vii. standing committees b. finance and asset ......f–3 f–3/207-14 7/10/14 vii. standing...

F–3

F–3/207-14 7/10/14

VII. STANDING COMMITTEES B. Finance and Asset Management Committee Debt Capacity and Capital Planning Update INFORMATION This item is for information only. BACKGROUND The purpose of the annual Debt Capacity and Capital Planning Update is to inform the Board of Regents as they make future decisions about capital funding. UW is currently rated Aaa by Moody’s and AA+ (with a positive outlook) by Standard and Poor’s. Since 2009, outstanding debt, excluding Northwest Hospital and Valley Medical Center, has doubled. The $2.3 billion size of the University’s debt portfolio is considered a credit negative by the rating agencies. The Treasury and Planning and Budgeting Offices work together to balance the cost of debt and the impact of additional debt service on the institution. Debt capacity is considered a scarce resource and every capital project funded with debt must consider the overall impacts of the additional debt on the University’s Balance Sheet. THE ONE CAPITAL PLAN

The One Capital Plan summarizes major proposed capital needs, aggregated minor capital needs and key planning initiatives in the 2015-17 biennium. It is developed in conjunction with identified needs over the next ten years for all UW enterprises, including UW Seattle, UW Bothell, UW Tacoma, UW Auxiliary Units (Educational Outreach, Housing and Food Services, Intercollegiate Athletics, and Transportation Services), and the UW Medical Center.

Projects are presented in three categories: Fundamental, Funding Potential and Funding Opportunities. The first two categories align with potential capital funding. The last category represents additional capital needs that extend beyond capital funding expectations within the next ten years. The UW Capital Plan identifies possible funding sources for all UW capital projects including State of Washington Building Construction bonds, UW Building Account funds, UW debt, donor funds, and local funds. State appropriated capital funds continue to be critical to the UW Capital Budget. However, as the state’s ability to provide

VII. STANDING COMMITTEES B. Finance and Asset Management Committee Debt Capacity and Capital Planning Update (continued p. 2)

F–3/207-14 7/10/14

capital funding diminishes, the UW increasingly relies on other funding sources, including UW-issued debt, to finance capital projects. Over the next five years, large debt funded projects are planned, including $415 million for previous Board authorized projects, $165 million for One Capital Plan Fundamental projects, and $1 billion for Funding Potential projects. DEBT CAPACITY ESTIMATES See attached presentation entitled “Debt Capacity and Capital Planning Update.” The 2014 debt capacity estimates and use of the Capital Assets Pool allow the UW to fund all Fundamental and Funding Potential projects in the One Capital Plan while still maintaining targeted financial ratios. However, the approval of any individual project is based on its funding plan, which is subject to institutional support and Regental approval. Attachments 1. Debt Capacity and Capital Planning Update 2. UW 10 Year Capital Plan

Debt Capacity and Capital Planning Update

Board of RegentsFinance and Asset Management Committee

July 10, 2014

ATTACHMENT 1F–3.1/207-14 7/10/14


WHAT ARE THE MAIN ISSUES FOR DISCUSSION?

Debt CapacityTreasury Office benchmarks against public higher education peers and uses financial ratios and projected institutional growth to estimate debt capacity. Does this methodology make sense to the Regents? Would other information or analysis be helpful?

Capital PlanningThe One Capital Plan is a campus‐wide effort to capture campus capital needs over a ten year period. It is updated annually and shared with the Board each June. What ideas and suggestions does the Board have to improve the capital planning process and provide greater transparency to the campus and the Regents?

2

F–3.1/207-14 7/10/14

WHAT ARE THE REGENTS’ ROLES IN APPROVING DEBT AND CAPITAL PROJECTS?


3

Approve ILP loans and external debt for capital projects• On a project‐by‐project basis• Annual Borrowing Resolution (July)• Annual Funding Plan (July)

Oversight of debt portfolio and internal loans• Annual Debt Management Presentation (June)• ILP Quarterly• Semi‐Annual Borrowers Reports

Oversight and approval of capital budget and One Capital Plan• Annually (May and June)

F–3.1/207-14 7/10/14

HOW DOES THE UW THINK ABOUT DEBT CAPACITY?Debt Capacity and Capital Planning U

pdate

4

• Debt capacity provides context and information to senior leaders and the Board about the UW’s ability to fund capital

• The debt capacity analysis is a sizing exercise, based on growth and rate assumptions. It does not imply that any particular project is able to be funded. Each project must undergo a separate due diligence process and be approved by the Board

• The debt capacity analysis is dynamic and can change for a variety of reasons, including interest rate projections, institutional growth assumptions, borrowing plans, and peer behavior

F–3.1/207-14 7/10/14

IS DEBT CAPACITY SUFFICIENT TO MEET FUTURE CAPITAL NEEDS?Debt Capacity and Capital Planning U

pdate

5

Based on current projections, the University can fund up to $1.1 billion over the next five years through a combination of debt and reserves while maintaining its target financial ratios. This is about $220 million per year.

