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Higher Education Capital Budget Work Session An overview of higher education capital finance and trends Senate Ways & Means Staff January 22, 2015

Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

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Page 1: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Higher Education Capital Budget Work Session An overview of higher education capital finance and trends

Senate Ways & Means StaffJanuary 22, 2015

Page 2: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Washington’s public colleges and universities by sector

There are six public four-year universities and five extension campuses. In 2014-15 academic year, these schools served about 106,000 students (FTEs)

There are 34 community and technical colleges. In 2013-14, the CTCs served approximately 143,000 students (FTEs)

2

Page 3: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Both the four-year institutions and the Community and Technical Colleges (CTCs) enrollment grew about 1.6% annually from the 1990-91 academic year but the CTCs experienced much more variation

77,79384,832

94,310

106,974113,609

128,093

136,934143,292

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

Stat

e Fu

nded

FTE

Enr

ollm

ent

Academic Year

Community and Technical Colleges

Four-Year Institutions

State Funded Higher Education Enrollment (FTEs)

Notes1 Four-year, 2014-15 enrollment data is preliminary2. CTC, 2014-15 enrollment data is unavailable

Source: Office of Financial Management 3

Presenter
Presentation Notes
The CTCs for the most part have started to follow employment trends The four-year institutions for the most part follow population growth
Page 4: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

In terms of dollars, costs associated with capital building facilities are in both the capital budget and the operating budget

CAPITAL BUDGET APPROPRIATIONS

Bonds………………………..$427

Building Accounts……...$209

COP……………………………$ 77

Other………………………...$ 1

TOTAL ESTIMATED……$714

OPERATING BUDGET SPENDING1

Est. Bond Debt Payments…...$569

Building Maintenance………...$373

TOTAL ESTIMATED…………….$942

2013-15 Higher Education Capital Related Spending$ in millions

1. Estimated Bond Debt Payments are principal and interest2. Building Maintenance includes General Fund-State and Tuition

4

Presenter
Presentation Notes
M&O refers to utility, maintenance, operations of building, custodial, preventative facility maintenance
Page 5: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

In 1973-75, higher education and other state government appropriations in the capital budget were almost the same, but since that time higher education grew by 2.4% over inflation per biennium while other state government grew by 8.6% per biennium

$449M

$126M

$1,214M

$714M

$551M

$3,666M

$2,965M

$0M

$500M

$1,000M

$1,500M

$2,000M

$2,500M

$3,000M

$3,500M

$4,000M Capital BudgetTotal Appropriated Funds

(includes alternatively financed projects)2013-15 Constant Dollars

All other government

Higher Education

5

Presenter
Presentation Notes
Higher Education, has had three distinct periods. From 1973-75 to 1983-85, their capital appropriations had a real decline on 22%, from 1983-85 to 2007-09 they experienced real growth of 21%, and recently experienced a real decline of 16%.
Page 6: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

$0.3

$0.0

$0.7

$0.8 $0.9

$0.4

$0.2

$0.2

$0.6$0.7

$1.0

$1.9

$1.6

$0.0B

$0.5B

$1.0B

$1.5B

$2.0B

$2.5B

$3.0B

1973-75 1975-77 1977-79 1979-81 1981-83 1983-85 1985-87 1987-89 1989-91 1991-93 1993-95 1995-97 1997-99 1999-01 2001-03 2003-05 2005-07 2007-09 2009-11 2011-13 2013-15

State Debt Limit Bonds and Higher Education2013-15 Constant Dollars

dollars in billionsHi Ed All Other

56% 6% 52% 46% 21%Higher Education share of state bonds

Over that same time period, the ratio of state bonds appropriated to higher education has varied from nearly 0% to over 50%. In 2013-15, the legislature appropriated 21% of the state bonds to higher education.

6

Presenter
Presentation Notes
By looking at only state debt limit bonds, higher education pushed the state debt limit bonds in the 1980’s, shared an a roughly equal amount with other agencies in the 1990’s, and have a reduced percentage of bonds beginning in 2005-07
Page 7: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Higher education capital budget financing is more than just bonds – it is a mix of many different revenue sources and accounts – each with varying degrees of legislative control

State Revenue Sources Accounts Institution Generated Revenue SourcesAccounts

Higher Education Capital Projects

* These accounts pay debt service first and then transfer remaining portions to the university building account(A) = Appropriated(D) = Dedicated

(Adopted from Burke & Associates Higher Education Capital Study

Private Donations

Auxiliary and Miscellaneous

University Accounts

Research Related Revenues

Rent, Contracts, Fees, Grants

?%

State General Obligation Bonds (A)

State Building Construction Account

State General Obligation Bonds (D)

Garner-Evans Higher Ed Construct Funds

Certificate of Participation (D)

Certificate of Participation

60%

11%

Borr

owin

g

Trust Land Revenue (D)

Material Sales(land, timber, gravel,

etc)

Lease Revenue

Permanent Accounts

Bond Retirement Accounts*

Interest Income

University Building Accounts

6%Cash

UW Metro Track (D)

