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F–3
F–3/207-14 7/10/14
VII. STANDING COMMITTEES B. Finance and Asset Management Committee Debt Capacity and Capital Planning Update INFORMATION This item is for information only. BACKGROUND The purpose of the annual Debt Capacity and Capital Planning Update is to inform the Board of Regents as they make future decisions about capital funding. UW is currently rated Aaa by Moody’s and AA+ (with a positive outlook) by Standard and Poor’s. Since 2009, outstanding debt, excluding Northwest Hospital and Valley Medical Center, has doubled. The $2.3 billion size of the University’s debt portfolio is considered a credit negative by the rating agencies. The Treasury and Planning and Budgeting Offices work together to balance the cost of debt and the impact of additional debt service on the institution. Debt capacity is considered a scarce resource and every capital project funded with debt must consider the overall impacts of the additional debt on the University’s Balance Sheet. THE ONE CAPITAL PLAN
The One Capital Plan summarizes major proposed capital needs, aggregated minor capital needs and key planning initiatives in the 2015-17 biennium. It is developed in conjunction with identified needs over the next ten years for all UW enterprises, including UW Seattle, UW Bothell, UW Tacoma, UW Auxiliary Units (Educational Outreach, Housing and Food Services, Intercollegiate Athletics, and Transportation Services), and the UW Medical Center.
Projects are presented in three categories: Fundamental, Funding Potential and Funding Opportunities. The first two categories align with potential capital funding. The last category represents additional capital needs that extend beyond capital funding expectations within the next ten years. The UW Capital Plan identifies possible funding sources for all UW capital projects including State of Washington Building Construction bonds, UW Building Account funds, UW debt, donor funds, and local funds. State appropriated capital funds continue to be critical to the UW Capital Budget. However, as the state’s ability to provide
VII. STANDING COMMITTEES B. Finance and Asset Management Committee Debt Capacity and Capital Planning Update (continued p. 2)
F–3/207-14 7/10/14
capital funding diminishes, the UW increasingly relies on other funding sources, including UW-issued debt, to finance capital projects. Over the next five years, large debt funded projects are planned, including $415 million for previous Board authorized projects, $165 million for One Capital Plan Fundamental projects, and $1 billion for Funding Potential projects. DEBT CAPACITY ESTIMATES See attached presentation entitled “Debt Capacity and Capital Planning Update.” The 2014 debt capacity estimates and use of the Capital Assets Pool allow the UW to fund all Fundamental and Funding Potential projects in the One Capital Plan while still maintaining targeted financial ratios. However, the approval of any individual project is based on its funding plan, which is subject to institutional support and Regental approval. Attachments 1. Debt Capacity and Capital Planning Update 2. UW 10 Year Capital Plan
Debt Capacity and Capital Planning Update
Board of RegentsFinance and Asset Management Committee
July 10, 2014
ATTACHMENT 1F–3.1/207-14 7/10/14
Debt Capacity and Capital Planning Update
WHAT ARE THE MAIN ISSUES FOR DISCUSSION?
Debt CapacityTreasury Office benchmarks against public higher education peers and uses financial ratios and projected institutional growth to estimate debt capacity. Does this methodology make sense to the Regents? Would other information or analysis be helpful?
Capital PlanningThe One Capital Plan is a campus‐wide effort to capture campus capital needs over a ten year period. It is updated annually and shared with the Board each June. What ideas and suggestions does the Board have to improve the capital planning process and provide greater transparency to the campus and the Regents?
2
F–3.1/207-14 7/10/14
WHAT ARE THE REGENTS’ ROLES IN APPROVING DEBT AND CAPITAL PROJECTS?
Debt Capacity and Capital Planning Update
3
Approve ILP loans and external debt for capital projects• On a project‐by‐project basis• Annual Borrowing Resolution (July)• Annual Funding Plan (July)
Oversight of debt portfolio and internal loans• Annual Debt Management Presentation (June)• ILP Quarterly• Semi‐Annual Borrowers Reports
Oversight and approval of capital budget and One Capital Plan• Annually (May and June)
F–3.1/207-14 7/10/14
HOW DOES THE UW THINK ABOUT DEBT CAPACITY?Debt Capacity and Capital Planning U
pdate
4
• Debt capacity provides context and information to senior leaders and the Board about the UW’s ability to fund capital
• The debt capacity analysis is a sizing exercise, based on growth and rate assumptions. It does not imply that any particular project is able to be funded. Each project must undergo a separate due diligence process and be approved by the Board
• The debt capacity analysis is dynamic and can change for a variety of reasons, including interest rate projections, institutional growth assumptions, borrowing plans, and peer behavior
F–3.1/207-14 7/10/14
IS DEBT CAPACITY SUFFICIENT TO MEET FUTURE CAPITAL NEEDS?Debt Capacity and Capital Planning U
pdate
5
Based on current projections, the University can fund up to $1.1 billion over the next five years through a combination of debt and reserves while maintaining its target financial ratios. This is about $220 million per year.
