Bates Technical College2015 Annual Financial Report

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Bates Technical College

2015 Financial Report

Table of Contents

Trustees and Administrative Officers ............................................................................................. 3

Independent Auditor’s Report on Financial Statements ................................................................. 4

Management’s Discussion and Analysis ...................................................................................... 15

Bates Technical College Statement of Net Position ..................................................................... 25

Bates Technical College Statement of Revenues, Expenses and Changes in Net Position.......... 26

Bates Technical College Statement of Cash Flows ...................................................................... 27

Foundation Statement of Financial Position ................................................................................. 29

Foundation Statement of Unrestricted Revenues, Expenses, andOther Changes in Unrestricted Net Assets.................................................................................... 30

Foundation Statement of Changes in Net Assets………………………………………………....31

Notes to the Financial Statements................................................................................................. 32

Required Supplementary Information........................................................................................... 51

For information about the financial data included in this report, contact:Holly Woodmansee, Vice President of Administrative ServicesBates Technical College1101 S Yakima Ave.Tacoma, WA 98405-4895253-680-7123

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Trustees and Administrative Officers

BOARD OF TRUSTEES

Lillian Hunter, Board ChairKaren Seinfeld, Vice ChairLayne BladowCathy Pearsall-StipekCalvin Pearson

EXECUTIVE OFFICERS

Ron Langrell, PresidentAl Griswold, Executive Vice President of Instruction/Chief Academic OfficerHolly Woodmansee, Vice President of Administrative ServicesLin Zhou, Vice President of Institutional Effectiveness and Student Success

ACADEMIC DEANS

Peter Hauschka, Dean of InstructionBlake Ingram, Dean of InstructionBrandon Rogers, Dean of InstructionDiane Nauer, Dean of Instruction

Trustees and Officers list effective as of May 31, 2016

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Independent Auditor’s Report

Financial Statements Audit Report

Bates Technical College

For the period July 1, 2014 through June 30, 2015

Published

Report No. 1017305

Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388

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Issue Date – (Issued by OS)

Board of Trustees

Bates Technical College

Tacoma, Washington

Report on Financial Statements

Please find attached our report on the Bates Technical College’s financial statements.

We are issuing this report in order to provide information on the College’s financial condition.

Sincerely,

TROY KELLEY

STATE AUDITOR

OLYMPIA, WA

Washington State Auditor’s Office

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TABLE OF CONTENTS

Independent Auditor’s Report On Internal Control Over Financial Reporting And OnCompliance And Other Matters Based On An Audit Of Financial Statements Performed InAccordance With Government Auditing Standards ....................................................................... 7

Independent Auditor’s Report On Financial Statements .............................................................. 10

About The State Auditor’s Office................................................................................................. 14

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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

Bates Technical College

July 1, 2014 through June 30, 2015

Board of Trustees

Bates Technical College

Tacoma, Washington

We have audited, 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, the financial statements of the

business-type activities and the aggregate discretely presented component units of the Bates

Technical College, Pierce County, Washington, as of and for the year ended June 30, 2015, and

the related notes to the financial statements, which collectively comprise the College’s basic

financial statements, and have issued our report thereon dated September 27, 2016. As discussed

in Note 1 to the financial statements, during the year ended June 30, 2015, the College

implemented Governmental Accounting Standards Board Statement No. 68, Accounting and

Financial Reporting for Pensions – an amendment of GASB Statement No. 27 and Statement

No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an

amendment of GASB Statement No. 68.

Our report includes a reference to other auditors who audited the financial statements of the

Bates Technical College Foundation, as described in our report on the College’s financial

statements. This report includes our consideration of the results of the other auditor’s testing of

internal control over financial reporting and compliance and other matters that are reported on

separately by those other auditors. However, this report, insofar as it relates to the results of the

other auditors, is based solely on the reports of the other auditors. The financial statements of the

Bates Technical College Foundation, were not audited in accordance with Government Auditing

Standards and accordingly this report does not include reporting on internal control over

financial reporting or instances of reportable noncompliance associated with the Bates Technical

College Foundation.

The financial statements of the Bates Technical College, an agency of the state of Washington,

are intended to present the financial position, and the changes in financial position, and where

applicable, cash flows of only the respective portion of the activities of the state of Washington

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that is attributable to the transactions of the College and its aggregate discretely presented

component units. They do not purport to, and do not, present fairly the financial position of the

state of Washington as of June 30, 2015, the changes in its financial position, or where

applicable, its cash flows for the year 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.

INTERNAL CONTROL OVER FINANCIAL REPORTING

In planning and performing our audit of the financial statements, we considered the College’s

internal control over financial reporting (internal control) to determine the 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 College’s

internal control. Accordingly, we do not express an opinion on the effectiveness of the College’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 College'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.

COMPLIANCE AND OTHER MATTERS

As part of obtaining reasonable assurance about whether the College’s financial statements are

free from material misstatement, we performed tests of the College’s compliance with certain

provisions of laws, regulations, contracts and grant agreements, noncompliance with which could

have a direct and material effect on the determination of financial statement amounts. 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.

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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 College’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 College’s

internal control and compliance. Accordingly, this communication is not suitable for any other

purpose. However, this report is a matter of public record and its distribution is not limited. It

also serves to disseminate information to the public as a reporting tool to help citizens assess

government operations.

TROY KELLEY

STATE AUDITOR

OLYMPIA, WA

September 27, 2016

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INDEPENDENT AUDITOR’S REPORT ON

FINANCIAL STATEMENTS

Bates Technical College

July 1, 2014 through June 30, 2015

Board of Trustees

Bates Technical College

Tacoma, Washington

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of the business-type activities and the aggregate

discretely presented component units of the Bates Technical College, Pierce County,

Washington, as of and for the year ended June 30, 2015, and the related notes to the financial

statements, which collectively comprise the College’s basic financial statements.

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 Bates Technical College Foundation, which

represents 100 percent of the assets, net position and revenues of the aggregate discretely

presented component units. Those statements were audited by other auditors, whose report has

been furnished to us, and our opinion, insofar as it relates to the amounts included for the Bates

Technical College Foundation, is based solely on the report 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 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. The statements of the Bates Technical College

Foundation were not audited in accordance with Government Auditing Standards.

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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 College’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 College’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.

Opinion

In our opinion, based on our audit and the report of the other auditors, the financial statements

referred to above present fairly, in all material respects, the respective financial position of the

business-type activities and the aggregate discretely presented component units of the Bates

Technical College, as of June 30, 2015, 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.

Matters of Emphasis

As discussed in Note 1, the financial statements of the Bates Technical College, an agency of the

state of Washington, are intended to present the financial position, and the changes in financial

position, and where applicable, cash flows of only the respective portion of the activities of the

state of Washington that is attributable to the transactions of the College and its aggregate

discretely presented component units. They do not purport to, and do not, present fairly the

financial position of the state of Washington as of June 30, 2015, the changes in its financial

position, or where applicable, its cash flows for the year 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.

As discussed in Note 1 to the financial statements, in 2015, the College adopted new accounting

guidance, Governmental Accounting Standards Board Statement No. 68, Accounting and

Financial Reporting for Pensions – an amendment of GASB Statement No. 27 and Statement

No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an

amendment of GASB Statement No. 68. Our opinion is not modified with respect to this matter.

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Other Matters

Required Supplementary Information

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

management’s discussion and analysis, the Schedules of Bates Technical College’s Share of Net

Pension Liability and Schedules of Contributions 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.

Supplementary and Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements that

collectively comprise the College’s basic financial statements as a whole. The Trustees and

Administrative Officers is presented for purposes of additional analysis and is not a required part of

the basic financial statements. Such information 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

September 27, 2016 on our consideration of the College’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

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provide an opinion on 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 College’s internal control over financial reporting and compliance.

TROY KELLEY

STATE AUDITOR

OLYMPIA, WA

September 27, 2016

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ABOUT THE STATE AUDITOR’S OFFICE

The State Auditor's Office is established in the state's Constitution and is part of the executive

branch of state government. The State Auditor is elected by the citizens of Washington and

serves four-year terms.

