NONOPERATING REVENUES (EXPENSES)
State appropriations25,766,50025,749,000
Federal grants and contracts4,703,3084,261,886
Investment income (net of investment expense)590,615871,874
Interest on capital asset-related debt(118,215)(276,798)
Net non-operating revenues30,942,20830,605,962
Income before capital appropriations2,340,515(5,140,444)
Capital appropriations-151,277
Change in net position2,340,515(4,989,167)
NET POSITION
Net position, beginning of year(3,911,645)1,077,522
Net position, end of year$ (1,571,130)$ (3,911,645)
===== PAGE 20 ===== ### KENTUCKY STATE UNIVERSITY FOUNDATION, INC. STATEMENT OF ACTIVITIES Year ended June 30, 2020
Without Donor RestrictionsWith Donor RestrictionsTotal
Revenues, gains and other support Contributions$ 22,914$ 538,770$ 561,684
Investment income:
Interest and dividends100,451144,325244,776
Realized and unrealized gains14,65167,70582,356
Other, net of investment and management expense(62,754)-(62,754)
Total investment income, net52,348212,030264,378
Releases from restrictions875,383(875,383)-
Total revenues, gain and other support950,645(124,583)826,062
Expenses:
Program services expenses:
Student support635,157-635,157
University support425,192-425,192
Total program services expenses1,060,349-1,060,349
Management and general347,671-347,671
Total expenses1,408,020-1,408,020
Change in net assets(457,375)(124,583)(581,958)
Net assets, beginning of year2,432,8179,044,93011,477,747
Reclassifications(5,400)5,400-
Net assets, end of year$ 1,970,042$ 8,925,747$ 10,895,789
===== PAGE 21 ===== ### KENTUCKY STATE UNIVERSITY FOUNDATION, INC. STATEMENT OF ACTIVITIES Year ended June 30, 2019
Without Donor RestrictionsWith Donor RestrictionsTotal
Revenues, gains and other support Contributions$ 5,550$ 669,220$ 674,770
Investment income:
Interest and dividends105,119136,259241,378
Realized and unrealized gains263,278382,187645,465
Other, net of investment and management expense(60,191)-(60,191)
Total investment income, net308,206518,446826,652
Releases from restrictions533,570(533,570)-
Total revenues, gain and other support847,326654,0961,501,422
Expenses:
Program services expenses:
Student support152,110-152,110
University support579,329-579,329
Total program services expenses731,439-731,439
Management and general239,782-239,782
Total expenses971,221-971,221
Change in net assets(123,895)654,096530,201
Net assets, beginning of year2,556,7128,390,83410,947,546
Net assets, end of year$ 2,432,817$ 9,044,930$ 11,477,747
===== PAGE 22 ===== # KENTUCKY STATE UNIVERSITY STATEMENTS OF CASH FLOWS Year ended June 30, 2020 (with summarized comparative amounts for the year ended June 30, 2019)
20202019
Cash flows from operating activities
Tuition and fees$ 10,266,987$ 9,620,776
Grants and contracts28,603,51718,210,886
Payments to suppliers(18,192,160)(25,529,497)
Payments to employees(42,081,381)(43,025,130)
Payments to students(6,231,551)(6,037,006)
Loans issued to students(610,763)-
Collection of loans issued to students(32,084)106,884
Auxiliary enterprises:
Residence halls and dining5,212,3024,334,243
Bookstore35,136113,190
Other auxiliaries-13,618
Other payments242,1091,195,356
Net cash from operating activities(22,787,888)(40,996,680)
Cash flows from non-capital financing activities
State appropriations25,766,50025,749,000
Federal grants and contracts4,703,3084,261,886
Draws on line of credit832,066-
Net cash from non-capital financing activities31,301,87430,010,886
Cash flows from capital financing activities
Purchases of capital assets(8,676,658)(2,180,306)
Draws on line of credit-2,061,650
Principal paid on capital debt(528,811)(834,386)
Interest paid on capital debt(104,459)(284,060)
Capital appropriations-151,277
Net cash from capital financing activities(9,309,928)(1,085,825)
Cash flows from investing activities
Investment income376,186871,874
Proceeds from sale of investments22,029,73621,916,724
Purchases of investments(21,373,631)(22,703,965)
Net cash from investing activities1,032,29184,633
Net change in cash and cash equivalents236,349(11,986,986)
Cash and cash equivalents at beginning of year2,909,50514,896,491
Cash and cash equivalents at end of year$ 3,145,854$ 2,909,505
Non-cash capital financing activities:
Construction in progress acquired by capital lease$ 13,247,087$ -
===== PAGE 23 ===== # KENTUCKY STATE UNIVERSITY STATEMENTS OF CASH FLOWS Year ended June 30, 2020 (with summarized comparative amounts for the year ended June 30, 2019)
20202019
Reconciliation of net operating loss to net cash from operating activities
Operating loss$ (28,601,693)$ (35,746,406)
Adjustments to reconcile operating loss to net cash from operating activities:
Depreciation expense3,685,6603,876,677
Changes in assets and liabilities:
Receivables, net3,628,218(1,542,839)
Collection of loans issued to students(642,847)114,550
Accounts payable and accrued liabilities4,438,4263,143,314
Unearned revenue824,97123,293
Deposits(15,971)34,376
Deferred outflows – pension and OPEB(3,414,315)(690,833)
Deferred inflows – pension and OPEB(13,455,984)9,728,278
Net pension liability10,071,709(18,838,058)
Net OPEB liability693,938(1,099,032)
Net cash from operating activities$ (22,787,888)$ (40,996,680)
===== PAGE 24 ===== ## NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity: Kentucky State University (the University) is a component unit of the Commonwealth of Kentucky (the Commonwealth) and is included in the general-purpose financial statements of the Commonwealth. The Kentucky State University Foundation, Inc. (the Foundation) is a legally separate, tax-exempt organization supporting the University. The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the University in support of its programs. The Foundation's Board of Directors is self-perpetuating and consists of graduates and friends of the University. Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources or income thereon that the Foundation holds and invests is restricted by the donors to the activities of the University. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University's financial statements. Basis of Presentation: The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB), including Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, and Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis of Public College and Universities, issued in June and November, 1999, respectively. The University reports as a Business Type Activity (BTA), as defined by GASB Statement No. 35. BTA's are those activities that are financed in whole or in part by fees charged to external parties for goods and services. Basis of Accounting: The financial statements have been prepared on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when an obligation has been incurred. GASB Statement No. 35 establishes standards for external financial reporting for public colleges and universities and requires that resources be classified for accounting and reporting purposes into the following net asset categories: • Net investment in capital assets: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted: Nonexpendable – Net position subject to externally imposed stipulations that they be maintained permanently by the University. Such positions include the University's permanent endowment funds. Expendable – Net position whose use by the University is subject to externally imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time. Unrestricted: Net position whose use by the University is not subject to externally imposed stipulations. Unrestricted net position may be designated for specific purposes by action of management or the Board of Regents or may otherwise be limited by contractual agreements with outside parties. ===== PAGE 25 ===== ## NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The financial statement presentation required by GASB Statement No. 35 is intended to provide a comprehensive, entity-wide perspective of the University's assets, liabilities, net position, revenues, expenses, changes in net position and cash flows. Cash Equivalents: For the Statement of Cash Flows, the University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Accounts, Grants, and Loans Receivable, Net: Accounts receivables consist of tuition and fee charges, loans to students and amounts due from federal and state governments, non-governmental sources, in connection with reimbursements of allowable expenses made pursuant to grants and contracts. Accounts receivables are recorded net of allowance for doubtful accounts. Allowance for Doubtful Accounts: The allowance for doubtful accounts is established through a provision for doubtful accounts charged to expense. The allowance represents an amount, which, in management's judgment, will be adequate to absorb probable losses on existing accounts that may become uncollectible. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market and consist of physical plant items. Inventories consist of physical plant, postage and printing supplies. Endowment Funds: Kentucky State University recognizes its fiduciary duty not only to invest the University's endowment holdings in formal compliance with the Uniform Prudent Management of Institutional Funds Act (UPMIFA) but also to manage those funds in continued recognition of the basic long-term nature of the University. The University interprets this to mean, in addition to the adopted spending guidelines and restrictions described below, that the assets of the University shall be actively managed, that is, investment decisions regarding the particular securities to be purchased or sold shall be the result of the conscious exercise of discretion. The University recognizes that, commensurate with its overall objective of maximizing long-range return while maintaining a high standard of portfolio quality and consistency of return, it is necessary that proper diversification of assets be maintained both among and within the classes of securities held. Within this context of active management and the necessity of adherence to proper diversification, the University relies upon appropriate professional advice. The University recognizes that long-term objectives are most important, but it is also necessary that shorter-term benchmarks be used to assess the periodic performance of the investment program. The University anticipates annual spending of five percent (5%) of the average market value for the past three years, the amount of which shall be determined in January of each year. The University believes that it is prudent to diversify endowment investments so as to minimize the risks of large losses and has established asset allocation ranges based upon the University's participation demographics, anticipated cash flow requirements and the expected returns of the capital markets. Investments: Investments are valued at fair value based on quoted market prices. Capital Assets: Capital assets are stated at cost at date of acquisition or, in the case of gifts, at acquisition value at date of gift. Equipment with a unit cost of $5,000 or more and having an estimated useful life of greater than one year is capitalized. Renovations to buildings and infrastructure and land improvements that significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense is incurred. ===== PAGE 26 ===== ## NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Depreciation of capital assets is computed on a straight-line basis over the estimated useful lives of the respective assets. Estimated lives used for depreciation purposes are as follows:
ClassificationEstimated Life
Improvements20 years
Buildings40 years
Transportation equipment5-15 years
Equipment5-20 years
Enterprise Resource Software7 years
Library holdings10 years
Compensated Absences: The liability and expense incurred for employee vacation and sick pay are recorded as accrued compensated absences in the statement of net position and as a component of compensation and benefit expense in the statement of revenues, expenses and changes in net position. Unearned Revenue: Unearned revenue includes amounts received for tuition and fees prior to the end of the fiscal year but related to the subsequent reporting period. Unearned revenues also include amounts received from grant and contract sponsors and state deferred maintenance funds that have not yet been earned. Pensions and Other Postemployment Benefits (OPEB): For purposes of measuring the net pension liability, net OPEB liability, deferred outflows of resources and deferred inflows of resources, and related expense, information about the fiduciary net position of the Kentucky Employees Retirement System (KERS) and Kentucky Teachers' Retirement System (KTRS) and additions to/deductions from KERS's and KTRS's fiduciary net position have been determined on the same basis as they are reported by KERS and KTRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Income Taxes: The University is an agency and instrumentality of the Commonwealth of Kentucky, pursuant to Kentucky Revised Statutes sections 164.290 through 164.475. Accordingly, the University is generally exempt from federal income taxes as an organization described in Section 115 of the Internal Revenue Code of 1986, as amended. The Foundation has received a determination from the Internal Revenue Service granting exemption from federal income taxation pursuant to the provisions of the Internal Revenue Code section 501(c)(3). Restricted Asset Spending Policy: The University's policy is that restrictions on assets cannot be fulfilled by the expenditure of unrestricted funds for similar purposes. The determination on whether restricted or unrestricted funds are expended for a particular purpose is made on a case-by-case basis. Restricted funds remain restricted until spent for the intended purpose. Operating Activities: The University defines operating activities, as reported on the statement of revenues, expenses and changes in net position, as those that generally result from exchange transactions, such as payments received for providing goods and services and payments made for services and goods received. Nearly all of the University's expenses are from exchange transactions. Certain significant revenues relied upon for operations, such as state and certain federal appropriations, gifts and investment income, are recorded as non-operating revenues, in accordance with GASB Statement No. 35. ===== PAGE 27 ===== ## NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Scholarship Discounts and Allowances: Financial aid to students is reported in the financial statements under the alternative method as prescribed by the National Association of College and University Business Officers (NACUBO). Certain aid, such as loans and funds provided to students awarded by third parties, is accounted for as third party payments (credited to the student's account as if the student made the payment). All other aid is reflected in the financial statements as operating expenses, or scholarship allowances, which reduce revenues. The amount reported as operating expenses represents the portion of aid that was provided to the student in the form of cash. Scholarship allowances represent the portion of aid provided to the student in the form of reduced tuition. Under the alternative method, these amounts are computed by allocating the cash payments to students, excluding payments for services, on the ratio of total aid to the aid not considered to be third party aid. Federal Grants and Contracts: Per GASB Statement No. 24, pass-through grants should be reported as revenues and expenses in the financial statements if that entity has any administrative or direct financial involvement in the program. An entity has administrative involvement if it determines eligible secondary recipients or projects, even if using grantor-established criteria. Therefore, Pell Grants are considered non-exchange transactions and are recorded as non-operating revenues in the accompanying financial statements. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Component Unit Disclosure: The accompanying financial statements of the Foundation have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the FASB. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. During the year ended June 30, 2020, the Foundation made distributions of approximately $425,192 on behalf of the University for both net assets and unrestricted purposes. Complete financial statements for the Foundation can be obtained from the Kentucky State University Foundation, Inc. at P.O. Box 4210, Frankfort, KY 40604. Comparative Data: The financial statements include certain prior-year summarized comparative information in total but not at the level of detail required for a presentation in conformity with generally accepted accounting principles. The comparative data has been presented in the basic financial statements in order to provide an understanding of the changes in the financial position and operations of the University. Accordingly, such information should be read in conjunction with the University's financial statements for the year ended June 30, 2019, from which the business-type summarized information was derived, and the Foundation's financial statements for the year ended June 30, 2019, from which the component unit's summarized comparative information was derived. Recent Accounting Pronouncements Implemented: During fiscal year 2020, the University adopted the following accounting pronouncements: GASB Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. This Statement was issued to provide temporary relief to governments as a result of the COVID-19 pandemic. This statement was effective immediately and postponed the required implementation dates of certain statements and implementation guides. (Continued) ===== PAGE 28 ===== ## NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements Not Yet Implemented: As of June 30, 2020, the GASB has issued the following statements not yet implemented by the University. GASB Statement No. 84, Fiduciary Activities, effective for periods beginning after December 15, 2019. GASB Statement No. 87, Leases, effective for periods beginning after June 15, 2021 GASB Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period, effective for periods beginning after December 15, 2020. GASB Statement No. 90, Majority Equity Interests, an amendment of GASB Statements No. 14 and No. 61, effective for periods beginning after December 15, 2019. GASB Statement No. 91, Conduit Debt Obligations, effective for periods beginning after December 15. 2021. GASB Statement No. 92, Omnibus 2020, effective for periods beginning after June 15, 2021. GASB Statement No. 93, Replacement of Interbank Offered Rates, effective for periods beginning after June 15, 2021. GASB Statement No. 94, Public-Private and Public-Private Partnerships and Availability Payment Arrangements, effective for periods beginning after June 15, 2022. GASB Statement No. 96, Subscription-Based Information Technology Arrangements, effective for periods beginning after June 15, 2022. GASB Statement No. 97, Certain Component Units Criteria, and Accounting and Financial Reporting for Internal Revenue Code (IRC) Section 457 Deferred Compensation Plans – an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32, effective for periods beginning after June 15, 2021. The University's management has not yet determined the effect these statements will have on the University's financial statements. Business Disruption: In March 2020, the World Health Organization declared the coronavirus (COVID-19) outbreak to be a global pandemic. COVID-19 has impacted economic activity and financial markets globally and has resulted in a decrease in various auxiliary revenues that the University is dependent upon due to closing the campus in March 2020. The continued spread of the disease represents a risk that operations could be disrupted in the near future. The extent to which COVID-19 impacts the University will depend on future developments, which are still highly uncertain and cannot be predicted. As a result of the COVID-19 pandemic, the University received an allocation of Higher Education Emergency Relief Funding through the CARES Act totaling $3,730,489, of which $1,827,277 was expended during the year ended June 30, 2020. The remaining $1,903,212 is expected to be expended and recognized as revenue when allowable expenses are incurred during fiscal year 2021. As of June 30, 2020, the University also deferred employer Social Security taxes in the amount of $485,879 as allowed under the CARES Act to provide more liquidity to the University during the pandemic. The University is expected to make payment of half of the deferred taxes by December 31, 2021 and deposit the remaining liability by December 31, 2022. (Continued) ===== PAGE 29 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 2 – CASH, CASH EQUIVALENTS, AND INVESTMENTS The statement of net position classification "cash and cash equivalents" includes all readily available sources of cash such as petty cash and demand deposits. At June 30, 2020, the University had petty cash funds totaling zero, and deposits as reflected by bank balances as follows:
2020
Insured, commercial banks$ 250,000
Uninsured and uncollateralized, commercial banks293,114
Maintained by Commonwealth of Kentucky, collateral held by the Commonwealth in the Commonwealth's name1,008,953
Cash balances held at ARGI Investment Services982,360
$ 2,534,427
The difference in the cash carrying amount per the statement of net position and the above balances represented items in transit. At June 30, 2020, the University had no cash and cash equivalents that are restricted for capital expenditures. As of June 30, 2020, the University had the following investments and maturities:
Investment Maturities (in years)
Investment TypeFair Value< 11-56-1011-20
Exchange traded funds$ 12,739,328$12,739,328$-$-$-
Corporate bonds3,035,043356,5231,870,706807,813-
Government bonds1,398,433855,570285,626257,238-
$ 17,172,804$13,951,421$ 2,156,332$1,065,051$-
The University has an investment management agreement with ARGI Investment Services, LLC (ARGI). ARGI serves individual and institutional clients. The University has the following recurring fair value measurements as of June 30, 2020:
TotalLevel 1Level 2Level 3
Exchange traded funds$ 12,739,328$ 12,739,328$ -$ -
Corporate bonds3,035,0433,035,043--
Government bonds1,398,4331,398,433--
$ 17,172,804$ 17,172,804$ -$ -
===== PAGE 30 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 2 – CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) All securities classified in level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Credit Risk: The University's average credit quality rating according to Moody's is Aa3. Interest Rate Risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The University does not have a formal policy to specifically limit investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Concentration of Credit Risk: Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The University does not have a formal policy for concentration of credit risk. Custodial Credit Risk: For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the University will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The University does not have a formal policy for custodial credit risk. ## NOTE 3 – ACCOUNTS, GRANTS AND LOAN RECEIVABLE Accounts, grants and loans receivable consist of the following as of June 30, 2020:
Student tuition and fees$ 2,636,444
Student loans989,467
Grants and contracts735,174
Other773,300
5,134,385
Less: allowance for doubtful accounts(1,439,603)
3,694,782
Less: non-current portion(692,396)
Current portion$ 3,002,386
===== PAGE 31 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 4 – CAPITAL ASSETS, NET Capital assets as of June 30, 2020, are summarized as follows:
Beginning BalanceAdditionsReductions/ TransfersEnding Balance
Cost
Land and improvements$ 6,275,031$ -$ -$ 6,275,031
Buildings155,846,86911,831-155,858,700
Equipment25,714,538600,092-26,314,630
Computer software1,658,071182,050-1,840,121
Library holdings10,648,07115,547-10,663,618
Transportation equipment4,379,06118,435-4,397,496
Construction in progress10,681,98621,253,223134,66131,800,549
215,203,62722,081,178134,661237,150,145
Accumulated depreciation
Buildings104,065,0022,188,521-106,253,524
Equipment21,395,8301,317,303-22,713,133
Library holdings10,417,45055,493-10,472,943
Transportation equipment4,103,948147,115-4,251,063
139,982,2303,708,432-143,690,663
Capital assets, net$ 75,221,397$ 18,372,746$ 134,661$ 93,459,482
Construction in progress consists primarily of projects to repair and replace boilers and distribution lines and energy savings projected funded by capital lease agreement with the Commonwealth of Kentucky disclosed in Note 7. The project is projected to be completed in fiscal year 2021. Estimated cost to complete the project is approximately $3.1 million. ## NOTE 5 – UNEARNED REVENUE Unearned revenue consists of the following as of June 30, 2020:
Unearned summer school tuition and fees$ 94,697
Unearned grants and contracts914,766
$ 1,009,463
## NOTE 6 – LINE OF CREDIT During fiscal year 2020, the University entered into a line of credit agreement with Fifth Third Bank for a maximum borrowing amount of $5,000,000, maturing on June 30, 2020. At June 30, 2020, borrowings on the line of credit totaled $2,893,716. The line bears interest at the Adjusted LIBOR rate and the interest rate at June 30, 2020 was 1.8%. The agreement was renewed as of July 1, 2020 for $5,000,000, maturing on June 30, 2021. ===== PAGE 32 ===== ## NOTE 7 – LONG-TERM LIABILITIES Long-term liabilities as of June 30, 2020, are summarized as follows:
Beginning BalanceAdditionsReductionsEnding BalanceCurrent PortionNon-current Portion
Debt
General receipts bonds$ 2,285,000$ -$ 250,000$ 2,035,000$ 260,000$ 1,775,000
Bond discount(31,861)-(4,484)(27,377)(4,484)(22,893)
Total bonds2,253,139-245,5162,007,623255,5161,752,107
Other long-term liabilities
Capital lease obligations - energy savings1,170,16713,247,087283,29614,133,958886,87213,247,087
Federal grants refundable557,842-32,084525,758-525,758
Total long-term liabilities$ 3,981,148$13,247,087$ 560,896$16,667,339$1,142,388$15,524,952
The outstanding General Receipts Bonds Series A Bonds have interest rates from 3.625% - 3.875%. The bonds mature through 2027. The reserve requirements for these issues have been fully funded as of June 30, 2020. All bonds are collateralized by University property and the pledge of certain revenues, tuition and fees. The net book value of assets acquired through the capital leases included in the above schedule was $15,516,877 as of June 30, 2020. The principal and interest repayment requirements relating to the outstanding bonds payable at June 30, 2020, are as follows:
Year ending June 30PrincipalInterestTotal
2021$260,000$78,791$ 338,791
2022270,00068,781
2023280,00058,319
2024290,00047,469
2025300,00036,231
2026-2028635,00037,200672,200
Total$ 2,035,000$ 326,791$ 2,361,791
During 2005, the University entered into a capital lease for an energy management project. The lease obligation has an interest rate of 4.29% and requires annual payments of principal and interest through 2021. The lease obligation will be paid with guaranteed energy savings. During 2020, the University entered into a capital lease for an additional energy management project. The lease obligation has an interest rate of 2.7095% and requires semi-annual payments of principal and interest beginning in fiscal 2022 through 2036. The lease obligation will be paid with guaranteed energy savings. ===== PAGE 33 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 7 – LONG-TERM LIABILITIES (Continued) The following is a schedule of future minimum payments required for the capital lease obligations at June 30, 2020:
Year ending June 30,
2021$ 925,188
20221,353,014
20231,353,014
20241,353,014
20251,353,014
2026-20367,835,029
Total minimum lease payments14,172,273
Less: amounts representing interest(38,314)
Present value of minimum lease payment$ 14,133,959
## NOTE 8 – OPERATING LEASES The University leases certain assets under operating lease agreements. The operating leases expire in various years through 2025. These leases do not transfer assets at the end of the lease term. Periods on these leases range from one to five years and requires the University to pay all executor costs (maintenance, insurance, taxes). Future minimum lease payments at June 30, 2020, are as follows:
Year ending June 30,
2021$ 317,592
2022305,692
2023228,493
2024198,329
202534,954
$ 1,085,060
Lease expense was $293,600 for the year ended June 30, 2020. ===== PAGE 34 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS Kentucky Employees' Retirement System - Defined Benefit Plan Plan Description – The University contributes to the Kentucky Employees' Retirement System (KERS), a cost sharing - multiple employer public employee retirement system. KERS is a defined benefit plan providing for retirement, disability, death benefits and health insurance. Participants have a fully vested interest after the completion of 60 months of service, 12 of which are current service. KERS issues a publicly available financial report that includes financial statements, required supplementary information, and detailed information about the pension plan's fiduciary net position. That report may be obtained by writing to Kentucky Retirement Systems, Perimeter Park West, 1260 Louisville Road, Frankfort, Kentucky, 40601-6124 or by calling (502) 696-8800. Benefits Provided
Tier 1 Participation Prior to September 1, 2008Participation September 1, 2008 through December 31, 2013Tier 3 Participation January 1, 2014
Non-Hazardous
Benefit FormulaFinal Compensation x Benefit Factor x Years of ServiceCash Balance Plan
Final CompensationAverage of the highest 5 fiscal years (must contain at least 48 months). Includes lump-sum compensation payments (before and at retirement).5 complete fiscal years immediately preceding retirement; each year must contain 12 months. Lump-sum compensation payments (before and at retirement) are not to be included in creditable compensation.No Final Compensation
Benefit Factor1.97% or 2.0% for those retiring with service for all months between 1/1998 and 1/1999.10 years or less = 1.10%. Greater than 10 years, but no more than 20 years = 1.30%. Greater than 20 years, but no more than 26 years = 1.50%. Greater than 26 years, but no more than 30 years = 1.75%. Additional years above 30 – 2.00% (2.00% benefit factor only applies to service earned in excess of 30 years).No benefit factor. A life annuity can be calculated in accordance with actuarial assumptions and methods adopted by the board based on member's accumulated account balance.
