Higher Education Accounting Principles Session 9 Revenue Recognition for TABOR Purposes

1. 1 Higher Education Accounting PrinciplesSession #9 Revenue Recognition for TABOR Purposes

2. 2 In November 1992, Colorado citizens voted approval for Amendment 1, aka TAxpayer�s Bill Of Rights, aka Colorado Constitution Article X, Section 20

3. 3 Important General Provisions: The preferred interpretation shall reasonably restrain most the growth of government. Limits on district revenue, spending, and debt may be weakened only by future voter approval.

4. 4 Important Definitions: District means the state or any local government, excluding enterprises. For state agencies and public higher education institutions, district = the State of Colorado.

5. 5 Important Definitions: Enterprise means a government-owned business authorized to issue its own revenue bonds and receiving under 10% annual revenue in grants from all Colorado state and local governments combined. Grants in this context are defined as not including indirect benefit received from state or local government, revenue from providing goods or services, or federal funds.

6. 6 Important Definitions: Fiscal year spending means all district expenditures and reserve increases except, as to both, those for refunds made in the current or next fiscal year or those from gifts, federal funds, collections for another government, pension contributions by employees and pension fund earnings, reserve transfers or expenditures, damage awards, or property sales.

7. 7 Other Provisions: Election Provisions Required Elections Emergency Reserves, requires 3% or more of the fiscal year spending limit excluding bonded debt service Emergency Taxes, prohibited Revenue Limits, addresses property taxes State Mandates, addresses program subsidies

8. 8 Other Provisions: Spending Limits The maximum annual percentage change in state fiscal year spending equals inflation plus the percentage change in state population in the prior calendar year. If revenue from sources not excluded from fiscal year spending exceeds these limits in dollars for that fiscal year, the excess shall be refunded in the next fiscal year.

9. 9 Other Provisions: Spending Limits Districts may use any reasonable method for refunds including temporary tax credits or rate reductions. Refunds need not be proportional when prior payments are impractical to identify or return. Qualification or disqualification as an enterprise changes district bases and future year limits

10. 10 Enabling Legislation: SB93-74 Concerning implementation of Section 20 Article X of the Constitution SB93-136 Concerning policies related to state-supported institutions of higher education and, in connection therewith, authorizing the General Assembly to prescribe annually the maximum amount of cash funds that may be raised, spent, or transferred to reserves by such institutions SB93-1355 Concerning the enterprise status of higher education auxiliary facilities for the purposes of Section 20 Article X of the Constitution

11. 11 In plain English, please!

12. 12 The state�s expenditures are capped at an annual fiscal spending limit which is based upon the revenue generation defined in Article X, Section 20. That definition says all revenues are within the controlled spending limit unless specifically exempted in the constitution or subsequent legislation or voter referendum.

13. 13 Generally, exempt revenues carry their exempt status no matter how many times they change hands, e.g. once federal, always federal. Interest earning are assigned the same TABOR exempt or nonexempt status as the principle upon which it is earned. Revenues should only be counted against TABOR once.

14. 14 So� Exactly what is exempt from TABOR? And Why? And what does this mean for higher education institutions?

15. 15 Fiscal year spending = all district expenditures and reserve increases except, as to both, those for refunds made in the current or next fiscal year or those from gifts, federal funds, collections for another government, pension contributions by employees and pension fund earnings, reserve transfers or expenditures, damage awards, or property sales.

16. 16 Higher education institutions� current restricted revenues from federal and private grants, contracts, and gifts are exempted from TABOR revenue because those sources of funds are specifically exempted. from state grants and contracts are exempted from TABOR revenue because they were already counted against TABOR when the funds were originally received by the state. from local grants and contracts are not exempted from TABOR revenue because those sources of funds are not specifically exempted.

17. 17 Higher education institutions� loan programs funded by federal and private sources are exempted from TABOR revenue because those sources of funds are specifically exempted. Higher education institutions� endowment activity funded by private gifts is exempted from TABOR revenue because that source of funds is specifically exempted.

