Management’s Discussion and Analysis

The Management’s Discussion and Analysis (“MD&A”) of The University of Alabama’s (the “University” or “UA”) annual financial report presents a discussion and analysis of the financial performance of the University during the fiscal years ended September 30, 2019 and 2018. This discussion has been prepared by management along with the financial statements and related note disclosures and should be read in conjunction with the financial statements and notes. The financial statements, notes, required supplementary information, and this discussion are the
responsibility of management.

and capital financings for each campus, and sets the separate tuition and fee schedules applicable at each campus. Oversight responsibilities of the Alabama Commission on Higher Education (“ACHE”) and annual requests for appropriations from the Alabama legislature are coordinated for each campus by the Chancellor of the System with the approval of the Board.

Overview of Financial Statements

The University’s 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. The University’s financial statements encompass the University and its blended component unit, The Crimson Tide Foundation (“CTF”). The aggregate financial statements of six affiliated foundations are presented discretely from the University:

• • National Alumni Association

  • Law School Foundation

  • Donor Advised Fund

  • Capstone Foundation

  • 1831 Foundation

  • Capstone Health Services Foundation

The MD&A focuses solely on the University and the Crimson Tide Foundation. Information on discretely presented component units can be found in the component units’ annual financial reports, as well as Note 2 – Component Units. The notes to the financial statements provide additional information that is essential to a full understanding of the financial statements. A summary of new accounting standards and their anticipated effects concludes the notes with brief summations of recently issued statements of the Governmental Accounting Standards Board (“GASB”).

Statements of Net Position

The statements of net position present the financial position of the University at the end of the fiscal year. These statements reflect the various assets, deferred outflows, liabilities, deferred inflows, and net position of the University as of the fiscal years ended September 30, 2019 and 2018.

From the data presented, readers of the statements of net position have the information to determine the assets available to continue the operations of the University. They may also determine how much the University owes vendors, bondholders, and lending institutions. In addition, the statements of net position outline the net position (assets and deferred outflows minus liabilities and deferred inflows) available to the University.

Net position is divided into three major categories. The first category, net investment in capital assets, provides the University’s equity in property, plant and equipment owned by the University.

The second category is restricted net position, which is divided into two categories, non-expendable and expendable. The corpus of non- expendable restricted resources, as it pertains to endowments, is only available for investment purposes. The earnings on these funds support the programs and activities as determined by the donors, typically to fund scholarships and fellowships. Expendable restricted resources are available for expenditure by the University but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets.

The last category, unrestricted net position, presents the net position available to the University for any lawful purpose of the University and is typically internally designated or committed for specific academic programs or initiatives.

At September 30, 2019, the University’s assets and deferred outflows of resources were $5.0 billion, liabilities and deferred inflows of resources were $2.8 billion, leaving a net position of $2.2 billion. The overall increase in net position of $55.5 million reflects the University’s current year operations including growth in net tuition and fees, net income from residence halls, and an increase in State educational appropriations.

The University’s Assets

Current assets are used to support the University’s normal operations and are largely composed of cash and cash equivalents, short-term investments available for operating purposes, net accounts receivable (primarily student accounts receivable, receivables from sponsoring agencies and accrued interest receivable), prepaid expenses, and unearned scholarships.

The University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Current cash and cash equivalents totaled $110.7 million at September 30, 2019, an increase of $35.3 million from the prior year. At September 30, 2018, current cash and cash equivalents totaled $75.4 million, an increase of $16.5 million from the prior year. Current cash balances fluctuate based on operating needs, timing of expenditures, and cash management strategies.

Short-term investments include both unrestricted and restricted balances. Unrestricted short-term investments were $269.4 million, $233.2 million, and $222.4 million at September 30, 2019, 2018, and 2017, respectively. These investments are available for operating purposes. Restricted short-term investments were $13.7 million, $27.5 million, and $84.6 million at September 30, 2019, 2018, and 2017, respectively. Restricted short-term investments are comprised of deposits held and invested by the University relating to the Gulf State Park Project. During fiscal year 2017, the University of Alabama entered into an agreement with the State of Alabama Department of Conservation and Natural Resources (“DCNR”) to provide financial services for the Gulf State Park Project (previously the agreement had been between the DCNR and the University of Alabama System Office). The University deposits and disburses the funds authorized by the DCNR. In fiscal year 2019, total short-term investments increased $22.5 million due to unrealized gains and net investments into the Short Term Liquidity Pool Fund by CTF. Total short-term investments decreased in fiscal year 2018 by $46.3 million due to net withdrawals from the Short Term Liquidity Pool Fund and expenditures for the Gulf State Park Project.