Cost of Living Adjustment (COLA)No COLA unless authorized by the Legislature. If authorized, the COLA is limited to 1.5%. This impacts all retirees regardless of Tier.
Unreduced Retirement BenefitAny age with 27 years of service. Age 65 with 48 months of service. Money purchase for age 65 with less than 48 months based on contributions and interestRule of 87: Member must be at least age 57 and age plus earned service must equal 87 years at retirement to retire under this provision. Age 65 with 5 years of earned service. No month purchased calculations.
(Continued) ===== PAGE 35 =====
NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued)
Tier 1 Participation Prior to September 1, 2008Tier 2 Participation September 1, 2008 through December 31, 2013Tier 3 Participation January 1, 2014
Reduced Retirement BenefitAny age with 25 years of service. Age 55 with 5 years of service.Age 60 with 10 years of service. Excludes purchased service (exception: refunds, omitted, free military).No reduced retirement benefit.
Hazardous
Benefit FormulaFinal Compensation X BenefitFactor X Years of ServiceCash Balance Plan
Final CompensationHighest 3 fiscal years (must contain at least 24 months). Includes lump-sum compensation payments (before and at retirement).3 highest salaries; each year must contain 12 months. Lump-sum compensation payments (before and at retirement) are not to be included in creditable compensation.No Final Compensation
Benefit Factor2.49%10 years or less = 1.30%. Greater than 10 years, but no more than 20 years = 1.50%. Greater than 20 years, but no more than 26 years = 2.25%. Greater than 25 years = 2.50%.No benefit factor. A life annuity can be calculated in accordance with actuarial assumptions and methods adopted by the board based on member's accumulated account balance.
Cost of Living Adjustment (COLA)No COLA unless authorized by the Legislature. If authorized, the COLA is limited to 1.5%. This impacts all retirees regardless of Tier.
Unreduced Benefit RetirementAny age with 20 years of service. Age 55 with 60 months of service.Any age with 25 years of service. Age 60 with 60 months of service.Any age with 25 years of service. Age 60 with 60 months of service.
Reduced Benefit RetirementAge 50 with 15 years of service.Age 50 with 15 years of service.No reduced retirement benefit.
Contributions - Benefit and contribution rates are established by state statute. Per Kentucky Revised Statute 61.565(3) contribution requirements of the active employees and the participating organizations are established and may be amended by the KRS Board. For the fiscal year ended June 30, 2020, University non-hazardous and hazardous employees were required to contribute 5 percent of their annual covered salary for retirement benefits for the year ended June 30, 2020. Non-hazardous and hazardous employees with a participation date after September 1, 2008 were required to contribute an additional 1 percent of their covered salary for retiree healthcare benefits. The University was contractually required to contribute 49.47 percent (41.06 percent allocated to pension and 8.41 percent allocated to OPEB) of annual covered payroll for non-hazardous pay and 36.85 percent (34.39 percent allocated to pension and 2.46 percent allocated to OEPB) for hazardous pay to the pension plan for the year ended June 30, 2020. These amounts were ===== PAGE 36 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued) actuarially determined as an amount that, when combined with employee contributions, is expected to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The University's total pension contributions to KERS for the year ended June 30, 2020 was $1,956,298, equal to the required contributions for the year. Pension liabilities, pension expense, and deferred outflows of resources and deferred inflows of resources related to pensions - At June 30, 2020, the University reported a liability of $42,075,248 for its proportionate share of the non-hazardous net pension liability and $393,085 for hazardous. The net pension liability was measured as of June 30, 2019 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2018, rolled-forward for June 30, 2019. The University's proportion of the net pension liability was based on actual contributions to the pension plan during the measurement period. At June 30, 2020, the University's proportion was 0.30 percent for non-hazardous and 0.07 percent for hazardous, respectively. For the year ended June 30, 2020, the University's actuarially calculated pension expense was $6,557,666 for non-hazardous and $140,261 for hazardous. At June 30, 2020, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows of ResourcesDeferred Inflows of Resources
2020
Non-hazardous:
Difference between expected and actual experience$ 248,853$ -
Net difference between projected and actual earnings on investments-85,733
Changes of assumptions1,281,099-
Changes in proportion and differences between employer contributions and proportionate share of contributions4,901,183480,130
University contributions subsequent to measurement date1,923,866-
$ 8,355,001$ 565,863
Hazardous:
Difference between expected and actual experience$ 7,478$ -
Net difference between projected and actual earnings on investments-6,759
Changes of assumptions27,550-
Changes in proportion and differences between employer contributions and proportionate share of contributions191,023330,298
University contributions subsequent to measurement date32,432-
$ 258,483$ 337,057
===== PAGE 37 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued) At June 30, 2020, the University reported $1,956,298 as deferred outflows of resources related to pensions resulting from University contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the following fiscal year. Deferred outflows and deferred inflows of resources at June 30, 2020, related to pensions will be recognized in pension expense as follows:
Non-HazardousHazardous
2021$ 3,635,695$ 30,632
20222,259,496(140,739)
2023(27,494)(4,464)
2024(2,425)566
$ 5,865,272$ (114,005)
Actuarial assumptions - The total pension liability for KERS measured as of June 30, 2019 was determined by applying procedures to the actuarial valuation as of June 30, 2018, using the following actuarial assumptions, applied to all periods included in the measurement.
2019
Actuarial cost methodEntry age normal
Amortization methodLevel percent of pay
Remaining amortization period26 years, closed
Asset valuation method20% of the difference between
Market value of assets the expected actuarial value of assets is recognized
Inflation2.30%
Payroll growth rate0.0
Salary increases, varies by service, non-hazardous3.55 to 15.55
Salary increases, varies by service, hazardous3.55 to 19.55
Investment rate of return, non-hazardous5.25
Investment rate of return, hazardous6.25
The mortality table used for active members was a Pub-2010 General Mortality table for the non-hazardous system and the Pub-2010 Public Safety Mortality table for the hazardous system, projected with the ultimate rates from the MP-2014 mortality improvement scale using a base year of 2010. The mortality table used for healthy retired members was a system-specific mortality table based on mortality experience from 2013-2018, projected with the ultimate rates from MP-2014 mortality improvement scale using a base year of 2019. The mortality table used for the disabled members was PUB-2010 Disabled Mortality table, with a 4-year set-forward for both male and female rates, projected with the ultimate rates from the MP-2014 mortality improvement scale using a base year of 2010. The long-term expected rate of return was determined using a building-block method in which best-estimate ranges of expected future real rates of returns are developed for each asset class. The ranges are combined by weighting the expected future real rate of return by the target asset allocation percentage. The net pension liability as of June 30, 2019 is based on the June 30, 2018 actuarial valuation rolled forward. Deferred outflows and inflows related to differences between projected and actual earnings on plan investments are netted and amortized over a closed five-year period. ===== PAGE 38 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued) The target asset allocation and best estimates of arithmetic nominal rates of return for each major asset class are summarized in the following table:
Asset ClassNon-hazardous
Target AllocationLong-Term Nominal Rate of Return
2020
U.S. Equity15.75%4.30%
International Equity15.754.80
Core Bonds20.501.35
Specialty Credit/High Yield15.002.60
Real Estate5.004.85
Opportunistic3.002.97
Real Return15.004.10
Private Equity7.006.65
Cash Equivalents3.000.20
Total100.00%
Hazardous
Asset ClassTarget AllocationLong-Term Nominal Rate of Return
2020
U.S. Equity18.75%4.30%
International Equity18.754.80
Core Bonds13.501.35
Specialty Credit/High Yield15.002.60
Real Estate5.004.85
Opportunistic3.002.97
Real Return15.004.10
Private Equity10.006.65
Cash Equivalents1.000.20
Total100.00%
Changes in Assumptions and Benefit Terms Since Prior Measurement Date – The Board of Trustees of KERS adopted new actuarial assumptions since June 30, 2018. These assumptions are documented in the report titled “Kentucky Retirement Systems 2018 Actuarial Experience Study for the Period Ending June 30, 2018”. The Total Pension liability as of June 30, 2019, was determined using these updated assumptions. ===== PAGE 39 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued) Changes Since Measurement Date - There were no changes between the measurement date of the collective net pension liability and the employer's reporting date. Discount rate - The discount rate used to measure the total pension liability was 5.25% (Non-hazardous) and 6.25% (Hazardous). The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at the actuarially determined contribution rate. Based on those assumptions, the pension plan's fiduciary net position and future contributions were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The projection of cash flows used to determine the single discount rate assumes that the Commonwealth of Kentucky contributes the actuarially determined contribution in all future years. Sensitivity of the University's proportionate share of the net pension liability to changes in the discount rate - The University's proportionate share of the net pension liability has been calculated using a discount rate of 5.25% (Non-hazardous) and a discount rate of 6.25% (Hazardous) for the June 30, 2019 actuarial valuation. The following presents the University's proportionate share of the net pension liability calculated using a discount rate 1% higher and 1% lower than the current rate as of June 30, 2020:
1% Decrease (4.25%)Current Discount Rate (5.25%)1% Increase (6.25%)
Non-Hazardous Proportionate share of the Collective Net Pension Liability$ 48,233,688$ 42,075,248$ 36,985,856
1% Decrease (5.25%)Current Discount Rate (6.25%)1% Increase (7.25%)
Hazardous Proportionate share of the Collective Net Pension Liability$ 506,862$ 393,085$ 299,617
Kentucky Teachers' Retirement System - Defined Benefit Plan Plan Description – The Kentucky Teachers’ Retirement System (KTRS), a cost sharing - multiple employer public employee retirement system. KTRS is a defined benefit plan providing for retirement, disability, death benefits and health insurance. Participants have a fully vested interest after the completion of 60 months of service, 12 of which are current service. KTRS issues a publicly available financial report that includes financial statements, required supplementary information, and detailed information about the pension plan's fiduciary net position. That report may be obtained by writing to Kentucky Teachers' Retirement System, 479 Versailles Road, Frankfort, Kentucky, 40601 or by calling (502) 573-3266. ===== PAGE 40 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued) Benefits Provided
Tier 1\nParticipation Prior to\nJuly 1, 2008Tier 2\nParticipation on or After\nJuly 1, 2008
Covered Employees:University faculty and professional staff that do not choose the Optional Retirement Plan (Deferred Contribution)University faculty and professional staff that do not choose the Optional Retirement Plan (Deferred Contribution)
Benefit Formula:Final Compensation X Benefit Factor X Years of Service
Final Compensation:Average of the highest 5 annual salaries reduced 5% per year from the earlier of age 60 or the date 27 years of service would have been completed. Average of the highest 3 annual salaries if age 55 with 27 or more years of service. The minimum annual service allowance for all members is $440 multiplied by credited service.Average of the highest 5 annual salaries reduced 6% per year from the earlier of age 60 or the date 27 years of service would have been completed. Average of the highest 3 annual salaries if age 55 with 27 or more years of service. The minimum annual service allowance for all members is $440 multiplied by credited service.
Benefit Factor:Non-University members: 2.00% for service prior to 7/1/1983; 2.50% for service after 7/1/1983; 2.00% if participation after 7/1/2002 and less than 10 years; 2.50% if participation after 7/1/2002 and more than 10 years; 3.00% if retire after 7/1/2004 with more than 30 years. University members: 2.0% for each year of service.Non-University members: 1.70% if less than 10 years; 2.00% if greater than 10 years, but no more than 20 years; 2.30% if greater than 20 years, but no more than 26 years; 2.50% if greater than 26 years, but no more than 30 years; 3.00% for service greater than 30 years. University members: 1.50% if less than 10 years; 1.70% if greater than 10 years, but less than 20 years; 1.85% if greater than 20 years, but less than 27 years; 2.00% if greater than 27 years.
Cost of Living Adjustment (COLA):1.5% annually additional ad hoc increases must be authorized by the General Assembly.
