FIRST SUPPLEMENT DATED JANUARY 3, 2017 TO PRELIMINARY OFFICIAL STATEMENT DATED DECEMBER 16, 2016
Regarding:
$127,650,000* Ball State University Board of Trustees Ball State University Student Fee Bonds, Series R
This First Supplement dated January 3, 2017 (the “First Supplement”) supplements the Preliminary Official Statement dated December 16, 2016 (the “Original POS”) with respect to the Ball State University Board of Trustees Ball State University Student Fee Bonds, Series R (the “Series R Bonds”).
The purpose of this First Supplement is to advise regarding a change with respect to one of the underwriters of the Series R Bonds. Specifically, effective January 3, 2017, the transaction described at page 34 of the Original POS, under “Underwriting,” paragraph four thereof, has been consummated. City Financial Corporation (“CFC”) has effectuated a Merger Agreement with Stifel Financial Corporation (“SFC”), a publicly traded financial services company, pursuant to which City Securities Corporation (“City Securities Corporation”), a wholly owned subsidiary of CFC, has been merged into SFC. As a result, the former role of City Securities Corporation as a co-manager for the public offering of the Series R Bonds has now been assumed by Stifel Nicolaus & Company, Incorporated, a wholly owned subsidiary of SFC.
All references to City Securities Corporation in the Original POS are hereby amended to reflect references instead to Stifel Nicolaus & Company, Incorporated. Further, paragraph four of the Original POS under the heading “Underwriting,” at page 34 of the Original POS, is hereby deleted.
* Preliminary, subject to change
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or filing under the securities laws of any such jurisdiction. above. See“SECURITYFORTHEBONDS.” or againstthepropertyfundsofUniversityState Indiana,excepttotheextentofpledgePledgedFundsasdescribed recourse shall be hadfor the payment of the principalof or interest on theSeries R Bonds against the University or theState of Indiana, fully describedherein).TheSeriesRBondsarenotageneralobligationdebtorliabilityoftheUniversityStateIndiana, andno thereof, theUniversity’srighttoreceivesame,andallFundsheldbyTrusteepursuantIndenture(allasdefined andmore of StudentFeesandanypaymentstotheUniversityfromaQualifiedSwapProviderpursuantAgreement, the proceeds herein), arelimitedobligationsoftheUniversitysecuredbyandpayablesolelyfromapledgefirstlienonPledgedFunds, comprised described herein,and(ii)refundingcertainoutstandingStudentFeeBondsoftheUniversity,asfurtherherein. each enteredintobytheUniversityandTrustee,forpurposesof(i)financingacertainnewprojectUniversity, asfurther Indenture”) (theOriginalIndenture,assupplementedandamended,theSixteenthSupplementalcollectively,“Indenture”), amended, andasfurthersupplementedbyaSixteenthSupplementalIndenturedatedofJanuary1,2017(the“Sixteenth Trustees (the“University”)andaTrustIndenturedatedasofNovember 1, 1985(the“OriginalIndenture”),asheretoforesupplementedand OF THESERIESRBONDS--OptionalRedemption”. Only System.” and theIndirectParticipants,allasdefinedmorefullydescribedherein.See“DESCRIPTIONOFTHESERIESRBONDS-- Book-Entry- disbursement ofsuchpaymentstotheBeneficialOwnersSeriesRBondswillberesponsibilityDTC,Direct Participants Trustee andbondregistrar,asdescribedherein,solongDTCoritsnomineeistheregisteredownerofSeriesRBonds. Thefinal Merchants PrivateWealthAdvisors,aDivisionofFirstBank,N.A.(successortoTheNationalBankMuncie), as year, commencingJuly1,2017,andsuchinterest,togetherwiththeprincipalofSeriesRBonds,willbepaiddirectlytoDTC byFirst ofeach andJuly 1 certificates representingtheirinterestintheSeriesRBonds.InterestonBondsispayableJanuary 1 multiple thereof.PurchasersofbeneficialinterestsintheSeriesRBonds(the“BeneficialOwners”)willnotreceivephysical deliveryof Purchases ofbeneficialinterestsintheSeriesRBondswillbemadebook-entry-onlyform,denominations$5,000or any integral &Co.,asnomineeforTheDepositoryTrustCompany,NewYork,York(“DTC”). issued, willberegisteredinthenameofCede or aboutJanuary___,2017. expected thattheSeriesRBonds indefinitiveformwillbeavailablefordeliveryNewYork, New YorkthroughthefacilitiesofDTCon Disclosure Counsel.Certainlegal matterswillbepasseduponbyDeFurVoranLLP,Muncie, Indiana,counseltotheUniversity.Itis modification oftheofferwithout notice,andtotheapprovaloflegalitybyIceMillerLLP,Indianapolis, Indiana,BondCounselandSpecial D: SUMMARYOFAMENDMENTS.” Statement toobtaininformationessentialmakinganinformed investmentdecision. * Preliminary, subjecttochange. Dated: January___, 2017 Dated: DateofDelivery and APPENDIXEherein. is exemptfromincometaxationintheStateofIndiana.See“TAXMATTERS,”“ORIGINALISSUEDISCOUNT,”“BONDPREMIUM” Indianapolis, Indiana,BondCounsel,underexistinglaws,regulations,judicialdecisionsandrulings,interestontheSeriesRBonds is conditionedoncontinuingcompliancewiththeTaxCovenants(ashereinafterdefined).InopinionofIceMillerLLP, current earningsforpurposesofcomputingthefederalalternativeminimumtaximposedoncertaincorporations.Suchopinion the federalalternativeminimumtaximposedonindividualsandcorporations,butistakenintoaccountindeterminingadjusted oftheInternalRevenueCode1986,asamended(the“Code”),isnotanitemtaxpreferenceforpurposes under Section 103 and rulings,interestontheSeriesRBonds(ashereinafterdefined)isexcludedforfederalincometaxpurposesfromgross BOOK-ENTRY-ONLY NEW ISSUE The SeriesRBonds,whichareissuedonaparitywiththeLNBondsandQ(eachasdefined The SeriesRBondsarebeingissuedpursuanttoresolutionsadoptedbyandactionsauthorizedtheBallStateUniversityBoard of The SeriesRBondsaresubjecttooptionalredemption,priormaturity,asdescribedinthisOfficialStatement.See“DESCRIPTION The Series R Bonds will be dated their date of delivery. The Series R Bonds are issuable only as fully registered bonds, and, when The SeriesRBondsareofferedwhen,asandifissuedbytheUniversity andreceivedbytheUnderwriters,subjecttowithdrawalor By purchaseoftheSeriesRBonds,consentwillbedeemedgiven tocertainamendmentstheIndenture.See“APPENDIX This coverpagecontainsinformationforreferenceonlyandis notasummaryofthisissue.InvestorsmustreadtheentireOfficial In the opinion of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel, under existing laws, regulations, judicial decisions
PRELIMINARY OFFICIAL STATEMENT DATED DECEMBER 16, 2016
B all See theinsidecoverpageformaturities,principalamounts, Ball StateUniversityStudentFeeBonds,SeriesR S interest rates,prices,yieldsandCUSIPnumbers tate U ni v $127,650,000* ersity B oard
of T rustees Due: July 1,asshownbelow Standard &Poor’s: Moody’s:
RATINGS
Aa3 AA-
MATURITIES, PRINCIPAL AMOUNTS INTEREST RATES, PRICES, YIELDS AND CUSIP1 NUMBERS
$127,650,000* Ball State University Student Fee Bonds, Series R
Date of Maturity* Principal Amount* Interest Rate Price Yield CUSIP1 July 1, 2017 $6,515,000 July 1, 2018 6,545,000 July 1, 2019 6,845,000 July 1, 2020 7,200,000 July 1, 2021 7,575,000 July 1, 2022 7,950,000 July 1, 2023 8,350,000 July 1, 2024 7,615,000 July 1, 2025 8,000,000 July 1, 2026 8,420,000 July 1, 2027 8,830,000 July 1, 2028 7,170,000 July 1, 2029 7,530,000 July 1, 2030 5,720,000 July 1, 2031 3,505,000 July 1, 2032 3,665,000 July 1, 2033 3,815,000 July 1, 2034 3,970,000 July 1, 2035 4,130,000 July 1, 2036 4,300,000
1 Copyright 2016, American Bankers Association. CUSIP data herein provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., an independent company not affiliated with the University. The CUSIP numbers are provided for convenience and reference only. Neither the University nor the Trustee is responsible for the selection or use of the CUSIP numbers, nor is any representation made as to their correctness on the Series R Bonds or as indicated above. * Preliminary, subject to change
No dealer, broker, salesman or any other person has been authorized by the University or the Underwriters to give any information or to make any representation other than those contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by the University or the Underwriters. Certain information in this Official Statement has been obtained from the University and other sources considered to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed to be the representation of the Underwriters. This Official Statement should be considered in its entirety and no one factor considered more or less important than any other by reason of its position in this Official Statement. Any information or expressions of opinion in this Official Statement are subject to change without notice and neither the delivery of this Official Statement nor any sale hereunder shall under any circumstances create an implication that there has been no change as to the affairs of the University and other parties referred to herein since the date of this Official Statement or since any earlier date as of which information is stated to be given.
This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the Series R Bonds in any jurisdiction in which or to any person to whom it is unlawful to make such offer, solicitation or sale.
In connection with this offering, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the Series R Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.
The Series R Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or registered in any state and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other federal, state or other governmental entity or agency will have passed upon the accuracy or adequacy of this Official Statement nor approved the Series R Bonds for sale.
In making an investment decision, investors must rely on their own examination of the University and the terms of the offering, including the merit and risk involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.
THE UNDERWRITERS HAVE PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITERS HAVE REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, THEIR RESPECTIVE RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCE OF THIS TRANSACTION, BUT THE UNDERWRITERS DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
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______
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “projected,” “budget,” “could,” or other similar words. Additionally, all statements in this Official Statement, including forward-looking statements, speak only as of the date they are made, and none of the University or the Underwriters undertakes any obligation to update any statement in light of new information or future events.
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVES KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. NEITHER THE UNIVERSITY, THE UNDERWRITERS NOR ANY OTHER PARTY PLANS TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN THEIR EXPECTATIONS, OR EVENTS, CONDITIONS, OR CIRCUMSTANCES UPON WHICH SUCH STATEMENTS ARE BASED OCCUR.
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TABLE OF CONTENTS Page SUMMARY STATEMENT ...... v INTRODUCTION ...... 1 PURPOSES OF THE SERIES R BONDS ...... 2 SOURCES AND USES OF FUNDS ...... 2 THE PROJECT ...... 2 THE REFUNDING ...... 3 DESCRIPTION OF THE SERIES R BONDS ...... 5 SECURITY FOR THE BONDS ...... 11 ANNUAL DEBT SERVICE REQUIREMENTS ...... 14 DEBT SERVICE COVERAGE ...... 15 SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ...... 15 TAX MATTERS ...... 29 ORIGINAL ISSUE DISCOUNT ...... 30 BOND PREMIUM...... 31 LITIGATION ...... 32 VERIFICATION...... 32 CREDIT RATINGS ...... 32 CERTAIN LEGAL MATTERS ...... 33 ENFORCEABILITY OF RIGHTS AND REMEDIES AND LEGAL OPINIONS ...... 33 FINANCIAL INFORMATION ...... 34 UNDERWRITING ...... 34 SPECIAL RELATIONSHIPS ...... 34 CONTINUING DISCLOSURE ...... 34 MISCELLANEOUS ...... 35
APPENDIX A - BALL STATE UNIVERSITY ...... A - 1 APPENDIX B - BALL STATE UNIVERSITY FINANCIAL REPORT FOR THE YEAR ENDING JUNE 30, 2016 ...... B - 1 APPENDIX C - CONTINUING DISCLOSURE ...... C - 1 APPENDIX D - SUMMARY OF AMENDMENTS...... D - 1 APPENDIX E - FORM OF OPINION OF BOND COUNSEL ...... E - 1
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BALL STATE UNIVERSITY BOARD OF TRUSTEES Muncie, Indiana
Board of Trustees Richard Hall, Chair E. Renae Conley, Vice Chair Thomas C. Bracken, Secretary Matt Momper, Assistant Secretary R. Wayne Estopinal, Trustee Michael McDaniel, Trustee Jean Ann Harcourt, Trustee Hollis E. Hughes, Jr., Trustee Dustin Meeks, Student Trustee
Officers of the Board of Trustees Richard Hall, Chair E. Renae Conley, Vice Chair Thomas C. Bracken, Secretary Matt Momper, Assistant Secretary Bernard M. Hannon, Treasurer
Principal Administrative Officers Terry S. King, Interim President Marilyn Buck, Acting Provost and Acting Executive Vice President for Academic Affairs Kay Bales, Vice President for Student Affairs and Enrollment Services and Dean of Students Bernard M. Hannon, Vice President for Business Affairs and Treasurer Philip C. Repp, Vice President for Information Technology and Interim Dean College of Architecture and Planning Mark Sandy, Director of Athletics (Vacant*), Vice President for Governmental Relations and Community Engagement (Vacant*), Vice President for Marketing and Communications Sali Falling, Vice President and General Counsel Loren Malm*, Interim Vice President for Information Technology
Principal Administrative Officer of the Ball State University Foundation Cheri O’Neill, President and Chief Executive Officer
Trustee First Merchants Private Wealth Advisors, a Division of First Merchants Bank, N.A. Muncie, Indiana
Bond Counsel Ice Miller LLP, Indianapolis, Indiana
* The positions of Vice President for Governmental Relations and Community Engagement and Vice President for Marketing and Communications are currently vacant and searches are planned or underway. Duties and responsibilities associated with these positions are being handled by internal staff and external consultants. In addition, an Interim Vice President for Information Technology has been appointed to handle duties of that position while the actual Vice President for Information Technology fills in as the Interim Dean for the College of Architecture and Planning.
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SUMMARY STATEMENT
Subject, in all respects, to more complete information contained in the Official Statement.
BALL STATE UNIVERSITY. The University was founded as a state institution in 1918 with a gift by the Ball brothers of Muncie of the land and buildings of the Muncie Normal Institute to the State of Indiana. The Ball State University Board of Trustees (the “University”) serves and controls Ball State University and consists of nine members appointed by the Governor. Ball State University is located in Muncie, approximately 56 miles northeast of Indianapolis. Ball State University offers six associate-level programs, 170 undergraduate programs, 88 master’s level programs, 16 doctoral-level programs and two specialists programs providing professional and pre-professional specialization as well as education in the liberal arts and sciences. Ball State University’s 2016 on/off campus unduplicated Fall semester full-time equivalent enrollment totals 18,771, with total on/off campus unduplicated headcount of 21,998.
Purposes of Issue: The Series R Bonds are being issued to finance (i) costs of the Project (as defined herein), (ii) the refunding in part of the University’s outstanding Ball State University Student Fee Bonds, Series N (referred to herein as the “Series N Refunded Bonds”), (iii) the refunding in whole of the University’s outstanding Ball State University Student Fee Bonds, Series O (referred to herein as the “Series O Refunded Bonds”), (iv) the refunding in whole of the University’s outstanding Ball State University Student Fee Bonds, Series P (referred to herein as the “Series P Refunded Bonds” and, collectively with the Series N Refunded Bonds and the Series O Refunded Bonds, the “Refunded Bonds”), and (v) costs of issuing the Series R Bonds.
Security: The Series R Bonds, which are issued on a parity with the Ball State University Student Fee Bonds, Series L (the “Series L Bonds”), which are currently outstanding in the aggregate principal amount of $5,425,000, the Ball State University Student Fee Bonds, Series N (the “Series N Bonds”), which will remain outstanding, following the refunding in part of the Series N Bonds, in the aggregate principal amount of $12,355,000*, and the Ball State University Student Fee Bonds, Series Q (the “Series Q Bonds”), which are currently outstanding in the aggregate principal amount of $29,310,000, and any Parity Bonds (as defined herein) which subsequently may be issued under the Indenture (referred to collectively as the “Bonds”), are limited obligations of the University secured by and payable solely from a pledge of and first lien on Pledged Funds, comprised of Student Fees and any payments to the University from a Qualified Swap Provider pursuant to a Qualified Swap Agreement, the proceeds thereof, the University’s right to receive the same, and all Funds held by the Trustee pursuant to the Indenture (all terms as defined and more fully described herein). At the time of issuance of the Series R Bonds the University has not entered into and has no current intention to enter into any Qualified Swap Agreement. The Series R Bonds are not a general obligation debt or liability of the University or the State of Indiana, and no recourse shall be had for the payment of the principal of or interest on the Series R Bonds against the University or the State of Indiana, or against the property or funds of the University or the State of Indiana, except to the extent of the Pledged Funds as described above. The University has no taxing power.
Student Fees: “Student Fees” means all academic fees (including tuition) however denominated, assessed by the University against students attending Ball State University, except certain dedicated fees and other fees which may be subsequently released from the lien of the Indenture, as provided by the Indenture.
Debt Service Coverage: The following pro forma debt service coverage summary is based on actual Student Fees for the Fiscal Years ended June 30, 2014, June 30, 2015 and June 30, 2016, and the
* Preliminary, subject to change
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Maximum Annual Debt Service for the Series R Bonds and all Parity Bonds (as defined herein) Outstanding.
Year Ended June 30 2014 (Audited) 2015 (Audited) 2016 (Audited) Student Fees $220,154,363 $222,525,767 $230,247,570 Coverage of Maximum Annual Debt Service ($18,430,097* in FY 2018*) 11.95 times* 12.07 times* 12.49 times* For the Series R Bonds and all Parity Bonds Outstanding
Fee Covenant: The University covenants that it will establish and collect Student Fees so as to generate in each Fiscal Year an amount equal to no less than the sum of (i) 2.0 times the Annual Debt Service Requirement (as defined herein) for such Fiscal Year, plus (ii) any additional amounts to be paid from Student Fees with respect to such Fiscal Year, in accordance with the Indenture.
No Reserve Fund: No Reserve Fund Requirement exists for the Series R Bonds, and holders of the Series R Bonds shall have no claim on any Reserve Fund established for any subsequent series of Parity Bonds. No Reserve Fund Requirement exists for any series of Parity Bonds at the time of issuance of the Series R Bonds.
Parity Bonds: The Series L Bonds, Series N Bonds, Series Q Bonds, Series R Bonds and all Additional Bonds (as defined herein) are referred to, collectively, as the “Parity Bonds.” The University may issue Additional Bonds and enter into Qualified Swap Agreements, the payments of which are secured by a pledge of and first lien on the Pledged Funds; provided, among other things, that the actual Student Fees received during the preceding Fiscal Year are at least equal to 2.0 times the Maximum Annual Debt Service to become due on all Parity Bonds then outstanding under the Indenture, plus the Parity Bonds to be issued. At the time of issuance of the Series R Bonds the University has not entered into and has no current intention to enter into any Qualified Swap Agreement.
Bondholder Consent to Amendments. The University and the Trustee previously entered into an Eleventh Supplemental and Amendatory Indenture dated as of January 1, 2005, which contains an amendment to the Original Indenture, as previously supplemented and amended. All holders of the Series M Bonds consented to this amendment, and purchasers of all Bonds issued subsequent thereto, including the Series R Bonds, will be deemed to have consented to this amendment upon purchase of and payment for such Bonds. See “APPENDIX D: SUMMARY OF AMENDMENTS.”
Continuing Disclosure. Pursuant to the continuing disclosure requirements promulgated by the Securities and Exchange Commission in SEC Rule 15c2-12, as amended (the “SEC Rule”), the University has entered into an Amended and Restated Continuing Disclosure Undertaking Agreement, dated as of February 15, 2011, as heretofore supplemented, to be further supplemented by a Fourth Supplement to Amended and Restated Continuing Disclosure Undertaking Agreement dated as of January 1, 2017, pursuant to which the University will agree to provide (i) on an annual basis to the Municipal Securities Rulemaking Board (the “MSRB”), as the only nationally recognized municipal securities information repository, certain annual financial information and (ii) notice to the MSRB upon the occurrence of certain reportable events more fully described herein.
In order to assist the Underwriters in complying with the Underwriters’ obligations pursuant to the SEC Rule, the University represents that it has identified certain deficiencies with regard to its
* Preliminary, subject to change
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undertakings which occurred during the previous five years, including, but not limited to, the following instances: The University did not provide complete audited financial statements for its Fiscal Years ending June 30, 2008 through June 30, 2012. The University filed excerpted statements from its audited financial statements for the Fiscal Years in question, but did not file the entire Financial Reports. The University filed the complete Financial Reports for the Fiscal Years in question on August 21, 2013. In addition, the University did not file a reportable event notice with respect to the redemption of its outstanding Parking System Revenue Bonds, which were redeemed in full using available cash on April 2, 2015. The bondholders in question did, however, receive timely 30 day notice of the redemption on March 2, 2015. Also, the University filed its Annual Information for the Fiscal Year ending June 30, 2010 three days late, on December 30, 2010, and the University filed its Annual Information for the Fiscal Year ending June 30, 2012 four days late, on December 31, 2012. The University has filed a failure to disclose notice regarding these prior instances; however, the University makes no representation as to any potential materiality of such prior instances, as materiality is dependent upon individual facts and circumstances. Otherwise, there have been no instances in the past five years when the University has failed to comply, in all material respects, with any undertakings in a written contract or agreement as specified in paragraph (b)(5)(i) of the SEC Rule. See “APPENDIX C: CONTINUING DISCLOSURE.”
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OFFICIAL STATEMENT
$127,650,000* Ball State University Board of Trustees Ball State University Student Fee Bonds, Series R
INTRODUCTION
This Official Statement, including the cover page and the Appendices, sets forth certain information concerning the Ball State University Board of Trustees (the “University”), Ball State University (“Ball State University”), and the offering by the University of $127,650,000* principal amount of its Ball State University Student Fee Bonds, Series R (the “Series R Bonds”).
The Series R Bonds are authorized pursuant to Indiana Code Title 21, Article 34 (the “Act”), which empowers the University to sell bonds to acquire, erect, construct, reconstruct, improve, rehabilitate, remodel, repair, complete, extend, enlarge, equip, furnish and operate certain buildings, structures, improvements or facilities necessary for carrying on the purpose of the University, and to refund such bonds. The Series R Bonds will be issued pursuant to resolutions adopted by and actions authorized by the University and in accordance with the provisions of a Trust Indenture, dated as of November 1, 1985 (the “Original Indenture”), between the University and First Merchants Private Wealth Advisors, a Division of First Merchants Bank, N.A. (successor to The Merchants National Bank of Muncie), Muncie, Indiana (the “Trustee” or the “Paying Agent”), as heretofore supplemented and amended, and as further supplemented by the Sixteenth Supplemental Indenture dated as of January 1, 2017 (collectively, the “Indenture”).
The Series R Bonds, together with the Ball State University Student Fee Bonds, Series L (the “Series L Bonds”), which are currently outstanding in the aggregate principal amount of $5,425,000, the Ball State University Student Fee Bonds, Series N (the “Series N Bonds”), which will remain outstanding, following the refunding in part of the Series N Bonds, in the aggregate principal amount of $12,355,000*, the Ball State University Student Fee Bonds, Series Q (the “Series Q Bonds”), which are currently outstanding in the aggregate principal amount of $29,310,000, and any Additional Bonds which are issued on a parity with the Series L Bonds, the Series N Bonds, the Series Q Bonds and the Series R Bonds, are limited obligations of the University secured by and payable solely from a pledge of and lien on all Pledged Funds, comprised of Student Fees and any payments to the University from a Qualified Swap Provider pursuant to a Qualified Swap Agreement, the proceeds thereof, the University’s right to receive the same, and all Funds held by the Trustee pursuant to the Indenture (all terms as defined herein). The Series L Bonds, the Series N Bonds, the Series Q Bonds and the Series R Bonds, and all Additional Bonds issued on a parity therewith, are referred to collectively in this Official Statement as the “Parity Bonds.” Parity Bonds and Subordinated Bonds (as defined herein) are referred to collectively in this Official Statement as “Bonds.” See “SECURITY FOR THE BONDS” for further information. The Bonds do not constitute a general obligation debt or liability, or a charge against any property or fund of the University or the State of Indiana, and no
* Preliminary, subject to change
recourse shall be had for the payment of the principal of or interest on the Bonds against the University or the State of Indiana, or against the property or funds of the University or the State of Indiana, except to the extent of the pledge of Pledged Funds as described above. The University has no taxing power.
The summaries of and references to all documents, statutes and other instruments referred to in this Official Statement do not purport to be complete and are qualified in their entirety by reference to the full text of each such document, statute or instrument. Certain terms used in this Official Statement are defined under “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” Terms not defined in this Official Statement shall have the meaning as set forth in the respective documents.
PURPOSES OF THE SERIES R BONDS The Series R Bonds are being issued for the purposes of financing (i) costs of the Project (defined below), (ii) the advance refunding in part of the University’s outstanding Series N Bonds (referred to herein as the “Series N Refunded Bonds”), (iii) the advance refunding in whole the University’s outstanding Series O Bonds (referred to herein as the “Series O Refunded Bonds”), (iv) the advance refunding in whole the University’s outstanding Series P Bonds (referred to herein as the “Series P Refunded Bonds” and, collectively with the Series N Refunded Bonds and the Series O Refunded Bonds, the “Refunded Bonds”), and (v) other costs incidental to the issuance of the Series R Bonds. SOURCES AND USES OF FUNDS The estimated sources and uses of funds, with respect to the Series R Bonds, are summarized below: Sources Amount Principal Amount of Series R Bonds Net Bond Premium Total Uses Costs of the Project Deposit to the Escrow Fund Underwriting Discount Costs of Issuance and Contingency Total THE PROJECT
A portion of the proceeds of the Series R Bonds will be used to finance the cost of the Project. The Project will include the construction and equipping the Health Professions Building, located on the University’s campus in Muncie, Indiana. The Health Professions Building is Phase I of the STEM and Health Professions Facility Project. At a cost of
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$62,500,000, the Project will be financed in whole from proceeds of the Series R Bonds. Ratio Architects, Inc. of Indianapolis, Indiana is the architect.
The Project will consist of new construction of approximately 165,000 gross square feet of space and include classrooms, laboratories, offices, a resource hub, simulation labs/suites, and clinical spaces. Plans call for these spaces to be used by Athletics Training; Counseling Psychology, Social Psychology and Counseling; Health Science, Nursing; Social Work; Speech Pathology and Audiology; Dietetics, and the Social Science Research Center. The Project will foster collaboration between fields focused on patient care and will provide additional space for growth in these high-demand programs.
The Project will be bid in the Spring of 2017 with construction beginning in Summer, 2017. The Project should be completed by Fall, 2019.
THE REFUNDING*
The Series R Bonds are being issued in part for the purpose of (i) advance refunding a portion of the University’s outstanding Series N Bonds (referred to herein as the “Series N Refunded Bonds”), (ii) advance refunding in whole the University’s outstanding Series O Bonds (referred to herein as the “Series O Refunded Bonds”), and (iii) advance refunding in whole the University’s outstanding Series P Bonds (referred to herein as the “Series P Refunded Bonds” and, collectively with the Series N Refunded Bonds and the Series O Refunded Bonds, the “Refunded Bonds”).
The Series N Refunded Bonds shall include a portion of the outstanding principal amount of the Issuer’s Series N Bonds, comprised of (i) $2,190,000 in principal amount of the Series N Bond maturing on July 1, 2017, (ii) 2,300,000 in principal amount of the Series N Bond maturing on July 1, 2018; (iii) $935,000 in principal amount of the Series N Bond maturing on July 1, 2019 and bearing CUSIP Number 058508 BS0, (iv) $1,475,000 in principal amount of the Series N Bond maturing on July 1, 2019 and bearing CUSIP Number 058508 BH4; (v) $975,000 in principal amount of the Series N Bond maturing on July 1, 2020 and bearing CUSIP Number 058508 BT8; (vi) $1,550,000 in principal amount of the Series N Bond maturing on July 1, 2020 and bearing CUSIP Number 058508 BJ0; (vii) $1,025,000 in principal amount of the Series N Bond maturing on July 1, 2021 and bearing CUSIP Number 058508 BU5, (viii) $1,630,000 of the Series N Bond maturing on July 1, 2021 and bearing CUSIP Number 058508 BK7; (ix) $1,075,000 in principal amount of the Series N Bond maturing on July 1, 2022 and bearing CUSIP Number 058508 BV3; (x) $1,715,000 in principal amount of the Series N Bond maturing on July 1, 2022 and bearing CUSIP Number 058508 BL5; (xi) $1,120,000 in principal amount of the Series N Bond maturing on July 1, 2023 and bearing CUSIP Number 058508 BW1; (xii) $1,800,000 in principal amount of the Series N Bond maturing on July 1, 2023 and bearing CUSIP Number 058508 BM3; (xiii) $1,895,000 in principal amount of the Series N Bond maturing on July 1, 2024; (xiv) $1,990,000 in principal amount of the Series N Bond maturing on July 1, 2025; (xv) $2,095,000 in principal amount of the Series N Bond maturing on July 1, 2026; and (xvi) $2,190,000 in principal amount of the Series N Bond maturing on July 1, 2027.
* Preliminary, subject to change
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Pursuant to the terms of an Escrow Deposit Agreement (the “Escrow Agreement”) dated as of January 1, 2017, entered into between the University, First Merchants Private Wealth Advisors, a Division of First Merchants Bank, N.A., acting as the escrow trustee (the “Escrow Trustee”), and First Merchants Private Wealth Advisors, a Division of First Merchants Bank, N.A. (successor to The Merchants National Bank of Muncie), as the trustee for the Refunded Bonds, the refunding of the Refunded Bonds will be accomplished by (a) creating an irrevocable escrow fund for the Refunded Bonds (the “Escrow Fund”) to be held by the Escrow Trustee and (b) depositing in the Escrow Fund a sum of initial cash and certain noncallable, direct obligations of the United States of America (the “Government Obligations”). The funds needed to make the initial cash deposit to the Escrow Fund and to purchase the Government Obligations will be provided from Series R Bond proceeds.
The Government Obligations to be purchased and deposited with the Escrow Trustee will bear interest at such rates and will be scheduled to mature at such times and in such amounts so that, when paid according to their respective terms, sufficient money, together with the initial cash deposit, will be available to pay when due all principal of, premium, and interest on the Refunded Bonds to and including the applicable interest payment dates, maturity dates or redemption dates of the Refunded Bonds.
The Series N Refunded Bonds maturing on July 1, 2017 will be paid at maturity. The Series N Refunded Bonds maturing on and after July 1, 2018 will be redeemed on January 1, 2018 at a redemption price of 100% of the principal amount to be redeemed, without any premium, plus accrued interest to the redemption date.
The Series O Refunded Bonds maturing on July 1, 2017 and July 1, 2018 will be paid at maturity. The Series O Refunded Bonds maturing on and after July 1, 2019 will be redeemed on January 1, 2019 at a redemption price of 100% of the principal amount to be redeemed, without any premium, plus accrued interest to the redemption date.
The Series P Refunded Bonds maturing on July 1, 2017 through and including July 1, 2020 will be paid at maturity. The Series P Refunded Bonds maturing on and after July 1, 2021 will be redeemed on July 1, 2020 at a redemption price of 100% of the principal amount to be redeemed, without any premium, plus accrued interest to the redemption date.
The accuracy of the mathematical computations of the adequacy of the Escrow Fund to provide fully for all payments of principal of, premium, and interest on the Refunded Bonds will be verified at the time of delivery of the Series R Bonds by ______, independent certified public accountants. See “VERIFICATION”.
All cash and Government Obligations on deposit with the Escrow Trustee, including investment income, will be pledged solely and irrevocably for the benefit of the holders of the Refunded Bonds. It will not be necessary after the refunding of the Refunded Bonds to fund any debt service on the Refunded Bonds from Student Fees or other Pledged Funds or to rely on the lien thereon, as all such debt service will be funded from the Escrow Fund. Under the terms of the Indenture, the University will be released from all liability on the Refunded Bonds, which will no longer be deemed to be outstanding under the Indenture, and the lien on Pledged Funds with respect to the Refunded Bonds will be released.
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DESCRIPTION OF THE SERIES R BONDS
General
The Series R Bonds will be dated and bear interest from their date of authentication and delivery, will be issued in the aggregate original principal amount of $127,650,000*, and will bear interest (payable January 1 and July 1 of each year, with the first interest payment being July 1, 2017) at the rates and will mature on the dates and in the principal amounts set forth on the inside cover page of this Official Statement. The Series R Bonds will be issued in fully registered form in the denominations of $5,000 or any whole multiple of that sum. Interest on the Series R Bonds shall be computed on the basis of a 360-day year, consisting of twelve 30-day months.
When issued, all Series R Bonds will be registered in the name of and held by Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”). Purchases of beneficial interests from DTC in the Series R Bonds will be made in book-entry-only form (without certificates) in the denomination of $5,000 or any integral multiple thereof. Purchasers of beneficial interests in the Series R Bonds (the “Beneficial Owners”) will not receive physical delivery of certificates representing their interests in the Series R Bonds. So long as DTC or its nominee is the registered owner of the Series R Bonds, payments of the principal of and interest on the Series R Bonds will be made directly by the Trustee by wire transfer of funds to Cede & Co., as nominee for DTC. Disbursement of such payments to the participants of DTC will be the sole responsibility of DTC, and the ultimate disbursement of such payments to the Beneficial Owners of the Series R Bonds will be the responsibility of the Direct Participants and the Indirect Participants, as defined herein. See “Book-Entry-Only System” in this section.
Registration, Transfer and Exchange
The University will cause books for the registration and the transfer and exchange of the Series R Bonds to be kept by the Trustee. The University and the Trustee may deem and treat the person in whose name any Series R Bond is registered as the absolute owner of such Series R Bond (such person being DTC or its nominee, for so long as the Series R Bonds are held in book-entry-only form), for the purpose of receiving payment therefor and for all other purposes whatsoever, and neither the University nor the Trustee will be affected by any notice to the contrary.
The owner of any Series R Bonds (such owner of the Series R Bonds being DTC or its nominee, for so long Series R Bonds are held in book-entry-only form) may transfer or exchange such Series R Bonds by surrendering such Series R Bonds at the principal office of the Trustee, duly endorsed by, or accompanied by a written instrument or instruments of transfer or exchange in form satisfactory to the Trustee, and duly executed by such Bondholder or such Bondholder’s attorney duly authorized in writing. Upon any such surrender for transfer or exchange, the University will execute, and the Trustee will authenticate and deliver, in the name of the transferee or exchangee, as appropriate, a new Series R Bond or Series R Bonds of the same maturity for a like aggregate principal amount or for a like aggregate amount of fully registered
* Preliminary, subject to change
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Series R Bonds of other authorized denominations of the same maturity. The Trustee will not be required to transfer or exchange any Series R Bond either after the mailing of notice calling such Series R Bond for redemption or during a period of fifteen days next preceding mailing of a notice of redemption of any Bond. No service charge or payment will be required to be made by the owner of any Series R Bond requesting a transfer or exchange of such Series R Bond, but the University and the Trustee may require payment of a sum sufficient to cover any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange. The execution by the University of any fully registered Series R Bond of any denomination shall constitute full and due authorization of such domination, and the Trustee shall thereby be authorized to authenticate and deliver such registered Series R Bond.
For so long as the Series R Bonds are held in book-entry-only form, the Series R Bonds will be registered in the name of DTC or its nominee, and the University and the Trustee will deem and treat DTC or its nominee as the absolute owner of the Series R Bonds for all purposes whatsoever. The Trustee will transfer and exchange Series R Bonds only on behalf of DTC or its nominee, in accordance with the preceding paragraph. Neither the University nor the Trustee will have any responsibility for registering, transferring or exchanging any Beneficial owners interests in the Series R Bonds. See “Book-Entry-Only System” in this section.
Book-Entry-Only System
The information in this sub-section has been furnished by The Depository Trust Company, New York, New York (“DTC”). No representation is made by the University, the Trustee or the Underwriters as to the completeness or accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. No attempt has been made by the University, the Trustee or the Underwriters to determine whether DTC is or will be financially or otherwise capable of fulfilling its obligations. Neither the University nor the Trustee will have any responsibility or obligation to Direct Participants, Indirect Participants (both as defined below) or the persons for which they act as nominees with respect to the Series R Bonds, or for any principal, premium, if any, or interest payment thereon.
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Series R Bonds. The Series R Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series R Bond certificate will be issued for each maturity of the Series R Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post- trade settlement among Direct Participants of sales and other securities transactions in deposited
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securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Series R Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series R Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series R Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Series R Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series R Bonds, except in the event that use of the book-entry system for the Series R Bonds is discontinued.
To facilitate subsequent transfers, all Series R Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series R Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series R Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series R Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series R Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series R Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series R Bond documents. For example, Beneficial Owners of the Series R Bonds may wish to ascertain that the nominee holding the Series R Bond for their
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benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Series R Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series R Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the University as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Series R Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and other payments on the Series R Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the University or the Trustee, on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the University or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and other payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of’ DTC) is the responsibility of the University or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Series R Bonds at any time by giving reasonable notice to the University or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series R Bond certificates are required to be printed and delivered.
The University may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series R Bond certificates will be printed and delivered.
The information in this section concerning DTC and DTC’s book-entry-system has been obtained from sources that the University believes to be reliable, but the University takes no responsibility for the accuracy thereof.
Disclaimer
THE INFORMATION PROVIDED ABOVE UNDER THIS CAPTION HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE UNIVERSITY, THE TRUSTEE OR THE UNDERWRITERS AS TO THE ACCURACY OR ADEQUACY OF
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SUCH INFORMATION PROVIDED BY DTC OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE HEREOF.
The University and the Trustee will have no responsibility or obligation with respect to:
(i) the accuracy of the records of DTC, its nominee or any Direct Participant or Indirect Participant with respect to any beneficial ownership interest in any Series R Bonds;
(ii) the delivery to any Direct Participant or Indirect Participant or any other person, other than an owners, as shown in the bond register, of any notice with respect to any Series R Bond including, without limitation, any notice of redemption;
(iii) the payment to any Direct Participant or Indirect Participant or any other person, other than an owner, as shown in the bond register, of any amount with respect to the principal of or premium, if any, or interest on any Series R Bond; or
(iv) any consent given by DTC or its nominee as registered owner.
Prior to any discontinuation of the book-entry only system described under this caption, the University and the Trustee may treat DTC as, and deem DTC to be, the absolute owner of the Series R Bonds for all purposes whatsoever, including, without limitation:
(i) the payment of the principal of and premium, if any, and interest on the Series R Bonds;
(ii) giving notices of redemption and other matters with respect to the Series R Bonds;
(iii) registering transfers with respect to the Series R Bonds; and
(iv) the selection of Series R Bonds for redemption.
Revision of Book-Entry-Only System
In the event that either (i) the University receives notice from DTC to the effect that DTC is unable or unwilling to discharge its responsibilities as a clearing agency for the Series R Bonds, or (ii) the University elects to discontinue its use of DTC as a clearing agency for the Series R Bonds, and in either case the University does not appoint an alternative clearing agency, then the University and the Trustee will do or perform or cause to be done or performed all acts or things, not adverse to the rights of the holders of the Series R Bonds, as are necessary or appropriate to discontinue use of DTC as a clearing agency for the Series R Bonds, and to transfer the ownership of each of the Series R Bonds, to such person or persons, including another clearing agency as the holders of the Series R Bonds may direct in accordance with the Indenture. See “Registration, Transfer and Exchange” in this section.
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Payment of Principal and Interest on Series R Bonds
For so long as the Series R Bonds are registered to DTC or its nominee or its successor, payments of principal and interest shall be made as described under “Book-Entry-Only System” above. In the event the Series R Bonds are no longer registered to DTC, the payments of principal and interest shall be made by a Bond Registrar, to be appointed as described in the Indenture, as follows:
The Series R Bonds will be registered as to both principal and interest on the books of the University kept for that purpose (the “Bond Register”) at the principal office of the Trustee as bond registrar (the “Bond Registrar”). The principal and redemption price of the Series R Bonds is payable at the principal office of the Bond Registrar. Interest on the Series R Bonds is payable when due by check mailed by the Bond Registrar to the registered owners as their names and addresses appear in the Bond Register, or by wire transfer to registered owners of $1,000,000 or more in aggregate principal amounts, which have so requested, on the fifteenth (15th) day of the month preceding an interest payment date.
Optional Redemption
The Series R Bonds maturing on or after July 1, 2028* are subject to redemption at the option of the University at any time on or after July 1, 2027*, in whole or in part in the order of maturity designated by the University, at redemption price of 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption, without premium.
If fewer than all of the Series R Bonds are to be optionally redeemed, the University will select the maturities to be redeemed and the Trustee will select by lot the particular Series R Bonds or portion of the Series R Bonds to be redeemed. The portion of any Series R Bonds of a denomination of more than $5,000 to be redeemed will be in the principal amount of $5,000 or an integral multiple of that sum, and in selecting portions of such Series R Bonds for redemption, the Trustee will treat each such Series R Bond as representing that number of Series R Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Series R Bonds by $5,000.
Notice of Redemption
Notice of redemption of the Series R Bonds shall be given by the Trustee by registered mail to the registered owner of each Series R Bond, not more than 45 days nor less than 30 days prior to the date fixed for redemption. Notices of redemption may be conditioned upon the timely availability of funds for redemption. Interest on the Series R Bonds so called for redemption shall cease to accrue on the redemption date specified in said notice if funds are on deposit with the Trustee to redeem the Series R Bonds when presented.
A second notice of redemption will be given within 60 days after the redemption date to the registered owners of redeemed Series R Bonds which have not been presented for payment within 30 days after the redemption date. Failure to give such notice or errors therein will not invalidate the call for redemption or the redemption itself.