Accounts receivable decreased $4.3 million in fiscal year 2019 largely due to a decrease in student accounts receivable resulting from the timing of payments received around year-end. In fiscal year 2018, accounts receivable decreased $4.5 million mostly as a result of a $16.1 million decrease in CTF accounts receivable and a $9.4 million increase in student accounts receivable. At June 30, 2017, there was a receivable between the University and its blended component unit, CTF. Due to the timing of the payment after CTF’s June 30 year end, it was a receivable for CTF at June 30, 2017, but not a payable for UA at September 30, 2017.

Prepaid expenses and unearned scholarships increased by $3.7 million in 2019. Prepaid expenses are expected to fluctuate from year to year. Unearned scholarship expense results from the Fall academic term spanning across the fiscal year-end. The University prorates scholarship expense to recognize only the amounts incurred in each fiscal year.

Noncurrent assets are predominantly composed of endowment and life income investments, investments for capital activities, other long-term investments, notes receivable (net), and capital assets (net).

The University’s investment portfolio is principally invested in three separate investment pools sponsored by the System. The University’s investment approach is intended to maximize current investment returns consistent with annual liquidity needs while protecting principal. The University adopts the broad objective of investing assets to preserve their real value, enhance the purchasing power of income, and keep pace with inflation and evolving University needs. Total noncurrent investments increased $198.5 million at September 30, 2019. During fiscal year 2019, the University issued new bonds which contributed to a $310.5 million increase in investments for capital activities. This was offset by unrealized losses during the fiscal year, as well as the expenditure of bond proceeds. At September 30, 2018, noncurrent investments decreased $8.7 million from the prior year primarily resulting from a decrease in investments for capital activities as bond proceeds were expended throughout the year.

Noncurrent notes receivable increased $13.8 million due to the issuance of additional student organization housing loans, which follows an increase of $44.0 million in fiscal year 2018 also due to the issuance of additional student organization housing loans.

Capital assets include land and land improvements, infrastructure, buildings and improvements, equipment, construction in progress, library materials, collections and intangible assets. The construction of new buildings on campus contributed to a rise in capital assets of $72.9 million in fiscal year 2019 and $116.5 million in 2018. During fiscal year 2015, the University had the opportunity to purchase property within close proximity to the main campus from the Alabama Department of Mental Health (“ADMH”), which allows the University to devote more of its core campus to academic and student life activities. The total purchase, commonly referred to as the Partlow Property, encompasses approximately 362 acres and is composed of both land and associated buildings. As part of the purchase agreement, the University leases back some of the buildings to the ADMH who continues to operate the mental health facilities. The leaseback period is 99 years. Capital spending remains a priority with a shifting focus from new construction to addressing capital renewal and reinvesting in existing facilities and infrastructure to address shifting student demographics and space needs to create world class facilities to support the mission of the institution and scope of its programs and services. As outlined in the University’s Strategic Plan, the University strives to create a beautiful, inclusive and user-friendly campus.

Significant capital asset expenditures in 2019 include Student Organization Housing (refer to note 5) ($20.8 million), Capstone Parking Deck ($16.0 million), University Hall renovations ($15.8 million), Aquatic Center renovations ($14.7 million), Paty Residence Hall renovations ($11.8 million), and Bryant Denny Stadium renovations and additions ($4.1 million).

Significant capital asset expenditures in 2018 include Freshman Residential Housing ($36.2 million), Student Organization Housing (refer to note 5) ($28.8 million), Tutwiler Parking Deck ($21.0 million), H.M. Comer Hall renovations ($17.1 million), Mal Moore Dining Facility ($10.7 million), University Hall renovations ($8.3 million), and Lakeside Dining renovations ($6.4 million).

A deferred outflow of resources is a use of net position that is applicable to future reporting periods. The University’s deferred outflows of resources consist of bond deferred refunding amounts (note 7), pension obligations (note 9), and other post-employment benefits (“OPEB”) obligations (note 10). At September 30, 2019, deferred outflows of resources from debt refundings increased $5.4 million as the University defeased certain indebtedness with the 2019 bond issuance. Deferred outflows of resources from pension and OPEB obligations increased $18.3 million. At September 30, 2018, deferred outflows of resources from debt refundings decreased slightly by $883,000 related to the annual amortization of the refundings. Deferred outflows of resources from pension and OPEB obligations increased $18.0 million.

