Notes to the Financial Statements for the Fiscal Year Ended June 30, 2021, Study notes of Financial Statement Analysis

Download Notes to the Financial Statements for the Fiscal Year Ended June 30, 2021 and more Study notes Financial Statement Analysis in PDF only on Docsity! Index Notes to the Financial Statements For the Fiscal Year Ended June 30, 2021 Note 1: Summary of Significant Accounting Policies ......................................................................... B - 45 Note 2: Accounting and Reporting Changes ..................................................................................... B - 57 Note 3: Deposits and Investments ..................................................................................................... B - 59 Note 4: Receivables and Unearned/Unavailable Revenues ................................................................... B - 86 Note 5: Interfund Balances and Transfers .......................................................................................... .B - 90 Note 6: Capital Assets .......................................................................................................................... B - 94 Note 7: Long-Term Liabilities .............................................................................................................. B - 99 Note 8: No Commitment Debt ......................................................................................................... B - 109 Note 9: Governmental Fund Balances ............................................................................................... B - 110 Note 10: Deficit Net Position .............................................................................................................. B - 111 Note 11: Retirement Plans ................................................................................................................... B - 113 Note 12: Other Postemployment Benefits ........................................................................................... B - 136 Note 13: Derivative Instruments ......................................................................................................... B - 139 Note 14: Tax Abatements .................................................................................................................... B - 141 Note 15: Commitments and Contingencies ......................................................................................... B - 143 Note 16: Subsequent Events ................................................................................................................ B - 145 B - 43 This page intentionally left blank. B - 44 The following entities are discretely presented in the financial statements of the state in the component unit’s column: The Washington State Public Stadium Authority (PSA) was created by the Legislature to acquire, construct, own, and operate a football/soccer stadium, exhibition center, and parking garage. Construction was completed in 2002. At June 30, 2021, PSA capital assets, net of accumulated depreciation, total $207.7 million. The state issued general obligation bonds for a portion of the cost of the stadium construction. The total public share of the stadium and exhibition center cost did not exceed $300 million from all state and local government funding sources, as required in statute. Project costs in excess of $300 million were the responsibility of the project’s private partner, First & Goal, Inc. The bonds are being repaid through new state lottery games, a state sales tax credit, extension of the local hotel/motel tax, and parking and admissions taxes at the new facility. The final debt payment was made in fiscal year 2021. Financial reports of the PSA may be obtained at the following address: Washington State Public Stadium Authority Lumen Field & Event Center 800 Occidental Avenue South, #700 Seattle, WA 98134 The Washington Health Benefit Exchange (Exchange) was created by the Legislature to implement a central marketplace for individuals, families, and small employers to shop for health insurance and access federal tax credits pursuant to the Patient Protection and Affordable Care Act of 2010. Federal grant funding financed the Exchange design, development, and implementation phases as well as the first full year of operation during 2014. Beginning in 2015, the Exchange became self-sustaining through Medicaid program cost reimbursements, premium tax assessments, and other assessments. Financial reports of the Exchange may be obtained at the following address: Washington Health Benefit Exchange 810 Jefferson Street SE PO Box 657 Olympia, WA 98507 Valley Medical Center was created July 1, 2011, through a strategic alliance between UW Medicine and Public Hospital District No. 1 of King County. Valley Medical Center owns and operates a 321-bed full service acute care hospital and 45 clinics located throughout southeast King County. Financial reports of Valley Medical Center may be obtained at the following address: Valley Medical Center 400 S. 43rd Street Renton, WA 98055-5010 The Washington State Housing Finance Commission, the Washington Higher Education Facilities Authority, the Washington Health Care Facilities Authority, and the Washington Economic Development Finance Authority (financing authorities) were created by the Legislature in a way that specifically prevents them from causing the state to be liable or responsible for their acts and obligations including, but not limited to, any obligation to pay principal and interest on financing authority bonds. The financing authorities cannot obligate the state, either legally or morally, and the state has not assumed any obligation of, or with respect to, the financing authorities. Financial reports of these financing authorities may be obtained from each authority at the following addresses: Washington Health Care Facilities Authority 410 11th Avenue SE, Suite 201 Olympia, WA 98501 Washington State Housing Finance Commission Washington Higher Education Facilities Authority Washington Economic Development Finance Authority 1000 Second Avenue, Suite 2700 Seattle, WA 98104 Joint Ventures In 1998, the University of Washington Medical Center (Medical Center) entered into an agreement with Seattle Children’s Hospital and Fred Hutchinson Cancer Research Center to establish the Seattle Cancer Care Alliance (SCCA). Each member of the SCCA has a one- third interest. The mission of the SCCA is to eliminate cancer as a cause of human suffering and death and to become recognized as the premier cancer research and treatment center in the Pacific Northwest. The SCCA integrates the cancer research, teaching, and clinical cancer programs of all three institutions to provide state- of-the-art cancer care. Under the agreement, the Medical Center provides the patient care to all adult inpatients of the SCCA. Inpatient Services - The SCCA operates a 20-bed unit located within the Medical Center in which its adult inpatients receive care. The fiscal intermediary has B - 47 determined that the 20-bed unit qualifies as a hospital within a hospital for Medicare reimbursement purposes. The SCCA provides medical oversight and management of the inpatient unit. Under agreements, the Medical Center provides inpatient care services to the SCCA including necessary personnel, equipment, and ancillary services. Outpatient Services - The SCCA operates an ambulatory cancer care service facility in Seattle. The Medical Center provides various services to the SCCA’s outpatient facility including certain pharmacy, laboratory, and pathology services as well as billing, purchasing, and other administrative services. The state accounts for the Medical Center’s interest in the SCCA under the equity method of accounting. Income of $50.8 million was recorded in fiscal year 2021, bringing the total equity investment to $259.3 million which is recognized in the state’s financial statements in the Higher Education Student Services Fund. Separate financial statements for the SCCA may be obtained from: Seattle Cancer Care Alliance 825 Eastlake Avenue East PO Box 19023 Seattle, WA 98109-1023 The University of Washington and Seattle Children’s Hospital established Children’s University Medical Group (CUMG) to assist the organizations in carrying out their pediatric patient care, as well as charitable, educational, and scientific missions. CUMG employs UWSOM faculty physicians and bills and collects for their services as an agent for UWSOM. The University records revenue from CUMG based on the income distribution plan effective December 31, 2008. The University’s patient services receivable includes amounts due from CUMG of $12.3 million in 2021. Separate financial statements for CUMG may be obtained from: Children’s University Medical Group 4500 Sand Point Way NE, Suite 100 Seattle, WA 98105 B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Government-wide Financial Statements The state presents two basic government-wide financial statements: the Statement of Net Position and the Statement of Activities. These government-wide financial statements report information on all non-fiduciary activities of the primary government and its component units. The financial information for the primary government is distinguished between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other non-exchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods and services. Statement of Net Position. The Statement of Net Position presents the state’s non-fiduciary assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. As a general rule, balances between governmental and business-type activities are eliminated. Statement of Activities. The Statement of Activities reports the extent to which each major state program is supported by general state revenues or is self-financed through fees and intergovernmental aid. For governmental activities, a major program is defined as a function. For business-type activities, a major program is an identifiable activity. Program revenues offset the direct expenses of major programs. Direct expenses are those that are clearly identifiable within a specific function or activity. Program revenues are identified using the following criteria: • Charges to customers for goods and services of the program. A customer is one who directly benefits from the goods or services or is otherwise directly affected by the program, such as a state citizen or taxpayer, or other governments or nongovernmental entities. • Amounts received from outside entities that are restricted to one or more specific programs. These amounts can be operating or capital in nature. • Earnings on investments that are restricted to a specific program. General revenues consist of taxes and other items not meeting the definition of program revenues. Generally, the effect of internal activities is eliminated. Exceptions to this rule include charges between the workers’ compensation insurance programs and various other state programs and functions. Elimination of these charges would distort the direct costs and revenues reported for the various activities involved. Fund Financial Statements The state uses 746 accounts that are combined into 53 rollup funds. The state presents separate financial statements for governmental funds, proprietary funds, and fiduciary funds. Major individual governmental funds B - 48 and major individual proprietary funds are reported in separate columns in the fund financial statements, with nonmajor funds being combined into a single column regardless of fund type. Internal service and fiduciary funds are reported by fund type. Major funds include: Major Governmental Funds: • General Fund is the state’s primary operating fund. This fund accounts for all financial resources and transactions not accounted for in other funds. • Higher Education Special Revenue Fund primarily accounts for tuition, student fees, and grants and contracts received for educational and research purposes. • Higher Education Endowment Permanent Fund accounts for gifts and bequests that the donors have specified must remain intact. Each gift is governed by various restrictions on the investment and use of the income earned on investments. Major Enterprise Funds: • Workers’ Compensation Fund accounts for the workers' compensation program that provides medical, time-loss, and disability benefit payments to qualifying individuals sustaining work-related injuries. • Unemployment Compensation Fund accounts for the unemployment compensation program. It accounts for the deposit of funds, requisitioned from the Federal Unemployment Trust Fund, to provide services to eligible participants within the state and to pay unemployment benefits. • Higher Education Student Services Fund is used by colleges and universities principally for bookstore, cafeteria, parking, student housing, food service, and hospital business enterprise activities. • Health Insurance Fund is used to account for premiums collected and payments for public and school employees’ insurance benefits. The state includes the following nonmajor funds: Nonmajor Governmental Funds: • Special Revenue Funds account for the proceeds of specific revenue sources (other than trusts for individuals, private organizations, other governments, or for major capital projects) that are restricted or committed to expenditures for specific purposes. These include a variety of state programs including public safety and health assistance programs; natural resource and wildlife protection and management programs; the state’s transportation programs which include the operation of the state’s ferry system and maintenance and preservation of interstate and non- interstate highway systems; driver licensing, highway and non-highway operations, and capital improvements; K-12 school construction; and construction and loan programs for local public works projects. • Debt Service Funds account for the accumulation of resources that are restricted or committed to expenditures for, and the payment of, principal and interest on the state’s bonds issued in support of governmental activities. • Capital Projects Funds account for financial resources that are restricted or committed to expenditures for the acquisition, construction, or improvement of major state-owned capital facilities (other than highway infrastructure or those financed by proprietary funds). • Common School Permanent Fund accounts for the principal derived from the sale of timber. Interest earned is used for the benefit of common schools. Nonmajor Proprietary Funds: • Enterprise Funds account for the state’s business type operations for which a fee is charged to external users for goods or services including: the state lottery, vocational/education programs at correctional institutions, the Guaranteed Education Tuition program, paid family and medical leave compensation, and other activities. • Internal Service Funds account for the provision of legal, motor pool, data processing, risk management, and other services by one department or agency to other departments or agencies of the state on a cost- reimbursement basis. Nonmajor Fiduciary Funds: • Pension (and other employee benefit) Trust Funds are used to report resources that are required to be held in trust by the state for the members and beneficiaries of defined benefit pension plans, defined contribution pension plans, and other employee benefit plans. • Investment Trust Funds account for the external portion of the local government investments, which is reported by the state as the sponsoring government. • Private-Purpose Trust Funds are used to report trust arrangements, other than pension and investment trusts, under which principal and income benefit individuals, private organizations, or other B - 49 balance indicating that they do not constitute “available spendable resources,” except for $8.7 million in federally donated consumable inventories, which are offset by unearned revenue because they are not earned until they are distributed to clients. Prepaid items are those certain types of supplies and/or services (not inventory) that are acquired or purchased during an accounting period but not used or consumed during that accounting period. In governmental fund type accounts, prepaid items are generally accounted for using the purchases method. Under the purchases method, prepaid items are treated as expenditures when purchased and residual balances, if any, at year end are not accounted for as assets. In proprietary and trust fund type accounts, prepaid items are accounted for using the consumption method. The portion of supplies or services consumed or used during a period is recorded as an expense. The balance that remains is reported as an asset until consumed or used. 4. Restricted Assets Certain cash, investments, and other assets are classified as restricted assets on the Statement of Net Position and Balance Sheet because their use is limited by debt covenants, escrow arrangements, or other regulations. 5. Capital Assets Capital assets are tangible and intangible assets held and used in state operations, which have a service life of more than one year and meet the state’s capitalization policy. It is the state’s policy to capitalize: • All land, including land use rights with indefinite lives acquired with the purchase of the underlying land, and ancillary costs. • The state highway system operated by the Department of Transportation. • Infrastructure, other than the state highway system, with a cost of $100,000 or more. • Buildings, building improvements, improvements other than buildings, and leasehold improvements with a cost of $100,000 or more. • Intangible assets, either purchased or internally developed, with a cost of $1 million or more that are identifiable by meeting one of the following conditions: ◦ The asset is capable of being separated or divided and sold, transferred, licensed, rented, or exchanged. ◦ The asset arises from contractual or other legal rights, regardless of whether those rights are transferable or separable. • All capital assets acquired with Certificates of Participation, a debt financing program administered by the Office of the State Treasurer. • All other capital assets with a unit cost (including ancillary costs) of $5,000 or greater, or collections with a total cost of $5,000 or greater. Assets acquired by capital leases are capitalized if the assets’ fair value meets the state’s capitalization thresholds described above. Purchased capital assets are valued at cost where historical records are available and at estimated historical cost where no historical records exist. Capital asset costs include the purchase price plus those costs necessary to place the asset in its intended location and condition for use (ancillary costs). Normal maintenance and repair costs that do not materially add to the value or extend the life of the state’s capital assets are not capitalized. Donated capital assets, works of art, and historical treasures are valued at their estimated acquisition value on the date of donation, plus all appropriate ancillary costs. When the acquisition value is not practically determinable due to lack of sufficient records, estimated cost is used. Where necessary, estimates of value are derived by factoring price levels from the current period to the time of acquisition. The value of assets constructed by agencies for their own use includes all direct construction costs and costs that are related to the construction. In enterprise and trust funds, net interest costs (if material) incurred during the period of construction are capitalized. In fiscal year 2021, $88.0 million in interest costs were incurred, and $900 thousand net interest costs were capitalized. State agencies are not required to capitalize art collections, library reserve collections, and museum and historical collections that are considered inexhaustible, in that their value does not diminish over time, if all of the following conditions are met: • The collection is held for public exhibition, education, or research in furtherance of public service, rather than financial gain. • The collection is protected, kept unencumbered, cared for, and preserved. B - 52 • The collection is subject to policy requirements that the proceeds from sales of collection items be used to acquire other items for the collection. Depreciation/amortization is calculated using the straight-line method over the estimated useful lives of the assets. Generally, estimated useful lives are as follows: Buildings & building components 5-50 years Furnishings, equipment & collections 3-50 years Other improvements 3-50 years Intangibles 3-50 years Infrastructure 20-50 years The cost and related accumulated depreciation/ amortization of disposed capital assets are removed from the accounting records. The state capitalizes the state highway system as a network but does not depreciate it since the system is being preserved approximately at or above a condition level established by the state. That condition level is documented and disclosed in the Required Supplementary Information. Additionally, the highway system is managed using an asset management system that includes: • Maintenance of an up-to-date inventory of system assets. • Performance of condition assessments of the assets at least every three years with summarization of the results using a measurement scale. • Annual estimation of the amount to maintain and preserve the assets at the condition level established and disclosed. All state highway system expenditures that preserve the useful life of the system are expensed in the period incurred. Additions and improvements that increase the capacity or efficiency of the system are capitalized. This approach of reporting condition instead of depreciating the highway system is called the modified approach. For government-wide financial reporting purposes, capital assets of the state are reported as assets in the applicable governmental or business-type activities column on the Statement of Net Position. Depreciation/amortization expense related to capital assets is reported in the Statement of Activities. Capital assets and the related depreciation/amortization expense are also reported in the proprietary fund financial statements. In governmental funds, capital assets are not capitalized in the accounts that acquire or construct them. Instead, capital acquisitions and construction are reflected as expenditures in the year assets are acquired or construction costs are incurred. No depreciation/ amortization is reported. 6. Deferred Outflows/Inflows of Resources In addition to assets, the Balance Sheet and Statement of Net Position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of fund equity that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The category of deferred outflow of resources reported in the government-wide and proprietary fund statements of net position relates to debt refunding, pensions, other postemployment benefits (OPEB), and hedging derivative instruments. In addition to liabilities, the Balance Sheet and Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of fund equity that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. Deferred inflows of resources reported by the state relate to unavailable revenue, debt refunding, pensions, OPEB, and hedging derivative instruments. Unavailable revenue arises only under the modified accrual basis of accounting, and so is reported only on the governmental funds Balance Sheet. Governmental funds report deferred inflows for unavailable revenues primarily from two sources: taxes and long-term receivables. These amounts are recognized as inflows of resources in the periods that the amounts become available. 