Business Procedures Manual

Essential business procedural components for University System of Georgia institutions.

25.5 Capital Liability Reserve Funding Requirements and Accounting

(Last Modified on May 14, 2015)

A Capital Liability Reserve Fund (Fund) was established and is maintained by the BOR Office of Fiscal Affairs (System Office) in accordance with BOR Policy Manual Section 9.8.4, which states:

“It is the policy of the Board of Regents of the University System of Georgia to protect the fiscal integrity of the University System of Georgia (USG), to maintain the strongest possible credit ratings associated with Public Private Venture (PPV) projects, and to ensure that the Board of Regents can effectively support its long-term capital lease obligations.” To this end, the Board of Regents shall establish a Capital Liability Reserve Fund (hereafter “Fund”).

The Fund shall serve as a pooled reserve fund. Establishment of this Fund does not relieve institutions of the responsibility for prudent management of institutional funds and the maintenance of adequate reserves at the institutional level. This Fund is only intended to be used on an emergency basis. The Fund will remain in effect until all USG lease obligations associated with the PPV program have terminated or matured. The Vice Chancellor for Fiscal Affairs reserves the right to adjust the level of contributions to the Fund according to the USG’s strategic and system needs.

The following procedures have been established for management of the Fund:

25.5.1 Payment of Funds

(Last Modified on May 14, 2015) Qualifying PPV Transactions

All USG institutions making rental payments for facilities constructed or acquired through the PPV program will be required to contribute to the Fund. An exception will be made for existing projects to the extent that State Educational & General (E&G) funds are used as a funding source for lease payments, as lapsable or potentially lapsable funds may not be reserved for this purpose. Calculation of Contribution

The initial participant contribution to the Fund was based on the highest annual rental payment by project. Beginning July 2013, each institution with PPV projects were invoiced eight percent (8%) of the highest annual rental payment for each existing project, as well for any additional project(s) recorded in the institution’s financial statements for the fiscal year ending June 30, 2014.

Additional payments to the Fund will be required when an institution adds new PPV projects, or due to refinancing if the highest annual payment increases due to swap termination costs. Payment for new PPV’s also will be 8% of the highest annual rental payment. Payment into the Fund will be supported by an invoice from the Board of Regents, Office of Fiscal Affairs. All payments into the Fund shall be due in full within 30 days of invoice receipt. No exceptions will be made for institutions that have sufficient funds available. Institutions that do not have sufficient funds available must contact the Office of Fiscal Affairs immediately upon invoice receipt. Those institutions will be required to make a partial payment from current financial resources available and will be given 12 to 36 months to pay the remaining balance, based on a payment plan approved by the Chancellor and Vice Chancellor for Fiscal Affairs. Funding Sources

Auxiliary/Student Activity Funds

Generally, payments to the Fund should be funded by auxiliary services funds (fund 12xxx) or student activity funds (fund 13000), with the latter being used only if a project is funded from the Student Activity Fund. Also, there may be instances where other institutional funds (not subject to lapse provisions), such as Indirect Cost Recovery funds, would be an appropriate source for payments into the Fund. If an institution makes an upfront lump sum payment to reduce the liability on a PPV project, the highest annual rental payment used to calculate amount due to the Fund will be based on the highest remaining annual rental payment, exclusive of the upfront payment. To the extent that an institution proposes to use a project’s cumulative cash flow (or net profit), contact the PPV Asset Manager to confirm availability of funds and discuss a plan for replenishing the project’s cumulative cash flow reserves.

State E&G Funds

Payments may not be made from State E&G Funds due to potential lapse provisions. Existing projects using State (E&G) funds as a lease payment source only will be required to contribute the portion of the rental payment that was funded from other (non-E&G) sources.

Debt Service Reserve Funds

Payments may not be funded from a project’s debt service reserve held in escrow with the trustee. Recording Payment into the Fund

Institution Sample Entries

Due from USO - Capital Liability Reserve Fund (a/c 126960) 100,000
Cash 100,000

To record transfer of cash from contributing account to the Fund

Unrestricted Net Assets 100,000
Other Reserves (Unrestricted) - Capital Liability Reserve Fund (a/c 329600) 100,000

To reserve fund equity no longer available for expenditure

BOR System Office Sample Entry

Cash 100,000
Funds Held for Others - Capital Liability Reserve Fund (a/c 241160) 100,000

To record transfer of Cash to the Fund Withdrawals for Lease Payments or Rebates

All written requests for withdrawals and reimbursements must include an executed copy of the Disbursement Request Form, located at the PPV website.

Withdrawals for Lease Payments

Withdrawals/disbursements from the Fund for PPV-related lease payments will be made only after an institution has exhausted its resources to fund a lease payment(s) from all allowable funding sources. To make a withdrawal from the Fund, the President and Chief Business Officer must submit a written request (at least three months prior to the required rental payment), addressed to both the Chancellor and the Chairman of the Board. The letter must:

  • Indicate the amount needed to cover the institution’s shortfall;
  • Certify that all available and allowable funds have been applied to the lease payment; and
  • Provide a plan to be approved by the BOR for repaying the Fund, along with a projected budget (proforma) to determine the strategy and timeline for making the project self-liquidating.

Withdrawals for Retired Refunded Bonds

Withdrawals from the Fund are permissible when a project’s lease obligation no longer exists or when a project’s refinancing results in lower lease payments. To request a refund, the president and chief business officer must submit a written request to the Vice Chancellor of Fiscal Affairs, requesting a reimbursement equal to the pro-rata share of the institution’s original contribution, net of any outstanding withdrawals. Or, to the extent that a withdrawal is requested due to a refinancing that resulted in lower lease payments, the withdrawal request is limited to the savings generated from the financing transaction.

Repayment of Withdrawals

If an institution has been approved for a withdrawal from the Fund, terms will be established to repay withdrawal, including interest equal to the value of lost interest earnings. Funds withdrawn will be subject to an interest rate set at the time the withdrawal is made. The interest rate will be based on the current rate of earnings that are projected to have been earned had the funds remained in the pooled reserve investment. Terms of the repayment will be detailed in a binding funding agreement drafted by the USO Legal Office and executed by the Chancellor and Vice Chancellor of Fiscal Affairs.

Recording Withdrawal Transactions

Withdrawals when Debt is Retired

Institution Sample Entry

Cash 100,000
Due from USO - Capital Liability Reserve Fund (a/c 126960) 100,000

To record repayment of cash from the USO Capital Liability Reserve Fund

Note: Institution also would also need to remove reserve restriction in account 329600 by adjusting equity back to Unrestricted.

BOR System Office Sample Entry

Funds Held for Others - Capital Liability Reserve Fund (a/c 241160) 100,000
Cash 100,000

To record return of cash to institutions when debt is retired.

Withdrawals Requiring Repayment

Institution Withdrawal Sample Entry

Cash 25,000
Due to USO-Capital Liability Reserve Fund (a/c 218100) 25,000

To record withdrawal of funds which require repayment

BOR System Office Withdrawal Sample Entry

Due from Institution – Cap Liab Res Fund (a/c 126970) 25,000
Cash 25,000

To record distribution of funds which require repayment

Institution Sample Repayment Entry

Due to USO – Capital Liab Reserve Fund (a/c 218100) 25,000
Cash 25,000

To record repayment of withdrawn funds

BOR System Office Sample Repayment Entry

Cash 25,000
Due from Institution – Cap Liab Res Fund (a/c 126970) 25,000

To record receipt of repayment for withdrawn funds

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