We work with our audit clients and citizens to achieve our vision of government that works for

citizens, by helping governments work better, cost less, deliver higher value, and earn greater

public trust.

In fulfilling our mission to hold state and local governments accountable for the use of public

resources, we also hold ourselves accountable by continually improving our audit quality and

operational efficiency and developing highly engaged and committed employees.

As an elected agency, the State Auditor's Office has the independence necessary to objectively

perform audits and investigations. Our audits are designed to comply with professional standards

as well as to satisfy the requirements of federal, state, and local laws.

Our audits look at financial information and compliance with state, federal and local laws on the

part of all local governments, including schools, and all state agencies, including institutions of

higher education. In addition, we conduct performance audits of state agencies and local

governments as well as fraud, state whistleblower and citizen hotline investigations.

The results of our work are widely distributed through a variety of reports, which are available

on our website and through our free, electronic subscription service.

We take our role as partners in accountability seriously, and provide training and technical

assistance to governments, and have an extensive quality assurance program.

Contact information for the State Auditor’s Office

Public Records requests PublicRecords@sao.wa.gov

Main telephone (360) 902-0370

Toll-free Citizen Hotline (866) 902-3900

Website www.sao.wa.gov

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Management’s Discussion and Analysis

Bates Technical CollegeThe following discussion and analysis provides an overview of the financial position andactivities of Bates Technical College (the College) for the fiscal year ended June 30, 2015. Thisoverview provides readers with an objective and easily readable analysis of the College’sfinancial performance for the year, based on currently known facts and conditions. Thisdiscussion has been prepared by management and should be read in conjunction with theCollege’s financial statements and accompanying note disclosures.

Reporting EntityThe College first opened by the Tacoma School District with vocational training on Sept. 4,1940, the program became known as the Tacoma Vocational School. The school's name waschanged to the Tacoma Vocational-Technical Institute in 1947. In 1969, the name was changedto the L. H. Bates Vocational Technical Institute. In 1991, state legislation separated the state'svocational technical institutes from local school districts and merged them under the State Boardfor Community and Technical Colleges (SBCTC). The College’s primary purpose is to enrichdiverse communities by inspiring student learning, challenging greater achievement, andeducating for employment

Bates Technical College is one of 34 public community and technical college districts in theState of Washington overseen by then SBCTC. The College annually serves approximately 3,000career training students and 10,000 more community members on three campuses in programssuch as Continuing Education, Child Studies, High School, General Education and Basic Studies,and others. Classroom settings mirror the workplace, providing students with opportunities topractice and develop skills to levels required for successful employment. The College offers two-year associate of applied science degrees, certificates of competency, certificates of training,industry certifications and in specific programs prepares students for the achievement of statelicensure. The College maintains articulation degrees with several four-year universities, makingsome of the College's two-year degrees transferable.

The College has threecampuses which are locatedin Tacoma, Washington, acommunity of about 205,000residents. The College isgoverned by a five memberBoard of Trustees appointedby the Governor of the statewith the consent of the stateSenate. In accordance withWashington State lawgoverning technical colleges,the College’s board includesone member from businessand one member from labor.

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By statute, the Board of Trustees has full control of the College, except as otherwise provided bylaw.

Using the Financial StatementsThe College reports as a business-type activity as defined by Governmental AccountingStandards Board (GASB) Statement No. 35, Basic Financial Statements – Management’sDiscussion and Analysis – for Public Colleges and Universities, an amendment of GASBStatement No. 34. The basic financial statements of the College report information similar to thepresentation used by private sector companies. These statements are prepared in accordancewith generally accepted accounting principles (GAAP) as prescribed by GASB, whichestablishes standards for external financial reporting for public colleges and universities. Thebasic financial statements are comprised of three components: (1) Statement of Net Position, (2)Statement of Revenues, Expenses and Changes in Net Position, and (3) Statement of CashFlows.

The Statement of Net Position presents information as of June 30, 2015, on all of the College’sassets, deferred outflow of resources, liabilities, deferred inflow of resources with the differencebeing reported as net position. The Statement of Revenue, Expenses and Changes in Net Positionand the Statement of Cash flows provide information about operations and activities over theentire fiscal year. Together, these statements, along with the accompanying notes, provide acomprehensive way to assess the college’s financial health.

The Statement of Net Position and Statement of Revenues, Expenses and Changes in Netposition are reported under the accrual basis of accounting where all of the current year’srevenues and expenses are taken into account regardless of when cash is received or paymentsare made. Full accrual statements are intended to provide a view of the College’s financialposition similar to that presented by most private-sector companies. The full scope of theCollege’s activities is considered to be a single business-type activity and accordingly, isreported within a single column in the basic financial statements.

GASB Statement No. 39, Determining Whether Certain Organizations are Component Unitsrequires a college to report an organization that raises and holds economic resources for thedirect benefit of a government unit. Under this requirement, the Bates Technical CollegeFoundation is a component unit of the College and their financial statements are discretelypresented into this financial report.

In 2015, the College adopted GASB Statement No. 68, as amended by GASB Statement No. 71.These statements require the College to record its proportionate share of net pension liabilities,deferred outflows and deferred inflows of resources. The College’s beginning net position hasbeen adjusted to conform to the new reporting and accounting requirement. For the purposes ofthis analysis, the restatement of the 2014 net position was made to conform to 2015 presentation.The change in accounting principle resulted in a reduction to unrestricted net position in theamount of $6.6 million. This decrease resulted in the restatement of net position to a balance of$36.0 million for the year ending June 30, 2014.

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STATEMENT OF NET POSITION

The Statement of Net Position provides information about the College’s financial position, andpresents the College’s assets, deferred outflows, liabilities, deferred inflows and net position atyear-end. A condensed comparison of the Statement of Net Position as of June 30, 2015 and2014 follows:

Current assets consist primarily of cash, various accounts receivables and inventories. Currentassets increased $6.0 million in 2015 which is mainly attributable to an increase in receivabledue from State Treasurer for spending on capital projects.

Capital assets, net increased $15.2 million from 2014 to 2015 which is net of $1.1 million ofdepreciation expense. The $16.3 million in asset increases was mainly due to construction ofAdvanced Technology Center building which had a grand opening in January 2016.

Deferred outflows of $0.6 million in both years are related to the College’s adoption of GASBStatement No. 68 which represents pension contributions the College made subsequent to themeasurement date.

Current liabilities include amounts payable to suppliers for goods and services, accrued payrolland related liabilities, the current portion of Certificate of Participation (COP) debt, andunearned revenue. Current liabilities can fluctuate from year to year depending on the timelinessof vendor invoices and resulting vendor payments, especially in the area of capital assets andimprovements. The increase in current liabilities of $2.6 million from 2014 to 2015 is due toincrease in accounts payable.

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Noncurrent liabilities primarily consist of the value of vacation and sick leave earned but not yetused by employees and the long-term portion of COP debt. The College’s noncurrent liabilitiesdecreased $3.0 million in 2015. This is mainly due to a decrease in pension liability for recordeddifference between projected and actual earnings on pension plan investments.

Deferred inflows of $2.0 million include the calculated difference between projected and actualinvestment earnings on the state’s pension plans.

Net position represents the value of the College’s assets and deferred outflows after liabilitiesand deferred inflows are deducted. The College experienced an increase in the overall netposition of $19.7 million which is reported per accounting standards in the following threecategories:

Net Investment in Capital Assets – the College’s total investment in property, plant,equipment, and infrastructure net of accumulated depreciation and outstanding debtobligations related to those capital assets. In 2015, net investment in capital assetsincreased $15.2 million from 2014 due to an increase in capital assets, net of depreciationand related debt.

Restricted:Expendable – resources the College is legally or contractually obligated to spendin accordance with restrictions placed by donor and/or external parties who haveplaced time or purpose restrictions on the use of the asset. The primaryexpendable funds for the College are Institutional Financial Aid which remainedsteady from 2014 to 2015.