Total Projected Capacity 3,715
Less: Debt Current Outstanding (in FY19) (2,400)
Less: Amount needed for previously approved projects (415)
5‐year Debt Capacity 900
plus: projects funded from CAP program 200
Total Project Funding Capacity 1,100
2014 Debt Capacity Projection ($ in millions)
NOTE: UW revenues and expenses are projected by business line, based on unit‐level assumptions, and summarized in an institutional forecasting model (Future Perfect)
F–3.1/207-14 7/10/14
WHAT ARE THE PEER BENCHMARKS USED FOR ESTIMATING DEBT CAPACITY?
Debt Capacity and Capital Planning Update
6
UW benchmarks to peer institutions and key financial ratios to estimate debt capacity
The peer group identified is comprised of 13 public universities with the following characteristics:
• State flagship institution• Greater than $1 billion in operating revenues• More than 10% of their revenues are generated from health care• Rated between Aaa and Aa2 by Moody’s
University Peer Group
Ohio State University University of MichiganPennsylvania State University University of NebraskaUniversity of Iowa University of New MexicoUniversity of Alabama at Birmingham University of North Carolina at Chapel Hill University of Arkansas University of UtahUniversity of Colorado University of VirginiaUniversity of Kentucky University of Washington
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WHAT ARE THE RATIOS USED FOR ESTIMATING DEBT CAPACITY?
Debt Capacity and Capital Planning Update
7
The key financial ratios used to estimate debt capacity are:• Expendable resources to Debt (Balance Sheet Ratio)• Debt Service Coverage (Income Statement Ratio)• Debt to Total Revenues (Hybrid Ratio)
To estimate debt capacity, institutional revenues, expenses, and reserves are projected for a five year period and key financial ratios are calculated
From these ratios, total debt capacity is derived
Projected outstanding debt and Board authorized debt is then subtracted to obtain available debt capacity
F–3.1/207-14 7/10/14
WHY DOES DEBT CAPACITY CHANGE OVER TIME?Debt Capacity and Capital Planning U
pdate
8
Many factors impact debt capacity; some UW can control, while others are outside of UW’s control
Within UW’s Sphere of Control
Principal repayment: In 2014, UW paid $69 million in principal. Repaying debt increases debt capacity
Growth: From 2010 to 2013, UW had an average annual increase in net assets of $350 million. Growth in net revenue increases debt capacity
Additional borrowing: From 2010 to 2013, outstanding UW debt has increased 81%, from $1.2 billion to $2.1 billion. Additional borrowing decreases debt capacity
Not within UW’s Sphere of Control
Changes in peer behavior: UW estimates debt capacity based on peer medians. UW’s position relative to peers can either increase or decrease debt capacity
Interest rates: Rates have been at historic lows for the last six years. Future increases in interest rates decrease debt capacity
F–3.1/207-14 7/10/14
HOW MUCH HAS UW SPENT ON CAPITAL SINCE 2010 AND HOW WAS IT FUNDED?
Debt Capacity and Capital Planning Update
9
Reserves/Other, $432
State Capital Appropriations,
$255
Capital Gifts, $62
Debt Funding, $1004
2010 ‐ 2013 Capital Expenditures By Funding Source (in $ millions)
Molecular Engineering Paccar & Dempsey HallHusky Union Building UW Bothell Science BuildingHousing Phases 1 ‐ 3 South Lake Union Phase 3.1Husky Stadium UW Medical Center Expansion
Large Projects Include: $1.7 billion since 2010
Indirect Cost8%
Housing and Food Services
35%
Clinical Revenues
17%Tuition Building Fees
8%
Student Approved Fees10%
Athletics17%
Other5%
2010 ‐ 2013 Sources of Debt Repayment
F–3.1/207-14 7/10/14
WHAT ARE THE LEADING INDICATORS THAT ADVISE THE CAPITAL PLANNING PROCESS?
Debt Capacity and Capital Planning Update
10
FactsUW has a rapidly growing plant asset base with Total Capitalization increasing by 30% since 2010
Capital Spending has increased since 2010 to over 2.2 times depreciation expense, which is slightly higher than the Aa1 median of 2 times
Age of Plant has remained steady at about 11 years since 2010, which suggests underspending on deferred maintenance
This large growth in plant assets has been primarily funded with debt; Debt to Capitalization has grown by 37% since 2010
PlansEstimated project capacity over the next five years is $220 million per year, which is comprised of $180 million in debt capacity and $40 million from the Capital Assets Pool (CAP). This is $30 million less per year than UW has spent since 2010.
