19-01 - Financial Statements.pdf

MASSACHUSETTS BAY

COMMUNITY COLLEGE

(an agency of the Commonwealth of Massachusetts)

FINANCIAL STATEMENTS AND

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2017 and 2016

MASSACHUSETTS BAY COMMUNITY

COLLEGE

Financial Statements

June 30, 2017 and 2016

TABLE OF C O N T E N T S

Independent Auditor’s Report 2 - 4

Management’s Discussion and Analysis (Unaudited) 5 - 21

Financial Statements

Statements of Net Position 22 - 23

Statements of Revenues, Expenses and Changes in Net Position 24 - 25

Statements of Cash Flows 26 - 27

Notes to the Financial Statements 28 - 57

Required Supplementary Information

Schedule of the College’s Proportionate Share of the Net Pension Liability and

Schedule of College Contributions 59 - 60

Notes to Required Supplementary Information 61

Independent Auditor’s Report

To the Board of Trustees

Massachusetts Bay Community College

Report on the Financial Statements

We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of Massachusetts Bay Community College (the “College”) (an agency of the

Commonwealth of Massachusetts), as of and for the years ended June 30, 2017 and 2016, and the related notes to the financial statements, which collectively comprise the College’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with 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 audits. We conducted our audits in accordance with 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the 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.

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, 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

Massachusetts Bay Community College as of June 30, 2017 and 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Note 1, the financial statements of Massachusetts Bay Community College and its discretely presented component unit are intended to present the respective financial position, the changes in financial position and, where applicable, cash flows of only that portion of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Commonwealth of Massachusetts that is attributable to the transactions of Massachusetts Bay Community College and its discretely presented component unit. They do not purport to, and do not, present fairly the financial position of the

Commonwealth of Massachusetts as of June 30, 2017 and 2016, the changes in its financial position, or, where applicable, its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management’s

Discussion and Analysis and the pension benefit schedules on pages 5 to 21 and 59 to 61, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United

States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated November 29, 2017, on our consideration of Massachusetts Bay Community College’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely 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 Massachusetts Bay Community College’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 Massachusetts Bay Community College’s internal control over financial reporting and compliance.

Boston, Massachusetts

November 29, 2017

MASSACHUSETTS BAY COMMUNITY COLLEGE

Management’s Discussion & Analysis

Unaudited

Introduction

The following unaudited Management’s Discussion and Analysis (“MD&A”) provides an overview of the financial position and activities of Massachusetts Bay Community College (the “College”) for the fiscal years ended June 30, 2017, 2016 and 2015. This overview has been prepared by management and should be read in conjunction with the College’s financial statements and the accompanying notes. The purpose of this document is to give some background to the financial statements, and foster an understanding of how these statements relate to the mission and activities of the College.

Reporting Entity

The College is one of fifteen comprehensive, open-enrollment public two-year community colleges in the Commonwealth of Massachusetts (the “State” or the “Commonwealth”). The College was established in 1961 and its primary mission is to foster educational excellence and student success, prepare students for local and global citizenship, anticipate and respond to the needs of surrounding communities and contribute to evolving regional economic development. Its vision is to aspire to be a catalyst for transformation - calling for the best in students, preparing them as engaged citizens and enabling them to realize their dreams.

The College operates two campuses and one satellite facility in the MetroWest area outside Boston that enrolled 4,855 students (unduplicated headcount) in Fall 2016. The College offers a diverse range of associate and certificate programs as well as an array of non-credit offerings. The College is governed by an eleven member Board of Trustees who are appointed by the governor of the Commonwealth. The governor also appoints the Chairperson of the Board. The College is accredited by the New England

Association of Schools and Colleges (“NEASC”) and many of the College’s programs are accredited by program-specific accrediting bodies.

The Massachusetts Bay Community College Foundation, Inc. (the “Foundation”) was formed in 1984 to render financial assistance and support of educational programs and development of the College. The

Foundation is legally separate from the College and the College is not financially accountable to the

Foundation, but due to the nature and significance of its relationship with the College, it is included as a discretely presented component unit in the College’s financial statements.

Using the Financial Statements

Massachusetts Bay Community College reports its activity as a business type entity using the full accrual basis of accounting. The accrual basis of accounting ensures that all amounts owed to the

College and pending obligations of the College are accounted for in the appropriate period, thus giving a clear picture of the College’s financial position. The College is an agency of the Commonwealth of

Massachusetts. A summary of the College’s financial statements is incorporated in the

Commonwealth’s Comprehensive Annual Financial Report in its government-wide financial statements.

The College’s basic financial statements include the Statement of Net Position, the Statement of

Revenues, Expenses and Changes in Net Position and the Statement of Cash Flows. These financial statements are prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (“GASB”), which establishes standards for external financial reporting for public colleges and universities.

