F&I Reserve Discussion topics April 19, 2019 Designations and Recommendations

Reserves Table of Contents Reserve Policy Update/Review CalPERS Actuarial Update March 2019 Recommended Reserve Designations Per Accounting Standards Update – ASU 2016-14

CalPERS Actuarial Update CalPERS GASB 68 Publications – March 2019 Miscellaneous Risk Pool Measurement update Measurement Date of June 30, 2018 Baselines Liabilities and Assets for YE June 2019 Public Agency Schedules Employer Allocation for Components of Net Pension Liability Shops Liability increase of $190,818 Will impact Year End Operating Statement Legacy employee participant plan Shrinking participant funding pool ongoing

Reserve Recommendations Formal Designations Potential Designation of $15,449,000 Plus $6,000,000 - PERS Designation/Pay-down Schedule $2,068,000 - Committed Funds $7,381,000 Plus - Additional Reserves/Donations Estimated available Funds $14M-$15M

Reserve Recommendations CalPERS Reserve Recommendation $6,000,000 – Designation/Pay-down Plan Proposed Funding profile of $3.5M $1,000,000 initial payment $500,000 annual payment for years 1-5 This Amount is above and beyond the mandated 20 year schedule in place ($438K-$653K years 1-5) Option Plan $2M down, $500K for 3 years Annual Reserve review/Adjustment Revisit Funding Profile in 3 years

Reserve Recommendations Committed Funds $500,000 – Beach Investment Group (BIG) Formerly SMIF – Portfolio held with Wells Fargo $400,000 Beach Club Deposits Student/Staff funds varying between $300K-$500K $768,000 – Sick Pay Designation (Current) $200,000 – Pre-1989 Hires ($195K) $568,000 – Retiree Eligible ($562K) $400,000 – Current/One year Retiree Medical VEBA Funding ended 6/30/17

Reserve Recommendations Other Designations $7,381,000 Plus in Other Designations and/or Donations $100,000 – HFHM Chair $1,000,000 - Alumni Center $1,000,000 - Kitchen $3,281,000 – Outpost Bond $2,000,000? - Short Term Facility repair ISES Report Pending UDP Replacement - $30,000,00 Annual Funding Option?

Non-Profit Accounting Change & Reserve Reporting F&I February 8, 2019

Agenda Non-Profit Accounting Standards CalPERS Actuarial Review Revisit Prior Reserve Overview

Non-Profit Accounting Standards Reporting Changes New reporting standards to Improve: Clarity of Liquidity and funds Availability Net Asset Disclosure and Reserve itemization Functional Expense Reporting Applies to current Fiscal Year ending 6/30/19 Limited Impact to Shops No Donor Funding Already taken action on reporting requirements

Liquidity and Availability Non-Profit Accounting Standards Reporting Changes Liquidity & Availablity Liquidity and Availability Addresses Balance Sheet leverage Dependent on Net Asset Disclosure Policy required Must be disclosed in audit Report notes Will update Reserve Policy to address this item Shops already addresses line of Credit

Non-Profit Accounting Standards Reporting Changes Net Asset Disclosure Shops Assets self earned and not restricted Shops does not have Donor Restricted Assets All Assets classified as “Without Donor Restrictions” Shops has never formally designated assets Need to Designate funds for liquidity disclosure Will be itemized and categorized within “WDR” Should include mid-term and long Term reserves Last Audit Report took an “informal” position for reclassifying Assets to other due to lack of designation

Shops has addressed this in prior audits Non-Profit Accounting Standards Reporting Changes Functional Expense Reporting Shops has addressed this in prior audits Reporting 46 departments by account detail For the Shops a Program Area is determined to be by Business Area Bookstore, C-Store, Res Dining, Etc Allocation algorithm Review Depreciation G&A detail functionally captured No impact to Operating Statements anticipated

Non-Profit Accounting Standards Reporting Changes Cash Flow No Change anticipated Direct Method for monthly reporting Provides better insight into operational results Indirect Method for year-end Audit Includes variances in all assets and liabilities Contains detailed purchases/sales of investments

CalPERS Actuarial Reporting Annual reports plus valuation updates Latest Report dated August 2018 (As of 6/30/17) Valuation updates pending Brings asset value to 6/30/18 levels GAAP requirement for year-end Pension Reporting Two Reports Legacy – 30 years of underfunding 40 Retirees and 29 Active (10 Fully Eligible) PEPRA - For hires as of 1/1/13 28 active

CalPERS Actuarial Reporting Focus On Miscellaneous Legacy Unfunded Accrued Liability (UAL) (Page 5) Similar to prior estimate of $6.1M Market was favorable during this time Near term annual payments $439K-$687K Assumes a 7.25% Return for 2017-18 CalPERS Changes/Guidelines (Page 6) Discount rate of 7.0% Amortization Schedule to 20 Years Effective with the June 30, 2019 actuarial valuation

CalPERS Actuarial Reporting Focus On Miscellaneous Legacy Potential Interest Payments (Page 11) $4.3M+ No 20 year (hybrid) amortization Schedule depicted Page 5 assumes the 20 year profile starting 2020-21 Hypothetical Termination Liability (Page 17) $23M-$27M depending on Rates Conservative U.S. Treasury yields As of 6/30/17

Reserves Policy Refinement Pending Revisit Prior Reserve Overview Core Policy adequate Expand to include Liquidity and Designations Clean up language to bring Executive Orders current CSU Audit – Lack of Campus President Approval* Revisit Prior Reserve Overview * Future Action

F&I Reserve Discussion topics September 21, 2018

Reserves Table of Contents Reserve Discussions Timeline October 2017 F&I May 2018 F&I/Board Budget Review See Backup slides September 2018 – External Audit Recommendations Assets & Liabilities balances Where do we go from here?