The University plans to dedicate capital resources (debt capacity and reserves) to modernizing the current plant over the next five years (SW Utility Plant, District Energy, information systems)
The Treasury and Budget Offices are looking more closely at institutional liquidity and will discuss that work with the Board in the context of potential changes in CAP sizing.
F–3.1/207-14 7/10/14
WHAT ARE THE KEY TAKEAWAYS?
Debt Capacity and Capital Planning Update
11
• Debt capacity estimates provide context and information to senior leaders and the Board about the UW’s ability to fund capital
• Estimated Project Capacity (Debt capacity plus Capital Assets Pool) is sufficient to met capital needs over the next five years, but all projects require a board approved funding plan
• Since 2010, UW has made significant investments in new plant assets, which have been largely funded with debt.
• Some necessary investments in infrastructure will be made in the next five years.
F–3.1/207-14 7/10/14
UW Office of Planning and BudgetingUW 10 Year Capital PlanTotal Est
Cost ($,000)Proposed Projects by Tier and Program Use
Range
+/-
Total
Cost/ GSFGSF
IIII Fundamental ProjectsFundamental ProjectsFundamental ProjectsFundamental Projects
ClinicClinicClinicClinic
UWMC - Capital Improvements Construction and Equipment - - 244,800
UWMC - IT Core Applications and Infrastructure - - 169,500
InfrastructureInfrastructureInfrastructureInfrastructure
Metropolitan Tract Acquisition & Recapitalization - - 100,000
Minor Capital Repair - Preservation - - 553,862
Minor Capital Repair - Program Renewal - - 17,500
Planning - Emergent Planning Studies - - 1,400
Planning - UW Seattle Campus Master Plan Initiative - - 2,700
UW Preventative Facility Maintenance - - 155,650
UW Seattle - Strategic Real Estate Investment - - 50,000
UWIT - Network Routing Center Upgrades - - 8,000
InstructionInstructionInstructionInstruction
UW Seattle - Classroom Improvements - - 12,000
Sub Totals: - - 1,315,412
IIIIIIII Proposed Projects - Funding PotentialProposed Projects - Funding PotentialProposed Projects - Funding PotentialProposed Projects - Funding Potential
AthleticsAthleticsAthleticsAthletics
ICA - Basketball Operations and Practice Center 20%1,37845,000 62,000
ICA - Graves Hall Renovation 20%1,00030,000 30,000
ICA - Roadside Enhancement/Landscaping/Wayfinding 20%- - 2,000
ICA - Sand Volleyball Facility 20%- - 400
ICA - Soccer Grandstand and Related Support Facilities 20%1,06732,800 35,000
ICA - Softball Press Box Upgrades and Grandstand Roof and Expansion 20%- - 5,000
ICA - Team Operations Building for Track and Field and Soccer 20%47117,000 8,000
ICA - Track and Field Grandstands 20%- - 4,000
ClinicClinicClinicClinic
UWMC - Front Entrance - - 15,000
UWMC - Northwest Hospital Expansion 20%553150,000 83,000
HousingHousingHousingHousing
UW Bothell - Student Housing & Dining Phase 2 20%500160,000 80,000
UW Seattle Student Housing - North Campus - Haggett Hall Replaceme 15%557186,265 103,700
UW Seattle Student Housing - North Campus - McCarty Hall Replacem 15%785166,509 130,700
UW Seattle Student Housing - North Campus - McMahon Hall Renovati 15%556257,899 143,300
Page 1 of 5
Monday, June 02, 2014
UW 10 Year Capital Plan
ATTACHMENT 2F–3.2/207-14 7/10/14
Total Est
Cost ($,000)Proposed Projects by Tier and Program Use
Range
+/-
Total
Cost/ GSFGSF
InfrastructureInfrastructureInfrastructureInfrastructure
Enterprise Information System - Student/Financial System Replaceme 20%- - 80,000
Major Infrastructure - C-wing Courtyard Membrane Replacement 20%- - 4,500
Major Infrastructure - Multiple Projects - - 65,000
Major Infrastructure - Pend Oreille Improvements 20%- - 28,000
Major Infrastructure - UWIT 4545 Data Center Upgrades 20%- - 2,000
Rainier Vista Corridor - Open Space Improvements - - 26,000
UW Bothell - Major Infrastructure Projects - - 15,750
UW Bothell - Parking & Transportation Improvements 20%- - 26,000