18. 18 Higher education institutions� expenditure of fund balance is considered reserve transfers or expenditures and is therefore exempt from the TABOR fiscal spending limit.

19. 19 Higher education institutions� plant fund activity is generally funded by Debt service Fund balance transfers Transfers from other exempt funds Federal indirect cost recoveries Federal and private grants and contracts Gifts All of which are specifically exempted from TABOR.

20. 20 Higher education institutions� current unrestricted activity includes some revenues that are exempt from TABOR and some that are not. Higher education institution�s General Fund support and tuition revenue are not specifically excluded so they are counted as TABOR revenue and included in the fiscal year spending limit. Interest earned on these funds are counted as TABOR revenue and included in the fiscal year spending limit.

21. 21 Facilities & Administrative (F&A) (indirect) cost recoveries from federal and private grants are exempted from TABOR revenue because those sources of funds are specifically exempted. The sale of surplus property and royalties are revenue from property sales and are specifically exempted from TABOR revenue in the Constitution. Insurance recoveries are damage awards and are specifically exempted from TABOR revenue in the Constitution.

22. 22 If an auxiliary enterprise activity meets the constitutional and statutory definition of a TABOR enterprise, and is designated as such by the Governing Board, it is exempt from TABOR and its revenues are not included in the state�s fiscal spending limit. What are the criteria it must meet to qualify for designation as a TABOR enterprise?

23. 23 If an auxiliary enterprise is designated a TABOR enterprise by its Governing Board, all its revenues are exempt from TABOR. If the residence halls are a TABOR enterprise, room charges to students are TABOR exempt. If a cafeteria is a TABOR enterprise, all its sales � board changes, meal plan charges, food and catering sales � are TABOR exempt.

24. 24 Student activity fees collected to support an activity designated as an TABOR enterprise by the Governing Board are exempt. If athletics is a TABOR enterprise, an athletic student fee is TABOR exempt revenue. If athletics is not a TABOR enterprise, an athletic student fee is not TABOR exempt revenue.

25. 25 What are some of the activities that have been designated as TABOR enterprises by your Governing Board?

26. 26 Four Principles of TABOR Accounting Anything that is not specifically exempted from TABOR is TABOR nonexempt activity. All TABOR nonexempt revenues and expenditures are controlled by the legislature through appropriation in the Long Bill.

27. 27 Four Principles of TABOR Accounting Higher education institutions can collect and expend TABOR nonexempt revenues only to the limit established by the Long Bill appropriation. This control is exercised by separating TABOR exempt and nonexempt activity by fund within the standard Higher Education fund structure.

28. 28 COFRS Fund Structure: Current Unrestricted Funds = 31X General Operating Fund Group 32X Auxiliary & Self-Funded Fund Group Current Restricted Fund Group = 33X Loan Fund = 340 Endowment Fund = 350 Plant Fund Group = 37X Agency Fund = 380

29. 29 COFRS Current Unrestricted Funds: COFRS General Operating Fund Group = 310 Current Unrestricted Nonexempt 311 Current Unrestricted Exempt COFRS Auxiliary & Self-Funded Fund Group = 320 Designated Enterprises 326 Auxiliary/Self-Funded Non-Enterprise Exempt 327 CPPS Clearing Exempt 328 Internal Service Activity Exempt 329 Auxiliary/Self-Funded Nonexempt

30. 30 COFRS Current Restricted Fund Group: 330 Current Restricted Exempt 331 Current Restricted NON-Exempt COFRS Plant Fund Group: 371 Plant Fund Exempt 375 Plant Fund NON-Exempt

31. 31 How do I know what fund to use?

32. 32 Determine the fund group appropriate to the nature of the revenue, then Record the revenue in the fund within the fund group appropriate to its TABOR status. Example: Revenue from grants, contracts, and gifts belong in the Current Restricted Fund Group 33X. If from a federal grant, record in fund 330. If from a private gift, record in fund 330. If from a state grant, record in fund 330 if it is from Colorado, 331 if it is from another state. If from a local grant, record in fund 331.