The University’s Liabilities

Current liabilities consist of accounts payable, accrued liabilities, unearned revenue, deposits, and the current portion of long-term debt. The majority of accounts payable and accrued liabilities represent amounts owed for salaries, wages and benefits, and supplies and services. Accounts payable and accrued liabilities decreased $4.3 million in 2019 from the prior year. This follows a decrease of $1.2 million in 2018. Unearned revenue consists primarily of tuition and housing revenues for the portion of the fall semester that occurs after September 30, and football ticket revenue for the portion of the season which occurs after September 30. Current unearned revenue increased $46.3 million in fiscal year 2019. $41.2 million of the increase is attributable to the Crimson Tide Foundation. During the year ended June 30, 2019, the Foundation reassessed and changed its estimate for the benefit portion of Tide Pride membership dues resulting in more unearned revenues at June 30, 2019 compared to prior years. In fiscal year 2018, there was an increase of $2.7 million in unearned revenues which was expected given the growth in tuition and enrollment. Deposits consist primarily of agency funds, food service deposits, debit card operation deposits and Capstone Village entrance fees. Deposits decreased $16.1 million and $61.9 million at September 30, 2019 and 2018, respectively, due to expenditures for the Gulf State Park Project.

The University’s long-term debt, pension liability, and other post-employment benefits (“OPEB”) liability comprise the majority of its noncurrent liabilities. Long-term debt (current and noncurrent combined) increased $255.8 million in fiscal year 2019 due to the 2019A, 2019B and 2019C bond issuances, offset by debt repayments and defeasances. This follows a decrease of $35.3 million in 2018 as debt repayments were made throughout the year. In 2019, the University’s proportionate share of the net pension liability in the Teachers’ Retirement System Plan (the “Plan”) increased by $29.2 million to $594.4 million. The discount rate used to calculate the pension liability for fiscal year 2019 decreased from the prior year, which contributed to an increase in the overall net pension liability. This follows a $58.2 million decrease in 2018 as the overall Plan net pension liability decreased by 9.3% due to an increase in the Plan’s fiduciary net position. The University’s proportionate share of the net OPEB liability in the Alabama Retired Education Employee’s Health Care Trust (the “Trust”) increased $9.7 million in fiscal year 2019 as the overall Trust net OPEB liability increased, also resulting from a slight decrease in the discount rate used. The University implemented GASB 75 in fiscal year 2018, requiring the recognition of $257.7 million for its proportionate share of the net OPEB liability in that year.

GASB Statements No. 68 and 75 require governmental employers participating in multi-employer cost-sharing pension and healthcare benefit plans to recognize liabilities for their proportionate share of the unfunded liability for plans whose actuarial liabilities exceed the plan’s net assets. As required by Alabama statute, all eligible employees of a qualifying public educational employer must be a member of the Teacher’s Retirement System of Alabama (“TRS”).  As a qualifying employer, the University is required to make certain employer contributions on behalf of its employees participating in TRS’s defined benefit pension plan. Additionally, Alabama statutes permitted the University to opt-in to provide its eligible retirees with healthcare benefits through the Public Education Employees’ Health Insurance Plan (“PEEHIP”).

The employer contribution rates for both plans are established annually by TRS and PEEHIP, and adopted by the Alabama Legislature. Both the TRS employer contribution rate and the employer’s PEEHIP cost for retiree coverage are based upon the actuarial valuations performed by TRS and PEEHIP, respectively. Although the liabilities recognized under GASB 68 and 75 meet GASB’s definition of a liability within GASB’s framework for accounting standards, the University of Alabama does not believe that the associated recorded liabilities constitute legal liability for the University, nor do they open the University to other claims on its resources.

A deferred inflow of resources is the acquisition of net position in future periods. The University’s deferred inflows of resources result from pension obligations (note 9), OPEB obligations (note 10), and the University’s remainder interest in its irrevocable split interest agreements (note 1). At September 30, 2019, deferred inflows of resources from pension and OPEB obligations increased $6.1 million. Deferred inflows of resources from the remainder interest in split interest agreements decreased slightly by $439,000. During fiscal year 2018, deferred inflows of resourcesfrom pension and OPEB obligations increased $70.7 million. $28.1 million was a result of the aforementioned implementation of GASB 75. GASB 81 was implemented during fiscal year 2018, resulting in the recognition of deferred inflows of resources from the remainder interest in split interest agreements of $2.8 million.

