The Capital Budget Game

1. The Capital Budget Game August 2006 Robert O. Nelson Vice President-Finance Presentation to SHEEO Professional Development Conference The University of North Carolina

2. University of North Carolina16 Constituent Institutions ECSU ASU NCSA UNCG UNC-CH WSSU A&T NCCU NCSU UNCA ECU WCU UNCC FSU UNCP UNCW

3. The University of North Carolina2005-06 Average Annual FTE Enrollment Appalachian State University 13,416 East Carolina University 21,744 Elizabeth City State University 2,285 Fayetteville State University 4,965 North Carolina A& T State University 9,964 North Carolina Central University 6,727 North Carolina School of the Arts 1,080 North Carolina State University 25,532 University of North Carolina at Asheville 3,249 University of North Carolina at Chapel Hill 25,255 University of North Carolina at Charlotte 16,872 University of North Carolina at Greensboro 13,700 University of North Carolina at Pembroke 4,601 University of North Carolina at Wilmington 10,555 Western Carolina University 7,655 Winston-Salem State University 4,649 TOTAL 172,249

4. North CarolinaCapital Improvements Planning Act Requirements (1) An inventory of facilities owned by State agencies. (2) Criteria used to evaluate capital improvement needs. (3) A six-year capital improvement needs inventory. (4) A six-year capital improvement plan.

5. UNC Board of Governors Capital Plan and Budget General Fund Repairs and Renovations New Construction Land Acquisition Non-General Fund Campus Requests for Non-Appropriated Projects • Housing • Parking • Dining • Athletics • Bookstores • Student Recreation

6. The University of North CarolinaApproval of Debt • Constitution of North Carolina requires voter approval of all general obligation bonded indebtedness • Revenue bonds are approved by the North Carolina General Assembly • North Carolina’s State Capital Facilities Finance Act allows issuance of special indebtedness without voter approval

7. The University of North Carolina

8. The University of North CarolinaCapital Funding (including R & R & 1993 Bonds) Appropriated and Non-Appropriated Capital Funding – Selected Years

9. The University of North CarolinaBond Expenditures – 2000 Bond Referendum Millions

10. The University of North Carolina1999 Capital Equity/Adequacy Study Key Conclusions • Enrollment growth requires additional facilities • Competitiveness requires investments in facilities modernization and expansion • Capital needs are significant and well documented • Alternatives to historic “pay-as-you-go” financing must be found to protect the state’s capital investment in the University

11. The University of North Carolina1999 Capital Equity/Adequacy Study Overview of Funding Issues • Competitive posture will require continued investments in renewal and expansion • Annual “pie” is too small for identified needs • Pay-as-you-go overemphasizes new construction • Pay-as-you-go is not explicit capital development policy • Political influence on choice of projects • Insufficient emphasis on private fundraising

12. Matrix of Financial Responsibility

13. University of North Carolina2000 Bond Program Use of Funds Infrastructure 13% Land 2% Modernization 34% New 26% Replacement 25%

14. Cash Flowing Projects • The bond program relies on cash flow financing to support the build out of bond projects. • The cash-flow method applies the proceeds from the bond sales to the projects incurring the first costs up to established allotments for each campus. • Cash flow financing differs from more typical capital budgeting that would allot funds to campuses in a proportional fashion until bond programs are completed.

15. Cash Flow Timing

16. Higher Education FacilitiesFinance Act • Best Practices • Comprehensive study • Standards, analyses, and metrics • Ten-year plan with five-year phases • List of projects – established scopes and set dollar amounts • Identified sources of funds and fiscal responsibility • Process for increased costs/use of savings • Accountability • Source of funds for construction administration • Identified long-term operating impact

17. Innovations in Place Because there is a funded program and UNC is working as an alliance • Alternate construction delivery methods • Independent design assessment • Program scheduling and cash flows • Project Partnering • Dispute Mediation

18. Higher Education Bond Oversight Committee • Reports • The University Facilities Office of each institution of the University of North Carolina • The Facilities Office of the General Administration of the University of North Carolina • The State Construction Office of the Department of Administration • The president of each community college, or the president’s designee • The Administrative and Facilities section of the North Carolina Community College System Office • Responsibilities • Whether expenditures of the proceeds from the bonds issued under this act are in compliance with the provisions of the bond bill • Whether the awarded contracts are consistent with the budget and scope of the approved projects • Whether changes in construction methods could enhance cost savings and promotion of on-time completion of projects • Whether the bond issuances are adequately timed to reflect cash-flow requirements of the project