===== PAGE 41 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020
NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued)
Tier 1\nParticipation Prior to\nJuly 1, 2008Tier 2\nParticipation on or After\nJuly 1, 2008
Unreduced Retirement Benefit:Any age with 27 years of Kentucky service. Age 55 with 5 years of Kentucky service.Any age with 27 years of Kentucky service. Age 60 with 5 years of Kentucky service. Age 55 with 10 years of Kentucky service.
Reduced Benefit:RetirementMust be retired for service or disability to be eligible. Retired members are given a supplement based upon a contribution supplement table approved by the KTRS Board of Trustees. The retired member pays premiums in excess of the monthly supplement.
Contributions - Benefit and contribution rates are established by state statute. Per Kentucky Revised Statutes 161.340, 161.550 and 161.565, contribution requirements of the active employees and the participating organizations are established and may be amended by the KTRS Board. For the fiscal year ended June 30, 2019, University employees were required to contribute 7.625 percent of their annual covered salary for retirement benefits. The University was contractually required to contribute 15.865 percent of covered payroll for the year ended June 30, 2020. The actuarially determined amount, when combined with employee contributions, is expected to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The University's total contributions to KTRS for the year ending June 30, 2020 was $1,813,761 and were equal to the required contributions for the year. In addition, the Commonwealth of Kentucky contributes ad hoc annual cost of living adjustments provided by the General Assembly for KTRS retirees. This contribution totaled $1,965,387 for the year ending June 30, 2020. Pension liabilities, pension expense, and deferred outflows of resources and deferred inflows of resources related to pensions - At June 30, 2020, the University reported a liability for its proportionate share of the net pension liability that reflected a reduction for pension support provided to the University by the Commonwealth of Kentucky. The amount recognized by the University as its proportionate share of the net pension liability, the related State support, and the total portion of the net pension liability that was associated with the University were as follows:
2020
University's proportionate share of the net pension liability$ 22,158,930
Commonwealth of Kentucky's proportionate share of the net pension liability associated with the University24,011,362
$ 46,170,292
The net pension liability was measured as of June 30, 2019 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2018. The University's proportion of the net pension liability was based on actual contributions to the pension plan during the measurement period of July 1, 2018 through June 30, 2019. At June 30, 2020, the University's proportion was 0.16 percent and the Commonwealth's proportion was 0.17 percent. ===== PAGE 42 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued) For the year ended June 30, 2020, the University was allocated pension expense of $(11,551,057). The University also recognized revenue of $2,388,987 for support provided by the Commonwealth. At June 30, 2020, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows of ResourcesDeferred Inflows of Resources
2020
Net difference between projected and actual earnings on investments$-$ 185,884
Change in assumptions1,877,98911,799,404
Differences between expected an actual experience66,0611,413,681
Changes in proportion and differences between employer contributions and proportionate share of contributions2,686,1829,987,269
Contributions subsequent to the measurement date1,940,601-
$ 6,570,833$ 23,386,238
At June 30, 2020, the University reported $1,940,601 as deferred outflows of resources related to pensions resulting from University contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the following fiscal year. Net deferred outflow (inflows) of resources at June 30, 2020, related to pensions will be recognized in pension expense as follows:
2021$ (10,264,089)
2022(6,521,051)
2023(1,958,510)
2024(12,356)
$ (18,756,006)
Actuarial assumptions - The total pension liability was determined by actuarial valuation as of June 30, 2018, using the following actuarial assumptions, applied to all periods included in the measurement:
Valuation dateJune 30, 2018
Inflation3.00%
Salary Increases3.50 – 7.30%, average, including inflation
Investment Rate of Return7.50%, net of pension plan investment expense, including inflation
Municipal bond index rate3.50%
Single equivalent interest rate7.50%
Mortality rates were based on the RP-2000 Combined Mortality Table for Males or Females, as appropriate, with adjustments for mortality improvements based on a projection of Scale BB to 2025, set forward two years for males and one year for females. The actuarial assumptions used in the June 30, 2018 valuation were based on the results of an actuarial experience study for the period July 1, 2010 - June 30, 2015 adopted by the Board on November 19, 2016. ===== PAGE 43 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued) The long-term expected return on pension plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class for the June 30, 2019 actuarial valuation, are summarized in the following table:
Asset ClassTarget AllocationLong-Term Nominal Rate of Return
U.S. Equity40.0%4.2%
International Equity22.05.2
Fixed Income15.01.2
Additional Categories (Incl. Hedge Funds, High Yield, Non-U.S. Developed Bonds, and Private Credit Strategies)8.03.3
Real Estate6.03.8
Private Equity7.06.3
Cash2.00.9
Total100.0%
Changes in Assumptions and Benefit Terms Since Prior Measurement Date – The TPL as of June 30, 2019 reflects the assumed municipal bond index rate decrease from 3.89 percent to 3.50 percent. The Single Equivalent Interest Rate (SEIR) remained at 7.50 percent. Changes in Assumptions and Benefit Terms Since Prior Measurement Date – There were no changes in assumptions or benefit terms as of June 20, 2019 from the June 30, 2018 measurement date. Changes Since Measurement Date - There were no changes between the measurement date of the collective net pension liability and the University reporting date that are expected to have a significant effect on the University's proportionate share of the collective net pension liability. Discount rate - The discount rate used to measure the total pension liability at June 30, 2019 was 7.50%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rates and that employer contributions will be made at the actuarially determined contribution rates for all fiscal years in the future. Based on those assumptions, at the June 30, 2019 measurement date, the pension plan's fiduciary net position was projected to be available to make all projected future benefits payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. ===== PAGE 44 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 9 – DEFINED BENEFIT PENSION PLANS (Continued) Sensitivity of the University's proportionate share of the net pension liability to changes in the discount rate - The following table presents the net pension liability of the University as of June 30, 2020, calculated using the discount rate of 7.50%, as well as what the University's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate:
1% Decrease (6.50%)Current Discount Rate (7.50%)1% Increase (8.50%)
Proportionate share of the Collective Net Pension Liability$ 28,273,635$ 22,158,930$ 16,984,188
Summary Pension Plan Information:
KERS Hazardous/Non-hazardousKTRSTotal
June 30, 2020
Net pension liability$ 42,468,333$ 22,158,930$ 64,627,263
Deferred outflows of resources8,613,4846,570,83315,184,317
Deferred inflows of resources902,92023,386,23824,289,158
Pension expense (income)6,697,927(11,551,057)(4,853,130)
## NOTE 10 - OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) In addition to the pension plans disclosed in Note 9, the University's employees participate in either the Kentucky Teachers Retirement System (KTRS) OPEB Plan or the Kentucky Employees Retirement System (KERS) OPEB Plan depending on the retirement plan in which they participate. Each OPEB plan is described in detail below. ## Kentucky Employees Retirement System (KERS) OPEB Plan Plan Description: The KERS OPEB Plan is a cost-sharing multiple-employer defined benefit OPEB plan, which was available to University employees hired prior to January 1, 2014. This plan provides medical insurance for eligible retirees and is administered by Kentucky Retirement System (KRS) who publishes a financial report located at https://kyret.ky.gov. OPEB Benefits Provided: The information below summarizes the major other postemployment retirement benefit provisions of KERS Non-Hazardous and Hazardous plans. It is not intended to be, nor should it be interpreted as, a complete statement of all benefit provisions: Insurance Tier 1: Participation began before 7/1/2003 Benefit Eligibility: Recipient of a retirement allowance Benefit: The percentage of member premiums paid by the retirement system are dependent on the number of years of service. Benefits also include duty disability retirements, duty death in service, non-duty death in service and surviving spouse of a retiree. ===== PAGE 45 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) Insurance Tier 2: Participation began on or after 7/1/2003, but before 9/1/2008 Benefit Eligibility: Recipient of a retirement allowance with at least 120 months of service at retirement ## Benefit: The system provides a monthly contribution subsidy of $10 (Non-hazardous) and $15 (Hazardous) for each year of earned service. The monthly contribution is increased by 1.5% each July 1. Benefits also include duty disability retirements, duty death in service and non-duty death in service. Insurance Tier 3: Participation began on or after 9/1/2008 Benefit Eligibility: Recipient of a retirement allowance with at least 180 months of service at retirement Benefit: Tier 3 insurance benefits are identical to Tier 2, except Tier 3 members are required to have at least 180 months of service in order to be eligible. Contributions: The University was required to contribute at an actuarially determined rate determined by Statute. Per Kentucky Revised Statute Section 78.545(33) normal contribution and past service contribution rates shall be determined by the KRS Board on the basis of an annual valuation last preceding July 1 of a new biennium. The KRS Board may amend contribution rates as of the first day of July of the second year of a biennium, if it is determined on the basis of a subsequent actuarial valuation that amended contribution rates are necessary to satisfy requirements determined in accordance with actuarial bases adopted by the KRS Board. For the fiscal year ended June 30, 2020, participating employers in the non-hazardous plan contributed 49.47% (41.06% allocated to pension and 8.41% allocated to OPEB) as set by KRS of each non-hazardous employee's creditable compensation. For the fiscal year ended June 30, 2020, participating employers in the Hazardous plan contributed 36.85% (34.39% allocated to pension and 2.46% allocated to OPEB) as set by KRS of each Hazardous employee's creditable compensation. These percentages are inclusive of both pension and insurance payments for employers. Administrative costs of KRS are financed through employer contributions and investment earnings. The University has met 100% of the contribution funding requirement for the fiscal years ended June 30, 2020. Total current year contributions recognized by the Plan were $2,356,992 ($1,956,298 related to pension and $400,693 related to OPEB) for the year ended June 30, 2020. The OPEB contributions amount does not include the implicit subsidy reported in the amount of $80,786. Members whose participation began before 9/1/2008: Nonhazardous contributions equal 5% and Hazardous contributions equal 8% of all creditable compensation. Interest paid on the members' accounts is currently 2.5%; and per statute shall not be less than 2.0%. Member entitled to a full refund of contributions with interest. Members whose participation began on or after 9/1/2008: Nonhazardous contributions equal to 6% and Hazardous contributions equal 9% of all creditable compensation, with 5% (Non-hazardous) and 8% (Hazardous) being credited to the member's account and 1% deposited to the KRS 401(h) Account. Interest paid on the members' accounts will be set at 2.5%. Member is entitled to a full refund of contributions and interest in their individual account, however, the 1% contributed to the insurance fund is non-refundable. ===== PAGE 46 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) Members whose participation on or after 1/1/2014: Nonhazardous contributions equal to 6% and Hazardous contributions equal 9% of all creditable compensation, with 5% (Non-hazardous) and 8% (Hazardous) being credited to the member's account and 1% deposited to the KRS 401(h) Account. Interest paid on the members' accounts will be set at 2.5%. Member is entitled to a full refund of contributions and interest in their individual account, however, the 1% contributed to the insurance fund is non-refundable. Total OPEB Liability: The total other postemployment benefits ("OPEB") liability was measured as of June 2019 using an actuarial valuation as of June 30, 2018. The financial reporting actuarial valuation as of June 30, 2019, used the following actuarial methods and assumptions, applied to all periods included in the measurement: Inflation 2.30 percent Payroll growth rate Salary increases Investment rate of return Healthcare trend rates Pro-65 0.00 percent for KERS non-hazardous and hazardous 3.55 to 15.30 percent, varies by service 6.25 percent Pre-65 Initial trend starting at 7.00 percent at January 1, 2020 and gradually decreasing to an ultimate trend rate of 4.05 percent over a period of 12 years. Post-65 Initial trend starting at 5.00 percent at January 1, 2019 and gradually decreasing to an ultimate trend rate of 4.05 percent over a period of 10 years. The mortality table used for active members is PUB-2010 General Mortality table projected with the ultimate rates from the MP-2014 mortality improvement scale using a base year of 2010. The mortality table used for healthy retired members is a system-specific mortality table based on mortality experience from 2013-2018, projected with the ultimate rates from MP-2014 mortality improvement scale using a base year of 2019. For disabled members, the mortality table used is PUB-2010 Disabled Mortality table, with a 4-year set-forward for both male and female rates, projected with the ultimate rates from the MP-2014 mortality improvement scale using a base year of 2010. Discount rate assumptions: (a) Discount Rate: The discount rate used to measure the total Non-hazardous OPEB liability was 5.73%, which was reduced from the 5.86% discount rate used in the prior year. The discount rate used to measure the total Hazardous OPEB liability was 5.66%, which was decreased from the 5.88% discount rate used in the prior year. (b) the local employers and plan members would contribute the actuarially determined contribution rate of projected compensation over the remaining 24-year closed amortization period of the unfunded actuarial accrued liability. (Continued) ===== PAGE 47 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) (c) Long-Term Rate of Return: The long-term expected return on plan assets is reviewed as part of the regular experience studies prepared every five years for the System. The most recent analysis, performed for the period covering fiscal years 2008 through 2013 is outlined in a report dated April 30, 2014. However, the Board of KRS has the authority to review the assumptions on a more frequent basis and adopt new assumptions prior to the next scheduled experience study. The long-term expected rate of return was determined by using a building-block method in which best-estimate ranges of expected future real rate of returns are developed for each asset class. The ranges are combined by weighting the expected future real rate of return by the target asset allocation percentage. (d) Municipal Bond Rate: The discount rate determination used a municipal bond rate of 3.13% as reported in Fidelity Index's “20 – Year Municipal GO AA Index” as of June 30, 2019. (e) Projected Cash Flows: The projection of cash flows used to determine the discount rate assumed Period of Projected Benefit Payments: Current assets, future contributions, and investment earnings are projected to be sufficient to pay the projected benefit payments from the retirement system. However, the cost associated with the implicit employer subsidy is not currently being included in the calculation of the system's actuarial determined contributions, and it is the actuary's understanding that any cost associated with the implicit subsidy will not be paid out of the system's trust. Therefore, the municipal bond rate was applied to future expected benefit payments associated with the implicit subsidy. (f) Assumed Asset Allocations: The target asset allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:
June 30, 2020