7. Compensated Absences State employees accrue vested vacation leave at a variable rate based on years of service. In general, accrued vacation leave cannot exceed 240 hours at the employee’s anniversary date. Employees accrue sick leave at the rate of one day per month without limitation on the amount that can be accumulated. Sick leave is not vested (i.e., the state does not pay employees for unused sick leave upon termination except upon employee death or retirement). At death or retirement, the state is liable for 25 percent of the employee’s accumulated sick leave. In addition, the state has a sick leave buyout option in which, each January, employees who accumulate sick leave in excess of 480 hours may redeem sick leave earned but not taken during the previous year at the rate of one day’s pay in exchange for each four days of sick leave. B - 53 It is the state’s policy to liquidate its compensated absences obligations with future resources rather than advance funding it with available spendable financial resources. For government-wide reporting purposes, the state reports compensated absences obligations as liabilities in the applicable governmental or business-type activities columns on the Statement of Net Position. For fund statement reporting purposes, governmental funds recognize an expenditure for annual and sick leave when it is payable (i.e., upon employee’s use, resignation, death or retirement). Proprietary and trust funds recognize the expense and accrue a liability for annual leave and estimated sick leave buyout, including related payroll taxes and benefits, as applicable, as the leave is earned. 8. Long-Term Liabilities In the government-wide and proprietary fund financial statements, long-term obligations of the state are reported as liabilities on the Statement of Net Position. Bonds payable are reported net of applicable original issuance premiums or discounts. When material, bond premiums and discounts are deferred and amortized over the life of the bonds. For governmental fund financial reporting, the face (par) amount of debt issued is reported as other financing sources. Premiums and discounts on original debt issuance are also reported as other financing sources and uses, respectively. Issuance costs are reported as debt service expenditures. 9. Fund Equity In governmental fund type accounts, fund equity is called fund balance. Fund balance is reported in classifications which reflect the extent to which the state is bound to honor constraints on the purposes for which the amounts can be spent. Classifications include: • Nonspendable fund balance represents amounts that are either not in a spendable form or are legally or contractually required to remain intact. • Restricted fund balance represents amounts for which constraints are placed on their use by the state Constitution, enabling legislation, or external resource providers such as creditors, grantors, or laws or regulations of other governments. • Committed fund balance represents amounts that can only be used for specific purposes pursuant to constraints imposed by state law as adopted by the state Legislature. The commitment remains in place until the Legislature changes or eliminates the state law. • Assigned fund balance represents amounts that are intended for a specific purpose by management, but are neither restricted nor committed. Generally, assignment is expressed by joint legislative and executive staff action. • Unassigned fund balance represents the residual amount for the General Fund that is not contained in the other classifications. Additionally, any deficit fund balance within the other governmental fund types is reported as unassigned. When resources meeting more than one of the classifications (excluding nonspendable) are comingled in an account, assuming that the expenditure meets the constraints of the classification, the assumed order of spending is restricted first, committed second, and finally assigned. For government-wide reporting as well as in proprietary funds, fund equity is called net position. Net position is comprised of three components: net investment in capital assets, restricted, and unrestricted. • Net investment in capital assets consists of capital assets, net of accumulated depreciation and reduced by outstanding balances of bonds, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt are included in this component of net position. • Restricted net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. Assets are reported as restricted when constraints are placed on asset use either by external parties or by law through constitutional provision or enabling legislation. • Unrestricted net position is the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that does not meet the definition of the two preceding categories. When both restricted and unrestricted resources are available for use, it is the state’s policy to use restricted resources first and then use unrestricted resources as they are needed. In fiduciary funds, net position is held in trust for individuals and external organizations. B - 54 Note 2 Accounting and Reporting Changes Reporting Changes. Effective for fiscal year 2021 reporting, the state adopted the following new standards issued by the Governmental Accounting Standards Board (GASB): Statement No. 84, Fiduciary Activities. This statement establishes criteria for identifying fiduciary activities of all state and local governments. Governments with activities meeting the criteria should present a Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position. Statement No. 90, Majority Equity Interests. This statement specifies that a majority equity interest in a legally separate organization should be reported as a component unit. The government or fund that holds the equity interest should report an asset related to the majority equity interest using the equity method if the definition of an investment is met. This statement did not have an impact on the financial statements. GASB Statement No. 84 Implementation. The majority of activities previously classified as agency funds are now reported under the new custodial fund classification. To implement GASB Statement No. 84 in the custodial funds, $907.5 million in liabilities were reclassified, increasing net position by the same amount, including $232.0 million in Other Custodial Funds, $641.9 million in the Local Government Distributions Fund, and $33.6 million in the Retiree Health Insurance Fund. To implement GASB Statement No. 84, the state performed a detailed analysis of existing accounts to evaluate account activities and fund type assignment to identify any financial reporting changes. As a result, the following funds were reclassified: • An account was reclassified from a fiduciary fund to a governmental fund. This resulted in a beginning fund balance reduction of $41 thousand in the Private- Purpose Trust Fund, a fiduciary fund, and a beginning fund balance increase of $41 thousand in the Human Services Fund, a nonmajor special revenue fund. • An account was reclassified from an enterprise fund to a fiduciary fund, resulting in a beginning fund balance increase of $518 thousand in the State Guaranteed Education Tuition Program Fund, a nonmajor enterprise fund, and a beginning fund balance reduction of $518 thousand in the Private- Purpose Trust Fund, a fiduciary fund. • The beginning fund balance of the Higher Education Special Revenue Fund, a major governmental fund, was reduced by $1.3 million for non-custodial activities that were previously accounted for in an agency fund which had no fund balance. Fund Reclassification. Effective fiscal year 2021, an account was reclassified from the Administrative Accounts in the General Fund to a fiduciary fund. This resulted in a beginning fund balance reduction of $106.4 million in the General Fund and an increase of $106.4 million in the Higher Education Retirement Plan Supplemental Benefit Fund, a pension (and other employee benefit) trust fund. The assets of the reclassified account were distributed in fiscal year 2021 to seven newly created higher education supplemental retirement plan funds – one for each higher education institution – that meet the definition of a trust or equivalent arrangements. The Health Insurance Fund was reclassified from a nonmajor enterprise fund to a major enterprise fund. Prior Period Adjustments. The Public Stadium Authority, a major component unit, recorded an increase in net position of $11 thousand for transactions reported in the component unit's fiscal year 2020 financial statements after the state of Washington's fiscal year 2020 Annual Comprehensive Financial Report was published. The state also recorded an increase in net position of $3.3 million for Valley Medical Center, a major component unit, to adjust to its final audited ending net position for June 30, 2020. B - 57 Fund equity at July 1, 2020, has been restated as follows (expressed in thousands): Fund equity (deficit) at June 30, 2020, as previously reported Fund Reclassification Prior Period Adjustment Fund equity (deficit) at July 1, 2020, as restated Governmental Funds: General $ 4,779,117 $ (106,361) $ — $ 4,672,756 Higher Education 4,001,874 (1,259) — 4,000,615 Higher Ed. Endowment & Other Permanent Funds 4,433,893 — — 4,433,893 Nonmajor Governmental 6,629,293 41 — 6,629,334 Proprietary Funds: Enterprise Funds Workers' Compensation (12,064,200) — — (12,064,200) Unemployment Compensation 3,571,282 — — 3,571,282 Higher Education Student Services 853,733 — — 853,733 Health Insurance 444,753 — — 444,753 Nonmajor Enterprise 1,009,328 518 — 1,009,846 Internal Service Funds (996,560) — — (996,560) Fiduciary Funds: Private-Purpose Trust Fund 6,560 (559) — 6,001 Local Government Investment Pool 18,005,837 — — 18,005,837 Pension (and Other Employee Benefit) Trust Funds 125,187,200 106,361 — 125,293,561 Custodial Funds — — 907,507 907,507 Component Units: Public Stadium Authority 229,787 — 11 229,798 Health Benefit Exchange 11,793 — — 11,793 Valley Medical Center 275,292 — 3,255 278,547 Nonmajor Component Units 532,426 — — 532,426 B - 58 Note 3 Deposits and Investments A. DEPOSITS Custodial Credit Risk. Custodial credit risk is the risk associated with the failure of a depository financial institution. In the event of a depository financial institution’s failure, it is the risk that the state would not be able to recover its deposits or collateralized securities that are in the possession of the outside parties. The state minimizes custodial credit risk by restrictions set forth in state law. Statutes require state agencies to deposit funds in financial institutions that are physically located in Washington unless otherwise expressly permitted by statute and authorized by the Washington Public Deposit Protection Commission (PDPC). The PDPC, established under chapter 39.58 of the Revised Code of Washington (RCW), makes and enforces regulations and administers a collateral pool program to ensure public funds are protected if a financial institution becomes insolvent. Securities pledged are held by a trustee agent for the benefit of the collateral pool. At June 30, 2021, $1.21 billion of the state’s deposits with financial institutions were insured or collateralized, with the remaining $330 thousand uninsured/uncollateralized. B. INVESTMENTS - PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS (PENSION TRUST FUNDS) 1. Summary of Investment Policies Under RCW 43.33A.030, trusteeship of the pension trust funds is vested within the voting members of the Washington State Investment Board (WSIB). The Legislature has established a standard of care for investment of these funds in RCW 43.33A.140. Additionally, the WSIB and its staff must comply with other state laws, such as the Ethics in Public Service Act, chapter 42.52 RCW, in making investment decisions and seeking to meet investment objectives. The pension trust funds consist of retirement contributions from employer and employee participants in the Washington State Retirement System and related earnings on those contributions. The Retirement System is administered by the Department of Retirement Systems. The WSIB has exclusive control of the investment of all money invested in the pension trust funds. In accordance with RCW 43.33A.110, the WSIB manages the pension fund portfolio to achieve maximum return at a prudent level of risk. The WSIB establishes asset allocation targets that must be considered at all times when making investment decisions. The asset mix may deviate from the target. Deviations greater than predetermined acceptable levels require rebalancing back to the target. When an asset class exceeds its range, the goal of rebalancing is to meet the target allocation within consideration of the other remaining asset classes. Eligible Investments. The WSIB is authorized by statute as having investment management responsibility for pension trust funds. The WSIB is authorized to invest as provided by statute (chapter 43.33A RCW) and WSIB policy in the following: U.S. treasury bills; discount notes; repurchase agreements; reverse repurchase agreements; banker’s acceptances; commercial paper; guaranteed insurance contracts; U.S. government and agency (government sponsored corporations eligible for collateral purposes at the Federal Reserve) securities; non-U.S. dollar bonds; investment grade corporate bonds; non- investment grade corporate bonds; publicly traded mortgage-backed securities; privately placed mortgages; private placements of corporate debt; U.S. and foreign common stock; U.S. preferred stock; convertible securities; private equity including but not limited to investment corporations, partnerships, and limited liability companies for venture capital, leveraged buy-outs, real estate and other tangible assets, or other forms of private equity; asset-backed securities; and derivative instrument securities including futures, options, options on futures, forward contracts, and swap transactions. There were no violations of these investment restrictions during fiscal year 2021. Commingled Trust Fund. Pension trust funds are invested in the Commingled Trust Fund (CTF). The CTF is a diversified pool of investments used as an investment vehicle for 19 separate retirement plans. These plans hold shares in the CTF which represent a percentage ownership in the pool of investments. Plans are allowed to purchase or sell shares in the CTF, based on the fair value of the underlying assets, on the first business day of each month. In addition to share ownership in the CTF, each retirement plan holds short-term investments that are used to manage the cash needs of each retirement plan. The CTF consists of the Public Employees’ Retirement System (PERS) Plans 1 and 2/3; Teachers’ Retirement System (TRS) Plans 1 and 2/3; School Employees’ Retirement System (SERS) Plan 2/3; Law Enforcement Officers’ and Fire Fighters’ Retirement Plans 1 and 2 and the Benefits Improvement Fund; Washington State Patrol Retirement System Plans 1 and 2; Public Safety Employees’ Retirement System Plan 2; Volunteer Fire Fighters’ and Reserve Officers’ Relief and Pension Fund; and the Higher Education Retirement Pension (HERP) Supplemental Benefit Fund, which consists of plans for B - 59 The following table presents fair value measurements as of June 30, 2021: Pension Trust Funds Investments Measured at Fair Value June 30, 2021 (expressed in thousands) Fair Value Measurements Using Investments by Fair Value Level Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Debt Securities Mortgage and other asset-backed securities $ 2,197,502 $ — $ 2,197,502 $ — Corporate bonds 15,661,683 — 15,661,683 — U.S. and foreign government and agency securities 6,587,924 — 6,587,924 — Total Debt Securities 24,447,109 — 24,447,109 — Equity Securities Common and preferred stock 25,887,402 25,824,134 61,986 1,282 Depository receipts and other miscellaneous 1,545,074 1,544,981 93 — Mutual funds and exchange traded funds 76,793 76,793 — — Real estate investment trusts 404,315 404,315 — — Total Equity Securities 27,913,584 27,850,223 62,079 1,282 Alternative Investments Real estate 920,765 — — 920,765 Tangible assets 408,931 395,413 — 13,518 Total Alternative Investments 1,329,696 395,413 — 934,283 Total Investments by Fair Value Level 53,690,389 $ 28,245,636 $ 24,509,188 $ 935,565 Investments Measured at Net Asset Value (NAV) Private equity 41,511,934 Real estate 24,602,977 Tangible assets 7,615,698 Collective investment trust funds (equity securities) 18,681,423 Total Investments Measured at the NAV 92,412,032 Total Investments Measured at Fair Value $ 146,102,421 Other Assets (Liabilities) at Fair Value Collateral held under securities lending agreements $ 249,453 $ — $ 249,453 $ — Net foreign exchange contracts receivable-forward and spot 5,148 — 5,148 — Margin variation receivable-futures contracts 15,560 15,560 — — Obligations under securities lending agreements (249,453) — (249,453) — Total Other Assets (Liabilities) Measured at Fair Value $ 20,708 $ 15,560 $ 5,148 $ — B - 62 Investments classified as level 1. Investments classified as level 1 in the previous table are exchange traded equity securities whose values are based on published market prices and quotations from national security exchanges as of the appropriate market close, as of each reporting period end. Investments classified as level 2. Investments classified as level 2 in the previous table are primarily comprised of publicly traded debt securities and exchange traded stocks traded in inactive markets. Publicly traded debt securities are sourced from reputable pricing vendors using models that are market-based measurements representing their good faith opinion as to the exit value of a debt security in an orderly transaction under current market conditions. Such models take into account quoted prices, nominal yield spreads, benchmark yield curves, prepayment speeds, and other market corroborated inputs. Investments classified as level 3. Investments classified as level 3 in the previous table were publicly traded equity securities that have noncurrent or “stale” values and are included in the table at the last traded price. The stale pricing occurred due to trading suspensions, delisting from an active exchange, or lack of investor demand. The current market values of these securities are unknown. Investments measured at net asset value (NAV). Investments measured at net asset value in the pension trust funds are the collective investment trust funds and alternative investments, including private equity, real estate, and tangible assets. Collective Investment Trust Funds. The pension trust fund invests in three separate collective investment trust funds (fund). Each fund determines a fair value by obtaining fair values of the underlying holdings using reputable pricing sources and computing an overall net asset value per share. The holdings within each fund are publicly traded equity securities. Two funds are passively managed to approximate the capitalization weighted total rates of return of the MSCI U.S. Investable Market Index and the MSCI Emerging Markets Investable Market Index. Each fund has daily openings and contributions, and withdrawals can be made on any business day. The fund managers, at their discretion, may require withdrawal proceeds to be made partially or wholly in kind. Under certain circumstances, the fund managers may choose to suspend valuation and/ or the right to make contributions and withdrawals from the fund. Such circumstances include actual or anticipated closure, restriction, or suspension of trading activity in any markets or exchanges where the fund investments are traded; where the purchase, sale, or pricing of the fund’s investments would not be reasonably practicable or advisable; or where suspending contributions or withdrawals would be in the best interest of the fund or participants. The third fund seeks to achieve long-term capital appreciation through active investment management in emerging market countries. The index against which the fund compares its performance is the MSCI Emerging Market Index. The pension trust funds may redeem some or all of their holdings on each monthly valuation date. The fund manager may delay redemption proceeds if it determines that it is reasonably necessary to prevent a material adverse impact on the fund or other investors. The fund manager, at their discretion, may require withdrawal proceeds to be made partially or wholly in kind. Alternative Assets. The fair value of investments that are organized as limited partnerships and have no readily ascertainable fair value is determined by using the net asset value per share (or its equivalent) of the pension trust funds' ownership interest in partners’ capital. These values are based on the individual investee’s capital account balance reported at fair value by the general partner at the closest available reporting period, adjusted for subsequent contributions, distributions, management fees, changes in values of foreign currency, and published market prices for certain securities. The limited partnerships’ annual financial statements are audited by independent auditors. These investments are valued at approximately $73.73 billion as of June 30, 2021. Because of the inherent uncertainties in estimating fair values, it is possible that the estimates will change in the near-term or the subsequent sale of assets will be different than the June 30, 2021, reported net asset value. These investments can never be redeemed. Instead, the nature of these investments provides for distributions through the sale or liquidation of the underlying assets or from net operating cash flows. It is anticipated that the various investments within each asset class will be liquidated over the following periods: B - 63 Pension Trust Funds Alternative Assets Expected Liquidation Periods June 30, 2021 (expressed in thousands) Investment Type Liquidation Periods Private Equity Real Estate Tangible Assets Total Percentage of Total Less than 3 years $ 115,391 $ 4,257 $ 381 $ 120,029 0.2 % 3 to 9 years 3,793,733 2,131,046 638,878 6,563,657 8.9 % 10 or more years 37,602,810 22,467,674 6,976,439 67,046,923 90.9 % Total $ 41,511,934 $ 24,602,977 $ 7,615,698 $ 73,730,609 100.0 % Private Equity. This includes 298 private equity limited liability partnerships that invest primarily in the United States, Europe, and Asia in leveraged buyouts, venture capital, distressed debt, and growth equity. The fair value of individual capital account balances is based on the valuation reported by private equity partnerships using the following methodologies to value the underlying portfolio companies: • Valuations of publicly traded portfolio companies are based on active exchanges using quoted market prices as of the close of trading for each month end. • When a portfolio company investment does not have a readily available market price but has a return that is determined by reference to an asset for which a market price is readily available, valuations are based on the closing market price of the reference asset on the valuation date, adjusted for unique factors that affect the fair value of the investment held. • When the portfolio company investments are private holdings and are not traded on active security exchanges, valuation methodologies consist primarily of income and market approaches. The income approach involves a discounted cash flow analysis based on portfolio companies’ projections. The market approach involves valuing a company at a multiple of a specified financial measure, generally earnings before interest, taxes, depreciation, and amortization, based on multiples of comparable publicly traded companies. Real Estate. This includes 25 real estate investments. Targeted investment structures within the real estate portfolio include real estate operating companies, limited liability companies, joint ventures, commingled funds, and co-investments. Real estate partnerships provide quarterly valuations to the pension trust fund management based on the most recent capital account balance. Individual properties are valued by the investment management at least annually and are adjusted as frequently as quarterly if material market or operational changes have occurred. Properties are externally appraised generally every one to five years, depending upon the investment. Structured finance investments receive quarterly adjustments by the partners, generally applying the assumption that all such positions will be held to maturity. Annual audits of most partnerships include a review of compliance with the partnership’s valuation policies. Tangible Assets. This includes 58 limited liability structures and funds. Valuation practices of general partners and asset managers are consistent with private equity limited partnerships. Other assets and liabilities measured at fair value. Forward exchange contracts are valued by interpolating a value using the spot foreign exchange rate and forward points (based on the spot rate and currency interest rate differentials), which are all inputs that are observable in active markets (level 2). Cash collateral held and the offsetting obligations under securities lending agreements are valued by the pension trust funds' lending agent and sourced from reputable pricing vendors using models that are market-based measurements representing their good faith opinion as to the exit value of a security in an orderly transaction under current market conditions. Such models take into account quoted prices, nominal yield spreads, benchmark yield curves, prepayment speeds, and other market corroborated inputs. Gains and losses on futures contracts are settled daily, based on a notional (underlying) principal value, and do not involve an actual transfer of the specific instrument. The margin variation represents the current gain or loss remaining to be settled from the prior day. The custodial bank provides quoted prices for these securities from a reputable pricing vendor. 