Washington Higher Education Facilities Authoritywhefa.org/investors/AuditedFinancialsWHEFA.FYE2016.pdf · Report on Financial Statements We have audited the accompanying financial

Report of Independent Auditors and Financial Statements with Supplemental Information for

Washington Higher Education Facilities Authority

June 30, 2016 and 2015

CONTENTS PAGEREPORTOFINDEPENDENTAUDITORS 1–2MANAGEMENT’SDISCUSSIONANDANALYSIS 3–7FINANCIALSTATEMENTS Statementsofnetposition 8 Statementsofrevenues,expenses,andchangesinnetposition 9 Statementsofcashflows 10 Notestofinancialstatements 11–20SUPPLEMENTALINFORMATION Scheduleofprogramnetposition 21 Scheduleofprogramrevenues,expenses,andchangesinprogramnetposition 22 Scheduleofprogramcashflows 23

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REPORTOFINDEPENDENTAUDITORSTotheBoardofDirectorsWashingtonHigherEducationFacilitiesAuthorityReportonFinancialStatementsWehaveauditedtheaccompanyingfinancialstatementsoftheWashingtonHigherEducationFacilitiesAuthority,whichcomprisethestatementsofnetpositionasofJune30,2016and2015,andtherelatedstatementsofrevenues,expensesandchangesinnetpositionandcashflowsfortheyearsthenended,andtherelatednotestothefinancialstatements.Management’sResponsibilityfortheFinancialStatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;thisincludesthe design, implementation, andmaintenance of internal control relevant to the preparation and fairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.Auditor’sResponsibilityOur responsibility is to express an opinion on these financial statements based on our audits. Weconductedouraudits inaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthe financial statements. The procedures selected depend on the auditor’s judgment, including theassessmentof therisksofmaterialmisstatementof the financialstatements,whetherdue to fraudorerror. Inmakingthoseriskassessments, theauditorconsidersinternalcontrolrelevant to theentity’spreparationand fairpresentationof the financial statements inorder todesignauditprocedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit alsoincludes evaluating the appropriateness of accounting policies used and the reasonableness ofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

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OpinionIn our opinion, the financial statements referred to above present fairly, in allmaterial respects, thefinancialpositionoftheWashingtonHigherEducationFacilitiesAuthorityasofJune30,2016and2015,andthechangesinitsnetpositionandresultsofitscashflowsfortheyearsthenendedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.OtherMattersRequiredSupplementaryInformationAccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericarequirethatthemanagement'sdiscussionandanalysisonpages3through7bepresentedtosupplementthefinancialstatements.Suchinformation,althoughnotapartofthefinancialstatements,isrequiredbytheGovernmentalAccountingStandardsBoardwhoconsidersittobeanessentialpartoffinancialreportingforplacingthefinancialstatements in an appropriate operational, economic, or historical context. We have applied certainlimitedprocedures to therequiredsupplementary information inaccordancewithauditing standardsgenerallyacceptedintheUnitedStatesofAmerica,whichconsistedof inquiriesofmanagementaboutthe methods of preparing the information and comparing the information for consistency withmanagement's responses toour inquiries, the financial statements,andotherknowledgeweobtainedduringourauditofthefinancialstatements.Wedonotexpressanopinionorprovideanyassuranceontheinformationbecausethelimitedproceduresdonotprovideuswithsufficientevidencetoexpressanopinionorprovideanyassurance.SupplementalInformationOur audits were conducted for the purpose of forming an opinion on the financial statements. Thesupplementalschedulesofprogramnetposition,programrevenues,expenses,andchangesinprogramnetposition,andprogramcashflowsonpages21through23arepresentedforpurposesofadditionalanalysisandarenotarequiredpartofthefinancialstatements.Suchinformationistheresponsibilityofmanagementandwasderivedfromandrelatesdirectlytotheunderlyingaccountingandotherrecordsusedtopreparethefinancialstatements.Theinformationhasbeensubjectedtotheauditingproceduresappliedintheauditsofthefinancialstatementsandcertainadditionalprocedures,includingcomparingand reconciling such information directly to the underlying accounting and other records used toprepare the financial statements or to the financial statements themselves, and other additionalproceduresinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Inour opinion, the supplemental schedules of program net position, program revenues, expenses, andchanges in programnet position, andprogram cash flows are fairly stated in allmaterial respects inrelationtothefinancialstatementsasawhole.

Seattle,WashingtonOctober28,2016

WASHINGTONHIGHEREDUCATIONFACILITIESAUTHORITYMANAGEMENT’SDISCUSSIONANDANALYSIS

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As management of the Washington Higher Education Facilities Authority (the Authority), we offerreaders of the Authority’s financial statements this narrative overview and analysis of the financialactivitiesof theAuthority for theyearsended June30,2016and2015.Thisoverviewandanalysis isrequiredby accountingprinciples generally accepted in theUnited StatesofAmerica (GAAP) and theGovernmentalAccountingStandardsBoard.FINANCIALHIGHLIGHTSDuringthefiscalyearendedorasofJune30,2016: Cashandinvestmentstotaled$26.5million,decreasingby$6.1millionasproceedsfrombondissues

wereusedtofundprojectdraws. Loans receivable, net of discounts, premiums, and unamortized bond insurance premiums

decreased$12.8millionduetomortgagepaymentsof$72.0million,partiallyoffsetbythefundingofonenewloan($54.8million)coupledwiththefundingofexistingloans($4.4million).

At fiscal year‐end, the Authority had total bonds and notes payable of $747.1 million, net of

premiumsanddiscounts.Thisrepresentsanetdecreaseof$18.8million,or2.5%,resultingfromtheissuance of one new bond ($53.2 million, net of premiums and discounts), offset by principalpaymentsonbonds($72.0million).

Bondinterestexpensedecreasedby$1.0millionasbondsoutstandingdeclined.OVERVIEWOFTHEFINANCIALSTATEMENTSThe financial statements consist of three parts: Management’s Discussion and Analysis, the financialstatements, and the notes to the financial statements. The financial statements are presented in amannersimilartothatofaprivatebusiness,usingtheeconomicresourcesmeasurementfocusandtheaccrualbasisofaccounting.ThefinancialstatementsreportinformationforallAuthorityprogramsandoperations.ThestatementofnetpositionincludesalloftheAuthority’sassetsandliabilities.Alloftherevenues and expenses of the Authority are reflected in the statement of revenues, expenses, andchangesinnetposition.Inaddition,programfinancialstatementsarepresentedassupplementalschedules.Thesupplementalinformation separates the financial statements into the Restricted Bond Fund and General OperatingFund.