June 30, 2020
Long-Term
TargetExpected Real
Asset ClassAllocationRate of Return
US Equity18.75%4.30%
International Equity18.754.80
Private Equity10.006.65
Special Credit/High Yield15.002.60
Core Bonds13.501.35
Real Estate5.004.85
Opportunistic3.002.97
Real Return15.004.10
Cash1.000.20
Total100.00%
The long-term expected rate of return on pension plan assets was established by the KRS Board of Trustees at 6.25% based on a blending of the factors described above. Sensitivity Analysis: This paragraph requires disclosure of the sensitivity of the net OPEB liability to changes in the discount rate and changes in the healthcare cost trend rate. ===== PAGE 48 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) ## Non-hazardous The following presents the University’s allocated portion of the Non-hazardous net OPEB liability of the System, calculated using the discount rate of 5.73% percent, as well as what the University’s allocated portion of the System’s net OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower (4.73 percent) or 1-percentage-point higher (6.73 percent) than the current rate for Non-hazardous:
Current
1% DecreaseDiscount Rate1% Increase
(4.73%)(5.73%)(6.73%)
The University’s Net OPEB liability – Non-hazardous$ 7,885,416$ 6,622,452$ 5,582,769
The following presents the University's allocated portion of the Non-hazardous net OPEB liability of the System, calculated using the healthcare cost trend rate of percent, as well as what the University's allocated portion of the System's net OPEB liability would be if it were calculated using a healthcare cost trend rate that is 1-percentage-point lower or 1-percentage-point higher than the current rate for Non-hazardous:
Current Healthcare
1% DecreaseCost Trend Rate1% Increase
The University’s Net OPEB liability – Non-hazardous$ 5,626,219$ 6,622,452$ 7,827,556
## Hazardous The following presents The University’s allocated portion of the Hazardous net OPEB liability of the System, calculated using the discount rate of 5.66% percent, as well as what the University’s allocated portion of the System’s net OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower (4.66 percent) or 1-percentage-point higher (6.66 percent) than the current rate for Hazardous:
Current Discount Rate (4.66%)1% Increase (5.66%)
The University's Net OPEB liability – Hazardous$ 32,385$ (19,278)
The following presents the University's allocated portion of the Hazardous net OPEB liability of the System, calculated using the healthcare cost trend rate of percent, as well as what the University's allocated portion of the System's net OPEB liability would be if it were calculated using a healthcare cost trend rate that is 1-percentage-point lower or 1-percentage-point higher than the current rate for Hazardous:
Current Healthcare
1% DecreaseCost Trend Rate1% Increase
The University’s Net OPEB liability – Hazardous$ (56,085)$ (19,278)$ 25,509
(Continued) ===== PAGE 49 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) Employer's Portion of the Collective OPEB Liability: The University's proportionate share of the Non-hazardous net OPEB liability, as indicated in the prior table, is $6,622,452, or approximately .30%. The University's proportionate share of the Hazardous net OPEB liability (asset), as indicated in the prior table, is $(19,278), or approximately .07%. The net pension liabilities were distributed based on 2019 actual employer contributions to the plan. Measurement Date: June 30, 2019 is the actuarial valuation date and measurement date upon which the total pension liability is based. Changes in Assumptions and Benefit Terms: For the fiscal year ended June 30, 2020, the KERS Board of Trustees adopted new actuarial assumptions. These assumptions were based on an actuarial experience study for the period ending June 30, 2018. Key changes include replacing the base retiree mortality tables with a KERS-specific mortality table developed using the actual mortality experience of non-disabled retirees in KERS. Mortality tables for disabled retirees and active members were updated with Public Retirement Mortality tables. In addition, termination rates and rates of disability incidence were increased. Retirement rates were decreased slightly for members with a participation date prior to July 1, 2003. For members with a participation date on or after July 1, 2003, retirement rates were set equal to 80% of the retirement rates applicable for the pre July 1, 2003 participants for ages below 65. House Bill 1, which passed during the 2019 special legislative session, allows certain employers in the non-hazardous plan to elect to cease participating in the system as of June 30, 2020. Since employer's elections were unknown at the time of the actuarial valuation and the legislation was enacted after the June 30, 2019 measurement date, no adjustments were made to the Total OPEB Liability to reflect this legislation. House Bill 265, which passed during the 2018 legislative session, allowed certain employers within the non-hazardous plan to contribute less than the actuarially determined contribution in the 2018/2019 fiscal year. Since this is not expected to be an ongoing contribution reduction, determining the non-hazardous employers' proportionate share based on the employers' actual contributions would not be reflective of the employers' long-term contribution effort. Instead, the proportionate share calculations for employers of the non-hazardous plan were based on the employers' covered payroll provided for fiscal year ending June 30, 2019, which would result in the same proportionate share allocation if all participating employers contributed the same rate. Changes Since Measurement Date: There were no changes between the measurement date of the collective net OPEB liability and the employer's reporting date. OPEB Expense: The University was allocated pension expense of $778,191 related to the KERS Non-Hazardous and $3,238 related to the KERS Hazardous for the year ending June 30, 2020. ===== PAGE 50 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) Deferred Outflows and Deferred Inflows: Since certain expense items are amortized over closed periods each year, the deferred portions of these items must be tracked annually. If the amounts serve to reduce OPEB expense they are labeled as deferred inflows. If they will increase OPEB expense they are labeled deferred outflows. The amortization of these amounts is accomplished on a level dollar basis, with no interest included in the deferred amounts. Experience gains/losses and the impact of changes in actuarial assumptions, if any, are amortized over the average remaining service life of the active and inactive System members at the beginning of the fiscal year. Investment gains and losses are amortized over a fixed five-year period. Deferred inflows and outflows as of the Measurement Date include:
Non-hazardous
Deferred Outflows of ResourcesDeferred Inflows of Resources
Difference between expected and actual experience$-$ 1,056,325
Change of assumptions868,48919,920
Changes in proportion and differences between employer contributions and proportionate shares of contributions1,158,354246,124
Differences between expected and actual investment earning on plan investments28,04771,481
Contributions subsequent to the measurement date433,081-
Total$ 2,487,971$ 1,393,850
Deferred outflows of resources resulting from employer contributions subsequent to the measurement date of $433,081, which include the implicit subsidy reported of $79,830, will be recognized as a reduction of net OPEB liability in the year ending June 30, 2020. The remainder of the deferred outflows and deferred inflows of resources are amortized over three to five years with remaining amortization as follows:
Year ending June 30:
2021$225,381
2022225,381
202330,997
2024179,281
$661,040
===== PAGE 51 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued)
HazardousDeferred Outflows of ResourcesDeferred Inflows of Resources
Difference between expected and actual experience$-$34,419
Change of assumptions52,700286
Changes in proportion and differences between employer contributions and proportionate share of plan contributions37,91746,395
Differences between expected and actual investment earning on plan investments2,09713,266
Contributions subsequent to the measurement date7,599-
Total$100,313$94,366
Deferred outflows of resources resulting from employer contributions subsequent to the measurement date of $7,599, which include the implicit subsidy reported of $956, will be recognized as a reduction of net OPEB liability in the year ending June 30, 2020. The remainder of the deferred outflows and deferred inflows of resources are amortized over three to five years with remaining amortization as follows:
Year ending June 30:
2021$(2,136)
2022(2,136)
20231,741
2024(3,526)
20252,440
Thereafter1,965
$(1,652)
OPEB Plan Fiduciary Net Position: Detailed information about the KERS OPEB plans' fiduciary net position is available in the separately issued OPEB plan financial reports. ## Kentucky Teachers' Retirement System ## Medical Insurance Plan Plan Description - In addition to the pension benefits previously described, Kentucky Revised Statute 161.675 requires KTRS to provide post-employment healthcare benefits to eligible members and dependents. The KTRS Medical Insurance benefit is a cost-sharing multiple employer defined benefit plan. Changes made to the medical plan may be made by the KTRS Board of Trustees, the Kentucky Department of Employee Insurance and the General Assembly. ===== PAGE 52 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) Benefits Provided - To be eligible for medical benefits, the member must have retired either for service or disability. The KTRS Medical Insurance Fund offers coverage to members under the age of 65 through the Kentucky Employees Health Plan administered by the Kentucky Department of Employee Insurance. KTRS retired members are given a supplement to be used for payment of their health insurance premium. The amount of the member's supplement is based on a contribution supplement table approved by the KTRS Board of Trustees. The retired member pays premiums in excess of the monthly supplement. Once retired members and eligible spouses attain age 65 and are Medicare eligible, coverage is obtained through the KTRS Medicare Eligible Health Plan. Contributions - In order to fund the post-retirement healthcare benefit, seven and one-half percent (7.50%) of the gross annual payroll of members is contributed. Three percent (3.75%) is paid by member contributions and three quarters percent (0.75%) from state appropriation and three percent (3.00%) from the employer. The state contributes the net cost of health insurance premiums for members who retired on or after July 1, 2010 who are in the non-Medicare eligible group. Also, the premiums collected from retirees as described in the plan description and investment interest help meet the medical expenses of the plan. For the year ended June 30, 2020, the University contributed $304,439 to the KTRS medical insurance plan. OPEB Liabilities, OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEBs - At June 30, 2020, the University reported a liability of $4,927,000 for its proportionate share of the collective net OPEB liability that reflected a reduction for state OPEB support provided to the University. The collective net OPEB liability was measured as of June 30, 2019, and the total OPEB liability used to calculate the collective net OPEB liability was based on a projection of the University's long-term share of contributions to the OPEB plan relative to the projected contributions of all participating employers, actuarially determined. At June 30, 2020, the University's proportion was .16%. The amount recognized by the University as its proportionate share of the OPEB liability, the related State support, and the total portion of the net OPEB liability that was associated with the University were as follows:
University's proportionate share of the net OPEB liability$ 4,927,000
State's proportionate share of the net OPEB liability associated with the University2,198,000
Total$ 7,125,000
===== PAGE 53 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) For the year ended June 30, 2020, the University recognized OPEB expense of $177,000 and revenue of $30,000 for support provided by the State. At June 30, 2020, the University reported deferred outflows of resources and deferred inflows of resources related to OPEBs from the following sources:
Deferred Outflows of ResourcesDeferred Inflows of Resources
Net difference between projected and actual earnings on OPEB plan investments$ 131,000$ -
Changes of assumptions21,000-
Differences between expected and actual experience-1,193,000
Changes in proportion and differences between employer Contributions and proportionate share of contributions289,00091,000
University's contributions subsequent to the measurement date304,439-
Total$ 745,439$ 1,284,000
Of the total amount reported as deferred outflows of resources related to OPEB, $304,439 resulting from University contributions subsequent to the measurement date and before the end of the fiscal year will be included as a reduction of the collective net OPEB liability in the year ended June 30, 2021. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in the University's OPEB expense as follows:
Year ended June 30:
2021$ (163,000)
2022(163,000)
2023(153,000)
2024(155,000)
2025(132,000)
Thereafter(77,000)
===== PAGE 54 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) Actuarial Assumptions - The total OPEB liability in the June 30, 2018 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:
Investment rate of return8.00%, net of OPEB plan investment expense, including inflation.