3. Unfunded Commitments The WSIB has entered into a number of agreements that commit the pension trust funds, upon request, to make additional investment purchases up to predetermined amounts. As of June 30, 2021, the pension trust funds B - 64 6. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The pension trust funds’ investment policies limit the fixed income securities to investment grade or higher at the time of purchase. Investment grade securities are those fixed income securities with a Moody’s rating of Aaa to Baa or a Standard and Poor’s rating of AAA to BBB. The rated debt investments of the pension trust funds as of June 30, 2021, were rated by Moody’s and/or an equivalent national rating organization. Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of an investment in a single issuer. The policy of the pension trust funds states no corporate fixed income issue cost shall exceed 3 percent of cost at the time of purchase or 6 percent of fair value thereafter of the fund, and no high yield issues shall exceed 1 percent of cost or 2 percent of fair value of the fund. There was no concentration of credit risk exceeding these policy guidelines as of June 30, 2021. Custodial Credit Risk. Custodial credit risk is the risk that, in the event a depository institution or counterparty fails, the pension trust funds would not be able to recover the value of their deposits, investments, or collateral securities. The pension trust funds do not have a policy relating to custodial credit risk. The WSIB mitigates custodial credit risk by having its investment securities (excluding cash, cash equivalents, and repurchase agreements held as securities lending collateral) registered and held in the name of the WSIB for the benefit of the pension trust funds. 7. Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. The pension trust funds do not have a formal policy to limit foreign currency risk. The WSIB manages their exposure to fair value loss by requiring their international securities investment managers to maintain diversified portfolios by sector and by issuer, to limit foreign currency and security risk. The following schedule presents the exposure of the pension trust funds’ investments to foreign currency risk. The schedule provides information on deposits and investments held in various foreign currencies. Private equity, real estate, and tangible assets are presented according to the financial reporting currency of the individual funds. This is not a presentation of currency exposure relating to the underlying holdings. The schedule is stated in U.S. dollars. In addition, the CTF has foreign currency exposure at June 30, 2021, of $694.2 million invested in one emerging market commingled equity investment trust fund. B - 67 Pension Trust Funds Foreign Currency Exposure by Country June 30, 2021 (expressed in thousands) Investment Type in U.S. Dollar Equivalent Foreign Currency Denomination Cash and Cash Equivalents Debt Securities Equity Securities Alternative Assets Open Foreign Exchange Contracts-Net Total Australia-Dollar $ 1,699 $ 62,071 $ 550,946 $ 298,666 $ (1,039) $ 912,343 Brazil-Real 3,776 — 354,303 — 524 358,603 Canada-Dollar 4,076 — 762,810 — (501) 766,385 China-Yuan Renminbi 2,280 16,219 371,451 — 3,064 393,014 Denmark-Krone 105 — 303,434 — 145 303,684 E.M.U.-Euro 4,058 — 3,595,537 5,482,747 (1,033) 9,081,309 Hong Kong-Dollar 10,213 — 1,387,792 — (19) 1,397,986 India-Rupee 2,427 — 267,545 — (53) 269,919 Indonesia-Rupiah 100 — 54,626 — — 54,726 Japan-Yen 23,041 — 3,277,871 — 13,833 3,314,745 Mexico-Peso 79 — 83,171 — 2,732 85,982 New Taiwan-Dollar 4,608 — 522,777 — 563 527,948 Norway-Krone 180 — 68,816 — (68) 68,928 Singapore-Dollar 582 — 163,249 — (4) 163,827 South Africa-Rand 2,109 — 58,676 39,406 (1,762) 98,429 South Korea-Won 1,099 — 633,311 — 134 634,544 Sweden-Krona 551 — 436,514 — (1,017) 436,048 Switzerland-Franc 690 — 1,057,536 — (3,584) 1,054,642 Thailand-Baht 200 — 61,985 — — 62,185 United Kingdom-Pound 3,919 — 1,931,176 — (4,782) 1,930,313 Uruguay-Peso — 52,067 — — — 52,067 Other 1,197 35,279 262,871 — (1,985) 297,362 Total $ 66,989 $ 165,636 $ 16,206,397 $ 5,820,819 $ 5,148 $ 22,264,989 8. Derivative Instruments Pension trust funds are authorized to utilize various derivative instrument financial instruments including financial futures, forward contracts, interest rate swaps, credit default swaps, equity swaps, and options. Derivative instrument transactions involve, to varying degrees, market and credit risk. At June 30, 2021, the pension trust funds held investments in financial futures, forward currency contracts, and total return swap contracts that are recorded at fair value with changes in value recognized in investment income in the Statement of Revenues, Expenses, and Changes in Net Position in the period of change. The derivative instruments are considered investment derivative instruments and not hedging derivative instruments. Derivative instruments are generally used to achieve the desired market exposure of a security, index, or currency; adjust portfolio duration; or rebalance the total portfolio to the target asset allocation. Derivative instrument contracts are instruments that derive their value from underlying assets, indices, reference interest rates, or a combination of these factors. A derivative instrument could be a contract negotiated on behalf of the pension trust funds and a specific counterparty. This would typically be referred to as an over the counter (OTC) contract, such as forward and total return swap contracts. Alternatively, a derivative instrument, such as futures, could be listed and traded on an exchange and referred to as “exchange traded.” Inherent in the use of OTC derivative instruments, the pension trust funds are exposed to counterparty credit risk on all open OTC positions. Counterparty credit risk is the risk that a derivative instrument counterparty may fail to meet its payment obligation under the derivative instrument contract. As of June 30, 2021, the pension trust funds counterparty risk was approximately $60.8 million. The majority of the counterparties (60 percent) held a credit rating of Aa3 or higher on Moody’s rating B - 68 scale. All counterparties held investment grade credit ratings of Baa2 and above. Futures contracts are standardized, exchange-traded contracts to purchase or sell a specific financial instrument at a predetermined price. As such, gains and losses on futures contracts are settled daily based on a notional (underlying) principal value and do not involve an actual transfer of the specific instrument. The exchange assumes the risk that the counterparty will not pay and requires margin payments to minimize such risk. Futures are generally used to achieve the desired market exposure of a security or index or to rebalance the total portfolio. Derivative instruments, which are exchange traded, are not subject to credit risk. Forward currency contracts are agreements to exchange the currency of one country for the currency of another country at an agreed-upon price and settlement date in the future. These forward commitments are not standardized and carry counterparty credit risk due to the possible nonperformance by a counterparty. The maximum potential loss is the aggregate face value in U.S. dollars at the time the contract was opened; however, the likelihood of such loss is remote. At June 30, 2021, the pension trust funds had outstanding forward currency contracts with a net unrealized gain of $5.1 million. The aggregate forward currency exchange contracts receivable and payable were $7.70 billion and $7.70 billion, respectively. The contracts have varying maturity dates ranging from July 1, 2021, to June 1, 2023. Total return swap contracts are agreements where one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of the underlying or reference asset. Total return swaps allow the party receiving the total return to gain exposure and benefit from a reference asset without physically owning the security. The pension trust funds swap total bond market index returns for total equity index returns as the reference asset in emerging markets. The values of these contracts are highly sensitive to interest rate changes. As of June 30, 2021, the pension trust funds held no total return swap contracts. At June 30, 2021, the pension trust funds’ fixed income portfolio held derivative instrument securities consisting of collateralized mortgage obligations with a fair value of $106.0 million. Domestic and foreign commingled investment trust fund managers may also utilize various derivative instrument securities to manage exposure to risk and increase portfolio returns. Information on the extent of use and holdings of derivative instrument securities by these funds is unavailable. The following schedule presents the significant terms for derivative instruments held as investments by the pension trust funds: Pension Trust Funds Derivative Instrument Investments June 30, 2021 (expressed in thousands) Changes in Fair Value - Included in Investment Income (Loss) Amount Fair Value - Investment Derivative Instrument Amount Notional Futures Contracts: Bond index futures $ (66,632) $ 17,240 $ 1,458,100 Equity index futures 242,640 (1,679) 646 Total $ 176,008 $ 15,561 $ 1,458,746 Forward Currency Contracts $ 22,128 $ 5,146 $ 7,737,003 C. INVESTMENTS - WORKERS' COMPENSATION FUND 1. Summary of Investment Policies Under RCW 43.33A.030, trusteeship of the Workers’ Compensation Fund investments is vested in the voting members of the Washington State Investment Board (WSIB). The Legislature established a standard of care for investment of these funds in RCW 43.33A.140. Additionally, the WSIB and its staff must comply with other state laws, such as the Ethics in Public Service Act, chapter 42.52 RCW, in making investment decisions and seeking to meet investment objectives. The Workers’ Compensation Fund consists of contributions from employers and their employees participating in the state workers’ compensation program B - 69 not be reasonably practicable or advisable; or where suspending contributions or withdrawals would be in the best interest of the fund or participants. Alternative Investments. The fair value of investments that are organized as limited partnerships and have no readily ascertainable fair value is determined by using the net asset value per share (or its equivalent) of the Workers' Compensation Funds' ownership interest in partners’ capital. These values are based on the individual investee’s capital account balance reported at fair value by the general partner at the most recently available reporting period, adjusted for subsequent contributions, distributions, management fees, changes in values of foreign currency, and published market prices for certain securities. The limited partnerships’ annual financial statements are audited by independent auditors. These investments are valued at approximately $10.7 million as of June 30, 2021. Because of the inherent uncertainties in estimating fair values, it is possible these estimates will change in the near-term or the subsequent sale of assets will be different than the June 30, 2021, reported net asset value. These investments can never be redeemed. Instead, the nature of these investments provides for distributions through the sale or liquidation of the underlying assets and from net operating cash flows. It is anticipated that the investments will be held for at least ten years or longer. Real Estate. This includes one real estate investment. Targeted investment structures within the Workers' Compensation Fund real estate portfolio include limited liability companies, limited partnerships, joint ventures, commingled funds, and co-investments. Real estate partnerships generally provide quarterly valuations based on the most recent capital account balance. Individual properties are valued by the investment management at least annually and are adjusted as frequently as quarterly if material market or operational changes have occurred. Properties are externally appraised generally at least every five years, depending upon the investment. Annual audits of most partnerships include a review of compliance with the partnership’s valuation policies. 3. Securities Lending State law and WSIB policy permit the Workers’ Compensation Fund to participate in securities lending programs to augment investment income. The WSIB has entered into an agreement with State Street Corporation to act as agent for the Workers’ Compensation Fund in securities lending transactions. As State Street Corporation is the custodian bank for the Workers’ Compensation Fund, it is counterparty to securities lending transactions. When debt securities are loaned during the fiscal year, they are collateralized by the Workers’ Compensation Fund's agent with cash and U.S. government or U.S. agency securities including U.S. agency mortgage-backed securities (exclusive of letters of credit). When the loaned securities had collateral denominated in the same currency, the collateral requirement was 102 percent of the fair value, including accrued interest, of the securities loaned. All other securities were required to be collateralized at 105 percent of the fair value, including accrued interest, of the loaned securities. No securities were lent by the Workers' Compensation Fund during the current fiscal year and, accordingly, no collateral was held at June 30, 2021. Securities lending transactions can be terminated on demand by either the Workers’ Compensation Fund or the borrower. Non-cash collateral could not be pledged or sold absent borrower default. No more than 20 percent of the total on-loan value can be held by a specific borrower. Collateral investment guidelines specifically prohibit European domiciled holdings. There are no restrictions on the amount of securities that can be lent. Securities are lent with the agreement that they will be returned in the future for exchange of the collateral. State Street Corporation indemnified the Workers’ Compensation Fund by agreeing to purchase replacement securities or return the cash collateral in the event a borrower failed to return the loaned securities or pay distributions thereon. State Street Corporation’s responsibilities included performing appropriate borrower and collateral investment credit analyses, demanding adequate types and levels of collateral, and complying with applicable federal regulations concerning securities lending. During fiscal year 2021, no securities were lent and, accordingly, there were no significant violations of legal or contractual provisions, and no failures by any borrowers to return loaned securities or to pay distributions thereon. Further, the Workers’ Compensation Fund incurred no losses during fiscal year 2021 resulting from a default by either the borrowers or the securities lending agents. 4. Interest Rate Risk Interest rate risk is the risk that changes in interest rates over time will adversely affect the fair value of an investment. While the Workers’ Compensation Fund does not have a formal policy relating to interest rate risk, the risk is managed within the Workers’ Compensation Fund portfolio using effective duration, which is the measure of a debt investment’s exposure to fair value changes arising from changes in interest rates. Increases in prevailing interest rates generally translate into B - 72 decreases in fair values of fixed income investments. As of June 30, 2021, the Workers’ Compensation Fund portfolio durations were within the prescribed duration targets. The following two schedules provide information about the interest rate risks associated with the Workers’ Compensation Fund investments as of June 30, 2021. The schedules display various asset classes held by maturity in years, effective durations, and credit ratings. All debt securities are reported using the average life within the portfolio. The average life is a calculated estimate of the average time (in years) until maturity for these securities, taking into account possible prepayments of principal. Workers' Compensation Fund Schedule of Maturities and Effective Duration June 30, 2021 (expressed in thousands) Maturity Investment Type Total Fair Value Less than 1 Year 1-5 Years 6-10 Years More than 10 Years Effective Duration (in years)* Mortgage and other asset-backed securities $ 1,010,390 $ 60,573 $ 838,682 $ 111,135 $ — 3.8 Corporate bonds 12,081,992 1,000,565 5,069,532 2,688,657 3,323,238 7.3 U.S. government and agency securities 2,616,989 65,736 1,420,864 635,182 495,207 6.9 Foreign government and agencies 1,506,741 206,325 831,414 381,277 87,725 4.8 Total Investments Categorized 17,216,112 $ 1,333,199 $ 8,160,492 $ 3,816,251 $ 3,906,170 6.8 Investments Not Required to be Categorized: Commingled investment trusts 3,829,399 Cash and cash equivalents 249,145 Real estate 10,715 Total investments not categorized 4,089,259 Total Investments $ 21,305,371 * Excludes cash and cash equivalents B - 73 Investments with multiple credit ratings are presented using the Moody’s rating scale as follows: Workers' Compensation Fund Investment Credit Ratings June 30, 2021 (expressed in thousands) Investment Type Moody's Equivalent Credit Rating Mortgage and Other Asset-Backed Securities Corporate Bonds Foreign Government and Agencies Total Fair Value Aaa $ 1,010,390 $ 596,588 $ 276,426 $ 1,883,404 Aa1 — 177,752 270,882 448,634 Aa2 — 234,962 170,074 405,036 Aa3 — 959,986 251,045 1,211,031 A1 — 1,612,819 343,578 1,956,397 A2 — 2,471,058 30,563 2,501,621 A3 — 2,125,921 — 2,125,921 Baa1 — 1,762,477 — 1,762,477 Baa2 — 1,568,969 119,901 1,688,870 Baa3 — 441,752 39,112 480,864 Ba1 or lower — 129,708 5,160 134,868 Total $ 1,010,390 $ 12,081,992 $ 1,506,741 $ 14,599,123 5. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Workers’ Compensation Fund investment policies limit the fixed income securities to investment grade or higher at the time of purchase. Investment grade securities are those fixed income securities with a Moody’s rating of Aaa to Baa or a Standard and Poor’s rating of AAA to BBB. The rated debt investments of the Workers’ Compensation Fund as of June 30, 2021, were rated by Moody’s and/or an equivalent national rating organization. Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of an investment in a single issuer. The Workers’ Compensation Fund policy states that no corporate fixed income issues cost shall exceed 3 percent of the fund’s fair value at the time of purchase, nor shall its fair value exceed 6 percent of the fund’s fair value at any time. There was no concentration of credit risk as of June 30, 2021. Custodial Credit Risk. Custodial credit risk is the risk that, in the event a depository institution or counterparty fails, the Workers’ Compensation Fund would not be able to recover the value of its deposits, investments, or collateral securities. The Workers’ Compensation Fund does not have a policy relating to custodial credit risk. The WSIB mitigates custodial credit risk by having its investment securities (excluding cash, cash equivalents, and repurchase agreements held as securities lending collateral) registered and held in the name of the WSIB for the benefit of the Workers’ Compensation Fund. 6. Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. The Workers’ Compensation Fund does not have a formal policy to limit foreign currency risk. At June 30, 2021, the only securities held by the Workers’ Compensation Fund with foreign currency exposure were $1.57 billion (excludes U.S. dollar denominated securities) invested in an international commingled equity index fund. The following schedule presents the exposure of the Workers’ Compensation Fund to foreign currency risk. The schedule is stated in U.S. dollars. B - 74 amounts the borrowers owed the LGIP. Furthermore, contracts require the lending agent to indemnify the LGIP if the borrowers fail to return securities and if collateral is inadequate to replace the securities lent, or if the borrowers fail to pay the LGIP for income distribution by the securities’ issuers while the securities are on loan. The LGIP cannot pledge or sell collateral securities received unless the borrower defaults. The LGIP investment policy limits the amount of reverse repurchase agreements and securities lending to 30 percent of the total portfolio. There were no violations of legal or contractual provisions and no losses resulting from a default of a borrower or lending agent during the fiscal year. 4. Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt instruments will adversely affect the fair value of an investment. To mitigate the effect of interest rate risk, the LGIP portfolio is invested in high quality, highly liquid obligations with limited maximum and average maturities. The LGIP’s policy establishes weighted average maturity and weighted average life limits not to exceed 60 and 120 days, respectively. As of June 30, 2021, the LGIP had a weighted average maturity of 36 days and a weighted average life of 78 days. The following schedule presents the LGIP investments and related maturities, and provides information about the associated interest rate risks as of June 30, 2021: Local Government Investment Pool (LGIP) Schedule of Maturities June 30, 2021 (expressed in thousands) Maturity Investment Type Amortized Cost Less than 1 Year 1-5 Years U.S. agency securities $ 4,069,183 $ 3,634,188 $ 434,995 Repurchase agreements 1,550,000 1,550,000 — U.S. treasury securities 16,266,019 15,868,510 397,509 Interest bearing bank accounts 2,116,515 2,116,515 — Supranational securities 426,241 426,241 — Certificates of deposit 112,000 112,000 — Total Investments $ 24,539,958 $ 23,707,454 $ 832,504 5. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The LGIP investment policy limits the types of securities available for investment to obligations of the U.S. government or its agencies, obligations of supranational institutions, obligations of government-sponsored corporations, and deposits with qualified public depositories. Custodial Credit Risk. Custodial credit risk is the risk that, in the event a depository institution or counterparty fails, the LGIP will not be able to recover the value of its deposits, investments, or collateral securities that are in the possession of an outside party. The LGIP investment policy requires that securities purchased be held by the master custodian, acting as an independent third party, in its safekeeping or trust department. Securities utilized in repurchase agreements are subject to additional restrictions. These restrictions are designed to limit the LGIP’s exposure to risk and ensure the safety of the investment. All securities utilized in repurchase agreements were rated Aaa by Moody’s and AA+ by Standard & Poor’s. The fair value of securities utilized in repurchase agreements must be at least 102 percent of the value of the repurchase agreement. Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The LGIP mitigates concentration of credit risk by limiting the purchase of securities of any one issuer, with the exception of U.S. treasury and U.S. agency securities, to no more than 5 percent of the portfolio. Repurchase agreements comprise 6.3 percent of the total portfolio as of June 30, 2021. The LGIP limits the securities utilized in repurchase agreements to U.S. treasury and U.S. agency securities. The LGIP requires delivery of all securities utilized in repurchase agreements and the securities are priced daily. As of June 30, 2021, U.S. treasury securities comprised 66.3 percent of the total portfolio. U.S. agency securities B - 77 comprised 16.6 percent of the total portfolio, including Federal Farm Credit Bank (8.7 percent), Federal Home Loan Bank (6.9 percent), and Federal National Mortgage Association (1.0 percent). Supranational securities comprised 1.7 percent of the total portfolio. 6. Repurchase Agreements The fair value plus accrued income of securities utilized in repurchase agreements will be 102 percent of the value of the repurchase agreement plus accrued interest. The securities utilized in repurchase agreements are limited to government securities, are priced daily, and are held by the LGIP’s custodian in the state’s name. As of June 30, 2021, repurchase agreements totaled $1.55 billion. E. INVESTMENTS - HIGHER EDUCATION SPECIAL REVENUE, ENDOWMENT, AND STUDENT SERVICES FUNDS 1. Summary of Investment Policies The investments of the University of Washington represent 82 percent of the total investments in Higher Education Special Revenue, Endowment, and Student Services Funds. The University of Washington’s Board of Regents is vested by statute with responsibility for the University’s properties and investments, and for establishing investment policy. The University of Washington Investment Management Company (UWINCO), led by the chief investment officer, carries out the day-to-day activities of the investment portfolios. The UWINCO Board, which consists of both Board of Regents’ members and external investment professionals, serves as an advisory board to UWINCO. The majority of the University’s investments are insured, registered, and held by the University’s custodial bank as an agent for the University. Investments not held by the custodian include venture capital, private equity, opportunistic investments, marketable alternatives, mortgages, real assets, and miscellaneous investments. The University combines most short-term cash balances in the Invested Funds Pool. At June 30, 2021, the Short- term and Intermediate-term Invested Funds Pools totaled $2.46 billion. The Invested Funds Long-term Pool owns units in the Consolidated Endowment Fund valued at $812.0 million on June 30, 2021. In addition, the Long- term Pool owns a passive global equity index valued at $141.0 million as of June 30, 2021. By University policy, departments with qualifying funds in the Invested Funds Pool receive distributions based on their average balances and on the type of balance. Campus depositors received 0.75 percent in fiscal year 2021. University Advancement received 3.0 percent of the average balances in endowment operating and gift accounts in fiscal year 2021. The difference between the actual earnings of the Invested Funds Pool and the calculated distributions is used to support activities benefiting all University departments. The majority of the endowed funds are invested in a pooled fund called the Consolidated Endowment Fund (CEF). Individual endowments purchase units in the pool on the basis of a per unit valuation of the CEF at fair value on the last business day of the calendar quarter. Income is distributed based on the number of units held. Chapter 24.55 RCW and the Uniform Prudent Management of Institutional Funds Act allow for total return expenditure in the CEF under comprehensive prudent standards. In February 2019, the Board of Regents approved an amendment to the CEF Investment Policy to reduce the total spending rate from 5.0 percent to 4.5 percent. A three-year phased reduction was implemented to cushion the impact on University units, starting with a 4.9 percent spending rate in fiscal year 2020 followed by a 4.7 percent spending rate in fiscal year 2021. Under the CEF spending policy, quarterly distributions to programs are based on an annual percentage rate of 3.76 percent applied to the five-year rolling average of the CEF’s market value. The reduction to 4.5 percent will be in full effect for fiscal year 2022 and beyond. Additionally, the policy allows for an administrative fee of 0.94 percent to support campus-wide fundraising and stewardship activities and to offset the internal cost of managing endowment assets. The University records its permanent endowments at the lower of original gift value or current market value in the Restricted Nonexpendable Net Position category. All endowments are recorded at the original gift value at June 30, 2021. Net appreciation (depreciation) in the fair value of investments includes both realized and unrealized gains and losses on investments. The University realized net gains of $89.8 million in fiscal year 2021 from the sale of investments. The calculation of realized gains and losses is independent of the net appreciation of the fair value of investments. Realized gains and losses on investments that have been held in more than one fiscal year and are sold in the current year include the net appreciation (depreciation) of these investments reported in the prior year(s). The net appreciation in the fair value of investments during the year ended June 30, 2021, was $1.19 billion. B - 78 2. Valuation of Investments The University reports investments at fair value and categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The University holds significant amounts of investments that are measured at fair value on a recurring basis. The following schedule presents the fair value of the University’s investments by type at June 30, 2021: University of Washington Investments Measured at Fair Value June 30, 2021 (expressed in thousands) Fair Value Measurements Using Investments by Fair Value Level Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Fixed Income Securities U.S. treasury $ 1,759,679 $ 18,629 $ 1,741,050 $ — U.S. government agency 406,941 12,798 394,143 — Mortgage-backed 251,384 — 251,384 — Asset-backed 424,420 — 424,420 — Corporate and other 206,137 22,774 183,363 — Total Fixed Income Securities 3,048,561 54,201 2,994,360 — Equity Securities Global equity investments 639,501 634,313 5,188 — Private equity and venture capital funds — — — — Real estate 25,678 20,442 — 5,236 Other 10,189 — — 10,189 Total Equity Securities 675,368 654,755 5,188 15,425 Externally managed trusts 153,793 — — 153,793 Total Investments by Fair Value Level 3,877,722 $ 708,956 $ 2,999,548 $ 169,218 Investments Measured at Net Asset Value (NAV) Global equity investments 2,062,207 Absolute return strategy funds 714,894 Private equity and venture capital funds 854,297 Real asset funds 170,996 Other 55,270 Total Investments Measured at the NAV 3,857,664 Total Investments Measured at Fair Value 7,735,386 Cash equivalents at amortized cost 393,556 Total Investments $ 8,128,942 Investments classified as level 1. Fixed income and equity securities classified in level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Investments classified as level 2. Fixed income and equity securities classified in level 2 are valued using other observable inputs including quoted prices for similar securities and interest rates. Investments classified as level 3. Real estate and other investments classified in level 3 are valued using either discounted cash flow or market comparable techniques. Investments measured at net asset value. The University’s interests in certain non-readily marketable alternative investments, such as hedge funds and private equity limited partnerships, are stated at fair value based on net asset value (NAV) estimates used as a practical expedient and reported to the University by investment fund managers. B - 79 The following schedule, stated in U.S. dollars, details the market value of foreign denominated securities by currency type: University of Washington Consolidated Endowment Fund Foreign Currency Risk June 30, 2021 (expressed in thousands) Foreign Currency Amount Australia-Dollar $ 26,735 Brazil-Real 102,402 Britain-Pound 138,836 Canada-Dollar 60,192 China-Renminbi 390,837 E.M.U.-Euro 176,789 Hong Kong-Dollar 58,543 India-Rupee 199,687 Japan-Yen 258,092 Norway-Krone 21,369 Russia-Ruble 19,404 Singapore-Dollar 54,863 South Africa-Rand 21,624 South Korea-Won 67,748 Sweden-Krona 45,463 Switzerland-Franc 43,872 Taiwan-Dollar 36,479 Remaining currencies 91,819 Total $ 1,814,754 7. Derivative Instruments The University’s investment policies allow investing in various derivative instruments, including futures, swaps, and forwards, to manage exposures within or across the portfolio and to improve the portfolio’s risk/return profile. Derivative instruments are recorded on the contract date and are carried at fair value using listed price quotations or amounts that approximate fair value. As of June 30, 2021, the University had outstanding futures contracts with notional amounts totaling $232.6 million and accumulated unrealized gains on these contracts totaled $760 thousand. These accumulated unrealized gains are included in investments on the Statement of Net Position. Credit exposure represents exposure to counterparties relating to financial instruments where gains exceed collateral held by the University or losses are less than the collateral posted by the University. There was no credit exposure as of June 30, 2021. The University had no hedging derivative instruments or derivative instruments for investment purposes as of June 30, 2021. Details on foreign currency derivative instruments are disclosed under Foreign Currency Risk. F. INVESTMENTS - OFFICE OF THE STATE TREASURER CASH MANAGEMENT ACCOUNT 1. Summary of Investment Policies The Office of the State Treasurer (OST) operates the state’s Cash Management Account for investing Treasury/Trust funds in excess of daily requirements. Investment income earned is allocated based on average daily cash balance. Pursuant to state law, all earnings on investments of Treasury/Trust funds are credited to the General Fund except as specifically provided in RCW 43.79A.040 and RCW 43.84.092. In fiscal year 2021, a portion of the investment income reported by the General Fund was earned by other funds. The State Treasurer and designated investment officers shall adhere to all restrictions on the investment of funds established by law and by policy. Investment Objectives. All Treasury/Trust funds will be invested in conformance with federal, state, and other legal requirements. The primary objectives of the portfolio shall be safety and liquidity, with return on investment a secondary objective. Investments shall be undertaken in a manner that seeks preservation of capital in the overall portfolio. Because the investment portfolio must remain liquid to enable the State Treasurer to meet all cash requirements that can reasonably be anticipated, investments will be managed to maintain cash balances needed to meet daily obligations of the state. After assuring needed levels of safety and liquidity, the investment portfolio will be structured to attain a market rate of return. Eligible Investments. Eligible investments are only those securities and deposits authorized by statute (chapters 39.58, 43.250, and 43.84.080 RCW). Eligible investments include: • Obligations of the U.S. government. • Obligations of U.S. government agencies or of corporations wholly owned by the U.S. government. • U.S. dollar denominated obligations of supranational institutions, provided that at the time of investment the institution has the U.S. government as its largest shareholder. • Obligations of government-sponsored enterprises that are or may become eligible as collateral for advances to member banks as determined by the board of governors of the Federal Reserve. B - 82 • Commercial paper, provided that the OST adheres to policies and procedures of the Washington State Investment Board (WSIB) regarding commercial paper (RCW 43.84.080(5)). • Corporate notes, provided that the OST adheres to the investment policies and procedures adopted by the WSIB (RCW 43.84.080(7)). • Investment deposits with financial institutions qualified by the Washington Public Deposit Protection Commission (RCW 39.58.010(9)) and deposits made pursuant to RCW 39.58.080. • Local Government Investment Pool (LGIP). • Obligations of the state of Washington or its political subdivisions. Investment Restrictions. To provide for the safety and liquidity of Treasury/Trust funds, the Cash Management Account investment portfolio is subject to the minimum restrictions listed below. Certain investment instruments are subject to more restrictive limitations. • The final maturity of any security will not exceed ten years. • Purchase of collateralized mortgage obligations is not allowed. • The allocation to investments subject to high price sensitivity or reduced marketability will not exceed 15 percent of the daily balance of the portfolio. Additionally, investments in non-government securities, excluding collateral of repurchase agreements, must fall within prescribed limits. Limitations and Restrictions on LGIP Participant Withdrawals. Participants of the LGIP may contribute and withdraw funds on a daily basis and must inform the OST of any contribution or withdrawal over one million dollars no later than 9:00 a.m. on the same day the transaction is made. Contributions or withdrawals for one million dollars or less can be requested at any time prior to 10:00 a.m. on the day of the transaction. However, participants may complete transactions greater than one million dollars when notification is made between 9:00 a.m. and 10:00 a.m., at the sole discretion of the OST. The LGIP does not impose liquidity fees or redemption gates on participant withdrawals. 2. Valuation of Investments The OST reports investments at fair value and categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The following table presents fair value measurements as of June 30, 2021: Office of the State Treasurer Cash Management Account Investments Measured at Fair Value June 30, 2021 (expressed in thousands) Fair Value Measurements Using Investments by Fair Value Level Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Debt securities U.S. government securities $ 5,234,420 $ — $ 5,234,420 $ — U.S. agency securities 1,897,661 — 1,897,661 — Supranational securities 1,967,223 — 1,967,223 — Corporate notes 438,162 — 438,162 — Total Investments Measured at Fair Value $ 9,537,466 $ — $ 9,537,466 $ — Investments classified as level 2. The debt securities classified as level 2 in the above table are valued using observable inputs including quoted prices for similar securities and interest rates. 3. Securities Lending State statutes permit the OST to lend its securities to broker-dealers and other entities with a simultaneous agreement to return the collateral for the same securities in the future. The OST has contracted with Northern Trust Company as a lending agent and receives a share of income earned from this activity. The lending agent lends U.S. government, U.S. agency, and supranational securities and receives collateral, which can be in the form of cash or other securities. The collateral, which must be valued at 102 percent of the fair value of the loaned B - 83 securities, is priced daily and, if necessary, action is taken to maintain the collateralization level at 102 percent. The cash is invested by the lending agent in repurchase agreements, deposit accounts, or money market instruments, in accordance with investment guidelines approved by the OST. The securities held as collateral and the securities underlying the cash collateral are held by the custodian. During fiscal year 2021, there was no cash collateral from securities lending. Contracts require the lending agent to indemnify the OST if the borrowers fail to return securities and if the collateral is inadequate to replace the securities lent, or if the borrower fails to pay the OST for income distribution by the securities’ issuers while the securities are on loan. The OST cannot pledge or sell collateral securities received unless the borrower defaults. At June 30, 2021, the fair value of securities on loan totaled $696.4 million. The OST investment policy requires that any securities on loan be made available by the lending agent for next day liquidity at the option of the OST. During fiscal year 2021, the OST had no credit risk exposure to borrowers because the amounts owed to the borrowers exceeded the amounts the borrowers owed the OST. There were no violations of legal or contractual provisions, and there were no losses resulting from a default of a borrower or lending agent during the fiscal year. 4. Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt instruments will adversely affect the fair value of an investment. The Treasury/Trust investments are separated into portfolios with objectives based primarily on liquidity needs. The OST’s investment policy limits the weighted average maturity of its investments based on cash flow expectations. Policy also directs due diligence to be exercised with timely reporting of material deviation from expectations and actions taken to control adverse developments as may be possible. The following schedules present the OST investments and related maturities, and provide information about the associated interest rate risks as of June 30, 2021: Office of the State Treasurer Cash Management Account Schedule of Maturities June 30, 2021 (expressed in thousands) Maturity Investment Type Total Fair Value Less than 1 Year 1-5 Years 6-10 Years U.S. government securities $ 5,384,947 $ 671,161 $ 4,713,786 $ — U.S. agency securities 1,941,660 525,307 1,416,353 — Supranational securities 2,654,526 813,334 1,816,246 24,946 Corporate notes 438,162 34,749 403,413 — Investments with LGIP 3,136,884 3,136,884 — — Certificates of deposit 63,047 63,047 — — Interest bearing bank accounts 233,777 233,777 — — Total Investments $ 13,853,003 $ 5,478,259 $ 8,349,798 $ 24,946 B - 84 Unearned Revenue Unearned revenue at June 30, 2021, consisted of the following (expressed in thousands): Unearned Revenue General Higher Education Special Revenue Higher Education Endowment Nonmajor Governmental Funds Total Other taxes $ 5,761 $ — $ — $ — $ 5,761 Charges for services 46,927 268,865 — 31,483 347,275 Donable goods — — — 5,042 5,042 Grants and donations (1) 3,011,398 23,311 — 8,148 3,042,857 Tolls — — — 29,033 29,033 Transportation — — — 22,734 22,734 Miscellaneous 1,036 12,623 — 8,764 22,423 Total Unearned Revenue $ 3,065,122 $ 304,799 $ — $ 105,204 $ 3,475,125 Notes: (1) Unearned revenue from grants and donations includes $2.88 billion in federal stimulus funds received during fiscal year 2021 from the U.S. Department of the Treasury under the American Rescue Plan and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, but not yet spent. Unavailable Revenue Unavailable revenue at June 30, 2021, consisted of the following (expressed in thousands): Unavailable Revenue General Higher Education Special Revenue Higher Education Endowment Nonmajor Governmental Funds Total Property taxes $ 2,010,474 $ — $ — $ 924 $ 2,011,398 Other taxes 988,560 7,929 — 11,908 1,008,397 Timber sales 4,205 — 14,758 103,844 122,807 Transportation — — — 3,562 3,562 Charges for services 4,578 — — 5,032 9,610 Miscellaneous 8,479 — — 12,350 20,829 Total Unavailable Revenue $ 3,016,296 $ 7,929 $ 14,758 $ 137,620 $ 3,176,603 B - 87 B. PROPRIETARY FUNDS Receivables Receivables at June 30, 2021, consisted of the following (expressed in thousands): Business-Type Activities Enterprise Funds Receivables Workers' Compensation Unemployment Compensation Higher Education Student Services Accounts receivable $ 931,790 $ 1,040,289 $ 409,023 Interest 113,356 — 812 Investment trades pending — — — Loans — — 1 Miscellaneous 64 — 354 Subtotal 1,045,210 1,040,289 410,190 Less: Allowance for uncollectible receivables 219,361 402,178 18,787 Total Receivables $ 825,849 $ 638,111 $ 391,403 Unearned Revenue Unearned revenue at June 30, 2021, consisted of the following (expressed in thousands): Business-Type Activities Enterprise Funds Unearned Revenue Workers' Compensation Unemployment Compensation Higher Education Student Services Charges for services $ — $ — $ 148,921 Grants and donations — — — Premiums and assessments 7,381 — — Miscellaneous — — 363 Total Unearned Revenue $ 7,381 $ — $ 149,284 Taxes Receivables Taxes receivables at June 30, 2021, consisted of $3.7 million for petroleum products, net of allowance. C. FIDUCIARY FUNDS Other Receivables Receivables at June 30, 2021, consisted of $14.8 million for interest and other miscellaneous amounts. Unearned Revenue Unearned revenue at June 30, 2021, consisted of $821 thousand for service credit restorations reported in Pension and Other Employee Benefit Plans. B - 88 Governmental Activities Health Insurance Nonmajor Enterprise Funds Total Internal Service Funds $ 30,687 $ 262,348 $ 2,674,137 $ 19,178 790 1,941 116,899 77 — 1,079 1,079 — — — 1 1 — — 418 80 31,477 265,368 2,792,534 19,336 818 57 641,201 1,481 $ 30,659 $ 265,311 $ 2,151,333 $ 17,855 Governmental Activities Health Insurance Nonmajor Enterprise Funds Total Internal Service Funds $ 1,740 $ 466 $ 151,127 $ 3,870 — 1,453 1,453 — — 38,530 45,911 — — 3 366 — $ 1,740 $ 40,452 $ 198,857 $ 3,870 B - 89 B. INTERFUND TRANSFERS Interfund transfers as reported in the financial statements for the year ended June 30, 2021, consisted of the following (expressed in thousands): Transferred To Transferred From General Higher Education Special Revenue Higher Education Endowment Nonmajor Governmental Funds Workers' Compensation General $ — $ 46,058 $ 300 $ 1,570,895 $ 75 Higher Education Special Revenue 167,843 — 26,440 173,633 — Higher Education Endowment — 189,262 — 41,674 — Nonmajor Governmental Funds 577,305 156,206 1,480 1,103,370 — Workers' Compensation 1,326 — — — — Unemployment Compensation — — — — — Higher Education Student Services — 585,427 — 4,123 — Health Insurance 33,928 — — 1,003 — Nonmajor Enterprise Funds 237,285 — — 14,679 — Internal Service Funds — 19,785 — 11,480 — Fiduciary Funds 2,109 — — — — Totals $ 1,019,796 $ 996,738 $ 28,220 $ 2,920,857 $ 75 Except as noted below, transfers are used to (1) move revenues from the fund that statute requires to collect them to the fund that statute requires to expend them, (2) move receipts designated for debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, (3) move unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations, (4) move profits from the Lottery Fund as required by law, and (5) transfer amounts to and from the General Fund as required by law. During fiscal year 2021, in accordance with budget and other