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OVERVIEWOFTHEFINANCIALSTATEMENTS(continued)EconomicOutlookInterestratescontinueatnearrecordlowlevels,creatinganadvantageousborrowingopportunityforourclients.Financingstructurescontinuetoreflectfinancialmarketconditionsinwhichbondinsuranceor letterofcreditbackedbond issuancesareno longerthenorm. Instead,wehavecontinuedtoseeamuch greater reliance on private placement of tax‐exempt debt with lending institutions and bondsissuedsupportedbytheborrower’screditrating.Muchofourclients’debthasbeenorisexpectedtoberefinancedduringthistimeoflowinterestrates.Therefore,futurefinancingswillberelatedtonewborrowings.Also,giventhecontinuedlowrates,theinstitutionsmaychoosetodosomefinancinginthetaxablemarketsincethespreadtotax‐exemptratesislow.FINANCIALANALYSISOFTHEAUTHORITYStatementsofNetPositionThe following table summarizes the changes in assets, liabilities, and net position between the yearsendedJune30,2016and2015(inmillions):

2016 2015AssetsCashandcashequivalents 11.2$ 13.9$ (2.7)$ (19.4%)Investments 15.3 18.7 (3.4) (18.2%)Accruedinterestreceivable 5.3 5.2 0.1 1.9%Loansreceivable,net 723.5 736.3 (12.8) (1.7%)Prepaidfeesandotherassets 0.6 1.1 (0.5) (45.5%)

Totalassets 755.9$ 775.2$ (19.3)$ (2.5%)

LiabilitiesAccruedinterestpayable 5.5$ 5.7$ (0.2)$ (3.5%)Amountsduetoborrower

andotherpayables 1.6 1.7 (0.1) (5.9%)Bondspayable,net 747.1 765.9 (18.8) (2.5%)

Totalliabilities 754.2$ 773.3$ (19.1)$ (2.5%)

NetpositionUnrestricted 1.7$ 1.9$ (0.2)$ (10.5%)

Change


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FINANCIALANALYSISOFTHEAUTHORITY(continued)StatementsofRevenues,Expenses,andChangesinNetPositionThe following table summarizes the changes in revenues and expenses between the years endedJune30,2016and2015(inmillions):

2016 2015RevenuesBondprogramsloaninterest 25.8$ 27.4$ (1.6)$ (5.8%)ProgramfeesandGeneralOperatingFundinterestincome 0.6 0.2 0.4 200.0%Totalrevenues 26.4 27.6 (1.2) (4.3%)

ExpensesBondprogramsinterestexpense 26.9 27.9 (1.0) (3.6%)Otherbondprogramsexpenses (0.6) (0.2) (0.4) 200.0%GeneralOperatingFundexpenses 0.3 0.3 ‐ ‐%

Totalexpenses 26.6 28.0 (1.4) (5.0%)

Changeinnetposition (0.2)$ (0.4)$ 0.2$ (50.0%)

Change

Loanrelatedinterestearnings($25.8million)andbondinterestexpense($26.9million)aretheprimarycomponentsoftotalrevenuesandexpenses,respectively,forthebondprogramsfortheyearendedJune30,2016.During the year ended June 30, 2016, the Authority’s revenue in the General Operating Fund was$81,724, primarily from issuer fees on new bonds. During the year, the Authoritywaived its annualissuer fees on the bonds outstanding. General operating expenses of $321,520 are comprised ofcommunication,officeexpense,andotherprofessionalfees.DEBTADMINISTRATIONTheAuthorityhasdebtobligationsof$747.1million,netofbonddiscountsandpremiumsat June30,2016. The Authority’s bond funds are held by trustees, who ensure that payments of debt service,funding of necessary reserves and other bond resolution requirements are met. At June 30, 2016,amountsheldbytrusteesrepresentfullfundingoftheserequirements.MostofthedebtissuedbytheAuthorityistax‐exemptandis issuedundertheInternalRevenueCodeandTreasuryRegulations governingmortgage revenuebonds. The tax‐exempt bonds sold to provideloans to nonprofit higher education facilities are exempt from federal income taxes under Section501(c)(3)oftheInternalRevenueCode.


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DEBTADMINISTRATION(continued)The loans,whichmaybesecuredbyrealand/orpersonalproperty,areusedby thehighereducationinstitutionsforcapitalcostsand/orrefundingofpriorsuchfinancings.ThesebondsarenotsubjecttothelimitationofthefederalTaxReformActof1986,whichimposesanannualceilingontheaggregateamount of bonds that may be issued during any calendar year by, or on behalf, of states and theirpoliticalsubdivisions.TheAuthorityhasnogeneralobligationbondsanddoesnotcurrentlyhaveanissuercreditrating.TheAuthority’sauthorizeddebtlimitis$1billion.AdditionalinformationontheAuthority’sdebtobligationscanbefoundinNote6ofthisreport.COMPARISONOFFISCALYEAR2015WITH2014StatementsofNetPositionThefollowingtablesummarizesthechangesincombinednetpositionbetweenJune30,2015and2014(inmillions):

2015 2014AssetsCashandcashequivalents 13.9$ 18.3$ (4.4)$ (24.0%)Investments 18.7 57.5 (38.8) (67.5%)Accruedinterestreceivable 5.2 5.3 (0.1) (1.9%)Loansreceivable,net 736.3 702.1 34.2 4.9%Prepaidfeesandotherassets 1.1 1.2 (0.1) (8.3%)

Totalassets 775.2$ 784.4$ (9.2)$ (1.2%)

LiabilitiesAccruedinterestpayable 5.7$ 5.7$ ‐$ ‐%Amountsduetoborrower

andotherpayables 1.7 3.4 (1.7) (50.0%)Bondspayable,net 765.9 773.1 (7.2) (0.9%)

Totalliabilities 773.3$ 782.2$ (8.9)$ (1.1%)