Total Projected Capacity 3,715

Less: Debt Current Outstanding (in FY19) (2,400)

Less: Amount needed for previously approved projects (415)

5‐year Debt Capacity 900

plus: projects funded from CAP program 200

Total Project Funding Capacity 1,100

2014 Debt Capacity Projection ($ in millions)

NOTE: UW revenues and expenses are projected by business line, based on unit‐level assumptions, and summarized in an institutional forecasting model (Future Perfect)

F–3.1/207-14 7/10/14

WHAT ARE THE PEER BENCHMARKS USED FOR ESTIMATING DEBT CAPACITY?


6

UW benchmarks to peer institutions and key financial ratios to estimate debt capacity

The peer group identified is comprised of 13 public universities with the following characteristics:

• State flagship institution• Greater than $1 billion in operating revenues• More than 10% of their revenues are generated from health care• Rated between Aaa and Aa2 by Moody’s

University Peer Group

Ohio State University University of MichiganPennsylvania State University University of NebraskaUniversity of Iowa University of New MexicoUniversity of Alabama at Birmingham University of North Carolina at Chapel Hill University of Arkansas University of UtahUniversity of Colorado University of VirginiaUniversity of Kentucky University of Washington

F–3.1/207-14 7/10/14

WHAT ARE THE RATIOS USED FOR ESTIMATING DEBT CAPACITY?


7

The key financial ratios used to estimate debt capacity are:• Expendable resources to Debt (Balance Sheet Ratio)• Debt Service Coverage (Income Statement Ratio)• Debt to Total Revenues (Hybrid Ratio)

To estimate debt capacity, institutional revenues, expenses, and reserves are projected for a five year period and key financial ratios are calculated

From these ratios, total debt capacity is derived

Projected outstanding debt and Board authorized debt is then subtracted to obtain available debt capacity

F–3.1/207-14 7/10/14

WHY DOES DEBT CAPACITY CHANGE OVER TIME?Debt Capacity and Capital Planning U

pdate

8

Many factors impact debt capacity; some UW can control, while others are outside of UW’s control

Within UW’s Sphere of Control

Principal repayment: In 2014, UW paid $69 million in principal. Repaying debt increases debt capacity

Growth: From 2010 to 2013, UW had an average annual increase in net assets of $350 million. Growth in net revenue increases debt capacity

Additional borrowing: From 2010 to 2013, outstanding UW debt has increased 81%, from $1.2 billion to $2.1 billion. Additional borrowing decreases debt capacity

Not within UW’s Sphere of Control

Changes in peer behavior: UW estimates debt capacity based on peer medians. UW’s position relative to peers can either increase or decrease debt capacity

Interest rates: Rates have been at historic lows for the last six years. Future increases in interest rates decrease debt capacity

F–3.1/207-14 7/10/14

HOW MUCH HAS UW SPENT ON CAPITAL SINCE 2010 AND HOW WAS IT FUNDED?


9

Reserves/Other, $432

State Capital Appropriations,

$255

Capital Gifts, $62

Debt Funding, $1004

2010 ‐ 2013 Capital Expenditures By Funding Source (in $ millions)

Molecular Engineering Paccar & Dempsey HallHusky Union Building UW Bothell Science BuildingHousing Phases 1 ‐ 3 South Lake Union Phase 3.1Husky Stadium UW Medical Center Expansion

Large Projects Include: $1.7 billion since 2010

Indirect Cost8%

Housing and Food Services

35%

Clinical Revenues

17%Tuition Building Fees

8%

Student Approved Fees10%

Athletics17%

Other5%

2010 ‐ 2013 Sources of Debt Repayment

F–3.1/207-14 7/10/14

WHAT ARE THE LEADING INDICATORS THAT ADVISE THE CAPITAL PLANNING PROCESS?