legal provisions, there was a one-time transfer of $1.82 billion from the Budget Stabilization Account (BSA) to the General Fund to assist in pandemic-related costs. In addition, $1.00 billion was transferred from the General Fund to the Washington Rescue Plan Transition Account for responding to the coronavirus pandemic (COVID-19) including activities related to education, human services, health care, and the economy. The BSA and Washington Rescue Plan Transition Account are reported as Administrative Accounts within the General Fund. On June 30, 2021, $269.5 million was transferred from the General Fund Basic Account to the BSA in accordance with the provisions of the state Constitution. The state Constitution details a limited number of circumstances under which funds can be appropriated from the BSA, one of which is a favorable vote of at least three-fifths of the members of each house of the Legislature. In addition to the transfers noted in the schedule above, there were transfers of $103.4 million within the state’s Pension Trust Funds. B - 92 Transferred To Unemployment Compensation Higher Education Student Services Health Insurance Nonmajor Enterprise Funds Internal Service Funds Fiduciary Funds Totals $ — $ — $ 8,896 $ 20,057 $ 16,849 $ — $ 1,663,130 — 637,172 — — 20,849 — 1,025,937 — — — — — — 230,936 82,000 — — — — — 1,920,361 — — — — — — 1,326 — — — — — — — — — — — 414 — 589,964 — — — — — — 34,931 — — — — — — 251,964 — — — — — — 31,265 — — — — — — 2,109 $ 82,000 $ 637,172 $ 8,896 $ 20,057 $ 38,112 $ — $ 5,751,923 B - 93 Note 6 Capital Assets Capital assets at June 30, 2021, are reported by the state of Washington within governmental activities and business-type activities, as applicable. A. GOVERNMENTAL CAPITAL ASSETS The following is a summary of governmental capital asset activity for the year ended June 30, 2021 (expressed in thousands): Balances Deletions/ Balances Capital Assets July 1, 2020 Additions Adjustments June 30, 2021 Capital Assets, Not Being Depreciated: Land $ 2,896,094 $ 53,810 $ (17,116) $ 2,932,788 Transportation infrastructure 26,100,380 474,850 — 26,575,230 Intangible assets - indefinite lives 37,163 — — 37,163 Art collections, library reserves, and museum and historical collections 153,774 2,385 (2) 156,157 Construction in progress 1,531,098 533,008 (573,853) 1,490,253 Total Capital Assets, Not Being Depreciated 30,718,509 31,191,591 Capital Assets, Being Depreciated: Buildings 15,410,742 716,011 (38,306) 16,088,447 Accumulated depreciation (6,784,885) (424,425) 14,269 (7,195,041) Net buildings 8,625,857 8,893,406 Other improvements 1,654,568 42,128 (5,224) 1,691,472 Accumulated depreciation (938,106) (48,162) 1,811 (984,457) Net other improvements 716,462 707,015 Furnishings, equipment, and intangible assets 6,164,800 297,780 (162,567) 6,300,013 Accumulated depreciation (3,997,372) (318,359) 140,203 (4,175,528) Net furnishings, equipment, and intangible assets 2,167,428 2,124,485 Infrastructure 1,317,960 65,963 — 1,383,923 Accumulated depreciation (717,451) (41,841) — (759,292) Net infrastructure 600,509 624,631 Total Capital Assets, Being Depreciated, Net 12,110,256 12,349,537 Governmental Activities Capital Assets, Net $ 42,828,765 $ 43,541,128 B - 94 D. CONSTRUCTION IN PROGRESS Major construction commitments of the state at June 30, 2021, are as follows (expressed in thousands): Continued Agency / Project Commitments Construction in Progress June 30, 2021 Remaining Project Commitments Office of the Secretary of State: Library-Archives building $ 1,943 $ 123,078 Department of Enterprise Services: East Plaza water infiltration and elevator, Capitol Campus Childcare Center, and other projects 27,441 335 Department of Labor and Industries: Division of Occupational Safety and Health Lab, and Training Facility 4,052 49,151 Military Department: Thurston County, Centralia, and Tri-Cities Readiness Centers, and other projects 70,509 11,856 Department of Social and Health Services: Residential, rehabilitation, and other facilities 41,164 77,130 State hospitals / treatment centers 94,119 177,324 Department of Children, Youth, and Family: Green Hill school recreation center replacement and other miscellaneous projects 5,610 41,855 Department of Corrections: Correctional center units security and safety improvements 6,804 21,335 Other projects 8,048 10,921 Center for Deaf and Hard of Hearing Youth: Academic and physical education facility 774 54,130 Department of Transportation: Olympic Region and Northwest Region Headquarters building projects 80,166 3,666 State ferry vessels and terminals, and other projects 523,094 121,424 Transportation infrastructure — 3,650,739 Other miscellaneous projects 1,621 705 State Parks and Recreation Commission: Beverly bridge rehabilitation and other miscellaneous projects 4,183 6,852 Department of Fish and Wildlife: Soos Creek, Naselle, and Wallace River hatcheries, Deschutes watershed, and other projects 77,031 130,514 Employment Security Department: Family and Medical Leave system 59,496 10,623 Long-Term Services and Support system 7,897 10,091 B - 97 Concluded Agency / Project Commitments Construction in Progress June 30, 2021 Remaining Project Commitments University of Washington: Health Sciences Center, Harborview Research and Training building restoration, Behavioral Health teaching facility, Founders Hall, UW Bothell/Cascadia College Science, Technology, Engineering, Math (STEM), and UW Tacoma renovation projects $ 197,330 $ 159,527 Intercollegiate Athletics (ICA) Softball Performance Center, and other projects 5,441 1,701 Student housing, campus bike house program, and other projects 66 307 UW Medical Center expansion, upgrades, and renovation projects 147,555 10,760 Washington State University: Chief Joseph building and other housing projects 2,469 239 Modernization initiative, Vancouver Life Sciences building, and other facility projects 20,151 17,431 Smith gym renovation, and utilities for indoor practice facility 68 7 Campus upgrades and renovation projects 2,116 328 Eastern Washington University: Science Center renovation, energy plant, housing improvements, and other projects 8,573 20,302 — — Central Washington University: Health Science Building, and other projects 54,728 — Western Washington University: Engineering & Computer Science Building, and other projects 4,008 70,392 New residence hall 55,905 11,320 Science building addition and renovation 53,109 14,217 Community and Technical Colleges: Bates Allied Health Science Center 34,107 8,045 Columbia Basin student recreation center 15,747 211,807 Edmonds Science, Technology, Engineering, Math (STEM) building 47,096 6,623 Pierce parking garage 6,676 34,763 Seattle South Automotive Technology building renovation 17,280 270 Seattle wellness center, library renovation, and miscellaneous projects 12,403 4,146 Other miscellaneous community college projects 64,762 9,657 Other Agency Projects: 33,648 10,937 Total Construction in Progress $ 1,797,190 $ 5,094,508 B - 98 Note 7 Long-Term Liabilities A. BONDS AND NOTES PAYABLE Bonds payable at June 30, 2021, are reported by the state of Washington within governmental activities and business-type activities, as applicable. The state Constitution and enabling statutes authorize the incurrence of state general obligation debt, to which the state’s full faith, credit, and taxing power are pledged, either by the Legislature or by a body designated by statute (presently the State Finance Committee). Authorization arises in the following situations: • From an affirmative vote of 60 percent of the members of each house of the Legislature without voter approval, in which case the amount of such debt is generally subject to the constitutional debt limitation described below. • When authorized by law for a distinct work or object and approved by a majority of the voters voting thereon at a general election or a special election called for that purpose, in which case the amount of the debt so approved is not subject to the constitutional debt limitations described below. • By the State Finance Committee without limitation as to amount, and without approval of the Legislature or approval of the voters. The State Finance Committee debt authorization does not require voter approval; however, it is limited to providing for: (1) meeting temporary deficiencies of the state treasury if such debt is discharged within 12 months of the date of incurrence and is incurred only to provide for appropriations already made by the Legislature; or (2) refunding of outstanding obligations of the state. Legal Debt Limitation The state Constitution limits the amount of state debt that may be incurred by restricting the amount of general state revenues which may be allocated to pay principal and interest on debt subject to these limitations. In November 2012, voters passed a constitutional amendment specifying that maximum annual payments of principal and interest on all debt subject to the limit may not exceed a percentage of the average of the prior six years’ general state revenues; this percentage currently stands at 8.25 percent and will decline to 8.00 percent by July  1, 2034. This limitation restricts the incurrence of new debt and not the amount of debt service that may be paid by the state in future years. The state Constitution requires the State Treasurer to certify the debt service limitation for each fiscal year. In accordance with these provisions, the debt service limitation for fiscal year 2021 is $1.70 billion. This computation excludes specific bond issues and types that are not secured by general state revenues. Of the $20.40 billion general obligation bond debt principal outstanding at June 30, 2021, $12.44 billion is subject to the limitation. Based on the debt limitation calculation, the debt service requirements as of June 30, 2021, did not exceed the authorized debt service limitation. For further information on the debt limit, refer to the Report on the State of Washington's Debt Limitation available from the Office of the State Treasurer at https://www. tre. wa. gov/wp-content/uploads/Debt- Limit-Certification-2021-Final-web.pdf or to Schedule 11 in the Statistical Section of this report. Authorized But Unissued The state had a total of $15.77 billion in general obligation bonds authorized but unissued as of June 30, 2021, for the purpose of capital construction, higher education, transportation, and various other projects throughout the state. Interest Rates Interest rates on fixed rate general obligation bonds range from 0.25 to 5.70 percent. Interest rates on revenue bonds range from 0.19 to 8.00 percent. Debt Service Requirements to Maturity General Obligations Bonds General obligation bonds have been authorized and issued primarily to provide funds for the following purposes: • Acquisition and construction of state and common school capital facilities. • Transportation construction and improvement projects. • Assistance to local governments for public works capital projects. • Refunding of general obligation bonds outstanding. Outstanding general obligation bonds are presented in the Washington State Treasurer’s Annual Report. A copy of the report is available from the Office of the State Treasurer, PO Box 40200, Olympia, WA 98504-0200, phone number (360) 902-9000 or TTY 711, or by visiting their website at http://www.tre.wa.gov/about-us/ resources/annual-reports. B - 99 Total pledged specific revenues for the state’s colleges and universities to repay the principal and interest of revenue bonds as of June 30, 2021, are as follows (expressed in thousands): Source of Revenue Pledged Housing and Dining Revenues (Net of Operating Expenses) Student Facilities Fees and Earnings on Invested Fees Bookstore Revenues Current revenue pledged $ 30,568 $ 19,293 $ 148 Current year debt service 15,459 9,863 202 Total future revenues pledged * 458,925 78,235 2,629 Description of debt Housing and dining bonds issued in 2008-2020 Student facilities bonds issued in 2004-2015 Bookstore bonds issued in 2013 Purpose of debt Construction and renovation of student housing and dining facilities Construction and renovation of student activity and sports facilities Bookstore remodel Term of commitment 2026-2049 2029-2037 2034 Percentage of debt service to pledged revenues (current year) 50.57 % 51.12 % 136.60 % * Total future principal and interest payments. B. CERTIFICATES OF PARTICIPATION Certificates of participation at June 30, 2021, are reported by the state of Washington within governmental activities and business-type activities, as applicable. Current state law authorizes the state to enter into long- term financing contracts for the acquisition of real or personal property and for the issuance of certificates of participation in the contracts. These certificates of participation do not fall under the general obligation debt limitations and are generally payable only from annual appropriations by the Legislature. Other specific provisions could also affect the state’s obligation under certain agreements. The certificates of participation are recorded for financial reporting purposes if the possibility of the state not meeting the terms of the agreements is considered remote. Total debt service requirements for certificates of participation to maturity as of June 30, 2021, are as follows (expressed in thousands): Governmental Activities Business-Type Activities Totals Certificates of Participation Principal Interest Principal Interest Principal Interest By Fiscal Year: 2022 $ 160,733 $ 52,402 $ 7,626 $ 2,486 $ 168,359 $ 54,888 2023 62,352 23,831 19,352 7,397 81,704 31,228 2024 50,245 20,777 15,596 6,449 65,841 27,226 2025 42,156 18,355 13,085 5,697 55,241 24,052 2026 40,207 16,301 12,480 5,060 52,687 21,361 2027-2031 147,839 57,151 45,888 17,739 193,727 74,890 2032-2036 95,949 30,055 29,781 9,329 125,730 39,384 2037-2041 57,407 10,264 17,818 3,186 75,225 13,450 2042-2046 14,934 1,524 4,636 473 19,570 1,997 Total Debt Service Requirements $ 671,822 $ 230,660 $ 166,262 $ 57,816 $ 838,084 $ 288,476 B - 102 C. DEBT REFUNDINGS When advantageous and permitted by statute and bond covenants, the State Finance Committee authorizes the refunding of outstanding bonds and certificates of participation. Colleges and universities may also refund revenue bonds. When the state refunds outstanding bonds, the net proceeds of each refunding issue are used to purchase U.S. government securities that are placed in irrevocable trusts with escrow agents to provide for all future debt service payments on the refunded bonds. As a result, the refunded bonds are considered defeased and the liability is removed from the government-wide statement of net position. Current Year Defeasances Bonds Governmental Activities On November 3, 2020, the state issued $105.0 million in various purpose general obligation refunding bonds with an average interest rate of 5.00 percent to refund $113.0  million of various purpose general obligation bonds with an average interest rate of 5.00 percent. The refunding resulted in $11.0  million gross debt service savings over the next 5 years and an economic gain of $10.9 million. On March  3, 2021, the state issued $396.3  million in motor vehicle fuel tax general obligation refunding bonds with an average interest rate of 5.00 percent to refund $458.9 million of motor vehicle fuel tax general obligation bonds with an average interest rate of 5.01 percent. The refunding resulted in $102.0  million gross debt service savings over the next 20 years and an economic gain of $76.5 million. On May 4, 2021, the state issued $164.1 million in various purpose general obligation refunding bonds with an average interest rate of 4.36 percent to refund $188.5  million of various purpose general obligation bonds with an average interest rate of 4.74 percent. The refunding resulted in $39.5  million gross debt service savings over the next 15 years and an economic gain of $36.9 million. Also on May  4, 2021, the state issued $191.6  million in motor vehicle fuel tax general obligation refunding bonds with an average interest rate of 4.22 percent to refund $229.1 million of motor vehicle fuel tax general obligation bonds with an average interest rate of 4.74 percent. The refunding resulted in $72.6  million gross debt service savings over the next 20 years and an economic gain of $64.6 million. Business-Type Activities On September 24, 2020, Western Washington University issued $21.8 million in housing and dining system revenue refunding bonds with an average interest rate of 2.40 percent to refund $11.5 million of general revenue bonds to build or improve housing and the student multicultural center with an average interest rate of 4.81 percent. The refunding resulted in $684  thousand gross debt service expenses over the next year and an economic loss of $9.0 million. On October 29, 2020, Washington State University issued $100.8  million in general revenue refunding bonds with an average interest rate of 5.00 percent to refund $92.7 million of athletics and housing and dining revenue bonds with an average interest rate of 4.91 percent. The refunding resulted in $14.7  million gross debt service savings over the next 24 years and an economic gain of $10.8 million. On February  9, 2021, the University of Washington issued $117.8 million in general revenue refunding bonds with an average interest rate of 5.00 percent to refund $142.7 million of general revenue bonds to fund various capital projects with an average interest rate of 4.82 percent. The refunding resulted in $33.1  million gross debt service savings over the next 13 years and an economic gain of $27.6 million. On March 4, 2021, the University of Washington issued $77.4 million in general revenue refunding bonds with an average interest rate of 5.00 percent to refund $7.2 million of general revenue bonds to fund various capital projects with an average interest rate of 4.25 percent. The refunding resulted in $1.3  million gross debt service savings over the next 11 years and an economic gain of $1.4 million. Also on March  4, 2021, the University of Washington issued $249.3 million in general revenue refunding bonds with an average interest rate of 2.14 percent to refund $222.3 million of general revenue bonds to fund various capital projects with an average interest rate of 5.00 percent. The refunding resulted in $47.5  million gross debt service savings over the next 21 years and an economic gain of $48.4 million. Certificates of Participation On October  14, 2020, the state issued $25.6  million in refunding certificates of participation with an average interest rate of 5.00 percent to refund $30.3  million of certificates of participation with an average interest rate of 4.51 percent. The refunding resulted in a $7.5  million gross debt service savings over the next 10 years and a net present value savings of $4.9 million. B - 103 On June  2, 2021, the state issued $490  thousand in refunding certificates of participation with an average interest rate of 5.00 percent to refund $770  thousand of certificates of participation with an average interest rate of 5.00 percent. The refunding resulted in a $37  thousand gross debt service savings over the next 2 years and a net present value savings of $37 thousand. Current Year In-Substance Defeasances Bonds Governmental Activities On October  30, 2020, and on May  14, 2021, the state deposited $10.4 million and $4.9 million, respectively, of existing resources into an irrevocable escrow account, for the defeasance of debt service coming due on June  1, 2021. The cash defeasances in fiscal year 2021 were completed to ensure the State Route 520 system met the required coverage targets. Prior Year Defeasances In prior years, the state defeased certain general obligation bonds, revenue bonds, and certificates of participation by placing the proceeds of new bonds and certificates of participation in an irrevocable trust to provide for all future debt service payments on the prior bonds and certificates of participation. Accordingly, the trust account assets and the liability for the defeased bonds and certificates of participation are not included in the state’s financial statements. General Obligation Bond Debt On June 30, 2021, $879.8 million of general obligation bond debt outstanding is considered defeased. Revenue Bond Debt On June 30, 2021, $229.2 million of revenue bond debt outstanding is considered defeased. D. LEASES Leases at June 30, 2021, are reported by the state of Washington within governmental activities and business- type activities, as applicable. The state leases land, office facilities, office and computer equipment, and other assets under a variety of agreements. Although lease terms vary, most leases are subject to appropriation from the Legislature to continue the obligation. If the possibility of receiving no funding from the Legislature is remote, leases are considered noncancelable for financial reporting purposes. Leases that represent acquisitions are classified as capital leases, and the related assets and liabilities are recorded in the financial records at the inception of the lease. Other leases are classified as operating leases with the lease payments recorded as expenditures or expenses during the life of the lease. Certain operating leases are renewable for specified periods. In most cases, management expects that the leases will be renewed or replaced by other leases. Land, buildings, and equipment under capital leases as of June 30, 2021, include the following (expressed in thousands): Governmental Activities Business-Type Activities Buildings $ — $ 4,512 Equipment 6,027 11,419 Less: Accumulated Depreciation (3,944) (13,887) Totals $ 2,083 $ 2,044 B - 104 F. POLLUTION REMEDIATION The state reports pollution remediation obligations in accordance with GASB Statement No. 49. The liability reported involves estimates of financial responsibility and amounts recoverable as well as remediation costs. The liability could change over time as new information becomes available and as a result of changes in remediation costs, technology, and regulations governing remediation efforts. Additionally, the responsibilities and liabilities discussed in this disclosure are intended to refer to obligations solely in the accounting context. This disclosure does not constitute an admission of any legal responsibility or liability. Further, it does not establish or affect the rights or obligations of any person under the law, nor does this disclosure impose upon the state any new mandatory duties or obligations. The state and its agencies are participating as potentially responsible parties in numerous pollution remediation projects under the provisions of the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA, generally referred to as Superfund) and the state Model Toxics Control Act. There are 36 projects in progress for which the state has recorded a liability of $98.5 million. The state has also voluntarily agreed to conduct certain remediation activities to the extent of funding paid to the state by third parties for such purposes. At June 30, 2021, the state has recorded a liability of $130.0 million for remaining project commitments. Overall, the state has recorded a pollution remediation liability of $228.5 million, measured at its estimated amount, using the expected cash flow technique. The overall estimate is based on professional judgment, experience, and historical cost data. For some projects, the state can reasonably estimate the range of expected outlays early in the process because the site situation is common or similar to other sites with which the state has experience. In other cases, the estimates are limited to an amount specified in a settlement agreement, consent decree, or contract for remediation services. The pollution remediation activity at some sites for which the state would otherwise have a reportable obligation is at a point where certain