NetPositionUnrestricted 1.9$ 2.2$ (0.3)$ (13.6%)

Change


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COMPARISONOFFISCALYEAR2014WITH2013(continued)StatementsofRevenues,ExpensesandChangesinNetPositionThefollowingtablesummarizesthecombinedchangesinnetpositionactivitybetweenthefiscalyears2015and2014(inmillions):

2015 2014RevenuesBondprogramsloaninterest 27.4$ 24.8$ 2.6$ 10.5%ProgramfeesandGeneralOperatingFundinterestincome 0.2 1.7 (1.5) (88.2%)Totalrevenues 27.6 26.5 1.1 4.2%

ExpensesBondprogramsinterestexpense 27.9 25.3 2.6 10.3%Otherbondprogramsexpenses (0.2) 1.0 (1.2) (120.0%)GeneralOperatingFundexpenses 0.3 0.3 ‐ ‐%

Totalexpenses 28.0 26.6 1.4 5.3%

Changeinnetposition (0.4)$ (0.1)$ (0.3)$ 300.0%

Change

During the fiscal year ended June 30, 2015, the Authority’s combined total assets decreased by $9.2millionprimarilyduetothedecrease incashandcashequivalentsand investments($43.2million)asproceedsfrombondissueswerereceivedtofundfutureprojectdraws,partiallyoffsetbytheincreaseinloansreceivable($34.2million)duetothefundingofpreviouslyissuedloansaswellasonenewloan.ADDITIONALINFORMATIONQuestionsand inquiriesmaybedirected to theSeniorDirectorofFinanceor theSeniorControlleratWashingtonHigherEducationFacilitiesAuthority, 10002ndAvenue, Suite 2700, Seattle,Washington98104(206‐464‐7139).

8 Seeaccompanyingnotes.

WASHINGTONHIGHEREDUCATIONFACILITIESAUTHORITYSTATEMENTSOFNETPOSITION

2016 2015

CASHANDCASHEQUIVALENTS 11,204,377$ 13,953,274$

INVESTMENTS 15,307,179 18,669,564

ACCRUEDINTERESTRECEIVABLE 5,330,601 5,249,490

LOANSRECEIVABLE,net 723,468,822 736,290,274

PREPAIDFEESANDOTHERASSETS 576,806 1,068,500

TOTALASSETS 755,887,785$ 775,231,102$

ACCRUEDINTERESTPAYABLE 5,494,770$ 5,734,586$

AMOUNTSDUETOBORROWER 1,548,255 1,597,643

ACCOUNTSPAYABLE 39,318 90,244

BONDSPAYABLEInterestbonds 722,667,475 739,833,331Taxablebonds 20,000,000 20,000,000Unamortizedbondpremium 6,576,136 8,329,258Unamortizedbonddiscount (2,113,385) (2,268,972)

747,130,226 765,893,617

TOTALLIABILITIES 754,212,569 773,316,090

NETPOSITIONUnrestricted 1,675,216 1,915,012

TOTALLIABILITIESANDNETPOSITION 755,887,785$ 775,231,102$

June30,

ASSETS

LIABILITIESANDNETPOSITION

Seeaccompanyingnotes. 9

WASHINGTONHIGHEREDUCATIONFACILITIESAUTHORITYSTATEMENTSOFREVENUES,EXPENSES,ANDCHANGESINNETPOSITION

2016 2015REVENUES

Interestearnedonloansandinvestments 25,823,633$ 27,442,993$Feeincome 583,893 196,549

26,407,526 27,639,542EXPENSES

Interestondebt 26,926,405 27,865,121Amortizationofbondpremium (1,753,122) (641,732)Amortizationofbonddiscount 155,586 131,017Bondissuancecosts 507,835 191,549Amortizationofbondinsurancepremium 489,098 85,910Communicationandofficeexpense 270,095 243,694Professionalfees 51,425 54,891

26,647,322 27,930,450

CHANGEINNETPOSITION (239,796) (290,908)

NETPOSITIONBeginningofyear 1,915,012 2,205,920

Endofyear 1,675,216$ 1,915,012$

YearsEndedJune30,

10 Seeaccompanyingnotes.

WASHINGTONHIGHEREDUCATIONFACILITIESAUTHORITYSTATEMENTSOFCASHFLOWS

2016 2015OPERATINGACTIVITIES

Interestreceivedonloans 26,200,254$ 27,578,425$Cashreceivedfromfeeincome 75,745 5,000Cashreceivedfromloanrepayments 71,980,856 19,649,694Cashpaymentsforacquisitionofloans (59,459,949) (53,713,541)Cashpaymentsforbondprogramexpenses (557,223) (1,983,097)Salaries,benefits,andvendorpayments (369,535) (247,423)

Netcashprovidedby(usedfor)operatingactivities 37,870,148 (8,710,942)

INVESTINGACTIVITIESPurchaseofinvestments (8,657,797) (6,707,466)Saleofinvestments 12,320,728 45,495,167Interestreceivedoninvestments 50,100 61,029

Netcashprovidedbyinvestingactivities 3,713,031 38,848,730

NONCAPITALFINANCINGACTIVITIESProceedsfromissuanceofbondsandnotes 54,815,000 12,998,000Interestpaidondebt (27,166,220) (27,846,770)Debtrepayments (71,980,856) (19,649,694)

Netcashusedforfinancingactivities (44,332,076) (34,498,464)

NETDECREASEINCASHANDCASHEQUIVALENTS (2,748,897) (4,360,676)

CASHANDCASHEQUIVALENTSBeginningofyear 13,953,274 18,313,950

Endofyear 11,204,377$ 13,953,274$

RECONCILIATIONOFEXCESSOFEXPENSESOVERREVENUESTONETCASHPROVIDEDFROMFROMOPERATINGACTIVITIES

Changeinnetposition (239,796)$ (290,908)$Adjustmentstoreconcileexcessofexpensesoverrevenues

tonetcashusedbyoperatingactivitiesAmortizationofloandiscount (155,586) (131,017)Amortizationofloanpremium 1,753,122 641,732Amortizationofprepaidbondinsurance (489,098) (85,910)Amortizationofbonddiscount 155,586 131,017Amortizationofbondpremium (1,753,122) (641,732)Amortizationofbondinsurancepremium 489,098 85,910Cashfromchangesinoperatingassetsandliabilities