Tuition Building Fee (D)

UW Facilities Bond Account*

24%

Cash

7

Page 8: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

The level and source of funds for higher education capital budgets has varied over time

$256

$39

$740

$835

$427

$129$20 $24

$154 $170

$24 $53 $82 $61 $40$40M $14M $29M $90M $80M

57%

31%

85%

73%

60%

29%

16% 3%

14% 24%

5% 42%9%

5% 6%9%

11% 3% 8% 11%

$0M

$100M

$200M

$300M

$400M

$500M

$600M

$700M

$800M

$900M

1973-75 1983-85 1993-95 2003-05 2013-15

Higher Education Capital Budget Mix of Funds2013-15 Constant Dollars

dollars in millions

Debt Limit Bonds Building Accounts Trust Revenue Other

8

Page 9: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Similar to the operating budget, the state share of the capital budget has fallen as well

80%

58%

74%

38%

100%

78%79%

65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993-95 1995-97 1997-99 1999-01 2001-03 2003-05 2005-07 2007-09 2009-11 2011-13 2013-15

Higher EducationState Funds Share of Operating and Capital Budget

4-Year Cap 4-Year Op CTC Cap CTC Op

Notes: Capital budget state share is debt limit bonds only 9

Page 10: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Selected Higher Education Capital Budget Topics:• How are capital projects selected?• What did the Governor choose to fund?• A look at growth and demand• A look at building quality• Do the costs seem reasonable?

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Page 11: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Higher Education capital projects are selected and prioritized for legislative consideration according to defined processes

Community & Technical College System Research & Regional College & Universities

Statutory Requirement RCW 28B.77.070 RCW 28B.77.070; 43.88D.010

What is being selected for review and prioritization? Projects > $2 million Projects > $2 million

How are the proposed projects scored and ranked?

Projects are scored by project category:• Matching funds (non-state funds)• Replacement projects• Renovation• Major enrollment growth

Projects are scored by project category:• Major enrollment growth• Replacement projects• Renovation• Stand-Alone Infrastructure• Research• Land acquisition• Pre-Design

How are proposed projects evaluated?

Varies by project category. Generally includes:• Contribution to statewide goals• Enrollment projections, utilization efficiency• Age & condition• Program & capacity needs• Reasonableness of proposed costs

Same.

The Governor can and has inserted projects that were not part of the institutional submissions (and therefore not scored)

Who scores the projects? Panels of college presidents, business officers, facility managers, instructional and student services staff. OFM

Who decides on the final list submitted to the legislature? SBCTC OFM creates the single prioritized list

What is the role of the legislature? The legislature has mostly followed the prioritized list to whatever funding level has been established.

The legislature has followed the list to varying extents based on the funding level established.

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Presenter
Presentation Notes
The bottom two were added by OFM as allowed under 43.88.D
Page 12: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

In 2015-17, the Governor is requesting approximately $247M over 2013-15 enacted budget levels while the colleges and universities requested about $685M over enacted levels. The Governor is also putting about 27% more funding for new buildings & additions over renovation & remodels

$258

$0$20

$365

$73

$0

$440

$19

$74

$508

$361

$0

$290

$14 $28

$347

$272

$12$0

$100

$200

$300

$400

$500

$600

Minor Works &Intermediate

Acquisition Infrastructure New Facilities &Additions

Renovation &Remodels

Special Programs

Higher Education Project Budgets By TypeFrom Enacted to Agency Request to Governor

dollars in millions

2013-15 Enacted 2015-17 Agency 2015-17 Governor

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Page 13: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

While the state has been and is projected to increase its population, the forecasted number of 18 to 24 year old persons is expected to drop by 5,400 over the next three biennia

595,667

609,678

625,143

634,550

648,763

657,439

662,738 664,928

650,053 650,429 652,061 654,857

658,499 659,012 658,860 657,188 655,236 654,732 653,323 653,609

560,000

580,000

600,000

620,000

640,000

660,000

680,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Actual and Forecasted Washington Population Ages 18 to 24*

|-------------------------- Forecasted ------------------------|

*Between 2007-08 and 2013-14, 18 to 24 year olds made up 82-83% of the undergraduate four-year public institution enrollmentSource: Office of Financial Management

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Page 14: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

The four-year schools added almost equal amounts of resident and non-resident FTE students from 2007-08 to 2013-14 but the non-resident share of growth has been increasing more.

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14Non-Resident 10,151 10,896 11,305 12,171 13,854 14,854 15,873Resident 84,994 86,990 88,891 89,787 90,926 90,944 90,952Total 95,145 97,886 100,196 101,958 104,780 105,798 106,825% Resident 89% 89% 89% 88% 87% 86% 85%% Non-Res 11% 11% 11% 12% 13% 14% 15%

84,994 86,990 88,891 89,787 90,926 90,944 90,952

10,151 10,896

11,305 12,171 13,854 14,854 15,873 95,145

97,886 100,196

101,958 104,780 105,798 106,825

60,000

65,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

105,000

110,000Four-Year FTE Enrollments By Resident Status

Source: ERDC 14

Presenter
Presentation Notes
In 2013-14, there was a net increase of 1,027 in enrollment – only 8 were resident students.
Page 15: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

The CTCs have experienced 3 consecutive years of declining state supported enrollments. Without an official forecast, it is difficult to approximate their needs in the out years.