Projected salary increases3.50-7.20%, including inflation
Inflation rate3.00%
Real Wage Growth0.50%
Wage Inflation3.50%
Healthcare cost trend rates
Under 657.50% for FY2019 decreasing to an ultimate rate of 5.00% by FY 2024
Ages 65 and Older5.50% for FY 2019 decreasing to an ultimate rate of 5.00% by FY 2021
Medicare Part B Premiums2.63% for FY 2019 with an ultimate rate of 5.00% by 2031
Municipal Bond Index Rate3.50%
Discount Rate8.00%
Single Equivalent Interest Rate8.00%, net of OPEB plan investment expense, including price inflation.
Mortality rates were based on the RP-2000 Combined Mortality Table projected to 2025 with projection scale BB and set forward two years for males and one year for females for the period after service retirement and for dependent beneficiaries. The RP-2000 Disabled Mortality Table set forward two years for males and seven years for females is used for the period after disability retirement. The demographic actuarial assumptions for retirement, disability incidence, withdrawal, rates of plan participation, and rates of plan election used in the June 30, 2018 valuation were based on the results of the most recent actuarial experience studies for the System, which covered the five-year period ending June 30, 2015. The remaining actuarial assumptions used in the June 30, 2018 valuation of the MIF were based on a review of recent plan experience done concurrently with the June 30, 2018 valuation. The health care cost trend rate assumption was updated for the June 30, 2018 valuation and was shown as an assumption change in the TOL roll forward while the change in initial per capita claims costs were included with experience in the TOL roll forward. The long-term expected rate of return on OPEB plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. KTRS Medical Plan Changes in Assumptions Since Prior Measurement Date – The healthcare cost trend rate for Pre-65 decreased from 7.75 percent for fiscal year 2019 to 7.50 percent for fiscal year 2020 and Post-65 decreased from 5.75 percent for fiscal year 2019 to 5.50 percent for fiscal year 2020. Medicare Part B premiums increased to 2.63 percent for fiscal year 2020 from 0.0 percent for fiscal year 2019. The municipal bond index rate decreased from 3.89 percent to 3.50 percent. ===== PAGE 55 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) The target allocation and best estimates of arithmetic real rates of return for each major asset class, as provided by TRS's investment consultant, are summarized in the following table:
Asset ClassTarget Allocation30 Year Expected Geometric Rate of Return
Global Equity58.0%5.1%
Fixed Income9.01.2
Real Estate6.53.8
Private Equity8.56.3
Other Additional Categories*17.03.2
Cash (LIBOR)1.00.9
Total100.0%
*Modeled as 50% High Yield and 50% Bank Loans. Discount Rate - The discount rate used to measure the total OPEB liability was 8.00%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rates and the employer contributions will be made at statutorily required rates. Based on those assumptions, the OPEB plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability. Sensitivity of the University's proportionate share of the net OPEB liability to changes in the discount rate The following table presents the University's proportionate share of the collective net OPEB liability of the System, calculated using the discount rate of 8.00%, as well as what the University's proportionate share of the collective net OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower (7.00%) or 1-percentage-point higher (9.00%) than the current rate:
1% Decrease (7.00%)Current Discount Rate (8.00%)1% Increase (9.00%)
University’s net OPEB liability (MI)$ 5,837,000$ 4,927,000$ 4,165,000
Sensitivity of the University's proportionate share of the collective net OPEB liability to changes in the healthcare cost trend rates – The following presents the University's proportionate share of the collective net OPEB liability, as well as what the University's proportionate share of the collective net OPEB liability would be if it were calculated using healthcare cost trend rates that were 1-percentage-point lower or 1-percentage-point higher than the current healthcare cost trend rates:
1% DecreaseCurrent Trend Rate1% Increase
University’s net OPEB liability (MI)$ 4,011,000$ 4,927,000$ 6,054,000
(Continued) ===== PAGE 56 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) OPEB Plan Fiduciary Net Position – Detailed information about the OPEB plan's fiduciary net position is available in the separately issued TRS financial report. Changes of benefit terms – There were no changes for the year ended June 30, 2020. ## Life Insurance Plan Plan Description – Life Insurance Plan – KTRS administers the life insurance plan as provided by Kentucky Revised Statute 161.655 to eligible active and retired members. The KTRS Life Insurance benefit is a cost-sharing multiple employer defined benefit plan. Changes made to the life insurance plan may be made by the KTRS Board of Trustees and the General Assembly. Benefits Provided – KTRS provides a life insurance benefit of five thousand dollars payable for members who retire based on service or disability. KTRS provides a life insurance benefit of two thousand dollars payable for its active contributing members. The life insurance benefit is payable upon the death of the member to the member's estate or to a party designated by the member. Contributions – In order to fund the post-retirement life insurance benefit, three hundredths of one percent (0.03%) of the gross annual payroll of members is contributed by the state. For the year ended June 30, 2020, the University contributed $4,274 to the KTRS life insurance plan. OPEB Liabilities, OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEBs: At June 30, 2020, the University reported a liability of $126,000 for its proportionate share of the collective net OPEB liability that reflected a reduction for state OPEB support provided to the University. The collective net OPEB liability was measured as of June 30, 2019, and the total OPEB liability used to calculate the collective net OPEB liability was based on a projection of the University's long-term share of contributions to the OPEB plan relative to the projected contributions of all participating employers, actuarially determined. At June 30, 2019, the University's proportion was 0.41%. For the year ended June 30, 2020, the University recognized actuarially determined OPEB expense of $23,000 and revenue of $1,000 for support provided by the State. At June 30, 2020, the University reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:
Deferred Outflows of ResourcesDeferred Inflows of Resources
Net difference between projected and actual earnings on OPEB plan investments$ 26,000$ -
Net changes in proportion and differences between employer Contributions and proportionate share of contributions5,000-
Difference between expected and actual experience-3,000
University's contributions subsequent to the measurement date4,274-
Total$ 35,274$ 3,000
(Continued) ===== PAGE 57 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) Of the total amount reported as deferred outflows of resources related to OPEB, $4,274 resulting from University contributions subsequent to the measurement date and before the end of the fiscal year will be included as a reduction of the collective net OPEB liability in the year ended June 30, 2020. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in the University's OPEB expense as follows:
Year ended June 30:
2021$10,000
202210,000
20236,000
20241,000
2025(2,000)
Thereafter3,000
$28,000
Actuarial Assumptions – The total OPEB liability measured as of June 20, 2019 was determined using an actuarial valuation as of June 30, 2018 using the following actuarial assumptions, applied to all periods included in the measurement:
Investment rate of return7.50%, net of OPEB plan investment expense, including inflation.
Projected salary increases3.50-7.20%, including inflation
Inflation rate3.00%
Real Wage Growth0.50%
Wage Inflation3.50%
Municipal Bond Index Rate3.50%
Discount Rate7.50%
Single Equivalent Interest Rate7.50%, net of OPEB plan investment expense, including inflation.
Mortality rates were based on the RP-2000 Combined Mortality Table projected to 2025 with projection scale BB, and set forward two years for males and one year for females is used for the period after service retirement and for dependent beneficiaries. The RP-2000 Disabled Mortality Table set forward two years for males and seven years for females is used for the period after disability retirement. The remaining actuarial assumptions (e.g., initial per capita costs, health care cost trends) used in the June 30, 2018 valuation were based on a review of recent plan experience done concurrently with the June 30, 2018 valuation. The health care cost trend assumption was updated for the June 30, 2018 valuation and was shown as an assumption change in the TOL roll forward while the change in initial per capita claims costs were included with experience in the TOL roll forward. The long-term expected rate of return on OPEB plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. ===== PAGE 58 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) The target allocation and best estimates of arithmetic real rates of return for each major asset class, as provided by TRS's investment consultant, are summarized in the following table:
June 30, 2020
Asset Class*Target AllocationLong-Term Nominal Rate of Return
U.S. Equity40.0%4.3%
International Equity23.05.2
Fixed Income18.01.2
Real Estate6.03.8
Private Equity5.06.3
Additional Categories**6.03.2
Cash2.00.9
Total100.0%
As the LIF investment policy is to change, the above reflects the pension allocation and returns that achieve the target 7.5% long-term rate of return. ** Modeled as 50% High Yield and 50% Bank Loans. KTRS Life Plan Changes in Assumptions Since Prior Measurement Date – For the fiscal year ended, June 30, 2020, the municipal bond index rate decreased from 3.89 percent to 3.50 percent. There were no changes for the fiscal year ended June 30, 2019. KTRS Life Plan Changes Since Measurement Date - There were no changes between the measurement date of the collective net OPEB liability and the University's reporting date that are expected to have a significant effect on the University's proportionate share of the collective net OPEB liability. Discount rate - The discount rate used to measure the total OPEB liability for life insurance was 7.50%. The projection of cash flows used to determine the discount rate assumed that the employer contributions will be made at statutorily required rates. Based on those assumptions, the OPEB plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability. Sensitivity of the University's proportionate share of the net OPEB liability to changes in the discount rate - The following table presents the University's proportionate share of the collective net OPEB liability of the System, calculated using the discount rate of 7.50%, as well as what the University's proportionate share of the collective net OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate:
1% Decrease (6.50%)Current Discount Rate (7.50%)1% Increase (8.50%)
University’s net OPEB (LI) liability$ 186,000$ 126,000$ 76,000
KTRS Life Plan Changes of Benefit Terms - There were no changes for fiscal years ended June 30, 2020. (Continued) ===== PAGE 59 ===== ## NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS PLANS (OPEB) (Continued) OPEB plan fiduciary net position – Detailed information about the KTRS OPEB plans' fiduciary net position is available in the separately issued KTRS financial report. Summary OPEB Information:
KERSKTRSTotal
June 30, 2020
Net OPEB liability$6,603,174$5,053,000$ 11,656,174
Deferred outflows of resources2,629,084780,7133,409,797
Deferred inflows of resources1,488,2161,287,0002,775,216
Actuarially determined pension expense781,429200,000981,429
## NOTE 11 – COMMITMENTS AND CONTINGENCIES The University is a party to various lawsuits and other claims in the ordinary course of business. University officials are of the opinion, based upon the advice of legal counsel, that the ultimate resolution of these matters will not have a material effect on the financial statements of the University. The University receives financial assistance from federal and state agencies in the form of grants and awards. The expenditure of funds received from these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audit could become a liability of the applicable fund. ## NOTE 12 – RISK MANAGEMENT The University is exposed to various risks of loss from torts; theft of, damage to, destruction of assets; business interruption; employee injuries and illnesses; natural disasters; and employee health and accident benefits. Commercial insurance coverage is purchased for claims arising from these risks. Settled claims have not exceeded this commercial coverage in any of the three preceding years. As a sovereign entity of the Commonwealth of Kentucky, the Kentucky Board of Claims handles tort claims on behalf of the University. During fiscal year 2020, the University started a self-insurance program for employee's health insurance. Under this plan, the University pays premiums based on estimated claims. The University pays approximately 62% of the expenses of the plan for permanent full-time employees and their families. Expenses incurred to cover claims paid by the University under the plan for year ended June 30, 2020 totaled $2,227,653. Administrative fees incurred for the year ended June 30, 2020 was $97,475. Changes in the liability for self-insurance at June 30, 2020 are as follows:
2020
Liability – beginning of year$-
Accruals for current year claims and changes in estimate2,227,653
Claims paid2,100,440
Liability – end of year$ 127,213
(Continued) ===== PAGE 60 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ## NOTE 13 – SCHEDULE OF EXPENSES BY PROGRAM In the Statement of Revenues, Expenses and Changes in Net Position, operating expenses are presented by functional expense purpose. Depreciation is allocated below based on functional classification as required by IPEDS for Fiscal Year 2020. Functional expense purpose is classified by natural classification as follows:
Compensation and BenefitsSupplies and ServicesScholarships and FellowshipsDepreciationOperations and MaintenanceTotal
Instruction$ 8,006,851$ 1,015,622$ -$ 641,970$ 828,596$ 10,493,039
Research4,595,9552,333,401-786,513661,5328,377,401
Public service5,739,6783,135,437-395,290794,81210,065,217
Academic support202,86475,496-105,02432,870416,254
Student services5,441,0313,205,382-449,348778,4279,874,188
Institutional support10,927,9503,595,746-430,7281,282,14016,236,564
Operation & maintenance of plant1,706,1443,291,620-552,190(5,549,954)-
Auxiliary enterprises628,4304,408,534-299,069458,9055,794,938
Student financial aid297,174-6,231,55125,528712,6727,266,925
Total operating expense$ 37,546,077$ 21,061,238$ 6,231,551$ 3,685,660$ -$ 68,524,526
===== PAGE 61 ===== ## NOTE 14 – KENTUCKY STATE UNIVERSITY FOUNDATION, INC ## Description of the Organization Kentucky State University Foundation, Inc. (the Foundation) is a Kentucky not-for-profit corporation formed to receive, invest and expend funds to promote and implement educational and developmental activities at Kentucky State University (the University). The Foundation is managed by a Board of Trustees independent from that of the University. The Foundation is supported primarily through contributions from alumni. ## Summary of Significant Accounting Policies The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) which require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the Foundation in the preparation of its financial statements. Basis of Presentation: Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Foundation are classified and reported as follows: Net assets without donor restrictions – net assets available for use in general operations and not subject to donor restrictions. The governing body has designated, from net assets without donor restrictions, net assets for an operating reserve and board-designated endowment. Net assets with donor restrictions – net assets subject to donor-imposed restrictions. Some donor restrictions are temporary in nature, such as those that will be met by the passage of time or other events specified by the donor. Other donor-imposed restrictions are perpetual in nature, where the donor stipulates that resources be maintained in perpetuity. Donor-imposed restrictions are released when a restriction expires, that is, when the stipulated time has elapsed, when the stipulated purpose for which the restriction has been fulfilled, or both. The investment return on net assets with donor restrictions may be restricted or unrestricted according to the donor's wishes. When a donor restriction expires, net assets with donor restrictions are classified to net assets without donor restrictions and reported on the statements of activities as net assets released from restrictions. The Foundation treats donor-restricted contributions whose restrictions are met in the same reporting period as unrestricted support. Cash and Cash Equivalents: The Foundation considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Foundation has a concentration of credit risk in that it periodically maintains bank accounts which, at times, may exceed the coverage provided by the Federal Deposit Insurance Corporation (FDIC). The Foundation has not experienced any losses on such amounts. The Foundation believes it is not exposed to any significant credit risk on cash. Investments: Investments are stated at fair value based on closing market quotations for such securities or similar securities. ===== PAGE 62 ===== ### NOTE 14 – KENTUCKY STATE UNIVERSITY FOUNDATION, INC. (Continued) ## Summary of Significant Accounting Policies (Continued) Property and Equipment: Property and equipment is recorded at cost if purchased or fair market value at date of contribution if contributed. If the donors stipulate how long the assets must be used, the contributions of property and equipment are recorded as restricted support. In the absence of such stipulations, these contributions are recorded as unrestricted support. Depreciation is computed on a straight-line basis over the estimated useful lives of the respective assets. Revenue Recognition: Contributions are generally recognized when received. However, pledges are recognized when the donor makes a promise to give to the Foundation that is, in substance, unconditional. Amounts received that are designated for future periods or restricted by donor for specific purposes are reported as additions to net assets with donor restrictions. When a donor restriction expires, net assets without donor restrictions are reclassified to net assets without donor restrictions. Income Taxes: The Foundation, a not-for-profit organization operating under Section 501(c)(3) of the Internal Revenue Code, is generally exempt from federal, state and local income taxes. The Foundation's management does not believe the Foundation has any unrelated business income. Accordingly, no provision for income taxes is recorded in the financial statements. Functional Allocation of Expenses: The costs of providing the program and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated between the program and supporting services benefited. ## Recent Accounting Pronouncements: For the year ended June 30, 2020, Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), became effect and was adopted by the Foundation. This standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard replaced most existing revenue recognition guidance in GAAP and permits the use of either a full retrospective or modified retrospective transition method. For the year ended June 30, 2020, Accounting Standards Update (ASU) 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (Topic 958 became effective and was adopted by the Foundation. This standard assists entities in 1) evaluating whether transactions should be accounted for as contributions (non-reciprocal transactions) within the scope of Topic 958, or as exchange (reciprocal) transactions subject to other guidance, and 2) determining whether a contribution is conditional. ===== PAGE 63 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ### NOTE 14 – KENTUCKY STATE UNIVERSITY FOUNDATION, INC. (Continued) ## Liquidity and Availability As of June 30, 2020, the following financial assets held by the Foundation could readily be made available within one year of the balance sheet date to meet general expenditures:
Cash and cash equivalents$ 51,956
Operating investments234,044
Endowment appropriations258,339
Total investments$ 544,339
The Foundation regularly monitors liquidity required to meet its operating needs and other contractual commitments, while also striving to maximize the investment of its available funds. The Foundation has various sources of liquidity at its disposal, including cash and cash equivalents, as well as marketable debt and equity securities. The Foundation strives to maintain financial assets available to meet general expenditures at a level that represents 100% of annual expenses. The Finance Committee meetings semiannually to review cash needs and funds availability for the following six-month period. r-or purposes or analyzing resources available to meet general expenditures over a 12-month period, the Foundation considers all expenditures related to its ongoing activities of providing scholarships and other reimbursements to the University, restricted expenditures on behalf of the University, as well as its own operating needs to be general expenditures. The Foundation operates with a balanced budget and anticipates collecting sufficient revenue to cover general expenditures not covered by donor restriction. ## Investments Investments as of June 30, 2020 are summarized as follows:
Equity securities$ 6,840,254
Debt securities2,767,288
U.S. government securities51,133
Total investments$ 9,658,675
===== PAGE 64 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ### NOTE 14 – KENTUCKY STATE UNIVERSITY FOUNDATION, INC. (Continued) ## Fair Value Measurements The Foundation classifies its investments based on a hierarchy consisting of: Level 1 (valued using quoted prices from active markets for identical assets), Level 2 (not traded on an active market but for which observable market inputs are readily available), and Level 3 (valued based on significant unobservable inputs). The investment's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used as of June 30, 2020. Common stocks, municipal bonds, corporate bonds, U.S. government securities, and equity exchange traded funds: Valued at the closing price reported on the active market on which the individual securities are traded. Some level 2 inputs are used for pricing of municipal and corporate bonds; therefore, they are all classified as level 2. Mutual funds: Valued at the daily closing price as reported by the fund. Mutual funds held by the Foundation are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (NAV) and to transact at that price. The mutual funds held by the Foundation are deemed to be actively traded. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Foundation believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Fair value measurements as of June 30, 2020 are as follows:
Level 1Level 2Level 3Total
Common stocks$ 4,105,838$ -$ -$ 4,105,838
Mutual funds2,709,613--2,709,613
Equity exchange traded funds24,803--24,803
Municipal bonds-360,469-360,469
Corporate bonds-2,406,819-2,406,819
U.S government securities51,133--51,133
Total$ 6,891,387$ 2,767,288$ -$ 9,658,675
===== PAGE 65 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ### NOTE 14 – KENTUCKY STATE UNIVERSITY FOUNDATION, INC. (Continued) ## Net Assets With Donor Restrictions Net assets with donor restrictions as of June 30, 2020 are restricted for the following purpose:
Subject to expenditure for specified purpose:
Instruction and institutional support$ 1,893,497
Scholarships1,256,788
Total subject to expenditure for specified purpose3,150,285
Subject to the passage of time82,000
Subject to endowment spending policy and appropriation:
Investments in perpetuity (including amounts above the original gift amount of $4,006,525), which once appropriated, are expendable to support the following programs:
Instruction and institutional support1,341,442
Scholarships4,352,020
Total subject to endowment spending policy and appropriation5,693,462
Total net assets with donor restrictions$ 8,925,747
## Net Assets Released from Restriction For the year ended June 30, 2020, net assets were released from donor restrictions by incurring expenses satisfying the purpose of the restrictions specified by donors as follows:
Endowment spending allocation$ 10,225
University support142,685
Scholarships399,328
Operating and other expenses188,144
Student support99,354
Travel and other expenses35,647
Total release from restrictions$ 875,383
===== PAGE 66 ===== ### NOTE 14 – KENTUCKY STATE UNIVERSITY FOUNDATION, INC. (Continued) ## Endowment Composition The Foundation's endowment consists of approximately 52 individual funds established by donors to provide annual funding for specific activities and general operations. The endowment also includes certain net assets without donor restrictions that have been designated for endowment by the Board of Trustees. The Foundation’s Board of Trustees has interpreted the Commonwealth of Kentucky Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the date of the donor-restricted endowment funds, unless there are explicit donor stipulations to the contrary. As of June 30, 2020, there were no such donor stipulations. As a result of this interpretation, the Foundation retains in perpetuity (a) the original value of initial and subsequent gift amounts including promises to give net of discount and allowance for doubtful accounts donated to the endowment and (b) any accumulations to the endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added. Donor-restricted amounts not retained in perpetuity are subject to appropriation for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by UPMIFA. The Foundation considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: • The duration and preservation of the fund The purposes of the organization and the donor-restricted endowment fund • General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of the organization The investment policies of the organization Endowment net asset composition by type of fund as of June 30, 2020 is as follows:
Without Donor RestrictionsWith Donor RestrictionsTotal Net Endowment Assets
Board-designated endowment fund$ 1,884,774$ -$ 1,884,774
Original donor-restricted gift amount and amounts required by to be maintained in perpetuity by donor Accumulated investment gains- -4,006,5254,006,525
-1,686,9371,686,937
Donor-restricted endowment funds$ 1,884,774$ 5,693,462$ 7,578,236
From time to time, certain donor-restricted endowment funds may have fair value less than the amount required to be maintained by donors or by law (underwater endowments). The Foundation has interpreted UPMIFA to permit spending from underwater endowments in accordance with prudent measures required under law. There were no such deficiencies as of June 30, 2020. ===== PAGE 67 ===== # KENTUCKY STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS June 30, 2020 ### NOTE 14 – KENTUCKY STATE UNIVERSITY FOUNDATION, INC. (Continued) ## Endowment Composition (Continued) Spending Policy: The Foundation spending policy is to distribute an amount at least equal to 3-5% of a moving sixteen quarter average of the fair value of the endowment funds. Accordingly, over the long term, the Foundation expects its spending policy to allow its endowment assets to grow at an average rate of 3% annually. This is consistent with the Foundation's objective to maintain the purchasing power of endowment assets as well as to provide additional real growth through investment return. Changes in endowment net assets as of June 30, 2020 are as follows:
Without Donor RestrictionsWith Donor RestrictionsTotal Net Endowment Assets
Endowment net assets, beginning of year$ 2,240,078$ 5,559,606$ 7,799,684
Contributions-82,86982,869
Interest and dividends98,931102,181201,112
Realized and unrealized gains11,42453,06064,484
Other, net of investment expense-(101,765)(101,765)
Amounts appropriated for expenditure(373,840)(10,225)(384,065)
Reclassifications(91,819)7,736(84,083)