Acquisitionofloans (59,459,949) (53,713,541)Repaymentsofloans 71,980,856 19,649,694Interestandotherreceivables (429,163) 27,436Interestandotherpayables 26,018,200 25,616,377

Netcashprovidedby(usedfor)operatingactivities 37,870,148$ (8,710,942)$

YearsEndedJune30,

WASHINGTONHIGHEREDUCATIONFACILITIESAUTHORITYNOTESTOFINANCIALSTATEMENTS

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Note1–DescriptionofBusinessThe Washington Higher Education Facilities Authority (the Authority) was created in 1983 inaccordance with the Chapter 28B.07 of the Revised Code of Washington (RCW). The Authority wasformallyactivatedin1984withtheappointmentoffiveboardmembers.TheAuthority’spurposeistoreducethefinancingcostsofhighereducationfacilitiesthroughtheissuanceoftax‐exempt,nonrecourserevenue bonds, and to loan the proceeds to qualified, not‐for‐profit higher education institutions inWashington State. The institutionsmay use the bond proceeds for refinancing taxable or tax‐exemptdebt, remodeling, construction, purchase of equipment, or other approved purposes. The Authority’sdebtlimitis$1billion.EffectiveJuly22,2007,theAuthoritywasgrantedthepowertooriginateandpurchasestudentloans,toparticipateinfederalprogramsthatprovideguaranteesfortherepaymentofeducationalloansandtoissuerevenuebondspayablefromandsecuredbyeducationalloans.Revenuebondssosecuredaretobeexcludedfromthedebtlimitof$1billion.Asofthedateofthisreport,nosuchrevenuebondshavebeenissued.The Authority is a legally separate entity from, and incurs no expense or liability to, the State ofWashington.Althoughthegovernorandlieutenantgovernorsitontheboardandthegovernorappointsthepublicmembersoftheboard,theStateofWashingtonisnotconsideredtobefinanciallyaccountableduetotherestrictedabilityoftheWashingtonStatelegislaturetoimposeitswillontheAuthorityandalackofanyfinancialdependencyoftheAuthorityonanyStateappropriations.TheAuthoritydoesnotimposeafinancialburdenon,noristhereabenefitto,theState;however,intheJune30,2015StateofWashingtonComprehensiveAnnual FinancialReport (CAFR), theAuthority is presented as adiscretecomponentunitoftheStateofWashington.ProgramFundsTheAuthoritysummarizesitsfinancialactivitiesintwofunds:GeneralOperatingFund ‐TheGeneralOperatingFundwasestablishedbytheAuthoritytoaccountforthefiscalactivitiesrelatedtotheadministrationofitsongoingprogramresponsibilities.RevenuesoftheGeneralOperatingFundarederivedprimarilyfromfeesearnedonbondissuesandinterestincomeonoperatinginvestments.AllfundsreceivedbytheAuthorityaregeneratedbyitsactivities.ExpendituresarenotappropriationsfromtheState.BondFund‐ThefinancialactivitiesofallAuthority‐issuedbonds,includingtheproceedsfromthesaleofmortgagerevenuebondsand thedebtservice requirementsof thesebonds,are recorded in thebondfund. Bonds issued by the Authority are conduit debt, i.e., limited‐obligation bonds issued by theAuthorityfortheexpresspurposeofprovidingfinancingforaspecificthirdpartythatisnotapartoftheAuthority’s financial reporting entity. Although the conduit debt securities bear the name of theAuthority, ithasnoobligationforsuchdebtbeyondtheresourcesprovidedbytheloanwiththethirdpartyonwhosebehalftheyareissued.


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Note1–DescriptionofBusiness(continued)At the time of bond issuance, theAuthority generally assigns its rights, title, and interest in the loanagreement(withcertainexceptionsandreservations),andinanycollateralsecuringtheloan,toabondtrusteepursuant toa trust indenture.Thebondtrusteeadministers thebond issue.Thebonds,whichconstitute a special obligation of the Authority, are payable solely from the bond fund establishedpursuanttothe indenture,andarefundedprimarily frompaymentsmadebythenot‐for‐profithighereducationinstitutionstosatisfytheloanagreementandfromanyothermoneyheldbythebondtrusteepursuanttotheindenture.Assuch,theassetssopledgedwere$754.2millionand$773.2asofJune30,2016and June30, 2015, respectively. Theobligationof thenot‐for‐profit colleges anduniversities torepaytheloanisabsoluteandunconditional.Thebondsdonotconstituteageneral,moral,orspecialobligationoftheStateofWashington,apledgeofthefaithandcreditoftheState,orageneralobligationoftheAuthority.Theownersofthebondshaveno right to require the State ofWashingtonor theAuthority, nor has the State ofWashingtonor theAuthority any obligationor legal authorization, to levy any taxes or appropriate or expend any of itsfundsforthepaymentofprincipalthereof,premium,ifany,orinterestthereon.Note2–SummaryofSignificantAccountingPoliciesThefinancialstatementsoftheAuthorityhavebeenpreparedinconformitywithaccountingprinciplesgenerally accepted in the United States (GAAP) as applied to governmental units. The GovernmentalAccounting Standards Board (GASB) is the accepted standard‐setting body for establishinggovernmental accounting and financial reporting principles. The Authority has applied all applicableGASBpronouncements.ThemostsignificantoftheAuthority’saccountingpoliciesaredescribedbelow.Measurement focus and basis of accounting – All program and general operating funds of theAuthority are accounted for on a flow of economic resources measurement focus. With thismeasurementfocus,allassetsandallliabilitiesassociatedwiththeoperationofthesefundsareincludedonthestatementofnetposition.Thestatementofrevenues,expensesandchangesinnetpositionforallfunds present increases (e.g., revenues) and decreases (e.g.,expenses) in net position. These fundsutilize the accrual basis of accounting. Under this method, revenues are recorded when earned andexpensesarerecordedatthetimeliabilitiesareincurred.Unclassifiedstatementofnetposition–TheAuthority’sbusinesscycle isgreater thanoneyear.Assuch,allassetsandliabilitiesasshownonthestatementofnetpositionareunclassified.Cash and cash equivalents – Cash deposits in the bond issues are held in the corporate trustdepartmentsofcommercialbanksinthebondissue’sname.AsofJune30,2016and2015,therewerenouncollateralizedoruninsuredcashequivalentsheldinthebondfund.CashdepositsheldbytheGeneralOperating Fund are entirely covered by the Federal Deposit Insurance Corporation (FDIC) or bycollateralheldinamultiplefinancialinstitutioncollateralpooladministeredbytheWashingtonPublicDepositProtectionCommission(PDPC).