10

FactsUW has a rapidly growing plant asset base with Total Capitalization increasing by 30% since 2010

Capital Spending has increased since 2010 to over 2.2 times depreciation expense, which is slightly higher than the Aa1 median of 2 times

Age of Plant has remained steady at about 11 years since 2010, which suggests underspending on deferred maintenance

This large growth in plant assets has been primarily funded with debt; Debt to Capitalization has grown by 37% since 2010

PlansEstimated project capacity over the next five years is $220 million per year, which is comprised of $180 million in debt capacity and $40 million from the Capital Assets Pool (CAP). This is $30 million less per year than UW has spent since 2010.

The University plans to dedicate capital resources (debt capacity and reserves) to modernizing the current plant over the next five years (SW Utility Plant, District Energy, information systems)

The Treasury and Budget Offices are looking more closely at institutional liquidity and will discuss that work with the Board in the context of potential changes in CAP sizing.

F–3.1/207-14 7/10/14

WHAT ARE THE KEY TAKEAWAYS?


11

• Debt capacity estimates provide context and information to senior leaders and the Board about the UW’s ability to fund capital

• Estimated Project Capacity (Debt capacity plus Capital Assets Pool) is sufficient to met capital needs over the next five years, but all projects require a board approved funding plan

• Since 2010, UW has made significant investments in new plant assets, which have been largely funded with debt.

• Some necessary investments in infrastructure will be made in the next five years.

F–3.1/207-14 7/10/14

UW Office of Planning and BudgetingUW 10 Year Capital PlanTotal Est

Cost ($,000)Proposed Projects by Tier and Program Use

Range

+/-

Total

Cost/ GSFGSF

IIII Fundamental ProjectsFundamental ProjectsFundamental ProjectsFundamental Projects

ClinicClinicClinicClinic

UWMC - Capital Improvements Construction and Equipment - - 244,800

UWMC - IT Core Applications and Infrastructure - - 169,500

InfrastructureInfrastructureInfrastructureInfrastructure

Metropolitan Tract Acquisition & Recapitalization - - 100,000

Minor Capital Repair - Preservation - - 553,862

Minor Capital Repair - Program Renewal - - 17,500

Planning - Emergent Planning Studies - - 1,400

Planning - UW Seattle Campus Master Plan Initiative - - 2,700

UW Preventative Facility Maintenance - - 155,650

UW Seattle - Strategic Real Estate Investment - - 50,000

UWIT - Network Routing Center Upgrades - - 8,000

InstructionInstructionInstructionInstruction

UW Seattle - Classroom Improvements - - 12,000

Sub Totals: - - 1,315,412

IIIIIIII Proposed Projects - Funding PotentialProposed Projects - Funding PotentialProposed Projects - Funding PotentialProposed Projects - Funding Potential

AthleticsAthleticsAthleticsAthletics

ICA - Basketball Operations and Practice Center 20%1,37845,000 62,000

ICA - Graves Hall Renovation 20%1,00030,000 30,000

ICA - Roadside Enhancement/Landscaping/Wayfinding 20%- - 2,000

ICA - Sand Volleyball Facility 20%- - 400

ICA - Soccer Grandstand and Related Support Facilities 20%1,06732,800 35,000

ICA - Softball Press Box Upgrades and Grandstand Roof and Expansion 20%- - 5,000

ICA - Team Operations Building for Track and Field and Soccer 20%47117,000 8,000

ICA - Track and Field Grandstands 20%- - 4,000

ClinicClinicClinicClinic

UWMC - Front Entrance - - 15,000

UWMC - Northwest Hospital Expansion 20%553150,000 83,000

HousingHousingHousingHousing

UW Bothell - Student Housing & Dining Phase 2 20%500160,000 80,000

UW Seattle Student Housing - North Campus - Haggett Hall Replaceme 15%557186,265 103,700

UW Seattle Student Housing - North Campus - McCarty Hall Replacem 15%785166,509 130,700

UW Seattle Student Housing - North Campus - McMahon Hall Renovati 15%556257,899 143,300