* Preliminary, subject to change
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For so long as the Series R Bonds are registered to DTC or its nominee, such notice will be given only to DTC or its nominee, as described above under the heading “Book-Entry-Only System” in this section. Any failure by DTC to notify the Beneficial Owners does not affect the validity of the redemption proceedings for the Series R Bonds. See “DESCRIPTION OF THE SERIES R BONDS--Book-Entry-Only System.”
Open Market Purchases
At its option, to be exercised not less than 60 days prior to any redemption date, the University may (a) deliver to the Trustee Series R Bonds purchased with available moneys of the University and (b) instruct the Trustee to apply the principal amount of such Series R Bonds so delivered for credit at 100% of the principal amount thereof against the principal amount of Series R Bonds of the same maturity to be redeemed on the next succeeding redemption date. Each such Series R Bond so delivered will be so credited by the Trustee
SECURITY FOR THE BONDS
Security and Source of Payment
The Series R Bonds, together with all Additional Bonds issued on a parity with the Series R Bonds, including, but not limited to, the Series L Bonds, the Series N Bonds and the Series Q Bonds (collectively, the “Parity Bonds”), are limited obligations of the University, secured by and payable solely from a pledge of and first lien on Pledged Funds, comprised of Student Fees and any payments to the University from a Qualified Swap Provider pursuant to a Qualified Swap Agreement, the proceeds thereof, the University’s right to receive the same, and all Funds held by the Trustee pursuant to the Indenture (all terms as described and defined below).
The Parity Bonds and all Subordinated Bonds (as hereinafter defined) are not a general obligation debt or liability, or a charge against any property or fund of the University or the State of Indiana, and no recourse shall be had for the payment of the principal of and interest on the Bonds against the University or the State of Indiana, except to the extent of the Pledged Funds. See “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
Student Fees
Student Fees means all academic fees (including tuition), however denominated, assessed by the University against students attending Ball State University, except any fees which may be subsequently released from the lien of the Indenture as provided in the Indenture.
The University has covenanted and agreed in the Indenture to pay to the Trustee on the fifth (5th) day preceding each interest or principal payment date Student Fees or other available funds in an amount which, when added to any amount then in the Sinking Fund, is sufficient to pay the principal of and interest due on the Bonds. Such amounts will be deposited in the Sinking Fund. Student Fees, prior to their deposit with the Trustee as required by the Indenture, may be used as general operating funds of the University.
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The University has irrevocably pledged Student Fees to the payment of the principal of and interest on the Bonds. The pledge of Student Fees for the Parity Bonds shall constitute a first lien on and security interest in Student Fees.
The pledge of Student Fees and other Pledged Funds as security for the payment of the Series R Bonds shall be of equal standing and priority of lien with the pledge of Student Fees and other Pledged Funds for the following outstanding obligations of the University payable from the Student Fees:
Principal Amount Principal Amount Outstanding Obligation Dated Date Due Date Originally Issued as of 1/1/17 Series L Bonds 08/18/2004 07/01/2020 $16,425,000 $5,425,000 Series N Bonds 01/30/2008 07/01/2027 $63,615,000 $38,315,000 (1) Series O Bonds 03/26/2009 07/01/2029 $29,175,000 $21,695,000 (2) Series P Bonds 03/15/2011 07/01/2030 $32,225,000 $25,115,000 (2) Series Q Bonds 10/30/2013 07/01/2032 $35,840,000 $29,310,000
(1) $25,960,000* of the principal amount outstanding on the Series N Bonds will be refunded using proceeds of the Series R Bonds. (2) The entire principal amount outstanding on the Series O Bonds and the Series P Bonds will be refunded in whole using proceeds of the Series R Bonds.*
No Reserve Fund
No Reserve Fund Requirement exists for the Series R Bonds, and the Series R Bonds shall have no claim on the Reserve Fund described in the section herein entitled “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Flow of Funds.” The Series R Bonds have no claim on the Reserve Fund established for any subsequent series of Parity Bonds. No Reserve Fund Requirement for any series of Parity Bonds will be in existence upon issuance of the Series R Bonds.
Fee Covenant
The University will establish and collect Student Fees so as to generate in each Fiscal Year amounts equal to no less than the sum of:
(a) An amount equal to two times the Annual Debt Service Requirement for the Series R Bonds and all Parity Bonds for such Fiscal Year, provided that if the rate of interest borne by any Variable Rate Bonds is fixed for such Fiscal Year at a single rate of interest, such Variable Rate Bonds shall be treated as Fixed Rate Bonds for purposes of the Annual Debt Service Requirement calculation; and
(b) Any other amounts to be paid from Student Fees with respect to such Fiscal Year in accordance with the Indenture.
* Preliminary, subject to change
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The University also covenants to adopt an annual budget for each Fiscal Year which will set forth the estimated Annual Debt Service Requirement, any required deposits to the Reserve Fund established by the Indenture and any other moneys to be paid from Student Fees in accordance with the Indenture.
Issuance of Additional Bonds
Additional Bonds may be authorized by the University and issued under the Indenture from time to time in order to provide funds for any lawful purpose under the Act. Additional Bonds may be Parity Bonds or Subordinated Bonds. Parity Bonds means the Series L Bonds, the Series N Bonds, the Series Q Bonds, the Series R Bonds and Additional Bonds which are secured as to the payment of principal and interest (other than Optional Maturities for which a Credit Support Instrument is provided) by a pledge, assignment, and grant a security interest and first lien on the Pledged Funds. In addition, Qualified Swap Agreements may be executed by the University, the Qualified Swap Payments of which will have a parity security interest and first lien on the Pledged Funds with the Parity Bonds. At the time of issuance of the Series R Bonds, however, the University has not entered into, and has no current intention to enter into, any Qualified Swap Agreement.
Additional Bonds may be issued under the Indenture specifically to evidence liability of the University in favor of any entity providing a Credit Support Instrument. Whether such Additional Bonds are Parity Bonds or Subordinated Bonds shall depend on the ability of the University in regard to those Additional Bonds to meet the coverage test described below at the time when funds are advanced pursuant to such Credit Support Instrument and not immediately reimbursed by the University. If such test cannot be met, the Additional Bonds will be Subordinated Bonds and the rights of the holders to receive principal thereof and interest thereon shall be subordinated to the holders of all Parity Bonds. See “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Flow of Funds.”
Additional Bonds may be issued from time to time by the University if actual Student Fees received by the University during the preceding Fiscal Year shall be equal to or greater than two times Maximum Annual Debt Service to become due in the succeeding Fiscal Years for the payment of principal and interest charges on the Outstanding Parity Bonds under the Indenture and on the Parity Bonds then to be authenticated and delivered, with interest requirements on Variable Rate Bonds being calculated for this purpose at the rate of 15 percent.
In addition, Parity Bonds may be authorized and executed by the University and authenticated and delivered by the Trustee without the necessity for compliance with the aforementioned test when necessary or appropriate in the opinion of the Trustee to avoid a default under the Indenture.
Parity Bonds may be issued from time to time by the University which have no claim on the Reserve Fund.
All computations regarding debt service and Student Fees shall be made by the Treasurer of the University.
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The University may, in addition to issuing Additional Bonds, issue bonds or other evidences of indebtedness with a lien which is junior to the Bonds in all respects.
As part of the University’s 2017-19 capital request which was submitted to the State of Indiana in August 2016, a new Foundational Science Building is proposed as Phase II of the STEM and Health Professions Facility Project. This $87.5 million building would include space for Biology, Chemistry, Geology, and Physiology, and be funded with proceeds from the future issuance of Additional Bonds. If approved by the General Assembly, debt service on these Additional Bonds would be fee replaced by the State.
ANNUAL DEBT SERVICE REQUIREMENTS
The following table sets forth the annual debt service requirements payable by the University on all Parity Bonds.(1)
Fiscal Years Ending Series L Series N Series Q Series R Bonds Total Debt June 30(2) Bonds Bonds(3)* Bonds Principal* Interest Service 2018 $1,509,138 $1,607,838 $3,090,863 $6,515,000 2019 1,508,738 1,609,463 3,088,613 6,545,000 2020 1,509,350 1,610,025 3,089,363 6,845,000 2021 1,515,563 1,609,013 3,095,363 7,200,000 2022 1,609,663 3,093,738 7,575,000 2023 1,607,413 3,096,613 7,950,000 2024 1,608,488 3,093,738 8,350,000 2025 1,603,913 3,097,763 7,615,000 2026 1,602,788 3,099,463 8,000,000 2027 1,604,288 1,577,963 8,420,000 2028 1,607,206 1,578,588 8,830,000 2029 1,575,600 7,170,000 2030 1,578,656 7,530,000 2031 1,577,400 5,720,000 2032 1,577,488 3,505,000 2033 1,574,650 3,665,000 2034 3,815,000 2035 3,970,000 2036 4,130,000 2037 4,300,000
(1) Does not include the Series O Bonds or the Series P Bonds, which are being refunded in whole using proceeds of the Series R Bonds.* (2) The table commences with the Fiscal Year ending June 30, 2018 since all debt service for Fiscal Year 2017 will be paid as of January 1, 2017, prior to the sale of the Series R Bonds. (3) Does not include that portion of the Series N Bonds being refunded using proceeds of the Series R Bonds.*
* Preliminary, subject to change
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DEBT SERVICE COVERAGE
The following pro forma debt service coverage summary is based on actual Student Fees for the Fiscal Years ended June 30, 2014, June 30, 2015 and June 30, 2016, and the Maximum Annual Debt Service for the Series R Bonds and all Parity Bonds Outstanding.
Year Ended June 30 2014 (Audited) 2015 (Audited) 2016 (Audited) Student Fees $220,154,363 $222,525,767 $230,247,570 Coverage of Maximum Annual Debt Service ($18,430,097*in FY 2018*) 11.95 times* 12.07 times* 12.49 times* For the Series R Bonds and all Parity Bonds Outstanding SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
Bondholder Consent to Amendments
Certain prospective amendments to the Indenture were adopted in an Eleventh Supplemental and Amendatory Indenture dated as of January 1, 2005. All purchasers of the Series M Bonds and all Bonds issued subsequent thereto, including the Series R Bonds, will be deemed to have consented to this amendment upon purchase of and payment for such Bonds. See “APPENDIX D: SUMMARY OF AMENDMENTS.”
The substance of the amendment is that Section 11.02(a) of the Indenture, concerning notice of defeasance, has been amended to allow for such notices to be submitted to nationally recognized municipal securities information repositories, rather than requiring publication in a newspaper or financial journal in New York City.
Definitions
For purposes of this Official Statement, the following terms shall have the meaning specified below unless the context clearly indicates otherwise.
“Additional Bonds” means the additional Parity Obligations or Subordinated Bonds authorized to be issued by the University pursuant to the Indenture and any Bonds issued in substitution or replacement therefor and excludes junior lien obligations as described in the Indenture.
“Annual Debt Service Requirement” for any Fiscal Year means, in connection with all Parity Bonds, the sum of (i) an amount equal to the amount of regularly scheduled principal or mandatory sinking fund payments and interest due in such Fiscal Year on Fixed Rate Bonds (excluding principal of any balloon maturity and excluding any Optional Tender), (ii) the amount of principal and interest projected to become due in such Fiscal Year on Variable Rate Bonds (excluding principal of any balloon maturity and any Optional Tender), and (iii) an amount equal to the principal amount of a balloon maturity after the Fiscal Year in question divided by the number of years to maturity from its date of original issuance or from such later date in or prior
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to the Fiscal Year in question as specified in the Supplemental Indenture authorizing the issuance of such balloon maturity. Such projection of interest on Variable Rate Bonds shall be calculated at any date of calculation as an amount equal to 110% of the greater of (a) the average daily interest rate during the then preceding twelve month period or (b) the rate in effect on the date of calculation, but in either event, not to exceed any maximum interest rate which may be set for any Variable Rate Bonds. Interest which is payable from the proceeds of Bonds set aside for such purpose in the Sinking Fund shall be excluded in determining the Annual Debt Service Requirement. For purposes of this definition, “balloon maturity” shall mean Bonds of any series (or multiple series of Bonds issued at substantially the same time) with principal amounts maturing or otherwise due and payable within any twelve month period equal to or greater than fifteen percent of the original principal amount of such Bonds; provided that, in calculating the amount due and payable in any twelve month period, such principal amount shall be reduced to the extent that all or any portion of such amount is required to be amortized prior to such twelve month period; and provided further that for any balloon maturity the University may elect to waive the provisions of clause (iii) above for any one or more series of Bonds at the time of delivery thereof and treat such one or more series of Bonds as if such balloon maturity was not a balloon maturity for the purposes of the application of this definition. The maturing amount of any Bonds issued at a discount shall not be considered a balloon maturity unless the original principal amount of such Bonds would be considered a balloon maturity. For any Bonds with respect to which the University has entered into a Qualified Swap Agreement or Agreements, the amount of all Qualified Swap Payments shall be considered in the calculation of Annual Debt Service Requirements in lieu of the payments described in clauses (i) through (iii) above; provided that such Qualified Swap shall be in effect for the entire Fiscal Year (or Bond Year, as the case may be) to which such calculation applies, and that Qualified Swap Agreements applicable to less than the full Fiscal Year (or Bond Year, as the case may be) shall not alter the calculation of the Annual Debt Service Requirement for such period. Qualified Swap Payments payable at a variable rate per annum shall be calculated on the same basis as Variable Rate Bonds for purposes of the application of various provisions under this Indenture, subject to any applicable interest rate floor or cap with respect to such variable rate.
“Bond” or “Bonds” shall mean any obligation including bonds, notes, temporary, interim or permanent certificates of indebtedness, debentures, capital leases, or any and all other obligations consistent with this Indenture and allowable under State law, which are payable out of Student Fees, and other Pledged Funds and which obligation or obligations are authenticated and delivered under and pursuant to this Indenture.
“Code” means the Internal Revenue Code of 1986, as amended or any successors thereto.
“Credit Support Instrument” means an irrevocable letter of credit, line of credit, insurance policy, guaranty or surety bond or similar instrument providing for the payment of or guaranteeing the payment of principal or purchase price of and interest on Bonds when due. Any such insurance policy, guaranty or surety bond or similar instrument shall be noncancellable during the term of the Bonds for which it is provided and must be issued by an insurer with a credit rating within the two highest full rating categories available generally to Universities of such insurance, guaranties or surety bonds from a nationally recognized rating service. Any obligation on the part of the University to purchase Bonds from their holders upon the completion of the term of such Credit Support Instrument shall be treated for these purposes as
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the conclusion of the term of that Bond. Any such letter of credit or line of credit must be issued by a banking institution which has, or the parent of which has, or the holding corporation of which it is the principal bank has, at the time of issuance, a credit rating on its long-term unsecured debt within the three highest full rating categories generally available to banking institutions from a nationally recognized rating service.
“Escrow Agreement” means the Escrow Deposit Agreement dated as of January 1, 2017 among the University, the Escrow Trustee, and the Trustee.
“Escrow Trustee” means First Merchants Private Wealth Advisors, a Division of First Merchants Bank, N.A., Muncie, Indiana, and any permitted successor as Escrow Trustee under the Indenture, serving in such capacity under the Escrow Agreement.
“Escrowed Municipals” means obligations of state or local governments secured by an irrevocable escrow of Federal Securities.
“Federal Securities” means securities of the type described in item 1 of the definition of “Permitted Investments.”
“Fiscal Year” shall mean the period commencing on the first day of July of any year and ending on the last day of June of the next succeeding year or such other period as established by the University from time to time.
“Fixed Rate Bond” means a Bond issued at or bearing a fixed rate or rates of interest.
“Indenture” means the Original Indenture, as heretofore supplemented and amended, and as further supplemented by the Sixteenth Supplemental Indenture, and as otherwise supplemented and amended from time to time.
“Maximum Annual Debt Service” means the highest Annual Debt Service Requirement for the current or any succeeding Fiscal Year.
“Optional Maturity” or “Optional Maturities” shall mean Parity Bonds which may, at the option of the owners thereof, be subject to payment, redemption or purchase by or on behalf of the University.
“Original Indenture” means the Trust Indenture relating to the Ball State University Student Fee Bonds, by and between the University and the Trustee, dated as of November 1, 1985.
“Outstanding” or “Bonds Outstanding” means all Bonds which have been duly authenticated, and delivered by the Trustee under this Indenture, except:
(1) Bonds canceled after purchase in the open market or because of payment at or redemption prior to maturity;
(2) Bonds for the payment or redemption of which cash or investments (but only to the extent that the full faith and credit of the United States of
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America are pledged to or secure the timely payment thereof) shall have been theretofore deposited with the Trustee (whether upon or prior to the maturity or redemption date of any such Bonds) in the manner and with the type of investments provided in the Indenture; provided that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Trustee, shall have been filed with the Trustee;
(3) Bonds in lieu of which others have been authenticated; and
(4) Undelivered Bonds.
“Parity Bonds” means the Series L Bonds, the Series N Bonds, the Series Q Bonds, the Series R Bonds and all Additional Bonds which are secured by a pledge, assignment and grant of and first lien and security interest against the Pledged Funds.
“Parity Obligations” means Parity Bonds and Qualified Swap Payments.
“Permitted Investments” means, with respect to moneys held by the Trustee, any of the following which at the time are legal investments under the laws of Indiana for the moneys proposed to be invested therein:
(1) Direct obligations of or obligations the timely payment of principal of and interest on which are unconditionally guaranteed by the United States of America including Refcorp Interest Strips, CATS, TIGRS, STRPS (or similar instruments if approved in writing by any Credit Support Instrument provider);
(2) Escrowed Municipals;
(3) Bonds, debentures or notes or other evidences of indebtedness issued or guaranteed by any of the following agencies: Export-Import Bank of the United States; Federal National Mortgage Association; Government National Mortgage Association; Federal Financing Bank; Federal Intermediate Credit Bank; Bank for Cooperatives; Federal Land Bank; Federal Home Loan Bank; Farmers Home Administration; Federal Farm Credit Banks; and The Federal Home Loan Mortgage Association;
(4) Certificates of deposit issued by or interest-bearing time deposit accounts with banks or savings banks organized under the laws of the State of Indiana or the United States of America, including the Trustee, which deposits or certificates are fully insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, or which banks or savings banks, including the Trustee, have capital, surplus and undivided profits in excess of $50,000,000 (provided that no such deposit or certificate shall be in excess of 10% of such capital, surplus and undivided profits, in either case);
(5) Repurchase agreements with banks or other financial institutions, including the Trustee, which are fully collateralized by obligations described in clauses
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(1) or (3) based upon market value, which obligations are in the possession of the Trustee of its agent and are free and clear of all security interests, liens or other rights of any third party, and in which obligations the Trustee has a first, perfected security interest; provided that any financial institution which is a broker-dealer must be a member of the Securities Investor Protection Corporation; and
(6) Guaranteed investment contracts or other investment agreements for which the Bond Insurer and any other provider of a Credit Support Instrument shall have given its prior written consent.
“Pledged Funds” means Student Fees and Qualified Swap Receipts, the proceeds thereof, the University’s right to receive the same, and all Funds held by the Trustee pursuant to the Indenture.
“Project” means the acquisition, construction, expansion, renovation and equipping of certain academic and building facilities for the Issuer including, in particular, Phase I of the STEM and Health Professions Facility Project, comprised of the construction of an approximately 165,000 square foot Health Professions Building to house the Issuer’s College of Health, including classrooms, laboratories, offices and resource hub, simulation labs/suites, and clinical spaces.
“Qualified Counterparty” shall mean a financial services institution whose senior long term debt obligations, other senior unsecured long term obligations or claims paying ability, or whose payment obligations, under a Qualified Swap are guaranteed by an entity whose senior long term debt obligations, other senior unsecured long term obligations or who was provided collateral such that its claims paying ability is rated (at the time the subject Qualified Swap is entered into) at least as high as A by Moody’s Investors Service and A by Standard & Poor’s Ratings Group, or the equivalent thereof by any successor thereto.
“Qualified Swap” or “Qualified Swap Agreement” shall mean any financial arrangement (i) that is authorized under applicable state law; (ii) that is entered into by the University with an entity that is a Qualified Counterparty at the time the arrangement is entered into; (iii) which constitutes an agreement (including any combination of agreements or a master agreement, each of which may include terms and conditions incorporated by reference therein) which is a rate swap agreement, basis swap, forward rate agreement, interest rate option, rate cap agreement, rate floor agreement, rate collar agreement, or any other similar agreement (including any option to enter into the foregoing); (iv) which is entered into pursuant to terms set forth herein and in an Indenture supplemental hereto; and (v) which has been designated in writing to the Trustee by an authorized representative of the University as a Qualified Swap.
“Qualified Swap Payments” means payments to be made by the University to a Qualified Swap Provider under a Qualified Swap, including Termination Payments thereunder.
“Qualified Swap Provider” shall mean any Qualified Counterparty with whom the University has entered into a Qualified Swap.
“Qualified Swap Receipts” means payments to the University by a Qualified Swap Provider under a Qualified Swap.
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“Rebate Agreement” means the Construction and Rebate Agreement dated as of January 1, 2017 between the University and the Trustee, as amended from time to time.
“Refunded Bonds” means (a) a portion of the outstanding principal amount of the Issuer’s Series N Bonds, comprised of (i) $2,190,000 in principal amount of the Series N Bond maturing on July 1, 2017, (ii) 2,300,000 in principal amount of the Series N Bond maturing on July 1, 2018; (iii) $935,000 in principal amount of the Series N Bond maturing on July 1, 2019 and bearing CUSIP Number 058508 BS0, (iv) $1,475,000 in principal amount of the Series N Bond maturing on July 1, 2019 and bearing CUSIP Number 058508 BH4; (v) $975,000 in principal amount of the Series N Bond maturing on July 1, 2020 and bearing CUSIP Number 058508 BT8; (vi) $1,550,000 in principal amount of the Series N Bond maturing on July 1, 2020 and bearing CUSIP Number 058508 BJ0; (vii) $1,025,000 in principal amount of the Series N Bond maturing on July 1, 2021 and bearing CUSIP Number 058508 BU5, (viii) $1,630,000 of the Series N Bond maturing on July 1, 2021 and bearing CUSIP Number 058508 BK7; (ix) $1,075,000 in principal amount of the Series N Bond maturing on July 1, 2022 and bearing CUSIP Number 058508 BV3; (x) $1,715,000 in principal amount of the Series N Bond maturing on July 1, 2022 and bearing CUSIP Number 058508 BL5; (xi) $1,120,000 in principal amount of the Series N Bond maturing on July 1, 2023 and bearing CUSIP Number 058508 BW1; (xii) $1,800,000 in principal amount of the Series N Bond maturing on July 1, 2023 and bearing CUSIP Number 058508 BM3; (xiii) $1,895,000 in principal amount of the Series N Bond maturing on July 1, 2024; (xiv) $1,990,000 in principal amount of the Series N Bond maturing on July 1, 2025; (xv) $2,095,000 in principal amount of the Series N Bond maturing on July 1, 2026; and (xvi) $2,190,000 in principal amount of the Series N Bond maturing on July 1, 2027; (b) all of the outstanding principal amount of the Issuer’s Series O Bonds; and (c) all of the outstanding principal amount of the Issuer’s Series P Bonds, all as described in Exhibit B to the Sixteenth Supplemental Indenture.*
“Reserve Fund” means the reserve fund established by the Indenture.
“Reserve Fund Credit Instrument” means an insurance policy, guaranty, or surety bond or irrevocable letter of credit issued by an insurance company which may be deposited in the Reserve Fund in lieu of or in partial substitution for cash to be on deposit therein. The insurer providing such insurance policy, guaranty, surety bond or letter of credit shall be an insurer which, at the time of issuance of the policy, has been assigned the highest rating of Moody’s Investors Service or any successor rating service, and such policy, guaranty, surety bond or letter of credit shall be subject to the irrevocable right of the Trustee to draw thereon in a timely fashion as needed and provided in the Indenture upon satisfaction of any conditions set forth in the Indenture. Any irrevocable letter of credit shall be payable to and deposited with the Trustee and shall be issued by a banking institution which has, or the parent of which has, or the holding corporation of which it is the principal bank has, at the time of issuance, a credit rating on its long term unsecured debt within the three highest rating categories from a nationally recognized rating service.
“Reserve Fund Requirement” means Maximum Annual Debt Service; provided that Debt Service Requirements on any Bonds which do not have access to or claims upon the Reserve
* Preliminary, subject to change
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Fund pursuant to the Indenture shall be excluded from the calculation of the Reserve Fund Requirement, and provided further that for purposes of Maximum Annual Debt Service on any Variable Rate Bonds for which there is a Reserve Fund Requirement, notwithstanding the formula for calculation of interest on Variable Rate Bonds found in the definition of Annual Debt Service Requirement, interest on such Variable Rate Bonds shall be calculated at a rate equal to the rate quoted in the most recent issue of The Bond Buyer (or any successor publication thereto) on the sale date of any such Additional Bonds as the 25 Revenue Bond index (or any successor index).
“Series R Bond” or “Series R Bonds” means one or more of the University’s Ball State University Student Fee Bonds, Series R, authorized to be issued by the University pursuant to the terms and conditions of Section 2.02 of the Original Indenture.
“Sixteenth Supplemental Indenture” means the Sixteenth Supplemental Indentured dated as of January 1, 2017 to the Original Indenture, as heretofore supplemented and amended.
“Student Fees” means all academic fees (including tuition), however denominated, assessed by the University against students attending Ball State University, except the Wood Health Center Fee and the Student Center Annex Fee and other fees subsequently released from the lien of the Indenture.
“Termination Payment” means termination payments the amount of and due date for which have been ascertained by reference to a Qualified Swap Agreement.
“University” means the Ball State University Board of Trustees, a body corporate of the State of Indiana, or any successor entity.
“Variable Rate Bond” means any Bond the interest rate on which, at the time of issuance, is not established at a fixed numerical rate or rates to stated maturity.
Flow of Funds
Sinking Fund. At least five (5) days prior to each interest or principal payment date, the University shall transfer and remit Student Fees or other available Pledged Funds to the Trustee in an amount which, when added to any amount then in the Sinking Fund, equals the amount of the principal of and interest on all Parity Bonds becoming due on such date (other than Optional Maturities for which a Credit Support Instrument is provided) and any deficiencies then in existence in regard to said fund. On or before any interest or principal payment date on Subordinated Bonds or at any time for paying Optional Maturities for which a Credit Support Instrument was provided but which have not been paid through a Credit Support Instrument, after making the transfers required above and described in the paragraph below concerning the Reserve Fund, the University shall transfer and remit Student Fees or other available funds to the Trustee for deposit in the special account therefor in the Sinking Fund an amount which, when added to any excess amount in said special account and other funds legally available for that purpose, equals the principal amount of Subordinated Bonds due on that payment date and interest accrued to that date and the amount of the Optional Maturities in the order of priority established by the applicable Supplemental Indenture. Payments of such Optional Maturities
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from the Sinking Fund shall be subordinated to the payment of the principal of and interest on any Parity Bonds.
Reserve Fund. The University will maintain with the Trustee a separate fund known as the Building Facilities Reserve Fund (the “Reserve Fund”), pursuant to the Indenture. No Reserve Fund Requirement exists for the Series R Bonds and the Series R Bonds shall have no claim on the Reserve Fund. In connection with the issuance of any Additional Bonds, except as described hereinafter, there shall be deposited in the Reserve Fund an amount sufficient to maintain the Reserve Fund in an amount equal to the Reserve Fund Requirement. Such deposit shall be in the form of cash, Permitted Investments, or a Reserve Fund Credit Instrument. No deposit need be made in the Reserve Fund on account of any series of Additional Parity Bonds if the amount on deposit in the Reserve Fund equals the Reserve Fund Requirement.
The University may elect to provide a Reserve Fund Credit Instrument or Instruments for purposes of maintaining the Reserve Fund Requirement. In those circumstances the Trustee shall include in the total amount held in the Reserve Fund an amount equal to the maximum principal amount which could be drawn by the Trustee under any Reserve Fund Credit Instrument.
From time to time Parity Bonds may be issued under the Indenture which shall have no claim on the Reserve Fund. No Reserve Fund Requirement shall exist for such Parity Bonds.
The Reserve Fund shall be used and applied to make up deficiencies in the Sinking Fund with respect to any Parity Bonds with a claim on the Reserve Fund (other than Optional Tenders for which a Credit Support Instrument has been provided), and the Trustee shall draw first on any cash or Permitted Investments on deposit in the Reserve Fund and then pro rata or as otherwise provided in the applicable Supplemental Indenture on the Reserve Fund Credit Instrument or Instruments as needed for the purpose of paying the principal of, redemption premium, if any, and interest on any such Parity Bonds when due, when there are insufficient moneys in the Sinking Fund for such purpose.
Any withdrawal from the Reserve Fund, if the amount thereafter in the Reserve Fund is less than the Reserve Fund Requirement, shall be subsequently replaced and restored from the first available Pledged Funds after all required transfers to the Sinking Fund for Parity Bonds have been made in full. Such replacement and restoration shall first be provided in regard to the Reserve Fund Credit Instrument or Instruments on a pro rata basis or as otherwise provided in the applicable Supplemental Indenture, and thereafter in favor of any portion of the Reserve Fund to be maintained in cash or Permitted Investments.
If a drawing is made from any Reserve Fund Credit Instrument, the University shall reinstate the maximum limits of such instrument within 12 months following such drawing solely from Pledged Funds available after all required payments have been made into the Sinking Fund for the Parity Bonds, so that, together with moneys on deposit therein, if any, there shall be on deposit in the Reserve Fund an amount (including the maximum amount then payable under the terms of the Reserve Fund Credit Instrument) equal to the Reserve Fund Requirement. Following the reinstatement of the Reserve Fund Credit Instrument and the replacement of any portion of the Reserve Fund required to be maintained in cash or Permitted Investments, the
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Corporation shall pay solely from the Pledged Funds available after all such required payments any additional amounts owing to a provider of a Reserve Fund Credit Instrument pursuant to an agreement entered into in connection therewith, including without limitation, interest on any draw under such Reserve Fund Credit Instrument.
Additional Security
At any time by a Supplemental Indenture the University may pledge, assign or grant a security interest in or lien on any additional funds or source of regular income of the University to the Trustee for the security of any Parity Bonds which shall be free and clear of any equal or prior security interest or lien. Any such Supplemental Indenture shall be accompanied by an opinion of nationally recognized bond counsel that the pledge of additional security is valid, binding and effective. Upon such a Supplemental Indenture being delivered, the amount of the additional income as to which the Supplemental Indenture applies shall be added to the amount of Student Fees for purposes of computing the amount of Additional Bonds which may be issued.
Partial Release of Lien on Student Fees
The University, from time to time, shall have the right to incur other indebtedness pursuant to other provisions of Indiana law other than the Act which indebtedness may be payable from a particular fee or fees or other charges made to students attending Ball State University which fees or charges may be Student Fees. The University and the Trustee may, from time to time, enter into an Amendatory or Supplemental Indenture for the purpose of releasing said fees or charges from the lien of the Indenture and excluding said fees or charges constituting Student Fees from the definition of Student Fees in the Indenture, if actual Student Fees received by the University during the preceding Fiscal Year less those fees and charges to be removed from the definition of Student Fees and from the lien of the Indenture shall be equal to or greater than five times Maximum Annual Debt Service to become due in that or any succeeding Fiscal Year for the payment of principal and interest charges on the Parity Bonds.
Covenants of the University
In the Indenture, the University covenants, among other things:
(1) to pay the interest on and principal of the Bonds according to the terms thereof and of the Indenture;
(2) to pay all the costs, charges and expenses incurred by the Trustee or any Bondholder, including reasonable attorneys fees reasonably incurred or paid because of the failure on the part of the University to perform, comply with and abide with each and every of the stipulations, agreements, conditions and covenants of the Bonds and the Indenture, or either of them;
(3) to operate Ball State University and its instructional programs to the extent that it will continue to be able to assess, charge and collect Student Fees adequate to meet its needs under the Indenture;
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(4) to establish and collect Student Fees so as to generate in each Fiscal Year amounts equal to no less than the sum of: (i) an amount equal to 2.00 times the Annual Debt Service Requirement for such Fiscal Year, provided that if the rate of interest borne by any Variable Rate Bond is fixed for such Fiscal Year at a single rate of interest, such Variable Rate Bonds shall be treated as Fixed Rate Bonds for the purposes of the Annual Debt Service Requirement calculation, and (ii) any other amounts to be paid from Student Fees with respect to such Fiscal Year in accordance with the Indenture; and to adopt an annual budget for each Fiscal Year setting forth the estimated Annual Debt Service Requirement, any required deposits to the funds established by the Indenture and any other money to be paid from Student Fees in accordance with the Indenture;
(5) to keep and maintain accurate books and records relating to the collection of Student Fees and the allocation thereof, the enrollment of students at Ball State University and the payments into the Sinking Fund and Reserve Fund, which books and records shall be opened for inspection by any holder of the Bonds at any reasonable time;
(6) to furnish to the Trustee and any holder of 25% or more in aggregate principal amount of Bonds requesting the same in writing, not later than 180 days after the close of each Fiscal Year, copies of financial reports, certified by the Treasurer of the University, reflecting in reasonable detail the status of the books and records described in clause (5) above;
(7) that it will not permit the Project, or the prior projects financed from proceeds of the Refunded Bonds, to be used in any such manner as would result in the loss of the exclusion from gross income for federal income tax purposes of interest on the Series R Bonds or the Refunded Bonds under the Code, nor will the University act in any manner which would adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Series R Bonds or the Refunded Bonds -- this covenant is based solely on current law in effect and in existence on the date of delivery of the Series R Bonds;
(8) that the University and the Trustee will not make any investment or do anything which would cause the Refunded Bonds or the Series R Bonds to become or be classified as arbitrage bonds within the meaning of Section 148 of the Code (or any successor section of such Code or subsequent Federal income tax statute or code), including but not limited to the obligation to rebate certain investment earnings to the United States of America--this covenant is based solely on current law in effect and in existence on the date of delivery of the Series R Bonds;
(9) that it shall not be an event of default under the Indenture if the interest on the Series R Bonds becomes includable in gross income for federal income tax purposes or otherwise subject to federal income taxes pursuant
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to any provision of the Code which is not currently in effect and in existence on the date of issuance of the Series R Bonds, except as stated in the preceding subparagraphs (7) and (8); and
(10) to do any and all things necessary in order to maintain the pledge, assignment and grant of a lien on and security interest in the Pledged Funds as valid, binding, effective and perfected, all as provided in the Indenture.
Other Indebtedness
Except to the extent permitted in the Indenture for the issuance of Additional Bonds (both Parity Bonds and Subordinated Bonds), from and after the issuance of any of the Bonds and for so long as any of the Bonds are Outstanding, the University will not issue bonds or other evidences of indebtedness or enter into leases that are prior to or on a parity with the Bonds, but may issue bonds or other evidences of indebtedness for any of the purposes set forth in the Indenture with a lien that is junior to the Bonds in all respects.
Investments
All moneys on deposit in the funds established under the Indenture held by the University may be commingled for investment purposes with the University’s other investments and invested as permitted by law. The funds held by the Trustee shall be invested by the Trustee as directed by the University in Permitted Investments. Interest earned or gains or losses realized on funds held by the Trustee shall be credited or debited to that fund (except that amounts in the Reserve Fund in excess of the Reserve Fund Requirement shall be transferred to the Sinking Fund). Interest earned or gains and losses realized on funds held by the University shall be credited or debited to the fund in which it was earned; except interest earnings in the Reserve Fund shall only be retained in the Reserve Fund as needed to maintain the Reserve Fund Requirement and thereafter shall be deposited in the Sinking Fund.
Defaults and Remedies
Any of the following events shall be an Event of Default under the Indenture:
(1) default shall be made on the payment of the principal of any one or more of the Bonds when the same shall become due and payable by lapse of time, by call for redemption or otherwise; or
(2) default shall be made in the payment by the University of any interest on any one or more Bonds when the same shall become due and payable as therein expressed; or
(3) default shall be made by the University or any of its officers in the performance or observance of any of the other covenants, conditions or obligations in the Bonds or in the Indenture and such default is not remedied within 30 days after written notice so to do from the Trustee, which may serve such notice in its discretion and shall serve the same at
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the written request of the holders of not less than 25% in the principal amount of Bonds then Outstanding under the Indenture or of the provider of any Credit Support Instrument; or
(4) the University shall (i) admit in writing its inability to pay its debts generally as they become due, (ii) have an order for relief entered in any case commenced by or against it under federal bankruptcy laws, as now or hereafter in effect, (iii) commence a proceeding under any federal or state bankruptcy, insolvency, reorganization or similar laws, or have such a proceeding commenced against it and have either an order of insolvency or reorganization entered against it or have the proceeding remain undismissed and unstaged for 90 days, (iv) make an assignment for the benefit of creditors, or (v) have a receiver or trustee appointed for it or for the whole or substantial part of its property.
Upon the occurrence of any Event of Default, the Trustee is empowered to act on behalf of Bondholders and the provider of any Credit Support Instrument to enforce the Indenture. The holders of a majority in aggregate principal amount of the Bonds then Outstanding (with the consent of any insurer of Parity Bonds) are entitled to direct and control the conduct of any proceeding for exercising any remedies available to the Trustee with respect to the Series R Bonds or any other Parity Bonds guaranteed by any insurer of such Parity Bonds. Unless an Event of Default shall have occurred and shall not have been cured, the University shall remain in full possession and control of the Student Fees, subject always to the observance of the covenants of the Indenture with respect thereto. Upon the occurrence of an Event of Default, the Trustee shall have the right, upon a demand to the University, to have all Student Fees deposited, as they are collected, in a Student Fee Fund to be maintained by the Trustee, to invest that fund in Permitted Investments, to apply amounts in that fund to the payment of principal of or interest on the Bonds; the maintenance of the Reserve Fund; the payment of all amounts due any insurer of Parity Bonds; and to remit all other amounts in such Fund not needed to be held aside for those purposes to the University.
Defeasance
If (1) the University shall pay, or cause to be paid, or there shall otherwise be paid to the holders of all Bonds, the principal of and the applicable redemption premium, if any, and interest due or to become due thereon, at the times and in the manners stipulated therein and in the Indenture, (2) the University shall pay all expenses and fees of the Trustee and any Paying Agent, and (3) the University shall keep, perform and observe all and singular the covenants and promises in the Bonds and in the Indenture expressed as to be kept, performed and observed by it or on its part, then the pledge of the Pledged Funds and other moneys and securities pledged under the Indenture and all covenants, agreements and other obligations of the University to the Bondholders, shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall cause an accounting for such period or periods as shall be requested by the University to be prepared and filed with the University, and upon request of the University shall execute and deliver all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee and the Paying Agents shall pay over to or deliver to the University all moneys or securities held by them pursuant to the Indenture which are not
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required for the payment of principal of, applicable redemption premiums, if any, and interest payments on the Bonds. If the University shall pay or cause to be paid, or make provisions for payment in accordance with the Indenture, to the holders of all Outstanding Bonds of a particular series, or of a particular maturity within a series, the principal of and the applicable redemption premium, if any, and the interest due or to become due thereon, at the times and in the manners stipulated therein and in the Indenture, such Bonds shall cease to be entitled to any lien, benefit or security under the Indenture (except with respect to the moneys or Federal Securities and Escrowed Municipals deposited as required by the Indenture) and all covenants, agreements and obligations of the University to the holders of such Bonds shall thereupon cease, terminate and become void and be discharged and satisfied. With respect to only the Series R Bonds, the lien, benefit or security provided to the owners of the Series R Bonds under the Indenture will cease and be discharged only if payment for all Series R Bonds is provided through a deposit of Federal Securities.
The escrow or defeasance agreement accomplishing the defeasance described in this Section may provide that such escrow may be restructured to provide for an earlier or a later redemption of Bonds being defeased thereby than contemplated in the original defeasance or escrow agreement or to provide that the escrow may be restructured to allow a defeasance to maturity of Bonds previously intended to be called for redemption at a prior date pursuant to the original escrow or defeasance agreement (but not prior to the earliest redemption date under the original supplemental indenture applicable to such Bonds). Any restructuring of an escrow described in this paragraph may only be accomplished when, to the reasonable satisfaction of the Trustee, the continued sufficiency of the escrow (as restructured) to accomplish its intended tasks has been verified by a firm of independent certified accountants and when the Trustee has received an opinion of Bond Counsel that such restructuring will not adversely affect the tax status of interest on the Bonds nor result in a violation of any other applicable federal tax or securities laws.
Supplemental Indentures; Amendments
The Trustee and the University may, from time to time, enter into supplemental Indentures for any of the following purposes without the consent of or any action by the Bondholders:
(1) to restrict the issue and the purposes of issue of Additional Bonds under the Indenture by imposing additional conditions and restrictions so long as the same shall not impair the security afforded by the Indenture;
(2) to add to the covenants and agreements of the University in the Indenture;
(3) to describe the terms of a new series of Bonds;
(4) to make such provisions in regard to matters or questions arising under the Indenture as may be necessary or desirable but not inconsistent with the Indenture;
(5) otherwise to modify any of the provisions of the Indenture or to relieve the University from any of the obligations, conditions or restrictions contained
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in the Indenture, provided that no such modification shall be or become operative or effective or in any manner impair any rights of the Bondholders or the Trustee (except as otherwise provided or permitted pursuant to the Indenture), while any Bonds of any series issued prior to the execution of such Supplemental Indenture shall remain Outstanding; and provided further that such Supplemental Indenture shall be specifically referred to in the text of all Bonds of any series issued after the execution of such Supplemental indenture; and provided, also, that the Trustee may in its uncontrolled discretion decline to enter into any such Supplemental Indenture which in its opinion may not afford adequate protection to the Trustee when the same shall become operative;
(6) to add to the powers, duties or obligations of the Trustee or to impose requirements with respect to the qualification or disqualification of any bank or trust company to act as Trustee under the Indenture;
(7) further to restrict investments to be made by the Trustee or University;
(8) to grant additional rights to the provider of any Credit Support Instrument or Reserve Fund Credit Instrument, including, if desired, the creation of a special reserve therefor;
(9) to provide for partial release of the lien on and security interest in Student Fees as provided in the Indenture; and
(10) for any other purpose not prohibited by the terms of the Indenture which shall not impair the security afforded thereby or for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective or inconsistent provision contained in the Indenture or in any Supplemental Indenture.