The College has implemented GASB 68, Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27, beginning with the year ended June 30, 2015. The primary objective of this Statement is to increase transparency of accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. As part of this implementation it was required that the Commonwealth of Massachusetts allocate to state-funded institutions of higher education, including the College, their proportionate share of the Commonwealth’s collective net pension liability, deferrals and pension expense, including special funding amounts, with the collective pension amounts allocated on the basis of actual fringe benefit charges assessed to each institution. As part of this implementation, certain defined transactions that were required by GASB 68 did not qualify for accounting treatment as either assets or liabilities. GASB 63, Financial Reporting of

Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position, requires that such defined transactions that do not qualify for treatment as either assets or liabilities be accounted for and reported as either deferred outflows of resources (a separate subheading following assets but before liabilities) or deferred inflows of resources (a separate subheading following liabilities but before net position). As such, both deferred outflows of resources and deferred inflows of resources will be presented on the College’s Statement of Net Position.

The Statement of Net Position provides information about the College at a moment in time, at year-end.

The Statement of Revenues, Expenses and Changes in Net Position and the Statement of Cash Flows provide information about operations and activities over a period of time. Together, these three statements, along with the accompanying notes, provide a comprehensive way to assess the College’s financial health as a whole. The full scope of the College’s activities is considered to be a single business-type activity and accordingly is reported within a single column in the basic financial statements, with the Foundation reported as a discretely presented component unit.

The Statement of Net Position:

The Statement of Net Position reflects the financial position of the College as of June 30. It shows the various assets owned or controlled, outflows of resources and inflows of resources applicable to future reporting periods, liabilities and other obligations, and various categories of net position. Net position is the accounting concept defined as total assets and deferred outflows of resources less total liabilities and deferred inflows of resources, and as such, represents institutional equity or ownership in the College’s total assets. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the College is improving or deteriorating. A condensed comparison of the

Statements of Net Position is as follows:

As of June 30, 2017 2016 2015

Assets:

Current assets 15,103,936$ 12,520,139$ 9,849,160$

Capital assets, net 8,512,532 9,365,362 10,353,224

Total Assets 23,616,468 21,885,501 20,202,384

Deferred Outflows of Resources 523,410 581,271 168,603

Liabilities

Current Liabilities 5,854,182 6,067,523 5,666,521

Non-Current Liabilities 2,543,764 3,441,974 4,098,687

Total Liabilities 8,397,946 9,509,497 9,765,208

Deferred Inflows of Resources 2,084,603 1,793,634 1,714,783

Net position

Net investment in capital assets 8,433,668 8,457,021 8,795,384

Restricted for

Expendable 375,538 347,430 441,495

Non-expendable - - -

Unrestricted 4,848,123 2,359,190 (345,883)

Total Net Position 13,657,329$ 11,163,641$ 8,890,996$

Condensed Statements of Net Position

Current assets consist primarily of cash, cash equivalents and student and grant receivables. The majority of the current assets for the three years presented represented cash and cash equivalents.

Non-current assets are primarily comprised of capital assets (e.g. land, buildings, machinery and equipment). The College uses these capital assets to provide services to students, faculty and administration; consequently, these assets are not available for future spending. Although the College’s net investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Non-current assets decreased over the three years due to depreciation expense that exceeds assets purchased during each year. Capital asset additions totaled

$467K, $662K and $424K and depreciation expense totaled $1.32M, $1.65M and $2.40M for the years ended June 30, 2017, 2016 and 2015, respectively.

Deferred outflows of resources is required, due to the implementation of GASB 68, to be presented after the assets section but before the liabilities section of the Statement of Net Position.

Current liabilities consist of amounts payable to suppliers for goods and services, accrued payroll and related liabilities, unearned tuition and student deposits and the current portion of the College’s capital lease obligations.

Non-current liabilities primarily consist of the value of vacation, sick leave and compensation time earned but not yet used and not expected to be used within the next year, and the long-term portion of capital lease obligations.

Deferred inflows of resources is required, due to the implementation of GASB 68, to be presented after the liabilities section but before the net position (equity) section of the Statement of Net Position.

Net position represents the value of the College’s assets and deferred outflows after liabilities and deferred inflows are deducted. The College is required by accounting standards to report its net position in three categories:

Net Investment in Capital Assets - The College’s total investment in property, plant, equipment and infrastructure, net of accumulated depreciation and outstanding debt obligations related to those capital assets.

Restricted:

Expendable - This category includes resources the College is legally or contractually obligated to spend in accordance with restrictions placed by State, donor, and/or external parties who have placed time or purpose restrictions on the use of the asset. These funds are comprised of $376K, $347K and $441K at June 30, 2017, 2016 and 2015, respectively. The Foundation’s restricted-expendable net position consists of funds whose income is used mainly for student scholarships and grant awards for eligible students.

Non-Expendable - The College has no restricted non-expendable net position resources or assets as of June 30, 2017, 2016 and 2015. The Foundation’s restricted non-expendable net position consists of endowed scholarship funds to be held in perpetuity.