Unrestricted – includes all other assets not subject to externally imposed restrictions, butwhich may be designated or obligated for specific purposes by the Board of Trustees ormanagement. Prudent balances are maintained for use as working capital, as a reserveagainst emergencies and for other purposes, in accordance with policies established bythe Board of Trustees. The unrestricted portion of net position increased $4.4 millionfrom prior year primarily due to reduction in proportional share of pension liability andcontinued prudent financial stewardship by the College.

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The College had a strong balance sheet for both 2014 and 2015. One measure of the College’sability to pay its short-term obligations is the current ratio which is calculated by dividing currentassets over current liabilities. The College’s current ratio was 3.51 and 3.05 in 2014 and 2015,respectively. Quick ratio is another financial measure to assess College’s ability to pay its short-term obligations using its most liquid assets which is calculated by dividing cash, accountsreceivable, and due from state treasurer over current liabilities. The College’s quick ratio was3.42 and 3.01 in 2014 and 2015, respectively.

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION

The Statement of Revenues, Expenses and Changes in Net Position provides information aboutthe details of the changes and accounts for the College’s changes in total net position during2015. In accordance with GASB reporting principles, revenues and expenses are classified aseither operating or non-operating.

Generally, operating revenues are earned by the College in exchange for providing goods andservices. Tuition, grants and contracts are included in this category. In contrast, non-operatingrevenues include monies the College receives from another government without directly givingequal value to that government in return. Accounting standards require that the Collegecategorize state operating appropriations and Pell Grants as non-operating revenues.

Operating expenses are expenses incurred in the normal operation of the College, includingdepreciation on property and equipment assets. When operating revenues, excluding stateappropriations and Pell Grants, are measured against operating expenses, the College shows anoperating loss. The operating loss is reflective of the external funding necessary to keep tuitionlower than the cost of the services provided.

A condensed comparison of the College’s revenues, expense and changes in net position for theyears ended June 30, 2015 and 2014 is presented below.

RevenuesState operating appropriations, grants and contracts, student tuition and fees (net of scholarshipdiscounts and allowances) are the primary sources for funding the College’s academic programs.

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The $16.2 million overall increase in revenues were primarily due to increase in state capitalappropriations of $16.3 million for Advanced Technology Center building. The following tableshows a comparison of revenues for years ended June 30, 2014 and 2015.

Student tuition and fees decreased $0.2 million as College’s enrollment softened in 2015. Grantsand contracts remained steady as Pell Grant revenue followed decreased enrollment trend whilestate and local grants and contracts increased due to growth in Early Childhood Education andAssistance Program funding. Other revenues also increased $0.1 million as diesel mechanicprogram experienced increase in their shop fees.

The following chart shows a comparison of revenues in percentages by source, both operatingand non-operating used to fund the College’s programs for years ended June 30, 2014 and 2015.

32.

1%

30.

5%

24

.8%

10.

5%

1.1

%

1.1

%

43.4

%

5.5

%

33

.6%

14

.7%

1.3

%

1.5

%

State OperatingAppropriations

State CapitalAppropriations

Grants andContracts

Student Tuitionand Fees

Other Revenues AuxiliaryEnterprise Sales

Pe

rce

nta

ges

REVENUES IN PERCENTAGESBY SOURCE

2015 2014

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ExpensesOperating expenses increased in 2015 by $1.4 million from 2014. Several factors wereattributable to this increase. Other expenses increased $2.0 million due to increase in repair andmaintenance projects such as remodeling floor in Downtown building, replacing fire alarmpanels, repairing air handling unit system, as well as performing preventive facility maintenanceand emergency repairs and improvements.

Salaries and wages increased $0.5 million due to increase in grant funded positions under EarlyChildhood Education and Assistance Program, Adult Basic Education, and Youthbuild grants.Supplies and materials increased $0.3 million as a result of an increased spending related torepair and maintenance projects while utilities increased $0.2 million as a result of rate increasesfrom the utility providers. These increases were offset by a decrease of $1.5 million in benefitsas a result of lower employer healthcare premiums, reduction in compensated absences andpension obligations. Depreciation expense also decreased $0.1 million because there were moreasset retirements than additions in the previous fiscal year.

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The following chart shows a comparison of expenses in percentages by natural classification foryears ended June 30, 2014 and 2015.

The chart below shows a comparison of expenses in percentages by functional area for yearsended June 30, 2014 and 2015.

46.

5%

13.

9%

12

.4%

11.

2%

7.0

%

3.9

%

2.7

%

2.4

%

46.9

%

9.3

% 12

.8%

15

.5%

6.5

%

3.9

%

3.1

%

2.0

%

Salaries andWages

OtherExpenses

Scholarshipsand

Fellowships

EmployeeBenefits

Supplies andMaterials

PurchasedServices

Depreciation Utilities

Pe

rce

nta

ges

OPERATING EXPENSESIN PERCENTAGES

BY NATURAL CLASSIFICATION

2015 2014

36

.4%

7.2

% 13.

5%

7.4

%

13.9

%

9.1

%

9.8

%

2.7

%

38

.5%

7.1

% 11

.2%

10

.5%

9.1

%

10

.0%

10

.5%

3.1

%

Instruction AcademicSupportServices

StudentServices

InstitutionalSupport

O&M ofPlant

Scholarshipsand Other

Fin Aid

AuxiliaryEnterprises

Depreciation

Pe

rce

nta

ges

OPERATING EXPENSESIN PERCENTAGES

BY FUNCTIONAL AREA

2015 2014

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Capital Assets and Long-Term Debt ActivitiesThe community and technical college system submits a single prioritized request to the Office ofFinancial Management and the Legislature for appropriated capital funds, which includes majorprojects, minor projects, repairs, emergency funds, alternative financing and major leases. Theprimary funding source for college capital projects is state general obligation bonds. In recentyears, declining state revenues significantly reduced the state’s debt capacity and are expected tocontinue to impact the number of new projects that can be financed.

At June 30, 2015, the College had invested $50.1 million in capital assets, net of accumulateddepreciation. This represents an increase of $15.2 million from last year, as shown in the tablebelow.

The increase in net capital assets is attributed to the construction of the Advanced TechnologyCenter and acquisition of equipment and library resources. Advanced Technology Center is atwo-story, 53,000 square foot building to house engineering, information technology and digitalmedia programs. Additional information on capital assets can be found in Note 5 of the Notes tothe Financial Statements.

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At June 30, 2015, the College had $0.9 million in outstanding debt as compared to $1.0 millionat June 30, 2014. The debt is made up entirely of the Certificate of Participation (COP) for thelighting HVAC and controls upgrade during 2012. The decrease of $0.1 million was thepayment of debt principal.

Additional information of notes payable, long term debt and debt service schedules can be foundin Notes 11 and 12 of the Notes to the Financial Statements.

Economic Factors That May Affect the FutureFollowing a trend that began in fiscal year 2009, the College’s state operating appropriationscontinued to decrease through fiscal year 2013. More recently, when creating the 2013 – 2015biennial budget, the state Legislature re-invested in community and technical colleges. Theycontinued this trend with a supplemental budget that included community colleges as a keypartner in an investment in aerospace training. As a result, the net reduction of communitycollege funding between fiscal year 2009 and expected funding levels by the end of fiscal year2015 have been a little over 15 percent. These investments in community colleges allowed theLegislature to keep fiscal year 2015 tuition flat for resident and non-resident students.

Moving forward into the fiscal year 2016, the Legislature enacted the Affordable Education Act,which reduced tuition by 5% at the College. The Legislature did backfill the reduction in tuitioncollected by the College. In addition, the SBCTC has approved an initiative to modify thefunding allocation process amongst the 34 institutions it oversees. The new model will be basedon performance in several key indicators from general enrollments to enrollments in high costprograms, as well as student completion and achievement points. The SBCTC has elected toimplement the new funding allocation model during the 2017 fiscal year.