F&I Reserve Discussion October 2017 F&I Recap Reviewed Reserve Policy adherence Verbal Auditor recommendation to reclassify Revisited Prior Budget Reserve model Discussed existing and Strategic Requirements PERS, Bonds, UDP renovation etc. Noted need to Reserve for long term build

F&I Reserve Discussion May 2018 F&I/Board Budget Review Presented Reserve standings Reviewed Assets, Liabilities and risk Noted Auditor recommendation for designating funds No Facility set aside funding in place Recommended $42M candidates for reserves See Budget slides

F&I Reserve Discussion September 2018 Audit Report Audit Recommendations Consider Lowering Idle Cash Bank Balances Consider Developing an Operating Reserve Policy Audit Actions Reclassified Investments from Current Assets to Other Long Term Considered Long Term since no plan in place CO guidelines recommend designation

Reserves Assets & Liabilities status Liabilities and Assets growing proportionately Enough assets to cover liability and Working Capital Mitigate interest rate on PERS balance Legacy employer contribution rate increasing No set aside for Facility Repair/Rebuild

Long Term Liabilities Trend Potential GASB 68 PERS Impact ongoing - 30 year pay down plan for unfunded liability moving to 20

Cash/Investment Balance Trend (With VEBA-Off Balance Sheet)

F&I Reserve Discussion Where do we go from here?

Cash Designation & Funding FROM FY2018/2019 BUDGET RESERVES Cash Designation & Funding

FROM FY2018/2019 Budget Reserve Planning FY 2018/2019 Budget Review FROM FY2018/2019 Budget Reserve Planning Per CSU Policy accommodations made for: Working Capital Annual Capital Replacement /Major Maintenance Adequate funds on hand for Midterm Support Planned Positive Cash Flow in FY2018/19 Assumes Minimal Capital investment plan Auditor recommendation for “Designating” funds for existing liabilities and future needs See Policy for Controller reporting requirements and thresholds. Working Capital targeted at 8% of expenses = $2.7M Reserve Funding Opportunities are: Beach Card – Student funds Alumni Center/Catering Kitchen Designate/Grow funds for early Bond payoff – 2 year assessment Pay down PERS Unfunded Liability Develop long term plan for UDP Renovation

FROM FY2018/2019 Budget Reserve Planning (Cont’d) FY 2018/2019 Budget Review FROM FY2018/2019 Budget Reserve Planning (Cont’d) PERS Unfunded Liability largest debt/risk Accrues Interest exceeding Operating ROI VEBA funding (Off Balance Sheet) Mitigates Long Term Retiree Medical Liability Assumes no additional investment No Facility set aside funding in place Need to start reserving and/or Designate Funds for long term rebuild PERS assumes 7% earnings. Net Contribution and Investment policy much lower. Reserve Funding Opportunities are: VEBA – 1 year or so funding continuum, turn over to TPA Alumni Center/Catering Kitchen Designate/Grow funds for early Bond payoff – 2 year assessment Pay down PERS Unfunded Liability Develop long term plan for UDP Renovation

FROME FY 2018/2019 Budget Reserve Matrix FY 2018/2019 Budget Review FROME FY 2018/2019 Budget Reserve Matrix Capital Actual = $441,676 Facilities Outlook = $380,226 Starbucks Short term = same Per Reserve Policy definitions/Requirements we’ve satisfied the need for Operating Statement items. -FY2017/2018 is done hence zero WC. $2.8M estimated for FY2018/19 as percentage of expense - Classic definition of Current Assets minus Current Liabilities Beach Club Deposits $350K$750K. Currently at $460K. Paying as we go for all: Facilities/Capital Replacement & Major Repair Funding accommodated through depreciation Vacation/Holiday payout - Unrestricted. Ongoing accrual/Pay-out Unemployment Insurance (UIT) held with CSURMA Post Medical current year premiums being paid through Operating Statement - Overall liability is being addressed through VEBA and future returns on investment. SMIF held at Wells Fargo already in a separate account – Not restricted or designated but isolated

FROM FY 2018/2019 Budget Reserve Funding Opportunities FY 2018/2019 Budget Review FROM FY 2018/2019 Budget Reserve Funding Opportunities All but Facilities are recorded on the Balance Sheet Provisioning and recognized various liabilities. Paying down on some: - Facilities Infrastructure pending - Vacation/Holiday is partially designated on the asset side in name only SRB Funding Payments – Finite pay down schedule Refunding save $500K in interest over the remaining 22 years. 10 year Bond Call again. VEBA assumes funding to initial commitment only – Future unfunded liability paid from VEBA investment returns Beach Club is ongoing projected average with holding increasing due to Flex $’s Liability is being addressed regularly. Could designate percentage of funds if balance increased dramatically. SMIF – No liability unless we run out of cash and need to call in the account

FROM FY2018/2019 Budget Reserve Designation FY 2018/2019 Budget Review FROM FY2018/2019 Budget Reserve Designation Recommend that monies be “Designated” as other assets in support of the following: $500,000 - SMIF Portfolio(Held with Wells Fargo) $500,000 – Beach Club Deposits (Student funds) $5,000,000 - PERS Unfunded Liability (or pay down) $3,000,000 – Outpost Bond $2,000,000 – Short Term Facility repair $1,000,000 – Alumni Center $30,000,00 – UDP Replacement

FROM FY2018/2019 Budget PERS Liability Reduction Current unfunded liability of $6.1M Annual payments increasing to $700K $360,853 – July 2018, $445,000 – July 2019 Current schedule incurs $7.6M in interest Discount rate of 7% CalPERS adopting a 20 year minimum schedule See CalPERS Bulletin and backup files Recommend to adopt a plan similar to VEBA $2M down, $1M/year for 3-5 years