Capital Debt & Purchases of Buildings & Land

This section summarizes the use of financing for capital construction and purchases of buildings and land.

 

General Procedures for Financing

PD&C has a ten-year capital project list that is focused on the renovation of academic buildings across campus. The list is in the process of being expanded to include capital projects that the auxiliaries need, such as new housing units, parking garages and improvements to athletics facilities. This comprehensive list is prioritized and guides the allocation of PD&C manpower and debt allocation.

These two committees keep tabs on the 10-year capital plan and are the gatekeepers for new projects and the advancement of existing projects through the stage-gate process. Nothing gets built or renovated without going through these committees.

In general, most projects are required to go through a financial feasibility analysis prior to advancing to the next phase of the stage-gate process. The intent is to assess the health of the school or unit that has a capital project, the state of its finances, and its ability to take on debt without jeopardizing its daily operations.

Projects are required to have 20% of the project cost available in cash at the beginning of the project to put down. The remaining 80% can be financed with bond debt through Treasury. It takes three to six months to sell bonds as for any new issuance Treasury attempts to bundle together as many as possible across the campuses to save on the overall cost of issuance. Housing has been allowed to put only 10% down for its projects, but this is evaluated on a project-by-project basis.

Each year the campus is required to complete a Bond Fund Report proving that each major school or unit with debt has a debt service coverage ratio of at least 125%. This report also feeds into the Treasury’s annual debt capacity analysis which looks to confirm that we are under both a state and a more restrictive Board of Regents set debt limit.

The Debt Ratio Report calculates debt service as a percentage of operating expenses. BOR policy has set a threshold of 7%, therefore on an annual basis, Treasury calculates the new debt ratio. Anything below 7% means the campuses have debt capacity and can issue new bonds for projects.

For any information on the above talk to Chris Wright or Luisa Mars who are on the capital finance team in BFP.

Capital Additions/Purchases of or for Buildings, Land, and CIP

  • Any planned acquisition or utilization of real property which is conditional upon or requires expenditures of state-controlled funds or federal funds is submitted to the Colorado Commission on Higher Education (CCHE) for approval, whether the acquisition is by lease, lease-purchase, purchase, gift or otherwise. 
    • Prior to submission to CCHE, however, approval of the ¶¶ÒõÂÃÐÐÉä is requested and required. 
    • Note: For operating leases, approval of CCHE and the Regents is no longer required.    
  • Capital assets are recorded using historical cost unless the equipment was donated to the university, then the asset is recorded at fair market value at the time of donation. 
  • All purchases of buildings and land exceeding $2M (effective 1/1/2010) require CCHE approval on the program plan and require State Legislature approval for total or partially state-funded projects. A University Regent initiates the purchase and approves the proposal for a construction project. A plant fund accountant then enters the asset and any associated liability once the purchase occurs. 
  • Lease agreements: The university leases buildings, equipment and furniture are in pending status as we work out GASB 87 impact on our accounting and tracking.

Capital Debt/Bonds Transactions within a Fund 71 Project

  • A typical financing plan will budget for the Fund 71 project to cover interest, issuance costs, and related fees until a new building or major remodel obtains a Temporary Certificate of Occupancy (TCO).
    • Once TCO is achieved, CCO will capitalize the debt moving it from the Fund 71 project to the Fund 74 speedtype for that building.
    • Premium and Gain/Loss on refinancing will also be moved to the Fund 74.
    • The accrued interest and ongoing fees will be moved to the project’s Fund 73 Cost of Debt speedtype.
    • At this point, the building is considered in use even though construction work is still ongoing. Bond funds are still covering construction costs, punch lists, etc.
    • Fund 73 transfer accounts are used by departments to cover the principal, interest, and fee costs of the debt. Treasury uses the Fund 73 to make interest and principal payments to their vendor for bond management. CCO will make the adjusting JEs to record principal payments, adjustments to accrued premium and Gain/Loss balances in Fund 74.
  • Once bonding/debt is obtained, Treasury will create the necessary PeopleSoft account codes needed for tracking the debt through its life cycle. See definitions for range assigned account codes. They work out the amortization schedule and deliver it to CCO and FBS.
    • Interest payments typically occur on December 1 covering June-November, and June 1 covering December-May.
    • Principle payments occur June 1.
    • CCO will book accruals for the payments per GASB guidelines.
  • CCO will oversee the campus accounting processes, maintain a campus database of amortization schedules, and record JEs that complete Treasury’s setup, payments, and adjustment JEs.