The College is in a position to address reduction in enrollment levels and the impact of a revisedSBCTC model to the allocation process. Marketing and recruitment efforts have been modifiedand expanded, however, the related results will take several years to materialize. The College ispreparing for the modification of the allocation model by being fully cognizant of the factors andseeking to adjust the program mix to maximize the revenue stream.

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The notes to the financial statements are an integral part of this statement

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The notes to the financial statements are an integral part of this statement

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The notes to the financial statements are an integral part of this statement

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The notes to the financial statements are an integral part of this statement

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Notes to the Financial StatementsJune 30, 2015These notes form an integral part of the financial statements.

NOTE 1 - Summary of Significant Accounting Policies

Financial Reporting EntityBates Technical College (the College) is a comprehensive community college offering open-dooracademic programs, workforce education, basic skills, and community services. The Collegeconfers associates degrees, certificates and high school diplomas. It is governed by a five-member Board of Trustees appointed by the Governor and confirmed by the state Senate.

The College is an agency of the State of Washington. The financial activity of the college isincluded in the State’s Comprehensive Annual Financial Report.

The Bates Technical College Foundation (the Foundation) is a separate but affiliated non-profitentity, incorporated under Washington law in 1992 and recognized as a tax exempt 501(c)(3)charity. The Foundation’s charitable purpose is to support student and program success bysecuring resources through building community relationships and awareness. Because themajority of the Foundation’s income and resources are restricted by donors and may only beused for the benefit of the college or its students, the Foundation is considered a discretecomponent unit based on the criteria contained in Governmental Accounting Standards Board(GASB) Statement Nos. 61, 39 and 14. A discrete component unit is an entity which is legallyseparate from the College, but has the potential to provide significant financial benefits to theCollege or whose relationship with the College is such that excluding it would cause theCollege’s financial statements to be misleading or incomplete.

The Foundation’s financial statements are discretely presented in this report. The Foundation’sstatements have been prepared in accordance with accounting principles generally accepted inthe United States of America. Intra-entity transactions and balances between the College and theFoundation are not eliminated for financial statement presentation. During the fiscal year endedJune 30, 2015, the Foundation distributed approximately $373,000 to the College for restrictedand unrestricted purposes. A copy of the Foundation’s complete financial statements may beobtained from the Foundation’s Administrative Offices at (253) 680-7160.

Basis of PresentationThe financial statements have been prepared in accordance with GASB Statement No. 34, BasicFinancial Statements and Management Discussion and Analysis for State and LocalGovernments as amended by GASB Statement No. 35, Basic Financial Statements andManagement Discussion and Analysis for Public Colleges and Universities. For financialreporting purposes, the College is considered a special-purpose government engaged only inBusiness Type Activities (BTA). In accordance with BTA reporting, the College presents aManagement’s Discussion and Analysis; a Statement of Net Position; a Statement of Revenues,Expenses and Changes in Net Position; a Statement of Cash Flows; and Notes to the FinancialStatements. The format provides a comprehensive, entity-wide perspective of the college’sassets, deferred outflows, liabilities, deferred inflows, net position, revenues, expenses, changesin net position and cash flows.

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New Accounting Pronouncements

In June 2012, the Governmental Accounting Standards Board (GASB) issued Statement No. 68,Accounting and Financial Reporting for Pensions (GASB 68), which improves accounting andfinancial reporting by state and local governments for pensions. This statement also supersedesGASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers,as well as GASB Statement No. 50, Pension Disclosures. GASB 68 is effective for fiscal yearsbeginning after June 15, 2014. The College has implemented this pronouncement during the2015 fiscal year. Implementation of this pronouncement has required a restatement of the prioryear net position to reflect the net pension liability and the impact to net position.

The GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent tothe Measurement Date – an amendment of GASB Statement No. 68, effective for the year endedJune 30, 2015. This statement addresses an issue regarding application of the transitionprovisions of Statement No. 68. The issue relates to amounts associated with contributions, ifany, made by a state or local government employer to a defined benefit pension plan after themeasurement date of the government’s beginning net pension liability. The effect of StatementNo. 71 to the College is to require the deferral (Deferred Outflows) of pension contributionsmade subsequent to the measurement date and is addressed in Note 6 to the financial statements.

Cumulative effect of change in accounting principle and prior period adjustmentAs of July 1, 2014, net position as previously reported was restated. The College adjusted theBeginning Net Position to implement GASB Statement No. 68 and to correct reporting of stateappropriation receivable. The net position has been restated as follows:

Basis of AccountingThe financial statements of the College have been prepared using the economic resourcesmeasurement focus and the accrual basis of accounting. Under the accrual basis, revenues arerecognized when earned and expenses are recorded when an obligation has been incurred,regardless of the timing of the cash flows.

Non-exchange transactions, in which the College receives (or gives) value without directlygiving (or receiving) equal value in exchange includes state and federal appropriations, andcertain grants and donations. Revenues are recognized, net of estimated uncollectible amounts,as soon as all eligibility requirements imposed by the provider have been met, if probable ofcollection.

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The preparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenueand expenses during the reporting period. Actual results could differ from those estimates.

During the course of operations, numerous transactions occur between funds for goods providedand services rendered. For the financial statements, interfund receivables and payables havegenerally been eliminated. However, revenues and expenses from the College’s auxiliaryenterprises are treated as though the College were dealing with private vendors. For all otherfunds, transactions that are reimbursements of expenses are recorded as reductions of expense.

CashCash includes cash on hand and bank demand deposits. Cash that is held with the intent to fundCollege operations is classified as current assets.

The College combines unrestricted cash operating funds from all departments into an internalinvestment pool, the income from which is allocated for general operating needs of the College.The internal investment pool is comprised of cash as authorized by RCW 39.60.50.

Accounts ReceivableAccounts receivable consists of tuition and fee charges to students and auxiliary enterpriseservices provided to students, faculty and staff. This also includes amounts due from federal,state and local governments or private sources as allowed under the terms of grants andcontracts. Accounts receivable are shown net of estimated uncollectible amounts.

InventoriesInventories, consisting primarily of merchandise for resale in the college bookstore and course-related supplies, are valued at cost using the First-in First-out (FIFO) valuation method.

Capital AssetsIn accordance with state law, capital assets constructed with state funds are owned by the Stateof Washington. Property titles are shown accordingly. However, responsibility for managingthe assets rests with the College. As a result, the assets are included in the financial statementsbecause excluding them would have been misleading to the reader.

Land, buildings and equipment are recorded at cost, or if acquired by gift, at fair market value atthe date of the gift. Capital additions, replacements and major renovations are capitalized. Thevalue of assets constructed includes all material direct and indirect construction costs. Anyinterest costs incurred are capitalized during the period of construction. Routine repairs andmaintenance are charged to operating expense in the year in which the expense was incurred. Inaccordance with the state capitalization policy, only fixed assets with a unit cost of $5,000 orgreater are capitalized. Depreciation is computed using the straight line method over theestimated useful lives of the assets as defined by the State of Washington’s Office of FinancialManagement. Useful lives are generally 15 to 50 years for buildings and improvements, 3 to 50

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years for improvements other than buildings, 5 to 7 years for library resources and 2 to 10 yearsfor equipment.

In accordance with GASB Statement 42, the college reviews assets for impairment wheneverevents or changes in circumstances have indicated that the carrying amount of its assets mightnot be recoverable. Impaired assets are reported at the lower of cost or fair value. At June 30,2015, no assets had been written down.

Unearned RevenuesUnearned revenues occur when funds have been collected prior to the end of the fiscal year butrelated to the subsequent fiscal year. The College has recorded summer quarter tuition and feesas unearned revenues.

Tax ExemptionThe College is a tax-exempt organization under the provisions of Section 115 (1) of the InternalRevenue Code and is exempt from federal income taxes on related income.