Unrestricted – This includes all other assets not subject to externally imposed restrictions, but which may be designated or obligated for specific purposes by the Board of Trustees or management.

Prudent unrestricted fund balances are maintained for use as working capital, as a reserve against emergencies and for other purposes, in accordance with policies established by the College’s management.

Statement of Revenues, Expenses and Changes in Net Position:

The Statement of Revenues, Expenses and Changes in Net Position reflects the results of operations and other changes for the year ended June 30. The objective of the statement is to present the revenues earned, both operating and non-operating, and the expenses incurred by the College, along with any other revenues, expenses, gains or losses of the College.

Generally, operating revenues are earned by the College in exchange for providing goods and services.

Tuition, fees, grants and contracts are included in this category. In contrast, non-operating revenue includes support the College receives from another government entity without directly giving equal value to the government entity in return. Accounting standards require that the College categorize state operating appropriations as non-operating revenues.

Operating expenses are expenses incurred in the normal operation of the College, including depreciation expense on property and equipment assets.

The net operating loss in the three years presented represents the State mandate to keep tuition lower than the cost of the education and community services provided.

The condensed Statements of Revenues, Expenses and Changes in Net Position are presented below:

For the Year ended June 30, 2017 2016 2015

Operating revenues

Tuition and fees, net 14,119,472$ 12,689,408$ 12,585,404$

Grants 10,164,475 10,480,713 11,945,442

Gifts and contributions 234,297 217,533 117,365

Other operating revenue 283,058 341,581 272,580

Total operating revenue 24,801,302 23,729,235 24,920,791

Operating expenses

Instruction 17,190,123 17,288,073 16,580,104

Academic support 4,032,487 3,750,542 4,110,276

Student services 5,426,416 4,847,184 4,996,952

Scholarships and fellowships 1,924,731 2,133,941 2,687,307

Institutional support 7,430,474 6,045,843 7,042,112

Public service 80,624 75,231 84,675

Operations and maintenance of plant 6,094,928 5,665,544 5,272,190

Depreciation 1,319,655 1,650,000 2,400,140

Total operating expenses 43,499,438 41,456,358 43,173,756

Operating income (loss) (18,698,136) (17,727,123) (18,252,965)

Net non-operating revenues

State appropriations, net 20,983,375 20,017,016 19,187,007

Investment income 105,696 22,336 6,595

Interest expense (12,705) (45,253) (65,703)

Capital appropriations received (refunded) 9,224 (66,631) 276,668

Capital grants 106,234 72,300 -

Total non-operating revenue 21,191,824 19,999,768 19,404,567

Increase (decrease) in net position 2,493,688 2,272,645 1,151,602

Net position, beginning of the year 11,163,641 8,890,996 7,739,394

Net position, end of the year 13,657,329$ 11,163,641$ 8,890,996$

Condensed Statements of Revenues, Expenses and Changes in Net Position

Revenues

The Commonwealth of Massachusetts, through the Board of Higher Education, appropriates funds to the community college segment as a whole and then the Board of Higher Education allocates monies to support day-to-day operations of the Colleges. Partially due to the performance funding model, the College’s direct unrestricted appropriations from the Commonwealth totaled $16.3M, $15.8M and $15.6M for fiscal years 2017, 2016 and 2015, respectively.

Although the Commonwealth dictates the tuition rate, $24 per credit hour for in-state tuition for the three years under comparison, the course and administrative student services fees are set by the Board of Trustees of the College. In fiscal year 2017, at the request of management, the Board of Trustees of the College voted to increase the All-College fee by $11 per credit hour to $151 per credit hour and a $2 increase to the technology fee beginning in Fall 2016. In fiscal year 2016, at the request of management, the Board of Trustees of the College approved an increase to the All-College fee by $10 per credit hour, increasing the fee from $130 per credit hour to $140 per credit hour. There were no fee increases in fiscal year 2015.

Scholarship allowances represent funds received by the College on behalf of students and applied directly to students’ accounts as defined by GASB Statement No. 33. For the years ended June 30, 2017, 2016 and 2015, student financial aid and other scholarships, tuition waivers and awards totaled $8.4M, $9.6M and $10.3M, respectively. The amounts received in excess of amounts billed by the College that were subsequently refunded to students totaled $1.9M, $2.1M and $2.7M for the years ended June 30, 2017, 2016 and 2015, respectively.