The University’s Net Position

Net position represents the residual interest in the University’s assets and deferred outflows of resources after all liabilities and deferred inflows of resources are deducted. The University’s net position increased $55.5 million during fiscal 2019, totaling $2.2 billion. This increase reflects the University’s current year operations, primarily growth in net tuition and fees, net income from residence halls, and an increase in State educational appropriations. During fiscal year 2018 net position increased $188.8 million, totaling $2.1 billion; however, the adoption of GASB 75 in 2018 caused a decrease in beginning net position of $222.8 million when the initial OPEB liability was recorded.

Net investment in capital assets increased $58.3 million from $1.2 billion in 2018. The previous year increase of $75.1 million rose from $1.1 billion reported in 2017. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of debt attributable to the acquisition, construction or improvement of those assets.

Restricted nonexpendable net position increased approximately $21.8 million due to gifts and earnings on true endowment corpus funds. This net position type encompasses true endowments that are required to be held in perpetuity. In the prior year, restricted nonexpendable net position experienced growth of $27.5 million due to gifts and earnings on true endowment corpus funds.

Restricted expendable net position decreased $15.1 million in 2019 resulting mostly from a decrease in true endowment gains. This follows an increase of $46.0 million in 2018 largely due to an increase in true endowment gains and gifts. This net position category includes restricted gifts, institutional loan funds, sponsored programs, restricted quasi endowments, term endowments, endowment income and unrealized appreciation, and restricted plant funds. Restricted expendable net position is restricted by externally-imposed constraints.

Unrestricted net position decreased $9.4 million in fiscal year 2019. UA’s unrestricted net position increased by $22.8 million primarily due to an increase in net tuition and fees and State educational appropriations; however, this was offset by a decrease in CTF’s unrestricted net position of $32.2 million. During the year ended June 30, 2019, CTF deferred revenues increased due to a change in estimate of the benefit portion of Tide Pride membership dues, which resulted in the decrease to unrestricted net position. In the prior year, unrestricted net position decreased $182.5 million due to the aforementioned implementation of GASB 75.

University Endowments

The University carefully navigates the investment environment and works diligently to manage its financial resources effectively. Endowment spending has remained stable. With a continual commitment to excellence, we expect funding given by the University’s generous donors will continue to grow, leveraging those gifts for the benefit of our students for many years to come.

Despite additions to the endowment of $19.7 million in 2019, the University Endowment declined $13.1 million to $832.8 million, primarily due to a decrease in unrealized gains as well as a lower appraisal value of the University’s mineral rights and the return of gift further discussed in the following paragraph.

During fiscal year 2019 the University returned all gifts and accumulated earnings received by the University and the Law School Foundation from a donor. Gifts of $20.0 million received by the University were returned to the donor (see note 1).

The University Endowment grew $60.6 million in 2018 resulting from additions to the endowment of $24.9 million and unrealized gains. These endowment totals do not include the endowment values of discretely presented component units.

Statements of Revenues, Expenses and Changes in Net Position

The statements of revenues, expenses and changes in net position (“SRECNP”) present the revenues received by the University, both operating and nonoperating, and the expenses paid by the University, both operating and nonoperating, and any other revenues and expenses received or expended by the University. Primary components of the University’s operating revenue sources are tuition and fees and auxiliary sales and services, which are generated from self-supporting departments including Intercollegiate Athletics, residence halls, the UA Supply Store, and food service operations. Additionally, the University seeks funding from the federal and state governments and sponsored programs in support of its mission of teaching, research, and service. Other significant revenue sources, which are considered nonoperating as defined by the GASB, include State educational appropriations, private gifts, investment income, and Federal Pell grants.

Operating expenses are those incurred in conjunction with the fulfillment of the University’s mission and include salaries, wages and benefits; supplies and services; depreciation; and scholarships and fellowships. The SRECNP also includes other changes affecting its net position including capital gifts and grants, additions to permanent endowments, and intragovernmental transfers between the University and CTF, its blended component unit, and other state agencies.

