25.1 Capital Strategy
(Last Modified on December 11, 2018)
To keep pace with enrollment demands and student needs, the USG must have mechanisms to provide additional student support facilities throughout the system. Since the Constitution of the State of Georgia prohibits State agencies, including the USG or any of its institutions, from issuing debt, the USG must rely on alternative financing options to construct facilities when general obligation bond funding from the State is not available. One of the most commonly used financing options has been through the Public Private Venture (PPV) program. PPVs generally are defined as contractual agreements between a public sector authority and a private party, usually a cooperative organization (CO), in which the private party constructs and owns a public project.
While most academic and administrative facilities are funded with general obligation bond proceeds provided from the sale of State of Georgia General Obligation bonds by the Georgia State Financing and Investment Commission, most student support facilities (student housing, student centers, recreation facilities, athletic venues, dining halls and parking) are funded by lease revenue bonds sold on behalf of COs through the PPV program.
The USG’s PPV program generally starts with a working agreement between a third-party (CO/foundation) and a USG institution, whereby the CO agrees to construct and provide a facility to the USG institution. In some cases an entity other than a USG CO may act as the owner/landlord. The CO then secures an agreement with an issuing authority (local development or housing authority or the Georgia Higher Education Facilities Authority (GHEFA)), whereby the issuing authority sells bonds for the construction of facilities on BOR-owned property and subsequently loans the proceeds back to the CO (or CO’s affiliated limited liability corporation) to construct the physical capital asset. The BOR then provides a ground lease of the land to the third-party/CO for the purpose of constructing or improving facilities for the benefit of the USG institution. The term of the ground lease usually is equal to or greater than the term of the bond debt. In some cases, a PPV may be constructed on property owned by the third-party or CO.
The BOR and the third-party/CO then enter into an annually renewable rental agreement whereby the institution is required to make lease payments to the third-party/CO sufficient to cover the principal and interest on the bonds, along with certain associated fees. The lease payment also will include a repair and replacement reserve component that will be held by the trustee on behalf of the third-party/CO. For financial reporting purposes, these leases are considered capital leases and should be structured as direct financing leases. For consistency, the institution should coordinate with the third-party/CO to ensure that the capital lease obligation on the institution’s financial records can be reconciled to the related asset on the CO’s financial records.
When the bonds are paid in full, the rental agreement is satisfied, the ground lease terminates and the facility is transferred to the BOR.↑ Top