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Note2–SummaryofSignificantAccountingPolicies(continued)Forpurposesofthestatementofcashflows,theAuthorityconsidersallhighly liquid, interest‐bearinginstrumentspurchasedwithanoriginalmaturityofthreemonthsorlessthatarereadilyconvertibletocashtobecashandcashequivalents.Investments–Investmentsarecomprisedofcertificatesofdeposit,USgovernmentbackedsecurities,and commercial paper as of the fiscal year ended June30, 2016and June30, 2015. Investments arevaluedatfairvalueonareoccurringbasis,exceptforcertificatesofdeposit,whicharerecognizedonanamortizedcostbasis.The Authority categorizes its fair valuemeasurementswithin the fair value hierarchy established bygenerally accepted accounting principles. The hierarchy is based on the valuation inputs used tomeasure the fair value of the asset. Level 1 inputs are quoted prices in activemarkets for identicalassets;Level2inputsaresignificantotherobservableinputs;Level3inputsaresignificantunobservableinputs.TheAuthority’sTrusteeholds all of theAuthority’s investments in thenameof theAuthority.Foradditionalinformationregardsinvestments,seeNote3Loans receivable,net – Loans receivable are stated at their unpaid principal balance, increased bypremiums or reduced by unearned discounts, and unamortized bond insurance premiumswhich areamortizedoverthelifeoftheloan.NoloanlossprovisionshavebeenconsiderednecessaryastheAuthorityrequireseachbondissuetoberatedintheinvestmentgradecategorybyStandard&Poor’s,Moody'sorFitchortobeprivately‐placedwithasophisticatedinvestor.Inadditiontothoseborrowerswhosenaturalratingisbelowinvestmentgrade,mostborrowershavetheassetsheldbyalltheoutstandingindenturessecuredbylettersofcreditor bond insurance, issued by either a third‐party bank or insurance company, of which payment isguaranteed.Prepaid fees – Prepaid fees in the Bond Fund represent prepaid mortgage insurance, which is anagreementbyathirdpartytomakepaymentofrequireddebtserviceinaccordancewiththetermsofthe loan agreement on behalf of the borrower in the event they are unable to make the requiredpayments.Amountsduetoborrower–Amountsduetoborrowerconsistoffundsthataretoberequisitionedbyborrower but have not yet been disbursed as well as reserve funds that are prescribed by bondindentures.Bondspayable–Interestserialandtermbondsarestatedattheirprincipalamountsoutstanding,netofunamortizedbonddiscountorpremium,ifany.Unamortized bond discounts and premiums – Unamortized bond discounts or premiums andunamortizedbondinsurancepremiumsareamortizedusingthebondsoutstandingmethod.


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Note2–SummaryofSignificantAccountingPolicies(continued)Bondissuancecosts–Bondissuancecosts,includingunderwriter’sfees,areexpensedatissuance.Revenuerecognition–TheprimarysourceofrevenuefortheAuthorityisinterestearnedonitsloansoutstandingandinvestments.Thisrevenueisusedtopayinterestexpenseonthebondsoutstanding.Inaddition,theAuthorityearnsannualfeeschargedontheloanamountsoutstanding.Interestandfeesarerecognizedonanaccrualbasis.Incometaxes–TheAuthorityisexemptfromfederalincometaxesunderInternalRevenueCode(IRC)Section115(a)and,accordingly,noprovisionforincometaxeswasmadefortheyearsendedJune30,2016and2015.Extinguishmentofdebt–Anycostsrelatedtotheextinguishmentofdebtarefundedbytheborrower,andassuchdonotcreateanexpensetotheAuthority.Use of estimates – The preparation of the financial statements in conformity with GAAP requiresmanagement to make estimates and assumptions that affect the amounts reported in the financialstatements.Actualresultsmaydifferfromthoseestimates.Unrestrictednetposition –Theunrestrictednetpositionbalances at June30, 2016and2015were$1,675,216and$1,915,012,respectively,andconsistoffundsprovidedforgeneraloperations.Arbitrage rebate – No arbitrage rebate is owed to the United States Treasury for the years endedJune30,2016and2015.Adoptionofnewaccountingpronouncements‐InFebruary2015,GASBissuedStatementNo.72,FairValueMeasurement andApplication. This statement established general principles formeasuring fairvalue and standards of accounting and financial reporting for assets and liabilities measured at fairvalue. This standard generally requires investments to be measured at fair value and establishes avaluation hierarchy that provides greater consistency in across organizations in valuation ofinvestmentsandtherelateddisclosures.StatementNo.72iseffectivefor financialstatementsof fiscalyearsbeginningafterJune15,2015.TheimpacttotheAuthorityislimitedtonotedisclosure.InJune2015GASBissuedStatementNo.76,TheHierarchofGenerallyAcceptedAccountingPrinciplesforState and Local Governments. This statement outlines what constitutes GAAP for all state and localgovernmentalentitiesandestablishestheorderofpriorityofGASBpronouncementsandothersourcesofaccountingandfinancialreportingguidanceavailable forgovernmentalentities toapply.StatementNo.76isalsoeffectiveforfinancialstatementsoffiscalyearsbeginningafterJune15,2015.ThereisnoimpacttotheAuthoritystatements.