33. 33 Determine the fund group appropriate to the nature of the expenditure, then When the expenditure can be matched to a specific activity or project, record it in the same fund group and fund as the revenue for that specific activity or project. This should be possible in the 32X and the 33X fund groups. Why? Because activity in these funds is project or cost center based and these can be identified as exempt or non-exempt activities.

34. 34 Determine the fund group appropriate to the nature of the expenditure, then When the expenditure cannot be matched to a specific activity or project, record it within the fund group appropriate to its nature and then allocate it between the funds in that fund group. This is generally necessary in the 31X fund group. Why? Because activity in this fund group could be funded by either exempt or non-exempt revenues.

35. 35 What to I do with transfers?

36. 36 Transfers-in are considered exempt revenue for TABOR purposes . . . Determine the appropriate fund group for the transfer-in revenue, then Determine if the situation meets the one exemption to the transfer rules, then If it does not, record the transfer-in revenue in the exempt fund in the appropriate fund group. . . . with one exception.

37. 37 EXCEPTION: Transferring dollars from a TABOR designated enterprise activity to a TABOR non-exempt activity generates TABOR non-exempt transfer revenue. An institution may not fund a plant project for a non-exempt auxiliary, e.g. building a football stadium for a non-exempt athletic department, with revenues from an exempt auxiliary, e.g. residence halls. If the situation meets this exception, then record the transfer-in revenue in fund 329. Appropriated spending authority must exist to cover this non-exempt revenue.

38. 38 In what fund would I record�

39. 39 unrestricted gift revenue? 311 insurance recoveries related to settlement of a faculty tenure suit? 311 the continuing education program? 320 if the program has been designated as a TABOR enterprise, 329 if it has not the scholarship allowance allocated to offset room & board revenue? 320 assuming the residence halls have been designated as TABOR enterprises rental income from the ELS Program that uses the basement of one of the instructional buildings at night? 310

40. 40 royalties from a lab technique developed in an undergraduate biology class? 311becasue royalties are sale of property and are therefore constitutionally exempt state student financial aid funds received from CCHE? 330 student activity fees assessed by the student government to support its total budget? 320 if the student government has been designated as a TABOR enterprise, 329 if it has not undergraduate nonresident tuition revenue? 310 expenditure of undergraduate nonresident tuition revenue? 310 and/ or 311

41. 41 sale of surplus band instruments? 311 expenditure of a local grant? 331 funds transferred-in from the unrestricted fund balance for a renewal and replacement reserve required by bond covenants? 371 expenditures of the President�s Office? 310 and/ or 311 a gift received for the football program? 330

42. 42 library fines? 310 mandatory student technology fee? 310 unless the technology being supported is a self-funded activity in which case the fund group is 32X and whether or not the activity is a TABOR designated enterprise determines use of 320 or 329 interest on funds held at the State Treasury? in the same fund as the balances which earned the interest the day-care center? 320 if it has been designated as a TABOR enterprise, 326 if it is operated as an internal service activity, 310 if it is operated as an instructional activity, 329 if it is a state-subsidized auxiliary activity an unrestricted gift for an auxiliary enterprise that is not a TABOR enterprise? 328 interest earned on the fund balance of a non-TABOR enterprise auxiliary? in the same fund as the balances which earned the interest

43. 43 student activity fees assessed by the student government to support 80% of its budget, the remaining 20% being funded by student tuition? 329 because it cannot be a designated TABOR enterprise if it receives more than a 10% state subsidy expenditure of a direct grant from the University of Wyoming? 331 revenue from the University of Wyoming for a sub-recipient federal grant? 330 because the original source of funds is constitutionally exempt court-ordered damages paid as settlement of a suit against a non-TABOR enterprise auxiliary? 328 interest on the damages paid in y) above? 328

44. 44 Detailed guidance on TABOR accounting is in the Department of Higher Education TABOR Guidelines found at http://www.sco.state.co.us/fac/fac_index.html