Federal grants and contracts annual revenues decreased by $936K or 11% in fiscal year 2017 when compared to the prior year. Similar to last year, the decrease was primarily the result of a decrease in

Federal Pell and loan revenue. Pell revenue totaled $3.9M, $4.7M and $5.6M, and federal loans totaled

$2.5M, $2.6M and $3.5M for the years ended June 30, 2017, 2016 and 2015, respectively. For fiscal year 2016, the decrease was mitigated by an overall increase in Federal institutional grants. The larger grants in fiscal year 2016 included: National Science Foundation, iCREAT: A pathway to middle-skill positions through the Introduction to Coding, Robotics, Electronics, And Technology grant which was new for the College in fiscal year 2016 and the Department of Labor Trade Adjustment Assistance

Community College and Career Training Grants Program (“TAACCCT”), Massachusetts College

Consortium - Guided Pathways to Success in STEM (science, technology, engineering and math) grants and funding from the Department of Education for a Title III – Student Success Initiatives grant. Federal institutional grant revenue was relatively flat in the current fiscal year 2017 as compared with the prior year as many of these had multi-year performance periods.

State grants and contracts annual revenues increased by $266K or 15% in fiscal year 2017 over the prior year. In fiscal year 2017, although most state grant support remained level over the prior year, the College received a new grant from the Commonwealth’s Skills Capital Equipment Grant Program to purchase academic equipment in the amount of $319K. Among other programmatic assets acquired with these funds, the College purchased an advanced birthing simulator for the Health Sciences program and a dual control four-wheel drive chassis dynamometer system to serve the automotive department.

In 2016, State grants and contracts annual revenues increased by $496K or 41% over fiscal year 2015.

These changes were primarily due to level funding in State grant initiatives and lower student participation in the Massachusetts Tuition Waiver program. The State grant initiatives appropriated for the three years included: The STEM Starter Academy, the Performance Initiative Grant and Perkins

Grant Awards Program.

Private grants, contracts and other operating revenue annually for fiscal year 2017 amounted to $1.4M and increased by $296K or 33% over the prior year fiscal year 2016. The increase was the result of

Foundation student support and other outside programmatic support. In fiscal year 2016, there was a decrease of $283K or 24% over the prior year fiscal year 2015 which was primarily the result of a decline in the College’s non-credit offerings, mitigated by an increase in commission income due to more favorable bookstore and food service contract negotiations.

(5,000,000)

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

State appropriations, net

Tuition and fees, net

Federal grants and contracts

State grants and contracts

Private grants and contracts

Other operating revenues

Capital appropriations

2017 20,983,375 14,119,472 7,260,367 1,984,252 919,856 283,058 9,224

2016 20,017,016 12,689,408 8,196,417 1,718,496 565,800 341,581 (66,631)

2015 19,187,077 12,585,404 9,804,815 1,222,880 917,747 272,580 276,668

Selected Revenue Comparison (in dollars)

The College receives capital appropriations from the Commonwealth that can span multiple fiscal years.

In accordance with accounting standards, the amount shown as capital appropriations revenue on the financial statements is the amount expended during the current year. Expenditures from capital project funds that do not meet accounting standards for capitalization are reported as operating expenses. Those expenditures that meet the capitalization requirements are not shown as an expense in the current period and are instead recognized as depreciation expense over the expected useful life of the asset.

Expenses

Faced with declining enrollment over the past five years, the College has continuously sought opportunities to identify savings and efficiencies. Over the last four years, the College has restructured its budget to decrease spending with the goal of increasing financial strength to meet the predicted trend of declining enrollment due to decreasing 18 – 24 age group population projections for Massachusetts.

The College’s operational expenses increased by 5% or $2M in fiscal year 2017 over the prior year and decreased by 4% and 4.5% when compared with the prior years in fiscal year 2016 and 2015, respectively. The majority of this increase was due to top level position vacancies in fiscal year 2016 that were filled in 2017, including the office of the President. Conversely, the decrease in the prior years was due to a concerted effort by management to reduce costs to meet the reality of current operating resources. In fiscal year 2015, the majority of the savings was due to retrenchment efforts in the non-unit professional employee class during fiscal year 2014 and fiscal year 2015 and selected non-personnel budget cuts. Savings in fiscal year 2016 were primarily the result of budget initiatives to delay hiring of selected open positions and to reduce costs in the areas of conference and travel costs, printing and postage and catering expenses across the College.

Instruction expenses decreased slightly by 1% or $98K in fiscal year 2017 over the prior year due to reduced need for adjunct faculty. This category increased by 4% in fiscal year 2016 over the prior year and decreased by 1.4% in FY2015 over the prior year. The increase in fiscal year 2016 was the result of increases in union contracts and grant supported activities. Scholarships and Fellowships decreased by

10%, 21% and 7.2% when compared with the prior years in fiscal year’s 2017, 2016, and 2015, respectively. This was primarily due to decreased student participation in Subsidized and Unsubsidized

Stafford Loans as the College’s enrollment decreased. Institutional Support increased significantly in fiscal year 2017 by 23% or $1.4M over the prior year as vacant positons were filled in key administrative positions. This category decreased by 14% in fiscal year 2016 over the prior year and increased by 8.4% in fiscal year 2015 over the prior year. Management was able to reduce expenses in this category through strategic budget cuts in this area over the last budget cycle for fiscal year 2016.