(11) to provide for the terms under which Qualified Swap Agreements may be entered into by the University in connection with any Bonds hereunder, including the relation of Qualified Swap Receipts and Qualified Swap Payments by the University to the flow of funds set forth in the Indenture applicable to such Bonds, and all other necessary or appropriate terms and conditions of such Qualified Swap consistent with the Indenture: provided, however, that such Qualified Swap Agreement shall not have an adverse effect on any rating of the Bonds by any nationally recognized rating agency currently rating such Bonds, without regard to any other factors which may affect such rating.
In all cases, the holders of not less than 51% in principal amount of the Bonds Outstanding (with the written consent of any insurer of Parity Bonds), or 51% in principal amount of any series of Bonds Outstanding affected by a modification or alteration (with the written consent, as applicable, of any insurer of Parity Bonds for the affected series), will be required to authorize any modification or alteration of the Indenture or any Supplemental
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Indenture, provided always that no modification or alteration shall (i) affect the University’s obligation to pay the debt service on the Bonds in respect to date of payment, place of payment and amount, (ii) give to any Bond or Bonds secured by the Indenture any preference over any other Bond or Bonds so secured in a manner inconsistent with the terms of the original issuance thereof, (iii) authorize the creation of any lien upon any of the property the income of which is or shall, in the future, be payable to the Trustee under the Indenture, (iv) deprive any bondholder of the security afforded by the Indenture, (v) reduce the percentage of principal amount of Bonds required by the provisions of the Indenture for any action, or (vi) extend the maturity or interest payments, reduce the interest rate, change the formula for determining the variable interest rate or reduce the maturity amount of any Bond without consent of each Bondholder so affected.
TAX MATTERS
In the opinion of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel, under existing laws, regulations, judicial decisions and rulings, interest on the Series R Bonds is excludable for federal income tax purposes from gross income under Section 103 of the Internal Revenue Code of 1986, as amended and in effect on the issuance date of the Series R Bonds (the “Code”), is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for purposes of computing the federal alternative minimum tax imposed on certain corporations. Such opinion is conditioned on continuing compliance by the University with the Tax Covenants (hereinafter defined). Failure to comply with the Tax Covenants could cause interest on the Series R Bonds to lose the exclusion from gross income for federal income tax purposes retroactive to the date of issue.
In the opinion of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel, under existing laws, regulations, judicial decisions and rulings, interest on the Series R Bonds is exempt from income taxation in the State of Indiana. This opinion relates only to the exemption of interest on the Series R Bonds for the State of Indiana income tax purposes. See APPENDIX E for the form of opinion of Bond Counsel with respect to the Series R Bonds.
The Code imposes certain requirements which must be met subsequent to the issuance of the Series R Bonds as a condition to the exclusion from gross income of interest on the Series R Bonds for federal income tax purposes. The University will covenant not to take any action, within its power and control, nor fail to take any action with respect to the Series R Bonds that would result in the loss of the exclusion from gross income for federal income tax purposes of interest on the Series R Bonds pursuant to Section 103 of the Code and will covenant to adopt and maintain appropriate procedures to accomplish such purpose (collectively, the “Tax Covenants”). The Tax Covenants are based solely on the laws and regulations in effect on the date of delivery of the Series R Bonds. The Indenture and certain certificates and agreements to be delivered on the date of delivery of the Series R Bonds establish procedures under which compliance with the requirements of the Code can be met. It is not an event of default under the Indenture if the interest on the Series R Bonds is not excludable from gross income for federal income tax purposes or otherwise pursuant to any provision of the Code which is not in effect on the issue date of the Series R Bonds.
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Indiana Code (IC) 6-5.5 imposes a franchise tax on certain taxpayers (as defined in IC 6-5.5) which, in general, include all corporations which are transacting the business of a financial institution in Indiana. The franchise tax is measured in part by interest excluded from gross income under Section 103 of the Code minus associated expenses disallowed under Section 265 of the Code. Taxpayers should consult their own tax advisors regarding the impact of this legislation on their ownership of the Series R Bonds.
Although Bond Counsel will render its opinion that interest on the Series R Bonds is excludable from federal gross income and that interest on the Series R Bonds is exempt from State of Indiana income tax, the accrual or receipt of interest on the Series R Bonds may otherwise affect a Bondholder’s federal income or State tax liability. The nature and extent of these other tax consequences will depend upon the Bondholder’s particular tax status and a Bondholder’s other items of income or deduction. Taxpayers who may be affected by such other tax consequences include, without limitation, financial institutions, certain insurance companies, S corporations, certain foreign corporations, individual recipients of Social Security or railroad retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry the Series R Bonds. Bond Counsel expresses no opinion regarding any other such tax consequences. Prospective owners of the Series R Bonds should consult their own tax advisors with respect to the foregoing and other tax consequences of owning the Series R Bonds.
Legislation affecting municipal bonds is considered from time to time by the United States Congress. There can be no assurance that legislation enacted or proposed after the date of issuance of the Series R Bonds will not have an adverse effect on the tax-exempt status of the Series R Bonds or the market price of the Series R Bonds.
ORIGINAL ISSUE DISCOUNT
The initial public offering prices of the Series R Bonds maturing on ______(collectively, the “Discount Bonds”) are less than the principal amounts payable at maturity. As a result the Discount Bonds will be considered to be issued with original issue discount. The difference between the initial public offering price of the Discount Bonds, as set forth on the cover page of this Official Statement (assuming it is the first price at which a substantial amount of that maturity is sold) (the “Issue Price” for such maturity), and the amount payable at maturity of the Discount Bonds will be treated as “original issue discount.” A taxpayer who purchases a Discount Bond in the initial public offering at the Issue Price for such maturity and who holds such Discount Bond to maturity may treat the full amount of original issue discount as interest which is excludable from the gross income of the owner of that Discount Bond for federal income tax purposes and will not, under present federal income tax law, realize taxable capital gain upon payment of the Discount Bond at maturity.
The original issue discount on each of the Discount Bonds is treated as accruing daily over the term of such Bond on the basis of the yield to maturity determined on the basis of compounding at the end of each six-month period (or shorter period from the date of the original issue) ending on January 1 and July 1 (with straight line interpolation between compounding dates).
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Section 1288 of the Code provides, with respect to tax-exempt obligations such as the Discount Bonds, that the amount of original issue discount accruing each period will be added to the owner’s tax basis for the Discount Bonds. Such adjusted tax basis will be used to determine taxable gain or loss upon disposition of the Discount Bonds (including sale, redemption or payment at maturity). Owners of Discount Bonds who dispose of Discount Bonds prior to maturity should consult their tax advisors concerning the amount of original issue discount accrued over the period held and the amount of taxable gain or loss upon the sale or other disposition of such Discount Bonds prior to maturity.
As described above in “TAX MATTERS,” the original issue discount that accrues in each year to an owner of a Discount Bond may result in certain collateral federal income tax consequences. Owners of any Discount Bonds should be aware that the accrual of original issue discount in each year may result in a tax liability from these collateral tax consequences even though the owners of such Discount Bonds will not receive a corresponding cash payment until a later year.
Owners who purchase Discount Bonds in the initial public offering but at a price different from the Issue Price for such maturity should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds.
The Code contains certain provisions relating to the accrual of original issue discount in the case of subsequent purchasers of bonds such as the Discount Bonds. Owners who do not purchase Discount Bonds in the initial offering should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds.
Owners of Discount Bonds should consult their own tax advisors with respect to the state and local tax consequences of owning the Discount Bonds. It is possible under the applicable provisions governing the determination of state or local income taxes accrued interest on the Discount Bonds may be deemed to be received in the year of accrual even through there will not be a corresponding cash payment until a later year.
BOND PREMIUM
The initial public offering prices of the Series R Bonds maturing on ______(collectively, the “Premium Bonds”) are greater than the principal amounts payable at maturity or the call date. As a result, the Premium Bonds will be considered to be issued with amortizable bond premium (the “Bond Premium”). An owner who acquires a Premium Bond in the initial offering will be required to adjust the owner’s basis in the Premium Bond downward as a result of the amortization of the Bond Premium, pursuant to Section 1016(a)(5) of the Code. Such adjusted tax basis will be used to determine taxable gain or loss upon the disposition of the Premium Bonds including sale, redemption or payment at maturity or call date. The amount of amortizable Bond Premium will be computed on the basis of the owner’s yield. Rules for determining (i) yield, (ii) the amount of amortizable Bond Premium and (iii) the amount amortizable in a particular year are set forth at Section 171(b) of the Code and the Regulations accompanying that section. No income tax deduction for the amount of amortizable Bond Premium will be allowed pursuant to Section 171(a)(2) of the Code, but the amortization of Bond Premium may be taken into account as a reduction in the amount of tax-
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exempt income for purposes of determining other tax consequences of owning the Premium Bonds. Owners of the Premium Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the treatment of Bond Premium upon the sale or other disposition of such Premium Bonds and with respect to the state and local tax consequences of owning and disposing of Premium Bonds.
Special rules governing the treatment of Bond Premium, which are applicable to dealers in tax-exempt securities, are found at Section 75 of the Code. Dealers in tax-exempt securities are urged to consult their own tax advisors concerning the treatment of Bond Premium.
LITIGATION
At the time of delivery of the Series R Bonds, the University will certify that there is no litigation or other proceeding pending or, to the knowledge of the University threatened, in any court, agency or other administrative body restraining or contesting the issuance, sale, execution or delivery of the Series R Bonds or the pledging of the Pledged Funds, or in any way contesting, questioning or affecting the validity of any provision of the Series R Bonds, the authority or the proceedings of the University taken with respect to the issuance or sale thereof, the resolutions authorizing the Series R Bonds, or the Indenture. Neither the creation, organization or existence of the University nor the title of any of the present Board members or other University officers to their respective offices is being contested.
VERIFICATION
The arithmetical accuracy of the mathematical computations as to the adequacy of the maturing principal amounts of, and interest on, the Government Obligations held under the Escrow Agreement, together with cash held under the Escrow Agreement, to pay the principal of, redemption premium, if any, and interest on the Refunded Bonds, as provided in the Escrow Agreement, and the mathematical computations supporting the conclusion of Ice Miller LLP, Bond Counsel, that the refunding aspects of the Series R Bonds will not cause such Series R Bonds to be “arbitrage bonds” under the Code, will be verified by ______, as a condition to delivery of the Series R Bonds. Such verifications will be based upon information supplied to ______by the Underwriters.
CREDIT RATINGS
Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Group (“S&P”) have rated the Series R Bonds “Aa3” and “AA-”, respectively.
Certain information was supplied by the University to be considered in evaluating the Series R Bonds. These ratings reflect only the view of such rating agencies, and are not recommendations to buy, sell or hold any of the Series R Bonds. An explanation of the significance of such ratings may be obtained only from such rating agencies. There is no assurance that such ratings will continue for any period of time or that they will not be revised or withdrawn entirely if, in their judgment, circumstances so warrant. Any such downward revision or withdrawal of any rating may have any adverse effect on the market price or marketability of the Series R Bonds.
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CERTAIN LEGAL MATTERS
Certain legal matters incidental to the authorization and issuance of the Series R Bonds are subject to the approval of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel. Certain legal matters will be subject to the approval of DeFur Voran LLP, counsel to the University. The proposed form of the opinion of Bond Counsel with respect to the Series R Bonds is attached as APPENDIX E.
Bond Counsel has not undertaken independently to verify any information contained in the Official Statement, except that representatives of such firm participating in the issuance of the Series R Bonds have reviewed the information under the headings “SUMMARY STATEMENT,” “INTRODUCTION,” “DESCRIPTION OF THE SERIES R BONDS” (other than matters under the subheading “Book-Entry-Only System”), “SECURITY FOR THE BONDS,” “SUMMARY OF CERTAIN PROVISION OF THE INDENTURE,” “TAX MATTERS,” “ORIGINAL ISSUE DISCOUNT,” “BOND PREMIUM” and APPENDICES C, D and E and determined that such information conforms in all material respects to the provisions of the documents and the other matters set forth therein. Bond Counsel has not undertaken to review the accuracy or completeness of statements under any other heading of this Official Statement, including particularly matters related to the financial condition of the University and other financial data concerning the University or other projects, and expresses no opinion thereon nor assume any responsibility therewith.
ENFORCEABILITY OF RIGHTS AND REMEDIES AND LEGAL OPINIONS
The enforceability of the rights and remedies of the Trustee or the Owners of the Bonds under the Indenture and the availability of remedies to any party seeking to enforce the pledge of the Pledged Funds are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decision, including specifically Title 11 of the United States Code (the federal bankruptcy code), the enforceability of the rights and remedies under the Indenture and the availability of remedies to any party seeking to enforce the pledge of the Pledged Funds may not be readily available or may be limited.
The various legal opinions to be delivered concurrently with the delivery of the Series R Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by the valid exercise of the constitutional powers of the State of Indiana and the United States of America and bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). These exceptions would encompass any exercise of federal, State or local police powers (including the police powers of the University and the State), in a manner consistent with the public health and welfare. The enforceability of the provisions of the Series R Bonds in a situation where such enforcement may adversely affect public health and welfare may be subject to these police powers.
The various legal opinions to be delivered concurrently with the delivery of the Series R Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not
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become an insurer or guarantor of that expression of professional judgment of the transaction opined upon or of the future performance of parties to such transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.
FINANCIAL INFORMATION
A financial report of the University is prepared annually by the Office of the Vice President for Business Affairs and Treasurer. The most recent financial information currently available regarding the University is the report for the Fiscal Year ended June 30, 2016. A copy of this report is appended hereto as APPENDIX B.
UNDERWRITING The Series R Bonds are being purchased, subject to certain conditions, by Piper Jaffray & Co., City Securities Corporation and Backstrom McCarley Berry & Co., LLC (the “Underwriters”). The Underwriters have agreed to purchase all, but not less than all, of the Series R Bonds at an underwriting discount of $______from the initial public offering prices set forth on the inside cover page of this Official Statement. There will be no accrued interest. The Underwriters may offer and sell the Series R Bonds to certain dealers (including dealers depositing the Series R Bonds into unit investment trusts, certain of which may be sponsored or managed by the Underwriters) at prices lower than the initial public offering prices stated on the cover page. The initial public offering prices of the Series R Bonds may be changed, from time to time, by the Underwriters. The Underwriters have entered into distribution agreements with other broker-dealers (that have not been designated by the University as Underwriters) for the distribution of the Series R Bonds at the original issue prices. Such agreements generally provide that the Underwriters will share a portion of their underwriting compensation or selling concession with such broker-dealers. On September 12th, 2016, the Board of Directors of City Financial Corporation (“CFC”) agreed to enter into a definitive Merger Agreement with Stifel Financial Corporation (“SFC”), a publically traded financial services company. The merger will include City Securities Corporation (“CSC”) which is a wholly owned subsidiary of CFC. CFC’s remaining subsidiaries are not a part of the merger. Terms of the Merger Agreement were not made public. Regulatory approval is expected in the Fourth Quarter of 2016, and closing is expected in the First Quarter of 2017. SPECIAL RELATIONSHIPS Ice Miller LLP, Indianapolis, Indiana, is serving as Bond Counsel and as special disclosure counsel. CONTINUING DISCLOSURE
Pursuant to continuing disclosure requirements promulgated by the Securities and Exchange Commission in SEC Rule 15c2-12, as amended (the “SEC Rule”), the University will enter into a supplement to its Amended and Restated Continuing Disclosure Undertaking
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Agreement, to be dated as of January 1, 2017 (the “Undertaking”). A summary of the Undertaking and the proposed supplement is attached hereto as APPENDIX C.
In order to assist the Underwriters in complying with the Underwriters’ obligations pursuant to the SEC Rule, the University represents that it has identified certain deficiencies with regard to its undertakings which occurred during the previous five years, including, but not limited to, the following instances: The University did not provide complete audited financial statements for its Fiscal Years ending June 30, 2008 through June 30, 2012. The University filed excerpted statements from its audited financial statements for the Fiscal Years in question, but did not file the entire Financial Reports. The University filed the complete Financial Reports for the Fiscal Years in question on August 21, 2013. In addition, the University did not file a reportable event notice with respect to the redemption of its outstanding Parking System Revenue Bonds, which were redeemed in full using available cash on April 2, 2015. The bondholders in question did, however, receive timely 30 day notice of the redemption on March 2, 2015. Also, the University filed its Annual Information for the Fiscal Year ending June 30, 2010 three days late, on December 30, 2010, and the University filed its Annual Information for the Fiscal Year ending June 30, 2012 four days late, on December 31, 2012. The University has filed a failure to disclose notice regarding these prior instances; however, the University makes no representation as to any potential materiality of such prior instances, as materiality is dependent upon individual facts and circumstances. Otherwise, there have been no instances in the past five years when the University has failed to comply, in all material respects, with any undertakings in a written contract or agreement as specified in paragraph (b)(5)(i) of the SEC Rule. See “APPENDIX C: CONTINUING DISCLOSURE.”
MISCELLANEOUS
During the initial offering period for the Series R Bonds, copies of the Indenture will be available for inspection at the Office of the Vice President for Business Affairs and Treasurer, Ball State University, 2000 University Avenue, Muncie, Indiana 47306; or at the Public Finance Division of Piper Jaffray & Co., 71 South Wacker Drive, Hyatt Center, 24th Floor, Chicago, Illinois 60606.
The execution and delivery of this Official Statement have been duly authorized by the Ball State University Board of Trustees.
BALL STATE UNIVERSITY BOARD OF TRUSTEES
Bernard M. Hannon, Treasurer Dated: January ___, 2017
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APPENDIX A
BALL STATE UNIVERSITY
[THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A
BALL STATE UNIVERSITY
General
Ball State University (the “University” or “Ball State”), located in Muncie, Indiana, was founded as Indiana State Normal School, Eastern Division, in 1918. Its antecedents, all housed in what is now the Ball State Administration Building, were also normal schools, owned and operated under various names. In 1918, the Ball brothers, a prominent Muncie industrial family, bought the property and donated it to the State of Indiana, which, in turn, transferred control of the school to the Board of Trustees of the Indiana State Normal School. In 1922, in recognition of the generosity of the Ball brothers, the Board added Ball Teachers College to the school’s name. In 1929, the Indiana General Assembly separated the two colleges, naming the campus in Muncie Ball State Teachers College. In 1965, the General Assembly renamed the institution Ball State University, in recognition of its phenomenal growth in enrollment and physical facilities, the variety and quality of its educational programs and services, and in anticipation of the much broader role it would be expected to assume in the future.
Leadership
Ball State University is currently conducting a search for the next University President. Since January 25, 2016, long-time Provost Dr. Terry S. King has served as Interim President. In the meantime, the Board of Trustees has reaffirmed its support to pursue completion of the 18 goals of “The Centennial Commitment” strategic plan outlined below.
Strategic Plan
In February, 2015, “The Centennial Commitment: Embracing the Ball State Legacy of Beneficence and Entrepreneurship” was announced. This refocused strategic plan envisions Ball State as the model of a student-centered and community-engaged 21st century public research institution.
The strategic plan pays homage to the role of the Ball brothers, who established and maintained higher education in Muncie and whose approach to entrepreneurship was motivated by beneficence. Beneficence, affectionately called “Benny,” is the bronze statue which is Ball State’s institutional icon. She symbolizes the generosity of the five Ball brothers whose land donation to the State of Indiana allowed Ball State to flourish.
Based on a refreshed vision, the revised strategic plan, “The Centennial Commitment,” refocuses on three major themes for Ball State: to be (1) student-centered; (2) community- engaged; and (3) a model of the 21st century public research university. The revised strategic plan outlines 18 major strategies that can be measured by a select set of 107 metrics. In this manner, the revised strategic plan is an efficient guideline to the University’s Centennial Celebration in 2018. The plan honors the diligent work of the campus community on the prior strategic plan, but sets forth an innovative new strategy for enhanced progress.
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The Centennial Commitment establishes 18 major goals for the University to accomplish by 2018:
• Student-Centered - Promote Student Success - Provide Extraordinary Student Life Experiences - Provide Innovative and Entrepreneurial Education - Provide Contemporary and Best Practices for Online Education - Enhance Postgraduation Career Preparation
• Community-Engaged - Promote and Achieve Diversity - Build Relationships with All Partners of the Indiana Higher Education System - Enhance Cultural Value and Quality of Life - Establish a Strategic Statewide Impact - Lead Statewide P-12 Education Reform
• A Model 21st Century Public Research University - Enhance Philanthropy to Ball State - Define and Support Strategic National Peer Recognition - Enhance the Role and Impact of Graduate Education - Enhance the Research Profile - Enhance Recognition as a National Model for Sustainability - Provide a High-Quality Work-Life Environment - Implement Impactful Academic, Research, and Outreach Programs - Review and Implement Best Practices in University Management
A new initiative to facilitate achievement of the goals of the strategic plan includes the Academic Excellence Grants Program. The Academic Excellence Grants Program will fund projects that support innovative faculty and staff projects that advance Ball State’s efforts to be a model 21st century public research university. In August 2015, 16 Academic Excellence Grants representing approximately $4.2 million in funding from several academic-oriented private funds in the Ball State University Foundation were announced. This competitive internal Academic Excellence Grants Program provides one-time funding over three years to support and encourage departments and units to define and achieve academic, research, and service goals that will contribute to Ball State’s overall aspiration to be a model of the most student-centered and community-engaged of the 21st century public research universities.
Organization
Ball State is organized into eight academic colleges: Applied Sciences and Technology; Architecture and Planning; Business; Communication, Information, and Media; Fine Arts; Science and Humanities; Teachers College, and the newly formed College of Health. Ball State offers 6 associate-level programs, 170 undergraduate programs, 88 master’s level programs, 16 doctoral-level programs and 2 specialists programs providing professional and pre-professional specialization as well as education in the liberal arts and sciences.
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University and Program Highlights
University-Wide
Named one of the best universities in the Midwest by The Princeton Review for the past 12 years.
For 2015, designated a doctoral university: higher research activity by The Carnegie Classification of Institutions of Higher Education.
In 2015, earned the Community Engagement Classification from the Carnegie Foundation for the Advancement of Teaching. The classification recognizes colleges and universities that demonstrate an institution-wide commitment to public service, civic involvement, and community partnerships.
Ranked in the top 25 in the country for three graduate programs in U.S. News & World Report’s 2016 “Best Online Programs”: education was 11th, MBA was 12th, and nursing was 23rd. U.S. News also ranked the online bachelor’s programs 34th.
In Spring 2016, recognized as the first higher education institution in the country to earn Quality Matters’ Learner Support Program Certification. Quality Matters, known as QM, provides a nationally recognized standard of best practices for online and blended learning.
Recognized by the University Professional & Continuing Education Association in 2014, with the Division of Online and Distance Education as a co-recipient of the UPCEA Strategic Innovation in Online Education Award.
Ranked in U.S. News & World Report’s 2015 “Best Online Programs for Veterans” at No. 7 in graduate education, No. 14 in MBA, No. 22 in graduate nursing, and No. 29 in bachelor’s programs.
Named a Military Friendly School for seven years by Victory Media, publisher of G.I. Jobs, STEM Jobs, and Military Spouse.
The Princeton Review named Ball State to its “Top 50 Green Colleges” list, part of its Guide to 353 Green Colleges: 2015 Edition. Recognized for the sixth year, Ball State is the first public institution in Indiana to be listed among the most environmentally responsible colleges and universities in the U.S. and Canada.
Academic Programs
College of Applied Sciences & Technology
Apparel design and interior design programs are accredited by the National Association of Schools of Art and Design (NASAD).
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The Department of Family and Consumer Sciences in 2007 earned a 10-year accreditation from the Council for Accreditation of the American Association of Family and Consumer Sciences. Only 20 percent of all college and university family and consumer science programs nationwide are able to earn the distinction.
Allegre, Ball State’s popular student-operated restaurant, gives students an opportunity to learn everything from food preparation and presentation to restaurant management.
Ball State students in the residential property management (RPM) program have consistently achieved a 100 percent pass rate on two national certification exams. Ball State is the only university that offers students -- typically sophomores and juniors -- the opportunity to earn the National Apartment Leasing Professional (NALP) designation. Ball State’s RPM program, one of only four such programs in the country, is approved by the National Apartment Association.
College of Architecture and Planning
All of the College of Architecture and Planning’s professional degree programs are nationally accredited.
Ball State’s architecture, landscape architecture, and urban planning programs are uniquely blended in a studio-oriented design college, where all freshman students follow a common first-year curriculum introducing them to all three disciplines.
The Department of Architecture is Indiana’s only state-supported architecture program.
DesignIntelligence has consistently ranked Ball State’s landscape architecture programs in the top 15 in the country. In 2015, the undergraduate program was ranked No. 8 and the graduate program No. 12.
Planetizen’s 2014 Guide to Graduate Urban Planning Programs ranked Ball State’s master of urban and regional planning (MURP) program eighth in the Midwest and seventh among programs of its size.
The Community Based Projects program helped address planning and development issues around the memorial site where United Airlines Flight 93 crashed during the 9/11 attacks.
The graduate program in historic preservation is one of the first of its kind in the Midwest and is uniquely housed in the Department of Architecture.
Miller College of Business
The Miller College of Business is accredited by AACSB International -- The Association to Advance Collegiate Schools of Business -- and was the first state-supported institution in Indiana to hold separate AACSB accreditation for the accounting program. Less than 5 percent of the world’s business schools have earned AACSB accreditation.
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Entrepreneurial Management
The entrepreneurial management program was named the National Model Undergraduate Program at the 2013 United States Association for Small Business and Entrepreneurship (USASBE) conference. Ball State is the first university in the history of the organization to win the award twice.
Students may receive assistance in starting their own businesses through a business incubator program that fosters entrepreneurial activity in the community, particularly within the growing communications and information technology sectors.
Accounting
Public Accounting Report’s 2015 survey of accounting professors ranked Ball State’s undergraduate accounting program seventh in the nation among those of similar size and the master’s program 15th.
Economics
The bachelor of science in economics program has been accepted into the CFA (Chartered Financial Analyst) Institute University Recognition Program. This status is granted to institutions whose degree programs incorporate at least 70 percent of the CFA Program Candidate Body of Knowledge and emphasize the CFA Institute’s code of ethics and standards of practice.
Insurance and Risk Management
The University’s risk management, insurance, and actuarial science program is a collaborative effort between Miller College and the College of Sciences and Humanities that provides opportunities for research and interaction with industry.
Information Systems
Students in computer information systems have built a powerful cluster computer and have used it to test complex software for the U.S. Department of Defense and to regularly work with area businesses.
A state-of-the-art networking lab teaches students how to protect computer networks and other information systems from cyber-attacks. The lab features the latest equipment, providing a technologically advanced setting for students to manage all types of networks.
Marketing and Management
The human resource management major is one of only three such programs offered at universities in Indiana.
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The H.H. Gregg Center for Professional Selling is one of only 22 full member schools affiliated with the University Sales Center Alliance. The H.H. Gregg Center’s annual Sales Career Fair is one of the largest of its kind in the country.
MBA
The master of business administration (MBA) program was ranked 12th in U.S. News & World Report’s 2016 “Best Online Programs.”
The Princeton Review, in partnership with Entrepreneur magazine, included Ball State in its 2016 “Top 25 Online MBA Programs.”
U.S. News & World Report’s 2015 “Best Online Programs for Veterans” ranked the MBA program No. 14.
Discover Business listed the MBA program on its “2015-2016 Top Recommended Online MBA Programs.”
College of Communications, Information, and Media
Telecommunications
Ball State students and faculty have won 54 Emmys. The honors also include two gold Student Academy Awards.
Sports Link, an immersive learning program that has produced content for Fox College Sports and NCAA March Madness Live, has won multiple Emmys and a College Sports Media Award.
Two student productions were honored at the 2013 international Accolade Competition. Visit Indiana received an Award of Excellence, and Muncie’s Stewards: The Rebirth of the Old West End received an Award of Merit.
From their very first semester, students in the Department of Telecommunications receive hands-on experience with sophisticated audio and video equipment, including HD cameras.
Journalism
The BSU Athletics App, the official app for interactive annual reports, media guides, and more for Ball State University sports, received a 2015 Best of the Festival King Foundation Award from the Broadcast Education Association. The app was developed by the Ball State Digital Publishing Studio in collaboration with Sports Link and Ball State Athletics.
The University’s journalism graphics program is one of the leading programs of its type in the country.
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Advertising and Public Relations
Cardinal Communications, one of the nation’s first student-operated public relations and advertising agencies, is among about 30 student agencies in the country to be designated a National Affiliation Program with the Public Relations Student Society of America.
The master’s degree in public relations is the first graduate program in the nation to receive Certification in Education for Public Relations (CEPR) by the Public Relations Society of America (PRSA). The undergraduate public relations program in 2016 was one of only 37 certified programs in the world.
Communication Studies
Ball State won the team championship at the 2016 National Educational Debate Association (NEDA) National Championship Debate Tournament.
The speech team won the 2013 national tournament of Delta Sigma Rho-Tau Kappa Alpha (DSR-TKA) National Honorary Forensic Society. In 2014, Ball State was the only team in the country to capture three national titles at the American Forensics Association National Individual Events tournament; plus, it placed third at the National Comprehensive Tournament, sponsored by Pi Kappa Delta, and fourth at the National Forensic Association (NFA) national tournament. In addition, 2016 was the fifth year in a row the team won the Indiana Forensic Association state championship.
College of Fine Arts
Music
The music media production program is one of only a few of its kind in the nation, blending science and music and encouraging students to explore electronic music with the latest digital technology.
The School of Music’s annual Chamber Music Festival is believed to be the longest- running continuous university-affiliated series of its kind in the country.
Ball State’s Musical Arts Woodwind Quintet is one of the nation’s oldest and most distinguished chamber ensembles of its kind.
The School of Music is an All-Steinway School, where all pianos used by music students for practicing or performing are Steinway.
The Jazz Lab Ensemble has performed four times at the Montreux Jazz Festival in Switzerland, the world’s largest music festival and leading jazz festival.
Since 1964, the Ball State University Singers have been recognized as one of America’s top collegiate entertainment organizations, performing as Indiana’s Official Goodwill Ambassadors in nearly 20 countries, at major entertainment competitions, and at presidential inaugurations.
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The Music Instruction Building features a 600-seat “tunable” performance hall, a digital studio that can record performances in the hall and practice rooms, and state-of-the-art music technology studios.
Theatre and Dance
Since 2004, students from the Department of Theatre and Dance have been invited as national qualifiers to the yearly Kennedy Center American College Theater Festival (KCACTF), one of the nation’s premier events for collegiate theatre programs.
Ball State has Indiana’s largest theatre and dance program.
Art
Programs in the School of Art are accredited by the National Association of Schools of Art and Design (NASAD).
With more than 10,000 works in its collection, the David Owsley Museum of Art at Ball State University is one of four art museums in Indiana with a notable, well-rounded collection, and the only such facility in east central Indiana.
The David Owsley Museum of Art is nationally recognized for excellence through accreditation from the American Association of Museums. The Museum loans works for major exhibitions at museums across the country and overseas, including the Musee du Louvre in Paris and the Metropolitan Museum of Art in New York.
School of Art faculty members have works in prestigious private and corporate collections and many museums.
College of Health
Health & Wellness
Nursing students continue a tradition of outstanding performance on licensing examinations, including a nearly 100 percent pass rate.
The School of Nursing was named a 2013-2017 National League for Nursing Center of Excellence, an honor bestowed on only a handful of programs in the country. In the category of Creating Environments that Enhance Student Learning and Professional Development, Ball State was an honoree along with Johns Hopkins University in Baltimore, Saint Xavier in Chicago, and other schools.
Ball State’s graduate nursing programs were ranked 23rd in U.S. News & World Report’s 2016 “Best Online Programs.”
U.S. News & World Report’s 2015 “Best Online Programs for Veterans” ranked the graduate nursing programs No. 22.
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Ball State is one of only a few universities offering programs in gerontology at both the undergraduate and graduate levels.
The Human Performance Lab is internationally renowned for studying exercise and its effects on human physiology. The center’s researchers are working with NASA astronauts and Russian cosmonauts to study the effects of long space missions on muscle tissue.
The School of Kinesiology offers one of the few aquatics majors in the country.
Many sport administration majors intern with professional sport teams or state and national governing organizations.
Ball State’s bachelor of social work (BSW) program is the oldest accredited undergraduate program in Indiana and the largest.
College of Sciences and Humanities
Sciences
The Department of Chemistry’s longtime summer research program is a model for other universities and a major partner in the interuniversity Center for Authentic Science Practice in Education (CASPiE), a National Science Foundation funded program to advance undergraduate research in chemistry.
Ball State formed Indiana’s first student chapter of the American Society for Microbiology (BSUASM).
The Center for Computational Nanoscience works with universities in Indiana and Ohio on research projects in nanoscience, the study of objects at the molecular level, and nanotechnology, the building of mechanical devices and other objects thousands of times smaller than those that currently exist.
The Field Station and Environmental Education Center is a collaboration between the Departments of Biology, Natural Resources and Environmental Management, Landscape Architecture, Geology, and others.
Each summer, Ball State geography students travel to America’s Tornado Alley in search of severe storms to hone their weather forecasting skills and learn how tornadoes are formed.
Mathematics
Ball State’s actuarial science program is nationally recognized for preparing graduates to analyze and solve problems related to insurance and pension plans.
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The risk management, insurance, and actuarial science program is a collaborative effort between Miller College and the College of Sciences and Humanities that provides opportunities for research and interaction with industry.
Humanities
Students in the public administration program have been selected as Presidential Management Interns. These interns choose their placement among government agencies in Washington, DC.
Ball State’s Department of Criminal Justice and Criminology was the first program in the United States to be accredited by the Academy of Criminal Justice Sciences.
Teachers College
All Teachers College education programs are fully accredited by the Council for the Accreditation of Educator Preparation (CAEP), the Higher Learning Commission, and the Indiana Professional Standards Board. In addition, 23 programs have received national recognition through their respective professional associations.
Ball State Teachers College is in the top 25 in the nation for the number of nationally recognized educator preparation programs it offers.
Ball State was one of four universities in Indiana selected by the Woodrow Wilson National Fellowship Foundation to pilot a program to help overhaul teacher education and encourage exceptional science and math teacher candidates to seek long-term careers in high-need classrooms. This program is now expanding beyond Indiana’s borders.
Ball State is the first university in Indiana authorizing charter schools, helping to provide more choices in public education.
Ball State graduates have a nearly 100 percent pass rate on the Praxis exams required for initial teacher licensure in Indiana.
The Teacher Educator, a Teachers College publication, is the official journal of the Indiana Association of Teacher Educators. It has been in publication since 1965.
Programs
The Department of Special Education has the only deaf education teacher-training program in Indiana. Students complete a one-year residency at the Indiana School for the Deaf in Indianapolis.
The graduate education programs were ranked 11th in U.S. News & World Report’s 2016 “Best Online Programs.”
U.S. News & World Report’s 2015 “Best Online Programs for Veterans” ranked the graduate education programs No. 7.
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U.S. News & World Report ranked Teachers College’s graduate programs 81st in 2013.
Technology
Starting in their freshman classes, Ball State’s education students are exposed to advanced instructional technology -- including assembling an electronic portfolio -- to prepare them for the 21st century classroom.
Teachers College is the home of Ball State’s first technology spin-off company, rGrade. As an ongoing research and development effort within Teachers College, rGrade has generated more than $1.5 million in grants for research and outreach programs that address assessment of student learning.
Teachers College’s technologies have been featured on Apple’s website, at the University of Cincinnati’s Vision 2020 Conference, and in the Consortium for the Application of Technology and Learning Innovations in Schools of Education (CATALISE).
Schools
Burris Laboratory School, which serves Ball State’s teaching majors, has been listed among the nation’s best high schools since 2007 in analyses by U.S. News & World Report.
The Indiana Academy for Science, Mathematics, and Humanities in 2016 was named No. 1 on Niche’s “Best Public High Schools in Indiana” and No. 3 among the organization’s “Best Public High Schools in America.”
Accreditation and Memberships
The University is fully accredited in all of its departments and divisions by the Higher Learning Commission. Numerous other professional agencies, licensing boards, and state agencies have accredited various schools, departments and programs within the University. For example, the Miller College of Business is accredited by the Association to Advance Collegiate Schools of Business.
The Board of Trustees
The University is governed by a nine member Board of Trustees. The Governor of Indiana appoints the Trustees, one of whom is a full-time student at the University and two of whom are nominated or selected by the Ball State University Alumni Association. All members of the Board of Trustees are appointed for terms of four years, except for the student member whose term is two years. The current members of the Board of Trustees are listed below:
A - 11 Richard Hall, Chair E. Renae Conley, Vice Chair Thomas C. Bracken, Secretary Matt Momper, Assistant Secretary R. Wayne Estopinal Michael McDaniel Jean Ann Harcourt Hollis E. Hughes, Jr. Dustin Meeks, Student Trustee
Principal Administrative Officers of Ball State University
The current principal administrative officers who manage the administration and academic affairs of Ball State University are listed below:
Terry S. King, Interim President Marilyn Buck, Acting Provost and Acting Executive Vice President for Academic Affairs Kay Bales, Vice President for Student Affairs and Enrollment Services and Dean of Students Bernard M. Hannon, Vice President for Business Affairs and Treasurer Philip C. Repp, Vice President for Information Technology and Interim Dean College of Architecture and Planning Mark Sandy, Director of Athletics (Vacant*), Vice President for Governmental Relations and Community Engagement (Vacant*), Vice President for Marketing and Communications Sali Falling, Vice President and General Counsel Loren Malm*, Interim Vice President for Information Technology
Facilities
Ball State facilities include approximately 125 buildings totaling approximately 7 million gross square feet. The University also owns over 1,000 acres of land. The current replacement value of campus facilities is more than $2.4 billion.
The University has long had a systematic plan for ongoing capital repair and renewal of its facilities. Academic and administrative buildings, accounting for approximately 45 percent of the campus square footage, are funded, in part, through state appropriated funds allocated on a biennial basis by the Indiana General Assembly. The remaining 55 percent of the campus square footage consists of buildings which are not state supported. The 1950’s and 1960’s saw a substantial increase in gross square footage of non-state supported buildings, including dining and residence halls, parking facilities, the student center, Emens Auditorium, athletic facilities,
* The positions of Vice President for Governmental Relations and Community Engagement and Vice President for Marketing and Communications are currently vacant and searches are planned or underway. Duties and responsibilities associated with these positions are being handled by internal staff and external consultants. In addition, an Interim Vice President for Information Technology has been appointed to handle duties of that position while the actual Vice President for Information Technology fills in as the Interim Dean for the College of Architecture and Planning.
A - 12 and conference venues. At the present time, these non-state supported buildings have a current replacement value of approximately $1.0 billion. For the period from 2016 to 2023, the University plans to invest over $194 million, in current dollars, in renewal projects on these facilities. Currently, $105.2 million has been allocated from auxiliary operations revenues and student fees for the stewardship and renewal of these facilities. The University believes that pre- funding these critical needs sets Ball State apart from many other institutions of higher learning, and constitutes a sound financial management practice.
Following several national reports with titles such as “Crumbling Academe” and “The Decaying American Campus: A Ticking Time Bomb,” attention has been focused nationally on the need for a systematic and thoughtful approach to long term facility stewardship. Financial Planning Guidelines for Facility Renewal and Adaption, a study sponsored by the Lilly Endowment and conducted by the Society for College and University Planning, the National Association of College and University Business Officers, the Association of Physical Plant Administrators of Universities and Colleges, and Coopers and Lybrand (now Pricewaterhouse Coopers), estimates that between two percent and four percent of plant replacement cost needs to be provided, on average, each year in order to adequately fund repairs and renewal, and to adapt facilities to changing code requirements and to evolving, contemporary needs. Based on this and other studies, as well as direct experience over many years managing complex University facilities, the University believes that an annual target of three percent of current replacement value is in order to adequately fund its stewardship responsibility for housing, dining, and other non-state supported buildings and avoid even higher costs caused by accumulated deferred maintenance. For parking facilities, which are comprised of multi-level structures and paved and gravel lots, an annual target of two percent of current replacement value has been established. This methodology is based on the premise that users should pay their fair share for the deterioration of the facilities they use. The University’s goal is to maintain competitive, quality facilities at the lowest long term cost to students.
New Construction and/or Renovation Projects in the Last Ten Years
David Letterman Communication and Media Building: Completed in the Fall of 2007, the Communication and Media Building added approximately 90,000 gross square feet of academic space and adjoined the Robert P. Bell Building and the Ball Communication Building. In addition, approximately 10,000 gross square feet of space was reconfigured in the Ball Communication Building. The project expanded the Telecommunication and Information and Communication Science programs and permitted the Department of Communication Studies to be located along with other units within the College of Communication, Information, and Media. The building offers students technology resources 24 hours a day, including a $1 million post- production studio, a surround-sound recording and editing suite, and a high-definition and surround-sound playback studio.