Page 1 of 5

Monday, June 02, 2014

UW 10 Year Capital Plan

ATTACHMENT 2F–3.2/207-14 7/10/14

Total Est


Range

+/-

Total

Cost/ GSFGSF


Enterprise Information System - Student/Financial System Replaceme 20%- - 80,000

Major Infrastructure - C-wing Courtyard Membrane Replacement 20%- - 4,500

Major Infrastructure - Multiple Projects - - 65,000

Major Infrastructure - Pend Oreille Improvements 20%- - 28,000

Major Infrastructure - UWIT 4545 Data Center Upgrades 20%- - 2,000

Rainier Vista Corridor - Open Space Improvements - - 26,000

UW Bothell - Major Infrastructure Projects - - 15,750

UW Bothell - Parking & Transportation Improvements 20%- - 26,000

UW Bothell - Strategic Real Estate Investment - - 30,000

UW Seattle - Burke Gilman Trail Development 20%- - 28,400

UW Seattle - Campus Landscape Improvements - - 50,000

UW Seattle - Major Infrastructure Projects - - 86,850

UW Seattle Parking - E1 Improvements 20%- - 5,000

UW Seattle Parking - S-1 Garage structural maintenance and repairs 20%- - 7,300

UW Seattle Parking Mgmt Systems Procurement & Implementation 10%- - 7,100

UW Tacoma - Strategic Real Estate Investment - - 23,000

UW Tacoma Campus Development and Soil Remediation - - 72,500


Burke Museum 10%1,06770,319 75,000

CAS - Eagleson Hall Renovation 20%70018,966 13,276

CAS - Gowen and Raitt Halls Renovation I 20%156117,000 18,200

CAS - Lewis Hall Renovation 10%86423,220 20,065

CAS - Life Sciences Building I 12%925173,000 160,000

CAS - Padelford Hall Renovation 20%123138,555 17,000

CAS - Smith Hall Renovation 20%27786,339 23,950

CoE - Academic Building Renovation 20%49560,000 29,700

CoE - Engineering and Computer Science Collaboration and Education 15%838130,000 109,000

CoEduc - Miller Hall Renovation 20%60672,655 44,000

CoEnv - Anderson Hall Renovation 20%65033,543 21,803

Engineering Library Learning Center Renovation 20%60040,000 24,000

Evans School - Parrington Hall Remodel 20%20458,775 12,000

Foster School of Business - McKenzie Hall Replacement 20%80043,000 34,400

Health Sciences Education Phase I - T Wing Addition/Renovation 20%786120,000 94,300

Health Sciences Education Phase II - T Wing Renovation 20%548162,400 89,000

Health Sciences Education Phase III - T Wing Renovation 20%550150,000 82,500

Health Sciences Interprofessional Education Classroom Phase I 20%30010,000 3,000

Information School - Building Renovation 20%40040,000 16,000

Page 2 of 5



F–3.2/207-14 7/10/14

Total Est


Range

+/-

Total

Cost/ GSFGSF

Interdiciplinary Classroom Building - Central Campus 20%66790,000 60,000

School of Dentistry - Dental School and CE Center 20%1,000260,000 260,000

SON - Nursing Simulation Learning Lab 20%40015,000 6,000

UW Botanical Gardens - Aboretum Education Building / Café 20%6258,000 5,000

UW Botanical Gardens - Outdoor Improvements 20%- - 2,850

UW Bothell - Phase 4 - Academic STEM 20%552105,000 58,000

UW Bothell - Phase 5 - Academic Life Sciences 20%60093,333 56,000

UW Bothell - Phase 6 - Academic Building 20%60083,333 50,000

UW Educational Outreach - Community Gateway Building 20%60080,000 48,000

UW Libraries - Archival Storage Sand Point Building 5 20%11172,000 8,000

UW Tacoma - McDonald Smith Renovation 20%27135,000 9,500

UW Tacoma - Swiss / Wild Renovation 20%44134,000 15,000

UW Tacoma - Tioga Renovation 20%37520,000 7,500

UW Tacoma - Urban Solutions Center - Classroom Building Renovation 15%87540,000 35,000

William H. Gates Hall - Law School Program Improvements 20%- - 4,000

ResearchResearchResearchResearch

Applied Physics Laboratory Research Building 20%800150,000 120,000

CAS - Guthrie Hall Addition 20%731160,000 117,000

CAS - Kincaid Hall Renovation 20%57685,000 49,000

CoE - Center for Advanced Materials and Clean Energy Technologies 20%1,000220,000 220,000

CoE - Center for Interdisciplinary Research & Education - Phase I 20%641220,000 141,000

