Board of Regents Policy Manual

Official Policies of the University System of Georgia

9.7 Public Private Ventures

Public Private Ventures (PPV) are essential to the implementation of strategic capital planning. Institutions shall manage assets financed with lease revenue bonds or loans in accordance with the requirements of the Business Procedures Manual. All PPVs require approval of the Board of Regents. Planning and requests for additional capital liability obligations for PPVs shall be conducted in accordance with Board policies on Strategic Capital Planning and Capital Project Authorization, Procurement, and Contracting.

The Board of Regents will work with cooperative organizations to provide facilities that will be self-supporting from revenue generated. The Board of Regents may ground lease real property to a cooperative organization for the purpose of providing facilities for use by an institution. The Board of Regents may rent facilities from cooperative organizations. The cooperative organization shall offer the facilities as a gift to the Board of Regents upon termination of financing obligations or within 35 years of occupancy, whichever occurs sooner. The Board of Regents cannot incur debt and will have no legal or moral obligation for any debt incurred by cooperative organizations for these facilities.

The Business Procedures Manual contains additional information on cooperative organizations. The USG chief facilities officer and the University System of Georgia (USG) chief fiscal officer will establish guidelines for USG institutions and cooperative organizations in relation to PPVs.

The Board of Regents shall assess administrative fees for all PPVs.

9.7.1 Capital Liability Capacity and Affordability

Capital liability capacity is an institution’s ability to service capital liabilities through operations and is driven by strength in income, cash flows, and overall financial leverage. Capital liability capacity is limited and directly impacts the affordability of education and services provided to USG students. Therefore, resources used to fund capital liability lease payments must be managed strategically from an overall system perspective and an institutional perspective.

The Board of Regents, the University System Office, and all USG institutions shall maintain their capacity to enter into capital lease agreements consistent with the underlying objectives of the PPV program. The Board of Regents designates the capital liability burden ratio as a generally accepted method of measuring, assessing, and limiting the USG’s and a USG institution’s authority to initiate and enter into new PPV projects and additional PPV capital lease arrangements.

The capital liability burden ratio reflects what percentage of an institution’s income is used to make capital lease payments, including PPV payments. The capital liability burden ratio shall consist of the percentage of total revenues in any given fiscal year that are used to pay an institution’s capital lease payments, including payments associated with the PPV program. The method for calculating the capital liability burden ratio shall formally be defined by the USG chief fiscal officer. The capital liability burden ratio shall not exceed five percent for the USG taken as a whole.

USG institutions shall strive to ensure that any new PPV projects submitted for approval do not cause the institution to exceed the institution’s five-percent threshold. Institutions may, consistent with approved strategic objectives and sound fiscal management, submit proposed PPV projects that would result in a capital liability burden ratio between five percent and seven percent. Institutions may submit a PPV project that would cause the institution to exceed the seven percent capital liability burden ratio but only under extraordinary circumstances. Under no circumstances shall an institution submit a project for approval that would result in the institution exceeding a ten percent capital liability burden ratio.

Adherence to these limits for proposed projects in no way guarantees approval of a PPV project.

9.7.2 Capital Liability Reserve Fund

The Board of Regents has established a Capital Liability Reserve Fund (the Fund) to protect the fiscal integrity of the USG, maintain the strongest possible credit ratings associated with PPV projects, and ensure that the Board of Regents can effectively support its long-term capital lease obligations.

The Fund shall be funded by all USG institutions participating in the PPV program and serve as a pooled reserve controlled and administered by the Board of Regents. The USG chief fiscal officer shall determine the amount to be deposited by each participating institution into the Fund. The Fund shall only be used to address significant shortfalls and only insofar as a requesting USG institution is unable to make the required PPV capital lease payment to the designated cooperative organization. The Fund will continue as long as the Board of Regents has rental obligations under the PPV program.