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Note3–InvestmentsBondprograminvestmentpolicy–Thetrustindentureforeachbondissuedestablishesthepermittedinvestments.Althoughallofthebondprogramfundsmustbeusedforprogrampurposes,certainfundshavebeenrestrictedforpaymentofdebtserviceasrequiredbytheindentures.SincetheAuthorityisaconduit issuer, the investment of bond program funds is directed by the borrower and the riskassociatedwiththeinvestmentsaccruesdirectlytotheborrower.TheAuthority’s investments in the bondprogramwere $15.3million and $18.7million for the fiscalyearsendedJune30,2016and2015.Theywereheldininstitutionswhosecreditratingisequivalenttoorbetter than the ratingon thebondsbeing issuedand for termsspecified in the indentures. Shouldinstitutioncreditratingsfall,collateralmightberequired.Anycollateralwouldbeheldbythetrusteeinthenameof theAuthorityand, therefore; isnot subject to custodial credit risk.TheAuthorityhasnolimitontheamountitoritsborrowersmayinvestinanyoneprovider,potentiallyexposingthemtoaconcentrationofcreditrisk.The following schedules provide the weighted average of both the interest rate and term for eachinvestment,aswellasitspercentageoftotalinvestments,byclassificationandprovider.

FairValueMeasurementsUsingQuotedPricesin Significant

AsofJune30,2016 Weighted ActiveMarkets other SignificantAverage Weighted forIdentical Observable Unobservable

Total ofTerm Average Assets Inputs InputsClassification/Provider Investment (Years) ofRate (Level1) (Level2) (Level3)

USGovernmentandAgencyObligationsUSTreasuryNotes 1,877,175$ 0.13 1.00% 1,877,175$ ‐$ ‐$USTreasuryBond 524,785 0.17 0.30% 524,785 ‐ ‐FederalHomeLoanMortgage

CompanyMortgageNote 1,701,355 2.26 1.28% ‐ 1,701,355 ‐FederalNationalMortgage

AssociationMortgageNote 930,186 0.59 1.25% ‐ 930,186 ‐FederalNationalMortgage

AssociationMortgageBond 1,716,065 3.90 1.63% ‐ 1,716,065 ‐

TotalUSGovernmentandAgencyObligations 6,749,566

CommericalPaperAbbeyNationalNALLCCommercialPaper 1,674,732 0.03 0.57% ‐ 1,674,732 ‐CreditSuisseAGCommerialPaper 2,668,633 0.33 0.96% ‐ 2,668,633 ‐USBankNationalCommercialPaper 3,002,898 0.10 0.32% ‐ 3,002,898 ‐

TotalCommercialPaper 7,346,263

CertificateofDepositsUSBankNationalCertificateofDeposit 1,211,350 0.70 1.45% ‐ 1,211,350 ‐

TotalBondFundInvestments 15,307,179$ 2,401,960$ 12,905,219$ ‐$


16

Note3–Investments(continued)

QuotedPricesin SignificantAsofJune30,2015 Weighted ActiveMarkets other Significant

Average Weighted forIdentical Observable UnobservableTotal ofTerm Average Assets Inputs Inputs

Classification/Provider Investment (Years) ofRate (Level1) (Level2) (Level3)

USGovernmentandAgencyObligationsUSTreasuryNotes 8,240,006$ 0.69 1.34% 8,240,006$ ‐$ ‐$FederalHomeLoanMortgage

CompanyMortgageBond 1,299,875 0.70 3.13% ‐ 1,299,875 ‐FederalNationalMortgage

AssociationMortgageNote 2,617,086 2.66 1.27% ‐ 2,617,086 ‐FederalNationalMortgage

AssociationMortgageBond 4,876,327 0.97 0.87% ‐ 4,876,327 ‐

TotalUSGovernmentandAgencyObligations 17,033,294

CertificatesofDepositUSBankNationalCertificateofDeposit 1,636,270 1.29 1.13% ‐ 1,636,270 ‐

TotalBondFundInvestments 18,669,564$ 8,240,006$ 10,429,558$ ‐$

Operatingfundinvestmentpolicy–TheAuthoritycaninvestitsoperatingfundsinnongovernmentalinvestments,includingcertificatesofdeposit,banker’sacceptances,andrepurchaseagreements.Inaddition,thefollowinggovernmentalinvestmentsareeligible:1. Treasurybills,notes,andotherobligationsissuedbytheUnitedStatesDepartmentoftheTreasury

andbackedbythefullfaithandcreditoftheUSgovernment.2. FederalHomeLoanBanknotesandbonds.3. FederalLandBankbonds.4. Federal National Mortgage Association notes, debentures, and guaranteed certificates of

participation.5. The obligations of certain government‐sponsored corporations whose obligations are eligible as

collateral foradvancestomemberbanks,asdeterminedbytheBoardofGovernorsoftheFederalReserveSystem.

6. SharesofmutualfundswithportfoliosconsistingofonlyUSgovernmentbondsorUSgovernment

guaranteedbondsissuedbyfederalagencieswithaveragematuritieslessthanfouryears.7. Investmentsinstateinvestmentpool–theAuthorityisavoluntaryparticipantintheLocalAgency

InvestmentPooloperatedbytheStateTreasurerpursuanttoRCW43.250.Investmentsinthepoolarereportedatamortizedcost.


17

Note4–LoansReceivable,NetTheloansreceivablebalancesintheRestrictedBondFundsatJune30,2016and2015arecomprisedofthefollowing:

2016 2015

Loansreceivable 719,565,392$ 731,278,408$Discountonloans (2,113,385) (2,268,972)Mortgagepremiums 6,576,137 8,329,258Bondinsurancepremiums (562,756) (1,051,854)

723,465,388$ 736,286,840$

Note5–ContractedStaffServicesThe Washington State Housing Finance Commission (the Commission) provides staff and otheradministrative services to theAuthority.TheAuthorityhasnodirectlyhired staff andas suchhasnopensionobligations.Totalchargesforeachfiscalyearandamountsdueasoftheendofeachfiscalyeararesummarizedhere:ContractedServices 2016 2015

TotalChargesoftheCommissionfortheFiscalYear 241,432$ 212,812$AmountDuetotheCommissionatJune30 38,094$ 89,020$


18

Note6–BondsPayableThe Authority’s bonds are limited obligations payable solely from, and secured by, a pledge of themortgageloans(includinganyinsurancepaymentsmadewithrespectthereto),restrictedinvestments,and undisbursed bond proceeds and the earnings thereon held under the indenture authorizing thebonds.As of June30, 2016, theAuthority hadoutstandingbonds of $747.1million. Thebondsbear interestranging from 0.42% to 6.25% and mature in varying amounts through fiscal year 2046. BondsoutstandingatJune30,2016and2015areasfollows:

Series 2016 2015

UniversityofPugetSound2001 10,310,000$ 10,350,000$WhitmanCollege2004 28,770,000 28,770,000WallaWallaCollege2005 1,659,446 1,899,023SeattleUniversity2005 ‐ 18,000,000PacificLutheranUniversity2006 51,765,000 53,165,000SeattleUniversity’07A 1,820,000 35,975,000SeattleUniversity’08A 18,120,000 19,315,000WhitmanCollege2008 26,580,000 27,345,000Whitworth2009 57,825,000 58,915,000Gonzaga2009 33,445,000 34,495,000SeattleUniversity2009 41,775,000 41,775,000Gonzaga2009B 49,365,000 50,705,000Gonzaga2010A 23,815,000 27,170,000CornishCollege2010 20,323,000 20,323,000SeattleUniversity2011 12,665,000 13,170,000WhitworthUniversity2012 18,720,000 18,990,000BastyrUniversity2012 21,562,733 22,270,347UniversityofPugetSoundSeries2012A 34,805,000 34,805,000GonzagaUniversity2012AB 10,055,000 10,245,000UniversityofPugetSoundSeries2012B 27,105,000 28,105,000PacificNWUniversityofHealthSciences2013 23,325,439 24,003,932HeritageUniversity2013 8,491,857 8,792,029SeattlePacificUniversity2013 75,220,000 79,465,000Gonzaga2013 53,000,000 53,000,000SaintMartinsUniversity2014 27,990,000 28,785,000PacificLutheranUniversity2014 10,000,000 10,000,000SeattleUniversity2015 54,155,000 ‐

742,667,475 759,833,331UnamortizedBondPremium 6,576,136 8,329,258UnamortizedBondDiscount (2,113,385) (2,268,972)

747,130,226$ 765,893,617$

BalanceOutstanding


19

Note6–BondsPayable(continued)Futureprincipalandinterestrequirementsareshowninthefollowingtable:

YearsEnding Principal InterestJune30, Redemption Requirements Total

2017 17,942,970$ 26,456,268$ 44,399,238$2018 18,554,016 25,801,114 44,355,1302019 19,659,282 25,092,401 44,751,6832020 20,367,119 24,336,979 44,704,0982021 20,923,549 23,560,225 44,483,774

2022‐2026 111,882,791 104,902,654 216,785,4452027‐2031 169,605,227 80,393,382 249,998,6092032‐2036 136,360,855 57,337,939 193,698,7942037‐2041 158,680,988 30,979,026 189,660,0142042‐2046 67,510,678 5,210,833 72,721,5112047‐2049 1,180,000 30,975 1,210,975

742,667,475$ 404,101,796$ 1,146,769,271$

Changes in bonds outstanding during the fiscal year ended June 30, 2016 are summarized in thefollowingtable:

June30,2015 Issued Redeemed June30,2016

759,833,331$ 54,815,000$ 71,980,856$ 742,667,475$

Bonddefeasance–OnSeptember11,2015,theSeattleUniversity2015,fixedratebondtransactionof$54,815,000wasusedtocurrentlydefeasetheSeattleUniversity2005andadvancerefundaportionofthe 2007 bonds totaling $50,555,000. The Seattle University 2005 bonds were fully defeased($17,250,000). The Seattle University 2007 bonds of $34,155,000,were defeased, leaving $1,820,000remainingoutstanding.NobondsweredefeasedduringthefiscalyearendedJune30,2015.


20

Note6–BondsPayable(continued)BondissuesdefeasedasadvancedrefundingsinpriorfiscalyearswithbalancesoutstandingatJune30,2016areasfollows:

OutstandingBondIssue Defeased Balance FinalPayoff

SeattleUniversity2007 September2015 33,305,000$ November2017Whitworth2006 November2009 9,900,000$ October2027 TheAuthoritydefeasedthesebondsbyplacinginvestmentsinseparateirrevocabletruststoprovideforall futuredebt service payments on the bonds.Accordingly, neither the assets of the respective trustaccountsor the liabilities for thedefeasedbondsare reflected in theAuthority’s financial statements.Fundsheldintherespectivetrustaccountsweredeemedsufficienttoserviceandredeemthedefeasedbondsbyan independentdefeasancecalculationagentatbondclosingandareassumedtoremainso.WhiletheAuthorityistheissuerofboththerefundingandrefundedbonds,duetotheconduitnatureofthebondtransactions,anycashflowandeconomicgainorlossisbornebytheborrower.Note7–CommitmentsTheAuthorityhascommittedto fund loans fromrelatedbondproceeds forprojectscurrently in theirconstructionphaseor otherwise committed to repay thebond. Loan commitmentswere $23,033,870and$28,787,257asofJune30,2016andJune30,2015,respectively.Note8–ContingenciesTheAuthorityisexposedtovariousrisksoflossrelatedtotorts;theftof,damagesto,anddestructionofassets; errors and omissions; natural disasters; and acts of terrorism for which the agency carriescommercial insurance. As of June 30, 2016, there were no known asserted or unasserted claims orjudgmentsagainsttheAuthority.MembersoftheboardofdirectorsandpersonsactingontheAuthority’sbehalf,whileactingwithinthescopeoftheirdutiesoremployment,shallnotbesubjecttoanypersonalliabilityresultingfromcarryingout the powers and duties conferred on them, and shall have the indemnification rights under theprovisionsoftheAuthority’sPublicOfficialsandEmployeesLiabilityinsurancepolicy.Note9–SubsequentEventsSubsequent to June 30, 2016, the Authority has issued $48.9 million in additional bonds and thetrustees,underthenormalandearlyredemptionprovisionsofthetrustindenture,haveredeemed$56.2millioninbonds.