costs are not reasonably estimable. For example, a site assessment, remedial investigation, or feasibility study is in progress and the cleanup methodology has not yet been determined; consequently, associated future costs cannot be estimated. The state’s reported liability does not include remediation costs for future activities where costs are not yet reasonably estimable. G. ASSET RETIREMENT OBLIGATIONS The state reports asset retirement obligations in accordance with GASB Statement No. 83. The liability reported is based on the best estimate, using all available evidence, of the current value of outlays expected to be incurred. The state and its agencies have identified several legally enforceable liabilities associated with the retirement of a tangible capital asset due to requirements included in state laws and contracts. The types of assets include nuclear radiation plants, communication towers, and medical equipment such as cyclotrons, magnetic resonance imaging machines, and tandem accelerators. The estimated remaining useful lives of the tangible capital assets range from 1-15 years. The state has recorded an asset retirement obligation of $29.1 million, measured at its current value. The overall estimate is based on professional judgment, experience, and historical cost data. The liability could change over time as new information becomes available as a result of changes in technology, legal or regulatory requirements, and types of equipment, facilities, or services that will be used to meet the obligation to retire the tangible capital asset. Additionally, the responsibilities and liabilities discussed in this disclosure are referenced solely in the accounting context for purposes of this disclosure. This disclosure does not constitute an admission of any legal responsibility or liability. Further, it does not establish or affect the rights or obligations of any person under the law, nor does this disclosure impose upon the state any new mandatory duties or obligations. Some tangible capital assets have been identified as having a legally enforceable liability associated with the retirement of a tangible capital asset, but the liability is not yet reasonably estimable. Some examples include dams, sewer lagoons, waste ponds, and state owned communication towers. Estimates are not currently available as the state has no past experience decommissioning these types of assets, or the assets are maintained indefinitely so an estimated remaining useful life is unknown. Once the liability is reasonably estimable, the state will record a liability for the obligation. B - 107 H. LONG-TERM LIABILITY ACTIVITY Long-term liability activity at June 30, 2021, is reported by the state of Washington within governmental activities and business-type activities, as applicable. Long-term liability activity for governmental activities for fiscal year 2021 is as follows (expressed in thousands): Governmental Activities: Beginning Balance July 1, 2020 Additions Reductions Ending Balance June 30, 2021 Amounts Due Within One Year Long-Term Debt: GO Bonds Payable: General obligation (GO) bonds $ 19,535,350 $ 2,595,200 $ 1,947,845 $ 20,182,705 $ 1,034,235 GO - zero coupon bonds (principal) 258,307 — 38,525 219,782 28,482 Subtotal - GO bonds payable 19,793,657 2,595,200 1,986,370 20,402,487 1,062,717 Accreted interest - GO - zero coupon bonds 359,293 — 31,714 327,579 43,643 Revenue bonds payable 2,032,942 73,752 217,836 1,888,858 158,852 Plus: Unamortized premiums on bonds sold 2,131,890 698,989 193,862 2,637,017 — Total Bonds Payable 24,317,782 3,367,941 2,429,782 25,255,941 1,265,212 Other Liabilities: Certificates of participation 691,760 103,761 123,699 671,822 160,733 Plus: Unamortized premiums on COPs sold 17,922 7,628 4,781 20,769 — Claims and judgments payable 1,539,764 123,226 64,631 1,598,359 354,553 Installment contracts 1,180 — 137 1,043 137 Leases 8,445 755 6,968 2,232 911 Compensated absences 787,926 504,472 450,634 841,764 142,178 Net pension liability 2,980,950 1,819,702 2,611,389 2,189,263 — Total OPEB liability 5,065,182 2,014,704 1,856,505 5,223,381 91,876 Pollution remediation obligations 175,852 59,322 6,704 228,470 — Unclaimed property refunds 252,410 422 5,171 247,661 7,067 Asset retirement obligations 27,939 1,193 — 29,132 — Other 373,924 117,281 101,978 389,227 40,285 Total Other Liabilities 11,923,254 4,752,466 5,232,597 11,443,123 797,740 Total Long-Term Debt $ 36,241,036 $ 8,120,407 $ 7,662,379 $ 36,699,064 $ 2,062,952 For governmental activities, certificates of participation are being repaid approximately 23.54 percent from the General Fund, 54.08 percent from the Higher Education Special Revenue Fund, and the balance from various governmental funds. The compensated absences liability will be liquidated approximately 46.04 percent by the General Fund, 32.32 percent by the Higher Education Special Revenue Fund, and the balance by various other governmental funds. The claims and judgments liability will be liquidated approximately 74.73 percent by the Risk Management Fund, 11.29 percent by the Higher Education Revolving Fund (both are nonmajor internal service funds), and the balance by various other governmental funds. The other post employment benefits liability will be liquidated approximately 43.94 percent by the General Fund, 27.28 percent by the Higher Education Special Revenue Fund, and the balance by various other governmental funds. The net pension liability will be liquidated approximately 50.25 percent by the General Fund, 33.41 percent by the Higher Education Special Revenue Fund, and the balance by various other governmental funds. The pollution remediation liability will be liquidated approximately 69.03 percent by the Wildlife and Natural Resources Fund (a nonmajor governmental fund), and the balance by various other governmental funds. The unclaimed property refunds will be liquidated against future unclaimed property deposited to the General Fund. Leases, installment contract obligations, and other liabilities will be repaid from various other governmental funds. B - 108 Long-term liability activity for business-type activities for fiscal year 2021 is as follows (expressed in thousands): Business-Type Activities Beginning Balance July 1, 2020 Additions Reductions Ending Balance June 30, 2021 Amounts Due Within One Year Long-Term Debt: Revenue bonds payable $ 2,235,186 $ 603,217 $ 545,084 $ 2,293,319 $ 133,552 Plus: Unamortized premiums on bonds sold 179,778 49,846 47,498 182,126 — Total Bonds Payable 2,414,964 653,063 592,582 2,475,445 133,552 Other Liabilities: Certificates of participation 145,413 28,910 8,061 166,262 7,626 Plus: Unamortized premiums on COPs sold 19,934 7,991 1,284 26,641 — Claims and judgments payable 32,987,192 4,151,948 2,356,577 34,782,563 2,579,109 Installment contracts 76,171 — 73,306 2,865 697 Lottery prize annuities payable 125,814 9,708 16,636 118,886 15,368 Tuition benefits payable 1,185,000 82,599 16,599 1,251,000 97,000 Leases 4,612 — 1,849 2,763 1,730 Compensated absences 123,034 50,852 48,047 125,839 85,114 Net pension liability 357,912 320,964 358,504 320,372 — Total OPEB liability 734,560 376,035 282,885 827,710 14,559 Other 114,169 584 31,271 83,482 3,738 Total Other Liabilities 35,873,811 5,029,591 3,195,019 37,708,383 2,804,941 Total Long-Term Debt $ 38,288,775 $ 5,682,654 $ 3,787,601 $ 40,183,828 $ 2,938,493 Note 8 No Commitment Debt The Washington State Housing Finance Commission, Washington Higher Education Facilities Authority, Washington Health Care Facilities Authority, and Washington Economic Development Finance Authority (financing authorities) were created by the Legislature. For financial reporting purposes, they are discretely presented as component units. These financing authorities issue bonds and other debt for the purpose of making loans to qualified borrowers for capital acquisitions, construction, and related improvements. The debt does not constitute either a legal or moral obligation of the state or these financing authorities, nor does the state or these financing authorities pledge their full faith and credit for the payment of such debt. Debt service is payable solely from payments made by the borrowers pursuant to loan agreements. Due to their no commitment nature, the debt issued by these financing authorities is excluded from the state’s financial statements. The schedule below presents the June 30, 2021, balances for the “No Commitment” debt of the state’s financing authorities (expressed in thousands) : Financing Authorities Principal Balance Washington State Housing Finance Commission $ 6,907,398 Washington Health Care Facilities Authority 5,295,552 Washington Higher Education Facilities Authority 735,422 Washington Economic Development Finance Authority 740,250 Total No Commitment Debt $ 13,678,622 B - 109 law from accumulating funds in the SILP in excess of 50 percent of total outstanding and actuarially determined claims. As a consequence, when outstanding and incurred but not reported claims are actuarially determined and accrued, the result is a deficit net position. The following schedule details the change in net position for the Risk Management Fund during the fiscal year ended June 30, 2021 (expressed in thousands): Risk Management Fund Net Position Balance, July 1, 2020 $ (1,383,291) Fiscal year 2021 activity (40,319) Balance, June 30, 2021 $ (1,423,610) Lottery Fund The Lottery Fund, an enterprise fund, had a deficit net position of $9.8 million at June 30, 2021. The Lottery Fund is primarily used to record lottery ticket revenues and to account for activities such as administrative and operating expenses of the Lottery Commission and the distribution of revenues. The Lottery Fund is supported by operating revenue which is comprised of sales from Draw and Scratch games, as well as administration fees charged to retailers. Operating expenses include cost of sales and administrative expenses. The Lottery Fund is statutorily required to distribute the majority of its net income to fund education. The implementation of Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions and Statement No. 75, Accounting and Financial Reporting for Other Postemployment Benefits Other Than Pensions required the assignment of the state's proportionate share of these liabilities to each fund. Recording these unfunded liabilities resulted in deficit net position. The following schedule details the change in net position for the Lottery Fund during the fiscal year ended June 30, 2021 (expressed in thousands): Lottery Fund Net Position Balance, July 1, 2020 $ (217) Fiscal year 2021 activity (9,537) Balance, June 30, 2021 $ (9,754) State Facilities Fund The State Facility Fund, a capital projects fund, had a deficit fund balance of $110.1 million at June 30, 2021. The State Facilities Fund is used to pay for various capital projects throughout the state. The State Facilities Fund is primarily supported by bond proceeds, income from property, and sales of property. Costs were incurred during fiscal year 2021, but the bonds to support these projects were not issued until after June 30, 2021, resulting in a deficit fund balance. The following schedule details the change in net position for the State Facilities Fund during the fiscal year ended June 30, 2021 (expressed in thousands): State Facilities Fund Fund Balance Balance, July 1, 2020 $ 79,195 Fiscal year 2021 activity (189,341) Balance, June 30, 2021 $ (110,146) B - 112 Other Activities Fund The Other Activities Fund, an enterprise fund, had a deficit net position of $11.6 million at June 30, 2021. The Other Activities Fund is used to account for operation of the Pollution Liability Insurance Program, the Judicial Information System, the local Certificate of Participation (COP) financing program, the Local Government Audit Program, and the Secretary of State's Corporate Public Records Program. The Other Activities Fund is supported by various operating revenues which are comprised of charges for services and premiums and assessments. Operating expenses include cost of goods and services and administrative expenses. The implementation of Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions and Statement No. 75, Accounting and Financial Reporting for Other Postemployment Benefits Other Than Pensions required the assignment of the state's proportionate share of these liabilities to each fund. Recording these unfunded liabilities resulted in deficit net position. The following schedule details the change in net position for the Other Activities Fund during the fiscal year ended June 30, 2021 (expressed in thousands): Other Activities Fund Net Position Balance, July 1, 2020 $ (7,301) Fiscal year 2021 activity (4,252) Balance, June 30, 2021 $ (11,553) Note 11 Retirement Plans A. GENERAL Washington’s pension plans were created by statutes rather than through trust documents. They are administered in a way equivalent to pension trust arrangements as defined by the Governmental Accounting Standards Board (GASB). In accordance with GASB Statement No. 68, the state has elected to use the prior fiscal year end as the measurement date for reporting net pension liabilities. The state Legislature establishes and amends laws pertaining to the creation and administration of all state public retirement systems. Additionally, the state Legislature authorizes state agency participation in plans other than those administered by the state. Basis of Accounting. Pension plans administered by the state are accounted for using the accrual basis of accounting. Under the accrual basis of accounting, employee and employer contributions are recognized in the period in which employee services are performed; investment gains and losses are recognized as incurred; and benefits and refunds are recognized when due and payable in accordance with the terms of the applicable plan. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, pension expense, information about the fiduciary net position of all plans, and additions to/deductions from all plan fiduciary net position have been determined in all material respects on the same basis as they are reported by the plans. The following table represents the aggregate pension amounts for all plans for the state as an employer, for fiscal year 2021 (expressed in thousands): Aggregate Pension Amounts - All Plans Pension liabilities $ 2,509,635 Pension assets $ (2,467,388) Deferred outflows of resources on pensions $ 1,695,946 Deferred inflows of resources on pensions $ 1,581,936 Pension expense/expenditures $ 61,212 Investments. The Washington State Investment Board (WSIB) has been authorized by statute as having investment management responsibility for the pension funds. The WSIB manages retirement fund assets to maximize return at a prudent level of risk. Retirement funds are invested in the Commingled Trust Fund (CTF). Established on July 1, 1992, the CTF is a diversified pool of investments that invests in fixed income, public equity, private equity, real estate, and tangible assets. Investment decisions are made within the framework of a Strategic Asset Allocation B - 113 Policy and a series of written WSIB-adopted investment policies for the various asset classes. Further information about the investment of pension funds by the WSIB, their valuation, classifications, concentrations, and maturities can be found in Note 3.B. Department of Retirement Systems. As established in chapter 41.50 of the Revised Code of Washington (RCW), the Department of Retirement Systems (DRS) administers eight retirement systems covering eligible employees of the state and local governments. The Governor appoints the director of the DRS. The DRS administered systems are comprised of 12 defined benefit pension plans and 3 defined benefit/ defined contribution plans as follows: • Public Employees’ Retirement System (PERS) Plan 1 - defined benefit Plan 2 - defined benefit Plan 3 - defined benefit/defined contribution • Teachers’ Retirement System (TRS) Plan 1 - defined benefit Plan 2 - defined benefit Plan 3 - defined benefit/defined contribution • School Employees’ Retirement System (SERS) Plan 2 - defined benefit Plan 3 - defined benefit/defined contribution • Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF) Plan 1 - defined benefit Plan 2 - defined benefit • Public Safety Employees’ Retirement System (PSERS) Plan 2 - defined benefit • Washington State Patrol Retirement System (WSPRS) Plan 1 - defined benefit Plan 2 - defined benefit • Judicial Retirement System (JRS) Defined benefit plan • Judges’ Retirement Fund (JRF) Defined benefit plan Although some assets of the plans are commingled for investment purposes, each plan’s assets may be used only for the payment of benefits to the members of that plan in accordance with the terms of the plan. Administration of the PERS, TRS, SERS, LEOFF, PSERS, and WSPRS systems and plans is funded by an employer rate of 0.18 percent of employee salaries. Administration of the JRS and JRF plans is funded by means of legislative appropriations. Pursuant to RCW 41.50.770, the state offers its employees and employees of political subdivisions that elect to participate a deferred compensation program in accordance with Internal Revenue Code Section 457. The deferred compensation is not available to employees until termination, retirement, disability, death, or unforeseeable financial emergency. This deferred compensation plan is administered by the DRS. The DRS prepares a stand-alone financial report that is compliant with the requirements of GASB Statement No. 67. Copies of the report may be obtained by contacting the Washington State Department of Retirement Systems, PO Box 48380, Olympia, WA 98504-8380 or online at http://www.drs.wa.gov/ news/. State Board for Volunteer Fire Fighters and Reserve Officers. As established in chapter 41.24 RCW, the State Board for Volunteer Fire Fighters and Reserve Officers administers the Volunteer Fire Fighters’ and Reserve Officers’ Relief and Pension Fund (VFFRPF), a defined benefit plan. Administration of the VFFRPF is funded through legislative appropriation. Administrative Office of the Courts. As established in chapter 2.14 RCW, the Administrative Office of the Courts administers the Judicial Retirement Account (JRA), a defined contribution plan. Administration of JRA is funded through member fees. Higher Education. As established in chapter 28B.10 RCW, eligible higher education state employees may participate in higher education retirement plans. These plans include a defined contribution plan administered by a third party with a supplemental defined benefit component (funded on a pay-as-you-go basis) which is administered by the state. The state has elected to use the current fiscal year end as the measurement date for reporting net pension liabilities for the Higher Education Supplemental Retirement Plan. B. STATE PARTICIPATION IN PLANS ADMINISTERED BY DRS 1. DRS Plans - Employer Disclosures The state is not an employer in SERS Plan 2/3 nor LEOFF Plan 1. B - 114 credit and a COLA is granted based on the Consumer Price Index, capped at 3 percent annually. The AFC is the average of the member’s 60 highest paid consecutive months. PERS Plan 2 members have the option to retire early with reduced benefits. PERS Plan 3 members are vested in the defined benefit portion of their plan after 10 years of service; or after five years of service, if 12 months of that service are earned after age 44. The defined benefit portion of PERS Plan 3 provides members a monthly benefit that is 1 percent of the AFC per year of service. There is no cap on years of service credit. Plan 3 provides the same COLA as Plan 2. The AFC is the average of the member’s 60 highest paid consecutive months. PERS Plan 3 members have the option to retire early with reduced benefits. PERS members meeting specific eligibility requirements have options available to enhance their retirement benefits. Some of these options are available to their survivors, with reduced benefits. TRS. TRS plans provide retirement, disability, and death benefits to eligible members. TRS Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service, or at the age of 60 with five years of service, or at the age of 55 with 25 years of service. The monthly benefit is 2 percent of the average final compensation (AFC) for each year of service credit, up to a maximum of 60 percent. The AFC is the total earnable compensation for the two consecutive highest-paid fiscal years, divided by two. TRS Plan 1 members may elect to receive an optional cost of living allowance (COLA) amount based on the Consumer Price Index, capped at 3 percent annually. To offset the cost of this annual adjustment, the benefit is reduced. TRS Plan 2 members are vested after completing five years of eligible service. Plan 2 members are eligible for normal retirement at the age of 65 with five years of service. The monthly benefit is 2 percent of the AFC per year of service. A COLA is granted based on the Consumer Price Index, capped at 3 percent annually. The AFC is the average of the member’s 60 highest paid consecutive months. TRS Plan 2 members have the option to retire early with reduced benefits. TRS Plan 3 members are vested in the defined benefit portion of their plan after 10 years of service; or after five years of service, if 12 months of that service are earned after age 44. The defined benefit portion of TRS Plan 3 provides members a monthly benefit that is 1 percent of the AFC per year of service. Plan 3 provides the same COLA as Plan 2. The AFC is the average of the member’s 60 highest paid consecutive months. TRS Plan 3 members have the option to retire early with reduced benefits. TRS members meeting specific eligibility requirements have options available to enhance their retirement benefits. Some of these options are available to their survivors, with reduced benefits. PERS and TRS Judicial Benefit Multiplier: The Judicial Benefit Multiplier (JBM) Program gave eligible justices and judges an option to increase the benefit multiplier used in their retirement benefit calculation for their judicial service periods of employment. Beginning January 1, 2007, any justice or judge who was in a judicial position at that time could choose to join JBM. Any justice or judge elected or appointed to office on or after January 1, 2007, who elects to join DRS membership will also be mandated into JBM. If they have already established membership in PERS Plan 1 or TRS Plan 1 they will rejoin that plan, but if they have never had membership they will be enrolled as a member of both PERS Plan 2 and JBM. LEOFF. LEOFF plans provide retirement, disability, and death benefits to eligible members. LEOFF Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are eligible for retirement with five years of service at the age of 50. The benefit per year of service calculated as a percent of final average salary (FAS) is as follows: Years of Service Percent of FAS 20+ 2.0% 10-19 1.5% 5-9 1.0% Other benefits include a cost of living adjustment (COLA). LEOFF Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members are eligible for retirement at the age of 53 with at least five years of service, or at age 50-52 with 20 years of service. Plan 2 members receive a benefit of 2 percent of the FAS per year of service. FAS is based on the highest consecutive 60 months. A COLA is granted based on the Consumer Price Index, capped at 3 percent annually. LEOFF Plan 2 members have the option to retire early with reduced benefits. LEOFF members meeting specific eligibility requirements have options available to enhance their B - 117 retirement benefits. Some of these options are available to their survivors, generally with reduced benefits. PSERS. PSERS provides retirement, disability, and death benefits to eligible members. PSERS members are vested after an employee completes five years of eligible service. PSERS members may retire with a monthly