Depreciation expense for fiscal year 2017 decreased by 20% or $330K over the prior year due to modest capital purchases over the last couple of years. This category was lower in fiscal year 2016 by 31% over the prior year and 5% lower in fiscal year 2015 over the prior year. This decrease was due to the purchase of computer assets for an upgrade to the College’s ERP system and significant network infrastructure put into place in fiscal year 2014 and depreciated over two years in fiscal year 2015 and fiscal year 2014.

The following chart illustrates the operating expense by National Association of College and University

Business Officers (“NACUBO”) functional category per full-time equivalent (“FTE”) student.

Instruction Academic Support

Student services

Scholarships fellowships

Institutional Support

Public service Op & Maint of plant Depreciation

2017 $5,506 $1,292 $1,738 $617 $2,380 $26 $1,952 $423

2016 $5,369 $1,165 $1,505 $663 $1,878 $23 $1,759 $512

2015 $4,668 $1,157 $1,407 $757 $1,983 $24 $1,484 $676

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Functional Expenses per Student (FTE)

The following are graphic illustrations of total expenses by functional categories including depreciation expense for the fiscal years ended June 30, 2017 and 2016:

40%

9%13%

4%

17%

14% 3%

FY2017 Expenses by Functional Type

Instruction

Academic support

Student services

Scholarships & fellowships

Institutional Support

Operation & maintenance of plant

Depreciation

42%

9%12%

5%

14%

14% 4%

FY2016 Expenses by Functional Type

Instruction

Academic support

Student services

Scholarships & fellowships

Institutional Support

Operation & maintenance of plant

Depreciation

The Statement of Cash Flows:

The Statement of Cash Flows gives a general picture of where the College obtains and spends its cash and cash equivalents during the fiscal year. The statement gives detailed information about cash flows related to four different types of activities within the institution.

The first section, Cash Flows from Operating Activities, shows cash received and spent on the operations of the College. Since tuition and fees and other operating revenues alone do not normally cover the operating costs of a public higher education institution, this section can be expected to show more cash used than provided.

The second section, Cash Flows from Non-Capital Financing Activities, shows cash received and spent on non-capital financing activities of the College. Here the College reports cash from state appropriations. Tuition required to be remitted to the state for day courses is also included in this section.

The third section, Cash Flows from Capital and Related Financing Activities, shows cash received and spent on capital and related financing activities. This includes state capital appropriations for major projects, minor works and repairs. It also includes principal and interest paid on capital leases. Since the College also uses local funds to supplement these sources, it is not unusual for this section to show more cash used than provided.

The fourth section, Cash Flows from Investing Activities, shows cash received and spent on investing activities, including the purchase and sale of investment instruments, interest earnings and realized gains and losses from investments.

Next, the statement shows how the current year’s change in cash and cash equivalents combined with the prior year’s cash and cash equivalents balance results in the ending cash and cash equivalents balance shown on the College’s Statement of Net Position. Finally, the statement includes a detailed reconciliation of operating activity only, between the operating loss shown as a subtotal on the Statement of Revenues, Expenses and Changes in Net Position and the net cash used in operating activities as shown on the Statement of Cash Flows.

The condensed statements of cash flows are presented below:

For the Year ended June 30, 2017 2016 2015

Operating activities (12,210,205)$ (12,003,982)$ (11,040,433)$

Non-capital financing activities 15,710,891 15,529,350 14,970,054

Capital financing activities (1,193,550) (1,351,221) (949,579)

Investing activities 105,696 22,336 6,595

Net change in cash 2,412,832 2,196,483 2,986,637

10,269,530 8,073,047 5,086,410

Cash and cash equivalents, end of year 12,682,362$ 10,269,530$ 8,073,047$

Condensed Statements of Cash Flows

Cash and cash equivalents, beginning of year

The College’s cash and cash equivalents as of June 30, 2017 increased by approximately $2.4M over the balance at June 30, 2016. Similarly, the cash and cash equivalents balance increased by approximately

$2.2M from June 30, 2015 to June 30, 2016. Similar as with the prior year, primary contributing factors included adoption and implementation of a budget that included a net reserve and was supported by conservative enrollment projections as well as on-going management of expenditures. State appropriations were slightly higher in fiscal year 2017 than the prior year as the Commonwealth provided a special allotment for increases in union payroll for both the current and the prior year. The following schedule summarizes the increase in cash spent to support operating activities for fiscal years

2017, 2016 and 2015 while maintaining a strong cash balance reserve.

(15,000,000)

(10,000,000)

(5,000,000)

5,000,000

10,000,000

15,000,000

Cash Spent on Operating activities

Cash, end of year

2017 (12,210,205) 12,682,362

2016 (12,003,982) 10,269,530

2015 (11,040,433) 8,073,047

Cash Spent on Operating Activities Comparison

Capital Assets and Long-Term Debt Activities

The College submits a prioritized request for capital funding to the Commonwealth’s Division of Capital

Asset Management and Maintenance (“DCAMM”) on an annual basis, which includes major projects.