Revenues and expenses are recognized when earned or incurred, regardless of when cash is received or paid. A summary of the University’s revenues, expenses and changes in net position follows:

The University’s net position increased $55.5 million in 2019, primarily resulting from growth in net tuition and fees, net income from residence halls, and an increase in State educational appropriations. Net position grew by $188.8 million in 2018 due largely to tuition growth, net income from residence halls, and a sharp increase in capital gifts. In fiscal year 2017 improved market performance resulted in large investment gains contributing to an increase of $224.3 million. As noted in the SRECNP, the University experienced operating losses in all fiscal years presented of $202.1 million, $186.8 million, and $183.3 million, respectively. These operating losses highlight the University’s dependency on nonoperating revenues, such as State educational appropriations and private gifts, to meet its cost of operations.

Operating Revenues

Net tuition and fees in 2019 were $532.5 million, a $15.8 million increase over 2018. Fall 2018 enrollment remained stable and tuition for in-state undergraduate and graduate students did not increase for the 2018-2019 academic year. However, tuition for out-of-state students increased approximately 4.0% which contributed to the net growth. Net tuition and fees in 2018 were $516.8 million, which increased $34.0 million over $482.8 million in 2017, a reflection of stable enrollment coupled with modest tuition rate increases for both in-state and out-of-state students. Tuition rates are reviewed annually by the University and presented to the Board for approval.

The University receives grant and contract revenue from federal, state, and local governments and private agencies. These funds are used to further the mission of the University – to advance the intellectual and social condition of the people of the state, the nation and the world through the creation, translation and dissemination of knowledge with an emphasis on quality programs in the areas of teaching, research and service. The following chart reflects the funding sources for federal operating grants and contracts revenue for the years ended September 30:

During fiscal year 2019 the University achieved Doctoral Universities – Very High Research Activity status (formerly known as the R1 category) in the Carnegie Classification of Institutions of Higher Education. UA experienced record levels of external funding for research and other sponsored activities during the year with an increase of more than 33% from the previous year in sponsored awards, which impacted expenditures throughout the year. Federal grants and contracts revenue increased by $9.9 million in 2019 and private grants and contracts revenue increased by $1.2 million, which is expected given the increase in awards and expenditures. In fiscal year 2018, federal grants and contracts revenue increased $4.1 million and private grants and contracts revenue increased $1.8 million, also due to an increase in awards. State and local grants and contracts revenue (combined) decreased slightly in both 2019 and 2018 by $55,000 and $71,000, respectively.

The University’s auxiliary activities are comprised of Intercollegiate Athletics, residence halls, the UA Supply Store, food service operations and other miscellaneous auxiliary enterprises. Auxiliary income increased $1.6 million in 2019 due to increases in athletic and licensing revenues, offset by a decrease in revenue from residence halls. This follows a $2.1 million decrease in 2018 due to the accrual of an extra licensing payment in the prior year.

Other operating revenue for UA totaled $31.0 million, while CTF revenue of $35.8 million contributed to the combined total of $66.8 million as reported in 2019, an increase of $3.7 million from the prior year largely due to an increase in CTF revenues. In 2018, other operating revenue increased by $3.8 million also due to an increase in CTF revenues.

Non-Operating Revenues and Expenses

Due to the required classification of key revenue sources such as State educational appropriations, financial aid grants, and private gifts as non-operating revenues, the University’s operating expenses will typically exceed operating revenues, resulting in an operating loss. These non-operating revenues are essential in offsetting the operating loss.

In 2019, the University received $169.7 million in State educational appropriations, an increase of $13.0 million from the prior year. In 2018, the University received $156.7 million, which was an increase of $1.9 million from 2017. The University received supplemental appropriations from the Advancement and Technology Fund of $9.1 million and $1.9 million in fiscal years 2019 and 2018, respectively, contributing to the increases.

Gift revenue for the University totaled $29.4 million at September 30, 2019, which was a decrease of $19.4 million from the prior year due to a decrease in CTF operating gifts. During CTF’s fiscal year 2019, the Foundation reassessed its estimate of the fair value of the benefit portion of all Tide Pride membership dues and determined that all dues received represent a benefit, rather than a portion representing a gift as it had in the past. As a result, 2019 gifts are lower than previous years with a corresponding increase to other operating revenues in next fiscal year. Gift revenues decreased $7.3 million in 2018 to $48.9 million due to a decrease in CTF operating gifts and an increase in CTF capital gifts.

Nonoperating grants consist primarily of Federal Pell grant awards. This program provides financial assistance grants to qualifying undergraduate students to promote access to postsecondary education. Also included in nonoperating grants are Build America Bond and Recovery Zone Economic Development Bond interest reimbursements. Nonoperating grant revenue has remained relatively stable at $32.8 million, $33.2 million and $31.6 million in 2019, 2018 and 2017, respectively.

