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THE FOUNDATION FOR SANTA BARBARA CITY COLLEGENOTES TO THE FINANCIAL STATEMENTSNote 1-Nature of ActivitiesThe Foundation for Santa Barbara City College (the Foundation), a not-for-profit organization,was formed for the purpose of inspiring, securing, and managing voluntary private gifts, trusts,and bequests for the benefit of Santa Barbara City College (the College). The Foundationprovides financial support for various college-related programs including department andprogram support, student scholarships and awards, equipment purchases and capitalimprovements, and faculty research and teaching activities.In 2016, the Foundation launched the SBCC Promise, an ambitious new effort to make thecommunity’s college accessible and affordable to all local students who have recentlycompleted their secondary education within the SBCC district. The SBCC Promise isrevolutionary in that it is comprehensive (covers all required fees, books andsupplies), robust (covers two full years), and open access (not restricted based on pastacademic performance). Eligibility is determined by a student’s high school location orresidency, year of graduation, and commitment to the SBCC Promise eligibility requirements(details at sbccpromise.org).In 2018, Santa Barbara City College served as a critical community resource throughout theThomas Fire and Montecito Debris Flow disasters. The Foundation worked in partnership withthe college throughout these disasters and their aftermath, mobilizing resources to support thecampus and the broader community. The Foundation raised and distributed more than 40,000in direct aid to members of the campus community between December 2017 and May 2018.In addition, the Foundation agreed to serve as fiscal agent for several innovative, volunteer-ledcommunity recovery efforts including the Santa Barbara Support Network, the Santa BarbaraBucket Brigade, and the 805 Conservation Collective. In total, 1,395,293 was raised for theseefforts through 2019. The Santa Barbara Bucket Brigade obtained 501(c)(3) status andseparated from the Foundation on November 20, 2018. The Santa Barbara Support Network isstill currently pursuing independent 501(c)(3) status, and the Foundation anticipatestransferring all of the remaining assets for these efforts to the newly formed entities during thesubsequent year. As of June 30, 2019, net assets of 21,589 are included as a payable to theSanta Barbara Support Network and the Santa Barbara Bucket Brigade in the Statement ofFinancial Position.Note 2-Summary of Significant Accounting PoliciesA) Basis of AccountingThe financial statements of the Foundation have been prepared on the accrual basis ofaccounting. The significant accounting policies are described below to enhance the usefulnessof the financial statements to the reader.-7-

THE FOUNDATION FOR SANTA BARBARA CITY COLLEGENOTES TO THE FINANCIAL STATEMENTSNote 2-Summary of Significant Accounting Policies (continued)B) New Accounting PronouncementsDuring 2019, the Foundation adopted Financial Accounting Standards Board (FASB)Accounting Standards Update (ASU) No. 2016-14, Not-for-Profit Entities (Topic 958):Presentation of Financial Statements for Not-for-Profit Entities. This guidance is intended toimprove the net asset classification requirements and the information presented in the financialstatements and notes about a not-for-profit entity’s liquidity, financial performance, and cashflows. Main provisions of this guidance include: presentation of two classes of net assetsversus the previously required three; recognition of capital gifts for construction as a net assetwithout donor restrictions when the associated long-lived asset is placed in service;recognition of underwater endowment funds as a reduction in net assets with donorrestrictions; and reporting investment income net of external and direct internal investmentexpenses. The guidance also enhances disclosures for board designated amounts, compositionsof net assets with donor restrictions and how the restrictions affect the use of resources,qualitative and quantitative information about the liquidity and availability of financial assetsto meet general expenditures within one year of the balance sheet (statement of financialposition) date, and expenses by both their natural and functional classification, includingmethods used to allocate costs among program and support functions and underwaterendowments.Due to the adoption of ASU 2016-14 as of June 30, 2019, net assets have been reclassified asof June 30, 2018 as follows:Net Asset Classification6/30/18UnrestrictedTemporarily RestrictedPermanently RestrictedNet Assets as previously presentedASU 2016-14 ClassificationsWithout DonorWith DonorRestrictionsRestrictions 3,727,052 17,820,67439,331,0843,727,05257,151,758TotalNet Assets 3,727,05217,820,67439,331,08460,878,810Net assets as reportedafter adoption of ASU 2016-14 60,878,8103,727,052 57,151,758Description of Net AssetsThe Foundation reports information regarding its financial position and activities in twoclasses of net assets - with donor restrictions and without donor restrictions - based on theexistence or absence of donor-imposed restrictions.Without Donor RestrictionsNet assets without donor restrictions represent net assets that are not subject to donorimposed time or use restrictions. Net assets without donor restrictions include boarddesignated funds.-8-