Fund distributions shall be made only with approval of the Chancellor and with prior notification to the Board of Regents. Requests for Fund distributions shall be made by the requesting institution’s President. Fund distributions shall only be used to make the required rental payment and only in those circumstances in which the institution has exhausted its capacity to fund the rental payment using allowable funding sources. Institutional requests shall detail the justification for the distribution, a plan to reimburse the Fund, and a plan to make the project self-liquidating on a going-forward basis. Nothing in this Policy Manual relieves institutions of the expectation to that they maintain adequate institutional reserves consistent with prudent fiscal management as needed to mitigate the risk of non-payment of PPV capital lease payments.

The USG chief fiscal officer shall establish procedures governing the Fund to include the form and manner of payments to the fund, payment schedules, methods of distribution, required payments to the Fund, payment plan, penalties, and redistribution of fund assets associated either with an institution’s cessation of participation in the PPV program or cessation of the PPV program for the USG. Each institution shall be treated equitably consistent with their level of PPV capital lease payments, levels of risk, and prudent fiscal management.

9.7.3 PPV Rental Agreements Lease Rental Agreement Revisions: Refinancing

Capital lease payments associated with the USG PPV program made to cooperative organizations are designed, at a minimum, to support the required cooperative organization bond payment for principal and interest in addition to other costs as determined between the parties to the agreement. The portion of the PPV capital lease payment associated with the principal and interest is established consistent with the original terms of the revenue bond payment schedule required of the cooperative organization. A cooperative organization may, from time to time and at its own discretion, decide to refinance the original bond, revise the bond terms, or otherwise take action to manage risk and reduce costs associated with the bond debt.

Institutions shall monitor actions taken by cooperative organizations to refinance or otherwise alter the terms of the underlying bond debt. Insofar as the cooperative organization experiences a reduction in principal and interest payments, USG institutions shall ensure that they achieve a corresponding reduction in the associated capital lease payments equal to at least 50 percent of the cooperative organization’s savings. This reduction shall be achieved through renegotiating the rental agreement to which the USG institution and the cooperative organization are parties. USG institutions shall not renew rental agreements that have not been amended to reflect these savings. USG institutions should strive to ensure that the length of the original bond is not extended prior to agreeing to renew the underlying rental agreement; however, circumstances may arise when prudence would dictate otherwise.

USG institutions shall use any savings recognized through the renegotiated rental agreement to benefit students and to strengthen the PPV program at that institution. An institution may benefit students through reducing the current mandatory or special fees used to support the particular PPV facility, through eliminating a planned future fee increase, through improving services offered associated with the PPV facility, or through fully funding institutional PPV reserves. This list is not intended to be all-inclusive.

Institutions shall notify the USG chief fiscal officer of the planned use for realized savings. Repair and Replacement Reserves

Rental agreements associated with the PPV program between the Board of Regents and a cooperative organization or its affiliated limited liability company shall contain provisions related to routine assessments of facility conditions, funding, disbursement, and disposition of repair and replacement reserves to enhance the long-term sustainability of PPV projects by ensuring that such reserves are used for capital repairs and replacements.

PPV rental agreements shall contain requirements that the landlord:

  1. Fund and establish a repair and replacement reserve for capital repairs and replacements;
  2. Provide funds from the repair and replacement reserve for a Facilities Condition Assessment Report (FCAR) performed in accordance with USG procedures and guidelines;
  3. Exhaust any trustee surplus accounts held by the trustee or the foundation prior to exhausting the repair and replacement reserve; and,
  4. Utilize any balances remaining in the repair and replacement reserve on necessary capital repairs and replacements prior to the termination of the rental agreement.

The cooperative organization, or its affiliated limited liability company, shall gift any remaining balances in the repair and replacement reserve to the institution upon termination of the rental agreement.

This policy is effective immediately upon approval for new PPV rental agreements and for all PPV renewals to the extent permitted by the existing loan agreements.

The USG chief fiscal officer, with the approval of the Chancellor, may, in the name and on behalf of the Board of Regents, take or cause to be taken any and all such further action as, in the judgment of such official, may be necessary, proper, convenient or required in connection with the execution and delivery of instruments, documents, or writings in order to carry out the intent of this policy for all PPV rental agreements.

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