Both investment and endowment income are combined as investment income on the SRECNP. The University posted net investment income of $12.8 million at September 30, 2019, a decrease of $77.3 million largely due to a lower market value. In fiscal year 2018, the University posted net investment income of $90.1 million, a decrease of $69.6 million from fiscal year 2017 also largely due to a lower market value.

Operating Expenses

The University reports natural classifications of expenses in the SRECNP. Salaries, wages and benefits increased $28.8 million to $728.5 million in 2019 from $699.8 million in 2018, which was a $33.4 million increase over $666.3 million in 2017. The University is committed to recruiting and retaining outstanding and diverse faculty, staff and graduate students. Compensation packages and benefit offerings provide leverage for the University to successfully compete with peer institutions and employers outside of the academic sector. The increase in fiscal year 2019 also includes one-time salary activity due to Intercollegiate Athletics coaching changes. In fiscal year 2018, the University implemented GASB 75, resulting in an adjustment that increased OPEB expense by $15.2 million.

Supplies and services experienced an increase of $12.4 million during fiscal year 2019. Factors contributing to the increase include a rise in contracts and grants expenditures, travel expenses, and a full year of costs related to the Mal Moore Dining Facility which opened at the end of fiscal year 2018. This follows an increase of $9.3 million during 2018 due to a rise in network maintenance and upgrades, contracts and grants expenditures, travel expenses and higher fuel prices.

Scholarships and fellowships expense is reported net of scholarship allowances. The net expenses of $26.3 million, $23.7 million, and $24.6 million for fiscal years 2019, 2018, and 2017, respectively, represent payments made directly to students after awards have been applied against tuition and fees and auxiliary housing charged to student accounts. Gross scholarship expenses, including allowances, totaled $305.9 million, $299.6 million, and $268.1 million for the years ended September 30, 2019, 2018, and 2017, respectively.

In addition to natural classifications, operating expenses are reported by functional classifications as defined by the National Association of College and University Business Officers (“NACUBO”). The functional classification of an operating expense (Instruction, Research, etc.) is assigned to a department based on the nature of the activity, which represents the material portion of the activity attributable to the department. This method reflects, by function of the University, amounts expended in areas such as instruction, research, and operations and maintenance and is used most commonly for comparative reporting purposes among colleges and universities. Scholarships and fellowships related to auxiliary enterprises are broken out separately below and are comprised primarily of Intercollegiate Athletics and housing scholarships.

Other Changes in Net Position

Capital gifts and grants experienced a decrease of $32.0 million in fiscal year 2019 following a few large, one-time gifts UA received in the prior year. In fiscal year 2018 capital gifts and grants increased $47.0 million, with $35.3 million of the increase attributable to UA and the remainder to CTF.

Additions and other adjustments to permanent endowments decreased by $5.2 million in fiscal year 2019. During fiscal year 2019 the University returned all gifts and accumulated earnings received by the University and the Law School Foundation from a donor. Gifts of $20.0 million received by the University were returned to the donor (see note 1). This reduction is offset by an increase in endowment coal royalties and other endowed gifts. In 2018 additions to permanent endowments grew by $1.2 million due to restricted endowment gifts made throughout the year.

Intragovernmental transfers are typically transactions between the University and CTF, a blended component unit of the University, and occasionally other state agencies. At September 30, 2019, intragovernmental transfers had increased $122,000 from the prior year. At September 30, 2018 intragovernmental transfers had decreased $3.5 million from the prior year.

 Capital Assets and Debt Administration

At September 30, 2019, the University had $3.1 billion invested in gross capital assets and accumulated depreciation of $925.7 million, a net of $2.2 billion. At September 30, 2018, the University had $3.0 billion invested in gross capital assets and accumulated depreciation of $853.8 million, a net of $2.1 billion. At September 30, 2017, the University had $2.8 billion invested in gross capital assets and accumulated depreciation of $786.7 million, a net of $2.0 billion. Depreciation expense for fiscal years 2019, 2018, and 2017 totaled $78.9 million, $75.5 million, and $72.4 million, respectively. Buildings and fixed equipment are responsible for the largest increase for each year presented. The following schedule summarizes the University’s capital assets, net of accumulated depreciation:

Significant capital asset expenditures for fiscal year 2019 included (in millions):