Endowment net assets, end of year$ 1,884,774$ 5,693,462$ 7,578,236
## Retirement Plan The Foundation has a defined contribution profit sharing plan which covers all employees who meet certain requirements. Foundation contributions are discretionary. No contributions were made for the year ended June 30, 2020. ===== PAGE 68 ===== REQUIRED SUPPLEMENTARY INFORMATION ===== PAGE 69 ===== # KENTUCKY STATE UNIVERSITY SCHEDULE OF THE UNIVERSITY'S (KSU) PROPORTIONATE SHARE OF THE NET PENSION LIABILITY KENTUCKY EMPLOYEES' RETIREMENT SYSTEM June 30, 2020 (Amounts in thousands)
Non-hazardous
202020192018201720162015
KSU's proportion of the net pension liability$ 42,075$ 30,999$ 32,618$ 29,146$ 29,408$ 28,555
KSU's proportionate share of the net pension liability0.30%0.23%0.24%0.26%0.29%0.32%
KSU's covered payroll$ 4,358$ 3,583$ 3,888$ 4,321$ 5,390$ 5,453
KSU's proportionate share of the net pension liability as a share of its covered payroll956.47%865.17%838.94%674.52%545.60%523.66%
Plan fiduciary net position as a percentage of total pension liability13.66%12.84%13.30%14.80%18.83%22.32%
Hazardous
202020192018
KSU's proportion of the net pension liability$ 393$ 939$ 237
KSU's proportionate share of the net pension liability0.07%0.19%0.05%
KSU's covered payroll$ 39$ 61$ 79
KSU's proportionate share of the net pension liability as a share of its covered payroll1,007.69%1,539.34%300.00%
Plan fiduciary net position as a percentage of total pension liability55.49%56.10%54.80%
Notes: This table represents data that is one year in arrears. Changes in Assumptions: For fiscal year 2020, there was an increase to the salary increase assumptions for individual members and the base retiree mortality tables were replaced with a KERS-specific mortality table developed using the actual mortality experience of non-disabled retirees in KERS. Mortality tables for disable retirees and active members were updated with Public Retirement Mortality tables. Termination rates and rates of disability incidence were increased. Retirement rates were decreased slightly for members with participation date prior to July 1, 2003. For members with participation date on or after July 1, 2003, retirement rates were set equal to 80% of the retirement rates applicable for the pre-July 1, 2003 participants for ages below 65. There were no changes for fiscal year 2019. For fiscal year 2018, the demographic and economic assumptions that affect the measurement of the total pension liability have been updated as follows: The assumed investment rate of return was decreased from 6.75% to 5.25% (Non-hazardous) and 7.50% to 6.25% (Hazardous). - The assumed rate of inflation was reduced from 3.25% to 2.30%. - Payroll growth assumption was reduced from 4.00% to 3.05%. Changes in Benefit Terms: During the 2018 legislative session, House Bill 185 was enacted, which updated the benefit provisions for active members who die in the line of duty. Benefits paid to the spouses of deceased members have been increased from 25% of the member's final rate of pay to 75% of the member's average pay. If the member does not have a surviving spouse, benefits paid to surviving dependent children have been increased from 10% of the member's final pay rate to 50% of average pay for one child, 65% of average pay for two children, or 75% of average pay for three children. The TPL as of June 30, 2018 is determined using these updated benefit provisions. ===== PAGE 70 ===== # KENTUCKY STATE UNIVERSITY SCHEDULE OF THE UNIVERSITY'S CONTRIBUTION KENTUCKY EMPLOYEES' RETIREMENT SYSTEM June 30, 2020 (Amounts in thousands)
Non-hazardous
202020192018201720162015
Contractually required contribution$ 1,924$ 1,830$ 1,471$ 1,516$ 1,312$ 1,515
Contributions in relation to the contractually required contribution$ 1,924$ 1,830$ 1,471$ 1,516$ 1,312$ 1,515
Contribution deficiency (excess)$ -$ -$ -$ -$ -$ -
KSU covered payroll$ 4,686$ 4,457$ 3,583$ 3,888$ 4,321$ 5,390
Contributions as a percentage of covered payroll41.07%41.06%41.05%38.99%30.36%28.11%
Hazardous
202020192018
Contractually required contribution$ 32$ 35$ 61
Contributions in relation to the contractually required contribution$ 32$ 35$ 61
Contribution deficiency (excess)$ -$ -$ -
KSU covered payroll$ 106$ 114$ 309
Contributions as a percentage of covered payroll30.19%30.70%19.74%
Note: These are 10-year schedules. However, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10-years of information is available. ===== PAGE 71 ===== # KENTUCKY STATE UNIVERSITY SCHEDULE OF THE UNIVERSITY'S (KSU) PROPORTIONATE SHARE OF THE NET PENSION LIABILITY KENTUCKY TEACHERS' RETIREMENT SYSTEM June 30, 2020 (Amounts in thousands)
202020192018201720162015
KSU's proportion of the net pension liability$ 22,159$ 22,617$ 40,538$ 68,926$ 63,956$ 64,987
State's proportionate share of the collective net pension liability(24,011)/(46,170)(16,827)/(39,444)(32,308)/(72,846)(6,496)/(75,422)(6,503)/(70,459)(7,374)/(72,361)
KSU's proportionate share of the net pension liability0.16%0.16%0.14%0.22%0.23%0.30%
KSU's covered payroll$ 22,544$ 19,083$ 17,779$ 16,961$ 19,076$ 21,451
KSU's proportionate share of the net pension liability as a share of its covered payroll98.29%118.52%228.01%406.38%335.27%302.96%
Plan fiduciary net position as a percentage of total pension liability58.10%59.30%39.83%35.22%42.49%45.59%
Note: This table represents data that is one year in arrears. Changes in assumptions: For fiscal year 2020, the assumed municipal bond index rate decreased from 3.89% to 3.50%. For fiscal year 2019, the KTRS plan discount increased from 4.49% to 7.50%. For fiscal year 2018, the KTRS plan discount rate increased from 4.20 percent to 4.49 percent. For fiscal year 2017, the KTRS plan discount rate decreased from 4.88 percent to 4.20 percent. For fiscal year 2016, there was a decrease in the assumed investment rate of return from 7.75 percent to 7.50 percent; a decrease in the assumed rate of inflation from 3.50 percent to 3.25 percent; a decrease in the assumed rate of wage inflation from 1.00 percent to 0.75 percent and a decrease in the payroll growth assumption from 4.50 percent to 4.00 percent. ===== PAGE 72 ===== # KENTUCKY STATE UNIVERSITY SCHEDULE OF THE UNIVERSITY'S CONTRIBUTION KENTUCKY TEACHERS' RETIREMENT SYSTEM June 30, 2020 (Amounts in thousands)
202020192018201720162015
Contractually required contribution$ 1,941$ 1,815$ 1,730$ 1,879$ 1,773$ 2,059
Contributions in relation to the contractually required contribution$ 1,941$ 1,815$ 1,730$ 1,879$ 1,773$ 2,059
Contribution deficiency (excess)$ -$ -$ -$ -$ -$ -
KSU covered payroll$ 23,652$ 22,544$ 19,083$ 17,779$ 16,961$ 19,076
Contributions as a percentage of covered payroll8.21%8.05%9.07%10.57%10.45%10.79%
Note: These are 10-year schedules. However, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10-years of information is available. ===== PAGE 73 ===== # KENTUCKY STATE UNIVERSITY SCHEDULE OF THE UNIVERSITY'S (KSU) PROPORTIONATE SHARE OF THE NET OPEB LIABILITY KENTUCKY EMPLOYEES RETIREMENT SYSTEM June 30, 2020 (Amounts in thousands)
Non-hazardous202020192018
KSU's proportion of the net OPEB liability$ 6,622$ 5,398$ 6,178
KSU's proportionate share of the net OPEB liability0.30%0.23%0.24%
KSU's covered payroll$ 4,358$ 3,583$ 3,888
KSU's proportionate share of the net OPEB liability as a share of its covered payroll151.95%150.66%158.90%
Plan fiduciary net position as a percentage of total OPEB liability30.92%27.32%24.40%
Hazardous202020192018
KSU's proportion of the net OPEB liability$ (19)$ (62)$ 3
KSU's proportionate share of the net OPEB liability0.07%0.19%0.05%
KSU's covered payroll$ 39$ 61$ 79
KSU's proportionate share of the net OPEB liability as a share of its covered payroll(48.72)%(101.64)%3.80%
Plan fiduciary net position as a percentage of total OPEB liability105.29 %106.83%98.80%
Note: This table represents data that is one year in arrears. Changes in assumptions: For fiscal year 2020, the discount rate was changed from 5.86% to 5.73% for non-hazardous and from 5.88% to 5.66% for hazardous. In addition, the KERS Board of Trustees adopted new actuarial assumptions based on an actuarial experience study for the period ending June 30, 2018. Key assumptions include replacing the base retiree mortality tables were replaced with a KERS-specific mortality table developed using the actual mortality experience of non-disabled retirees in KERS. Mortality tables for disable retirees and active members were updated with Public Retirement Mortality tables. Termination rates and rates of disability incidence were increased. Retirement rates were decreased slightly for members with participation date prior to July 1, 2003. For members with participation date on or after July 1, 2003, retirement rates were set equal to 80% of the retirement rates applicable for the pre-July 1, 2003 participants for ages below 65. For fiscal year 2019, the discount rate used to measure the total Non-hazardous OPEB liability was 5.86%, which was reduced from the 6.90% discount rate used in the prior year. The discount rate used to measure the total Hazardous OPEB liability was 5.88%, which was increased from the 5.87% discount rate used in the prior year. For fiscal year 2018, the assumed investment rate of return was changed from 7.50% to 6.25%. The inflation assumption was changed from 3.25% to 2.30%. The payroll growth assumption was changed from 4.00% to 0.00%. Changes in benefit terms: However, during the 2018 legislative session, House Bill 185 was enacted, which updated the benefit provisions for active members who die in the line of duty. The system shall now pay 100% of the insurance premium for spouses and children of all active members who die in the line of duty. The total OPEB liability as of June 30, 2018, is determined using these updated benefit provisions. ===== PAGE 74 ===== ## KENTUCKY STATE UNIVERSITY SCHEDULE OF THE UNIVERSITY'S OPEB CONTRIBUTIONS KENTUCKY EMPLOYEES RETIREMENT SYSTEM June 30, 2020 (Amounts in thousands)
Non-hazardous202020192018
Contractually required contribution$ 394$ 375$ 301
Contributions in relation to the contractually required contribution$ 394$ 375$ 301
Contribution deficiency (excess)$ -$ -$ -
KSU covered payroll$ 4,686$ 4,358$ 3,583
Contributions as a percentage of covered payroll8.41%8.41%8.40%
Hazardous202020192018
Contractually required contribution$ 7$ 7$ 12
Contributions in relation to the contractually required contribution$ 7$ 7$ 12
Contribution deficiency (excess)$ -$ -$ -
KSU covered payroll$ 106$ 114$ 309
Contributions as a percentage of covered payroll6.60%6.14%3.88%
Note: These are 10-year schedules. However, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10-years of information is available. ===== PAGE 75 ===== # KENTUCKY STATE UNIVERSITY SCHEDULE OF THE UNIVERSITY'S (KSU) PROPORTIONATE SHARE OF THE NET OPEB LIABILITY KENTUCKY TEACHERS' RETIREMENT SYSTEM June 30, 2020 (Amounts in thousands)
202020192018
KSU's proportion of the net OPEB liability5,0535,6265,880
State's proportionate share of the net OPEB liability2,1982,7002,630
Total7,2518,3268,510
KSU's proportionate share of the net OPEB liability0.30%0.16%0.16%
KSU's covered payroll22,54419,08317,779
KSU's proportionate share of the net OPEB liability as a share of its covered employee payroll22.41%29.48%33.07%
Plan fiduciary net position as a percentage of total OPEB liability32.58%25.50%21.18%
Note: This table represents data that is one year in arrears. Changes in assumptions: For fiscal year 2020, the healthcare cost trend rate decreased from 7.75% and 5.75% to 7.50% and 5.50% for Pre-65 and Post-65, respectively. Medicare Part B premiums increased 2.63% from 0.00%. The municipal bond rate decreased from 3.89% to 3.50%. For fiscal year 2019, healthcare cost trend rates decreased to 0.00% from 1.02% for Medicare Part B Premiums. The municipal bond index rate increased from 3.56% to 3.89%. Change in benefit terms: There were no changes for fiscal years 2020 and 2019. For fiscal year 2018, the eligibility for non-single subsidies (NSS) for the KEHP-participating members who retired prior to July 1, 2010 was restored, but the state will only finance, via its KEHP “Shared Responsibility” contributions, the costs of the NSS related to those KEHP-participating members who retired on or after July 1, 2010.
SCHEDULE OF THE UNIVERSITY'S OPEB CONTRIBUTIONS KENTUCKY TEACHERS' RETIREMENT SYSTEM June 30, 2020 (Amounts in thousands)
202020192018
Contractually required contribution$298$297$287
Contributions in relation to the contractually required contribution$298$297$287
Contribution deficiency (excess)$-$-$-
KSU covered payroll$23,652$22,544$19,083
Contributions as a percentage of covered payroll1.26%1.32%1.50%
Note: These are 10-year schedules. However, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10-years of information is available. ===== PAGE 76 ===== # INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Members of the Board of Regents Kentucky State University Frankfort, Kentucky We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the business-type activities and the discretely presented component unit of Kentucky State University (the University), a component unit of the Commonwealth of Kentucky, as of and for the year ended June 30, 2020, and the related notes to the financial statements, which collectively comprise the University's basic financial statements and have issued our report thereon dated March 29, 2021. Our report includes a reference to other auditors who audited the financial statements of Kentucky State University Foundation, Inc. (Foundation) as described in our report on the University's financial statements. The financial statements of the Foundation were not audited in accordance with Government Auditing Standards. ## Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the University's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control. Accordingly, we do not express an opinion on the effectiveness of the University's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. ===== PAGE 77 ===== ## Compliance and Other Matters As part of obtaining reasonable assurance about whether the University’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. ## Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
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Crowe LLP Lexington, Kentucky March 29, 2021