CoE - Classroom & Research Renovation 20%50026,800 13,400

CoE - Innovation Collaboration Center 20%423300,000 126,800

CoE - Molecular Engineering Phase II 15%67978,000 53,000

CoEduc - Haring Center for Education Research and Teaching 20%40075,000 30,000

CoEnv - Research Vessel - Barnes Replacement 20%- - 13,500

Core Research Facilities - IT Upgrade 20%- - 1,700

Fluke Hall Renovation - C4C 2nd floor phase 2 20%3009,500 2,850

Health and Life Sciences - Hitchcock West 20%1,156150,000 173,400

Portage Bench Research Center - UW/NOAA/Partners 20%1,000250,000 250,000

SOM - South Lake Union Phase 3.2 15%895171,000 153,000

SOM - South Lake Union Phase 3.3 20%755262,000 197,700

SPH - Portage Bay Research Building I 20%808250,000 202,000

UW Tacoma - Innovation Partnership Zone - Phase 2 20%46760,000 28,000

UW Tacoma - Innovation Partnership Zone - Phase 3 20%50060,000 30,000

Student LifeStudent LifeStudent LifeStudent Life

Childcare Center Expansion 20%45020,000 9,000

Sub Totals: 4356,076,211 4,702,894

Page 3 of 5



F–3.2/207-14 7/10/14

Total Est


Range

+/-

Total

Cost/ GSFGSF

IIIIIIIIIIII Proposed Projects - Future Funding OpportunitiesProposed Projects - Future Funding OpportunitiesProposed Projects - Future Funding OpportunitiesProposed Projects - Future Funding Opportunities

AthleticsAthleticsAthleticsAthletics

ICA - Dempsey Indoor Facility Parking Garage 20%- - 6,000

HousingHousingHousingHousing

UW Bothell - Student Housing Phase 3 20%500110,000 55,000


UW Seattle Parking - North Campus Garage 20%- - 15,000

UW Seattle Parking - UW Tower Garage Replacement 20%- - 24,000


CAS - Academic Building - Repurpose Renovation 20%62580,000 50,000

CAS - Communications Building Renovation I 20%21280,000 17,000

CAS - Fine Arts Center & Library 20%344189,000 65,000

CAS - Fine Arts District 20%1,552279,000 433,000

CAS - Hutchinson Hall Renovation 20%67455,164 37,200

CAS - Renewal Program V 20%100124,000 12,400

CAS - Renewal Program VI 20%10073,000 7,300

CAS - Thompson Hall Renovation 20%79862,687 50,000

CoEnv - Building Renovation 20%58360,000 35,000

Health Sciences Education Phase IV - T Wing Renovation 20%367120,000 44,000

Health Sciences Renovation - AA Wing 20%22325,800 5,745

Health Sciences Renovation - B Wing - Dental School Improvements 20%40350,000 20,150

Health Sciences Renovation - BB Wing - Office Renovation 20%40050,000 20,000

Health Sciences Renovation - D Wing - Dental School Improvements 20%191115,000 21,925

Health Sciences Renovation - D&C Core - Office Repurpose 20%265185,000 49,000

Odegaard Undergraduate Learning Center Phase 2 20%30065,000 19,500

Robinson Center for Young Scholars 20%50010,000 5,000

UW Tacoma - Green Field Development 20%350250,000 87,500

ResearchResearchResearchResearch

CAS - Life Sciences Building II 20%868190,000 165,000

CoE - Center for Interdisciplinary Research & Education - Phase II 20%1,000150,000 150,000

CoE - Center for Interdisciplinary Research & Education - Phase III 20%1,000150,000 150,000

Core Research Facilities - ARCF II 20%1,54260,000 92,500

Core Research Facilities - K wing vivarium upgrades - - -

Core Research Facilities - T wing vivarium upgrades - - -

Foege West 20%1,100175,000 192,500

Health and Life Sciences - Hitchcock East 20%1,00070,000 70,000

Health Sciences Renovation - H Wing - Research Repurpose 20%417132,000 55,000

Health Sciences Renovation - H&F Core - Office Repurpose 20%235202,000 47,500

Page 4 of 5



F–3.2/207-14 7/10/14

Total Est


Range

+/-

Total

Cost/ GSFGSF

Health Sciences Renovation - I Wing - Office & Education Repurpose 20%237135,000 32,000

Health Sciences Renovation - RR Wing 20%750140,512 105,384

Portage Bay Research Building II 20%720250,000 180,000

Student LifeStudent LifeStudent LifeStudent Life

House of Knowledge Longhouse - Phase II 15%8308,432 7,000

OMAD - Instructional Center Renovation & Addition 20%1,12516,000 18,000

UW Bothell - Student Activity Center Phase 2 20%65223,000 15,000

Sub Totals: 5253,685,595 2,359,604

Total Tiers I, II, and III: 4259,761,806 8,377,910

Page 5 of 5



F–3.2/207-14 7/10/14

vii. standing committees b. finance and asset ......f–3 f–3/207-14 7/10/14 vii. standing...

Documents