Student Organizations (refer to note 5) $20.8

Capstone Parking Deck $16.0

University Hall renovations $15.8

Aquatic Center renovations $14.7

Paty Residence Hall renovations $11.8

Bryant Denny Stadium renovations and additions $4.1

Significant capital asset expenditures for fiscal year 2018 included (in millions):

Freshman Residential Housing $36.2

Student Organizations (refer to note 5) $28.2

Tutwiler Parking Deck $21.0

H. M. Comer Hall renovation $17.1

Mal Moore Dining Facility $10.7

University Hall Renovation $8.3

Lakeside Dinning renovation  $6.4

The University plans to fund ongoing construction projects with reserves, debt proceeds, private gifts, and various federal and state grants.

At September 30, 2019, the University had $1.3 billion of debt outstanding, of which $42.5 million was classified as current. The University issued the 2019A, 2019B and 2019C bonds during fiscal year 2019, resulting in an increase in outstanding debt from the prior year. At September 30, 2018, the University had $1.0 billion of debt outstanding, of which $32.7 million was classified as current. The University had $1.1 billion of debt outstanding at September 30, 2017, of which $32.3 million was classified as current.

The large majority of debt obligations bears interest at fixed rates ranging from 0.0% to 6.1% and matures at various dates through fiscal year 2049. The University defeased certain indebtedness with the 2019 bond issuance to secure more favorable rates. This is discussed further in note 7.

The University’s outstanding debt obligations at September 30, 2019, 2018, and 2017, exclusive of debt discounts and premiums of $100.2 million, $40.1 million, and $43.1 million, respectively, are summarized below. Further information may also be found in note 7.

Future Economic Outlook

The University has positioned itself to weather the uncertain times our economy experiences. Prudent management, cost containment, conservative budgeting, and sensible investment strategies help ensure the University can remain dedicated to its mission of teaching, research, and service. We continuously strive to attract the best students, while increasing the intrinsic and marketable value of education offered at The University of Alabama.

A crucial element to the University’s future will continue to be our relationship with the State of Alabama as we work to maintain competitive tuition while providing an outstanding college education for our students. A direct relationship exists between the growth of state support and the University’s ability to control tuition rates. There can be no assurance of future state appropriations. The University expects to be able to absorb this loss of state funds, without a material reduction of its budget, through a combination of increased tuition, steady enrollment and internal reserves. State appropriations are not, and cannot lawfully be, pledged under debt indentures. Major financial strengths of the University include a diverse source of revenues, including state appropriations, tuition and fees (net of scholarship allowances), auxiliary units’ revenue, private support, and federally sponsored grants and contracts.

The University must have campus facilities that are competitive to support the mission of the institution and scope of its programs and services. The University continues to execute its long-term plan to modernize and expand its teaching, research, and student facilities with a balance of new construction and technology. The University strives to create a beautiful, inclusive and user-friendly campus. The continuous improvement of the University’s aesthetic appeal offers visitors, current and prospective students, employees and the surrounding communities an attractive and appealing atmosphere in which to live and work.

The University’s private support is fundamental in meeting budgetary needs. Gifts received are testaments to the high regard in which alumni, corporations, foundations, and other supporters hold the University. The level of private support underscores the continued confidence among donors in the quality of the University’s programs and the importance of its mission. At the same time, economic pressures may also affect the future level of support the University receives from corporate and individual giving. Our component units have also continued their level of support in the face of the current economic environment.

Enrollment and Statistics (Unaudited)*

The University of Alabama is a leader among public universities nationwide in the enrollment of National Merit Scholars with more than 700 currently enrolled. Additionally, approximately 40 percent of the Fall 2019 freshman class scored 30 or higher on the ACT, and 38 percent of the entering class had a high school GPA of 4.0 or higher. University students continue to win prestigious national awards. 56 University of Alabama students have been named Goldwater Scholars, including three in 2019. The University of Alabama has produced a total of 15 Rhodes Scholars, 16 Truman Scholars, 33 Hollings Scholars and 15 Boren Scholars.

Enrollment at the University remains stable at 38,392 in Fall 2018, a slight decrease of 171 from the prior year. Full-time equivalent (“FTE”) enrollment totaled 35,800, a decrease of 227. The chart below displays enrollment counts taken for each fall semester; the last of which (2018), demonstrates enrollment figures occurring for the fall semester of the 2019 fiscal year.

*Data provided by the Office of Institutional Research and Assessment