Park Residence Hall: Also completed in the Fall of 2007 was Park Residence Hall, which represented the University’s first new residence hall since 1969. The 164,000 square feet high-tech building provides heated and air-conditioned accommodations for more than 500 students. The hall features double-occupancy rooms with walk-in closets clustered around semi- private bathrooms and a dramatic two-story social lounge. The facility includes a fitness room, laundry room, recreation areas, and a large multipurpose room. In addition, there is a music
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Woodworth Commons Dining Facility: Also completed in the Fall of 2007 was a complete renovation of the Woodworth Commons Dining Facility just across from the new Park Residence Hall. Woodworth Commons features an expanded dining area to seat 550, open food preparation courts, a two-story atrium and beautiful stone, tile, and woodwork throughout. Dining choices were greatly expanded. Della Casa station offers specialty pizzas cooked in a wood-fired brick oven, hearty lasagna, and other Italian cuisine. El Fire Dragon boasts a huge copper hood over a circular grill and offers Asian and Mexican offerings. Other Woodworth Commons features include a spinning salad station at Deli World, down-home cooking at Comfort Zone, sweets from Patisserie, and grab-and-go items at Riverside Emporium.
Scheumann Stadium: Also completed in the Fall of 2007, Scheumann Stadium, home of the Ball State Cardinals football team, was renovated to include a newly designed plaza area with a ticket office and new concession and restroom facilities; a synthetic turf field; club level seating and individual entertainment suites; improved disabled access; an improved media/communications center, with a press box, and coaching booths; and a festival style seating area.
DeHority Complex: Completed in Summer 2009, the DeHority Complex renovation project included major exterior and interior renovation. In addition, the building was updated with various building core enhancements and improved connectivity for residents as well as the addition of eighty-nine beds.
L.A. Pittenger Student Center: Completed in Winter 2010, the L.A. Pittenger Student Center Renovation project consisted of replacing and upgrading building systems including windows, plumbing, mechanical and electrical equipment, elevators, sprinkler systems, selected interior finishes and ceilings, the addition of a new food court, and bringing the building into compliance with current building code and ADA requirements. The project also enhanced the usability and function of this student focused building to enhance the student experience at the University.
Honors College: Completed in the Spring of 2010, the Edmund F. and Virginia B. Ball House was renovated for use as the new home of the Honors College. The Honors College is a four-year University-wide program featuring special course offerings, colloquia, seminars, and independent study. Relocating the Honors College to the former residence of Ed and Virginia Ball placed the Honors College in a visible location central to academic life on campus and more accessible to students, faculty, and visitors.
Thomas J. Kinghorn Hall: Completed in Fall 2010, Kinghorn Hall represents the University’s second new residence hall opened in the last nine years. The 187,400 square feet building provides heated and air-conditioned accommodations for more than 600 students. The hall features double occupancy rooms clustered around semi-private baths and a limited number of single occupancy rooms with private baths. The facility includes accommodations for disabled access, living areas, and community areas with room arrangements and design that will
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promote social interaction, provide flexible spaces, integrate technology, and provide computer labs and study lounges.
The Marilyn K. Glick Center for Glass: Also completed in Fall 2010, the Glick Center contains 9,200 gross square feet of newly constructed space. The facility was built to support and promote the practice of the contemporary glass arts at Ball State University and in the East Central Indiana Region. The Center’s studio spaces, equipment, faculty, and staff support a broad-based and dynamic undergraduate and graduate curriculum in contemporary glass, as well as community outreach and education about the glass arts.
Jo Ann Gora Student Recreation and Wellness Center: Also completed in Fall 2010, the Jo Ann Gora Student Recreation and Wellness Center represents a building that all Ball State students have the opportunity to enjoy. This facility includes more than 400,000 square feet of new or renovated space. It features a new fitness space on all three levels, a suspended 200- meter track, 20,000 square feet of artificial indoor turf, an extensive outdoor pursuits center and climbing wall, and seven traditional basketball and volleyball courts as well as racquetball courts.
North Quadrangle Building: The renovated North Quadrangle Building reopened in the Spring of 2012. The renovation consisted of converting the stacks space into classrooms, improved accessibility, enhancements to offices and classrooms, simplified circulation paths, and mechanical, plumbing, and electrical replacement.
Studebaker East Residence Hall: Completed in Fall 2012, the Studebaker East renovation included major interior and exterior renovation. A new addition to the residence hall provides two-story lounges and gathering spaces. The hall houses approximately 430 students and is home to the International and Modern Languages Living-Learning Communities.
Teachers College: The renovation of Teachers College followed North Quad as the second of three buildings to be renovated as part of the Central Campus Academic Renovation and Utilities Improvement Project. The renovation, completed in 2013, included installation of a fire suppression system, replacement of the vertical electric bus system, replacement of all main air handling units, and evaluation of all other systems. Public areas and offices were also updated.
Heat Plant (Geothermal Energy System): In May, 2009, the University broke ground on a new geothermal energy system that will heat and cool more than 40 buildings over 660 acres. It will be the largest full-scale district geothermal project in the country, cutting the University’s carbon footprint roughly in half. This system includes four components: well fields, heat pump chillers or energy centers, hot and cold district loops, and building interfaces. Phase I of the system became operational in March, 2012. Work continues on Phase II with an estimated completion date in 2017.
Dr. Joe and Alice Rinard Orchid Greenhouse: Completed in Spring 2014, the new greenhouse allows for improved access, more educational opportunities, and greater interdisciplinary use. The 3,400 square foot facility provides an ideal tropical rainforest environment for more than 1,800 plants in the world-renowned Wheeler-Thanhauser Orchid Collection and Species Bank.
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Charles W. Brown Planetarium: The new planetarium, which opened in Fall 2014, is the largest planetarium in Indiana and one of the top ten university planetariums in the country. The 52-foot diameter dome and state-of-the-art projector transforms teaching and learning for science students, faculty, professionals, and the community.
Applied Technology: The Applied Technology Building is the third academic building to be renovated as part of the Central Campus Academic Renovation and Utilities Improvement Project. The renovation of this building, which was completed in the Spring of 2016, involved upgrading of laboratories and related infrastructure, replacement of lighting systems, improvements to heating, cooling, and ventilation systems, replacement of plumbing and plumbing fixtures; and installation of new electrical and communication systems. In addition, accessibility was improved and floor, ceiling, and wall materials original to the building were replaced.
Johnson A (Botsford/Swinford) Residence Hall: The renovation of Botsford/Swinford Halls within the Johnson Complex was completed in Summer 2015. The renovation provided for a complete make-over of the interior and exterior features of the residence hall. A new tower connecting the two wings provides greater accessibility and added approximately 130 beds.
Johnson B (Schmidt/Wilson) Residence Hall: The renovation of Schmidt/Wilson Halls within the Johnson Complex is currently underway with completion scheduled for Summer 2017. The building exterior has been removed and replaced with a more energy-efficient masonry wall assembly, roof and windows. Lighting, plumbing and electrical systems are being replaced throughout the building. A new elevator tower has been added to the east end of the building serving all floors, and a relatively small addition to the west end will allow for a new stairwell and an increase in capacity by approximately 48 beds.
First Merchants Ballpark: The softball and baseball venues at First Merchants Ballpark underwent a multi-phase renovation that was completed in Fall 2015. The improvements included turf fields for both diamonds, new dugouts, a new press box and grandstands at the baseball field, and a new multi-use building at softball. This project was made possible, in part, through the Cardinal Commitment capital campaign.
Ron and Joan Venderly Football Center: Also funded by the Cardinal Commitment capital campaign, the Venderly Football Center opened in Spring 2016. The new facility features a theater style meeting room that can accommodate the entire team, dedicated coaches’ offices, a full coaching staff meeting room, and a recruiting lounge.
Emens Auditorium Lobby Expansion and Renovation: The expansion of the lobby area at Emens Auditorium is now underway. Upon completion in 2017, the improvements will include an enlarged lobby, indoor box office, restrooms on the main floor, and additional hospitality spaces.
Health Professions Building: The new Health Professions Building is currently being designed and will be constructed in a new academic quadrangle on the east side of the campus. The 165,000 square-foot building will be home to the University’s new College of Health and will serve departments such as Nursing, Nutrition and Health Science, Social Work, Speech
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Pathology and Audiology, Counseling Psychology, Social Psychology and Counseling, and the Social Science Research Center. Project funding is provided by the Series R Bonds, and construction is expected to be complete in Fall 2019.
Faculty and Employees
As of the beginning of the 2016-17 academic year, the University’s staff and faculty totaled approximately 3,131 on a full-time basis and 387 on a part-time basis. This number does not include student employees and graduate assistants.
For the 2016 Fall semester, the University’s instructional staff on campus totaled 1,267 with 1,013 full-time staff and 254 part-time or temporary instructional staff. The full-time staff consisted of 210 professors, 231 associate professors, 344 assistant professors, and 228 instructors. Of the full time instructional staff, nearly 66% held tenured positions or were in tenure track positions and about 93% of those staff members held terminal degrees in their disciplines.
The American Federation of State, County and Municipal Employees (AFSCME) Local Number 293 is the bargaining agent for certain janitorial, maintenance, and food service personnel of the University. The University meets and confers with AFSCME about specific working conditions under the framework of “Conditions of Cooperation,” a policy statement adopted by the Board of Trustees. As an instrumentality of the State of Indiana, the University and its employees are not subject to the provisions of the National Labor Relations Act, as amended. In accordance with the “Conditions of Cooperation,” AFSCME’s status as the exclusive representative of certain of the University’s employees is conditioned upon its disavowal of the right to strike, picket, slowdown, or take any other concerted action to impede, or threaten to impede, the Board of Trustees or administrative officials in the proper, orderly, and normal operation of the University.
Retirement Plans
Ball State provides a retirement program for all eligible employees. Faculty and professional staff are provided the choice of participation in an Alternate Pension Plan (APP), which is a defined contribution plan providing 100% immediate vesting, or the Teachers’ Retirement Fund 1996 Account (TRF 1996), which is a cost-sharing, multiple-employer defined benefit plan providing 100% immediate vesting in the annuity portion and 10 year vesting in the pension portion of the benefit at age 65. Additional vesting opportunities are available based on age and years of service. The funds available in the APP are administered by the Teachers’ Insurance and Annuity Association (TIAA), the College Retirement Equities Fund (CREF), Fidelity Investments Institutional Services Company, Inc., Voya Financial (formally ING Financial Advisers, Inc.), and Lincoln Financial Group.
In addition, clerical and service staff participate in the Public Employees Retirement Fund (PERF), administered by the Indiana Public Retirement System (INPRS) Board as the retirement plan for all state employees. PERF is a cost-sharing, multiple-employer defined benefit plan funded from employer contributions.
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Benefits of each of the plans are designed to be comparable. Effective with the fiscal year ended June 30, 2015, the University must include its proportionate share of the unfunded liability associated with both PERF and TRF 1996 plans on its financial statements due to GASB Statement 68, Accounting and Financial Reporting for Pensions, and GASB Statement 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. The University’s net pension liability under these retirement plans is based on wages reported by employers relative to the collective wages of the plan. This basis of allocation measures the proportionate relationship of an employer to all employers, and is consistent with the manner in which contributions to the pension plan are determined. Neither of these plans (PERF and TRF 1996) are special funding situations. The University is current with all amounts due under each type of retirement plan provided to employees.
Employees in a benefits eligible status are also provided with the opportunity to contribute additional funds deducted from their pay to the TRF 1996 account or PERF account, via a voluntary Tax Deferred Annuity program.
The University also has eligible active and retired employees participating in the Teachers’ Retirement Fund Pre-1996 Account. In 1995, legislation was passed that closed this plan to newly hired members. This plan is also administered by INPRS. However, this plan is a special funding situation as the State of Indiana makes contributions as the sole non-employer contribution entity. The contributions are made from funds designated for such purpose by the Indiana General Assembly through biennial appropriations. As the contributions are made directly to INPRS on the University’s behalf, the University does not report or recognize a liability associated with this plan.
The University also offers health care and life insurance benefits for eligible retired employees. Substantially all of the University’s regular employees may become eligible for these benefits if they retire from the University after accruing the required years of service. Like pensions, other post-employment benefits (OPEB) are a form of deferred pay, part of an exchange of salaries and benefits for employees’ service. The cost to the University accrues over the period of employment, although the benefits are not provided until later.
Most public institutions and governments have historically recognized the annual outlays required to pay OPEB costs on an ongoing basis, and have not accrued a liability for their future obligations. Under GASB Statement 45, OPEB costs are measured and reported as they are incurred during the employment period. The actuarial methods used to estimate liabilities are similar to those for pension plans. Many institutions may face a significant unfunded liability as a result of these standards. As of June 30, 2013 Ball State’s life insurance continuance fund was fully funded and the trust fund established for the purpose of funding future retiree health care was approximately 89 percent funded. As of July 1, 2015, the most recent actuarial evaluation date, Ball State’s OPEB 115 (formally known as the Life Insurance Continuance Fund) was fully funded and the VEBA trust fund established for the purpose of funding future retiree health care was approximately 87.3 percent funded. The funding rate remained high even after the plans implemented a new cost method and adopted new mortality tables for actuarial valuation. Both of these changes to valuation should have had a significant impact in driving down the funded percent; however, asset valuations and reduced claim experience offset these changes. Ball State has funded more than the annual actuarial OPEB cost each year beginning with 2008, the first
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year that the new GASB 45 standard was implemented, which has resulted in a prepaid expense rather than a current liability on the University’s financial statements.
Enrollment
The University attracts students from a variety of backgrounds and geographical locations. As of Fall, 2016 approximately 82 percent of the University’s students are characterized as Indiana residents; however, all 50 states and the District of Columbia and 73 foreign nations are represented in the student body.
Ball State participates in two programs which facilitate growth in out-of-state enrollments. The Midwest Higher Education Compact’s Midwest Student Exchange Program enables students from eight regional states to attend Ball State at 150% of in-state tuition. The Indiana-Ohio reciprocity agreement provides in-state tuition for students from 14 Ohio counties.
The table below presents the University’s on-campus blended student enrollment (includes on campus students and on campus students taking off campus courses) for the Fall term of the academic years 2012-13 through 2016-17.
On Campus & Blended Student Enrollment
Headcount Headcount Academic Under- Full Part Full-Time Year Graduate Graduate Total Time Time Total Equivalent 2012-13 16,126 1,725 17,851 16,666 1,185 17,851 17,309 2013-14 15,631 1,594 17,225 15,945 1,280 17,225 16,765 2014-15 15,378 1,627 17,005 15,741 1,264 17,005 16,493 2015-16 14,997 1,605 16,602 15,362 1,240 16,602 16,118 2016-17 15,304 1,504 16,808 15,634 1,174 16,808 16,369
The table below presents the University’s off-campus only student enrollment (includes only students taking only off campus courses for the Fall term of the academic years 2012-13 through 2016-17). Off campus courses include: online courses and off-main campus courses (ex. Fishers Center, Indy Center, field studies, overseas centers, and dual credit).
Off Campus Only Student Enrollment
Headcount Headcount Academic Under- Full Part Full-Time Year Graduate Graduate Total Time Time Total Equivalent 2012-13 526 2,676 3,202 651 2,551 3,202 1,522 2013-14 669 2,609 3,278 653 2,625 3,278 1,575 2014-15 1,037 2,613 3,650 715 2,935 3,650 1,762 2015-16 1,605 2,989 4,594 749 3,845 4,594 2,113 2016-17 1,707 3,483 5,190 755 4,435 5,190 2,402
The following table presents the University’s on/off unduplicated student enrollment for the Fall term of the academic years 2012-13 through 2016-17.
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On/Off Unduplicated Student Enrollment Headcount Headcount Academic Under- Full Part Full-Time Year Graduate Graduate Total Time Time Total Equivalent 2012-13 16,652 4,401 21,053 17,317 3,736 21,053 18,831 2013-14 16,300 4,203 20,503 16,598 3,905 20,503 18,340 2014-15 16,415 4,240 20,655 16,456 4,199 20,655 18,255 2015-16 16,602 4,594 21,196 16,111 5,085 21,196 18,230 2016-17 17,011 4,987 21,998 16,389 5,609 21,998 18,771
Considerable effort is also being placed on retention of existing and future students. The University continues to implement new programs that enable freshmen to be academically successful, to bond with faculty and staff, and to get involved on campus. Freshman retention continues to rise from 74.5% in Fall 2006 to 78.9% in Fall 2013 and to 81.3% in Fall 2016. The 81% for Fall 2016 represents the third straight year the retention percentage surpassed the strategic plan’s 80% retention goal.
Student Admissions
The table below sets forth the total number of freshmen applications received and accepted, and the number of students enrolled at Ball State University, for the academic years indicated.
Academic Applications Applications Percent Students Percent Year Received Accepted Accepted Enrolled Enrolled 2012-13 16,964 10,333 61% 3,548 34% 2013-14 17,136 10,363 60% 3,600 35% 2014-15 18,105 10,829 60% 3,583 33% 2015-16 22,145 13,385 60% 3,493 26% 2016-17 24,306 15,068 62% 3,857 26%
The entering freshman class for the Fall semester 2016 has an average combined three part score for the Scholastic Aptitude Test (SAT) verbal, mathematical and writing test of 1,611. The table below sets forth the average SAT scores of the University’s entering freshman classes for the academic years indicated.
2012-13 2013-14 2014-15 2015-16 2016-17 SAT Data 1,585 1,607 1,629 1,638 1,611
Over the past five years the number of freshman applications has increased by 43% to a record number of 24,306. Selectivity remains high with 62% of applicants being admitted. The average high school G.P.A. is 3.45, up from 3.35 in 2012. The average SAT score of 1,611 remains above the national average. 71% of the new freshmen have an academic honors or equivalent diploma from high school.
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Tuition and Fees
The University operates its academic programs on a two semester and summer session basis. The general fee and other fees vary by resident status and course load.
In 2010, the University developed a task force to review the University’s tuition and fees structure. In response to the task force’s recommendation, the University restructured tuition and fees with a goal towards a more transparent fee structure. A restructured tuition and fees schedule was incorporated in Fall 2011. The new tuition structure makes it easier for students to create hybrid course schedules with both on campus and online courses. The changes facilitate time-to-degree by offering more ways to increase the number of courses in a semester without additional charges and more affordable classes during summer sessions.
The table below sets forth the general fees for on-campus undergraduate instruction (not including housing and related fees) assessed annually for a normal course load of 12-18 hours per term, for the academic years 2012-13 through 2016-17.
Academic Year Indiana Resident Non-Resident 2012-13(a) $8,980 $23,650 2013-14(a) $9,160 $24,124 2014-15(a) $9,344 $24,610 2015-16(a) $9,498 $25,016 2016-17(a) $9,654 $25,428
(a) Fees include additional health fee of $152, additional technology fee of $336, and additional student recreation center fee of $174.
All graduate students taking courses on the main Ball State campus, Independent Learning, off-campus, short-term, online or distance education courses pay $394 per credit hour as Basic Graduate Tuition. Graduate students also pay the Student Services Fee and other mandatory fees or course fees as applicable.
Student Fee Revenues: The total amount of Student Fee revenues, including academic, tuition, and other fees charged during the past five Fiscal Years, are as follows:
Student Fees Fiscal Year Ended June 30 2012 2013 2014 2015 2016 2017 Actual Actual Actual Actual Actual Budget
General Fund $177,075,413 $179,825,652 $184,461,670 $187,463,640 $196,013,809 $196,668,000 Designated 35,287,200 35,787,273 35,692,693 35,062,127 34,233,761 34,400,000
Total Student Fees $212,362,613 $215,612,925 $220,154,363 $222,525,767 $230,247,570 $231,068,000
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These Student Fee totals do not include fees collected from students at the Indiana Academy for Science, Mathematics and Humanities, and, therefore, do not match the Student Tuition and Fees line item on the Statement of Revenues, Expenses and Changes in Net Position.
Room and Board: Room and Board rates are combined. Students may choose from the following: 10-meal plan, 14-meal plan, 18-meal plan, and 21-meal plan. Each plan includes a number of specified meals in addition to varying amounts of “Dining Plus” dollars. Plans are graduated in price, based on the number of meals each provides. For Fall 2016, the range for a standard double room with meal plan is as follows: $8,970 for a 10-meal plan, $9,816 for a 14- meal plan, $10,162 for an 18-meal plan and $10,244 for a 21-meal plan. The amount shown in the table below is for a 14-meal dining plan which was the most popular plan chosen. In addition, there is also a residence hall technology fee as shown below.
The following table sets forth room and board charges for the past five academic years: Academic Year Room and Board* 2012-13 $8,622 (14- meal) 2013-14 $8,820 (14- meal) 2014-15 $9,246 (14- meal) 2015-16 $9,657 (14- meal) 2016-17 $9,936 (14- meal) * Charge includes $120 residence hall technology fee.
Estimated Costs: The following student budget has been used by the University’s Office of Financial Assistance and represents estimated average student costs for the 2016-17 academic year.
Basic Costs Indiana Resident Non-Resident Instruction and Fees $9,654 $25,428 Room and Board (14- Meal Plan) 9,936 9,936 Books and Supplies 1,300 1,300 Personal Expenses 1,700 1,700 Transportation 1,500 2,100 Total $24,090 $40,464
State Appropriations
The University receives a major portion of the revenues needed to sustain its educational and research activities from the State of Indiana, from student fees, and from the federal government.
The University has annually received and anticipates receiving appropriations from the Indiana General Assembly, which are to be applied to the educational and general expenditures of the University. In addition, the General Assembly previously appropriated to the University an amount equal to the annual debt service requirements due on all previously outstanding
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Building Facilities Fee Bonds (which were refunded with issuance of the University’s Student Fee Bonds, Series A). Beginning in the 1987 biennium and all subsequent biennia, the General Assembly has appropriated amounts relative to debt service on certain outstanding Student Fee Bonds (the “Fee Replacement Appropriations”). Under the Constitution of the State of Indiana, the General Assembly cannot bind subsequent General Assemblies to the continuation of Fee Replacement Appropriations. However, the University anticipates that the policy of Fee Replacement Appropriations will be continued in future years. The Fee Replacement Appropriations are not pledged under the Indenture for Student Fee Bonds.
The state appropriations received by the University in recent years, and the appropriations budgeted for 2016-2017, are set forth below: State Appropriations (Dollars in Thousands)
Fiscal Year General Fee Repair and Total Ended June 30 Operating (1) Replacement Rehabilitation Academy (2) Appropriations
2012 $121,223 $14,029 - (3) $4,274 $139,526 2013 121,223 14,016 - (3) 4,274 139,513 2014 122,167 (5) 15,075 $2,379 4,297 (5) 143,918 (4) 2015 122,167 (6) 14,307 2,379 4,385 143,238 2016 126,743 12,957 2,647 4,385 146,732
Current 2017 128,895 16,685 (7) 2,647 4,385 152,612
(1) Beginning in the 2007-09 Biennium, the State of Indiana added a new line item for Ball State University designated as the Entrepreneurial College. This allocation is included here with the General Operating Appropriation. The Entrepreneurial College additional support is intended to fund items related to admissions objectives, retention, graduate rates, immersive learning opportunities, technology related items, and growth in research. Additionally, in the 2013-15 Biennium, the State of Indiana added a new line item for Dual Credit. It is included here with the General Operating appropriation as well. (2) Includes appropriations for the Indiana Academy for Science, Mathematics and Humanities; but excludes that portion based upon a formula using average daily attendance for the Academy (which is budgeted at $1,708,277 in 2016-17). Does not include appropriations for the Burris Laboratory School. (3) The Indiana General Assembly did not approve any funds for Repair and Rehabilitation for the 2012-13 biennium. (4) Does not include a $30,000,000 cash appropriation received from the State for completion of the geothermal project. (5) In 2013-14, the state appropriation allocated by the Indiana General Assembly was as follows: General - $124,660,125 and Indiana Academy - $4,384,956; however, due to the financial condition of the State of Indiana, 2% was withheld. (6) In 2014-15, the state appropriation allocated by the Indiana General Assembly was as follows: General $124,660,125 and Indiana Academy - $4,384,956; however, due to the financial condition of the State of Indiana, 2% was withheld on the General portion only. The withheld amount was restored in July, 2015 and is not reflected in this schedule. (7) For the 2016-17 fiscal year, the State of Indiana appropriated $16.7 million in fee replacement funds. This amount includes $4.6 million which represents one year of fee replacement for the Series R Bonds. The actual amount to be received will be less due to the sale date for the Series R Bonds.
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According to the National Association of State Budget Officers’ Spring 2016 Fiscal Survey of States, estimated state general fund spending and revenues in fiscal 2016 surpassed their fiscal 2008, pre-recession peak levels in real terms for the first time, after adjusting for inflation. The study went on to point out that states across the country continue to face budgetary challenges, including: spending requirements on K-12 education, health care and other core service areas growing faster than state revenues; unfunded pension liabilities; a pent-up need for infrastructure investment; and the fiscal and economic impacts of declining oil prices.
In December 2015, Moody’s Investors Service announced a stable outlook for U.S. higher education. In its report, Moody’s noted that all revenue streams, including net tuition revenue, state funding, investment income, and philanthropy, are expected to rise modestly throughout 2016. Moody’s believes that universities will continue to face challenges of containing expenses while attempting to invest sufficiently to remain competitive. Following a four-year stretch in which it issued more ratings downgrades than upgrades, Standard & Poor’s announced a bifurcated outlook for 2016. Whereas Standard & Poor’s expects institutions with strong demand, growing resources, and national or international reputations to improve their credit quality, it warned that smaller, regional institutions will continue to struggle to differentiate their brands, which will require additional investment and resources that could have a negative impact on their credit profiles. The University’s ratings for all outstanding debt were confirmed in November, 2016 by Moody’s (Aa3/stable outlook) and Standard & Poor’s (AA- /stable outlook).
Ball State University, as a public university, relied on the State of Indiana for less than 29 percent of the total financial resources in fiscal year 2015-2016. State revenues for fiscal year 2015-2016 were 0.7 percent below forecast and 0.5 percent below fiscal year 2014-2015, but the state was still able to close the year with a $50.6 million surplus. State reserves of $2.2 billion are the largest amount in state history. The State of Indiana is rated Aaa by Moody’s and AAA by Standard & Poor’s, making it one of only a handful of states with top rankings by both ratings agencies.
Since 2004, the State of Indiana has used a performance funding formula for higher education. The formula is drafted and managed by the Indiana Commission for Higher Education (ICHE), which uses the formula to recommend funding to the Indiana legislature for appropriations to the various public universities in the state. The funding formula has changed somewhat in each of the last several biennial budget cycles. The two constants in the funding formula have been to recommend increases in funding for campuses that increase the number of degrees awarded, primarily to resident undergraduate students, and for campuses that increase graduation rates. Because Ball State has focused on increasing the quality of the student body and the quality of educational experiences, as opposed to the size of the student body, the University has not fared as well during the early performance funding budget years as some of the growing and larger campuses in the state. However, due to deliberate actions taken by the University to improve the quality of the student body, Ball State is currently performing well under the performance funding metrics.
In the 2015-17 manifestation of the performance funding formula, Ball State is classified as a research campus and earns funding under the formula primarily for an increase in the number of degrees awarded to resident students, increases in the number of “high-impact”
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degrees awarded to resident students (as chosen by ICHE, primarily in STEM disciplines), and increases in the resident undergraduate four-year graduation rate.
Ball State takes very seriously the goals set forth by the ICHE in creating its budget recommendations. With an eye toward increasing the amount of funding that Ball State receives under the performance funding formula, while remaining true to the strategic direction of becoming better and not bigger, the University continues to focus on enrolling students who are increasingly better prepared academically. In part because of Ball State’s increasing selectivity in student admissions, and in part through a concerted set of policy initiatives, the University’s graduation and retention rates have been growing steadily and substantially. In fact, in a study conducted by the ICHE, Ball State showed the largest increase in on-time (within 4 years) graduation rates among all Indiana public universities between 2009 and 2014.
The increase in selectivity of the University’s student body is demonstrated in the Fall 2016 freshman class, which continues the tradition of strong academic abilities, posting an average GPA of 3.45. Also, 71% earned the Indiana Academic Honors Diploma or its equivalent, an 8-point increase since 2012. The average SAT for the Fall 2016 freshman class was 1,611, above the national norm.
Ball State also rolled out a four-point affordability plan in the Fall of 2011, designed to both increase the graduation rate and to keep college affordable for students and families. The four-point plan included: (1) reducing the number of credit hours required for a baccalaureate degree from 126 to 120 for most majors; (2) allowing students to take on-line courses as part of the 12-18 credit hour bracket for no additional charge, giving students the ability to complete more credit hours for less money and more flexibility in scheduling courses; (3) reducing the cost of summer school; and (4) granting a $500 Completion Scholarship to any resident student who graduates in four calendar years or less.
These policies and initiatives are expected to increase the performance of the University as measured in the performance funding formula. Indeed, for the 2017-19 budget cycle Ball State made progress on all performance funding metrics used by the state to fund research campuses. Furthermore, based on recommendations of the ICHE to the Indiana General Assembly for the upcoming legislative session, Ball State would receive an increase in operating appropriation of 6.2% in 2017-18 and 7.1% in 2018-19 over the current funding level. These recommendations are based on the positive results of the performance funding formula. ICHE recommendations will be considered by the Indiana General Assembly during the 2017 legislative session.
Financial Aid to Students
During the 2015-16 academic year, approximately $287 million of financial assistance was available to University students. Of this amount, $152 million (53%) was available from federal programs; $67 million (23%) from University funds; $26 million (9%) from the State Student Assistance Commission of Indiana; and $42 million (15%) from private organizations and foreign governments.
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By type of aid, loans accounted for 50% of the total; gift aid (scholarships, grants, and fee waivers) constituted 43%; and on-campus work totaled 7%. Approximately 17,832 students received some type of financial aid for the 2015-16 academic year. There can be no assurance that federal and state financial aid to students will be available in the future at the same levels and under the same terms and conditions as presently apply.
The following table summarizes the financial aid provided by the University to students for the five years ended June 30, 2016.
Fiscal Year ended June 30 2012 2013 2014 2015 2016
Scholarships, Grants & Awards Federally Funded $ 24,238 22,533$ $ 23,763 $ 23,319 $ 24,771 State Funded 20,324 19,545 22,643 24,131 26,299 Other Sources 25,074 22,981 23,798 26,286 25,503
Total Scholarships, Grants and Awards$ 69,636 65,058$ $ 70,204 $ 73,736 $ 76,573
Loans Federal Perkins $ 1,278 $ 1,517 $ 1,185 $ 1,656 1,448$ Stafford/SLS/PLUS 134,799 128,206 122,800 123,133 125,292 Other Loans 11,652 11,820 13,137 14,715 16,367
Total Loans $ 147,730 141,543$ 137,122$ $ 139,504 $ 143,107
Student Employment Federal College Work-Study$ 715 $ 362 $ 558 $ 662 $ 606 University Student Payroll 17,861 18,424 18,936 19,341 19,724
Total Student Employment$ 18,576 18,786$ $ 19,494 $ 20,003 $ 20,330
Remitted Fees $ 35,331 39,313$ $ 43,064 $ 45,767 $ 47,597
Total Student Financial Assistance $ 271,272 264,700$ 269,884$ $ 279,010 $ 287,607
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Ball State University Foundation
The Ball State University Foundation was established in 1951 as a private, non-profit, tax-exempt corporation to solicit, receive and administer gifts and bequests for the benefit of the University.
Cheri O’Neill currently serves as the President and Chief Executive Officer of the Ball State University Foundation.
The Ball State University Foundation’s net assets include (1) permanently restricted assets which are subject to the restrictions of gift instruments requiring that the principal be maintained in perpetuity and that only the income be utilized, either for donor-specified purposes or for general purposes of the University; (2) temporarily restricted assets which represent expendable funds received which, by decision of the Board of Directors of the Foundation, have been retained and invested for future use, in accordance with the donor’s restrictions or at the discretion of the Board of Directors of the Foundation; and (3) unrestricted net assets.
The market value of the Foundation’s endowment for the Fiscal Year ended June 30, 2016 was $182.4 million (based on the definition of endowment as used in the NACUBO - Commonfund Study on Endowments). The total net assets of the Foundation for the past five Fiscal Years are shown in the following table:
Fiscal Year Total Ended June 30(1) Net Assets 2012 $167,019,438 2013 185,048,895 2014 209,250,642 2015 213,369,439 2016 196,193,138
(1) All Fiscal Years above are reported in accordance with SFAS 116 and SFAS 117, restating the Foundation’s financial statements in a net asset presentation and including contributions receivable.
Fund Raising Campaign
In 1988, Ball State University initiated its first comprehensive campaign, “Wings for the Future,” which raised $44 million over five years. In late 1999, the University began another comprehensive fund-raising campaign called “Above and Beyond.” This campaign concluded in June 2002 and raised over $112 million. An effort to raise funds to expand the football stadium was initiated in November 2004 and raised more than $13.5 million. The stadium effort served as the initial phase for a third comprehensive campaign.
In September 2008, the University kicked off its “Ball State Bold: Investing in the Future” campaign. The campaign goal was $200 million and concluded with $210.8 million raised by June 2011. The campaign goals were based on the initiatives outlined in the University’s strategic plan. The campaign priorities and results were as follows: $40.8 million for funding more than 200 new scholarships; $17.5 million for creating more immersive learning experiences; $35 million to build national recognition by funding endowed chairs,
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The “CARDINAL COMMITMENT: Developing Champions” capital, campaign was announced on April 20, 2013 with a goal of $20 million. In January 2015, the University concluded the campaign after having successfully raised more than $20.6 million. Funds raised by the campaign are going towards improvements and expansion of facilities critical to athletic success, including the recently completed improvements to the softball and baseball facilities and football team meeting complex. Other Cardinal Commitment projects are currently in the planning phase for men’s and women’s golf, men’s and women’s basketball, and men’s and women’s volleyball.
In conjunction with University’s centennial in 2018, the planning phase for a second century campaign has begun. A needs assessment is currently underway with the expectation to conduct a feasibility study during calendar year 2016. Using the results of the feasibility study, the scope and goal of the campaign will be finalized with the intent to actively enter the silent/leadership phase of the campaign in 2017.
Gifts
The University solicits private gifts, grants and contracts for current operating purposes and other needs. Total gifts collected for the University through the Ball State Foundation for the five years ended June 30, 2016 amounted to approximately $97.3 million.
Approximately 23,500 alumni and friends made gifts to Ball State University in Fiscal Year 2015-16.
Sponsored Projects
During the Fiscal Year ended June 30, 2016, the University’s Office of Sponsored Programs Administration (SPA) received 333 new project awards, totaling approximately $25.8 million in grant awards, contracts awarded to University Centers and Institutes, and funding for the Ball State University Foundation. Various industries, foundations, and non-profit organizations constituted a large part of the support for these projects, funding 162 projects amounting to $15.3 million. Federal agencies funded 66 projects totaling $5.2 million. Various state agencies awarded 28 projects totaling $3.4 million.
Notable proposals funded in fiscal year 2015-16 include an award from the John H. Schnatter Family and Koch Foundations to establish the Schnatter Institute for Entrepreneurship and Free Enterprise; the Ball State Foundation for 14 Academic Excellence Grant awards; research grants from the National Science Foundation and National Institutes of Health; the Ball Brothers Foundation for community-focused and Burris Laboratory School support projects; international development projects from the US Department of State and USAID; and external support for multiple University Centers, including the Northeast Indiana Area Health Education Center, the Software and Security Engineering Research Center, and the East-Central Indiana Small Business Development Center. Additional sponsors at the State level included the
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Department of Education, Department of Workforce Development, Office of Community and Rural Affairs, and Department of Natural Resources. Grant awards may include cash received in advance, letters of credit, and cost reimbursable projects.
The following table sets forth the amounts of grants and contracts received by the University during the past five Fiscal Years, identified by source. The table represents awards, (not moneys received) and does not include federal student financial aid.
Fiscal Year Ended June 30 2012 2013 2014 2015 2016 Federal Sources $7,897,960 $5,339,237 $5,326,523 $4,758,061 $5,248,521 State of Indiana 1,239,391 2,000,058 1,879,187 868,609 3,411298 Other Governmental Grants 89,915 51,879 79,287 302,130 121,481 Private Gifts, Industry, & Foundations* 4,350,714 11,286,597 9,423,479 3,712,457 15,291,528 Non-Profits, including Higher Education 529,671 1,559,536 1,523,074 1,513,881 1,691,252 $14,107,651 $20,237,307 $18,231,550 $11,155,138 $25,764,080
* Private Gifts, Industry, & Foundations: SPA external funding totals include Ball State University Foundation funds that are considered as externally sponsored projects, as well as funding self-administered by University Service Centers. The change reflects a commitment to consistency throughout various University reports on sponsored programs activity.
Financial Operations of the University
The University reports financial information under the methodology set forth in Governmental Accounting Standards Board Statement 35.
The table below prepared by the University sets forth the University’s Statement of Revenues, Expenses and Changes in Net Position for the Fiscal Years ended June 30, 2012 through June 30, 2016. The table is based on audited financial statements for the Fiscal Years ended June 30, 2012 through June 30, 2016.
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Ball State University State of Revenues, Expenses and Changes in Net Position June 30, 2012 through June 30, 2016
2012 2013 2014 2015 2016
Operating Revenues: Student Tuition and Fees $ 213,108,850 $ 217,476,258 $ 222,842,172 $ 227,094,099 $ 232,846,880 Scholarship Allow ances (64,034,785) (67,776,493) (75,433,696) (64,402,799) (68,154,632) Net Student Tuition and Fees $ 149,074,065 $ 149,699,765 $ 147,408,476 $ 162,691,300 $ 164,692,248 Federal Grants and Contracts 6,460,847 6,836,429 6,158,114 5,561,137 5,561,193 State & Local Grants and Contracts 1,476,908 2,471,052 1,684,823 1,622,278 2,584,002 Non-Governmental Grants and Contracts 8,650,838 7,146,986 5,994,425 4,345,768 3,972,010 Sales and Services of Educational Departments 15,816,246 12,759,993 9,941,338 10,509,521 9,094,559 Auxiliary Enterprises: Residential Life (Net of Scholarships and Allow ances: 2016 - $10,226,374; 2015 - $9,793,970) 58,799,224 56,819,743 57,438,723 55,414,926 55,934,465 Other 8,953,287 8,038,457 10,848,762 9,244,856 11,535,834 Other Operating Revenues 5,272,816 7,558,205 10,851,104 12,806,433 11,628,170 Total Operating Revenues $ 254,504,231 $ 251,330,630 $ 250,325,765 $ 262,196,219 $ 265,002,481 Operating Expenses: Personnel Services $ 213,059,725 $ 216,089,205 $ 223,401,128 $ 231,215,375 $ 237,570,267 Benefits 68,683,862 69,903,749 79,491,469 76,308,128 89,808,828 Utilities 11,888,201 12,197,026 13,147,394 12,791,665 11,968,177 Repairs and Maintenance 16,063,767 13,676,386 13,435,936 17,187,467 19,432,632 Other Supplies and Expenses 71,771,689 81,428,222 86,048,964 83,362,786 81,160,280 Student Aid 7,717,510 4,027,667 4,400,138 15,884,773 15,417,584 Depreciation 22,171,528 23,813,272 24,635,858 28,346,751 26,488,249 Total Operating Expenses $ 411,356,282 $ 421,135,527 $ 444,560,887 $ 465,096,945 $ 481,846,017 Operating Income/(Loss) $ (156,852,051) $ (169,804,897) $ (194,235,122) $ (202,900,726) $ (216,843,536) Non-Operating Revenues/(Expenses): Federal and State Scholarship and Grants $ 45,359,910 $ 41,402,424 $ 47,183,397 $ 48,015,068 $ 49,905,136 State Appropriations 139,525,712 139,513,297 141,538,979 143,352,066 144,084,123 Investment Income 2,335,654 399,241 2,416,213 2,834,541 3,403,502 Interest on Capital Asset Related Debt (8,110,434) (7,651,334) (8,703,514) (8,718,647) (8,118,784) Private Gifts 3,630,992 7,212,364 7,299,442 6,715,720 8,255,215 State Pension Contributions - - - 7,249,126 15,717,760 Other Non-Operating Income 5,001,060 5,782,692 4,250,688 5,050,101 7,110,039 Net Non-Operating Revenues/(Expenses) $ 187,742,894 $ 186,658,684 $ 193,985,205 $ 204,497,975 $ 220,356,991 Income Before Other Revenues, Expenses, Gains or Loss $ 30,890,843 $ 16,853,787 $ (249,917) $ 1,597,249 $ 3,513,455 Capital Appropriations 4,268,791 - 14,220,896 13,780,490 3,603,291 Capital Gifts 1,188,987 3,658,732 4,126,108 1,010,323 4,387,712 Increase in Net Position Before Extraordinary Item $ 36,348,621 $ 20,512,519 $ 18,097,087 $ 16,388,062 $ 11,504,458 Extraordinary Item: Loss from Extraordinary Item $ - $ - $ (10,022,705) $ - $ - Increase in Net Position After Extraordinary Item 36,348,621 20,512,519 8,074,382 16,388,062 11,504,458
Net Position – Beginning of Year 661,068,665 697,417,286 717,929,805 726,004,187 713,357,876 Change in Accounting Policy - - - (29,034,373) -
Net Position – End of Year $ 697,417,286 $ 717,929,805 $ 726,004,187 $ 713,357,876 $ 724,862,334
Source: Ball State University Financial Statements (audited for the Fiscal Years ended June 30, 2012 through June 30, 2016).
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Budgeting Procedures
The University adopts an operating budget for each Fiscal Year based on a detailed budget for each of Ball State University’s departments or budgetary units. Budgets are reviewed by the appropriate professional personnel and the President prior to approval by the Board of Trustees. In conjunction with its budgeting process, the University submits a biennial appropriation request to the State Budget Agency, the Indiana Commission for Higher Education and the General Assembly. The State appropriation includes various components for operations, fee replacement, maintenance, research, public service and other special functions. For more information, see “State Appropriations.” The Board of Trustees considers the amount of appropriations, when determined, along with the University’s budget requirements and other revenue sources in establishing Student Fees and other fees for each academic year.