Net Pension LiabilityFor purposes of measuring the net pension liability, deferred outflows of resources and deferredinflows of resources related to pensions, and pension expense, information about the fiduciarynet position of the State of Washington Public Employees’ Retirement System (PERS) and theTeachers’ Retirement System (TRS) and additions to/deductions from PERS’s and TRS’sfiduciary net position have been determined on the same basis as they are reported by PERS andTRS. For this purpose, benefit payments (including refunds of employee contributions) arerecognized when due and payable in accordance with the benefit terms. Investments are reportedat fair value.

Deferred Outflows of Resources and Deferred Inflows of ResourcesDeferred outflows of resources represent consumption of net position that is applicable to afuture period. Deferred inflows of resources represent acquisition of net position that isapplicable to a future period. Changes in net position liability not included in pension expenseare reported as deferred outflows of resources or deferred inflows of resources. Employercontributions subsequent to the measurement date of the net pension liability are reported asdeferred outflows of resources.

Net PositionThe College’s net position is classified as follows.

Net Investment in Capital Assets. This represents the College’s total investment in capitalassets, net of outstanding debt obligations related to those capital assets.

Restricted for Expendable. These include resources the College is legally or contractuallyobligated to spend in accordance with restrictions imposed by third parties.

Unrestricted. These represent resources derived from student tuition and fees, and salesand services of educational departments and auxiliary enterprises.

Classification of Revenues and ExpensesThe College has classified its revenues and expenses as either operating or non-operatingaccording to the following criteria:

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Operating Revenues. This includes activities that have the characteristics of exchangetransactions such as (1) student tuition and fees, net of waivers and scholarship discounts andallowances, (2) sales and services of auxiliary enterprises and (3) most federal, state and localgrants and contracts.

Operating Expenses. Operating expenses include salaries, wages, fringe benefits, utilities,supplies and materials, purchased services, and depreciation.

Non-operating Revenues. This includes activities that have the characteristics of non-exchangetransactions, such as gifts and contributions, state appropriations and investment income.

Non-operating Expenses. Non-operating expenses include state remittance related to the buildingfee and the innovation fee, along with interest incurred on the Certificate of Participation Loan.

Scholarship Discounts and AllowancesStudent tuition and fee revenues, and certain other revenues from students, are reported net ofscholarship discounts and allowances in the Statements of Revenues, Expenses and Changes inNet Position. Scholarship discounts and allowances are the difference between the stated chargefor goods and services provided by the College, and the amount that is paid by students and/orthird parties making payments on the students’ behalf. Certain governmental grants, such as Pellgrants, and other Federal, State or non-governmental programs are recorded as either operatingor non-operating revenues in the College’s financial statements. To the extent that revenuesfrom such programs are used to satisfy tuition and fees and other student charges, the Collegehas recorded a scholarship discount and allowance. Discounts and allowances for the year endingJune 30, 2015 are $2,976,225.

State AppropriationsThe state of Washington appropriates funds to the College on both an annual and biennial basis.These revenues are reported as non-operating revenues on the Statements of Revenues,Expenses, and Changes in Net Position, and recognized as such when the related expenses areincurred.

Building and Innovation Fee RemittanceTuition collected includes amounts remitted to the Washington State Treasurer’s office to beheld and appropriated in future years. The Building Fee portion of tuition charged to students isan amount established by the Legislature is subject to change annually. The fee provides fundingfor capital construction and projects on a system wide basis using a competitive biennialallocation process. The Building Fee is remitted on the 35th day of each quarter. The InnovationFee was established in order to fund the State Board of Community and Technical College’sStrategic Technology Plan. The use of the fund is to implement new ERP software across theentire system. On a monthly basis, the College’s remits the portion of tuition collected for theInnovation Fee to the State Treasurer for allocation to SBCTC. These remittances are non-exchange transactions reported as an expense in the non-operating revenues and expenses sectionof the statement of revenues, expenses and changes in net position.

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NOTE 2 – Cash

Cash include bank demand deposits and petty cash held at the College. As of June 30, 2015, thecarrying amount of the College’s cash was $9,690,732 as represented in the table below.

Custodial Credit Risks—DepositsCustodial credit risk for bank demand deposits is the risk that in the event of a bank failure, theCollege’s deposits may not be returned to it. The majority of the College’s demand deposits arewith the Key Bank. All cash, except for change funds and petty cash held by the College, areinsured by the Federal Deposit Insurance Corporation (FDIC) or by collateral held by theWashington Public Deposit Protection Commission (PDPC).

NOTE 3 - Accounts Receivable

Accounts receivable consists of tuition and fee charges to students and auxiliary enterpriseservices provided to students, faculty and staff. It also includes amounts due from federal, stateand local governments or private sources in connection with reimbursements of allowableexpenditures made according to sponsored agreements. At June 30, 2015, accounts receivablewere as follows.

NOTE 4 – Inventories

Inventories, stated at cost using FIFO, consisted of the following as of June 30, 2015.

Cash Amount

Petty Cash and Change Funds 8,560$

Bank Demand and Time Deposits 9,682,172

Total Cash 9,690,732$

Accounts Receivable Amount

Student Tuition and Fees 476,531$

Due from the Federal Government 18,853

Due from Other State Agencies 379,536

Due from Other Governments 205,534

Auxiliary Enterprises 106,608

Other 491,372

Subtotal 1,678,434

Less: Allowance for Uncollectible Accounts (204,367)

Accounts Receivable, net 1,474,067$

Inventories Amount

Consumable Inventories 77,235$

Merchandise Inventories 220,166

Total Inventories 297,401$

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NOTE 5 - Capital Assets

A summary of the changes in capital assets for the year ended June 30, 2015 is presented asfollows. The current year depreciation expense was $1,109,621.

NOTE 6 - Accounts Payable and Accrued Liabilities

At June 30, 2015, accrued liabilities are as follows.

Accounts Payable and Accrued Liabilities Amount

Amounts Owed to Employees 1,064,063$

Accounts Payable 2,711,715

Amounts Held for Others and Retainage 1,254,770

Total 5,030,548$

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NOTE 7 - Unearned Revenue

Unearned revenue is comprised of receipts which have not yet met revenue recognition criteria,as follows:

NOTE 8 - Risk Management

The College, in accordance with state policy, pays unemployment claims on a pay-as-you-gobasis. Payments made for claims from July 1, 2014 through June 30, 2015, were $86,125.

The College purchases commercial property insurance through the master property programadministered by the Department of Enterprise Services for buildings that were acquired withCOP proceeds. The policy has a deductible of $250,000 per occurrence and the policy limit is$100,000,000 per occurrence. The College has had no claims in excess of the coverage amountwithin the past three years. The College assumes its potential property losses for most otherbuildings and contents.

The College participates in a State of Washington risk management self-insurance program,which covers its exposure to tort, general damage and vehicle claims. Premiums paid to the Stateare based on actuarially determined projections and include allowances for payments of bothoutstanding and current liabilities. Coverage is provided up to $10,000,000 for each claim withno deductible. The college has had no claims in excess of the coverage amount within the pastthree years.

NOTE 9 - Compensated Absences

At termination of employment, employees may receive cash payments for all accumulatedvacation and compensatory time. Employees who retire get 25% of the value of theiraccumulated sick leave credited to a Voluntary Employees’ Beneficiary Association (VEBA)account, which can be used for future medical expenses and insurance purposes. The amounts ofunpaid vacation and compensatory time accumulated by College employees are accrued whenincurred. The sick leave liability is recorded as an actuarial estimate of one-fourth the totalbalance on the payroll records.

The College has the following activity for vacation and sick leave balances for the year endedJune 30, 2015:

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NOTE 10 - Leases

The College leases copiers and printers under non-cancelable agreements as operating leases. AtJune 30, 2015, the future minimum payments under these lease agreements are as follows:

NOTE 11 - Notes Payable

In August 2012, the College obtained financing in order to upgrade Lightning HVAC andcontrols for the Downtown Campus, Mohler Campus and South Campus facilities throughcertificates of participation (COP), issued by the Washington Office of State Treasurer (OST) inthe amount of $1,360,582 at 1.88% interest rate.