benefit of 2 percent of the average final compensation (AFC) at the age of 65 with five years of service, or at the age of 60 with at least 10 years of PSERS service, or at age 53 with 20 years of service. A cost of living allowance is granted based on the Consumer Price Index, capped at 3 percent annually. The AFC is the average of the member’s 60 highest paid consecutive months. PSERS members have the option to retire early with reduced benefits. PSERS members meeting specific eligibility requirements have options available to enhance their retirement benefits. Some of these options are available to their survivors, generally with reduced benefits. WSPRS. WSPRS plans provide retirement, disability, and death benefits to eligible members. WSPRS members are vested after the completion of five years of eligible service. Active members are eligible for retirement at the age of 55 with no minimum required service credit, or at any age with 25 years of service credit, and must retire at age 65. This mandatory requirement does not apply to the Chief of the Washington State Patrol. Inactive members can retire at age 60 or at age 55 with a reduced benefit to account for the receipt of benefits over a longer period of time. The monthly benefit is 2 percent of the average final salary (AFS) per year of service, capped at 75 percent. A cost of living allowance is granted based on the Consumer Price Index, capped at 3 percent annually. WSPRS members meeting specific eligibility requirements have options available to enhance their retirement benefits. Some of these options are available to their survivors, generally with reduced benefits. JRS. The JRS provides retirement, disability, and death benefits to eligible members. JRS members are eligible for retirement at the age of 60 with 15 years of service; or are age 60 or older, left office involuntarily with 12 years of service credit, and at least 15 years have passed since the beginning of the initial term. The system was closed to new entrants on July 1, 1988, with new judges joining PERS. The benefit per year of service calculated as a percent of final average salary (FAS) is shown in the table below. This benefit is capped at 75 percent of FAS, exclusive of cost-of-living increases. Years of Service Percent of FAS 15+ 3.50% 10-14 3.00% JRF. The JRF provides disability and retirement benefits to eligible members. The system was closed to new entrants on August 8, 1971, with new judges joining the JRS. Members are eligible to receive a full retirement allowance at age 70 with 10 years of credited service, or at any age with 18 years of credited service. Members are eligible to receive a partial retirement allowance after 12 years of credited service as a judge. Contributions PERS, TRS, PSERS, WSPRS: Defined benefit retirement benefits are financed from a combination of investment earnings and employer and/or employee contributions. PERS Plan 1 and TRS Plan 1 member contribution rates are established in statute. PERS Plan 2/3 and TRS Plans 2/3 employer and employee contribution rates are developed by the Office of the State Actuary (OSA) to fully fund Plan 2 and the defined benefit portion of Plan 3. PSERS Plans 2 and WSPRS Plan 1/2 employer and employee contribution rates are also developed by the OSA to fully fund the plans. Each biennium, the state Pension Funding Council adopts employer contribution rates for PERS Plan 1 and 3 and for TRS Plan 1 and 3; employee and employer contribution rates for PERS Plan 2, TRS Plan 2, and PSERS Plan 2; employee and state contribution rates for WSPRS Plans 1 and 2. The methods used to determine contribution requirements are established under statute and are subject to change by the Legislature. PERS and TRS JBM members and employers pay increased contributions that, along with investment earnings, fund the increased retirement benefits of those justices and judges who participate in the program. Upon separation from covered employment, members can elect to withdraw total employee contributions and interest thereon, in lieu of any retirement benefit. Required contribution rates for fiscal year 2021 are presented in the table in Note 11.B.3. B - 118 LEOFF: LEOFF retirement benefits are financed from a combination of investment earnings, employer and employee contributions, and a special funding situation in which the state pays through legislative appropriations. Employer and employee contribution rates are developed by the Office of the State Actuary (OSA) to fully fund the plans. Starting on July 1, 2000, LEOFF Plan 1 employers and employees are not required to contribute as long as the plan remains fully funded. LEOFF Plan 2 employers and employees are required to pay at the level adopted by the LEOFF Plan 2 Retirement Board. The methods used to determine contribution requirements are established under state statute. Members in LEOFF Plan 1 and Plan 2 can elect to withdraw total employee contributions and interest thereon, in lieu of any retirement benefit, upon separation from LEOFF-covered employment. The Legislature, by means of a special funding arrangement, appropriates money from the state General Fund to supplement the current service liability and fund the prior service costs of LEOFF Plan 2 in accordance with the recommendations of the Pension Funding Council and the LEOFF Plan 2 Retirement Board. For fiscal year 2021, the state contributed $78.2 million to LEOFF Plan 2. Required contribution rates for fiscal year 2021 are presented in the table in Note 11.B.3. The state is not an employer for LEOFF Plan 1; however, the state is a nonemployer contributing entity for LEOFF Plan 1. For LEOFF Plan 2, the state is both an employer and a nonemployer contributing entity. Refer to Note 11.B.2 for nonemployer contributing entity disclosures. JRS and JRF: The JRF and JRS have no active members; therefore, no employer or employee contributions are required. The state guarantees the solvency of the JRF and JRS on a pay-as-you-go basis from a combination of investment earnings and funding from the state. Past contributions were made based on rates set in statute. By statute, JRF employees were required to contribute 6.5 percent of covered payroll with an equal amount contributed by the state. JRS employees were required to contribute 7.5 percent of covered payroll with an equal amount contributed by the state. Each biennium, the Legislature, through appropriations from the state General Fund, contributes amounts sufficient to meet the benefit payment requirements. For fiscal year 2021 the state contributed $400 thousand for JRF and $7.6 million for JRS. Actuarial Assumptions PERS, TRS, LEOFF, PSERS, and WSPRS: The total pension liability was determined by an actuarial valuation as of June 30, 2019, with the results rolled forward to the June 30, 2020, measurement date using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.75 % Salary increases 3.50 % Investment rate of return 7.40 % Mortality rates were developed using the Society of Actuaries' Pub. H-2010 mortality rates which vary by member status (e.g. active, retiree, or survivor), as the base table. The Office of the State Actuary (OSA) applied age offsets for each system, as appropriate, to better tailor the mortality rates to the demographics of each plan. OSA applied the long-term MP-2017 generational improvement scale, also developed by the Society of Actuaries, to project mortality rates for every year after the 2010 base table. Under "generational" mortality, a member is assumed to receive additional mortality improvements in each future year throughout their lifetime. The actuarial assumptions used in the June 30, 2019, valuation were based on the results of the 2013-2018 Demographic Experience Study Report and the 2019 Economic Experience Study. Additional assumptions for subsequent events and law changes are current as of the 2019 actuarial valuation report. The 7.40 percent long-term expected rate of return on pension plan investments was determined using a building-block method in which a best estimate of expected future rates of return (expected returns, net of pension plan investment expense, but including inflation) are developed for each major asset class by the WSIB. Refer to the 2019 Report on Financial Condition and Economic Experience Study located on the OSA website for additional information and background on the development of the long-term rate of return assumption. WSIB's Capital Market Assumptions (CMAs) contain the following three pieces of information for each class of assets the WSIB currently invests in: • Expected annual return. • Standard deviation of the annual return. • Correlations between the annual returns of each asset class with every other asset class. B - 119 Deferred Outflows of Resources and Deferred inflows of Resources Related to Pensions PERS, TRS, LEOFF, PSERS, WSPRS, JRS, and JRF: For the year ended June 30, 2021, the state reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (expressed in thousands): PERS Plan 1 Deferred Outflows of Resources Deferred Inflows of Resources PERS Plan 2/3 Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ — $ — Difference between expected and actual experience $ 231,600 $ 81,079 Changes of assumptions — — Changes of assumptions 9,214 441,925 Net difference between projected and actual earnings on pension plan investments — 8,268 Net difference between projected and actual earnings on pension plan investments — 32,856 Change in proportion — — Change in proportion 18,465 — State contributions subsequent to the measurement date 324,909 — State contributions subsequent to the measurement date 486,584 — Total $ 324,909 $ 8,268 Total $ 745,863 $ 555,860 TRS Plan 1 Deferred Outflows of Resources Deferred Inflows of Resources TRS Plan 2/3 Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ — $ — Difference between expected and actual experience $ 11,229 $ 64 Changes of assumptions — — Changes of assumptions 2,292 1,947 Net difference between projected and actual earnings on pension plan investments — 184 Net difference between projected and actual earnings on pension plan investments — 174 Change in proportion — — Change in proportion 2,021 — State contributions subsequent to the measurement date 7,196 — State contributions subsequent to the measurement date 7,749 — Total $ 7,196 $ 184 Total $ 23,291 $ 2,185 LEOFF Plan 2 Deferred Outflows of Resources Deferred Inflows of Resources PSERS Plan 2 Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 2,483 $ 318 Difference between expected and actual experience $ 11,770 $ 641 Changes of assumptions 26 2,779 Changes of assumptions 44 16,194 Net difference between projected and actual earnings on pension plan investments — 200 Net difference between projected and actual earnings on pension plan investments 458 — Change in proportion 231 78 Change in proportion 1,455 3 State contributions subsequent to the measurement date 1,762 — State contributions subsequent to the measurement date 32,571 — Total $ 4,502 $ 3,375 Total $ 46,298 $ 16,838 WSPRS Plan 1/2 Deferred Outflows of Resources Deferred Inflows of Resources JRS Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 24,853 $ — Difference between expected and actual experience $ — $ — Changes of assumptions 5,609 11,313 Changes of assumptions — — Net difference between projected and actual earnings on pension plan investments — 3,111 Net difference between projected and actual earnings on pension plan investments 308 — Change in proportion — — Change in proportion — — State contributions subsequent to the measurement date 20,882 — State contributions subsequent to the measurement date 7,600 — Total $ 51,344 $ 14,424 Total $ 7,908 $ — B - 122 JRF Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ — $ — Changes of assumptions — — Net difference between projected and actual earnings on pension plan investments 34 — Change in proportion — — State contributions subsequent to the measurement date 400 — Total $ 434 $ — The amounts reported in the tables above as deferred outflows of resources related to pensions resulting from state contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2022. Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in the fiscal years ended June 30 (expressed in thousands): PERS Plan 1 PERS Plan 2/3 TRS Plan 1 TRS Plan 2/3 2022 $ (37,524) 2022 $ (263,631) 2022 $ (806) 2022 $ (26) 2023 $ (1,180) 2023 $ (59,352) 2023 $ (24) 2023 $ 1,991 2024 $ 11,450 2024 $ 16,314 2024 $ 245 2024 $ 2,488 2025 $ 18,986 2025 $ 61,055 2025 $ 401 2025 $ 2,513 2026 $ — 2026 $ (22,392) 2026 $ — 2026 $ 1,679 Thereafter $ — Thereafter $ (28,575) Thereafter $ — Thereafter $ 4,712 LEOFF Plan 2 PSERS Plan 2 WSPRS Plan 1/2 JRS 2022 $ (1,301) 2022 $ (2,251) 2022 $ (5,128) 2022 $ 135 2023 $ (158) 2023 $ (528) 2023 $ 2,993 2023 $ 94 2024 $ 285 2024 $ 795 2024 $ 6,263 2024 $ 51 2025 $ 620 2025 $ 2,094 2025 $ 10,571 2025 $ 28 2026 $ (101) 2026 $ (547) 2026 $ 1,339 2026 $ — Thereafter $ 20 Thereafter $ (2,674) Thereafter $ — Thereafter $ — JRF 2022 $ 14 2023 $ 10 2024 $ 6 2025 $ 4 2026 $ — Thereafter $ — B - 123 2. DRS Plans - Nonemployer Contributing Entity Disclosures For fiscal year 2021, the state was considered a nonemployer contributing entity in special funding situations for two DRS-administered pension plans, LEOFF Plan 1 and LEOFF Plan 2. State contributions are required by statute to be made directly to these plans to fund pensions. Note 11.B.1 provides the detailed descriptions of these plans, their benefit terms, contribution requirements, significant assumptions used to measure pension liability and mortality, and the discount rate. Basis for Nonemployer Contributing Entity Contributions. LEOFF Plan 1 has a net pension asset as of the June 30, 2020, measurement date. If needed, RCW 41.26.080 would require employer and employee contributions of 6 percent, and the remaining liabilities funded by the state pursuant to chapter 41.45 RCW. For fiscal year 2020, the nonemployer contributing entity’s proportionate share of the net pension asset was considered substantial at 87.12 percent based on historical contributions to the plan. LEOFF Plan 2 has a net pension asset as of the June 30, 2020, measurement date. In this plan, the state is an employer and a nonemployer contributing entity. RCW 41.26.725 limits the employee contributions to 50 percent, employer contributions to 30 percent, and the state contribution to 20 percent of the cost of benefits. In no instance shall the state contribution exceed four percent of payroll. For fiscal year 2020, the nonemployer contributing entity’s proportionate share of the net pension asset was considered substantial at 39.00 percent based on total plan contributions received in fiscal year 2020. Collective Net Pension Liability/(Asset). The following presents the proportionate share of the collective net pension liability/(asset), the proportionate share percentage, and the change in proportionate share of the state as a nonemployer contributing entity as of June 30, 2021 (expressed in thousands). LEOFF Plan 1 LEOFF Plan 2 Proportionate share of the collective net pension liability/(asset) $ (1,645,269) $ (795,604) State's proportion 87.12 % 39.00 % Increase/(decrease) — % (0.30) % The proportion of the state nonemployer contributions related to LEOFF Plan 1 was based on historical contributions from the state and employers plus fiscal year 2020 retirement benefit payments. The proportion of the state nonemployer contributions related to LEOFF Plan 2 was based on the state’s contributions to the pension plan relative to the total state contributions and all participating employers. Sensitivity of the Net Pension Liability/(Asset) to Changes in the Discount Rate. The following presents the net pension liability/(asset) of the nonemployer contributing entity calculated using the discount rate of 7.40 percent, as well as what the nonemployer contributing entity’s net pension liability/ (asset) would be if it were calculated using a discount rate that is 1 percentage point lower (6.40 percent) or 1 percentage point higher (8.40 percent) than the current rate (expressed in thousands): LEOFF Plan 1 Nonemployer Contributing Entity Proportionate Share of Net Pension Liability/(Asset) 1% decrease $ (1,339,165) Current discount rate $ (1,645,269) 1% increase $ (1,910,101) LEOFF Plan 2 Nonemployer Contributing Entity Proportionate Share of Net Pension Liability/(Asset) 1% decrease $ (15,751) Current discount rate $ (795,604) 1% increase $ (1,434,148) Pension Expense, Deferred Outflows of Resources, and Deferred Inflows of Resources Related to Pensions. For the year ended June 30, 2021, the state as a nonemployer contributing entity recognized $(84.5) million pension expense for LEOFF Plan 1 and $(17.3) million pension expense for LEOFF Plan 2. At June 30, 2021, the state as a nonemployer contributing entity reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (expressed in thousands): LEOFF Plan 1 Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ — $ — Changes of assumptions — — Net difference between projected and actual earnings on pension plan investments — 17,210 Change in proportion — — State contributions subsequent to the measurement date (5) — Total $ (5) $ 17,210 B - 124 TABLE 3: Required Contribution Rates Required contribution rates (expressed as a percentage of current year covered payroll) for all retirement plans administered by the Department of Retirement Systems at the close of fiscal year 2021 were as follows: Required Contribution Rates Employer Employee Plan 1 Plan 2 Plan 3 Plan 1 Plan 2 Plan 3 PERS Employees Not Participating in JBM State agencies, local governmental units 7.92 % 7.92 % 7.92 % 6.00 % 7.90 % ** Administrative fee 0.18 % 0.18 % 0.18 % PERS Plan 1 UAAL 4.87 % 4.87 % 4.87 % Total 12.97 % 12.97 % 12.97 % * State govt elected officials 11.88 % 7.92 % 7.92 % 7.50 % 7.90 % ** Administrative fee 0.18 % 0.18 % 0.18 % PERS Plan 1 UAAL 7.31 % 4.87 % 4.87 % Total 19.37 % 12.97 % 12.97 % * Employees Participating in JBM State agencies 10.42 % 10.42 % 10.42 % 9.76 % 17.25 % 7.50%*** Administrative fee 0.18 % 0.18 % 0.18 % PERS Plan 1 UAAL 4.87 % 4.87 % 4.87 % Total 15.47 % 15.47 % 15.47 % * Local governmental units 7.92 % 7.92 % 7.92 % 12.26 % 19.75 % 7.50%*** Administrative fee 0.18 % 0.18 % 0.18 % PERS Plan 1 UAAL 4.87 % 4.87 % 4.87 % Total 12.97 % 12.97 % 12.97 % * TRS Employees Not Participating in JBM State agencies, local governmental units 8.15 % 8.15 % 8.15 % 6.00 % 7.77 % ** Administrative fee 0.18 % 0.18 % 0.18 % TRS Plan 1 UAAL 7.41 % 7.41 % 7.41 % Total 15.74 % 15.74 % 15.74 % * State govt elected officials 8.15 % 8.15 % 8.15 % 7.50 % 7.77 % ** Administrative fee 0.18 % 0.18 % 0.18 % TRS Plan 1 UAAL 7.41 % 7.41 % 7.41 % Total 15.74 % 15.74 % 15.74 % * Employees Participating in JBM State agencies 8.15 % N/A N/A 9.76 % N/A N/A Administrative fee 0.18 % N/A N/A TRS Plan 1 UAAL 7.41 % N/A N/A Total 15.74 % LEOFF Ports and universities N/A 8.59 % N/A N/A 8.59 % N/A Administrative fee 0.18 % 0.18 % N/A Total 0.18 % 8.77 % Local governmental units N/A 5.15 % N/A N/A 8.59 % N/A Administrative fee 0.18 % 0.18 % N/A Total 0.18 % 5.33 % State of Washington N/A 3.44 % N/A N/A N/A N/A WSPRS State agencies 17.66 % 17.66 % N/A 8.61 % 8.61 % N/A Administrative fee 0.18 % 0.18 % N/A Total 17.84 % 17.84 % PSERS State agencies, local governmental units N/A 7.20 % N/A N/A 7.20 % N/A Administrative fee N/A 0.18 % N/A PSERS Plan 1 UAAL N/A 4.87 % N/A Total 12.25 % * Plan 3 defined benefit portion only. ** Variable from 5% to 15% based on rate selected by the member. *** Minimum rate. N/A indicates data not applicable. B - 127 C. PLAN ADMINISTERED BY THE STATE BOARD FOR VOLUNTEER FIRE FIGHTERS AND RESERVE OFFICERS Volunteer Fire Fighters’ and Reserve Officers’ Relief and Pension Fund Plan Description. The Volunteer Fire Fighters’ Relief Act was created by the Legislature in 1935, and the pension portion of the act was added in 1945. As established in chapter 41.24 RCW, the Volunteer Fire Fighters’ and Reserve Officers’ Relief and Pension Fund (VFFRPF) is a cost-sharing, multiple-employer defined benefit plan and is administered by the State Board for Volunteer Fire Fighters and Reserve Officers. The board is appointed by the Governor and is comprised of five members of fire departments covered by chapter 41.24 RCW. Administration costs of the VFFRPF are funded through legislative appropriation. As of June 30, 2021, there were approximately 362 municipalities contributing to the plan. Additionally, the state, a nonemployer contributing entity, contributes 40 percent of the fire insurance premium tax. Plan Members. Membership in the VFFRPF requires volunteer firefighter service with a fire department of an electing municipality of Washington state, emergency work as an emergency medical technician with an emergency medical service district, or work as a commissioned reserve law enforcement officer. At June 30, 2020, VFFRPF membership consisted of the following: Plan Membership Inactive plan members or beneficiaries currently receiving benefits 4,669 Inactive plan members entitled to but not yet receiving benefits 6,148 Active plan members* 8,244 Total membership 19,061 *Does not include 1,661 active plan members who have chosen not to join the pension plan. Benefits Provided. VFFRPF provides retirement, disability, and death benefits to eligible members. Benefits are established in chapter 41.24 RCW which may be amended only by the Legislature. Since retirement benefits cover volunteer service, benefits are paid based on years of service, not salary. Municipalities consist of fire departments, emergency medical service districts, and law enforcement agencies. Normal retirement is available at the age of 65 with at least ten years of membership service. The monthly plan benefit formula is $50 plus $10 times the number of years the member made pension contributions times a membership service percentage. The maximum monthly pension benefit is $300. Reduced pensions are available for members beginning at the age of 60 with at least 10 years of service. Members are vested after ten years of service. VFFRPF members earn no interest on contributions and may elect to withdraw their contributions upon termination. Death and active duty disability benefits are provided at no cost to the member. Death benefits in the line of duty consist of a lump sum of $214 thousand. Funeral and burial expenses are also paid in a lump sum of $2 thousand for members on active duty. Members receiving disability benefits at the time of death shall be paid $500. Effective June 7, 2012, at any time prior to retirement or at the time of retirement, a member of the VFFRPF may purchase retirement pension coverage for years of eligible service prior to the member’s enrollment in the system or for years of service credit lost due to the withdrawal of the member’s pension fee contributions. A member choosing to purchase such retirement pension coverage must contribute to the system an amount equal to the actuarial value of the resulting benefit increase. There were no material changes in VFFRPF benefit provisions for the fiscal year ended June 30, 2021. Contributions. VFFRPF retirement benefits are financed from a combination of investment earnings, member contributions, municipality contributions, and state contributions. In accordance with chapter 41.24 RCW, the state contribution is set at 40 percent of the fire insurance premium tax. The state is considered a nonemployer contributing entity; however, this is not considered a special funding situation. For fiscal year 2021, the fire insurance premium tax contribution was $7.7 million. The municipality rate for emergency medical service districts (EMSD) and law enforcement agencies is set each year by the State Board for Volunteer Fire Fighters and Reserve Officers, based on the actual cost of participation as determined by the Office of the State Actuary (OSA). All other contribution rates are set by the Legislature. Municipalities may opt to pay the member's fee on their behalf. The contribution rates set for calendar year 2021 were the following: B - 128 Firefighters EMSD & Reserve Officers Member fee $ 30 $ 30 Municipality fee 30 105 Total fee $ 60 $ 135 Investments. The Washington State Investment Board (WSIB) has been authorized by statute as having investment management responsibility for the pension funds. The WSIB manages retirement fund assets to maximize return at a prudent level of risk. Retirement funds are invested in the Commingled Trust Fund (CTF). Established on July 1, 1992, the CTF is a diversified pool of investments that invests in fixed income, public equity, private equity, real estate, and tangible assets. Investment decisions are made within the framework of a Strategic Asset Allocation Policy and a series of written WSIB-adopted investment policies for the various asset classes in which the WSIB invests. Further information about the investment of pension funds by the WSIB, their valuation, classifications, concentrations, and maturities can be found in Note 3.B. The Office of the State Treasurer (OST) manages a small portion of the assets for the VFFRPF. By statute, balances in the accounts in the state treasury and in the custody of the treasurer may be pooled for banking and investment purposes. The overall objective of the OST investment policy is to construct, from eligible investments noted below, an investment portfolio that is optimal or efficient. An optimal or efficient portfolio is one that provides the greatest expected return for a given expected level of risk, or the lowest expected risk for a given expected return. Eligible investments are only those securities and deposits authorized by statute. Further information about the investment of pension funds by the OST, their valuation, classifications, concentrations, and maturities can be found in Note 3.F. Rate of Return. The money-weighted rates of return are provided by the WSIB and OST. For the year ended June 30, 2021, the annual money-weighted rate of return on VFFRPF investments, net of pension plan investment expense, was 3.11 percent. This money- weighted rate of return expresses investment performance, net of pension plan investment expense, and reflects both the size and timing of external cash flows. Pension Liability/(Asset). The components of the net pension liability of the participating VFFRPF municipalities at June 30, 2021, were as follows (dollars expressed in thousands): Pension Liability Total pension liability $ 246,205 Plan fiduciary net position 268,210 Participating municipality net pension liability/ (asset) $ (22,005) Plan fiduciary net position as a percentage of the total pension liability 108.94 % Actuarial Assumptions. The VFFRPF has a long- term expected rate of return of 6.00 percent. For further details, see the 2020 VFF Actuarial Valuation Report. Inflation 2.25% Salary increases N/A Investment rate of return 6.00% The mortality assumptions used for this plan are consistent with assumptions used for Public Employees' Retirement System. The actuarial assumptions used in the June 30, 2020, valuation were based on the results of the 2021 Pension Experience Study, the 2021 Report on Financial Condition and Economic Experience Study, and the 2018 Relief Experience Study. The OSA selected a 6.00 percent long-term expected rate of return on the WSIB pension plan investments using a building-block method. In selecting this assumption, OSA reviewed the historical experience data, considered the historical conditions that produced past annual investment returns, and considered Capital Market Assumptions (CMAs) and simulated expected investment returns provided by the WSIB. The WSIB uses the CMAs and their target asset allocation to simulate future investment returns over various time horizons. The CMAs contain the following three pieces of information for each class of asset the WSIB currently invests in: • Expected annual return. • Standard deviation of the annual return. • Correlations between annual returns of each asset class with every other asset class. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of June 30, 2021, are summarized in the following table: B - 129 Plan Membership. Membership of the Higher Education Supplemental Retirement Plans consisted of the following at June 30, 2020, the date of the latest actuarial valuation for all plans: Number of Participating Members Plans Inactive Members (or Beneficiaries) Currently Receiving Benefits Inactive Members Entitled to But Not Yet Receiving Benefits Active Members Total Members University of Washington (UW) 1,076 160 5,081 6,317 Washington State University (WSU) 399 53 1,591 2,043 Eastern Washington University (EWU) 57 59 290 406 Central Washington University (CWU) 64 4 81 149 The Evergreen State College (TESC) 28 13 144 185 Western Washington University (WWU) 79 3 483 565 State Board for Community and Technical Colleges (SBCTC) 293 325 4,623 5,241 Total 1,996 617 12,293 14,906 Change in Net Pension Liability/(Asset). The following table presents the change in net pension liability/(asset) of Higher Education Supplemental Retirement Plans at June 30, 2021 (expressed in thousands): Change in Net Pension Liability/(Asset) UW WSU EWU CWU TESC WWU SBCTC TOTAL PENSION LIABILITY Service cost $ 22,877 $ 3,114 $ 668 $ 74 $ 250 $ 922 $ 4,672 Interest 17,677 2,666 523 187 201 798 3,323 Differences between expected and actual experience (372,651) (47,565) (7,646) (1,386) (3,198) (15,050) (29,981) Changes of assumptions (223,327) (33,228) (7,364) (2,394) (2,495) (8,260) (54,110) Benefit payments (9,733) (2,827) (280) (467) (119) (524) (1,992) Net Change in Total Pension Liability $ (565,158) $ (77,840) $ (14,099) $ (3,987) $ (5,361) $ (22,115) $ (78,088) Total Pension Liability--Beginning 781,829 118,942 23,139 8,622 8,894 35,442 146,676 Total Pension Liability--Ending $ 216,672 $ 41,102 $ 9,040 $ 4,635 $ 3,533 $ 13,327 $ 68,588 PLAN FIDUCIARY NET POSITION Contributions--Employer $ 7,105 $ 919 $ 165 $ 173 $ 40 $ 196 $ 656 Net Investment Income 22,275 4,422 892 894 348 1,326 8,211 Net Change in Plan Fiduciary Net Position 29,380 5,341 1,057 1,067 388 1,522 8,866 Plan Fiduciary Net Position--Beginning 60,961 12,305 2,492 2,493 984 3,733 23,393 Plan Fiduciary Net Position--Ending $ 90,341 $ 17,646 $ 3,549 $ 3,560 $ 1,372 $ 5,255 $ 32,259 Plan's Net Pension Liability (Asset)--Ending $ 126,331 $ 23,456 $ 5,490 $ 1,075 $ 2,162 $ 8,072 $ 36,329 Note: Figures may not total due to rounding. B - 132 Sensitivity of the Net Pension Liability/(Asset) to Changes in the Discount Rate. The following table presents the net pension liability/(asset), calculated using the discount rate of 7.40 percent, as well as what the employers’ net pension liability/(asset) would be if it were calculated using a discount rate that is 1 percentage point lower (6.40 percent) or 1 percentage point higher (8.40 percent) than the current rate (expressed in thousands): Net Pension Liability / (Asset) Plans 1% Decrease Current Discount Rate 1% Increase University of Washington (UW) $ 149,669 $ 126,331 $ 106,289 Washington State University (WSU) 27,303 23,456 20,120 Eastern Washington University (EWU) 6,396 5,490 4,711 Central Washington University (CWU) 1,431 1,075 762 The Evergreen State College (TESC) 2,479 2,162 1,885 Western Washington University (WWU) 9,449 8,072 6,884 State Board for Community and Technical Colleges (SBCTC) 43,527 36,329 30,132 Total $ 240,254 $ 202,915 $ 170,783 Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions. At June 30, 2021, the Higher Education Supplemental Retirement Plans reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (expressed in thousands): University of Washington (UW) Deferred Outflows of Resources Deferred Inflows of Resources Washington State University (WSU) Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 87,128 $ 365,021 Difference between expected and actual experience $ 3,831 $ 48,529 Changes of assumptions 128,885 211,024 Changes of assumptions 16,970 31,375 Difference between projected and actual — 14,004 Difference between projected and actual — 2,782 Total $ 216,013 $ 590,049 Total $ 20,801 $ 82,686 Eastern Washington University (EWU) Deferred Outflows of Resources Deferred Inflows of Resources Central Washington University (CWU) Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 2,625 $ 7,176 Difference between expected and actual experience $ 42 $ 616 Changes of assumptions 2,965 6,648 Changes of assumptions 138 1,064 Difference between projected and actual — 562 Difference between projected and actual — 562 Total $ 5,590 $ 14,386 Total $ 180 $ 2,242 The Evergreen State College (TESC) Deferred Outflows of Resources Deferred Inflows of Resources Western Washington University (WWU) Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 321 $ 3,245 Difference between expected and actual experience $ 2,612 $ 15,201 Changes of assumptions 1,216 2,252 Changes of assumptions 5,146 7,955 Difference between projected and actual — 219 Difference between projected and actual — 834 Total $ 1,537 $ 5,716 Total $ 7,758 $ 23,990 State Board for Community and Technical Colleges (SBCTC) Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 9,750 $ 39,567 Changes of assumptions 22,990 50,185 Difference between projected and actual — 5,164 Total $ 32,740 $ 94,916 B - 133 Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense in the fiscal years ended June 30 (expressed in thousands): University of Washington (UW) Washington State University (WSU) Eastern Washington University (EWU) Central Washington University (CWU) 2022 $ (65,346) 2022 $ (13,416) 2022 $ (1,636) 2022 $ (1,641) 2023 $ (65,346) 2023 $ (12,741) 2023 $ (1,479) 2023 $ (141) 2024 $ (65,346) 2024 $ (10,039) 2024 $ (1,113) 2024 $ (141) 2025 $ (51,766) 2025 $ (9,344) 2025 $ (1,567) 2025 $ (139) 2026 $ (42,448) 2026 $ (10,131) 2026 $ (2,064) 2026 $ — Thereafter $ (83,784) Thereafter $ (6,214) Thereafter $ (937) Thereafter $ — The Evergreen State College (TESC) Western Washington University (WWU) State Board for Community and Technical Colleges (SBCTC) 2022 $ (1,015) 2022 $ (3,276) 2022 $ (12,133) 2023 $ (855) 2023 $ (2,944) 2023 $ (12,133) 2024 $ (748) 2024 $ (2,171) 2024 $ (10,485) 2025 $ (776) 2025 $ (2,160) 2025 $ (8,012) 2026 $ (785) 2026 $ (3,246) 2026 $ (7,400) Thereafter $ — Thereafter $ (2,435) Thereafter $ (12,013) E. DEFINED CONTRIBUTION PLANS Public Employees’ Retirement System Plan 3 The Public Employees’ Retirement System (PERS) Plan 3 is a combination defined benefit/defined contribution plan administered by the state through the Department of Retirement Systems (DRS). Refer to Note 11.B for PERS Plan descriptions. PERS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contribution component. As established by chapter 41.34 RCW, employee contribution rates to the defined contribution component range from 5 to 15 percent of salaries, based on member choice. Members who do not choose a contribution rate default to a 5 percent rate. There are currently no requirements for employer contributions to the defined contribution component of PERS Plan 3. PERS Plan 3 defined contribution retirement benefits are dependent on employee contributions and investment earnings on those contributions. Members may elect to self-direct the investment of their contributions. Any expenses incurred in conjunction with self-directed investments are paid by members. Absent a member’s self-direction, PERS Plan 3 contributions are invested in the retirement strategy fund that assumes the member will retire at age 65. Members in PERS Plan 3 are immediately vested in the defined contribution portion of their plan and can elect to withdraw total employee contributions, adjusted by earnings and losses from investments of those contributions, upon separation from PERS-covered employment. Teachers’ Retirement System Plan 3 The Teachers’ Retirement System (TRS) Plan 3 is a combination defined benefit/defined contribution plan administered by the state through the Department of Retirement Systems (DRS). Refer to Note 11.B for TRS Plan descriptions. TRS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contribution component. As established by chapter 41.34 RCW, employee contribution rates to the defined contribution component range from 5 to 15 percent of salaries, based on member choice. Members who do not choose a contribution rate default to a 5 percent rate. There are currently no requirements for employer contributions to the defined contribution component of TRS Plan 3. TRS Plan 3 defined contribution retirement benefits are dependent on employee contributions and investment earnings on those contributions. Members may elect to self-direct the investment of their contributions. Any expenses incurred in conjunction with self-directed investments are paid by members. Absent a member’s self-direction, TRS Plan 3 contributions are invested in B - 134 calendar year 2021, the average weighted implicit subsidy is projected to be $384 per adult unit per month. Retirees who are enrolled in both Parts A and B of Medicare may participate in the state’s Medicare community-rated health insurance risk pool. Medicare retirees receive an explicit subsidy in the form of reduced premiums. Annually, the HCA administrator recommends an amount for the next calendar year’s explicit subsidy for inclusion in the Governor’s budget. The final amount is approved by the state Legislature. In calendar year 2021, the explicit subsidy was up to $183 per member per month, and it will remain $183 per member per month in calendar year 2022. Contribution Information. Administrative costs as well as implicit and explicit subsidies are funded by required contributions (RCW 41.05.050) from participating employers. The subsidies provide monetary assistance for medical benefits. Contributions are set each biennium as part of the budget process. The benefits are funded on a pay-as-you-go basis. The estimated monthly cost for PEBB benefits for the reporting period for each active employee (average across all plans and tiers) is as follows (expressed in dollars): Required Premium* Medical $ 1,120 Dental 81 Life 4 Long-term disability 2 Total $ 1,207 Employer contribution $ 1,041 Employee contribution 166 Total $ 1,207 *Per 2020 PEBB Financial Projection Model version 8.0. Per capita cost based on subscribers, includes non-Medicare risk pool only. Figures based on calendar year 2020 which includes projected claims cost at the time of this reporting. Each participating employer in the plan is required to disclose additional information with regard to funding policy, the employer’s annual OPEB costs and contributions made, the funded status and funding progress of the employer’s individual plan, and actuarial methods and assumptions used. For information on the results of an actuarial valuation of the employer provided subsidies associated with the PEBB plan, refer to the Office of the State Actuary's (OSA) website: https:// leg. wa. gov/ osa/ additional services/ Pages/OPEB.aspx. Please note that the results from OSA's report will not precisely match this publication due to the exclusion of a component unit that reports on a cash basis, and inclusion of a component unit not included in OSA's valuation report. Actuarial Assumptions. The total OPEB liability was determined using the following methodologies: Actuarial valuation date 6/30/2020 Actuarial measurement date 6/30/2020 Actuarial cost method Entry Age Amortization method The recognition period for the experience and assumption changes is 9 years. This is equal to the average expected remaining service lives of all active and inactive members. Asset valuation method N/A - No Assets Projections of benefits for financial reporting purposes are based on the terms of the substantive plan (i.e., 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 pattern of sharing of benefit costs between the employer and plan members (active employees and retirees) to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities, consistent with the long-term perspective of the calculations. The total OPEB liability was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified: Inflation rate 2.75% Projected salary changes 3.50% plus service-based salary increases Health care trend rates Initial trend rate ranges from 2-11%, reaching an ultimate rate of approximately 4.3% in 2075. Post-retirement participation percentage 65% Percentage with spouse coverage 45% In projecting the growth of the explicit subsidy, after 2022 when the cap is $183, it is assumed to grow at the health care trend rates. The Legislature determines the value of the cap and no future increases are guaranteed; however, based on historical growth patterns, future increases to the cap are assumed. Mortality rates were developed using the Society of Actuaries' Pub. H-2010 mortality rates which vary by member status (e.g. active, retiree, or survivor), as the base table. The OSA applied age offsets for each system, as appropriate, to better tailor the mortality rates to the demographics of each plan. OSA applied the long-term MP-2017 generational improvement scale, also developed by the Society of Actuaries, to project mortality rates for B - 137 every year after the 2010 base table. Under "generational" mortality, a member is assumed to receive additional mortality improvements in each future year, throughout their lifetime. Most demographic actuarial assumptions, including mortality and when members are expected to terminate and retire, were based on the results of the 2013-2018 Demographic Experience Study Report. The post- retirement participation percentage and percentage with spouse coverage, were reviewed in 2017. Economic assumptions, including inflation and salary increases, were based on the results of the 2019 Economic Experience Study.  Discount Rate. Since OPEB benefits are funded on a pay-as-you-go basis, the discount rate used to measure the total OPEB liability was set equal to the Bond Buyer General Obligation 20-Bond Municipal Bond Index, or 3.50 percent for the June 30, 2019, measurement date and 2.21 percent for the June 30, 2020, measurement date. Additional detail on assumptions and methods can be found on OSA’s website. Total OPEB Liability. As of June 30, 2021, the state reported a total OPEB liability of $6.06 billion. Changes in Total OPEB Liability The following table presents the change in the total OPEB liability as of the June 30, 2021, reporting date (expressed in thousands): Changes in Total OPEB Liability State Component Units Total Total OPEB Liability - Beginning as restated $ 5,800,108 $ 5,087 $ 5,805,195 Changes for the year: Service cost 251,118 399 251,517 Interest 210,064 165 210,229 Difference between expected and actual experience* (32,190) (19) (32,209) Changes in assumptions* 136,169 202 136,371 Changes in proportion 187 (184) 3 Benefit payments (100,015) (77) (100,092) Other** (213,966) (128) (214,094) Net Changes in Total OPEB Liability 251,367 358 251,725 Total OPEB liability - Ending $ 6,051,475 $ 5,445 $ 6,056,920 *The recognition period for these changes is nine years. This is equal to the average expected remaining service lives of all active and inactive members. **Impact of removing trends that include excise tax. Legislation under H.R. 1865 repealed the excise tax after the previous measurement date. The increase in the total OPEB liability is due to changes in assumptions resulting from a decrease in the Bond Buyer General Obligation 20-Bond Municipal Bond Index discount rate.  Sensitivity of the Total OPEB Liability to Changes in the Discount Rate. The following presents the total OPEB liability of the state as an employer calculated using the discount rate of 2.21 percent, as well as what the total OPEB liability would be if it were calculated using a discount rate that is 1 percentage point lower (1.21 percent) or 1 percentage point higher (3.21 percent) than the current rate (expressed in thousands): State Component Units Total 1% decrease $ 7,326,844 $ 6,412 $ 7,333,256 Current discount rate $ 6,051,475 $ 5,445 $ 6,056,920 1% increase $ 5,058,419 $ 4,650 $ 5,063,069 Sensitivity of Total OPEB Liability to Changes in the Health Care Cost Trend Rates. The following represents the total OPEB liability of the state as an employer, calculated using the health care trend rates of 2-11 percent reaching an ultimate range of 4.30 percent, as well as what the total OPEB liability would be if it were calculated using health care trend rates that are 1 percentage point lower (1-10 percent) or 1 percentage point higher (3-12%) than the current rate (expressed in thousands): State Component Units Total 1% decrease $ 4,931,309 $ 4,429 $ 4,935,738 Current health care cost trend rate $ 6,051,475 $ 5,445 $ 6,056,920 1% increase $ 7,553,262 $ 6,769 $ 7,560,031 OPEB Expense, Deferred Outflows of Resources, and Deferred Inflows of Resources Related to OPEB. For the year ending June 30, 2021, the state recognized OPEB expense of $68.7 million. On June 30, 2021, the state reported deferred outflows of resources and deferred inflows of resources related to OPEB for the state, including component units, from the following sources (expressed in thousands): Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 132,839 $ 28,875 Changes of assumptions 416,500 1,428,150 Transactions subsequent to the measurement date 106,505 — Changes in proportion 196,065 196,094 Total $ 851,909 $ 1,653,119 B - 138 Deferred outflows of resources and deferred inflows of resources related to OPEB for component units as of the June 30, 2021, reporting date were as follows (expressed in thousands): Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 80 $ 261 Changes of assumptions 381 962 Transactions subsequent to the measurement date 64 — Changes in proportion 92 232 Total $ 617 $ 1,455 Amounts reported as deferred outflows of resources related to OPEB resulting from transactions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability in the year ended June 30, 2022. Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB for the state will be recognized in OPEB expense in the fiscal years ended June 30 (expressed in thousands): Subsequent Years 2022 $ (178,864) 2023 $ (178,864) 2024 $ (178,864) 2025 $ (178,864) 2026 $ (178,864) Thereafter $ (13,395) Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB for component units will be recognized in OPEB expense in the fiscal years ended June 30 (expressed in thousands): Subsequent Years 2022 $ (145) 2023 $ (145) 2024 $ (145) 2025 $ (145) 2026 $ (145) Thereafter $ (177) Note 13 Derivative Instruments Hedging Derivative Instruments In addition to investment derivative instruments as described in Note 3, the state, through the Washington State Department of Transportation Ferries Division (WSF), entered into commodity swap agreements to hedge a portion of WSF diesel fuel consumption. The following table presents the hedging derivative instruments as of June 30, 2021 (expressed in thousands): Changes in Fair Value Fair Value at June 30, 2021 Notional Amount Classification Amount Classification Amount (in Gallons) Governmental Activities Cash flow hedges: Deferred Accounts Commodity swaps Outflow $ (2,347) Payable $ — — The commodity swaps noted above were reviewed for hedge accounting and were deemed effective using the regression analysis method. Objective The objective for the hedge transaction is to minimize the volatility of the price of diesel fuel and therefore stabilize the percentage of the WSF operating budget represented by fuel purchases. To accomplish this, a strategy of active hedging has been implemented by WSF to control the uncertain costs of fuel and allow for more accurate budget estimates. Significant Terms The significant terms of WSF active hedges during fiscal year 2021 are presented in the following table: B - 139