Capital Finance Administration
Chief Financial Officers Meeting
December 12, 2013
Minnesota State Colleges and Universities
The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator.
Agenda
Purpose
Before the project
Statistics
After the project
Future Issues
2
What do we need to do?
Renew
Build
Buy
Capital Improvement
Replace
Remodel
3
Purpose
 Current and future operating environment
 Responding to “Charting the Future”
 6. Redesign our financial and administrative models to reward
collaboration, drive efficiencies and strengthen our ability to provide
access to an extraordinary education for all Minnesotans.
 Compliance
4
Buckets of Money
Academic, classrooms, labs,
student support space
“Outside” the classroom, self
supporting, student lifestyle
 22 million sq. ft.
 6 million sq. ft.
 Capital bonding bill
 Revenue bonds
 Projects, repair &
replacement
 Residence halls, student
unions, parking
5
General Obligation Bonds (academic)
 For academic buildings
 Bonds sold by the state
 Part of the “Bonding Bill”
 State has compliance
responsibility
 MnSCU to track and adhere to
requirements
 Private Use (more on that later)
6
Revenue Bonds (auxiliary)
 For auxiliary buildings
(residential, student union,
parking, etc)
 Structures debt to account for
private use
 MnSCU generates and issues
bonds
 Board authorizes bond
 Maintains and fulfills
compliance
7
Capital project planning (academics)
Capital
Budget
Guidelines
Project
Funding
Master
Facilities Plan
“New” Consideration
* Type of use
* Private Use Analysis
Capital
Budget
Request
Project
Predesign
Chancellor
and Board
Review
8
Capital
Project
Scoring
Capital project planning (revenue)
Revenue Fund
Guidelines
Bonds issued
Master
Facilities Plan
Chancellor
and Board
Review
Project
Predesign
Rating Agency
9
Design and
Financial
Evaluation
Basic Requirements for capital projects
General Obligation
Revenue
 publicly owned
 publicly owned
 capital expenditure
 capital expenditure
 public purpose
 public purpose
 project must be clearly set
forth in the law
 eligible project
 authorized by board
 adequate financials
10
State debt management strategy
drives the bonding bill
 Guideline # 1: Total tax - supported principal outstanding shall
be 3.25% or less of total state personal income
 Guideline # 2: Total amount of principal (both issued and
authorized/unissued) for state general obligations, state
moral obligations, equipment capital leases and real estate
capital leases shall not exceed 6% of total state personal
income
 Guideline # 3: 40% of state G.O. bonds are to mature within 5
years and 70% within 10 years
Source: Minnesota Management & Budget, http://www.mmb.state.mn.us/doc/bonds/debt/practices.pdf
11
Current Debt Summary (MnSCU)
General Obligation
Revenue
 $231.2 million outstanding
(1/3)
 $295.3 million outstanding
 Annual debt service =
$28.36 million
 Full share
 MnSCU only
 14 campuses
 1/3 share
 As of Dec. 1, 2013
 As of January 2014
 Ave. G.O. Rates: 4.52%
12
 Annual debt service =
$23.6 million
 Ave. Rev Bond Rates: 4.06%
(excludes 2012 refunding)
13
033. 2012-AUG
032. 2011-OCT
031. 2010-AUG
030. 2009-NOV
029. 2009-AUG
028. 2009-JAN
027. 2008-AUG
026. 2007-AUG
025. 2006-NOV
024. 2006-AUG
023. 2005-OCT
022. 2004-NOV
021. 2004-AUG
020. 2003-AUG
019. 2002-NOV
018. 2002-JUN
017. 2001-OCT
016. 2000-NOV
015. 2000-JUN
014. 1999-AUG
013. 1998-NOV
012. 1998-JUN
011. 1997-AUG
010. 1996-NOV
009. 1996-MAY
008. 1995-AUG
007. 1995-APR
006. 1994-OCT
005. 1993-AUG
004. 1993-APR
003. 1992-JUL
002. 1991-AUG
Era of “cheap” money
General Obligation Bond Interest Rates
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Revenue Fund interest rates
Tax Exempt Revenue Bond Interest Rates (2002-2013)
True Interest Cost
6.00%
5.00%
4.83%
4.00%
4.45%
4.18%
4.44%
4.26%
4.09%
3.45%
3.00%
2.78%
2.00%
1.84%
Tax-Exempt
1.00%
0.00%
2002
2005
2007
2008
2009
2011 A&B
2011C
2012
Refunding
2013
True Interest Cost
Taxable Revenue Bond Interest Rates (2002-2013)
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
6.45%
4.89%
5.27%
4.51%
3.48%
2002
14
5.63%
2005
2007
2008
2009
2011 A&B
2011C
2.03%
1.91%
2012
Refunding
2013
Taxable
2014 Capital Budget Summary
Capital Projects (excludes HEAPR)
$155.9 M
College
$73 M
University
$82.9 M
HEAPR
$130.6M
HEAPR
$110M
Demolition
$20.6M
Total Request (rounded)
$286.5M
15
Impact of 2014 capital request
 Assumptions  $156 million of capital projects
 Fully funded (excludes HEAPR, Demo)
 Results  Add $52 million worth of debt (1/3 share)
 Increase system debt service by $3-$3.4 million
 Peak debt service of approximately $32.4 million
16
2014 capital budget projected debt
service impact
35,000,000
32,407,486
30,000,000
25,000,000
20,000,000
Principal
Interest
15,000,000
TOTAL
10,000,000
5,000,000
-
17
-
Policies
Use
After the
Bonds
are sold
Procedures
18
People
After the bonding bill - MMB
Were funds
spent
correctly?
After the
funds are
spent
How is
property
being used?
How are we
keeping
track?
19
Legislative auditor checks if funds
spent correctly
 2006 bonding bill
 Report in 2008
 Update in 2012
 Expecting new review for 2010 bonding
bill
 Moving expenses
 Project staff costs
 Capital eligible
20
MMB, System office evaluates how
property is being used
 Evaluation of private business use
 MMB checklist
 Lease is invalid without MMB sign off
 Request to commissioner (letter)
21
Private Use and Tax Exempt Bonds
 State policy gives advantages in dealing with the IRS
 Internal awareness of bond compliance responsibilities
 Manage risk:
 Loss of tax-exempt status
 Liability to the IRS or bondholders,
 Reputational damage, and/or
 Inability to access future tax-exempt bond markets
22
What is the IRS and MMB looking for?
 Written procedures and guidelines
 An individual identified to coordinate the plan
 Record keeping and retention guidelines
 Continuing disclosure obligations
 Education and training
 Monitoring of arbitrage and rebate requirements
 Private business use monitoring
23
Steps we’ve taken to date (Revenue
Fund)
Revenue Fund
 Policy document with bond counsel (to be published)
 Sharepoint site for series documents
 Campus EMS - track Group Types
General Obligation
 Filed declarations
 Campus EMS - track Group Types
24
Private Business Use