THE FOUNDATION FOR SANTA BARBARA CITY COLLEGENOTES TO THE FINANCIAL STATEMENTSNote 2-Summary of Significant Accounting Policies (continued)Description of Net Assets (continued)With Donor RestrictionsNet assets with donor restrictions represent net assets that are subject to donorimposed time or use restrictions. Net assets with donor restrictions generally includecontributions and bequests receivable and planned gifts. Earnings on net assets withdonor restrictions are reported as an increase in net assets with donor restrictions.Earnings on donor-restricted endowment funds that have not yet been appropriated arealso classified as net assets with donor restrictions. When a restriction expires, netassets with donor restrictions are reclassified to net assets without donor restrictionsand reported in the Statement of Activities as “Net assets released from restrictions”.Net assets with donor restrictions include perpetual income trusts for which the relatedincome is reported as contributions without donor restrictions when received on theStatement of Activities. The change in value of the underlying assets is recorded as anunrealized gain or loss in net assets with donor restrictions on the Statement ofActivities. Net assets with donor restrictions also consist of those donor-restrictedendowments held by the Organization as defined under the Uniform PrudentManagement of Institutional Funds Act (UPMIFA).C) Use of EstimatesThe preparation of financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.D) Cash and Cash EquivalentsAll highly liquid investments with a maturity of three months or less at the date of purchaseare considered cash equivalents. Amounts held as investments are not considered cash or cashequivalents for the purpose of the statement of cash flows.E) InvestmentsThe Foundation records investments in debt and equity securities with readily determinablemarket values at fair value. The fair value of investments in securities traded on nationalsecurities exchanges is valued at the closing price on the last business day of the fiscal year.The investments in hedge funds, partnerships and private equity, for which quoted marketprices are not readily available, are determined by management in good faith with theassistance of third-party investment managers using methods they consider appropriate. TheFoundation defines real assets as investments in real estate and other commodities. Realizedand unrealized gains and losses are included in the change in net assets.-9-

THE FOUNDATION FOR SANTA BARBARA CITY COLLEGENOTES TO THE FINANCIAL STATEMENTSNote 2-Summary of Significant Accounting Policies (continued)F) Donor RestrictionsThe Foundation reports gifts of cash and other assets as support with donor restrictions if theyare received with donor stipulations that limit the use of the donated assets. When a donorrestriction expires, that is, when a stipulated time restriction ends or a purpose restriction isaccomplished, net assets with donor restrictions are reclassified to net assets without donorrestrictions and reported in the statement of activities as net assets released from restrictions.The Foundation reports gifts of property and equipment (or other long-lived assets) as supportwithout donor restrictions unless explicit donor stipulations specify how the donated assetsmust be used. Gifts of long-lived assets with explicit restrictions that specify how the assetsare to be used, as well as gifts of cash or other assets that must be used to acquire long-livedassets, are reported as support with donor restrictions. Absent explicit donor stipulationsregarding how long such assets must be maintained, the Foundation reports expirations ofdonor restrictions when the donated or acquired long-lived assets are placed in service.G) Donated Property and InvestmentsDonated property and investments are reflected as contributions in the accompanyingstatements at their fair market value at date of receipt.H) Functional ExpensesThe Foundation allocates its expenses on a functional basis among its various program andsupport services. Expenses that can be identified with a specific program and support serviceare allocated directly according to their natural expenditure classification. Other expenses thatare common to several functions are allocated on various statistical bases.I) Income TaxesThe Foundation is exempt from both federal and state income taxes under Section 501(c) (3)and 23701(d), respectively.Note 3-Pledges and Grants ReceivablePromises without donor restrictions are included in the financial statements as pledgesreceivable and revenue of the appropriate net asset category. Pledges not anticipated to bereceived in the next twelve months are recorded after discounting at 2% to the net presentvalue of the pledge. The allowance for uncollectible pledges is based on the Foundation'sestimate of 2%.Gross pledgesLess cancelled pledgesLess net present value discountLess allowance for uncollectible pledgesNet pledges- 10 - 3,852,370(109,500)(20,861)(74,584) 3,647,425