NOTE 12 - Annual Debt Service Requirements

The College’s future debt service requirements for the next five years and thereafter at June 30,2015 are as follows:

NOTE 13 - Schedule of Long Term Debt

The following table shows the long term activity during the year ended June 30, 2015:

Fiscal year Equipment Leases

2016 36,739$

2017 18,370

Total 55,109$

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NOTE 14 - Pension Plans

The College offers three contributory pension plans. The Washington State Public EmployeesRetirement System (PERS) and Teachers Retirement System (TRS) plans are cost sharingmultiple employer defined benefit pension plans administered by the State of WashingtonDepartment of Retirement Services. The State Board Retirement Plan (SBRP) is a multipleemployer defined contribution plan for the faculty and exempt administrative and professionalstaff of the state’s public community and technical colleges. The plan includes supplementalpayment, when required. The plan is administered by the State Board for Community andTechnical Colleges (SBCTC).

For fiscal year 2015, the payroll for the College’s employees was $6,003,764 for PERS,$343,668 for TRS, and $11,101,095 for SBRP. Total covered payroll was $17,448,527.

Bates Technical College implemented Government Accounting Standards Board Statement No.68, Accounting and Financial Reporting for Pensions for the fiscal year 2015 financial reporting.The College’s defined benefit pension plans were created by statutes rather than through trustdocuments. With the exception of the supplemental defined benefit component of the highereducation retirement plan, they are administered in a way equivalent to pension trustarrangements as defined by the GASB.

In accordance with Statement No. 68, the College has elected to use the prior fiscal year end asthe measurement date for reporting net pension liabilities to align with the State CAFR.

Basis of AccountingPension plans administered by the state are accounted for using the accrual basis of accounting.Under the accrual basis of accounting, employee and employer contributions are recognized inthe period in which employee services are performed; investment gains and losses are recognizedas incurred; and benefits and refunds are recognized when due and payable in accordance withthe terms of the applicable plan. For purposes of measuring the net pension liability, deferredoutflows of resources and deferred inflows of resources related to pensions, and pensionexpense, information about the fiduciary net position of all plans and additions to/deductionsfrom all plan fiduciary net position have been determined in all material respects on the samebasis as they are reported by the plans.The following table represents the aggregate pension amounts for all plans subject to therequirements of GASB Statement No. 68 for Bates Technical College, for fiscal year 2015:

PERS and TRSPlan Descriptions. PERS Plan 1 provides retirement and disability benefits and minimum benefitincreases to eligible nonacademic plan members hired prior to October 1, 1977. PERS Plans 2and 3 provide retirement and disability benefits and a cost-of-living adjustment to eligible

Pension liabilities 4,254,134$

Deferred outflows of resources related to pensions 576,506$

Deferred inflows of resources related to pensions 1,995,379$

Pension expense 311,894$

Aggregate Pension Amounts - All Plans

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nonacademic plan members hired on or after October 1, 1977. Retirement benefits are vestedafter five years of eligible service. PERS Plan 3 has a defined contribution component thatmembers may elect to self-direct as established by the Employee Retirement Benefits Board.PERS 3 defined benefit plan benefits are vested after an employee completes five years ofeligible service.

TRS Plan 3 provides retirement benefits to certain eligible faculty hired on or after October 1,1977. The plan includes both a defined benefit portion and a defined contribution portion. Thedefined benefit portion is funded by employer contributions only. Benefits are vested after anemployee completes five or ten years of eligible service, depending on the employee’s age andservice credit, and includes an annual cost-of living adjustment. The defined contributioncomponent is fully funded by employee contributions and investment performance.

The College does not have any faculty participating in TRS 1 while there are 3 faculty memberswith pre-existing eligibility who continue to participate in TRS 2.

The authority to establish and amend benefit provisions resides with the legislature. PERS andTRS issue publicly available financial reports that include financial statements and requiredsupplementary information. The report may be obtained by writing to the Department ofRetirement Systems, PO Box 48380, Olympia, Washington 98504-8380 or online athttp://www.drs.wa.gov/administration.

Funding Policy. Each biennium, the state Pension Funding Council adopts PERS and TRS Plan 1employer contribution rates, Plan 2 employer and employee contribution rates, and Plan 3employer contribution rates. Employee contribution rates for PERS and TRS Plans 1 areestablished by statute. By statute, PERS 3 employees may select among six contribution rateoptions, ranging from 5 to 15 percent.

The required contribution rates expressed as a percentage of current year covered payroll areshown in the table below. The College and the employees made 100% of required contributions.

Contribution Rates and Required Contributions. The College’s contribution rates and requiredcontributions for the above retirement plans for the years ending June 30, 2013, 2014, and 2015are as follows.

Employee College Employee College Employee College

PERS

Plan 1 6.00% 7.21% 6.00% 9.19 - 9.21% 6.00% 9.21%

Plan 2 4.64% 7.21% 4.92% 9.19 - 9.21% 4.92% 9.21%

Plan 3 5.00 - 15.00% 7.21% 5.00 - 15.00% 9.19 - 9.21% 5.00 - 15.00% 9.21%

TRS

Plan 1 6.00% 8.04 - 8.05% 6.00% 8.05 - 10.39% 6.00% 10.39%

Plan 2 4.69% 8.04 - 8.05% 4.69 - 4.96% 8.05 - 10.39% 4.96% 10.39%

Plan 3 5.00 - 15.00% 8.04 - 8.05% 5.00 - 15.00% 8.05 - 10.39% 5.00 - 15.00% 10.39%

Contribution Rates at June 30

FY 2013 FY 2014 FY 2015

Pension Plan

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InvestmentsThe Washington State Investment Board (WSIB) has been authorized by statute as havinginvestment management responsibility for the pension funds. The WSIB manages retirementfund assets to maximize return at a prudent level of risk.

Retirement funds are invested in the Commingled Trust Fund (CTF). Established on July 1,1992, the CTF is a diversified pool of investments that invests in fixed income, public equity,private equity, real estate, and tangible assets. Investment decisions are made within theframework of a Strategic Asset Allocation Policy and a series of written WSIB adoptedinvestment policies for the various asset classes in which the WSIB invests.

For the year ended June 30, 2014, the annual money-weighted rate of return on the pensioninvestments, net of pension plan expenses are as follows:

These money-weighted rates of return express investment performance, net of pension planinvestment expense, and reflects both the size and timing of cash flows.

The PERS and TRS target asset allocation and long-term expected real rate of return as of June30, 2014, are summarized in the following table:

Employee College Employee College Employee College

PERS

Plan 1 10,334 12,418 6,827 10,476 8,378 12,861

Plan 2 225,203 352,574 232,231 434,497 241,872 442,856

Plan 3 62,848 64,850 58,151 77,620 67,420 97,231

TRS

Plan 1 9,540 12,796 395 530 - -

Plan 2 11,258 19,319 8,018 16,415 5,254 11,005

Plan 3 14,382 17,466 18,247 21,778 19,614 24,702

Required Contributions

Pension Plan

FY 2013 FY 2014 FY 2015

Pension Plan Rate of Return

PERS Plan 1 16.98%

PERS Plan 2/3 17.06%

TRS Plan 1 16.97%

TRS Plan 2/3 17.07%

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The inflation component used to create the above table is 2.70 percent and represents WSIB’smost recent long-term estimate of broad economic inflation.

Pension ExpensePension expense is included as part of benefits expense in the Statement of Revenues, Expensesand Changes in Net Position. The table below shows the components of each pension plansexpense as it affected employee benefits:

Deferred Outflows and Deferred Inflows of Resources Related to Pensions

At June 30, 2015 the College reported deferred outflows of resources and deferred inflows ofresources to pensions from the following sources:

Asset Class

Target

Allocation

Long-Term Expected

Real Rate of Return

Fixed Income 20% 0.80%

Tangible Assets 5% 4.10%

Real Estate 15% 5.30%

Global Equity 37% 6.05%

Private Equity 23% 9.05%

Total 100%

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The $576,506 reported as deferred outflows of resources represent contributions the Collegemade subsequent to the measurement date and will be recognized as a reduction of the netpension liability for the year ended June 30, 2016.