25
Ownership
Leases and space use arrangements
Management contracts
Research Contracts
Other Beneficial use arrangements
Exceptions to Private Business Use


General Public Use

When use of the facilities is available to the general public with no priority rights or any other
preferential benefits conveyed

Use is not “general public use” if the term of the use under the arrangement, including all renewal
options, is greater than 200 days.
Short Term Use

De-minimis uses of bond-financed facilities are not private business use if the facility is not financed
for a principal purpose of providing it for use by a nongovernmental person
 50 days or less: The arrangement is a negotiated arm's-length arrangement, and compensation
at fair market value.
 100 days or less: Similar arrangements are generally available to, and expected to be executed
with, private businesses on a nondiscriminatory, rate scale basis

Incidental Use

26
Common incidental uses include pay telephones, vending machines, advertising displays, and use for
television cameras
Takeaways
 Let us know if a project contemplates private use
 We can ask the state to structure debt to account for the
private use or we can for revenue bonds
27
Resources - Use of Bond Funds
Minnesota Constitution
Minnesota Statutes
MMB Commissioner’s
Orders
Management
& Budget
Policies
MnSCU
Resources: Constitution, Statute
 Minnesota Constitution, Art. XI, Sec. 5
 Minnesota Statute
 Minn. Stat. sec. 16A.695,
https://www.revisor.mn.gov/statutes/?id=16a.695
 MMB Policy, Tax Exempt Governmental Obligations and Tax
Credit Bonds, Tax Compliance Policies and Procedures
 http://beta.mmb.state.mn.us/doc/bonds/legal/tax-compliance.pdf
Resources: Commissioner’s Orders
 Commissioner’s Orders
 4th Amendment, July 30, 2012
 http://www.beta.mmb.state.mn.us/doc/bonds/history/fourth-order.pdf
 Historical orders
 Third Amendment, August 26, 2010
 http://archive.leg.state.mn.us/docs/2010/other/100855.pdf
 2nd Amendment, March 9, 2010
 http://www.house.leg.state.mn.us/comm/docs/order%5B1%5D.pdf
 Order Amendment Order of Commissioner of Finance Relating to Use
and Sale of State Bond Financed Property, July 10, 1995
 http://www.leg.state.mn.us/docs/2010/other/100781.pdf
Resources: Office of Legislative Auditor
 General Obligation Bond Expenditures (2008)
http://www.auditor.leg.state.mn.us/fad/pdf/fad0834.pdf
 General Obligation Bond Expenditures Follow up Review of
2008 Recommendations (2012)
http://www.auditor.leg.state.mn.us/fad/pdf/fad1214.pdf
 Ongoing – General Obligation Debt Expenditures (2013)
Resources: Bond Counsel Opinions
 Main Page: http://www.beta.mmb.state.mn.us/bond-
opinion
 Particularly relevant :
 Expenditures Eligible for State General Obligation Bond Financing, April 24,
1989, as amended March 15 1990:
 includes distinguishing characteristics between operating and capital budget items
 http://www.beta.mmb.state.mn.us/doc/bonds/opinions/opinions-expend.pdf
 General Obligation bond Financing of Technology Projects, July 5, 2000:
 Regarding bond financing of network infrastructure, including wireless, coaxial or fiber optics,
utilities in support of technology, technical centers and clean rooms, routers, switches,
transmitters, and supporting data rooms
 http://www.beta.mmb.state.mn.us/doc/bonds/opinions/bond-financing.pdf