UW Bothell - Strategic Real Estate Investment - - 30,000
UW Seattle - Burke Gilman Trail Development 20%- - 28,400
UW Seattle - Campus Landscape Improvements - - 50,000
UW Seattle - Major Infrastructure Projects - - 86,850
UW Seattle Parking - E1 Improvements 20%- - 5,000
UW Seattle Parking - S-1 Garage structural maintenance and repairs 20%- - 7,300
UW Seattle Parking Mgmt Systems Procurement & Implementation 10%- - 7,100
UW Tacoma - Strategic Real Estate Investment - - 23,000
UW Tacoma Campus Development and Soil Remediation - - 72,500
InstructionInstructionInstructionInstruction
Burke Museum 10%1,06770,319 75,000
CAS - Eagleson Hall Renovation 20%70018,966 13,276
CAS - Gowen and Raitt Halls Renovation I 20%156117,000 18,200
CAS - Lewis Hall Renovation 10%86423,220 20,065
CAS - Life Sciences Building I 12%925173,000 160,000
CAS - Padelford Hall Renovation 20%123138,555 17,000
CAS - Smith Hall Renovation 20%27786,339 23,950
CoE - Academic Building Renovation 20%49560,000 29,700
CoE - Engineering and Computer Science Collaboration and Education 15%838130,000 109,000
CoEduc - Miller Hall Renovation 20%60672,655 44,000
CoEnv - Anderson Hall Renovation 20%65033,543 21,803
Engineering Library Learning Center Renovation 20%60040,000 24,000
Evans School - Parrington Hall Remodel 20%20458,775 12,000
Foster School of Business - McKenzie Hall Replacement 20%80043,000 34,400
Health Sciences Education Phase I - T Wing Addition/Renovation 20%786120,000 94,300
Health Sciences Education Phase II - T Wing Renovation 20%548162,400 89,000
Health Sciences Education Phase III - T Wing Renovation 20%550150,000 82,500
Health Sciences Interprofessional Education Classroom Phase I 20%30010,000 3,000
Information School - Building Renovation 20%40040,000 16,000
Page 2 of 5
Monday, June 02, 2014
UW 10 Year Capital Plan
F–3.2/207-14 7/10/14
Total Est
Cost ($,000)Proposed Projects by Tier and Program Use
Range
+/-
Total
Cost/ GSFGSF
Interdiciplinary Classroom Building - Central Campus 20%66790,000 60,000
School of Dentistry - Dental School and CE Center 20%1,000260,000 260,000
SON - Nursing Simulation Learning Lab 20%40015,000 6,000
UW Botanical Gardens - Aboretum Education Building / Café 20%6258,000 5,000
UW Botanical Gardens - Outdoor Improvements 20%- - 2,850
UW Bothell - Phase 4 - Academic STEM 20%552105,000 58,000
UW Bothell - Phase 5 - Academic Life Sciences 20%60093,333 56,000
UW Bothell - Phase 6 - Academic Building 20%60083,333 50,000
UW Educational Outreach - Community Gateway Building 20%60080,000 48,000
UW Libraries - Archival Storage Sand Point Building 5 20%11172,000 8,000
UW Tacoma - McDonald Smith Renovation 20%27135,000 9,500
UW Tacoma - Swiss / Wild Renovation 20%44134,000 15,000
UW Tacoma - Tioga Renovation 20%37520,000 7,500
UW Tacoma - Urban Solutions Center - Classroom Building Renovation 15%87540,000 35,000
William H. Gates Hall - Law School Program Improvements 20%- - 4,000
ResearchResearchResearchResearch
Applied Physics Laboratory Research Building 20%800150,000 120,000
CAS - Guthrie Hall Addition 20%731160,000 117,000
CAS - Kincaid Hall Renovation 20%57685,000 49,000
CoE - Center for Advanced Materials and Clean Energy Technologies 20%1,000220,000 220,000
CoE - Center for Interdisciplinary Research & Education - Phase I 20%641220,000 141,000
CoE - Classroom & Research Renovation 20%50026,800 13,400
CoE - Innovation Collaboration Center 20%423300,000 126,800
CoE - Molecular Engineering Phase II 15%67978,000 53,000
CoEduc - Haring Center for Education Research and Teaching 20%40075,000 30,000
CoEnv - Research Vessel - Barnes Replacement 20%- - 13,500
Core Research Facilities - IT Upgrade 20%- - 1,700
Fluke Hall Renovation - C4C 2nd floor phase 2 20%3009,500 2,850
Health and Life Sciences - Hitchcock West 20%1,156150,000 173,400
Portage Bench Research Center - UW/NOAA/Partners 20%1,000250,000 250,000
SOM - South Lake Union Phase 3.2 15%895171,000 153,000