Other amounts reported as deferred inflows of resources will be recognized in pension expenseas follows for each plan:

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Changes in Proportionate Shares of Pension LiabilitiesThe changes to the College’s proportionate share of pension liabilities from 2013 to 2014 foreach retirement plan are listed below:

The College’s proportions of the net pension liability are based on the College’s share ofcontributions relative to the pension plan contributions of all participating employers.

The following table shows the changes in each pension plan liability:

Actuarial AssumptionsThe total pension liability was determined by an actuarial valuation as of June 30, 2013 with theresults rolled forward to the June 30, 2014 measurement date using the following actuarialassumptions, applied to all periods included in the measurement:

• Inflation: 3.00% total economic inflation, 3.75% salary inflation• Salary Increases: In addition to the base 3.75% salary inflation assumption,

salaries are also expected to grow by promotions andlongevity.

• Investment rate of return: 7.50%

Pension Plan 2013 2014

Increase

(Decrease)

PERS 1 0.056493% 0.052878% -0.003615%

PER 2/3 0.069242% 0.065029% -0.004213%

TRS 1 0.020906% 0.008408% -0.012498%

TRS 2/3 0.011027% 0.008644% -0.002383%

Pension Liability PERS 1 PERS 2/3 TRS 1 TRS 2/3 Total

Balance, July 1, 2014 (3,301,030)$ (2,956,644)$ (738,449)$ (120,927)$ (7,117,050)$

Changes in proportionate share of liability 211,234 179,896 441,459 26,133 858,722

Differences in projected versus actual

earnings on pension plan investments 333,088 1,393,351 43,486 64,069 1,833,994

Contributions to pension plans after

measurement date 237,367 279,849 16,873 21,553 555,642

Pension expense (144,412) (210,923) (11,359) (18,748) (385,442)

Balance, June 30, 2015 (2,663,753)$ (1,314,471)$ (247,990)$ (27,920)$ (4,254,134)$

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Mortality rates were based on the RP-2000 Combined Healthy Table and Combined DisabledTable published by the Society of Actuaries. The Office of the State Actuary applied offsets tothe base table and recognized future improvements in mortality by projecting the mortality ratesusing 100 percent Scale BB. Mortality rates are applied on a generational basis, meaningmembers are assumed to receive additional mortality improvements in each future year,throughout their lifetime.

The actuarial assumptions used in the June 30, 2013, valuation were based on the results of the2007-2012 Experience Studies. Additional assumptions for subsequent events and law changesare current as of the 2013 actuarial valuation report

Sensitivity of the net pension liability to changes in the discount rateThe discount rate used to measure the total pension liability was 7.50 percent. To determine thediscount rate an asset sufficiency test was completed to test whether the pension plan’s fiduciarynet position was sufficient to make all projected future benefit payments of current planmembers. Consistent with current law, the completed asset sufficiency test included an assumed7.70 percent long-term discount rate to determine funding liabilities for calculating futurecontributions rate requirements. Consistent with the long-term expected rate of return, a 7.50percent future investment rate of return on invested assets was assumed for the test.

Contributions from plan members and employers are assumed to continue to be made atcontractually required rates. Based on those assumptions, the pension plan’s fiduciary netposition was projected to be available to make all projected future benefit payments of currentplan members. Therefore, the long-term expected rate of return of 7.50 percent on pension planinvestments was applied to determine the total pension liability.

The following presents the net pension liability of the College calculated using the discount rateof 7.50 percent, as well as what the College’s net pension liability would be if it were calculatedusing a discount rate that is 1-percentage-point lower (6.50 percent) or 1-percentage-point higher(8.50 percent) than the current rate.

State Board Retirement PlanPlan DescriptionThe State Board Retirement Plan (SBRP), created for the SBCTC, the 34 community andtechnical colleges in the state of Washington, and the Student Achievement Council, is a taxdeferred multiple-employer defined contribution plan which covers most faculty, professionaland exempt staff. Contributions to the plan are invested in annuity contracts or mutual fundsoffered by the Teachers Insurance and Annuity Association and College Retirement Equities

1% Decrease

Current

Discount Rate 1% Increase

Pension Plan (6.5%) (7.5%) (8.5%)

PERS Plan 1 3,283,338 2,663,754 2,131,902

PERS Plan 2/3 5,482,940 1,314,471 (1,869,463)

TRS Plan 1 319,130 247,990 186,926

TRS Plan 2/3 242,675 27,919 (131,708)

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Fund (TIAA-CREF). Benefits are available upon employee separation or retirement. The SBRP,operating under section 401(a) of the Internal Revenue Code, has a contract with the TIAA-CREF to administer records, investments and benefits. Employees have at all times a 100%vested interest in their accumulations. TIAA-CREF benefits are payable upon termination at themember’s option unless the participant is re-employed in another institution which participates inTIAA-CREF.

The minimum retirement benefit goal is 2% of the average annual salary for each year of full-time service up to a maximum of 25 years. However, if the participant does not elect to make the10% TIAA-CREF contribution after age 49, the benefit goal is 1.5% for each year of full-timeservice for those years the lower contribution rate is selected.

The Plan has a supplemental payment component that guarantees a minimum retirement benefitgoal based upon a one-time calculation at each employee’s retirement date. The SBCTC makesdirect payments on behalf of the College to qualifying retirees when the retirement benefitprovided by TIAA-CREF does not meet the benefit goal. Employees are eligible for a non-reduced supplemental payment after the age of 65 with ten years of full-time service.

The State Board for Community and Technical Colleges is authorized to amend benefitprovisions under RCW 28B.10.400. In 2011, the plan was amended to eliminate thesupplemental benefit provisions for all employees hired after June 30, 2011.

The SBRP supplemental pension benefits are unfunded. In 2012, legislation (RCW 28B.10.423)was passed requiring colleges to pay into a Supplemental Benefit Fund managed by the StateInvestment Board, for the purpose of funding future benefit obligations. During fiscal year 2014,the College paid into this fund at a rate of 0.5% of covered salaries, totaling $55,572. As of June30, 2015, the Community and Technical College system accounted for $7,729,471 of the fundbalance.

The SBCTC, on behalf of the College, will make direct payments to qualifying retirees when theretirement benefits provided by the fund sponsors do not meet the benefits goal. The unfundedactuarial accrued liability (UAAL) calculated at June 30, 2015 was $104,696,000 under theplan’s entry age normal method and is amortized over a 10 year period. The actuarialassumptions include an investment rate of return of 4% with projected salary increases of 3.75%.The annual required contribution (ARC) is $16,200,000 consists of the amortization of theUAAL ($10,583,000), normal cost ($5,302,000) and interest.

Reported as a liability by the SBCTC, the Net Pension Obligation (NPO) is the cumulativeexcess of the ARC over actual benefit payments. The following table reflects the SBCTC activityof the NPO for the year ended June 30, 2015:

Balance, June 30, 2014 65,469,064$

Annual Required Contribution 16,200,000

Payments to Beneficiaries (583,625)

Balance, June 30, 2015 81,085,439$

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The College does not report any of the NPO balance in their financial statements.

Funding PolicyEmployee contribution rates, based on age, varies from 5% for participants under 35 years ofage, 7.5% for participants 35 to 49 years of age and 10% for participants age 50 and over.Employees have, at all times, a 100% vested interest in their accumulations. Employee andemployer contributions to the SBRP for the year-end June 30, 2015 were $1,028,415 and$1,028,170, respectively. All required employer and employee contributions have been made bythe College.

Washington State Deferred Compensation ProgramThe College, through the state of Washington, offers its employees a deferred compensation plancreated under Internal Revenue Code Section 457. The plan, available to all State employees,permits individuals to defer a portion of their salary until future years. The state of Washingtonadministers the plan on behalf of the College’s employees. The deferred compensation is notavailable to employees until termination, retirement or unforeseeable financial emergency. TheCollege does not have access to the funds.