The primary funding source for capital projects is state general obligation bonds. In recent years, the

Commonwealth’s debt capacity has impacted the number of new and major repair projects that can be funded.

As of June 30, 2017, the College had invested more than $8.5M in capital assets, net of accumulated depreciation. Major asset types are as follows:

$50,000

$100,000 $150,000 $200,000 $250,000 $300,000 $350,000

Construction In Progress

Buildings Furniture & Fixtures

Machinery and

Equipment

Computer Assets

Leasehold Improvements

2017 $230,926 $- $- $235,899 $- $-

2016 $20,526 $259,718 $14,685 $21,610 $345,599 $-

2015 $79,874 $225,159 $- $43,250 $- $75,727

Capital Asset Additions

The decrease in net capital assets can be attributed to limited funds available to invest in new capital assets while existing capital assets were further being depreciated in fiscal year 2017.

The majority of the capital assets purchased over the last three years related to necessary building improvement projects. Beginning in fiscal year 2015 and completed in fiscal year 2016, the College replaced a roof on the Annex building on the Wellesley Hills campus. In addition, several building maintenance projects were undertaken to address deferred maintenance needs. Two state supported studies remained in the construction in progress category in fiscal year 2016. The first, a feasibility study for a new campus and the second a study to assess a project related to air conditioning in certain Wellesley Hills campus classrooms. During fiscal year 2016, the College entered into an agreement to lease computer assets for administrative and faculty use. At the end of fiscal year 2016, the remaining construction in progress related to a feasibility study for the new Framingham campus site criteria and an assessment study for the HVAC in the classroom space of the Wellesley Hills. Work began on a key card access and locking door security system and additional work was performed related to the HVAC project for the Wellesley campus, the expenses of which are included in the additions to construction in progress for fiscal year 2017. Both of these projects are expected to be completed in fall of fiscal year 2018.

During fiscal year 2015, the College completed the following building improvement projects: a cooling tower overhaul, stair renovations and associated lift in the Veteran’s “Bunker” on the Wellesley Hills campus and installing safety sensors outside the buildings. A leasehold improvement project to install security cameras on the Framingham campus was also completed during the year.

In 2017, the College received a Grant from the Commonwealth’s Skills Capital Equipment Grant

Program to purchase academic equipment. Among other programmatic assets, the College purchased an advanced birthing simulator for the Health Sciences program and a dual control four-wheel drive chassis dynamometer system to serve the automotive department.

At June 30, 2017 and 2016, the College had $79K and $908K, respectively, in outstanding capital lease obligations. The majority of these obligations were incurred in prior years to fund an upgrade to the

College’s ERP system and will be paid in full by the end of fiscal year 2018. The remaining portion relates to leased administrative computer equipment.

Factors Impacting Future Periods

Fiscal year 2017 began with an inaugural celebration to welcome the College’s sixth president, Dr.

David Podell. He shared his conviction that MassBay has extraordinary capability and responsibility as an institution, “It can impact not only the lives of those who study here, but also their children... It can change a family’s trajectory in ways that few colleges can.”

With the leadership of the new president, the College embarked on creating a strategic plan for the five years beginning 2017. This plan incorporates the Commonwealth of Massachusetts’ Board of Higher Education’s Vision Project elements and sets forth five strategic directives aligned to continually improve performance in the areas of improving student outcomes, increasing college preparation, strengthening workforce partnerships, enhancing professional growth of faculty and staff, and optimizing capital resources.

The fiscal year 2018 budget was structured with a conservative 6% enrollment decrease consistent with the fiscal year 2017 budget in anticipation of the projected enrollment decline in traditional college age population in the Commonwealth. In the prior three fiscal years, budgets were structured to include a large reserve in an effort to significantly increase the College’s cash reserve. This effort and the operational successes of the College has resulted in a positive cash reserve to begin fiscal year 2018.

In June of 2017, at the recommendation of management the Board of Trustees voted to increase the All- College fee by $10 to $161 per credit hour and a $5 increase to the technology fee beginning in Fall 2017. At the same time, they approved to eliminate the facilities and parking fees. The new fee structure was put in place to streamline fees and help mitigate some of the effects of the enrollment decline, fund substantial medium term financial challenges, and to continue investment in the College’s operations to support the mission of the College.

The fiscal year 2018 budget includes funding for investment in infrastructure and personnel to support the current initiatives of the Board of Trustees (“Board”) and the College leadership team and lay the groundwork to meet the goals outlined in the emerging strategic plan.

Under the leadership of the President, the College has begun investing in key personnel positions.

During fiscal year 2017, the College added the Director of Career Services, Director of Corporate Partnerships and Grant Administrator. At the beginning of fiscal year 2018, the College added the positions of Title IX Coordinator and Special Assistant to the President and Chief Diversity Officer.