The University has adopted a balanced operating budget for the Fiscal Year ending June 30, 2017 which is in alignment with the University’s strategic plan. Total estimated revenue for 2016-17 for which the University has fiscal responsibility is approximately $491,299,000. The 2016-17 budget anticipates the receipt of $145,580,000 in State appropriations and $231,068,000 in Student Fee revenue.
Each year, the University prepares and updates its ten year capital improvement program. This provides the basis for a capital appropriation request which the University submits each biennium to the State Budget Agency, the Indiana Commission for Higher Education, and the General Assembly. The request identifies the projects, purpose, priority and the amount and source of funds. The General Assembly may approve or decline, in its capital appropriation program for the University, each project and may stipulate the source of funding (either direct appropriation or debt) and the amount. Under the various enabling statutes, the University may only issue Student Fee debt up to the amount authorized by the General Assembly. For the 2015-17 biennium, the State authorized $5,294,986 for General Repair and Rehabilitation projects. One half of this authorized amount was requested for the 2015-16 fiscal year, and the remainder of the appropriation has been requested for the second year of the biennium. Also in 2015, the State authorized $62.5 million in Student Fee debt financing for the STEM and Health Professions Facility Project, Phase I, which is being financed by the Series R Bonds.
Capital Programs and Additional Financing
The University has an on-going capital improvement program of new construction and the renovation of existing facilities. Capital improvement projects are expected to be funded from a variety of sources, including gifts, state appropriations, debt financing and University funds.
The University received a cash appropriation of $30 million from the Indiana General Assembly in 2013 for completion of the geothermal energy system. The University’s Series R Bonds will finance the Health Professions Building, which is Phase I of the STEM and Health Professions Facility Project. Phase I was authorized by the 2015 General Assembly in the amount of $62.5 million. As part of the University’s 2017-19 capital request which was submitted to the State of Indiana in August 2016, a new Foundational Science Building is proposed as Phase II of the STEM and Health Professions Facility Project. This $87.5 million
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building would include space for Biology, Chemistry, Geology, and Physiology, and be funded with proceeds from the future issuance of student fee bonds. If approved by the General Assembly, debt service on these bonds would be fee replaced by the State.
Over the last six years, the University has completed major projects that were funded with internal resources, including the $46.5 million construction of the new Thomas J. Kinghorn Residence Hall and the $24.1 million renovation of Studebaker East, as well as many smaller capital projects. The $35.7 million renovation of the Botsford/Swinford Residence Halls within the Johnson Complex, and the $40.1 million renovation of the Schmidt/Wilson Residence Halls within the Johnson Complex, were funded using proceeds of housing and dining system revenue bonds.
Over the next five years, the University plans to utilize approximately $90.3 million for major projects and on-going minor capital projects for non-state supported facilities. These projects will be funded with existing capital repair and replacement reserve funds. The largest of these reserve-funded projects is the $27 million Greek Village currently in the design phase. The Greek Village project will consist of ten sorority townhomes with construction beginning in summer of 2017. In addition, the University also has plans for an estimated $125 million in new housing and dining construction projects which would be funded with proceeds from housing and dining system revenue bonds that are to be issued in the future. These projects, which would include the construction of two new residence halls and a new dining facility, would allow for the demolition of the aging LaFollette Complex.
In addition, donor gifts have supported recent projects such as the new $3.7 million Venderly Football Center, the new $4.6 million Brown Planetarium, the new $1.35 million Rinard Orchid Greenhouse, and the recently completed $5.0 million improvements to the softball and baseball facilities. Other donor-supported projects currently underway are the Emens Auditorium Lobby Expansion and the Shondell Practice Center.
Other Indebtedness
The University is authorized by various acts of the Indiana General Assembly to issue bonds for the purposes of financing construction of housing facilities, student union buildings, halls of music, athletic facilities, parking, and academic and administrative facilities. The University has never failed to pay punctually and in full all amounts due for principal of and interest on any indebtedness.
Total indebtedness of the University as of January 1, 2017, including (i) debt on Bonds secured by Student Fees, and (ii) debt on bonds secured by revenue of the housing and dining system, was $200,380,000, and is summarized in the following table.
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Final Outstanding as of Title of Indebtedness Maturity January 1, 2017 Bonds Outstanding Student Fee Bonds, Series L 2021 $5,425,000 Student Fee Bonds, Series N(1) 2027 38,315,000 Student Fee Bonds, Series O(2) 2029 21,695,000 Student Fee Bonds, Series P(2) 2030 25,115,000 Student Fee Bonds, Series Q 2032 29,310,000 Housing and Dining System Revenue Bonds, Series 2013 2033 29,470,000 Housing and Dining System Revenue Bonds, Series 2016 2035 51,050,000 Total Indebtedness $200,380,000
(1) Being refunded in part by the Series R Bonds (2) Being refunded in whole by the Series R Bonds
Physical Property
Physical property owned by the University or otherwise available to and utilized by the University consists primarily of over 1,000 acres of land and approximately 125 buildings totaling approximately 7 million gross square feet. The buildings and land, together with equipment and furnishings, were valued at an insurable cost of approximately $2.4 billion as of June 30, 2016. The following table sets forth the investment in plant at cost and insurable value since June 30, 2012.
Fiscal Year Ended Investment in Estimated Insurable June 30 Plant (at cost) Value of Plant 2012 $900,825,905 $2,016,000,000 2013 926,798,235 2,097,000,000 2014 984,693,388 2,199,000,000 2015 1,015,459,943 2,292,000,000 2016 1,059,424,759 2,410,000,000
Insurance
All Risk of Direct Physical Loss or Damage Coverage. All facilities of the University and their contents are insured under a blanket property insurance policy. Buildings under construction are also insured under the blanket property insurance policy. The blanket form policy covers each building and its contents for loss up to the total of its replacement cost value for all risks of direct physical loss to the property from any external cause subject to standard exclusions. The limits for either flood or earthquake are $100 million.
Premises and Operations Liability. The University, through its general liability policy, provides insurance for liability to third parties arising out of accidents on the premises of the University and in connection with University operations off-premises. The limit is $1,000,000 per occurrence for bodily injury and property damage. The University’s umbrella liability policy
A - 33 in the amount of $30 million annual aggregate applies as excess to this and certain other liability insurance coverages.
Loss of Income and Tuition Fees. The University has business interruption insurance in the amount of $15 million to cover the loss of revenues for residence halls, parking facilities, tuition, and other revenue generating activities in the event of physical loss of or damage to such facilities.
For the three items listed above, the following apply. The sum of the deductible shall not be less than $100,000 in any one loss. The University self-insures those losses that might fall within the deducible through a reserve for self-insurance. The balance of the reserve for self- insurance as of June 30, 2016 was $1,567,500.
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APPENDIX B
BALL STATE UNIVERSITY FINANCIAL REPORT FOR THE YEAR ENDING JUNE 30, 2016
[THIS PAGE INTENTIONALLY LEFT BLANK] Financial Report Year Ended June 30, 2016
Front Cover: The Alexander M. Bracken Library and Surrounding Campus
To
The President and Board of Trustees
Ball State University
This financial report presents
the financial position of
Ball State University at June 30, 2016
and the results of activities for
the year then ended.
Bernard M. Hannon Vice President for Business Affairs and Treasurer
Ball State University’s Report Date…..…………………..……..………October 26, 2016
REPORT OF THE TREASURER
On behalf of the Board of Trustees of Ball State University, I am pleased to submit the Comprehensive Annual Financial Report of Ball State University for the year ended June 30, 2016. The audit opinion letter from the Indiana State Board of Accounts which shows an unmodified opinion appears on the following pages.
Responsibility for the accuracy of the information and for the completeness and fairness of its presentation, including all disclosures, rests with the management of the University. We believe the information presented is accurate in all material respects and necessary disclosures have been made which enable the reader to obtain an understanding of the University’s financial activity.
About Us
Ball State University is steeped in a rich philanthropic history and deeply rooted to the Muncie community of about 70,000 residents. As we look forward to our Centennial celebration in 2018, we reflect on the values and traditional ideals of the past that laid a strong foundation on which to build upon. While the University has grown over the last century, our mission has remained. We strive to provide an affordable exemplary education coupled with top-notch student learning experiences that will prepare our students to excel in their field of study.
“As a public research university, we focus on students and high-quality, relevant educational outcomes. Disciplinary knowledge is integrated with application. We do this in a manner that fundamentally changes students, researchers, and our external partners, who look to the University for guidance. We transform information into knowledge, knowledge into judgement, and judgement into action that addresses complex problems.” -- Ball State University Mission.
The University is home to eight colleges with more than 3,300 faculty members who deliver high-quality instruction, pursue world class research and creative endeavors, and provide exemplary service. Our students have numerous opportunities to engage in entrepreneurial learning and participate in immersive learning projects that partner with community members and organizations.
Strategic Plan
In anticipation of Ball State’s coming centennial milestone, the University’s strategic plan was refreshed to focus on 18 major goals to achieve by our centennial year. The Centennial Commitment (18 by ’18), Ball State’s strategic plan, is comprised of 18 goals, divided into three primary themes. By our centennial anniversary, Ball State will be recognized as: 1) Student- Centered; 2) Community-Engaged; and 3) A Model 21st Century Public Research University. This refreshed strategic plan was thoughtfully crafted and led by a diverse team of faculty, staff, students, administrators, alumni, and community leaders who have partnered in this endeavor with an unwavering commitment to Ball State and its future.
The success of our strategic plan is not only measured by the awards and esteemed acclaim received by our departments, programs, faculty, and students, it is also measure by our by our quantitative outcomes. The total enrollment for fall 2015 was 21,196. Of the 3,527 freshmen enrolled, 74.6 percent earned the Academic Honors Diploma, an average SAT of 1,638 and an average GPA of 3.47. The University also administered more than $200.0 million in merit- and need-based aid. In 2014, our first-year retention rate was 81.6 percent while our four-year graduation rates increased to 44.7 percent. In 2015, our online distance education increased by 15.0 percent over the previous year. Our May 2015 graduates also reported the following placement outcomes: 93.0 percent employed within the first six months; 81.0 percent employed in their field of study; and 74.0 percent work in Indiana.
National recognition
Ball State University is classified as an “R2: Doctoral University: Higher Research Activity” in The Carnegie Classification of Institutions of Higher Education. Respected organizations have recognized the university’s academic programs, cutting-edge facilities and technology, and commitment to sustainability. Here is a sampling:
The Princeton Review has named Ball State one of the best universities in the Midwest for 11 years. Ball State earned the Community Engagement Classification from the Carnegie Foundation for the Advancement of Teaching.
ii Ball State University—2016 Financial Report U.S. News & World Report ranked three graduate programs among the top 25 in the country in its 2016 “Best Online Programs”: education was 11th, MBA was 12th and nursing was 23rd. U.S. News also ranked the online bachelor’s programs 34th. Design Intelligence has consistently ranked our landscape architecture programs in the top 15 in the country. In 2015, the undergraduate program was ranked No. 8 and our graduate program, No. 12. Ball State students and faculty have won 54 Emmys. Our honors also include two gold Student Academy Awards. Since 2004, students from the Department of Theatre and Dance have been invited as national qualifiers to the yearly Kennedy Center American College Theater Festival (KCACTF), one of the nation’s premier events for collegiate theatre programs. The Department of Chemistry has been ranked by the American Chemical Society (ACS) as on the of the largest producers of ACS-accredited chemistry majors in Indiana and in the top ten percent in the nation in the number of graduating ACS-accredited chemistry majors. Ball State students in the residential property management (RPM) program have consistently achieved 100.0 percent pass rates on two national certification exams. The University Professional & Continuing Education Association bestowed the Division of Online and Distance Education a UPCEA Strategic Innovation in Online Education Award in 2014. The Princeton Review named Ball State to its “Top 50 Green Colleges” list, part of its Guide to 353 Green Colleges: 2015 Edition. Recognized for the sixth year, Ball State is the first public institution in Indiana to be listed among the most environmentally responsible colleges and universities in the U.S. and Canada. The University earned a STARS Gold rating from the Association for the Advancement of Sustainability in Higher Education (AASHE). STARS—for Sustainability, Tracking, Assessment & Rating System –takes into account, among many other factors, social responsibility and an institution’s overall environmental stewardship. Ball State’s commitment to sustainability has also been recognized by the National Wildlife Federation, Kiwi magazine, Sierra magazine, and International Sustainable Campus Network and its council on the Environmental (COTE), the longest standing green committee in Indiana’s higher education community, received a Lugar Energy Patriot Award. Victory Media, publisher of G.I. Jobs, STEM Jobs, and Military Spouse, has named Ball State a Military Friendly School for seven years. Campus Technology honored Ball State with two Innovator Awards in 2015. The Achievements app was recognized in the student systems and services category while The Traveler was honored in the education futurist category. The Traveler also was named the large organization winner in the PACT Wayfinding App Challenge. Ball State’s honors for providing a healthy workplace include Health Champion designation in 2016 from the American Diabetes Association, a November 2014 Gold Award from the American Heart Association, and Five Star AchieveWELL recognition from the Wellness Council of Indiana.
Conclusion
Ball State will continue its efforts to differentiate from other public institutions by enhancing the quality of the academic experiences to all students, by attracting students of even higher quality, by supporting strong faculty and academic programs, by enhancing a vibrant University community, and by providing a distinctive impact on the economic well-being of the state of Indiana. As the following financial reports indicate, the University is on solid financial ground, and we will continue to advance Indiana through the relentless execution of our Strategic Plan and distinctive educational opportunities.
Bernard M. Hannon
Vice President for Business Affairs and Treasurer
* This report has been prepared in accordance with United States generally accepted accounting principles (GAAP) for governmental colleges and universities as put forth by the Governmental Accounting Standards Board (GASB). See the accompanying Notes to Financial Statements for a full disclosure of the accounting principles observed.
* GAAP requires that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of the Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found immediately following the Independent Auditor’s Report.
Ball State University—2016 Financial Report iii This financial report has been prepared
By the Office of University Controller
Ball State University, Muncie, Indiana 47306
Ball State University provides equal opportunity to all students and applicants for admission in its education programs, activities, and facilities without regard to race, religion, color, sex (except where sex is a bona fide qualification), sexual orientation, gender identity/gender expression, physical or mental disability, national origin, ancestry, or age.
Ball State University provides equal opportunity to all employees and applicants for employment in its recruitment, hiring, retention, promotion, tenure, transfer, layoff, return from layoff, training, and other employment decisions and in its compensation and benefits programs without regard to race, religion, color, sex (except where sex is a bona fide occupational qualification), sexual orientation, gender identity/gender expression, physical or mental disability, national origin, ancestry, age, or citizenship (for U. S. citizens and protected lawfully-admitted aliens).
The University also takes affirmative action to employ and advance minorities, women, qualified disabled persons, and qualified disabled veterans and veterans of the Vietnam era. Information concerning the University's affirmative action programs can be obtained from the Office of University Compliance, Ball State University, Muncie, IN 47306.
Each line administrator is responsible for ensuring that educational and employment decisions are made and implemented in accordance with the University's equal opportunity and affirmative action policy. All persons involved in the decision-making process, including members of faculty and other employee committees, shall act in a nondiscriminatory manner. The Office of University Compliance is responsible for developing, coordinating, and implementing policies and procedures for institutional compliance with all applicable federal and state equal opportunity laws and regulations and for preparing and monitoring compliance with required affirmative action programs.
Complaints regarding unlawful discrimination should be filed within 45 calendar days following the alleged act or incident giving rise to the complaint in the Office of University Compliance in accordance with the Ball State University Equal Opportunity and Affirmative Action Complaint Investigation Procedure and Appeal Process. A copy of this document may be obtained by contacting the Office of University Compliance.
The President will review the University's equal opportunity and affirmative action policy and programs at least once each year, measure progress against the objectives stated in the affirmative action programs, and report findings and conclusions to the Board of Trustees.
iv Ball State University—2016 Financial Report Ball State University
2015-2016
Thomas C. Bracken, Muncie, IN
E. Renae Conley, Chicago, IL
R. Wayne Estopinal, Jeffersonville, IN
Marianne Glick, Indianapolis, IN
Richard Hall, Carmel, IN
Frank Hancock, Indianapolis, IN
Hollis E. Hughes Jr., South Bend, IN
Matthew Momper, Fort Wayne, IN
Dustin Meeks, Fishers, IN
Officers
Richard Hall ………………………………….……………….………………………………………Chair E. Renae Conley...... (elected January 29, 2016) Vice Chair Frank Hancock...... (ended term January 29, 2016) Vice Chair Thomas C. Bracken ...... Secretary Matthew Momper ...... (elected January 29, 2016) Assistant Secretary Marianne Glick ...... (ended term January 29, 2016) Assistant Secretary Bernard M. Hannon ...... Treasurer
University President (resigned March 25, 2016) Paul W. Ferguson
University President (interim effective March, 26, 2016) Terry S. King
Ball State University—2016 Financial Report v STATE OF INDIANA .." £ Qun OPPORnnTY [ lIPLOYrIt "ATE BOMD or ACCO<,'NTS J02 "'J" T lIo' A 'IIDIGroS STllEIT .:
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Repon on the Financi.1 Statements
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Joyce, CPA Sial<> Examine< viii Ball State University—2016 Financial Report Ball State University Management’s Discussion and Analysis June 30, 2016 The University Ball State University, located in Muncie, Indiana was founded in 1918 as the Indiana State Normal School, Eastern Division. The Ball brothers, a prominent Muncie industrial family, had acquired the land and buildings of a private normal school and donated the property to the State of Indiana. In 1929, the Indiana General Assembly separated the Muncie campus from Indiana State Normal School, naming the Muncie campus Ball State Teachers College. In 1965, the General Assembly renamed the institution Ball State University, in recognition of its significant growth in enrollment and physical facilities, the variety and quality of its educational programs and services, and in anticipation of the much broader role it would be expected to assume in the future. The University is governed by a nine- member Board of Trustees, which includes a full-time student and two members nominated by the Ball State University Alumni Association. All members of the Board are appointed by the Governor of Indiana to four-year terms, except for the Frank A. Bracken Administration Building student member, who is appointed to a two- year term. Ball State University’s eight academic colleges offer six associate-level programs, 170 undergraduate degree programs, 88 masters-level programs, 16 doctoral-level programs and two education specialists programs. The University is fully accredited by the Higher Learning Commission. Various schools, departments and programs are also accredited by numerous other professional agencies, licensing boards, and state agencies. The University operates Indiana’s only K-12 laboratory school, as well as the Indiana Academy for Science, Mathematics and Humanities, the state’s only residential high school for gifted and talented students. Enrollment for fall 2015 totaled 18,231 full-time equivalent students from a total headcount of 21,196. On-campus and blended (on-campus students taking off-campus courses) enrollment totaled 16,118 full-time equivalent students from a total headcount of 16,602. On-campus students come from 46 states, about 36 countries, and every county in Indiana. The University provides on-campus housing in residence halls and apartments for approximately 7,200 students. As of the beginning of the 2015-2016 academic year, the University’s staff and faculty (not including student employees and graduate assistants) totaled approximately 3,097 full-time and 378 part-time personnel. The campus facilities include approximately 125 buildings totaling over seven million gross square feet on over 1,000 acres. The following discussion provides an overview of the financial position of Ball State University (the “University”) for the fiscal years ended June 30, 2016 and 2015, along with comparative financial information for the fiscal year ended June 30, 2014. This discussion and analysis is presented to provide a greater understanding of the University’s financial position and operating activities, and should be read in conjunction with the financial statements and notes to the financial statements. Music Instruction Building Ball State University—2016 Financial Report 1 Management’s Discussion and Analysis Using this Report This financial report includes three basic financial statements: the Statement of Net Position, the Statement of Revenues, Expenses and Changes in Net Position and the Statement of Cash Flows, prepared in accordance with Statement No. 35 of the Governmental Accounting Standards Board, Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities, an Amendment of GASB Statement No. 34, as well as subsequent applicable statements from the GASB. These financial statements focus on the financial condition, results of operations, and cash flows of the University as a whole. Important features of these statements, which are mandated by the Governmental Accounting Standards Board, include: Revenues that are charges for services and goods, including tuition and fees and non-capital grants, are recorded as operating revenues. This means that state appropriations, which are used primarily for operations, are required to be shown as non-operating revenue. Scholarship allowances are required to be recorded in three different places: as a reduction to tuition and fees, as a reduction to room and board and as an operating expense. The user must total the three amounts in order to ascertain the total scholarship aid received by students from the University. Not included in these amounts are scholarship aid received directly by students, as well as loan and work-study aid. Federal and State Scholarships and Grants received by the University, the proceeds of which are reported as a reduction of operating income, are reported as non-operating revenue. Capital assets include construction in progress and infrastructure, as well as completed capital projects and capital acquisitions. In fiscal year 2014-2015, the University implemented GASB Statement No.68, Accounting and Financial Reporting for Pensions, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. The effect of these two statements required the University to record the net pension liability associated with the defined benefit pension plans administered by the Indiana Public Retirement System (INPRS). This liability is comprised of the University’s proportionate share of future retirement benefits. INPRS provides the information used to record all the entries related to the net pension liability. Prior to this implementation, these retirement benefits were only presented in the Notes to Financial Statements. With this implementation, additional information is now required in both the Notes to Financial Statements and the Required Supplemental Information. This financial report also includes, in addition to the basic financial statements referred to above, management’s discussion and analysis, the report of independent auditors, notes to the financial statements and supplemental information. Included also, in accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units-An Amendment of GASB Statement No. 14, separately presented, are the financial statements and significant Student studying between classes notes to the financial statements for the Ball State University Foundation. The Ball State University Foundation is a separate, not-for-profit corporation which solicits, collects and invests donations for the sole benefit of Ball State University. The Foundation’s financial statements are presented in accordance with the reporting principles of the Financial Accounting Standards Board and therefore are not comparable to those of the University. Financial Highlights The total net position of the University increased by $11.5 million compared to the fiscal year 2014-2015, and was driven primarily by increases in restricted expendable net position of $9.4 million and unrestricted net position of $1.8 million. The increase in restricted expendable net position was primarily a result of unspent proceeds from the issue of the bonds to finance the ongoing renovation of Schmidt/Wilson Residence Halls. For fiscal year 2014-2015, the total net position of the University decreased by $12.6 million as compared to fiscal year 2013-2014, and unrestricted net position decreased by $23.7 million. Both decreases were due primarily to the effect of new pension GASB standards. Other significant changes in net position included a decrease in restricted net position for construction of $19.7 million and a related increase to net investment in capital assets of $31.9 million 2 Ball State University—2016 Financial Report Management’s Discussion and Analysis The current ratio for the University, which is calculated by dividing current assets by current liabilities, increased slightly from 4.11 to 1 at June 30, 2015, to 4.37 to 1 at June 30, 2016. The June 30, 2014, ratio was 4.08 to 1. This ratio measures the University’s ability to meet short term obligations with short term assets. One of the most basic determinants of clear financial health is the availability of expendable net position to cover debt should it become necessary to settle those debt obligations. The viability ratio measures the University’s ability to fund these long-term obligations. At June 30, 2016, the University’s viability ratio was 1.28 to 1, down slightly from the June 30, 2015, viability ratio of 1.36 to 1, which was down slightly from the June 30, 2014, viability ratio of 1.45 to 1. A ratio above 1 to 1 indicates that the University is able to respond to adverse conditions as well as attract capital from external resources and fund new objectives. The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position report in summary fashion the financial position of the University as a whole and on its activities, focusing on the University’s net position. These statements include all assets, liabilities, revenues and expenses using the accrual basis of accounting. The only exceptions are gifts, grants, and interest on student loans, which are generally recorded only when received. The following is a summary of the University’s assets, deferred outflows and inflows of resources, liabilities, and net position as of the end of the previous three fiscal years. Net Position As of June 30, 2016, 2015, and 2014 2016 2015 2014 Assets: Current Assets $ 197,320,056 $ 184,617,839 $ 191,275,076 Noncurrent Assets: Capital Assets, Net of Depreciation 664,658,279 644,270,731 630,215,193 Other 166,775,330 160,007,778 173,498,596 Deferred Outflows of Resources 25,062,319 7,589,809 - Total Assets and Deferred Outflows of Resources $ 1,053,815,984 $ 996,486,157 $ 994,988,865 Liabilities: Current Liabilities $ 45,188,700 $ 44,873,801 $ 46,924,772 Noncurrent Liabilities 277,939,539 231,495,147 222,059,906 Deferred Inflows of Resources 5,825,411 6,759,333 - Total Liabilities and Deferred Inflows of Resources $ 328,953,650 $ 283,128,281 $ 268,984,678 Net Position: Net Investment in Capital Assets $ 452,598,279 $ 452,275,434 $ 420,355,193 Restricted 29,598,161 20,239,087 41,061,296 Unrestricted 242,665,894 240,843,355 264,587,698 Total Net Position $ 724,862,334 $ 713,357,876 $ 726,004,187 Total Liabilities, Deferred Inflows of Resources and Net Position $ 1,053,815,984 $ 996,486,157 $ 994,988,865 Ball State University—2016 Financial Report 3 Management’s Discussion and Analysis Current and Noncurrent Assets Current assets, such as cash and cash equivalents, accounts receivable, and inventories, support the current operations of the University. Current assets increased $12.7 million from the previous year primarily due to an increase in Cash and Cash Equivalents of $6.8 million. Accounts Receivable, Net, and Unbilled Costs also increased by $2.3 million while Prepaid Retiree Benefits increased by $2.0 million. The remaining current asset line items showed minimal variance to the prior fiscal year. In fiscal year 2014-2015, current assets decreased $6.7 million from the previous year primarily due to a decrease in Accounts Receivable, Net, and Unbilled Costs in the amount of $7.8 million and a decrease in Deposits with Bond Trustee of $2.1 million. These decreases were offset in part by increases to Cash and Cash Equivalents and Short Term Investments totaling $1.5 million and an increase to Prepaid Retiree Benefits of $1 million. The remaining current asset line items showed minimal variance to the prior fiscal year. Noncurrent assets primarily consist of Other Long Term Investments and Capital Assets, net of depreciation. Noncurrent assets at June 30, 2016, showed a $27.2 million increase over the previous year, primarily due to a $20.4 million increase in Capital Assets, net of depreciation. Other Long Term Investments also increased by $7.1 million over the previous year. Noncurrent assets showed a slight increase at June 30, 2015, over the previous year. However, there was a decrease in Other Long Term Investments of $12.6 million that was offset by an increase of $14.1 million in Capital Assets, net of depreciation. The decrease in long term investments was primarily due to a rebalancing of the portfolio to a more current and liquid strategy to allow the University to meet fiscal obligations while maintaining adequate cash flow. The increase in Capital Assets, net of depreciation for both years shows the University’s continued commitment to enhance and improve the campus facilities which in turn, improves the campus life experience for the students. The Capital Asset section of the Management’s Discussion and Analysis provides greater detail of the projects and renovations addressed during the fiscal year ended June 30, 2016. Deferred Outflows of Resources and Deferred Inflows of Resources Deferred Outflows of Resources and Deferred Inflows of Resources represent consumption or receipt of resources applicable to a future reporting period. The amounts recorded result from the implementation of GASB Statements 68 and 71. The balances reported on these line items represent changes of the net pension liability (total pension liability less the fiduciary net position). Most changes to net pension liability are to be included in pension expense in the period of the change. However, certain changes are required to be expensed over current and future periods. Changes of economic and demographic assumptions or of other inputs and differences between expected and actual experience are required to be recorded as Deferred Outflows of Resources or Deferred Inflows of Resources as appropriate. Changes and differences to Deferred Outflows at June 30, 2016, totaled $17.8 million. Another major component of Deferred Outflows of Resources is the contributions that were made to the plans between the measurement date and the end of the fiscal year. These contributions amounted to $7.3 million at June 30, 2016, and $7.0 million at June 30, 2015. The measurement date of the defined benefit pension plans that are administered by INPRS is June 30, 2015, for the 2015-2016 financial report, and June 30, 2014, for the 2014-2015 financial report. Current and Noncurrent Liabilities Current liabilities consist primarily of trade accounts and interest payable, accrued compensation and related benefits, deposits, unearned revenue, and the current portion of bonds that are payable within one year or less. Accounts payable and accrued liabilities may fluctuate from year to year based on timing of University initiatives and programmatic costs. For fiscal year 2015-2016, the University’s current liabilities increased slightly. For fiscal year 2014-2015, the University’s current liabilities showed only a $2.1 million decrease which directly reflected a decrease in the current portion of bonds payable of $1.7 million. All other components of the current liabilities showed insignificant changes for fiscal year 2014-2015. Noncurrent liabilities are predominantly comprised of bonds payable, pension liability, liability for compensated absences, and the Perkins loan program. Total noncurrent liabilities increased by $46.4 million or 20.1 percent in fiscal Thomas J. Kinghorn Hall 4 Ball State University—2016 Financial Report Management’s Discussion and Analysis year 2015-2016 from fiscal year 2014-2015. Bonds payable (long-term liabilities) increased $27.0 million over the previous fiscal year due to the issuance of new Housing & Dining System Revenue Bonds for the renovation of Schmidt/Wilson Residence Hall and the refunding of older revenue bonds at a lower rate. In fiscal year 2014-2015, total noncurrent liabilities increased by $9.4 million or 4.2 percent. Bonds payable (long-term liabilities) decreased $16.9 million over the previous fiscal year. Due to the new GASB Statements 68 and 71, a line item was added to noncurrent liabilities for pension liability. In prior years, the liability was only required to be disclosed in the notes to the financial statements. The balance was not required to be disclosed within the statements themselves. The effect of the GASB Standards was an increase of $26.4 million to pension liability in fiscal year 2014-2015. The effect of the GASB Standards for fiscal year 2015-2016 was an increase of $20.1 million to pension liability. Debt Administration The University employs various sources such as philanthropy, internal cash reserves, cash appropriations from the State, and bond proceeds to fund new construction and large renovation projects on campus. As of June 30, 2016, the University had $212.1 million of capital-related bond indebtedness outstanding, compared to $192.0 million and $209.9 million outstanding as of June 30, 2015, and June 30, 2014, respectively. The increase in indebtedness is due, as noted above, to the issuance of new Housing & Dining System Revenue Bonds, offset in part by regularly scheduled debt payments as well as refunding of older revenue bonds at a lower rate. All of the University’s bonds are fixed-rate, tax-exempt Schwartz Digital Center in Bracken Library issuances that are secured by student fees or auxiliary revenues, depending on the original purpose of the bond. Ball State University’s rating of AA-/Stable by Standard & Poor’s and Aa3/Stable by Moody’s was reaffirmed in December 2015. S&P noted the University’s fundamental credit strengths, strong balance sheet ratios relative to the rating category, fairly stable enrollment, strong management team with good fiscal planning and policies, and consistently positive financial operations on a full-accrual basis, while Moody’s called out the consistently strong capital and operating support from the State of Indiana and relatively good liquidity. More details regarding the University’s bonds payable are presented in the Notes to Financial Statements. Capital Assets As of June 30, 2016, the University had $452.6 million invested in capital assets, net of accumulated depreciation of $394.8 million and related debt of $212.1 million. Depreciation charges totaled $26.5 million for the current fiscal year. All of these amounts reflect cost of construction rather than replacement cost. As of June 30, 2015, the University had $452.3 million invested in capital assets, net of accumulated depreciation of $371.2 million and related debt of $192.0 million. Depreciation charges totaled $28.3 million for fiscal year 2014-2015. The renovation of Schmidt/Wilson Residence Hall, part of the Johnson Complex, is also progressing on schedule and should be complete for the fall semester of 2017. Work includes a completely new building envelope, new elevators accessing all floors, and new mechanical, electrical, and plumbing systems. When complete, the renovated hall will serve as a living-learning community for the Theatre, Dance, and Design departments. Approximately $23.7 million was spent on the project during fiscal year 2015-2016. Approximately $2.1 million was spent on the design and demolition phases during fiscal year 2014-2015. Ball State University—2016 Financial Report 5 Management’s Discussion and Analysis Conversion of the University’s district heating and cooling system to a geothermal-based system is scheduled to be completed in the summer of 2017. Remaining work includes additional distribution piping and modifications of building systems. All well fields and district energy stations have been completed. Construction expenditures for the system during fiscal year 2015-2016 totaled $3.6 million. Construction expenditures for the system during fiscal year 2014-2015 totaled $12.0 million. Renovation of the Applied Technology Building wrapped up during fiscal year 2014-2015. Along with North Quadrangle Building and Teachers College, Applied Technology was part of the University’s Central Campus Academic Renovation and Utilities Improvement project. Construction expenditures on this project totaled $3.2 million during fiscal year 2015-2016, and over $7.5 million during fiscal year 2014-2015. Several projects made possible by the University’s Cardinal Commitment: Developing Champions capital campaign, were underway during fiscal year 2015-2016. Phase II of projects at the softball and baseball complex concluded with $1.6 million being spent on amenities such as an addition to the softball multi-use building, new press box, grandstands, and restrooms at the baseball field, and site work at both fields. In fiscal year 2014-2015, nearly $2.5 million was spent on improvements to Schmidt/Wilson Residence Hall these facilities, including new artificial turf fields, dugouts, and support buildings. The Vanderly Football Team Complex was completed this spring and will provide an auditorium for team meetings, coaches’ offices, and a trophy room. Approximately $2.4 million was expended on this project during fiscal year 2015-2016. Finally, the installation of new video boards, sound, and playing floor were completed in Worthen Arena, with over $1.0 million being expended during fiscal year 2015-2016. Current operating funds were utilized to purchase $6.3 million in capital equipment in fiscal year 2015-2016 and $6.4 million in fiscal year 2014-2015. Some of these purchases replaced mostly fully-depreciated equipment dispositions Scheumann Family Team Meeting Room in the Ron and Joan Venderly Football Center originally costing $3.0 million in fiscal year 2015-2016 and $3.2 million in fiscal year 2014-2015. 6 Ball State University—2016 Financial Report Management’s Discussion and Analysis Net Position At June 30, 2016, total net position for the University was $724.9 million, up $11.5 million over the previous year. Net position is classified into four categories: net investment in capital assets, restricted nonexpendable, restricted expendable, and unrestricted. Net investment in capital assets accounted for approximately $452.6 million as of June 30, 2016. This balance represents the University’s investment in land, buildings, infrastructure, land improvements, and equipment, and is reported net of accumulated depreciation and related debt. Additional discussion of capital assets is available in the Capital Asset section of this report as well as in the accompanying Notes. Restricted nonexpendable net position remained unchanged from the previous year and accounts for only $0.9 million of net position. These funds represent permanent endowments received by donors, the principal of which must be held in perpetuity with only present and future income earnings being used to support the wishes of the donor. Restricted expendable net position represents funds that have restrictions imposed by third parties in their purpose. Restricted expendable net position increased by $9.4 million in fiscal year 2015-2016, totaling $28.7 million as of June 30, 2016. Of these restricted expendable funds, $22.2 million are funds restricted for construction, such as bond proceeds or state appropriations for repair and rehabilitation, $4.0 million is restricted for external grants, $2.6 million is restricted for student loans, and $11.7 million restricted for debt service, offset by unamortized bond premiums of $16.7 million the balance of which was offset by unrestricted net position. The overall change in restricted expendable net position was primarily due to unspent proceeds from the sale of Housing and Dining System Revenue Bonds offset by bond premium on the same issue. Aside from capital assets and restricted net position, the remaining $242.7 million of net position is in unrestricted net position. Unrestricted net position is not subject to externally imposed restrictions. However, portions of the unrestricted net position are internally restricted for specific authorized purposes at the end of each fiscal year. The specific purposes for which these assets are internally restricted include the stewardship and renewal of capital assets, campus development and infrastructure, technological advancements, self-insurance reserves, prepaid expense for retiree benefits as calculated in accordance with GASB Statement No. 45, unforeseen contingencies, and other purposes. Additionally, the pension liability adjustment required by GASB Statements No. 68 and 71 is recorded as a reduction to unrestricted net position beginning in fiscal year 2014-2015. Each year adjustments to the pension liability will be required and the effect will impact unrestricted net position. Additional information regarding GASB Statements No. 68 and 71 are discussed above in Financial Highlights as well as within the Notes to Financial Statements. Unrestricted net position increased by $1.8 million over the prior fiscal year primarily due to increases in funds set aside for repair and rehabilitation of auxiliary buildings. At June 30, 2015, the University’s net position was $713.4 million. Approximately $452.3 million was comprised of net investment in capital assets. Additionally, the University had other net positions totaling $261.1 million as of June 30, 2015, of which $20.3 million was restricted net position. The $20.3 million restricted net position was comprised of: $0.9 million in nonexpendable endowment restricted for student scholarships, $2.4 million restricted for debt service, $2.5 million restricted for student loans, $10.7 million restricted for construction, and $3.8 million restricted for external grants. Restricted net position decreased by $20.8 million, primarily due to spending of funds restricted for construction projects related to the Johnson A Residence Hall Renovation, Central Campus Academic Renovation, and geothermal conversion. Unrestricted Net Position at June 30, 2015, was $240.8 million, a decrease of $23.7 million over the prior fiscal year. The pension liability adjustment required by GASB Statements No. 68 and 71 was recorded as a reduction to unrestricted net position. Ball State University—2016 Financial Report 7 Management’s Discussion and Analysis Change in Net Position The following is a summary of the revenues and expenses resulting in the changes in net position for the year ended June 30, 2016. Note that, for purposes of this statement, state appropriations are considered non-operating revenues. Change in Net Position Year Ended June 30, 2016, 2015, and 2014 2016 2015 2014 Operating Revenues $ 265,002,481 $ 262,196,219 $ 250,325,765 Operating Expenses 481,846,017 465,096,945 444,560,887 Net Operating Income/(Loss) $ (216,843,536) $ (202,900,726) $ (194,235,122) Net Non-Operating Revenues 220,356,991 204,497,975 193,985,205 Other Revenue – Capital Appropriations and Gifts 7,991,003 14,790,813 18,347,004 Increase in Net Position Before Extraordinary Item $ 11,504,458 $ 16,388,062 $ 18,097,087 Loss from Extraordinary Item - - (10,022,705) Increase in Net Position After Extraordinary Item $ 11,504,458 $ 16,388,062 $ 8,074,382 Net Position - Beginning of Year 713,357,876 726,004,187 717,929,805 Change in Accounting Policy - (29,034,373) - Net Position - End of Year $ 724,862,334 $ 713,357,876 $ 726,004,187 Operating Revenues Operating revenues increase net position and include all transactions that result in sales and/or receipts from goods and services such as tuition and fees, housing, dining and athletics. In addition, federal, state and private grants are considered operating if they are not for financial aid or capital purposes. Revenues from tuition and fees and auxiliary enterprises are reported net of allowances for scholarships. Total operating revenues increased $2.8 million, or 1.1 percent from fiscal year 2014-2015 to fiscal year 2015-2016. Gross revenue from student tuition and fees for fiscal year 2015-2016 increased 2.5 percent while scholarship allowances increased by 5.8 percent resulting in a net revenue increase of $2.0 million. The small rise in tuition and fees resulted from a modest rate increase with a slight enrollment upturn that was offset by an increase in student scholarship and allowances. Auxiliary enterprise revenue for residential life which includes housing and dining increased $0.5 million after scholarship allowances. Revenues, from other auxiliary enterprises, which includes parking, athletic events, and cultural events, increased by $2.3 million. Gross student tuition and fees for fiscal year 2014-2015 increased 1.9 percent while scholarship allowances decreased by 14.6 percent resulting in a net revenue increase of $15.3 million. The large decrease in scholarship allowances resulted from a re-analysis of the calculations that determine if financial aid fits the definition of scholarship allowances or student aid. There is a correlating increase in student aid. The small increase in tuition and fees result from a modest rate increase and slight enrollment decrease. Auxiliary enterprise revenue for residential life which includes housing and dining decreased $2.0 million. The re-tooling of the scholarship allowance calculation also caused a $3.8 million increase in the amount of scholarship allowance applied to residential life. Other auxiliary enterprises includes: revenue from parking, athletic events, and cultural events which produced a decrease of $1.6 million. For fiscal year 2015-2016, grants and contracts revenue increased by a modest $0.6 million from the prior year to total $12.1 million. For fiscal year 2014-2015, grants and contracts revenue decreased by $2.3 million from the prior year to total $11.5 million. The combined balances for sales and services of educational departments and other operating revenue resulted in a $2.6 million decrease for fiscal year 2015-2016 while fiscal year 2014-2015 showed a $2.5 million increase. 