136,934

148,000

160,778 162,328

153,395147,433

143,292

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

FTE

Enro

llmen

ts

Community and Technical CollegesState Supported FTE Enrollments (excludes Running Start)

Source: LEAP 15

Presenter
Presentation Notes
The Governor is requesting $227M for new projects in the 15-17 submission
Page 16: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

These 40 colleges and universities account for 66M or 67% of all state-owned space

CTC CTC CTC CTC WSU WSU CWU

UW UW UW CTC CTC CTC CTC WSU WSU CWU

UW UW UW CTC CTC CTC CTC WSU WSU CWU

UW UW UW UW CTC CTC WSU WSU WWU EWU

UW UW UW UW CTC CTC WSU WSU WWU EWU

UW UW UW UW CTC CTC WSU WSU WWU EWU

UW UW UW UW CTC CTC WSU WSU TESC TESC

1 square = 1% of state

owned space

In 2014, the state owned a total of 98M square feet All other state government owned space

= Higher Education= All other state

government

Source: 2014 OFM Building Inventory Report 16

Presenter
Presentation Notes
UW, WSU, and SBCTC own more square feet than all other agencies combined. It is not clear whether this is the inventory of everything
Page 17: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Higher education has added approximately 4.5 million state owned square feet from 2011 to 2014 but the percentage of superior to adequate square feet fell in the last year

58%38.1M

62%39.8M

62%38.9M

58%35.9M

28%18.6M

28%18.3M

26%16.1M

26%16.0M

9%6.1M

9%5.7M

8%4.9M

11%7.0M

5%

1%

5%

4%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2014

2013

2012

2011

Higher Education Building Condition Summary Over Four YearsOFM Building Inventory Report

Superior to Adequate Fair Limited to Emergent Not Assessed

66.0M

Total Sq. Feet

64.5M

62.7M

61.5M

These are all buildings and not necessarily for core academic operations 17

Presenter
Presentation Notes
Depreciation Should we building new or renovating and bringing millions of sq ft up to higher standard Emergent Services not available unless emergent, consistent customer ridicule, mistrust of facility services, reactive maintenance is the norm. As far as I can tell this may include vacant and non-vacant buildings Unfortunately, the inventory and budget requests are not directly tied, although that would be nice
Page 18: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Are costs reasonable? In December 2008, OFM through BERK & Associates published a financing study for higher education capital facilities. The report provided an upper and lower bound for sq. ft. costs for different types of buildings

Note: +1.5% adds an additional 1.5 percentage points to GCI for escalation costs starting in the first quarter of 2011

Facility Type Low Mid Upper GCI (3.08%) +1.5% EscClassrooms $339 $420 $501 $627 $683Science Labs $344 $437 $530 $663 $723Research Facilities $536 $623 $710 $888 $969Libraries $251 $336 $420 $525 $573Admin Buildings $258 $309 $360 $450 $491Comm Buildings $281 $378 $474 $593 $647Day Care Facilities $249 $283 $316 $395 $431

Total Project Sq. Ft. Costs(2008 Dollars)

Total Project Sq. Ft. Costs Upper Range

Dec 2016

Expected Cost Ranges By Facility Type

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Page 19: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

The majority of the building are within the Berk report upper range for total square foot costs but about 10 exceeded this range and more analysis is needed to understand why

$200

$300

$400

$500

$600

$700

$800

$900

Tota

l Pro

ject

Sq.

Ft.

Cost

sClassroom Facilities Based on Governor’s 10-Year Plan

New Construction and Renovation Projects Over $200 Per/Sq. Ft.Total Project Costs Per Sq. FtDollars Adjusted For Inflation

Berk’s lower bound inflated using

OFM/Global Insight Construction inflation

Berk’s upper bound using OFM/Global

Insight inflation

+1.5% escalation on top of Berk’supper bound

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Page 20: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Two projects labeled “science labs” are estimated to be higher than Berk’s upper bound

-2

-1

0

1

2

3

WSU Pullman - Troy HallR

Center for AdvancedMater

Clark College: Health an Green River: NewAuburn C

Computer Science &Engine

Dairy Research &Teaching

Nutrition Science Science BuildingRenovati

Whatcom CommunityCollege

Other Berk Range Facilities Based on Governor’s 10-Year Plan New Construction and Renovation Projects Over $200 Per/Sq. Ft.

Ratio of Project Variance Normalized For Project TypesDollars Adjusted For Inflation

Research Facilities Science Labs (Teaching) Libraries

Berk’s Normalized Lower Bound

Berk’s Normalized Upper Bound

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Page 21: Higher Education Capital Budget Work Sessionleg.wa.gov/Senate/Committees/WM/Documents/Higher Ed...Higher Education Capital Budget Work Session An overview of higher education capital

Questions?

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