F&I Reserve Discussion topics April 19, 2019

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

2. ReservesTable of Contents • Reserve Policy Update/Review • CalPERS Actuarial Update March 2019 • Recommended Reserve Designations • Per Accounting Standards Update – ASU 2016-14

3. 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

4. Reserve RecommendationsFormal 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

5. Reserve RecommendationsCalPERS 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

6. Reserve RecommendationsCommitted 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

7. Reserve RecommendationsOther 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?

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

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

10. Non-Profit Accounting StandardsReporting 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

11. Non-Profit Accounting StandardsReporting ChangesLiquidity & 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

12. Non-Profit Accounting StandardsReporting 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

13. Non-Profit Accounting StandardsReporting 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

14. Non-Profit Accounting StandardsReporting ChangesCash 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

15. 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

16. CalPERS Actuarial ReportingFocus 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

17. CalPERS Actuarial ReportingFocus 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

18. Reserves • Policy Refinement Pending • 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

19. F&I Reserve Discussion topics September 21, 2018

20. ReservesTable 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?

21. 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

22. 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

23. 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

24. ReservesAssets & 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

25. Long Term Liabilities Trend

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

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

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

29. 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

30. 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

31. FY 2018/2019 Budget Review FROME FY 2018/2019 BudgetReserve Matrix

32. FY 2018/2019 Budget Review FROM FY 2018/2019 BudgetReserve Funding Opportunities

33. 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

34. 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