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November 2012 Issue

Featured - Regents Approve New Oversight of Building Projects

Regents Approve New Oversight of Building Projects

On Nov. 13, the Board of Regents approved four new policies to govern the financial oversight of the University System of Georgia’s public private ventures (PPV) program. The program serves as an important means of financing student facilities that support almost 315,000 students.

“The PPV and Georgia Higher Education Finance Authority (GHEFA) programs have been very successful in helping the University System finance needed student support facilities,” said the System’s Chief Fiscal Officer, John Brown. “The Chancellor and the Board are committed to being good managers of these programs. These new policies strengthen the programs as a means of financing select projects in the future.”

Since first employed in 1997, the PPV and GHEFA programs have been used to construct 175 projects totaling $3.6 billion. Projects include student housing, recreation facilities, research facilities, student centers, parking decks, dining halls and bookstores.

The four policies put in place rules for projects financed through the PPV program and GHEFA by setting maximum capacity limits, establishing a reserve fund, requiring refinancing reviews and revising the current private housing policy.

The new Capital Liability Capacity and Affordability Policy, (policy 9.8.3) reduces the total cumulative amount of capital liabilities financed by the University System from a maximum of seven percent of the System’s annual revenues to five percent. The policy is designed to ensure the System and institutions do not incur excessive liabilities beyond their ability to pay with the underlying project revenues.

The second new policy, Capital Liability Reserve Fund, (policy 9.8.4) mandates that the System have in place a reserve fund. The reserve fund will serve as a safety net in the event of any unforeseen events that might affect project revenues.

The third new policy, Lease Rental Agreement Revisions: Refinancing, (policy 9.8.5) requires institutions to monitor refinancing/savings opportunities and to negotiate with the private party/cooperative organizations for at least 50 percent of savings. The savings will then be used for the benefit of students to include, but not limited to, reducing fees and rentals.

The fourth action amends a current policy, Housing, (9.8.2) and now will require institutional presidents to notify the chancellor prior to mandating that students live in campus housing. The amendment also gives the chancellor the authority to reverse the president’s decision. Current board policy does not provide for such notification or authority.

Brown said that the new policies are designed to meet several key objectives, including: maintaining affordability for students, ensuring projects meet the critical needs of the USG and institutions, ensuring the fiscal viability of projects, protecting the credit of the state and the USG, and maintaining the two programs as financing alternatives.

“As we look to the future, we must make sure we continue to manage our resources well and manage in ways that best serve our students and the state,” said Chancellor Hank Huckaby. “The board’s action to approve these new policies is important to our work to meet present and future needs for facilities.”

Over the past year, USG officials have put in place a new oversight process that focuses on how proposals for new student-support facilities will meet critical needs at an institution. This process has brought together the System’s academic, fiscal, facilities and internal audit offices to provide more comprehensive oversight of the PPV and GHEFA programs in the USG. Academic need is the first test of whether any project or fee is needed.

Their joint work has included scrutiny of the fiscal soundness of any proposal and the monitoring of projects as well as ongoing audits of PPV projects. New business procedures also have meant a tighter oversight of PPV projects.

The construction of most state facilities is funded through the State of Georgia’s sale of general obligation bonds (GO bonds), but the state constitution places a limit on the total amount of bonds that can be sold in a given year (set at ten percent of the state’s revenues from the previous year). This limit helps protect the state’s AAA bond rating.

Prior to 1997, the limited pool of state GO bonds compelled the University System to address academic building needs over student support facilities such as residence halls and student centers. The solution was the creation of the PPV program, which began in 1997 and GHEFA, which was authorized in 2006.

Under the PPV program, a college or university partners with a private entity that then sells the bonds for a facility. The repayment of the bonds is the financial obligation of the private entity, which uses the revenues generated by the facility to cover the bond payments. Once the bonds have been paid, the ownership of the facility is transferred to the Board of Regents.

The GHEFA program takes a similar approach to financing as the PPV program, but through a state board authorized to issue revenue bonds on behalf of the USG and the Technical College System of Georgia.

Posted by Sonja Roberts on November 29, 2012
Published in: Board of Regents

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