SUPPLEMENTALINFORMATION

21

WASHINGTONHIGHEREDUCATIONFACILITIESAUTHORITYSCHEDULEOFPROGRAMNETPOSITION

Restricted GeneralBond Operating June30,Funds Fund 2016 2015

CASHANDCASHEQUIVALENTS 9,507,347$ 1,697,030$ 11,204,377$ 13,953,274$

INVESTMENTS 15,307,179 ‐ 15,307,179 18,669,564

ACCRUEDINTERESTRECEIVABLE 5,330,581 20 5,330,601 5,249,490

LOANSRECEIVABLE,net 723,465,388 3,434 723,468,822 736,290,274

PREPAIDFEESANDOTHERASSETS 562,756 14,050 576,806 1,068,500

TOTALASSETS 754,173,251$ 1,714,534$ 755,887,785$ 775,231,102$

ACCRUEDINTERESTPAYABLE 5,494,770$ ‐$ 5,494,770$ 5,734,586$

AMOUNTSDUETOBORROWER 1,548,255 ‐ 1,548,255 1,597,643

ACCOUNTSPAYABLE ‐ 39,318 39,318 90,244

BONDSPAYABLEInterestbonds 722,667,475 ‐ 722,667,475 739,833,331Taxablebonds 20,000,000 ‐ 20,000,000 20,000,000Unamortizedbondpremium 6,576,136 ‐ 6,576,136 8,329,258Unamortizedbonddiscount (2,113,385) ‐ (2,113,385) (2,268,972)

747,130,226 ‐ 747,130,226 765,893,617

TOTALLIABILITIES 754,173,251 39,318 754,212,569 773,316,090

NETPOSITIONUnrestricted ‐ 1,675,216 1,675,216 1,915,012

TOTALLIABILITIESANDNETPOSITION 754,173,251$ 1,714,534$ 755,887,785$ 775,231,102$

ASSETS

LIABILITIESANDNETPOSITION

22

WASHINGTONHIGHEREDUCATIONFACILITIESAUTHORITYSCHEDULEOFPROGRAMREVENUES,EXPENSES,ANDCHANGESINPROGRAMNETPOSITION

Restricted GeneralBond Operating YearsEndedJune30,Funds Fund 2016 2015

REVENUESInterestearnedonloansandinvestments 25,817,967$ 5,666$ 25,823,633$ 27,442,993$

Feeincome 507,835 76,058 583,893 196,54926,325,802 81,724 26,407,526 27,639,542

EXPENSESInterestondebt 26,926,405 ‐ 26,926,405 27,865,121Amortizationofbondpremium (1,753,122) ‐ (1,753,122) (641,732)Amortizationofbonddiscount 155,586 ‐ 155,586 131,017Bondissuancecosts 507,835 ‐ 507,835 191,549Amortizationofbondinsurancepremium 489,098 ‐ 489,098 85,910

Communicationandofficeexpense ‐ 270,095 270,095 243,694Professionalfees ‐ 51,425 51,425 54,891

26,325,802 321,520 26,647,322 27,930,450

CHANGEINNETPOSITION ‐ (239,796) (239,796) (290,908)

NETPOSITIONBeginningofyear ‐ 1,915,012 1,915,012 2,205,920

Endofyear ‐$ 1,675,216$ 1,675,216$ 1,915,012$

23

WASHINGTONHIGHEREDUCATIONFACILITIESAUTHORITYSCHEDULEOFPROGRAMCASHFLOWS

Restricted GeneralBond Operating YearsEndedJune30,Funds Fund 2016 2015

OPERATINGACTIVITIESInterestreceivedonloans 26,200,254$ ‐$ 26,200,254$ 27,578,425$Cashreceivedfromfeeincome ‐ 75,745 75,745 5,000Cashreceivedfromloanrepayments 71,980,856 ‐ 71,980,856 19,649,694Cashpaymentsforacquisitionofloans (59,459,949) ‐ (59,459,949) (53,713,541)Cashpaymentsforbondprogramexpenses (557,223) ‐ (557,223) (1,983,097)Salaries,benefits,andvendorpayments ‐ (369,535) (369,535) (247,423)

Netcashprovidedby(usedfor)operatingactivities 38,163,938 (293,790) 37,870,148 (8,710,942)

INVESTINGACTIVITIESPurchaseofinvestments (8,657,797) ‐ (8,657,797) (6,707,466)Saleofinvestments 12,320,728 ‐ 12,320,728 45,495,167Interestreceivedoninvestments 44,435 5,665 50,100 61,029

Netcashprovidedbyinvestingactivities 3,707,366 5,665 3,713,031 38,848,730

NONCAPITALFINANCINGACTIVITIESProceedsfromissuanceofbondsandnotes 54,815,000 ‐ 54,815,000 12,998,000Interestpaidondebt (27,166,220) ‐ (27,166,220) (27,846,770)Debtrepayments (71,980,856) ‐ (71,980,856) (19,649,694)

Netcashusedforfinancingactivities (44,332,076) ‐ (44,332,076) (34,498,464)

NETDECREASEINCASHANDCASHEQUIVALENTS (2,460,772) (288,125) (2,748,897) (4,360,676)

CASHANDCASHEQUIVALENTSBeginningofyear 11,968,119 1,985,155 13,953,274 18,313,950

Endofyear 9,507,347$ 1,697,030$ 11,204,377$ 13,953,274$

RECONCILIATIONOFEXCESSOFREVENUESOVEREXPENSESTONETCASHFROMOPERATINGACTIVITIES

Changeinnetposition ‐$ (239,796)$ (239,796)$ (290,908)$Adjustmentstoreconcileexcessofrevenues

overexpensestonetcashusedbyoperatingactivities

Amortizationofloandiscount (155,586) ‐ (155,586) (131,017)Amortizationofloanpremium 1,753,122 ‐ 1,753,122 641,732Amortizationofprepaidbondinsurance (489,098) ‐ (489,098) (85,910)Amortizationofbonddiscount 155,586 ‐ 155,586 131,017Amortizationofbondpremium (1,753,122) ‐ (1,753,122) (641,732)Amortizationofbondinsurancepremium 489,098 ‐ 489,098 85,910Cashfromchangesinoperatingassets

andliabilitiesAcquisitionofloans (59,459,949) ‐ (59,459,949) (53,713,541)Repaymentsofloans 71,980,856 ‐ 71,980,856 19,649,694Interestandotherreceivables (426,094) (3,069) (429,163) 27,436Interestandotherpayables 26,069,125 (50,925) 26,018,200 25,616,377Netcashprovidedby(usedfor)operatingactivities 38,163,938$ (293,790)$ 37,870,148$ (8,710,942)$

Documents

Washington Higher Education Facilities Authoritywhefa.org/investors/AuditedFinancialsWHEFA.FYE2016.pdf · Report on Financial Statements We have audited the accompanying financial