8 Ball State University—2016 Financial Report Management’s Discussion and Analysis Total Revenues by Source 2015 2016 2014 2015 2013 2014 Tuition & Fees, Net 8% 6% 9% Scholarships & Grants 15% 13% 33% 31% 14% 33% Grants & Contracts Capital Appropriations & Gifts State Appropriations 29% 30% 29% 10% 10% 10% Auxiliary Enterprises, Net 3% 3%2% 5% 2% 5% Other Revenues Operating Expenses Operating expenses reduce net position and consist of all the costs necessary to perform and conduct the programs and primary purposes of the University. Included in this total are student aid payments of $15.4 million, which are in addition to $68.2 million and $10.2 million in scholarships and auxiliary fee allowances netted against tuition and fees revenue and room and board revenues, respectively. Overall, operating expenses increased $16.8 million, or 3.6 percent over last year. Personnel services increased 2.8 percent or $6.4 million due largely from a 2.0 percent salary increase as well as adding new positions. Benefits increased by $13.5 million (17.7 percent) over the previous year. This large increase was primarily due to the mandatory posting of $15.7 million for pension benefits relating to the Teachers’ Retirement Pre-1996 plan that was paid by the State of Indiana on the University’s behalf compared to $7.2 million in fiscal year 2014-2015; and posting of $7.0 million for contributions to Public Employees’ Retirement Fund and Teachers’ Retirement Fund 1996 for the fiscal year 2014-2015 measurement period, recorded as Deferred Outflow in fiscal year 2014-2015. However, the University’s health care plans experienced a surplus of premiums in excess of claims which helped to offset the impact of the pension adjustments. Included in fiscal year 2014-2015 operating expenses were student aid payments of $15.9 million, which were in addition to $64.4 million and $9.8 million in scholarships and auxiliary fee allowances netted against tuition and fees revenue and room and board revenues, respectively. In total, operating expenses increased $20.5 million (4.6 percent) over fiscal year 2013-2014. Personnel services increased 3.5 percent or $7.8 million due largely from a 3.0 percent salary increase as well as adding new positions. Benefits decreased by $3.2 million (4.0 percent) over the previous year even after the inclusion of $7.2 million for pension benefits relating to the Teachers Retirement Pre-1996 plan that were paid by the State of Indiana on the University’s behalf. The offset consisted of even larger savings that were experienced in the self-funded healthcare plan when compared to fiscal year 2013-2014. The University switched third party administrators for claims processing on April 1, 2014. The fiscal year 2014-2015 was the first complete year of realized savings from discounts with providers. Fiscal year 2013-2014 also experienced catastrophic health care claims in excess of premiums that were not present in the most recent fiscal year. The University 90% Health Plan Migration purchased stop loss insurance during Low Deductible the 2014-2015 fiscal year to help 78% 80% High Deductible Wellness reduce the fluctuation and effect of High Deductible HSA 70% large claims. 62% 57% 59% 60% In fiscal year 2015-2016, Repairs and 53% 48% maintenance increased by $2.2 million 50% 43% 43% over the previous year, offset by a 40% $2.2 million decrease in other supplies 34% 29% and expenses. Depreciation expense 30% 26% 26% 21% 24% decreased by $1.9 million or 18% 20% 18% 18% 6.6 percent over the prior fiscal year, 14% 15% while utilities declined by $0.8 million 10% 9% 4% or 6.4 percent. Fiscal year 2014-2015 0% recorded a reduction of 3.1 percent or 2009 10 2010 11 2011 12 2012 13 2013 14 2014 15 2015 16 $2.7 million decrease in other supplies Ball State University—2016 Financial Report 9 Management’s Discussion and Analysis and expense. Depreciation expense increased by $3.7 million or 15.1 percent compared to fiscal year 2013-2014. There were increases for repairs and maintenance of $3.8 million due to an increase in improving and repairing our facilities to maximize utility potential and safety. Utilities posted a decrease of 2.7 percent due primarily to the geothermal energy efficiencies. The largest area of uncertainty in budgeting operating expenses comes from managing the self-insurance health care plan. As more initiatives of the Patient Protection and Affordable Care Act come into effect, we try to anticipate the effects on health care expenses. The University is diligent in working to control costs and still provide competitive benefit rich plans. Employees receive an incentive to migrate to consumer driven heath care plans. The University has been able to reduce premiums paid by both employee and the University, while at the same time reducing medical claims in the consumer driven health care plans. Since fiscal year 2006-2007, premiums have actually seen a reduction in two of the three health care plans offered by the University. The University is committed to providing health enhancement wellness programs to employees to not only improve their level of health but also to improve their quality of life by expanding its health enhancement program activities, including offering free health risk assessments and screenings to employees and their spouses, incentives for participation in wellness activities, free tobacco cessation programs, and continuing to work with employees on managing their chronic health conditions. The University also continues to monitor and make appropriate changes to the various health plans to encourage good consumer behavior, such as use of generic drugs and preventative care to control costs, without adversely affecting medical care. Due to these cost saving measures, a contribution to the Voluntary Employee Beneficiary Association (VEBA) Trust was not necessary in fiscal year 2015-2016. Although a payment was not required to meet our baseline obligations, making payments to the VEBA Trust is necessary to ensure the continued growth and renewed commitment to provide Retiree Health Care to current and future retirees. Therefore, the surplus experienced during fiscal year 2014-2015 in the amount of $1.6 million was contributed to the VEBA during the 2015-2016 fiscal year. Total Expenses by Source 2015 2016 2014 2015 2013 2014 Salaries & Benefits 6% 5% 3% 6% 1% 3% 2% Interest on Capital Asset Related Debt Other Operating Expenses 23% 24% 24% Student Aid Payments 2% 66% 65% 66% Extraordinary Loss 2% 2% Depreciation Non-Operating Revenues and Expenses Non-operating revenues increase net position, and non-operating expenses reduce net position. Non-operating revenues and expenses are generated from transactions that are primarily non-exchange in nature, consisting mainly of state appropriations, federal and state scholarships and grants, private gifts, interest expense and investment income (interest and dividend income and realized and unrealized gains and losses). Overall, net non-operating revenues increased $15.9 million or 7.8 percent. For fiscal year 2015-2016, state operating appropriations distributed to the University increased by $0.7 million from $143.4 million to $144.1 million. Revenues from private gifts increased 22.9 percent to $8.3 million. For fiscal year 2014-2015, state operating appropriations distributed to the University increased by $1.8 million from $141.5 million to $143.4 million. Revenues from private gifts decreased 8.0 percent to $6.7 million. Federal and State Scholarships and Grants increased by 3.9 percent during fiscal year 2015-2016 to $49.9 million from $48.0 million in the previous year. Federal and State Scholarships and Grants increased by 1.8 percent during fiscal year 2014-2015 to $48.0 million from $47.2 million in the previous year. State Pension Contributions is related to the contributions the State of Indiana pays on behalf of the University to INPRS for the Teachers Retirement Plan Pre-1996 Account. The amount of these contributions for fiscal year 2015-2016 was $15.7 million and $7.2 million for fiscal year 2014-2015. Other 10 Ball State University—2016 Financial Report Management’s Discussion and Analysis Non-Operating Income consists primarily of head count funds (formerly ADM receipts) for the Indiana Academy for Science, Mathematics and Humanities and for the Burris Laboratory School, plus an insurance recovery for damage caused by a broken water line in Bracken Library. Other Non-Operating Income increased $2.1 million over the previous year. Investment income may fluctuate from day to day as the amounts reported are tied to market fluctuations and unrealized losses at any given time. At June 30, 2016, investment income increased slightly to $3.4 million from $2.8 million. At June 30, 2015, investment income showed modest gains of $2.8 million from $2.4 million. Other Revenues Other revenues increase net position and consist Renewal and Replacement Appropriations of capital appropriations, gifts and grants, as well (millions of dollars) as items that are typically non-recurring, extraordinary, or unusual to the University. 2011 2012 2013 2014 2015 2016 As discussed in the Net Position section, the $2.5 $4.3 $0.0 $14.2 $13.8 $3.6 State of Indiana’s biennial appropriations to the University typically include an appropriation of capital renewal and replacement funds for state-supported buildings. The funding amount is based on a formula that takes into account the age, condition, and use of the campus facilities. In recent years, the state has not allocated full funding for capital renewal and replacement appropriations due to the financial condition of the state. Renewal and replacement appropriations received between 2010 and 2012 were from federal stimulus funds, which were fully expended as of the end of fiscal year 2011-2012. Renewal and replacement appropriations received in fiscal year 2015-2016 include $2.6 million ($2.4 million for fiscal year 2014-2015) in appropriations for general repair and rehabilitation and $1.0 million ($11.4 million in fiscal year 2014-2015) in draws against the $30.0 million appropriation for the University’s geothermal conversion project. Capital gifts from the Ball State University Foundation totaled $4.4 million ($1.0 million for fiscal year 2014-2015) for various capital projects. Statement of Cash Flows The Statement of Cash Flows provides relevant information about the cash receipts and cash payments of the University during the period. Unlike the Statement of Revenues, Expenses and Changes in Net Position, which reports revenues when they are earned and expenses when they are incurred, regardless of when cash is received or disbursed, the Statement of Cash Flows reports actual cash received and disbursed. The focus of the Statement of Cash Flows is on the increase or decrease in cash and cash equivalents. The Statement of Cash Flows helps the user assess the University’s ability to generate future net cash flows, meet obligations as they come due, and assess the University’s needs for external financing. The following is a comparison of the University’s changes in cash and cash equivalents for the previous three fiscal years. Cash Flows Year Ended June 30, 2016, 2015, and 2014 2016 2015 2014 Cash and Equivalents Provided By/(Used In): Operating Activities $ (197,239,908) $ (178,932,726) $ (162,669,962) Non-Capital Financing Activities 227,332,132 220,292,407 188,239,256 Capital and Related Financing Activities (19,726,858) (55,061,543) (8,282,170) Investing Activities (3,600,884) (4,459,029) (39,448,352) Net Increase in Cash and Equivalents $ 6,764,482 $ (18,160,891) $ (22,161,228) Cash and Equivalents – Beginning of Year 104,459,019 122,619,910 144,781,138 Cash and Equivalents – End of Year $ 111,223,501 $ 104,459,019 $ 122,619,910 Ball State University—2016 Financial Report 11 Management’s Discussion and Analysis The major components of cash flows provided from operating activities are tuition and fees, net of scholarship allowances and auxiliary enterprise activities (housing and dining fees). Tuition and fees, net of scholarship allowances increased $2.4 million, and payments for scholarships and fellowships decreased by $1.4 million. In fiscal year 2014-2015, tuition and fees, net of scholarship allowances increased $16.5 million that was offset by an increase in payments for scholarships and fellowships of $10.5 million. This shift resulted from a change in the calculation of scholarship allowances. Auxiliary enterprise activities for room and board for fiscal year 2015-2016 showed a negligible increase while other auxiliary services increased $2.3 million over the prior year due to an increase in utilization. In fiscal year 2014-2015, auxiliary enterprise activities showed a slight decrease of $2.1 million than in the prior year due to a decrease in utilization. The major components of cash flows used in operating activities are payments for employees (including benefits) and payments to suppliers and service providers. Compared to the prior year, more cash was expended for personnel services and benefits for a combined total of $17.6 million in fiscal year 2015-2016. This increase is largely due to the increase in pension expense required for the TRF Pre-1996 Plan of $15.7 million. Students interacting in Miller College of Business The payments for supplies decreased $13.6 million for cash flow purposes. In fiscal year 2014-2015, more cash was again expended for personnel services and benefits for a combined total of $7.7 million or 2.5 percent increase over the previous year. The payments for supplies increased $16.8 million for cash flow purposes. Cash flows provided from non-capital financing activities primarily reflect state appropriations received of $146.6 million, a decrease of $6.1 million from the prior year. The University also received scholarships and grants from federal and state sources of $49.9 million which closely tracks with the $48.0 million from fiscal year 2014-2015. There was an increase of $8.5 million for State provided pension payments that offset the increase shown above for benefits payments under the operating activities section of the cash flow. In fiscal year 2014-2015, cash flows provided from non-capital financing activities primarily reflect state appropriations received of $152.7 million and scholarships and grants from federal and state sources of $48.0 million. Cash flows from capital financing activities reflect a decrease in cash of $19.7 million for the year. The University had proceeds from capital debt of $60.7 million which were offset by capital asset payments of $47.0 million and principal payments on capital debt of $33.2 million. In fiscal year 2014-2015, cash flows from capital financing activities reflect a decrease in cash for the year, due primarily to cash expenditures of $44.5 million for capital assets in fiscal year 2014-2015. Debt service was $27.5 million in fiscal year 2014-2015. Capital appropriations of $13.8 million were also a major component in fiscal year 2014-2015. Cash flows from investing activities, most of which consists of reinvesting the proceeds from investments as they mature, resulted in a net decrease in cash of $3.6 million for fiscal year 2015-2016, and a decrease of $4.5 million for fiscal year 2014-2015, while cash and cash equivalents were increased by $6.8 million for fiscal year 2015-2016, and reduced by $18.2 million in fiscal year 2014-2015. Economic Factors That Will Affect the Future According to the National Association of State Budget Officers’ Spring 2016 Fiscal Survey of States, estimated state general fund spending and revenues in fiscal 2015-2016, surpassed their fiscal 2007-2008, pre-recession peak levels in real terms for the first time, after adjusting for inflation. The study went on to point out that states across the country continue to face budgetary challenges, including: spending requirements on K-12 education, health care and other core service areas growing faster than state revenues; unfunded pension liabilities; a pent-up need for infrastructure investment; and the fiscal and economic impacts of declining oil prices. 12 Ball State University—2016 Financial Report Management’s Discussion and Analysis In December 2015, Moody’s Investors Service announced a stable outlook for U.S. higher education. In its report, Moody’s noted that all revenue streams, including net tuition revenue, state funding, investment income, and philanthropy, are expected to rise modestly throughout 2016. Moody’s says universities will continue to face challenges of containing expenses while attempting to invest sufficiently to remain competitive. Following a four-year stretch in which it issued more ratings downgrades than upgrades, Standard and Poor’s announced a bifurcated outlook for 2016. Whereas the service expects institutions with strong demand, growing resources, and national or international reputations to improve their credit quality, it warned that smaller, regional institutions will continue to struggle to differentiate their brands, which will require additional investment and resources that could have a negative impact on their credit profiles. The University’s ratings for all Miller College of Business faculty and student interaction outstanding debt were confirmed in December 2015 by Moody’s (Aa3/stable outlook) and Standard & Poor’s (AA-/stable outlook). Ball State University, as a public university, relied on the State of Indiana for less than 29.0 percent of the total financial resources in fiscal year 2015-2016. State revenues for fiscal year 2015-2016 were 0.7 percent below forecast and 0.5 percent below fiscal year 2014-2015, but the state was still able to close the year with a $50.6 million surplus. State reserves of $2.2 billion are the largest amount in state history. The State of Indiana is rated Aaa by Moody’s and AAA by Standard & Poor’s, making it one of only a handful of states with top rankings by both ratings agencies. State revenues are forecasted to grow by 1.5 percent in fiscal year 2015-2016 and an additional 2.4 percent in fiscal year 2016-2017. Since 2004, the State of Indiana has used a performance funding formula for higher education. The formula is drafted and managed by the Indiana Commission for Higher Education (ICHE), which uses the formula to recommend funding to the Indiana legislature for appropriations to the various public universities in the state. The funding formula has changed somewhat in each of the last several biennial budget cycles. The two constants in the funding formula have been to recommend increases in funding to campuses that increase the number of degrees awarded, primarily to resident undergraduate students, and to campuses that increase graduation rates. Because Ball State has focused on increasing the quality of the student body and the quality of our educational experiences, as opposed to the quantity of our student body, the University has not fared as well during the early performance funding budget years as some of the growing and larger campuses in the state. However, due to deliberate actions taken by the University to improve the quality of the student body, Ball State is currently performing quite well under the performance funding metrics. In the most recent manifestation of the performance funding formula, Ball State is classified as a research campus and earns funding under the formula primarily for an increase in the number of degrees awarded to resident students, increases in the number of “high-impact” degrees awarded to resident students (as chosen by ICHE, primarily in Science, Technology, Engineering, and Math (STEM) disciplines), increases in the resident undergraduate four-year graduation rate, and some measure of efficiency. Ball State takes very seriously the goals set forth by ICHE in creating their budget recommendations. With an eye toward increasing the amount of funding that Ball State receives under the performance funding formula, while being true to our strategic direction of becoming better and not bigger, the University continues to focus on enrolling students who are increasingly better academically prepared. In part because of our increasing selectivity in student admissions, and in part through a concerted set of policy initiatives, the University’s graduation and retention rates have been growing steadily and substantially. In fact, in a study conducted by the Indiana Commission for Higher Education, Ball State showed the largest increase in on-time (within four years) graduation rates among all Indiana public universities between 2009 and 2014. The increase in selectivity of the University’s student body is demonstrated in the fall 2016 freshman class who continue the tradition of strong academic abilities, posting an average GPA of 3.45. Also, 71.0 percent earned the Indiana Academic Honors Diploma or its equivalent, an eight point increase since 2012. The average SAT for the fall 2016 freshman class was 1611, above the national norm. Ball State University—2016 Financial Report 13 Management’s Discussion and Analysis Ball State also rolled out a four-point affordability plan in the fall of 2011, designed to both increase the graduation rate and to keep college affordable for students and families. The four-point plan included: (1) reducing the number of credit hours required for a baccalaureate degree from 126 to 120 for most majors; (2) allowing students to take on-line courses as part of the 12-18 credit hour bracket for no additional charge, giving students the ability to complete more credit hours for less money and more flexibility in scheduling courses; (3) reducing the cost of summer school; and (4) granting a $500 Completion Scholarship to any resident student who graduated in four calendar years or less. These policies and initiatives are expected to increase the performance of the University as measured in the performance funding formula. Indeed, in the last budget cycle Ball State made progress on all but a single performance funding metric used by the state to fund research campuses. Furthermore, because of the lag in data used by the state of Indiana in the performance funding formula, Ball State already knows that it will show positive progress on the funding metrics when the 2017 Indiana General Assembly meets to pass the 2017-2019 biennial budget. Students in front of the Fine Arts Building which houses the David Owsley Museum of Art Conclusion In summary, as the financial statements indicate, the University has been an effective steward of the human, physical and financial resources entrusted to it, based on a planned approach to addressing long-term needs and liabilities while facing shorter-term challenges not unlike other public institutions nationwide. When all of this is taken into consideration, Ball State University remains in a strong position to be a major asset of significant benefit to the citizens of the State of Indiana. 14 Ball State University—2016 Financial Report This page intentionally left blank Ball State University—2016 Financial Report 15 Financial Statements Ball State University Statement of Net Position As of June 30, 2016 and 2015 2016 2015 Assets: Current Assets: Cash and Cash Equivalents $ 111,223,501 $ 104,459,019 Short Term Investments 19,879,365 19,663,050 Accrued Interest Receivable – Investments 766,684 500,329 Accounts Receivable, Net, and Unbilled Costs 31,135,451 28,862,591 Inventories 1,513,991 1,254,194 Deposit with Bond Trustee 16,595,802 16,162,358 Notes Receivable, Net 1,709,024 1,862,104 Prepaid Retiree Benefits 11,758,766 9,799,088 Prepaid Expenses 2,737,472 2,055,106 Total Current Assets $ 197,320,056 $ 184,617,839 Noncurrent Assets: Endowment Investments $ 906,730 $ 1,512,221 Accounts and Notes Receivable, Net 8,371,985 8,126,153 Other Long Term Investments 157,496,615 150,369,404 Capital Assets, Net 664,658,279 644,270,731 Total Noncurrent Assets $ 831,433,609 $ 804,278,509 Total Assets $ 1,028,753,665 $ 988,896,348 Deferred Outflows of Resources: Pension Contributions $ 25,062,319 $ 7,589,809 Total Assets and Deferred Outflows of Resources $ 1,053,815,984 $ 996,486,157 Liabilities: Current Liabilities: Accounts Payable and Accrued Liabilities $ 26,155,914 $ 25,406,353 Deposits 6,465,722 7,356,456 Unearned Revenue 887,064 505,992 Long Term Liabilities – Current Portion 11,680,000 11,605,000 Total Current Liabilities $ 45,188,700 $ 44,873,801 Noncurrent Liabilities: Liability for Compensated Absences $ 7,140,578 $ 7,210,059 Pension Liability 46,473,866 26,418,822 Perkins Loan Program – Federal Capital Contribution 8,365,923 8,898,835 Long Term Liabilities, Net 215,959,172 188,967,431 Total Noncurrent Liabilities $ 277,939,539 $ 231,495,147 Total Liabilities $ 323,128,239 $ 276,368,948 Deferred Inflows of Resources: Pension Contributions $ 5,825,411 $ 6,759,333 Total Liabilities and Deferred Inflows of Resources $ 328,953,650 $ 283,128,281 Net Position: Net Investment in Capital Assets $ 452,598,279 $ 452,275,434 Restricted for: Nonexpendable Scholarships 906,730 908,931 Expendable: Debt Service - 2,362,261 Loans 2,571,716 2,485,679 Construction 22,158,027 10,706,650 External Grants 3,961,688 3,775,566 Unrestricted 242,665,894 240,843,355 Total Net Position $ 724,862,334 $ 713,357,876 Total Liabilities, Deferred Inflows of Resources and Net Position $ 1,053,815,984 $ 996,486,157 See accompanying Notes to Financial Statements 16 Ball State University—2016 Financial Report Financial Statements Ball State University Foundation Combined and Consolidated Statements of Financial Position As of June 30, 2016 and 2015 2016 2015 Assets: Cash and cash equivalents $ 2,825,081 $ 2,223,881 Certificates of deposit 261,332 633,355 Contributions receivable, net 10,437,320 11,859,256 Investments 193,257,425 203,663,336 Investments held in split-interest agreements 1,821,156 2,460,829 Beneficial interest in remainder trusts 1,069,534 1,108,856 Other assets 711,661 643,960 Cash surrender value of life insurance 1,765,847 1,766,912 Property and equipment 9,818,314 8,918,468 Beneficial interest in perpetual trusts 2,377,444 2,521,399 Total assets $ 224,345,114 $ 235,800,252 Liabilities: Accounts payable $ 10,102,859 $ 4,770,886 Accrued expenses 705,330 203,401 Line of credit 2,000,000 1,000,000 Notes payable 340,000 340,000 Term notes payable 12,300,000 13,300,000 Annuity obligations 2,133,484 2,163,366 Trust obligations 570,303 653,160 Total liabilities 28,151,976 22,430,813 Net Assets: Unrestricted (9,089,090) 1,512,927 Temporarily restricted 130,697,089 138,216,925 Permanently restricted 74,585,139 72,084,287 Total net assets 196,193,138 211,814,139 Total liabilities and net assets $ 224,345,114 $ 234,244,952 See Note A in Notes to Financial Statements Ball State University—2016 Financial Report 17 Financial Statements Ball State University Statement of Revenues, Expenses and Changes in Net Position Years Ended June 30, 2016 and 2015 2016 2015 Operating Revenues: Student Tuition and Fees $ 232,846,880 $ 227,094,099 Scholarship Allowances (68,154,632) (64,402,799) Net Student Tuition and Fees $ 164,692,248 $ 162,691,300 Federal Grants and Contracts 5,561,193 5,561,137 State & Local Grants and Contracts 2,584,002 1,622,278 Non-Governmental Grants and Contracts 3,972,010 4,345,768 Sales and Services of Educational Departments 9,094,559 10,509,521 Auxiliary Enterprises: Residential Life (Net of Scholarships and Allowances: 2016 - $10,226,374; 2015 - $9,793,970) 55,934,465 55,414,926 Other 11,535,834 9,244,856 Other Operating Revenues 11,628,170 12,806,433 Total Operating Revenues $ 265,002,481 $ 262,196,219 Operating Expenses: Personnel Services $ 237,570,267 $ 231,215,375 Benefits 89,808,828 76,308,128 Utilities 11,968,177 12,791,665 Repairs and Maintenance 19,432,632 17,187,467 Other Supplies and Expenses 81,160,280 83,362,786 Student Aid 15,417,584 15,884,773 Depreciation 26,488,249 28,346,751 Total Operating Expenses $ 481,846,017 $ 465,096,945 Operating Income/(Loss) $ (216,843,536) $ (202,900,726) Non-Operating Revenues/(Expenses): Federal and State Scholarship and Grants $ 49,905,136 $ 48,015,068 State Appropriations 144,084,123 143,352,066 Investment Income 3,403,502 2,834,541 Interest on Capital Asset Related Debt (8,118,784) (8,718,647) Private Gifts 8,255,215 6,715,720 State Pension Contributions 15,717,760 7,249,126 Other Non-Operating Income 7,110,039 5,050,101 Net Non-Operating Revenues/(Expenses) $ 220,356,991 $ 204,497,975 Income Before Other Revenues, Expenses, Gains or Losses $ 3,513,455 $ 1,597,249 Capital Appropriations 3,603,291 13,780,490 Capital Gifts 4,387,712 1,010,323 Increase in Net Position $ 11,504,458 $ 16,388,062 Net Position – Beginning of Year 713,357,876 726,004,187 Change in Accounting Policy - (29,034,373) Net Position – End of Year $ 724,862,334 $ 713,357,876 See accompanying Notes to Financial Statements 18 Ball State University—2016 Financial Report Ball State University—2016 Financial Report Ball State University Foundation Combined and Consolidated Statements of Activities Years Ended June 30, 2016 and 2015 2016 2015 Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Contributions $ 1,374,038 $ 11,192,284 $ 2,195,434 $ 14,761,756 $ 1,881,775 $ 9,907,271 $ 600,739 $ 12,389,785 Promotional activities and other revenue 373,760 - - 373,760 280,364 - - 280,364 Investment income, net of fees (7,430,588) (1,966,319) 238,006 (9,158,901) (1,794,241) 8,249,966 216,992 6,672,717 Change in value of split-interest agreements (48,331) (45,864) (129,762) (223,957) (20,785) (132,976) 356,379 202,618 Rental and other income 769,578 - - 769,578 817,644 - - 817,644 Operating support fees 1,626,804 (1,604,624) (22,180) - 1,567,998 (1,553,179) (14,819) - (3,334,739) 7,575,477 2,281,498 6,522,236 2,732,755 16,471,082 1,159,291 20,363,128 Net assets released from restrictions 14,575,959 (14,795,313) 219,354 - 7,777,752 (7,533,944) (243,808) - Total revenues, gains and other support 11,241,220 (7,219,836) 2,500,852 6,522,236 10,510,507 8,937,138 915,483 20,363,128 Expenses University programs 15,079,175 - - 15,079,175 11,779,596 - - 11,779,596 Management and general 4,664,533 - - 4,664,533 2,586,200 - - 2,586,200 Fund raising 3,954,829 - - 3,954,829 3,731,169 - - 3,731,169 Total expenses 23,698,537 - - 23,698,537 18,096,965 - - 18,096,965 Change in Net Assets (12,457,317) (7,219,836) 2,500,852 (17,176,301) (7,586,458) 8,937,138 915,483 2,266,163 Net Assets, Beginning of Year 3,368,227 137,916,925 72,084,287 213,369,439 10,954,685 128,979,787 71,168,804 211,103,276 Net Assets, End of Year $ (9,089,090) $ 130,697,089 $ 74,585,139 $ 196,193,138 $ 3,368,227 $ 137,916,925 $ 72,084,287 $ 213,369,439 See Note A in Notes to Financial Statements FinancialStatements 19 Financial Statements Ball State University Statement of Cash Flows Years Ended June 30, 2016 and 2015 2016 2015 Source / (Uses) of Cash: Operating Activities: Tuition and Fees $ 165,202,159 $ 162,817,975 Grants and Contracts 3,537,766 12,128,904 Payments to Suppliers (80,811,702) (94,395,770) Payments for Maintenance and Repair (19,432,632) (17,187,467) Payments for Utilities (11,968,177) (12,791,665) Payments for Personnel Services (237,436,462) (231,274,876) Payments for Benefits (91,507,786) (80,064,652) Payments for Scholarships and Fellowships (14,980,396) (16,339,617) Auxiliary Enterprise Charges: Room and Board 55,459,438 55,334,855 Other 11,535,834 9,244,856 Sales and Services of Educational Activities 9,100,423 10,679,712 Other Receipts/Disbursements/Advances 14,061,627 22,915,019 Net Cash Provided/(Used) by Operating Activities $ (197,239,908) $ (178,932,726) Non-Capital Financing Activities: Federal and State Scholarships and Grants $ 49,905,136 $ 48,015,068 State Appropriations 146,596,782 152,696,404 William D. Ford Direct Lending Receipts 122,363,697 121,579,718 William D. Ford Direct Lending Disbursements (122,616,497) (121,013,730) Private Gifts 8,255,215 6,715,720 State Pension Contributions 15,717,760 7,249,126 Foundation Receipts 518,364 2,067,031 Foundation Disbursements (518,364) (2,067,031) Other Non-Operating Revenue 7,110,039 5,050,101 Net Cash Provided/(Used) by Non-Capital Financing Activities $ 227,332,132 $ 220,292,407 Capital Financing Activities: Proceeds from Capital Debt $ 60,687,295 $ - Capital Appropriations 3,603,291 13,780,490 Capital Gifts 4,387,712 1,010,321 Purchases of Capital Assets (47,046,373) (44,459,905) Principal Paid on Capital Debt (33,165,000) (17,865,000) Interest Paid on Capital Debt (7,760,339) (9,616,085) Deposits with Trustee (433,444) 2,088,636 Net Cash Provided/(Used) by Capital Financing Activities $ (19,726,858) $ (55,061,543) Investing Activity: Proceeds from Sales and Maturities of Investments $ 101,815,981 $ 143,011,563 Interest on Investments 2,493,682 2,215,661 Purchase of Investments (107,910,547) (149,686,253) Net Cash Provided/(Used) by Investing Activities $ (3,600,884) $ (4,459,029) Net Increase/(Decrease) in Cash $ 6,764,482 $ (18,160,891) Cash – Beginning of the Year 104,459,019 122,619,910 Cash – End of the Year $ 111,223,501 $ 104,459,019 20 Ball State University—2016 Financial Report Financial Statements Ball State University Statement of Cash Flows Years Ended June 30, 2016 and 2015 2016 2015 Reconciliation of Net Operating Revenues/(Expenses) to Net Cash Provided/(Used) by Operating Activities: Operating Income/(Loss) $ (216,843,536) $ (202,900,726) Adjustments to Reconcile Income/(Loss) to Net Cash Provided/(Used) by Operating Activities: Depreciation Expense 26,488,249 28,346,751 Equipment Retired 170,575 2,057,616 Changes in Assets and Liabilities: Operating Receivables, Net (4,532,720) (2,080,230) Inventories (259,797) 9,141 Other Assets (2,642,044) (1,105,503) Accounts Payable (64,440) 130,508 Unearned Revenue 381,072 (32,600) Deposits Held for Others (1,423,646) (222,716) Compensated Absences (69,481) (147,303) Pension Liability 20,055,044 (2,615,551) Deferred Outflows (17,472,510) (7,589,809) Deferred Inflows (933,922) 6,759,333 Long Term Accounts and Notes Receivable (92,752) 458,363 Net Cash Provided/(Used) by Operating Activities $ (197,239,908) $ (178,932,726) See accompanying Notes to Financial Statements Ball State University—2016 Financial Report 21 Financial Statements Ball State University Foundation Combined and Consolidated Statements of Cash Flows Years Ended June 30, 2016 and 2015 2016 2015 Operating Activities Change in net assets $ (17,176,301) $ 2,266,163 Items not requiring(providing) cash: Depreciation and amortization 293,789 246,221 Bad debts 447,523 251,020 Net realized and unrealized (gains) on investments 7,725,803 (6,979,088) Gain on sale of property and equipment (1,814) (298,028) Change in value of trusts 183,277 124,126 Contributions of marketable equity securities (688,230) (675,644) Contributions restricted for long-term investment (2,195,434) (600,739) Net change in value of split-interest agreements 526,934 (323,884) Changes In Contributions receivable, including amortization of discount on pledges receivable 974,413 333,137 Other assets (67,701) (177,446) Accounts payable and accrued expenses 5,833,902 (2,443,813) Net cash used in operating activities (4,143,839) (8,277,975) Investing Activities Purchase of property and equipment (3,130,786) (966,969) Proceeds from property and equipment and sale of real estate 1,938,965 2,108,882 Purchase of investments and certificates of deposit (20,501,774) (33,838,903) Sales and maturities of investments and certificates of deposit 24,242,135 42,166,309 Net (increase) decrease in cash surrender value of life insurance 1,065 (86,175) Net cash provided by investing activities 2,549,605 9,383,144 Financing Activities Borrowings under line of credit agreement 6,850,000 3,200,000 Payments under line of credit agreement (5,850,000) (3,400,000) Proceeds from term notes payable - 10,000,000 Reduction of term notes payable (1,000,000) (11,000,000) Proceeds from contributions restricted for investment in permanent endowment 2,195,434 600,739 Net cash used in financing activities 2,195,434 (599,261) Net Increase in Cash 601,200 505,908 Cash and Cash Equivalents, Beginning of the Year 2,223,881 1,717,973 Cash and Cash Equivalents, End of Year $ 2,825,081 $ 2,223,881 Interest Paid $ 316,215 $ 186,280 See Note A in Notes to Financial Statements 22 Ball State University—2016 Financial Report Ball State University Notes to Financial Statements June 30, 2016 Note A – Significant Accounting Policies Reporting Entity Ball State University (University) is a public institution of higher education governed by a nine-member Board of Trustees in accordance with IC 21-19-3. The University is considered to be a component unit of the State of Indiana. The Governor of Indiana appoints the Trustees, one of whom is a full-time student at the University and two of whom are nominated or selected by the Ball State University Alumni Association. All members of the Board of Trustees are appointed for terms of four years, except for the student member whose term is two years. No more than six of the non-student Trustees may be of the same sex, and at least one of them must be a resident of Delaware County, Indiana. The University is included in the State’s financial statements as a discrete component unit. Transactions with the State of Indiana relate primarily to: appropriations for operations, repairs and rehabilitations, and debt service for academic buildings; appropriations and other revenues for operation of the Indiana Academy for Science, Mathematics, and Humanities; grants for other purposes; and payments to State retirement programs for University employees. Financial Statements The financial statements of the University are prepared in accordance with the principles outlined in Statement No. 35 of the Governmental Accounting Standards Board (GASB). The University has elected to report its financial results as a special- purpose government engaged only in business-type activities, using proprietary fund accounting and financial reporting. Required financial statements consist of: Management’s Discussion and Analysis Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Notes to Financial Statements Required Supplemental Information other than Management Discussion and Analysis. The financial statements have been prepared using the economic resource measurement focus and the accrual basis of accounting with the following exceptions, which are common practices in colleges and universities: Interest on student loans is recorded only when received. Gifts are recorded when received. Major sources of revenues recorded in advance of the year in which the predominant amount of service is rendered are classified as unearned revenue on the Statement of Net Position. Advances on exchange activities are recorded as unearned revenue. All other earned receipts are reported as revenue in the period they are received. Internal service activity revenues, including overhead charges, are offset against the expenses of internal service activities. Restricted and unrestricted resources are spent and tracked at the discretion of the department within the guidelines of donor restrictions. During fiscal year 2014-2015, the University adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. Statement No. 68 required governments providing defined benefit pensions to recognize their unfunded pension benefit obligation as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. Statement No. 71 was a clarification to GASB Statement No. 68 requiring a government to recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. The Statements also enhanced accountability and transparency through revised note disclosures and Ball State University—2016 Financial Report 23 Notes to Financial Statements required supplementary information (RSI) for material items. In accordance with the statement, the University reported a $29.0 million change in accounting principle adjustment to Unrestricted Net Position as of July 1, 2014. Operating Revenues/Expenses Operating revenues encompass all revenues from exchange transactions arising from the activities necessary to carry out the primary mission of the University, including tuition and fees, grants and contracts, sales and services of educational departments, and auxiliary enterprises net revenues. Revenues from investing activities, Ball State University Foundation donations, federal and state financial aid, and state appropriations are considered to be non-operating revenue. Operating expenses encompass all expenses paid to acquire goods and services provided in return for operating revenues and to carry out the mission of the University. Examples include personnel services, benefits, and other supplies and expenses. Expenses are reported using natural classifications in the Statement of Revenues, Expenses and Changes in Net Position. Student Tuition and Fees Student tuition and fees are net of scholarship allowances funded from University funds as well as scholarships and fellowships funded from federal, state and other grants, to the extent that these funds offset all or a portion of each student’s tuition and fees. Scholarships and grants awarded by third parties directly to students without University involvement in the decision- making process are not treated as a reduction of tuition and fees but rather as a source of direct payment. The University conducts summer classes, which for billing purposes consist of two five-week summer sessions and a ten-week summer semester. The first summer session takes place during May and June, while the second summer session takes place during June and July, with slightly more days falling in July. The summer semester takes place during the two summer sessions. Bills are due on June 1. By June 30, students have exhausted most of their rights to any refund of tuition and fees. Therefore, all summer tuition and fees are reported as revenue for the year ended June 30 of that summer. Faculty salaries for summer are paid in June for first summer session and half of summer semester and in July for second summer session and the second half of summer semester. Cash and Investments Investments are reported at fair value. Investments with a maturity date of one year or less are considered to be short-term investments, with the exception of those with a maturity date of three months or less, which are considered to be cash equivalents. All other investments are considered to be long-term. Accounts Receivable and Notes Receivable Accounts Receivable and Notes Receivable are both reported net of a calculated reserve for uncollectible items. The reserves as of June 30, 2016, and June 30, 2015, were $6,604,671 and $5,812,926 respectively for accounts receivable. For notes receivable, the reserves were $2,478,230 and $2,372,230 for the same dates. Inventories Inventories are stated at the lower of cost or market value, based on a physical count. Cost is based on purchases, and determined on a moving average basis for Central Stores and a first-in, first-out basis for all other inventories. Capital Assets Capital assets consist of land and land improvements, infrastructure, buildings and building improvements, construction in progress, and equipment and are recorded at cost or, for contributed assets, at fair value at the date of acquisition. Additionally, in accordance with GASB Statement No. 51, intangible assets costing in excess of $100,000 and having a life greater than one year are capitalized. All land and building acquisitions are capitalized. Capital assets also include land improvements and infrastructure costing in excess of $100,000. Building improvements are capitalized if the project cost is more than $100,000 or 20.0 percent of the building’s replacement value and either extends the useful life of the building, changes the use or purpose 24 Ball State University—2016 Financial Report Notes to Financial Statements of the original building, or expands the total square footage of the building. The University capitalizes equipment with a cost of $5,000 or more and a useful life in excess of one year. Construction costs that cross fiscal years are capitalized as Construction in Progress, but are not depreciated until the assets are placed in service. Non-capital equipment and facility costs, routine repairs, and maintenance are charged to operating expenses in the year the expense was incurred. Depreciation expense is computed using the straight-line method over the estimated useful lives of the respective assets, generally fifty years for buildings, ten to fifty years for exhaustible land improvements, and three to ten years for equipment. Land and inexhaustible land improvements are not depreciated. The library collection is not depreciated. All items in the collection are deemed to retain their full value if they are still on hand. All new additions to the collection are treated as an expense at the time of purchase. The art collection, housed primarily in the David Owsley Museum of Art at Ball State University, is not included, due to the difficulty in determining an accurate value, plus the restrictions in place regarding sales of artwork and use of the funds resulting from such sales, as well as disposition of the artwork in the unlikely event that the museum would cease to exist. Component Unit Related Entities The financial reporting entity consists of the primary government, organizations for which the primary government is financially accountable, and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete, as required by GASB Statement No. 14, The Financial Reporting Entity. As additionally required by GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units, organizations that raise and hold economic resources for the direct benefit of the University are included in the reporting entity. The reporting entity is further clarified by the addition of GASB Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34. This statement modifies certain requirements for inclusion of component units in the financial reporting entity. A financial benefit or burden relationship must now also exist between the primary government and the component unit before it becomes part of the reporting entity. Based on these criteria, the financial report includes the University and our related entity, Ball State University Foundation which is discretely presented. Other related entities may meet the requirements for a blended presentation, but are not included in these financial statements as they are not material and their omission does not significantly impact the Ball State University financial statements. The University evaluates potential component units for inclusion in the reporting entity based on all of the afore mentioned criteria on an annual basis. Discrete Component Unit The Ball State University Foundation (Foundation or BSUF) is a legally separate, tax-exempt Indiana nonprofit corporation that is an Internal Revenue Code Section 170(b) (1) (A) organization organized and operated for the benefit of the University. Under the reporting standards of the Governmental Accounting Standards Board (GASB), the Foundation is defined to be a component unit of the University. The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the University in support of its programs. The Foundation by-laws allow for thirty-one voting directors, seven of whom serve by position. The seven directors who serve by position include the President of the University Board of Trustees, the University President, the Vice-Presidents of Business Affairs and Advancement and two other members of the University Board of Trustees. Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources or income that the Foundation holds and invests are restricted to the activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University’s financial statements. Transactions with the Foundation primarily involve the funding of expenditures for which the University funds are not available. These include both unrestricted funds and those restricted by donors. Expenditures include scholarships, funding of distinguished professorships, capital expenditures, and operational support. Effective July 1, 2015, the Foundation was reorganized to include all Advancement functions, including development, alumni association, and advancement services. All non-payroll financial activity for these departments is reported by the Foundation in their June 30, 2016, financial statements. Payroll and benefit expenses remain as expenses on the University’s statements. Ball State University—2016 Financial Report 25 Notes to Financial Statements The reorganization resulted in the Foundation combining the financial statements of the Ball State University Alumni Association, Inc. (Alumni Association) in their financial statements. The 2015 financial statements were re-stated by the Foundation to reflect the combination of the Alumni Association. The Foundation is a private nonprofit organization that reports under Financial Accounting Standards Board (FASB) standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the BSUF’s financial information in the University’s annual report for these differences. To assist those reading the financial statements of the Foundation, the following excerpts from the Notes to Combined and Consolidated Financial Statements of the Ball State University Foundation are reproduced as follows: Note 7: Line of Credit and Term Note Payable (complete reproduction) BSUF has a $15,000,000 unsecured revolving line of credit with a group of banks expiring in June 2017. At June 30, 2016 and 2015, there was $2,000,000 and $1,000,000, respectively, borrowed against this line. Interest varies with the one month London InterBank Offer Rate (LIBOR) plus 2.00%. There is a minimum interest rate of 3.25%, which was the interest rate in effect at June 30, 2016 and 2015. BSUF also has a term loan facility that is due December 30, 2018. The line is unsecured, with a fixed interest rate of 3.30%. There was $2,300,000 and $3,300,000 borrowed against this facility at June 30, 2016 and 2015, respectively. Repayments are $250,000 quarterly and extending through December 2018, when the remaining balance outstanding is due. On May 13, 2015, BSUF entered into a $10,000,000 term credit agreement with a bank that is due on March 31, 2022. The agreement is unsecured with an interest rate of 1.22% over 30 day LIBOR, which was 1.68% and 1.40% at June 30, 2016 and 2015, respectively. Interest only payments are due quarterly until March 31, 2020. Commencing on June 30, 2020, a principal payment of $125,000 each quarter will also be due. On March 31, 2022, the remaining unpaid principal balance on the note, along with the accrued interest, will be due and payable. The proceeds of this note were used to retire the $10,000,000 of variable rate demand notes that were outstanding since their issuance in 2001. All of these agreements contain covenants, which include maintaining minimum net assets of $100,000,000. Additionally, the term credit agreement requires BSUF to have liquid assets to funded long-term debt ratio of 2.50 to 1.0, as measured at the end of each fiscal year. As of June 30, 2016 and 2015, BSUF was in compliance with the financial covenants. Complete financial statements for the BSUF can be requested from the Ball State University Foundation office at 2800 W. Bethel Ave., Muncie, IN 47306. Service Concession Agreements The University has entered into agreements with various vendors. Some of these arrangements are considered to be Service Concession Agreements as Ball State University is the transferor and each of these entities is recognized as an operator under GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Agreements. However, none of the agreements have resulted in significant deferred inflows or outflows of resources that would require further disclosure as of June 30, 2016. New Accounting Pronouncements: Adoption of New Standard The GASB issued GASB Statement No. 72, Fair Value Measurement and Application Overview, which requires governments to provide additional disclosures related to the methodology of deriving fair value for certain investments held primarily for income or profit. The intent of the additional disclosures is to enhance comparability of governmental financial statements by requiring fair value measurement for certain assets and liabilities using a consistent definition and accepted valuation techniques. The additional fair value disclosures help to provide comprehensive information for financial statement users about the impact of fair value measurements on a government’s financial position. In accordance with the statement, the University 26 Ball State University—2016 Financial Report Notes to Financial Statements has included the additional note disclosures along with other necessary disclosures pertaining to investments together in Note G of this financial report. Note B – Compensated Absences The University records a liability for all unused vacation and sick leave balances that are payable upon employee termination in accordance with University policy. Accumulation of vacation and sick leave are dependent upon a University employee’s job classification. University policy determines other variables within each job classification such as: job classification, years of service, employee’s age, and employee’s eligibility for retirement, and in which retirement plan the employee participates. All of these variables are considered in computing the University’s liability for compensated absences. Note C – American Recovery and Reimbursement Act of 2009 (ARRA) The American Recovery and Reimbursement Act of 2009 was signed into law on February 17, 2009. The law provides federal spending and tax relief to stabilize and/or stimulate the economy. The University, Burris Laboratory School, and the Indiana Academy for Science, Mathematics, and Humanities have been sub-recipients of ARRA funds. From the inception of the ARRA, the University has received funding for various projects and programs. The State of Indiana received funds from the ARRA to stabilize the state’s budget. The University has been awarded and received ARRA funds through the State of Indiana to supplant State Appropriations and Capital Appropriations. The University has also received funds from the Auditor of State for Burris Laboratory School and the Indiana Academy for Science, Mathematics, and Humanities. Other ARRA funds have been recorded through the Office of Sponsored Projects Administration for various grant awards and programs. The University has also been awarded and/or received ARRA funding for Federal Work Study and COBRA premium subsidies. ARRA funding concluded in fiscal year 2014-2015. The Accounts Receivable, Net and Unbilled Costs from the Statement of Net Position, includes $0.00 of ARRA receivables at June 30, 2016, and there were no ARRA funds received in fiscal year 2015-2016. The following summarized schedule, presents the effect of the ARRA funding on the University’s Statement of Revenues, Expenses and Changes in Net Position: 2016 2015 Operating Revenues: Federal Grants and Contracts $ - $ 63,899 Total ARRA Operating Revenues and Receivables $ - $ 63,899 Non-Operating Revenues/(Expenses): Federal and State Scholarship and Grants $ - $ - State Appropriations - - Other Non-Operating Income - - Total ARRA Non-Operating Revenues $ - $- Capital Appropriations $ - $- Total ARRA Funding $ $ 63,899 - In accordance with the Section 1512 of the Recovery Act, the University will continue to provide quarterly reports to the funding agencies. Ball State University—2016 Financial Report 27 Notes to Financial Statements Note D – Capital Assets Book Value Book Value July 1, 2015 Additions Deductions CIP Transfers June 30, 2016 Land and Inexhaustible Improvements $ 17,914,243 $ 931,644 $ - $ - $ 18,845,887 Exhaustible Land Improvements 43,359,754 192,307 35,670 35,670 43,552,061 Infrastructure 91,847,059 2,900,532 - 1,763,475 96,511,066 Educational Buildings 350,010,767 2,981,018 - 537,208 353,528,993 Utility Buildings 41,983,953 413,627 - 208,360 42,605,940 Educational Equipment 52,606,225 3,470,424 2,827,087 53,249,562 Auxiliary Enterprise Buildings 376,437,188 5,142,016 - 2,393,991 383,973,195 Auxiliary Enterprise Equipment 13,749,404 2,805,160 218,796 16,335,768 Construction in Process (CIP) 7,444,680 27,983,849 - (4,938,704) 30,489,825 Other Property 1,909,745 225,795 - - 2,135,540 Software 18,196,922 - - - 18,196,922 Total $ 1,015,459,940 $ 47,046,372 $ 3,081,553 $ - $ 1,059,424,759 Less Accumulated Depreciation: Exhaustible Land Improvements $ 21,685,275 $ 1,472,691 $ - $ 23,157,966 Infrastructure 19,262,763 3,212,835 - 22,475,598 Educational Buildings 150,388,618 7,096,271 - 157,484,889 Utility Buildings 10,525,195 850,295 - 11,375,490 Educational Equipment 40,387,538 3,228,141 2,763,810 40,851,869 Auxiliary Enterprise Buildings 111,000,163 7,717,102 - 118,717,265 Auxiliary Enterprise Equipment 10,888,055 925,249 139,134 11,674,170 Other Property 224,644 42,773 - 267,417 Software 6,826,958 1,942,892 8,034 8,761,816 Total $ 371,189,209 $ 26,488,249 $ 2,910,978 $ 394,766,480 Capital Assets, Net $ 644,270,731 $ 20,558,123 $ 170,575 $ 664,658,279 Book Value Book Value July 1, 2014 Additions Deductions CIP Transfers June 30, 2015 Land and Inexhaustible Improvements $ 15,818,531 $ 2,095,712 $ - $ - $ 17,914,243 Exhaustible Land Improvements 40,936,825 2,125,432 - 297,497 43,359,754 Infrastructure 76,944,315 6,641,568 - 8,261,176 91,847,059 Educational Buildings 336,735,962 8,790,712 66,008 4,550,101 350,010,767 Utility Buildings 23,979,832 4,064,113 - 13,940,008 41,983,953 Educational Equipment 49,976,371 5,687,044 3,057,190 - 52,606,225 Auxiliary Enterprise Buildings 350,397,002 8,240,435 10,092,673 27,892,424 376,437,188 Auxiliary Enterprise Equipment 13,212,271 675,657 138,524 - 13,749,404 Construction in Process (CIP) 56,944,180 5,614,390 - (55,113,890) 7,444,680 Other Property 1,701,957 374,062 166,274 - 1,909,745 Software 18,046,142 150,780 - - 18,196,922 Total $ 984,693,388 $ 44,459,905 $ 13,520,669 $ (172,684) $ 1,015,459,940 Less Accumulated Depreciation: Exhaustible Land Improvements $ 20,222,834 $ 1,462,441 $ - $ 21,685,275 Infrastructure 16,160,492 3,102,271 - 19,262,763 Educational Buildings 143,375,156 7,018,742 5,280 150,388,618 Utility Buildings 9,687,340 837,855 - 10,525,195 Educational Equipment 40,044,288 3,390,484 3,047,234 40,387,538 Auxiliary Enterprise Buildings 110,204,521 9,232,245 8,436,603 111,000,163 Auxiliary Enterprise Equipment 9,993,619 1,021,102 126,666 10,888,055 Other Property 206,340 38,258 19,954 224,644 Software 4,583,605 2,243,353 - 6,826,958 Total $ 354,478,195 $ 28,346,751 $ 11,635,737 $ 371,189,209 Capital Assets, Net $ 630,215,193 $ 16,113,154 $ 1,884,932 $ 644,270,731 28 Ball State University—2016 Financial Report Notes to Financial Statements Note E – Bonds Payable Long term liabilities reported in the Statement of Net Position include principal obligations for outstanding bonds and the noncurrent portions of premiums received on certain bond series and unamortized deferred costs. The premiums are being amortized over the life of each series and reduce the recorded interest expense. The deferred costs represent losses on refunding of previous debt and are amortized over the shorter of the life of the old or new debt. The current portions of Unamortized Premium on Bonds and Unamortized Deferred Costs are reflected in the Statement of Net position as Accounts Payable and Accrued Liabilities. Long Term Liabilities June 30, 2016 June 30, 2015 Current Portion Noncurrent Portion Current Portion Noncurrent Portion Outstanding Bonds Payable $ 11,680,000 $ 200,380,000 $ 11,605,000 $ 180,390,000 Unamortized Premiums on Bonds 1,120,862 15,579,172 665,308 8,577,431 Unamoritized Deferred Costs - - - - Total $ 12,800,862 $ 215,959,172 $ 12,270,308 $ 188,967,431 Housing and Dining System Revenue Bonds, Series 2006, in the amount of $35,425,000 were dated and issued on January 19, 2006. Proceeds from the bonds were used to partially fund construction of Park Residence Hall and the expansion and renovation of Woodworth Dining Hall. The outstanding portion of the Series 2006 bonds were refunded on January 27, 2016, with the issue of the Housing and Dining System Revenue Bonds, Series 2016. Housing and Dining System Revenue Bonds, Series 2013, in the amount of $33,160,000 were dated and issued on October 8, 2013. Proceeds from the bonds were used to partially fund the renovation and expansion of Johnson A Residence Hall Complex. Housing and Dining System Revenue Bonds, Series 2016, in the amount of $53,230,000 were dated and issued on January 27, 2016. Proceeds from the bonds were used to partially fund the renovation and expansion of Schmidt/Wilson Residence Halls in Johnson Complex and to refund the outstanding Housing and Dining System Revenue Bonds, Series 2006. Student Fee Bonds, Series L, in the amount of $16,425,000, were dated and issued on July 21, 2004. Proceeds from Series L Bonds were used solely to refund all of the outstanding Student Fee Bonds remaining in Series J. Student Fee Bonds, Series N, in the amount of $63,615,000, were dated and issued on January 30, 2008. Proceeds from Series N bonds were used to fund a portion of the University’s conversion to a geothermal district heating and cooling system and to refund portions of the outstanding Student Fee Bonds remaining in Series I and K. Student Fee Bonds, Series O, in the amount of $29,175,000, were dated and issued on March 12, 2009. Proceeds from Series O bonds were used to fund a portion of the construction and renovation of the Student Recreation and Wellness Center. Student Fee Bonds, Series P, in the amount of $32,225,000, were dated and issued on March 15, 2011. Proceeds from Series P bonds were used to fund Phase I of the Central Campus Renovation and Utilities Improvement Project. Student Fee Bonds, Series Q, in the amount of $35,840,000, were dated and issued on October 21, 2013. Proceeds from Series Q bonds were used to fund Phase II of the Central Campus Renovation and Utilities Improvement Project, a portion of the campus geothermal project, and to refund the outstanding Student Fee Bonds, Series M. Ball State University—2016 Financial Report 29 Notes to Financial Statements Long term bonds outstanding at June 30, 2016, were: Date of Original Retired Outstanding Outstanding Issue Issue 2015-2016 June 30, 2016 June 30, 2015 Revenue Bonds: Housing and Dining System Revenue Bonds of 2006: Current Interest Bonds, 3.50% to 5.00% 01/19/06 35,425,000 23,210,000 - 23,210,000 Housing and Dining System Revenue Bonds of 2013: Current Interest Bonds, 3.00% to 5.00% 10/08/13 21,940,000 1,060,000 19,350,000 20,410,000 Term Bonds, 4.00% to 5.00% 10/08/13 11,220,000 - 11,220,000 11,220,000 Housing and Dining System Revenue Bonds of 2016: Current Interest Bonds, 2.00% to 5.00% 01/27/16 48,075,000 - 48,075,000 - Term Bonds, 5.00% 01/27/16 5,155,000 - 5,155,000 - Student Fee Bonds: Student Fee Bonds, Series L: Current Interest Bonds, 3.00% to 5.50% 07/21/04 16,425,000 1,115,000 6,605,000 7,720,000 Student Fee Bonds, Series N: Current Interest Bonds, 3.50% to 5.00% 01/30/08 63,615,000 3,790,000 41,390,000 45,180,000 Student Fee Bonds, Series O: Current Interest Bonds, 3.00% to 5.25% 03/12/09 20,980,000 1,150,000 14,695,000 15,845,000 Term Bonds, 5.00% 03/12/09 8,195,000 - 8,195,000 8,195,000 Student Fee Bonds, Series P: Current Interest, 3.00% to 5.25% 03/15/11 32,225,000 1,190,000 26,350,000 27,540,000 Student Fee Bonds, Series Q: Current Interest, 2.00% to 5.00% 10/21/13 35,840,000 1,650,000 31,025,000 32,675,000 Total Bonds $ 299,095,000 $ 33,165,000 $ 212,060,000 $ 191,995,000 The principal and interest on bonds are, for the most part, payable from net revenues of specific auxiliary enterprises and/or from student fees. Debt service on student fee bonds, with the exception of Series O, is eligible for fee replacement from the State of Indiana. Future debt service requirements for all bonds outstanding are as follows: Interest and Capital Principal Appreciation Total 2017 $ 11,680,000 $ 9,771,042 $ 21,451,042 2018 12,605,000 9,398,376 22,003,376 2019 13,235,000 8,758,926 21,993,926 2020 13,885,000 8,100,657 21,985,657 2021 14,595,000 7,410,194 22,005,194 2022-2026 72,495,000 26,445,856 98,940,856 2027-2031 51,395,000 10,858,287 62,253,287 2032-2036 22,170,000 2,122,013 24,292,013 Total $ 212,060,000 $ 82,865,351 $ 294,925,351 30 Ball State University—2016 Financial Report Notes to Financial Statements Note F – Operating Leases The University leases various buildings and equipment under operating lease rental agreements. Operating leases do not give rise to property rights or meet other capital lease criteria and, therefore, the related assets and liabilities are not recorded in the accompanying financial statements. The total rental expense under these agreements was $482,488 for the year ended June 30, 2016. Future minimum lease payments on all significant operating leases with initial terms in excess of one year, as of June 30, 2016, are as follows: Future Lease Payments 2017 $ 518,545 2018 356,117 2019 352,959 2020 77,280 2021 - Total $ 1,304,901 Note G – Investments Investments held in the name of the University at June 30, 2016, and 2015, consisted of the following: 2016 Market 2015 Market U.S. Government Agency Securities $ 130,682,686 $ 127,502,479 Certificate of Deposits 56,693,293 42,533,438 Demand Deposit Accounts 107,487,152 110,150,641 Total Investments $ 294,863,131 $ 280,186,558 In compliance with its Investment Policy, the University does not invest in foreign securities and is, therefore, not subject to foreign currency risk. Types of investments held are authorized by the University’s Board of Trustees and comply with applicable state statutes. They may consist of any of the following: Treasury Securities of the United States Government. Obligations of agencies of the United States Government. At June 30, 2016, and 2015, the University held Agency Securities totaling $130.7 million comprised of the following: 2016 Market 2015 Market Federal Home Loan Bank $ 43,525,060 $ 26,657,424 Federal National Mortgage Association 36,217,269 40,339,120 Federal Farm Credit Bank 21,747,397 45,214,185 Federal Home Loan Mortgage Corporation 16,001,510 5,378,850 Federal Agricultural Mortgage Corporation 8,245,600 5,058,600 Financing Corporation 4,945,850 4,854,300 Total Agency Securities $ 130,682,686 $ 127,502,479 Ball State University—2016 Financial Report 31 Notes to Financial Statements Negotiable certificates of deposit insured by the FDIC up to $250,000 and certificates of deposit with banks participating in the Public Deposit Insurance Fund (PDIF) for deposits over $250,000. The University held the certificates of deposit totaling $56.7 million at June 30, 2016, and $42.5 million at June 30, 2015: 2016 Market 2015 Market First Financial Bank $ 31,500,000 $ 35,500,000 Fifth Third Bank 13,500,000 1,500,000 Various Negotiable Certificate of Deposits 6,693,293 5,533,438 Mutual Bank 5,000,000 - Total Certificate of Deposit Accounts $ 56,693,293 $ 42,533,438 Repurchase agreements collateralized at 105.0 percent of the par value with United States Treasury and Agency securities. Commercial paper rated A1 (Standard & Poor’s) or P1 (Moody’s). Money market mutual funds comprised of US Treasury and Agency securities and commercial paper rated A1 (Standard & Poor’s) or P1 (Moody’s). Interest-bearing deposit accounts at banks participating in the public deposit insurance fund for deposits over $250,000. The University held the total demand deposits totaling $107.5 million at June 30, 2016, and $110.2 million at June 30, 2015: 2016 Market 2015 Market Mutual Bank $ 40,183,951 $ 40,000,000 Regions Bank 24,000,714 - First Merchants Bank, N.A. 22,268,019 13,640,435 PNC Bank 10,688,940 35,000,000 J.P. Morgan Chase 7,076,334 10,206 The Huntington National Bank 2,111,748 5,500,000 First Financial Bank 657,260 2,500,000 Fifth Third Bank 500,186 13,500,000 Total Demand Deposit Accounts $ 107,487,152 $ 110,150,641 Types of investments held by the Ball State University Foundation, a component unit, are authorized by the BSUF’s Board of Trustees. They include a broader selection of investments including corporate bonds, common and preferred stocks, private equity, hedge funds, foreign investments and common trusts and mutual funds. In accordance with GASB Statement No. 72, Fair Value Measurement and Application Overview, the University has categorized its fair value measurements within the fair value hierarchy established by Generally Accepted Accounting Principles (GAAP). The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. All University investments measured at fair value are valued by a pricing service which uses matrix pricing. 32 Ball State University—2016 Financial Report Notes to Financial Statements The University has the following recurring fair value measurements as of June 30, 2016 and 2015: Investments Measured at Fair Value 2016 Fair Value Measurements Using: Quoted Prices in Active Markets for Significant Other Identical Assets Observable Inputs 6/30/2016 (Level 1) (Level 2) Investments by Fair Value Marketable Securities: U.S. Government Agencies $ 130,682,686 $ - $ 130,682,686 Negotiable Certificate of Deposits 6,693,293 - 6,693,293 Total Marketable Securities $ 137,375,979 $ - $ 137,375,979 Non-Marketable Investments: Certificate of Deposits $ 50,000,000 $ - $ - Demand Deposit Accounts 107,487,152 - - Total Non-Marketable Investments 157,487,152 - - Total Investments by Fair Value $ 294,863,131 $ - $ 137,375,979 2015 Fair Value Measurements Using: Quoted Prices in Active Markets for Significant Other Identical Assets Observable Inputs 6/30/2016 (Level 1) (Level 2) Investments by Fair Value Marketable Securities: U.S. Government Agencies $ 127,502,479 $ - $ 127,502,479 Negotiable Certificate of Deposits 5,533,438 - 5,533,438 Total Marketable Securities $ 133,035,917 $ - $ 133,035,917 Non-Marketable Investments: Certificate of Deposits $ 37,000,000 $ - $ - Demand Deposit Accounts 110,150,641 - - Total Non-Marketable Investments 147,150,641 - - Total Investments by Fair Value $ 280,186,558 $ - $ 133,035,917 All investments owned by the University are held in safekeeping with a custodial account. The University’s investment policy allows up to 20.0 percent of the University’s investments to be placed in certificates of deposit and interest-bearing deposit accounts with a single financial institution, and up to five percent with a single issuer of commercial paper. Cash deposits, certificates of deposit and interest-bearing deposit accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. Amounts exceeding the FDIC-insured amount are insured by the Indiana Public Depository Fund. Disclosures Related to Interest Rate Risk Interest rate risk refers to changes in market interest rates having an adverse effect on the fair value of investments. Generally, the longer the term (life) of an investment, the greater its susceptibility to changes in market interest rates. The University manages its exposure to interest rate risk by purchasing a mixture of short-, intermediate- and long-term investments as a source of funds to meet the cash flow needs of current and future operations of the University. The University’s investment policy does not stipulate a specific earnings rate but has the following investment objectives: Safety and preservation of principal, Sufficient liquidity to meet working capital needs, planned capital asset expenditures, unanticipated spending requirements and investment opportunities, Maximum return on investment within prudent levels of risk and investment diversification, and Compliance with all statutory requirements of the State of Indiana. Ball State University—2016 Financial Report 33 Notes to Financial Statements Distribution of Investments The following tables show the distribution of the University’s investments by maturity for years ended June 30, 2016 and 2015: 2016 Short-Term Inv Greater than or Equal Long-Term Inv to Three Greater than Months and One Year and Less than or Less than or Less than Equal to One Equal to Five Total Market Investment by Type Three Months Year Years Value Demand Deposit Accounts $ 107,487,152 $- $ - $ 107,487,152 Certificate of Deposits 10,000,000 7,671,644 39,021,649 56,693,293 U.S. Government Agency Securities - 12,207,720 118,474,966 130,682,686 Total Investments $ 117,487,152 $ 19,879,364 $ 157,496,615 $ 294,863,131 2015 Short-Term Inv Greater than or Equal Long-Term Inv to Three Greater than Months and One Year and Less than or Less than or Less than Equal to One Equal to Five Total Market Investment by Type Three Months Year Years Value Demand Deposit Accounts $ 110,150,641 $- $ - $ 110,150,641 Certificate of Deposits - 18,121,399 24,412,039 42,533,438 U.S. Government Agency Securities - 1,517,670 125,984,809 127,502,479 Total Investments $ 110,150,641 $ 19,639,069 $ 150,396,848 $ 280,186,558 Note H – Pension Plans and Other Post-Employment Benefits Public Employees’ Retirement Fund Pension Plan Description. The University contributes to the Public Employees’ Retirement Fund (PERF), a defined benefit pension plan. As part of the implementation of GASB Statement No. 67 Financial Reporting for Pension Plans-an amendment of GASB Statement No. 25, the plan changed from an agent to a cost-sharing, multiple-employer defined benefit plan effective July 1, 2013, based on 35 IAC 21-1-1, 35 IAC 21-1-2 and amended IC 5-10.2-2-11(b). State statutes (IC 5-10.2 and 5-10.3) give the University authority to contribute to the plan and govern, through the Indiana Public Retirement System (INPRS) Board, most requirements of the system. INPRS administers the plan and issues a publicly available financial report that includes financial statements and required supplementary information for the plan as a whole and for its participants and may be obtained at www.in.gov/inprs/annualreports.htm. Basis of the Allocation. The University’s (an employer of the plan) proportion of the net pension liability for PERF was based on wages reported by employers relative to the collective wages of the plan. This basis of allocation measures the proportionate relationship of an employer to all employers, and is consistent with the manner in which contributions to the pension plan are determined. The PERF pension plan does not have a special funding situation, as there is not a non-employer contributing entity legally responsible for making contributions that are used to provide pension benefits to members of the pension plans. Benefits Provided. PERF was established to provide retirement, disability, and survivor benefits to full-time employees of the State of Indiana not covered by another plan. As an instrumentality of the State of Indiana, Ball State University is allowed to participate in this plan. All full-time staff and service personnel are eligible to participate in the defined benefit plan. The benefit 34 Ball State University—2016 Financial Report Notes to Financial Statements formula for PERF is Lifetime Annual Benefit = (Years of Creditable Service x Average Highest 20 quarters of Salary x .011) + Annuity Savings Account. Cost of living adjustments (COLA) are granted by the Indiana General Assembly on an ad hoc basis. Eligibility for Pension Benefit Payment Early retirement with reduced benefits between ages 50-59 with 15 years of service At age 55, if age and creditable service total at least 85 (“Rule of 85”) Age 60 with 15 years of service Age 65 with 10 years of service Age 70 with 20 years of service Contributions. The PERF retirement benefit consists of the pension provided by employer contributions plus an annuity provided by the member’s annuity savings account. The annuity savings account consists of the member’s contributions, set by state statute at three percent of compensation, plus the investment earnings credited to the member’s account. The University has elected to make the contributions on behalf of the member. The required contributions are determined by the INPRS Board of Trustees based on actuarial investigation and valuation in accordance with IC 5-10.2-2-1.1. The funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to fund the pension benefits when they become due. As PERF is a cost-sharing plan, all risks and costs, including benefit costs, are shared proportionately by the participating employers. During the year 2015, all participating employers were required to contribute 11.2 percent of covered payroll for members employed by the State. For the fiscal year ended June 30, 2015, there were 1,416 employees participating in PERF with an annual pay equal to $49,414,500. In addition, there were 1,453 employees with an annual pay of $50,958,452 participating in PERF for fiscal year ended June 30, 2016. The University’s contribution to the PERF account for the years ended June 30, 2016 and 2015, were $7,206,871 and $6,986,996, respectively. The University contributed 100.0 percent of required contributions for each of the fiscal years. Teachers’ Retirement Fund 1996 Account Pension Plan Description. The Teachers’ Retirement Fund (TRF) is a cost-sharing, multiple employer public employee retirement system. State statute (IC 5-10.2) gives the University authority to contribute and governs most requirements of the system. The TRF retirement benefit consists of the pension provided by employer contributions plus an annuity provided by the member’s annuity savings account. Certain employees who participate in TRF are also eligible for supplementary retirement benefits under a noncontributory plan wherein the employee may designate one or more of the following companies to administer the funds: Voya Financial (formerly ING Financial Advisers, LLC) Fidelity Investments Institutional Services Company, Inc. Lincoln Financial Group Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) The same companies administer the funds in the Alternate Pension Plan which is designed to provide benefits comparable to those under TRF and the supplementary plan. The Indiana Public Retirement System (INPRS) administers the plan and issues a publicly available financial report that includes financial statements and required supplementary information for the plan as a whole and for its participants and may be obtained at www.in.gov/inprs/annualreports.htm. Basis of the Allocation. The University’s (an employer of the plan) proportion of the net pension liability for TRF 1996 Account was based on wages reported by employers relative to the collective wages of the plan. This basis of allocation measures the proportionate relationship of an employer to all employers, and is consistent with the manner in which contributions to the pension plan are determined. The TRF 1996 pension plan does not have a special funding situation, as there is not a non- employer contributing entity legally responsible for making contributions that are used to provide pension benefits to members of the pension plans. Benefits Provided.This plan provides retirement, disability, and survivor benefits to plan members and beneficiaries. All faculty and professional personnel are eligible to participate in the defined benefits plan per State statute (IC 5-10.2). This annual pension benefit is equal to 1.1 percent times the average annual compensation times the number of years of creditable Ball State University—2016 Financial Report 35 Notes to Financial Statements service. Generally, the average annual compensation in this calculation is the average of the highest five years of annual compensation in a covered position. Monthly pension benefits for members in pay status may be increased as COLA. Such increases are not guaranteed by statute and have historically been provided on an “ad hoc” basis and can only be granted by the Indiana General Assembly. There was no COLA for the year ended June 30, 2015. Contributions. For the fiscal year ended June 30, 2015, there were 310 employees participating in TRF with annual pay equal to $16,192,570.91. The University recorded 383 employees participating in the TRF 1996 Account with annual pay equal to $18,353,483 for fiscal year ended June 30, 2016. The University contributes at an actuarially determined rate. The current rate has been actuarially determined under the entry age normal cost method to be 7.5 percent of covered payroll. The annuity savings account consists of the member’s contributions, set by state statute at three percent of compensation, plus the interest credited to the member’s account. The University has elected to make the contributions on behalf of the member. The University’s contributions to both Teachers’ Retirement Plans combined, including those made to the annuities on behalf of the members, for the fiscal year ended June 30, 2014, was $2,436,635. The University’s contribution to the Teachers’ Retirement Fund 1996 account for the years ended June 30, 2016 and 2015, were $1,922,027 and $1,697,009, respectively. The University contributed 100.0 percent of required contributions for each of the fiscal years. Teachers’ Retirement Fund Pre-1996 Account Pension Plan Description. The Indiana State Teachers’ Retirement Fund (TRF) was established by the Indiana General Assembly in 1921. In 1955, TRF was designed as a pay-as-you-go defined benefit retirement plan. In 1995, legislation was passed that closed the pay-as-you-go plan (renamed the TRF Pre-1996 Account) to newly hired members and created a new account (named the TRF 1996 Account) for all members hired after June 30, 1995. TRF is two (2) cost-sharing, multiple- employer defined benefit plans, TRF Pre-1996 Account and TRF 1996 Account. TRF is governed by the INPRS Board of Trustees in accordance with IC 5-10.2, IC 5-10.4, and IC 5-10.5. There are two (2) aspects to the TRF Pre-1996 defined benefit structure. The first portion is the monthly defined benefit pension that is funded by the State of Indiana. The second portion of the TRF Pre-1996 benefit structure is the annuity savings account that supplements the defined benefit at retirement. Generally, members hired prior to 1996 participate in the TRF Pre-1996 Account and members hired after 1996 participate in the TRF 1996 Account (IC 5-10.2-2-2; IC 5-10.4-4-1; IC 5-10.4-7-1; 35 IAC 14-4-16(a)). The Indiana Public Retirement System (INPRS) administers the plan and issues a publicly available financial report that includes financial statements and required supplementary information for the plan as a whole and for its participants and may be obtained at www.in.gov/inprs/annualreports.htm. Basis of the Allocation. The basis to determine the University’s (an employer of the plan) proportionate share is a weighted calculation using a combination of wages reported by employers relative to the collective wages of the plan, and benefits paid to retirees of employers relative to total benefits paid by the plan. The weighted calculation is 45.6 percent for wages and 54.4 percent for benefits paid, which are determined by the non-retirees and retirees respective net pension liabilities. This method is used as it provides a fairer distribution so that employers with no active employees still show a proportionate share. This pension plan is a special funding situation in that the State of Indiana, a non-employer contributing entity, is legally responsible for the net pension liability and contributions to the pension plan. These contributions are paid directly to the pension plan and are used to provide pension benefits for members of the pension plan. Benefits Provided. The plan was established to provide retirement, disability, and survivor benefits to regularly employed licensed teachers and administrators at certain State universities and other educational institutions hired before July 1, 1995, who have maintained continuous employment with the same covered institution since that date to June 30, 2005. This annual pension benefit is equal to 1.1 percent times the average annual compensation times the number of years of creditable service. Generally, the average annual compensation in this calculation is the average of the highest five years of annual compensation in a covered position. Monthly pension benefits for members in pay status may be increased as COLA. Such increases are not guaranteed by statute and have historically been provided on an “ad hoc” basis and can only be granted by the Indiana General Assembly. There was no COLA for the year ended June 30, 2015. 36 Ball State University—2016 Financial Report Notes to Financial Statements Contributions. The State of Indiana makes contributions as the sole non-employer contributing entity. State appropriations are made in accordance with IC 5-10.4-2-4 for each fiscal year. Currently, a three (3) percent year-over-year increase is being provided through State appropriations. If the actual pension benefit payout for the fiscal year exceeds the amount appropriated, the difference is paid from the Pension Stabilization Fund as part of the assets of the TRF Pre-1996, which was established according to IC 5-10.4-2-5. As a non-employer contributing entity, the State of Indiana contributed $845.6 million in fiscal year 2015 to TRF Pre-1996. As part of the $845.6 million contribution, the State pre-funded a one-time check (a.k.a.13th check) of $20.4 million in accordance with 2014 HEA 1074 (which went into the Pension Stabilization Fund). TRF Pre-1996 Account members contribute three percent of covered payroll to their annuity savings account, which is not used to fund the defined benefit pension. The employer may elect to make the contributions on behalf of the member. In addition, members may elect to make additional voluntary contributions, under certain criteria, of up to ten percent of their compensation into their annuity savings accounts. The University has elected to make three percent contributions on behalf of their participating employees. Prior to June 30, 2015, the University reported both Teachers’ Retirement Funds as one fund. Due to the requirements of GASB Statement No. 68 and GASB Statement No. 71, they will be reported separately starting June 30, 2015, and going forward. For the fiscal year ended June 30, 2015, the University showed 43 employees participating in the Teachers’ Retirement Fund Pre-1996 Account with annual payroll equal to $3,335,080. The University’s contributions to the Teachers’ Retirement Fund Pre-1996 for fiscal year ended June 30, 2015, was $322,934. For the fiscal year ended June 30, 2016, the University shows 39 employees participating in the Teachers’ Retirement Fund Pre-1996 Account with annual payroll equal to $3,275,322. The University made contributions of $323,002 which included payments for the annuity on behalf of the members. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2016, the University reported a liability of $46,473,866 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date for all plans. At June 30, 2015, the University’s proportionate percentage, deferred outflows of resources, deferred inflows of resources, net pension liability, and pension expense for each plan is shown in the following table: PERF TRF-1996 TRF Pre-1996 Aggregate Proportionate Share 0.0106374 0.0059797 - Net Pension Liability/(Asset) 43,325,088 3,148,778 - 46,473,866 Deferred Outflow of Resources 14,715,817 3,058,616 - 17,774,433 Deferred Inflow of Resources 4,298,431 1,526,980 - 5,825,411 Pension Expense/(Income) 7,572,757 1,219,447 15,717,760 24,509,964 For the financial reporting year ended June 30, 2016, the University recognized an expense of $24,509,964. For the TRF Pre- 1996 plan, The University’s proportionate share (amount) of the collective net pension liability for TRF Pre-1996 was zero. The portion of the non-employer contributing entity’s (the State) total proportionate share (amount) of the collective net pension liability that was associated with the University was an amount equal to 100.0 percent of the net pension liability. The total of the University’s proportionate share (amount) of the collective net pension liability, and the portion of the State’s total proportionate share of the collective net pension liability associated with the University, reflects all of the net pension liability. The net pension liability associated with the University at June 30, 2015, was $115,339,633. The total net pension liability for the TRF Pre-1996 Account at June 30, 2015, was $11,917,836,859. Since the TRF Pre-1996 Account was a special funding situation, the University was not required to report the net pension liability in the financial statements as the University was not legally responsible for the net pension liability and contributions to the pension plan. The University was required to show the pension expense paid by the State that was associated with its proportionate share totaling $15,717,760 for June 30, 2016. An increase for the same amount was recorded as a State grant to recognize the contribution by the State that was made on behalf of the University. Ball State University—2016 Financial Report 37 Notes to Financial Statements At June 30, 2016, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: PERF TRF 1996 TRF Pre-1996 Average Remaining Service Life for 2015: 4.5 Years 13 Years Deferred Outflow of Deferred Inflow of Deferred Outflow Deferred Inflow of Deferred Outflow Resources Resources of Resources Resources of Resources Differences Between Expected and Actual Experience $ 1,859,715 $ 89,600 $ 2,551 $ 226,863 $ - Net Difference Between Projected and Actual Investment Earnings on Pension Plan Investments 7,305,150 4,074,562 1,323,043 916,888 - Change of Assumptions 3,662,426 - 1,465,831 - - Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions 1,888,526 134,269 267,191 383,229 - Contributions Subsequent to the Measurement Date 5,684,293 - 1,372,877 - 230,716 Total$ 20,400,110 $ 4,298,431 $ 4,431,493 $ 1,526,980 $ 230,716 Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Amortization of Net Deferred Outflows/(Inflows) of PERF TRF 1996 Resources - Debit/(Credit) 2016 $ 3,471,287 $ 113,380 2017 3,471,287 113,380 2018 1,648,524 113,380 2019 1,826,288 419,010 2020 - 88,249 Thereafter - 684,237 Total$ 10,417,386 $ 1,531,636 Actuarial Assumptions. Actuarial calculations reflect a long-term perspective. For a newly hired employee, actuarial calculations will take into account the employee’s entire career with the employer and also take into consideration the benefits, if any, paid to the employee after termination of employment until the death of the employee and any applicable contingent annuitant. In many cases, actuarial calculations reflect several decades of service with the employer and the payment of benefits after termination. Key methods and assumptions used in calculating the total pension liability in the latest actuarial valuations are presented on the next page: 38 Ball State University—2016 Financial Report Notes to Financial Statements Description PERF TRF Pre-1996 Account TRF 1996 Account Valuation Date: Assets June 30, 2015 June 30, 2014 - Members census data as of June 30, 2014, was used in the valuation and Liabilities adjusted, where appropriate, to reflect changes between June 30, 2014, and June 30, 2015. Standard actuarial roll forward techniques were then used to project the total pension liability computed as of June 30, 2014, to June 30, 2015. Actuarial Cost Method Entry Age Normal (Level Percent of Payroll) Actuarial Assumptions: Period of 4 Years Ended Experience Study Date June 30, 2014 Period of 3 Years Ended June 30, 2014 Investment Rate of Return 6.75%, Net of Investment Expense, Including Inflation Cost of Living Increases (COLA) or "Ad Hoc" COLA 1.0% 1.0% Future Salary Increases, Including Inflation 2.50% - 4.25% 2.5% - 12.5% Inflation 2.25% RP-2014 Total Data Set Mortality Table, with Social Security Administration generational improvement RP-2014 White Collar Mortality Table, with Social Security Mortality scale from 2016 Administration generational improvement scale from 2016 The long-term return expectation for the INPRS defined benefit retirement plans has been determined by using a building-block approach and assumes a time horizon, as defined in the INPRS Investment Policy Statement. A forecasted rate of inflation serves as the baseline for the return expectation. Various real return premiums over the baseline inflation rate have been established for each asset class. The long-term expected nominal rate of return has been determined by calculating a weighted average of the expected real return premiums for each asset class, adding the projected inflation rate, and adding the expected return from rebalancing uncorrelated asset classes. Geometric Basis Target Asset Long-Term Expected Allocation Real Rate of Return Public Equity 22.5% 5.3% Private Equity 10.0% 5.6% Fixed Income - Ex Inflation-Linked 22.0% 2.1% Fixed Income - Inflation-Linked 10.0% 0.7% Commodities 8.0% 2.0% Real Estate 7.5% 3.0% Absolute Return 10.0% 3.9% Risk Parity 10.0% 5.0% Discount Rate. Total pension liability for each defined benefit pension plan was calculated using the discount rate of 6.75 percent. The projection of cash flows used to determine the discount rate assumed the contributions from employers and, where applicable, from the members would at the minimum be made at the actuarially determined required rates computed in accordance with the current funding policy adopted by the Board, and contributions required by the State of Indiana (the non- employer contributing entity) would be made as stipulated by State statute. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (6.75 percent). Based on those assumptions, each defined benefit pension plan’s fiduciary net position were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefits to determine the total pension liability for each plan. Sensitivity of the University’s Proportionate Share of the Net Pension Liability. Net pension liability is sensitive to changes in the discount rate, and to illustrate the potential impact, the following table presents the net pension liability of each defined benefit pension plan calculated using the discount rate of 6.75 percent, as well as what each plan’s net pension liability Ball State University—2016 Financial Report 39 Notes to Financial Statements would be if it were calculated using a discount rate that is one percentage point lower (5.75 percent), or one percentage point higher (7.75 percent) than the current rate: Discount Rate Sensitivity - Liability / (Asset) Pre-Funded Defined Benefit PERF TRF 1996 1% Discount 1% 1% Discount 1% Decrease Rate Increase Decrease Rate Increase (5.75%) (6.75%) (7.75%) (5.75%) (6.75%) (7.75%) $ 63,908,217 $ 43,325,088 $ 26,237,331 $ 8,419,418 $ 3,148,778 $ (1,030,302) Basis of Accounting. The financial statements of INPRS have been prepared using the accrual basis of accounting in conformity with GAAP as applied to government units. Under the accrual basis, revenues are recognized when earned, and expenses are recognized when liabilities are incurred, regardless of the timing of related cash flows. The Governmental Accounting Standards Board (GASB) is the accepted standards setting body for established governmental accounting and financial reporting principles. INPRS applies all applicable GASB pronouncements in accounting and reporting for its operations. Investments are reported at fair value. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position and additions to/deductions from the fiduciary net position have been determined on the same basis as they are reported by INPRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Required Supplementary Information and Other Supplementary Schedules The historical trend information is designed to provide decision-usefulness of the financial reports, improved value for assessing accountability and greater transparency related to measures of net pension liabilities impacting INPRS. The Schedule of Ball State University’s Proportionate Share of the Net Pension Liability and Schedule of University Contributions are included immediately following the Notes to the Financial Statements Pension Plans - General Plan Information – Defined Contribution Plan Alternate Pension Faculty and professional personnel of the University have the option, in accordance with IC 21-38-3-3 and IC 21-38-7-3, to participate in a defined contribution plan administered by Fidelity Investments Institutional Services Company, Inc., Voya Financial (formally ING Financial Advisors), Lincoln Financial Group, and Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF) which are the same companies used for the TRF supplementary retirement contribution. Benefit provisions are established and/or amended by the University’s Board of Trustees. These plans have no assets held in trust as the plan purchases individual annuity contracts for members and provides for immediate vesting. Any forfeiture is applied to reduce plan contributions. The University contributes 12.27 percent of each participating employee’s base salary. For employees hired on or after October 1, 2010, the University contributes five percent of each employee’s base salary for the first three years and 10.5 percent for each year thereafter. The table below shows the amounts contributed for our participating members: 2016 2015 2014 Contributions $ 12,755,862 $ 12,640,748 $ 11,992,431 Number of Participating Members 1,720 1,799 1,546 Related Payroll $ 122,759,453 $ 119,577,455 $ 111,348,662 40 Ball State University—2016 Financial Report Notes to Financial Statements Other Post-Employment Benefits (Restated for Fiscal Year June 30, 2015) In addition to providing pension benefits, the University, as authorized by the University’s Board of Trustees, provides certain health care and life insurance benefits for retired employees. Substantially all of the University’s regular employees may become eligible for those benefits if they retire from the University after accruing the required years of service (15 years at age 62; 15 years at age 50 for those hired before July 1, 2009; ten years at age 60 for those hired before September 1, 1999). As of June 30, 2015, approximately 2,007 (1,957 at June 30, 2014) participants were eligible and were receiving one or both of these benefits. Plan Description The University’s Retiree Health and Life Insurance Plans (Plans) are single-employer defined benefit health and life insurance plans administered by the University. The Plans provide medical, dental, and prescription drug insurance benefits to eligible retirees and spouses and life insurance benefits to eligible retirees. IC 21-38-3-3 assigns authority to the University’s Board of Trustees to establish and amend benefit provisions for the University. The Plans issue a publicly available financial report that includes financial statements and required supplementary information for the Plans as a whole and for the participants. That report may be obtained by contacting: Ball State University, Office of University Controller, AD 301, Muncie, IN 47306. Funding Policy The contribution requirements for members of the Plans are established by the University’s Board of Trustees. The required contribution is based on projected pay-as-you-go financing requirements, as well as amounts necessary to prefund benefits as determined annually by the University. In addition, the University has followed a practice of contributing additional amounts generated by savings within the employee plans as well as the retiree plans. For the fiscal year ended June 30, 2015, the University contributed $8,209,169 for current claims and estimated applicable administrative costs and an additional $3,123,319 from Medicare prescription drug subsidies, rebates on prescription drugs, and savings generated within the employee and retiree plans this year and last year, in order to prefund benefits. Plan members receiving benefits contributed $3,035,939 for health insurance and $67,805 for life insurance or approximately 25.0 percent of the total premiums assessed, through their required contributions, which for health insurance and dental insurance ranged, for those not eligible for Medicare, from $64.41 to $350.03 per month for single coverage and $167.12 to $788.91 for family coverage. For those eligible for Medicare, the monthly premiums were $109.92 for medical and prescription drug coverage and $10.52 for optional dental coverage. These premium amounts were also paid by Medicare-eligible spouses for their coverage. Retiree life insurance monthly premiums are on a sliding scale based on coverage in the last year employed, with $37,500 being the maximum amount available for retirees. The monthly premium is $0.692 per $1,000 of coverage with the University paying 75.0 percent of the premium. Annual OPEB Cost and Net OPEB Obligation The University’s annual other postemployment benefit (OPEB) cost is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the University’s annual OPEB cost for the fiscal year, the amount actually contributed to the plan, and changes in the University’s net OPEB obligation (asset) to the plan: 2015 2014 Annual Required Contribution $ 7,346,354 $ 9,015,032 Interest on Net OPEB Obligation (732,994) (681,032) Adjustment to Annual Required Contribution 617,158 557,498 Annual OPEB Cost $ 7,230,518 $ 8,891,498 Contributions Made (9,216,039) (9,584,320) Increase (Decrease) in Net OPEB Obligation $ (1,985,521) $ (692,822) Net OPEB Obligation (Asset), Beginning of Year (9,773,243) (9,080,421) Net OPEB Obligation (Asset), End of Year $ (11,758,764) $ (9,773,243) Ball State University—2016 Financial Report 41 Notes to Financial Statements The University’s annual OPEB cost, the percentage of the annual OPEB cost contributed to the plan and the net OPEB obligation for 2015 and the two previous years were as follows: Percentage of Annual Year Annual OPEB Cost Net OPEB Ending OPEB Cost Contributed Obligation (Asset) Health Insurance 6/30/2013 $ 7,426,483 107.7% $ (8,275,837) 6/30/2014 8,435,393 102.6% (8,492,491) 6/30/2015 6,896,136 119.0% (9,805,524) Life Insurance 6/30/2013 $ 580,584 195.5% $ (804,585) 6/30/2014 456,105 204.4% (1,280,754) 6/30/2015 334,382 301.1% (1,953,242) Funded Status and Funding Progress Actuarial UAAL as Valu- Acrued Unfunded a % of ation Value of Liability AAL Funded Covered Covered Date Assets (AAL) (UAAL) Ratio Payroll Payroll Health 7/1/15 $ 226,660,904 $ 259,673,454 $ 33,012,550 87.3% $ 175,587,314 18.8% Life 7/1/15 23,817,938 21,548,055 (2,269,883) 110.5% $ 175,587,314 -1.3% Total $ 250,478,842 $ 281,221,509 $ 30,742,667 89.1% $ 175,587,314 17.5% Health 7/1/14 $ 218,357,824 $ 216,334,018 $ (2,023,806) 100.9% $ 167,849,364 -1.2% Life 7/1/14 23,459,055 22,236,379 (1,222,676) 105.5% $ 167,849,364 -0.7% Total $ 241,816,879 $ 238,570,397 $ (3,246,482) 101.4% $ 167,849,364 -1.9% As of June 30, 2015, (while using the July 1, 2015, actuarial valuation report and the 30 year liability projections contained within), the health insurance plan was 87.3 percent funded. This is lower than the 89.4 percent from the previous July 1, 2013, actuarial report and reflects a change in actuarial cost method from Projected Unit Credit cost method in the 2013 valuation to the Entry Age Normal method in the current valuation which is also an acceptable cost method under GASB Statement No. 43, and GASB Statement No. 45. The actuarial accrued liability for benefits was $259,673,454, and the actuarial value of assets was $226,660,904, resulting in an unfunded actuarial accrued liability (UAAL) of $33,012,550. The covered payroll (annual payroll of active employees covered by the plan) was $175,587,314, and the ratio of UAAL to covered payroll was 18.8 percent. As of the same date, the life insurance plan was 110.5 percent funded. The actuarial accrued liability for benefits was $21,548,055, and the actuarial value of assets was $23,817,938, resulting in a surplus of funding equivalent to $2,269,883. The covered payroll (annual payroll of active employees covered by the plan) was $175,587,314, and the ratio of the UAAL to covered payroll was -1.3 percent which indicates the OPEB 115 Trust is over 100.0 percent funded at fiscal year end June 30, 2015. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of Funding Progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical 42 Ball State University—2016 Financial Report Notes to Financial Statements pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are consistent with the long-term perspective of the calculations. In the July 1, 2015, Actuarial Valuation Report, the Entry Age Normal cost method was used. The change in cost method from the Projected Unit Credit cost method was done in anticipation of a requirement contained in GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans, which is in effect for fiscal year ending June 30, 2017. As a result, the ARC, as calculated by the actuaries, is lower than was seen in previous valuations as this cost method shifts the payment responsibility into future periods thus increasing the Actuarial Accrued Liability (AAL). Another change that significantly impacted the July 1, 2015, actuarial study, and caused a lower funded percentage, was from the use of a new mortality table published in 2014. This study shows that both males and females are living longer and thus incurring health claims over a longer period of time that, in turn, drives up the liability projection. Most other actuarial assumptions remained unchanged from the prior valuation including a 7.5 percent investment rate of return (net of administrative expenses), which is the expected long-term investment return on plan assets, and is appropriate as long as the University makes annual contributions (through a combination of benefits paid from general assets and contributions to the VEBA Trust) that are at least as large as the ARC. If the plans were “unfunded,” the ARC would be calculated using a discount rate reflective of the University’s internal rates of return, which would result in a significantly larger ARC. The actuarial assumptions for 2015 and 2013 also included an annual healthcare cost trend rate for medical and prescription drug to be 8.25 percent the first year and reduced to an ultimate four percent after ten years. The dental cost trend rate for both valuations is a static four percent over the duration of the projection. Administrative costs relating to the healthcare trends are included. A payroll growth rate of four percent is assumed throughout. The actuarial value of the plan assets is market value for the VEBA Trust (Retiree Healthcare). The OPEB 115 Trust (Retiree Life Insurance) calculates actuarial value of the plan assets as market value adjusted for the value of the IBNP (Incurred But Not Processed claims) at year end. The UAAL is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at July 1, 2015, was 22 years. Fund Balances and Activity The VEBA Trust fund established for the sole purpose of funding future retiree health care had the following activity for the year ended June 30, 2015: Market Value at July 1, 2014 $ 218,409,567 Adjustment Due to Difference on Fund Manager Statement (51,743) Adjusted Market Value at July 1, 2014 218,357,824 Transfer from Ball State University - Reinvested Net Earnings (Loss) 8,706,502 Unrealized Gain (Loss) (403,422) Fund Balance at June 30, 2015 $ 226,660,904 These funds cannot under any circumstances revert to the University. The OPEB 115 Trust Fund (formerly Life Insurance Continuance Fund) established for the sole purpose of funding future retiree life insurance benefits had the following activity for the year ended June 30, 2015: Fund Balance at July 1, 2014 $ 23,466,229 Adjustment Due to Difference on Fund Manager Statement (7,174) Adjusted Market Value at July 1, 2014 23,459,055 Transfer from Ball State University - Reinvested Net Earnings (Loss) 584,969 Unrealized Gain (Loss) (160,086) Fund Balance at June 30, 2015 $ 23,883,938 These funds cannot under any circumstances revert to the University. Ball State University—2016 Financial Report 43 Notes to Financial Statements Note I – Included Entities The University operates Burris Laboratory School and the Indiana Academy for Science, Mathematics, and Humanities under the direction of the Teachers College. The financial activity for these entities is included in the exhibits. Note J – Commitments and Contingent Liability During the normal course of operations, the University has become an interested party to various legal and administrative actions, the resolutions of which are not yet known. However, in the opinion of legal counsel and University management, the disposition of all pending litigation and actions will not have a material adverse effect on the financial condition of the University. To protect the integrity of any litigation or action, further details are held confidential. The University has entered into loan guaranty agreements on one property as discussed below: Sigma Chi Fraternity, Epsilon Omega chapter in Muncie Indiana – The loan agreement provided for the refinancing of an existing mortgage to gain more favorable terms and to obtain additional funds for renovation of the fraternity house. The University was guarantor of the loan that was issued for $460,000. This loan was paid in full effective June 30, 2016. Sigma Phi Epsilon Alumni Corporation – The loan agreement allowed for the construction of a new fraternity house for Sigma Phi Epsilon Fraternity, Indiana Gamma chapter in Muncie, Indiana. On June 18, 2009, the University guaranteed a term loan in the amount of $1,040,000 and a term note in the amount of $559,000. On January 2, 2014, the loan and note were consolidated with a reduction in the original interest rate at the request of the housing corporation and the consent of the University for a total consolidated loan of $1,068,957.13. Current financial statements provided by the chapter show the housing corporation has the ability to service the debt and meet its other financial obligations. The University has outstanding commitments for capital construction contracts of $16,346,463 at June 30, 2016. Note K – Risk Management The University is exposed to risks of loss related to: torts; theft of, damage to, or destruction of assets; errors or omissions; job-related illnesses or injuries to employees; life, health and other medical benefits provided to employees and their dependents; and, long-term disability benefits provided to employees. The University handles these risks of loss through combinations of risk retention and commercial insurance. For buildings, contents and general liability the risk retention per incident is $100,000. The University retains the entire risk for job-related illnesses or injury to employees, property damage to its auto fleet, and short-term disability. Auto liability, life insurance and long-term disability are handled through fully insured commercial policies. The University retains the risk for its medical benefits. Separate funds and accounts have been established to measure the results of the various combinations of risk retention and commercial insurance. Periodically (in some cases annually), after reviewing exposures with insurance consultants and actuaries, adjustments are made to reflect potential liabilities arising from risk retention. The University accounts for incurred, but not reported, health care claims by calculating an amount based on a review of applicable claims submitted after year end, as well as past experience. 44 Ball State University—2016 Financial Report Notes to Financial Statements This estimated liability at June 30, 2016, and June 30, 2015, was $3.5 million and $5.4 million, respectively, as determined by our actuarial consultants. Claims activity for each year was as follows: June 30, 2016 Unpaid Health Care Claims at July 1, 2015 $ 5,383,747 Claims Incurred 38,353,599 Claims Paid 40,216,068 Unpaid Health Care Claims at June 30, 2016 $ 3,521,278 June 30, 2015 Unpaid Health Care Claims at July 1, 2014 $ 6,342,028 Claims Incurred 40,046,930 Claims Paid 41,005,211 Unpaid Health Care Claims at June 30, 2015 $ 5,383,747 Note L – Functional Expenses The University’s operating expenses by functional classification were as follows for fiscal year ended June 30, 2016: Functional Classification Supplies and Expenses Personnel Repairs and Services Benefits Scholarships Utilities Maintenance Depreciation Total Instruction $ 102,280,018 $ 42,203,632 $ 135,103 $ 3,887 $ 14,771,206 $ - $ 159,393,846 Research 4,826,468 1,586,267 19,528 1,576 2,016,618 - 8,450,457 Public Service 6,234,746 2,334,206 5,000 35,146 4,853,795 - 13,462,893 Academic Support 25,441,432 11,814,282 17,794 9,105 9,840,346 - 47,122,959 Student Services 6,712,393 2,976,048 7,700 2,006 8,670,350 - 18,368,497 Other Sources 44,814,946 13,887,280 7,162,098 (764,053) 19,331,359 - 84,431,630 Oper & Maint of Physical Plant 13,695,871 8,148,743 - 11,753,258 6,702,111 - 40,299,983 Scholarships & Fellowships 1,839,859 1,115,238 143,598 - 185,264 - 3,283,959 Auxilliary Enterprises 31,724,534 5,743,132 7,926,763 927,252 34,221,863 - 80,543,544 Deductions ------Bond & Plant Funds ------Depreciation - - - - - 26,488,249 26,488,249 Total Operating Expenses $ 237,570,267 $ 89,808,828 $ 15,417,584 $ 11,968,177 $ 100,592,912 $ 26,488,249 $ 481,846,017 Ball State University—2016 Financial Report 45 Ball State University Required Supplemental Information June 30, 2016 Other Post-Employment Benefits Retiree Health and Life Insurance Plans Actuarial UAAL as Valu- Acrued Unfunded a % of ation Value of Liability AAL Funded Covered Covered Date Assets (AAL) (UAAL) Ratio Payroll Payroll Health 7/1/15 $ 226,660,904 $ 259,673,454 $ 33,012,550 87.3% $ 175,587,314 18.8% Life 7/1/15 23,817,938 21,548,055 (2,269,883) 110.5% $ 175,587,314 -1.3% Total $ 250,478,842 $ 281,221,509 $ 30,742,667 89.1% $ 175,587,314 17.5% Health 7/1/13 $ 181,841,263 $ 203,498,679 $ 21,657,416 89.4% $ 161,541,171 13.4% Life 7/1/13 21,672,127 21,579,195 (92,932) 100.4% $ 161,541,171 -0.1% Total $ 203,513,390 $ 225,077,874 $ 21,564,484 90.4% $ 161,541,171 13.3% Health 7/1/11 $ 156,645,643 $ 181,683,897 $ 25,038,254 86.2% $ 157,397,746 15.9% Life 7/1/11 21,487,762 22,261,030 773,268 96.5% $ 157,397,746 0.5% Total $ 178,133,405 $ 203,944,927 $ 25,811,522 87.3% $ 157,397,746 16.4% Health 7/1/09 $ 114,147,732 $ 192,195,650 $ 78,047,918 59.4% $ 151,120,585 51.6% Life 7/1/09 16,546,332 20,150,137 3,603,805 82.1% $ 151,120,585 2.4% Total $ 130,694,064 $ 212,345,787 $ 81,651,723 61.5% $ 151,120,585 54.0% Health 7/1/07 $ 148,827,822 $ 171,887,451 $ 23,059,629 86.6% $ 136,645,256 16.9 % Life 7/1/07 25,238,907 19,036,901 (6,202,006) 132.6% $ 136,645,256 (4.5)% Total $ 174,066,729 $ 190,924,352 $ 16,857,623 91.2% $ 136,645,256 12.3 % 46 Ball State University—2016 Financial Report Required Supplemental Information Schedule of Ball State University's Proportionate Share of the Net Pension Liability Public Employees' Retirement Fund (PERF) Last 10 Fiscal Years* 2015 2014 2013 Proportion of the Net Pension Liability (Asset) 0.0106374 0.0099214 0.0098422 Proportionate Share of the Net Pension Liability (Asset) $ 43,325,088 $ 26,072,795 $ 33,710,313 Covered-Employee Payroll $ 50,950,992 $ 48,439,081 $ 47,254,108 Proportionate Share of the Net Pension Liability (Asset) as a Percentage of its Covered-Employee Payroll 85.0% 53.8% 71.3% Plan Fidiciary Net Position as a Percentage of the Total Pension Liability 77.3% 84.3% 78.8% *The ten year schedule will be built over time. Measurement date is June 30 for each year. Schedule of Ball State University's Proportionate Share of the Net Pension Liability Teachers' Retirement Fund 1996 Account (TRF 1996) Last 10 Fiscal Years* 2015 2014 2013 Proportion of the Net Pension Liability (Asset) 0.0059797 0.0072770 0.0065355 Proportionate Share of the Net Pension Liability (Asset) $ 3,148,778 $ 346,027 $ 2,055,229 Covered-Employee Payroll $ 16,389,126 $ 18,832,391 $ 15,926,895 Proportionate Share of the Net Pension Liability (Asset) as a Percentage of its Covered-Employee Payroll 19.2% 1.8% 12.9% Plan Fidiciary Net Position as a Percentage of the Total Pension Liability 91.08% 99.1% 93.4% *The ten year schedule will be built over time. Measurement date is June 30 for each year. Ball State University—2016 Financial Report 47 Required Supplemental Information Schedule of Ball State University's Proportionate Share of the Net Pension Liability Teachers' Retirement Fund Pre-1996 Account (TRF Pre-1996) Last 10 Fiscal Years* 2015 2014 2013 Proportion of the Net Pension Liability (Asset) $ - $ - $ - Proportionate Share of the Net Pension Liability (Asset) $ - $ - $ - Portion of the Non-Employer Contributing Entities Total Proportionate Share (Amount) of the Collective NPL Associated with the University 100.00% 100.00% 100.00% Covered-Employee Payroll $ 1,074,827,000 $ 1,262,828,000 $ 1,383,428,000 Proportionate Share of the Net Pension Liability (Asset) as a Percentage of its Covered-Employee Payroll N/A N/A N/A Plan Fidiciary Net Position as a Percentage of the Total Pension Liability 30% 33.6% 31.7% *The ten year schedule will be built over time. Measurement date is June 30 for each year. Schedule of University Contributions Public Employees' Retirement Fund (PERF) Last 10 Fiscal Years* 2015 2014 2013 Contractually Required Contribution $ 5,504,427 $ 5,409,794 $ 4,554,942 Contributions in Relation to the Contractually Required Contribution $ 5,504,427 $ 5,409,794 $ 3,247,355 Contribution Deficiency (Excess) $ - $ - $ - Covered-Employee Payroll $ 50,950,992 $ 48,439,081 $ 47,254,108 Contributions as a Percentage of Covered-Employee Payroll 10.80% 11.17% 6.87% *The ten year schedule will be built over time. Measurement date is June 30 for each year. 48 Ball State University—2016 Financial Report Required Supplemental Information Schedule of University Contributions Teachers' Retirement Fund 1996 Account (TRF 1996) Last 10 Fiscal Years* 2015 2014 2013 Contractually Required Contribution $ 1,304,966 $ 1,321,375 $ 1,194,517 Contributions in Relation to the Contractually Required Contribution $ 1,304,966 $ 1,321,375 $ 1,194,517 Contribution Deficiency (Excess) $ - $ - $ - Covered-Employee Payroll $ 16,389,126 $ 18,832,391 $ 15,926,895 Contributions as a Percentage of Covered-Employee Payroll 7.96% 7.02% 7.50% *The ten year schedule will be built over time. Measurement date is June 30 for each year. Schedule of University Contributions Teachers' Retirement Fund Pre-1996 Account (TRF Pre-1996) Last 10 Fiscal Years* 2015 2014 2013 Contractually Required Contribution $ 230,667 $ 441,356 $ 443,976 Contributions in Relation to the Contractually Required Contribution $ 230,667 $ 441,356 $ 443,976 Contribution Deficiency (Excess) $ - $ - $ - Covered-Employee Payroll $ 3,335,080 $ 4,370,814 $ 4,274,503 Contributions as a Percentage of Covered-Employee Payroll 6.92% 10.10% 10.39% *The ten year schedule will be built over time. Measurement date is June 30 for each year. Closed plan - the contributions would need to be caluculated and provided by the actuaries Ball State University—2016 Financial Report 49 Supplemental Information The following supplemental information has not been subjected to the auditing procedures applied to the basic financial statements and accordingly, the State Board of Accounts expresses no opinion thereon. 50 Ball State University—2016 Financial Report Supplemental Information Student Enrollment Fall Headcount 1990-2015 25,000 Off Campus 20,000 On Campus 15,000 10,000 5,000 - 90 95 00 05 10 15 25,000 Graduate 20,000 Undergraduate 15,000 10,000 5,000 - 90 95 00 05 10 15 25,000 Non-Resident 20,000 Resident 15,000 10,000 5,000 - 90 95 00 05 10 15 Ball State University—2016 Financial Report 51 Supplemental Information Campus Enrollment by County Fall 2015 St. Joseph Elkhart LaGrange Steuben La Porte 351 268 20 37 Lake Porter 123 509 267 Noble Dekalb 75 Marshall Kosciusko 70 Starke 76 132 26 Whitley Allen Jasper Pulaski Fulton 73 745 27 21 39 Wabash Hunt- 6 ington Newton White Cass Miami 58 70 Wells Adams 31 58 63 69 96 Benton Carroll 15 Grant 23 Black- Howard 223 ford Jay Tippecanoe 171 Warren 64 123 204 Clinton Tipton 16 53 37 Madison Delaware 526 2,121 Randolph Fountain 140 Mont- Boone Hamilton 9 21 gomery 208 1,666 Henry 51 202 Wayne Marion Hancock Parke Hendricks 153 319 11 Putnam 418 1,478 Vermillion 28 Rush Fayette Union 38 15 Johnson Shelby 55 Vigo Morgan 277 104 Franklin 41 Clay 91 18 Owen Decatur 50 6 50 Monroe Brown Barthol- Dear- 8 omew Sullivan 66 Ripley born 128 13 98 Greene Jennings 50 18 23 4 Jackson Ohio Lawrence 54 Switzerland Knox 43 Jefferson 3 Martin 31 17 Daviess Scott 5 6 Washington 15 Orange 18 17 Clark Pike Dubois 54 Floyd Gibson 7 46 Crawford In-State 13,393 64 20 4 Out-of-State 2,600 Harrison International 609 Warrick Perry Posey 31 Total On Campus 16,602 113 82 Spencer 7 2 11 Vanderburgh 52 Ball State University—2016 Financial Report Ball State University—2016 Financial Report Financial University—2016 Ball State Campus Enrollment by State Fall 2015 New Hampshire Washington Maine Vermont 5 1 Montana North Dakota 1 0 3 1 Mass. Minnesota New Oregon R.I. 0 14 York 9 1 Wisconsin Idaho 23 South Dakota 70 7 53 1 Michigan Connecticut 0 Wyoming 199 Pennsylvania 38 New Jersey 0 Iowa 24 D.C. 0 Nebraska 9 Ohio Nevada Indiana 7 Maryland 3 Illinois 570 13,393 West 1 Utah Delaware 2 837 Va. Virginia Colorado 5 Kansas 4 California Missouri Kentucky 22 13 7 22 72 35 North Carolina Tennessee 18 18 Oklahoma New South Arizona Arkansas Carolina Mexico 5 5 1 Georgia 4 1 Miss- Issippi Alabama 19 2 8 Texas 2 21 Alaska 1 Louisiana Hawaii 1 Florida 21 Military 2 In-State 13,393 Puerto Rico 3 Out-of-State 2,600 Virgin Islands 0 International 609 US Citizens Living Abroad 30 Total on Campus 16,602 Supplemental Information Supplemental Information Supplemental Information Student Financial Assistance 2001-2002 through 2015-2016 (in millions of dollars) 4 54 300 Remission of Fees 250 Student Employment 200 Scholarships, Grants, and Awards 150 Loans 100 Ball State University—2016 Financial Report Financial University—2016 Ball State 50 0 Supplemental Information Ball State University Schedule of Annual Requirements for Principal and Interest Revenue Bonds—Housing and Dining Year Ended June 30, 2016 Unliquidated June 30 Principal Interest Total Balance 2016 $ 83,800,000 2017 $ 3,280,000 $ 3,795,028 $ 7,075,028 80,520,000 2018 3,795,000 3,840,325 7,635,325 76,725,000 2019 3,995,000 3,645,575 7,640,575 72,730,000 2020 4,190,000 3,440,950 7,630,950 68,540,000 2021 4,410,000 3,225,950 7,635,950 64,130,000 2022 4,635,000 2,999,825 7,634,825 59,495,000 2023 4,865,000 2,762,325 7,627,325 54,630,000 2024 5,100,000 2,513,200 7,613,200 49,530,000 2025 5,365,000 2,251,575 7,616,575 44,165,000 2026 5,625,000 1,976,825 7,601,825 38,540,000 2027 3,515,000 1,748,325 5,263,325 35,025,000 2028 3,685,000 1,568,325 5,253,325 31,340,000 2029 3,870,000 1,379,450 5,249,450 27,470,000 2030 4,065,000 1,191,375 5,256,375 23,405,000 2031 4,250,000 1,004,500 5,254,500 19,155,000 2032 4,440,000 797,950 5,237,950 14,715,000 2033 4,665,000 570,325 5,235,325 10,050,000 2034 4,895,000 355,725 5,250,725 5,155,000 2035 2,515,000 194,875 2,709,875 2,640,000 2036 2,640,000 66,000 2,706,000 - Total $ 83,800,000 $ 39,328,428 $ 123,128,428 Ball State University—2016 Financial Report 55 Supplemental Information Ball State University Schedule of Annual Requirements for Principal and Interest Student Fee Bonds Year Ended June 30, 2016 Unliquidated June 30 Principal Interest Total Balance 2016 $ 128,260,000 2017 $ 8,400,000 $ 5,976,014 $ 14,376,014 119,860,000 2018 8,810,000 5,558,051 14,368,051 111,050,000 2019 9,240,000 5,113,351 14,353,351 101,810,000 2020 9,695,000 4,659,707 14,354,707 92,115,000 2021 10,185,000 4,184,244 14,369,244 81,930,000 2022 9,140,000 3,713,888 12,853,888 72,790,000 2023 9,590,000 3,255,163 12,845,163 63,200,000 2024 10,065,000 2,772,050 12,837,050 53,135,000 2025 8,840,000 2,316,169 11,156,169 44,295,000 2026 9,270,000 1,884,838 11,154,838 35,025,000 2027 8,180,000 1,465,450 9,645,450 26,845,000 2028 8,555,000 1,070,581 9,625,581 18,290,000 2029 5,580,000 739,600 6,319,600 12,710,000 2030 5,860,000 462,656 6,322,656 6,850,000 2031 3,835,000 228,025 4,063,025 3,015,000 2032 1,475,000 102,488 1,577,488 1,540,000 2033 1,540,000 34,650 1,574,650 - 2034 - - - - 2035 - - - - 2036 - - - Total $ 128,260,000 $ 43,536,922 $ 171,796,922 56 Ball State University—2016 Financial Report Supplemental Information Ball State University Schedule of Annual Requirements for Principal and Interest Total Revenue and Student Fee Bonds Year Ended June 30, 2016 Unliquidated June 30 Principal Interest Total Balance 2016 $ 212,060,000 2017 $ 11,680,000 $ 9,771,042 $ 21,451,042 200,380,000 2018 12,605,000 9,398,376 22,003,376 187,775,000 2019 13,235,000 8,758,926 21,993,926 174,540,000 2020 13,885,000 8,100,657 21,985,657 160,655,000 2021 14,595,000 7,410,194 22,005,194 146,060,000 2022 13,775,000 6,713,712 20,488,712 132,285,000 2023 14,455,000 6,017,488 20,472,488 117,830,000 2024 15,165,000 5,285,250 20,450,250 102,665,000 2025 14,205,000 4,567,744 18,772,744 88,460,000 2026 14,895,000 3,861,662 18,756,662 73,565,000 2027 11,695,000 3,213,775 14,908,775 61,870,000 2028 12,240,000 2,638,906 14,878,906 49,630,000 2029 9,450,000 2,119,050 11,569,050 40,180,000 2030 9,925,000 1,654,031 11,579,031 30,255,000 2031 8,085,000 1,232,525 9,317,525 22,170,000 2032 5,915,000 900,438 6,815,438 16,255,000 2033 6,205,000 604,975 6,809,975 10,050,000 2034 4,895,000 355,725 5,250,725 5,155,000 2035 2,515,000 194,875 2,709,875 2,640,000 2036 2,640,000 66,000 2,706,000 - Total $ 212,060,000 $ 82,865,351 $ 294,925,351 Ball State University—2016 Financial Report 57 This page intentionally left blank 58 Ball State University—2016 Financial Report APPENDIX C CONTINUING DISCLOSURE Pursuant to continuing disclosure requirements promulgated by the Securities and Exchange Commission in SEC Rule 15c2-12, as amended (the “SEC Rule”), the University entered into an Amended and Restated Continuing Disclosure Undertaking Agreement, dated as of February 15, 2011, as heretofore supplemented, to be further supplemented by a Fourth Supplement to Amended and Restated Continuing Disclosure Undertaking Agreement, dated as of January 1, 2017 (together, the “Undertaking”). Pursuant to the terms of the Undertaking, the University will agree to provide the following information while any of the Series R Bonds are Outstanding: • Audited Financial Statements. To the Municipal Securities Rulemaking Board (the “MSRB”), when and if available, the audited financial statements of the University for each fiscal year, beginning with the fiscal year ending June 30, 2017, together with the auditor’s report and all notes thereto; and • Financial Information in this Official Statement. To the MSRB, within 180 days of the close of the University’s fiscal year, beginning with the fiscal year ending June 30, 2017, annual financial information, other than the audited financial statements described above, including (i) unaudited financial statements of the University if audited financial statements are not available and (ii) operating data (excluding any demographic information or forecasts) of the general type provided under the following headings in this Official Statement (as well as other Official Statements of the University for its Parking System Revenue Bonds and its Housing and Dining System Revenue Bonds, as designated below) (collectively, the “Annual Information”): THE PARKING SYSTEM -- Parking System Revenue Bonds THE FACILITIES AND THE SYSTEM -- Housing and Dining System Revenue Bonds ANNUAL DEBT SERVICE REQUIREMENTS -- Student Fee Bonds ANNUAL DEBT SERVICE REQUIREMENTS -- Parking System Revenue Bonds ANNUAL DEBT SERVICE REQUIREMENTS -- Housing and Dining System Revenue Bonds DEBT SERVICE COVERAGE -- Housing and Dining System Revenue Bonds BALL STATE UNIVERSITY (Appendix A) Enrollment Student Admissions Tuition and Fees State Appropriations Financial Aid to Students Financial Operations of the University Outstanding Indebtedness C - 1 • Reportable Events. In a timely manner within 10 business days of the occurrence of any of the following events, if material (which determination of materiality shall be made by the University in accordance with the standards established by federal securities laws), to the MSRB: • non-payment related defaults; • modifications to the rights of owners of the Series R Bonds; • Series R Bond calls (other than scheduled mandatory sinking fund redemptions for which notice is given in accordance with the Indenture); • release, substitution or sale of property securing repayment of the Series R Bonds; • the consummation of a merger, consolidation, or acquisition, or certain asset sales, involving the obligated person, or entry into or termination of a definitive agreement relating to the foregoing; and • appointment of a successor or additional trustee or the change of name of a trustee. In a timely manner within 10 business days of the occurrence of any of the following events, regardless of materiality, to the MSRB: • principal and interest payment delinquencies; • unscheduled draws on debt service reserves reflecting financial difficulties; • unscheduled draws on credit enhancements reflecting financial difficulties; • substitution of credit or liquidity providers, or their failure to perform; • defeasances; • rating changes; • adverse tax opinions or other material events affecting the tax exempt status of the Series R Bonds; the issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the securities; • tender offers; and • bankruptcy, insolvency, receivership or similar event of the obligated person. • Failure to Disclose. In a timely manner, to the MSRB, notice of the University failing to provide the annual financial information as described above. If any Annual Information or audited financial statements relating to the University referred to above no longer can be provided because the operations to which they related have been materially changed or discontinued, a statement to that effect, provided by the University to the MSRB, along with any other Annual Information or audited financial statements required to be provided under the Undertaking, shall satisfy the Undertaking. To the extent available, the C - 2 University shall cause to be filed along with the other Annual Information or audited financial statements operating data similar to that which can no longer be provided. The University has agreed to make a good faith effort to provide Annual Information. However, failure to provide any component of Annual Information because it is not available to the University on the date by which Annual Information is required to be provided under the Undertaking, shall not be deemed to be a breach of the Undertaking. The University has further agreed to supplement the Annual Information filing when such data is available. Dissemination Agent. The University may, at its sole discretion, utilize an agent (a “Dissemination Agent”) in connection with the dissemination of any annual financial information required to be provided by the University pursuant to the terms of the Undertaking. Remedy. The sole remedy against the University for any failure to carry out any provision of the Undertaking shall be for specific performance of the University’s disclosure obligations under the Undertaking and not for money damages of any kind or in any amount. The University’s failure to honor its covenants thereunder shall not constitute a breach or default of the Series R Bonds, the Indenture or any other agreement to which the University is a party. In the event the University fails to provide any information required of it by the terms of the Undertaking, any holder or beneficial owner of Series R Bonds may pursue the remedy set forth above in any court of competent jurisdiction in the State of Indiana. Any challenge to the adequacy of the information provided by the University by the terms of the Undertaking may be pursued only by holders or beneficial owners of not less than 25% in principal amount of Series R Bonds then Outstanding in any court of competent jurisdiction in the State of Indiana. An affidavit to the effect that such persons are holders or beneficial owners of Series R Bonds supported by reasonable documentation of such claim shall be sufficient to evidence standing to pursue the remedy set forth above. Prior to pursuing any remedy for any breach of any obligation under the Undertaking, a holder or beneficial owner of Series R Bonds shall give notice to the University, by registered or certified mail, of such breach and its intent to pursue such remedy. Fifteen (15) days after the mailing of such notice, and not before, such remedy may be pursued under the Undertaking if and to the extent the University has failed to cure such breach within such fifteen (15) days. Modification of Undertaking. The University may, from time to time, amend or modify the Undertaking without the consent of or notice to the owners of the Series R Bonds if either (a)(i) such amendment or modification is made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the University, or type of business conducted, (ii) the Undertaking, as so amended or modified, would have complied with the requirements of the SEC Rule on the date hereof, after taking into account any amendments or interpretations of the SEC Rule, as well as any change in circumstances, and (iii) such amendment or modification does not materially impair the interests of the holders of the Series R Bonds, as determined either by (A) any person selected by the University that is unaffiliated with the University (including the trustee under the Indenture, or nationally recognized bond counsel) or (B) an approving vote of the holders of the requisite percentage of Outstanding Series R Bonds as required under Section 16.01 of the Indenture at the C - 3 time of such amendment or modification; or (b) such amendment or modification (including an amendment or modification which rescinds the Undertaking) is permitted by the SEC Rule, as then in effect. Past Compliance. In order to assist the Underwriters in complying with the Underwriters’ obligations pursuant to the SEC Rule, the University represents that it has identified certain deficiencies with regard to its undertakings which occurred during the previous five years, including, but not limited to, the following instances: The University did not provide complete audited financial statements for its Fiscal Years ending June 30, 2008 through June 30, 2012. The University filed excerpted statements from its audited financial statements for the Fiscal Years in question, but did not file the entire Financial Reports. The University filed the complete Financial Reports for the Fiscal Years in question on August 21, 2013. In addition, the University did not file a reportable event notice with respect to the redemption of its outstanding Parking System Revenue Bonds, which were redeemed in full using available cash on April 2, 2015. The bondholders in question did, however, receive timely 30 day notice of the redemption on March 2, 2015. Also, the University filed its Annual Information for the Fiscal Year ending June 30, 2010 three days late, on December 30, 2010, and the University filed its Annual Information for the Fiscal Year ending June 30, 2012 four days late, on December 31, 2012. The University has filed a failure to disclose notice regarding these prior instances; however, the University makes no representation as to any potential materiality of such prior instances, as materiality is dependent upon individual facts and circumstances. Otherwise, there have been no instances in the past five years when the University has failed to comply, in all material respects, with any undertakings in a written contract or agreement as specified in paragraph (b)(5)(i) of the SEC Rule. See “APPENDIX C: CONTINUING DISCLOSURE.” EMMA. The Securities and Exchange Commission approved the submission of continuing disclosure filings with the Electronic Municipal Market Access (“EMMA”) system established by the MSRB, as the sole nationally recognized municipal securities information repository recognized by the SEC, effective July 1, 2009. Accordingly, all continuing disclosure filings under the Undertaking shall be filed solely by transmitting such filings to EMMA at www.emma.msrb.org. C - 4 APPENDIX D SUMMARY OF AMENDMENTS Bondholder Consent to Amendment Contained in Eleventh Supplemental and Amendatory Indenture The Eleventh Supplemental and Amendatory Indenture, dated as of January 1, 2005 (the “Eleventh Supplemental Indenture”), provided that all purchasers of the Series M Bonds, and all purchasers of Bonds issued under the Indenture subsequent to the Series M Bonds, including the Series R Bonds, will be deemed to have consented to the terms of the Eleventh Supplemental Indenture, which contains an amendment to the Original Indenture, as previously amended. The amendment described below applies only to the Series M Bonds and to subsequently issued series of Student Fee Bonds, including the Series R Bonds, and takes effect immediately upon issuance of all such Bonds. The substance of the amendment is summarized below. Notice of Defeasance The provisions of Section 11.02(a) of the Indenture, concerning notice of defeasance, will be amended to incorporate the following proviso: “; provided, that notwithstanding anything to the contrary herein, any requirement in Article V for publication of a required notice in a newspaper or financial journal of general circulation published in New York, New York, can be satisfied instead by sending such notice to the nationally recognized municipal securities information repositories recognized at that point in time by the Securities and Exchange Commission, pursuant to Rule 15c2-12 of the Securities Exchange Act of 1934.” D - 1 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX E FORM OF OPINION OF BOND COUNSEL January ___, 2017 Ball State University Board of Trustees Piper Jaffray & Co. Muncie Indiana Chicago, Illinois First Merchants Private Wealth Advisors, a City Securities Corporation Division of First Merchants Bank, N.A. Indianapolis, Indiana (successor to The Merchants National Bank of Muncie), as Trustee Backstrom McCarley Berry & Co., LLC Muncie, Indiana Indianapolis, Indiana Re: Ball State University Student Fee Bonds, Series R (the “Series R Bonds”) issued by the Ball State University Board of Trustees (the “University”) pursuant to a Trust Indenture dated as of November 1, 1985, as heretofore supplemented and amended, and as further supplemented by a Sixteenth Supplemental Indenture dated as of January 1, 2017 (collectively, the “Indenture”) to First Merchants Private Wealth Advisors, a Division of First Merchants Bank, N.A. (successor to The Merchants National Bank of Muncie), Muncie, Indiana, as trustee (the “Trustee”); Principal amount $______Ladies and Gentlemen: We have examined a transcript of the proceedings had by the University relative to (i) the authorization, issuance and sale of the Series R Bonds to provide funds for financing (a) the costs of the Project (as defined in the Indenture), and (b) the refunding of the Refunded Bonds (as defined in the Indenture), as certified by the Secretary or Assistant Secretary of the University; and (ii) the Indenture as executed and delivered for the purpose of securing the payment of the Series R Bonds and the interest thereon. We have relied upon a certified transcript of proceedings and other certificates and representations of the University, including the tax covenants and representations (the “Tax Covenants”), and have not undertaken to verify any facts by independent investigation. Based on the foregoing and our review of such other information, papers and documents as we believe necessary or advisable, we are of the opinion that: (1) The Indenture has been duly authorized, executed and delivered by the University and, assuming due authorization, execution and delivery thereof by the Trustee, is a valid and binding agreement of the University, enforceable in accordance with its terms. E - 1 (2) The Series R Bonds have been duly authorized, executed and issued and are the valid and binding obligations of the University, enforceable in accordance with their terms. (3) Under statutes, decisions, regulations and rulings existing on this date, the interest on the Series R Bonds is exempt from income taxation in the State of Indiana. This opinion relates only to the exemption of interest on the Series R Bonds from state income taxes. (4) Under federal statutes, decisions, regulations and rulings existing on this date, the interest on the Series R Bonds is excludable from gross income for purposes of federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for purposes of computing the federal alternative minimum tax imposed on certain corporations. This opinion is conditioned on continuing compliance by the University with the Tax Covenants. Failure to comply with the Tax Covenants could cause interest on the Series R Bonds to lose the exclusion from gross income for purposes of federal income taxation purposes retroactive to the date of issuance of the Series R Bonds. It is to be understood that the rights of the owners of the Series R Bonds, the University and the Trustee and the enforceability of the Series R Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore and hereafter enacted and that their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity. It is also to be understood that the rights of the owners of the Series R Bonds, the University and the Trustee and the enforceability of the Series R Bonds and the Indenture may be subject to the valid exercise of the constitutional powers of the State of Indiana and the United States of America. Very truly yours, E - 2 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] BALL STATE UNIVERSITY BOARD OF TRUSTEES • Ball State University Student Fee Bonds, Series R