THE FOUNDATION FOR SANTA BARBARA CITY COLLEGENOTES TO THE FINANCIAL STATEMENTSNote 3-Pledges and Grants Receivable (continued)Promises without donor restrictions are expected to be realized in the following periods:Due in one year or lessDue between one and ten years 2,778,759868,666 3,647,425Pledges receivable at year end have the following restrictions:Student supportDepartmental programs and activitiesGeneral operating supportNote 4- 432,5573,108,113106,755 3,647,425Bequests ReceivableBequests are included in the financial statements as bequests receivable and revenue of theappropriate net asset category. The balance at June 30, 2019, was 304,151, of which a totalof 172,251 has been received to date.Note 5-Assets Held at FCCC – OsherThe Foundation has invested 759,035 in the California Community Colleges EndowmentChallenge managed by the Foundation for California Community Colleges (FCCC). Thepurpose of the Challenge is to create a 100 million permanent scholarship fund for Californiacommunity college students, the California Community Colleges Scholarship Endowment(CCCSE). As a participant, the Foundation for SBCC was allocated 379,517 in matchingfunds. The funds invested in CCCSE remain the Foundation’s net assets with donorrestrictions. Earnings on both the Foundation’s investment and the matching funds will bedistributed as scholarship funds to the Foundation for distribution to SBCC students inaccordance with the terms of the Partnership agreement dated June 2010. The FCCC hasassembled an Investment Advisory Committee to direct and monitor the investment of theCCCSE assets. The funding of scholarships began with the 2009-2010 academic year.Note 6InvestmentsInvestments are presented in the financial statements at fair value. As of June 30, 2019,investments consisted of the following:Fair MarketUnrealizedCostValueGainMarketable funds:Fixed income 18,895,864 18,926,272 30,408Domestic equities10,315,29811,475,7781,160,480International equities8,704,5429,038,463333,921Real estate5,740,1525,740,152Alternative investments3,566,1804,675,2331,109,053Total 49,855,898 2,633,862 47,222,036- 11 -