SOM - South Lake Union Phase 3.3 20%755262,000 197,700
SPH - Portage Bay Research Building I 20%808250,000 202,000
UW Tacoma - Innovation Partnership Zone - Phase 2 20%46760,000 28,000
UW Tacoma - Innovation Partnership Zone - Phase 3 20%50060,000 30,000
Student LifeStudent LifeStudent LifeStudent Life
Childcare Center Expansion 20%45020,000 9,000
Sub Totals: 4356,076,211 4,702,894
Page 3 of 5
Monday, June 02, 2014
UW 10 Year Capital Plan
F–3.2/207-14 7/10/14
Total Est
Cost ($,000)Proposed Projects by Tier and Program Use
Range
+/-
Total
Cost/ GSFGSF
IIIIIIIIIIII Proposed Projects - Future Funding OpportunitiesProposed Projects - Future Funding OpportunitiesProposed Projects - Future Funding OpportunitiesProposed Projects - Future Funding Opportunities
AthleticsAthleticsAthleticsAthletics
ICA - Dempsey Indoor Facility Parking Garage 20%- - 6,000
HousingHousingHousingHousing
UW Bothell - Student Housing Phase 3 20%500110,000 55,000
InfrastructureInfrastructureInfrastructureInfrastructure
UW Seattle Parking - North Campus Garage 20%- - 15,000
UW Seattle Parking - UW Tower Garage Replacement 20%- - 24,000
InstructionInstructionInstructionInstruction
CAS - Academic Building - Repurpose Renovation 20%62580,000 50,000
CAS - Communications Building Renovation I 20%21280,000 17,000
CAS - Fine Arts Center & Library 20%344189,000 65,000
CAS - Fine Arts District 20%1,552279,000 433,000
CAS - Hutchinson Hall Renovation 20%67455,164 37,200
CAS - Renewal Program V 20%100124,000 12,400
CAS - Renewal Program VI 20%10073,000 7,300
CAS - Thompson Hall Renovation 20%79862,687 50,000
CoEnv - Building Renovation 20%58360,000 35,000
Health Sciences Education Phase IV - T Wing Renovation 20%367120,000 44,000
Health Sciences Renovation - AA Wing 20%22325,800 5,745
Health Sciences Renovation - B Wing - Dental School Improvements 20%40350,000 20,150
Health Sciences Renovation - BB Wing - Office Renovation 20%40050,000 20,000
Health Sciences Renovation - D Wing - Dental School Improvements 20%191115,000 21,925
Health Sciences Renovation - D&C Core - Office Repurpose 20%265185,000 49,000
Odegaard Undergraduate Learning Center Phase 2 20%30065,000 19,500
Robinson Center for Young Scholars 20%50010,000 5,000
UW Tacoma - Green Field Development 20%350250,000 87,500
ResearchResearchResearchResearch
CAS - Life Sciences Building II 20%868190,000 165,000
CoE - Center for Interdisciplinary Research & Education - Phase II 20%1,000150,000 150,000
CoE - Center for Interdisciplinary Research & Education - Phase III 20%1,000150,000 150,000
Core Research Facilities - ARCF II 20%1,54260,000 92,500
Core Research Facilities - K wing vivarium upgrades - - -
Core Research Facilities - T wing vivarium upgrades - - -
Foege West 20%1,100175,000 192,500
Health and Life Sciences - Hitchcock East 20%1,00070,000 70,000
Health Sciences Renovation - H Wing - Research Repurpose 20%417132,000 55,000
Health Sciences Renovation - H&F Core - Office Repurpose 20%235202,000 47,500
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Monday, June 02, 2014
UW 10 Year Capital Plan
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Total Est
Cost ($,000)Proposed Projects by Tier and Program Use
Range
+/-
Total
Cost/ GSFGSF
Health Sciences Renovation - I Wing - Office & Education Repurpose 20%237135,000 32,000
Health Sciences Renovation - RR Wing 20%750140,512 105,384
Portage Bay Research Building II 20%720250,000 180,000
Student LifeStudent LifeStudent LifeStudent Life
House of Knowledge Longhouse - Phase II 15%8308,432 7,000
OMAD - Instructional Center Renovation & Addition 20%1,12516,000 18,000
UW Bothell - Student Activity Center Phase 2 20%65223,000 15,000
Sub Totals: 5253,685,595 2,359,604
Total Tiers I, II, and III: 4259,761,806 8,377,910
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Monday, June 02, 2014
UW 10 Year Capital Plan
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