During fiscal year 2017, the College paid all outstanding debt related to an upgrade to the College’s enterprise resource planning (“ERP”) system, leased administrative computer equipment and network infrastructure. This opens up a funding source for the next round of necessary technology upgrades that will begin in fiscal year 2018, including replacing two thirds of the current end-user computers across the College. The College is also investing financial resources for a functional assessment of the College’s ERP and a document management system.

The College has many challenges in the next five years that will require strong leadership. Substantial challenges in the near future include declining traditional college age population in the Commonwealth, campus lease renewals or relocation, deferred maintenance concerns, and upgrading the ERP system for the College.

Along with the majority of the community colleges in Massachusetts, Massachusetts Bay Community College has struggled with declining enrollment for several years. Although in excess of budgeted 6% decline, fall enrollment was down by 3.4% in credits sold, over fall semester 2017. The College has identified several key areas of focus to increase enrollment, including efforts to increase retention of part-time students, developing the yield on applications submitted, providing more financial aid award information to applicants, and building corporate training, workforce development partnerships and other non-credit offerings.

The Wellesley campus has suffered from deferred maintenance due to past years’ financial stability concerns and lack of capital funding from the Commonwealth. During fiscal year 2017, the Commonwealth’s Department of Capital Management and Maintenance (“DCAMM”) suspended funding to repairs and maintenance projects and began conducting a survey of deferred maintenance across the Commonwealth's public higher education system in an attempt to prioritize projects. With this survey now completed, the College expects to see increased funding support from the State for deferred maintenance projects in the future. In addition, the College is working with the architects and engineers to create an internal five-year plan for the investment in physical infrastructure to be supported by local funds. Through partnership with DCAMM, beginning at the end of fiscal year 2017, the College began installing a heating, ventilation, and air conditioning system to serve classroom and lab space on the Wellesley campus. This system is expected to be up and running for the spring 2018 semester.

Despite these challenges, the College is continuing to serve the community and mission well by fostering educational excellence and student success. As a standard measure of student success, the fall

2013 cohort graduation rate for first time, full-time degree/certificate seeking students who graduated within three years increased by 6% over the fall 2012 cohort.

Requests for Information

This financial report is designed to provide the College, the Commonwealth, the public and other interested parties with an overview of the financial results of the College and an explanation of the

College’s financial condition. If you have questions about this report or requests for additional information, please contact Eileen Gerenz, AVP for Finance & Administration at 781-239-3000 or by email at egerenz@massbay.edu.

Statements of Net Position

2017 2017 2016 2016

College Foundation College Foundation

Current Assets

Cash and cash equivalents (Note 2) 12,495,501$ 234,300$ 10,125,463$ 252,534$

Deposits held by State Treasurer (Note 3) 186,861 - 144,067 -

Accounts, grants and loans receivable, net (Note 4) 2,258,670 - 1,926,035 -

Pledges receivable, net (Note 5) - 11,600 - 16,600

Investments (Note 6) - 3,846,893 - 3,377,856

Prepaid expenses and other current assets 162,904 - 324,574 -

Total Current Assets 15,103,936 4,092,793 12,520,139 3,646,990

Noncurrent Assets

Capital assets, net (Note 7) 8,512,532 - 9,365,362 -

Investments (Note 6) - 1,432,804 - 1,297,120

Pledges receivable, net (Note 5) - 2,146 - 11,097

Total Noncurrent Assets 8,512,532 1,434,950 9,365,362 1,308,217

Total Assets 23,616,468 5,527,743 21,885,501 4,955,207

Deferred Outflows of Resources

Deferred outflows for pensions (Note 11) 523,410 - 581,271 -

Total Deferred Outflows of Resources 523,410 - 581,271 -

Assets and Deferred Outflows of Resources

Statements of Net Position

See notes to the financial statements.

College Foundation College Foundation

Current Liabilities

Accounts payable and accrued expenses (Note 8) 1,719,946$ 500$ 1,277,610$ 20,016$

Accrued salaries and wages (Note 10) 1,112,514 - 1,013,026 -

Accrued compensated absences and workers' compensation (Note 9) 1,555,748 - 1,579,862 -

Unearned tuition and student deposits 1,198,434 - 1,164,183 -

Unearned grant and contract revenue 188,677 - 203,363 -

Current portion of capital lease obligations (Note 9) 78,863 - 829,479 -

Total Current Liabilities 5,854,182 500 6,067,523 20,016

Noncurrent Liabilities

Accrued compensated absences and workers' compensation (Note 9) 869,500 - 802,386 -

Capital lease obligations (Note 9) - - 78,862 -

Net pension liability (Note 11) 1,674,264 - 2,560,726 -

Total Noncurrent Liabilities 2,543,764 - 3,441,974 -

Total Liabilities 8,397,946 500 9,509,497 20,016

Deferred Inflows of Resources

Deferred inflows for pensions (Note 11) 2,084,603 - 1,793,634 -

Total Deferred Inflows of Resources 2,084,603 - 1,793,634 -

Net Position

Net investment in capital assets 8,433,668 - 8,457,021 -

Restricted for:

Expendable (Note 12) 375,538 2,200,503 347,430 1,828,061

Non-expendable (Note 12) - 1,432,804 - 1,297,120

Unrestricted 4,848,123 1,893,936 2,359,190 1,810,010

Total Net Position 13,657,329$ 5,527,243$ 11,163,641$ 4,935,191$

Liabilities, Deferred Inflows of Resources and Net Position

Statements of Revenues, Expenses and Changes in Net Position

Years Ended June 30, 2017 and 2016

College Foundation College Foundation

Operating Revenues

Tuition and fees 20,614,678$ -$ 20,197,912$ -$

Less: Scholarship allowances (6,495,206) - (7,508,504) -

Net student fees 14,119,472 - 12,689,408 -

Gifts and contributions 234,297 416,559 217,533 234,138

Federal grants and contracts 7,260,367 - 8,196,417 -

State grants and contracts 1,984,252 - 1,718,496 -

Private grants and contracts 919,856 - 565,800 -

Other operating revenues 283,058 - 341,581 -

Total Operating Revenues 24,801,302 416,559 23,729,235 234,138

Operating Expenses (Note 14):

Instruction 17,190,123 - 17,288,073 -

Academic support 4,032,487 - 3,750,542 -

Student services 5,426,416 - 4,847,184 -

Scholarships and fellowships 1,924,731 232,058 2,133,941 218,666

Institutional support 7,430,474 168,887 6,045,843 122,422

Public service 80,624 47,314 75,231 33,706

Operations and maintenance of plant 6,094,928 - 5,665,544 -

Equipment donations - 4,000 - 13,700

Depreciation 1,319,655 - 1,650,000 -

Total Operating Expenses 43,499,438 452,259 41,456,358 388,494

Operating Loss (18,698,136) (35,700) (17,727,123) (154,356)

Statements of Revenues, Expenses and Changes in Net Position

College Foundation College Foundation

Non-Operating Revenues (Expenses)

State appropriations, net (Note 16) 20,983,375 - 20,017,016 -

Investment income 105,696 627,752 22,336 62,621

Interest expense (12,705) - (45,253) -

Net Non-Operating Revenues 21,076,366 627,752 19,994,099 62,621

Income (Loss) Before Capital Additions 2,378,230 592,052 2,266,976 (91,735)

Capital appropriations received (refunded) 9,224 - (66,631) -

Capital grants 106,234 - 72,300 -

Total Capital Additions 115,458 - 5,669 -

Increase (Decrease) in Net Position 2,493,688 592,052 2,272,645 (91,735)

Net Position, Beginning of Year 11,163,641 4,935,191 8,890,996 5,026,926

Net Position, End of Year 13,657,329$ 5,527,243$ 11,163,641$ 4,935,191$

Statements of Cash Flows

2017 2016

Cash Flows from Operating Activities:

Tuition and student fees 13,825,514$ 12,696,630$

Grants and contracts 10,107,174 10,275,940

Payments to suppliers (8,610,553) (8,150,728)

Payments to employees (26,163,152) (25,196,228)

Payments to students (1,924,731) (2,133,941)

Other operating revenues 555,543 504,345

Net Cash Used in Operating Activities (12,210,205) (12,003,982)

Cash Flows from Non-Capital Financing Activities:

State appropriations 16,287,353 15,937,927

Tuition remitted to State (576,462) (408,577)

Net Cash Provided by Non-Capital Financing Activities 15,710,891 15,529,350

Cash Flows from Capital and Related Financing Activities:

Capital appropriations received (refunded) 9,224 (66,631)

Purchases of capital assets (360,591) (279,608)

Principal paid on capital leases (829,478) (959,729)

Interest paid on capital leases (12,705) (45,253)

Net Cash Used in Capital and Related Financing Activities (1,193,550) (1,351,221)

Cash Flows from Investing Activity:

Investment income 105,696 22,336

Net Cash Provided by Investing Activity 105,696 22,336

Net increase in Cash and Cash Equivalents 2,412,832 2,196,483

Cash and Cash Equivalents, Beginning of Year 10,269,530 8,073,047

Cash and Cash Equivalents, End of Year 12,682,362$ 10,269,530$

Statements of Cash Flows

2017 2016

Reconciliation of Operating Loss to Net Cash

Used in Operating Activities

Operating loss (18,698,136)$ (17,727,123)$

Adjustments to reconcile operating loss to net cash used in operating activities:

Depreciation 1,319,655 1,650,000

Bad debts 296,071 15,923

Fringe benefits provided by the State 5,272,484 4,487,666

Changes in assets and liabilities:

Receivables (628,706) (347,422)

Prepaid expenses and other current assets 161,670 (142,997)

Accounts…