THE FOUNDATION FOR SANTA BARBARA CITY COLLEGENOTES TO THE FINANCIAL STATEMENTSNote 6Investments (continued)Investments held in the group of net assets with donor restrictions are placed in an investmentpool. Investment income, gains and losses are allocated to the various restricted net assets asstipulated in the Foundation's investment policy.The following summarizes the investment return included in the statement of activities for theyear ended June 30, 2019.Interest and dividend incomeRealized loss on investmentsUnrealized loss on investmentsInvestment feesTotal Gain on InvestmentNote 7- 2,465,033(62,750)(36,676)(222,784) 2,142,823Investment in Commercial Real EstateA long-term lease on buildings and improvements suitable for a motel operation were donatedto the Foundation in December 1983, and recorded at the estimated fair market value as of thatdate in the amount of 945,000. The buildings and improvements associated with the leasehave been leased to Motel 6 since 1971. The lease is for sixty-five years and the terms call forperiodic adjustments based on changes in the Consumer Price Index. Annual lease income was 145,908 for the year ended June 30, 2019. The aggregate future minimum lease payments forthe fifteen remaining years of the lease are approximately 2.4 million.The expected future minimum lease payments to be received for the next five years are asfollows:2020 4The lease was last adjusted on January 1, 2017. As of June 30, 2012, the building andimprovements were fully depreciated.On October 28, 2016, the Foundation purchased a 10,000 square foot building at 525 AnacapaStreet in downtown Santa Barbara. It is reported as an investment in the Foundation’srestricted funds. The building was purchased for the sole purpose of leasing it to Santa BarbaraCity College for educational programs effective July 1, 2017. Prior to leasing the building,significant improvements were made and were capitalized in the fiscal year ending June 30,2017. Additional structural improvements to the building will be done through 2020,depending on the academic schedule and permitting required by the California Division of theState Architect. Total depreciation expense related to the building for the year ending June 30,2019, was 107,254. Once the final cost of purchase and improvement is calculated, a longterm lease will be negotiated that, per agreement with the college, will provide no less than 4%annual return on investment to the Foundation, and provide the college with access to a highquality educational program space. The total investment as of June 30, 2019, was 5,740,152.- 12 -

THE FOUNDATION FOR SANTA BARBARA CITY COLLEGENOTES TO THE FINANCIAL STATEMENTSNote 8-Split-Interest AgreementsThe Foundation is the remainderman for various charitable remainder trusts, gift annuitycontracts and interests in pooled income funds that have been established by donors to provideincome or benefits, generally for life, to designated beneficiaries. The remainder of the trustswill be distributed to the Foundation for the purposes designated in the trust agreements. Eachyear beneficiaries receive a percentage of the trust’s fair market value, payable quarterly; someof the trusts are further limited to net income or net-income-with-make-up provisions. Thetotal fair market value of all trusts at year end was 7,554,356 with a corresponding presentvalue liability of 1,594,883.The trusts are separate legal entities, created under the provisions of Section 664 of the InternalRevenue Code, and have a calendar year end as required by the Tax Reform Act of 1986. Thetrusts are exempt from Federal and California income taxes on investment incomeaccumulated for future distribution and any net capital gains.Foundation as Trustee: In certain cases, the Foundation acts as trustee at no charge as aservice to the donors. As trustee, the Foundation has fiduciary control over the trust assets andresponsibility over the life of the trust for the payments to the income beneficiaries. Forfinancial statement presentation, the interest in these trusts is presented at fair value as “Assetsheld in charitable remainder trusts.” The fair value of amounts payable to trust incomebeneficiaries over the life of the trusts is based on their present value using discount ratesranging from 5% to 8% and the life expectancy of each trust’s income beneficiaries. Based onthe estimated life of the trust, each year a portion of the net change in asset value is recognizedas revenue under “Change in value of split-interest agreements.”Pooled Income Fund: Two donors have contributed assets to the Foundation’s pooled incomefund and one donor has contributed assets to a pooled income fund administered by anothercharitable organization. For financial statement presentation, this fund is presented at fair valueof the assets and the amounts payable to the income beneficiaries are recorded at their fairvalue based on their present value using discount rates ranging from 5% to 6%. These arereflected as “Discount for future interest-pooled income.” As pooled income interests mature,a portion of the net change in asset value is recognized as revenue under “Change in value ofsplit-interest agreements.”Other Trusts and Deferred Gifts: The Foundation does not act as trustee for certain other trustswhich are also included in the financial statements; the Foundation has neither fiduciarycontrol of the trust assets nor a liability for the distributions payable to the incomebeneficiaries. The fair value of the interest in these trusts is calculated based on the net presentv

111 E. Victoria Street, 2nd Floor, Santa Barbara, CA 93101, (805) 962-9175, www.mcgowan.com INDEPENDENT AUDITOR'S REPORT Board of Directors The Foundation for Santa Barbara City College Santa Barbara, California Report on the Financial Statements We have audited the accompanying financial statements of the Foundation for Santa Barbara