Other Post-Employment BenefitsHealth care and life insurance programs for employees of the state of Washington areadministered by the Washington State Health Care Authority (HCA). The HCA calculates thepremium amounts each year that are sufficient to fund the statewide health and life insuranceprograms on a pay-as-you-go basis. These costs are passed through to individual state agenciesbased upon active employee headcount; the agencies pay the premiums for active employees tothe HCA. The agencies may also charge employees for certain higher cost options elected by theemployee.

State of Washington retirees may elect coverage through state health and life insurance plans, forwhich they pay less than the full cost of the benefits, based on their age and other demographicfactors. The health care premiums for active employees, which are paid by the agency during theemployees’ working careers, subsidize the “underpayments” of retirees. An additional factor inthe Other Post-Employment Benefits (OPEB) obligation is a payment that is required by theState Legislature to reduce the premiums for retirees covered by Medicare (an “explicit”subsidy). This explicit subsidy is also passed through to state agencies via active employee ratescharged to the agency. There is no formal state or College plan that underlies the subsidy ofretiree health and life insurance.

The actuary allocated the statewide disclosure information to the community and technicalcollege system level. The SBCTC further allocated these amounts among the colleges. TheCollege’s share of the GASB 45 actuarially accrued liability (AAL) is $11,669,074, with anannual required contribution (ARC) of $1,140,222. The ARC represents the amortization of theliability for fiscal year 2015 plus the current expense for active employees, which is reduced bythe current contributions of approximately $143,352. The College’s net OPEB obligation at June30, 2015 was approximately $1,689,503. This amount is not included in the College’s financialstatements.

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The College paid $2,319,306 for healthcare expenses in 2015, which included its pay-as-you-goportion of the OPEB liability.

NOTE 15 - Operating Expenses by Program

In the Statement of Revenues, Expenses and Changes in Net Position, operating expenses aredisplayed by natural classifications, such as salaries, benefits, and supplies. The table belowsummarizes operating expenses by program or function such as instruction, research, andacademic support. The following table lists operating expenses by program for the year endingJune 30, 2015.

NOTE 16 - Commitments and Contingencies

There is a class action lawsuit, Moore v. HCA, filed against the State of Washington on behalf offormer part-time and non-permanent employees alleging improper denial of healthcare benefits.Although the College has not been named as a defendant in the lawsuit, some of the classmembers are current or former employees of the College. Potentially, the state could assess theCollege with a material share of any amount paid in the event of a settlement or judgment. As ofthe end of fiscal year 2015, the parties have reached a settlement agreement with the plaintiffs tosettle all matters relating to this and related lawsuits. Final settlement is contingent on a) fundingof the settlement by the legislature and b) final approval by the trial court if funding is provided.

The College has commitments of $7,386,991 for various capital improvement projects thatinclude construction and completion of new buildings and renovations of existing buildings. Theconstruction and renovation is funded through a State Capital Allocation.

NOTE 17 - Subsequent Events

On March 29th, 2016, the legislature passed the supplemental budget which included anappropriation to fund the settlement for the Moore v. HCA lawsuit. SBCTC’s portion of thisobligation is $32 million of which $19 million is funded by the legislature and the remaining $13million will be allocated among 34 colleges in the system. Bates Technical College’s share ofthis liability is $94,244 which has not been accrued since it is not considered material to theCollege’s financial statements.

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Required Supplementary Information

Pension Plan Information

Cost Sharing Employer PlansSchedules of Bates Technical College’s Proportionate Share of the Net Pension Liability

These schedules are to be built prospectively until they contain 10 years of data.

2014

College’s proportion of the net pension liability 0.052878%

College proportionate share of the net pension liability $ 2,663,753

College covered-employee payroll $ 139,640

College’s proportionate share of the net pension liability as a

percentage of its covered-employee payroll 1907.59%

Plan’s fiduciary net position as a percentage of the total pension

liability 61.19%

2014

College’s proportion of the net pension liability 0.065029%

College proportionate share of the net pension liability $ 1,314,471

College covered-employee payroll $ 5,864,124

College’s proportionate share of the net pension liability as a

percentage of its covered-employee payroll 22.42%

Plan’s fiduciary net position as a percentage of the total pension

liability 93.29%

Measurement Date of June 30

Schedule of Bates Technical College's Share of the Net Pension

Public Employees’ Retirement System (PERS) Plan 1Measurement Date of June 30

Schedule of Bates Technical College's Share of the Net Pension

Public Employees’ Retirement System (PERS) Plan 2/3

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Cost Sharing Employer PlansSchedules of Bates Technical College’s Proportionate Share of the Net Pension Liability

These schedules are to be built prospectively until they contain 10 years of data.

2014

College’s proportion of the net pension liability 0.008408%

College proportionate share of the net pension liability $ 247,990

College covered-employee payroll $ -

College’s proportionate share of the net pension liability as a

percentage of its covered-employee payroll 0.00%

Plan’s fiduciary net position as a percentage of the total pension

liability 68.77%

2014

College’s proportion of the net pension liability 0.008644%

College proportionate share of the net pension liability $ 27,920

College covered-employee payroll $ 343,668

College’s proportionate share of the net pension liability as a

percentage of its covered-employee payroll 8.12%

Plan’s fiduciary net position as a percentage of the total pension

liability 96.81%

Schedule of Bates Technical College's Share of the Net Pension

Public Employees’ Retirement System (TRS) Plan 2/3Measurement Date of June 30

Schedule of Bates Technical College's Share of the Net Pension

Public Employees’ Retirement System (TRS) Plan 1Measurement Date of June 30

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Pension Plan Information

Cost Sharing Employer PlansSchedules of Bates Technical College Contributions

These schedules are to be built prospectively until they contain 10 years of data.

Fiscal

Year

Contractually

Required

Contributions

Contributions in

relation to the

Contractually

Required

Contributions

Contribution

deficiency

(excess)

Covered-

employee

payroll

Contributions as a

percentage of

covered– employee

payroll

2014 $ 10,476 $ 10,476 $ - $ 113,787 9.21%

2015 $ 12,861 $ 12,861 $ - $ 139,640 9.21%

Fiscal

Year

Contractually

Required

Contributions

Contributions in

relation to the

Contractually

Required

Contributions

Contribution

deficiency

(excess)

Covered-

employee

payroll

Contributions as a

percentage of

covered– employee

payroll

2014 $ 512,247 $ 512,247 $ - $ 5,563,493 9.21%

2015 $ 540,087 $ 540,087 $ - $ 5,864,124 9.21%

Schedule of Bates Technical College Contributions

Public Employees’ Retirement System (PERS) Plan 2/3Fiscal Year Ended June 30

Schedule of Bates Technical College Contributions

Public Employees’ Retirement System (PERS) Plan 1Fiscal Year Ended June 30

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Cost Sharing Employer PlansSchedules of Bates Technical College Contributions

These schedules are to be built prospectively until they contain 10 years of data.

Fiscal

Year

Contractually

Required

Contributions

Contributions in

relation to the

Contractually

Required

Contributions

Contribution

deficiency

(excess)

Covered-

employee

payroll

Contributions as a

percentage of

covered– employee

payroll

2014 $ 530 $ 530 $ - $ 6,587 8.05%

2015 $ - $ - $ - $ - 0.00%

Fiscal

Year

Contractually

Required

Contributions

Contributions in

relation to the

Contractually

Required

Contributions

Contribution

deficiency

(excess)

Covered-

employee

payroll

Contributions as a

percentage of

covered– employee

payroll

2014 $ 38,193 $ 38,193 $ - $ 378,698 10.09%

2015 $ 35,707 $ 35,707 $ - $ 343,668 10.39%

Fiscal Year Ended June 30

Schedule of Bates Technical College Contributions

Public Employees’ Retirement System (TRS) Plan 2/3Fiscal Year Ended June 30

Schedule of Bates Technical College Contributions

Public Employees’ Retirement System (TRS) Plan 1