SRB: Bond Financing/ Debt Management

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Rosa H. Renaud, Financing & Treasury
Nancy Freelander-Paice, Capital Planning, Design &
Construction
SRB: Bond Financing
& Debt Management
 Agenda:
 Debt Outstanding
 Process
 IRS Tax-Exempt Bond Requirements
 Debt Management
2
SRB Debt Outstanding





2002 – Systemwide Revenue Bond (SRB) program
Bonds issued by the Board of Trustees
June 30, 2013 – SRB debt outstanding: $3.6 billion
All campuses plus Chancellor’s Office participate
Programs benefiting from SRB bonds:
Housing
Health Centers
Parking
Continuing Education
Student Unions
Auxiliary Organizations
Continuing Education
3
Process
 Coordinated effort between:
 Campuses
 Campus Planning, Design and Construction (CPDC)
 Financing and Treasury (F&T)
4
CPDC Process
 Key Milestones
 Two Pathways for Trustee Approval of Non-state Projects


Annual Call Letter for 5-Year Capital Improvement Program
 Spring
 Submit program request to CPDC
 Board of Trustees approve ‘Draft’ 5-Year program
 September
 Board of Trustees approve ‘Final’ 5-Year program
 Action year (year 1) Non-state projects de facto approved
Amend non-state capital program at Board of Trustees’ Meetings
 Timing per due dates issued by CPDC/F&T
 Board of Trustees approve project
5
CPDC Process
 Key Milestones Continued
 Documents Required



Project Description CPDC Form 1-4
Project Cost Estimate CPDC Form 2-7
Tax-Exempt Private Use Checklist
 Requisite related forms
 Other Hurdles
 Due Diligence
 Master Planned
 California Environmental Quality Act (CEQA) Compliance
 Approval of Schematic Plans
6
Financing & Treasury Process
 Key Milestones:
 Review of campus financial plans at key junctures





Projects submitted per CPDC Annual Call Letter
Amendment of the Non-state Capital Outlay Program
Schematic plan approval
Construction bid receipt
Financing Approval by Board of Trustees.
 Housing projects

Review/approve campus plan for Housing Proposal Review
Committee consideration
7
Tax-Exempt Bond Requirements
 State and Non-state Projects:
 Completion of CPDC’s Private Use Checklist and other
related forms
 Annual review per spring call letter
 Timely updates if changes to private use occur

http://www.calstate.edu/cpdc/Facilities_Planning/Space_Mgmt/
 Call Letters
 Forms
 Resource Documents
8
Tax-Exempt Bond Requirements
 SRB Projects:
 Draft Allocation of Bond Proceeds form
 Final Allocation of Bond Proceeds form


Completion of the project
Prior to close construction account & release of surplus funds
 Form can be obtained at:

http://www.calstate.edu/ft/taxexemptbonds/
9
Tax-Exempt Bond Requirements
 Financing Policy – Key Benchmarks:
 Campus proposals in line with Executive Order 994
 Debt Service Coverage Ratios*



Campus: minimum 1.35 overall
Program: minimum 1.10
Auxiliary organizations: 1.25
*[net income/annual debt service]
10
Tax-Exempt Bond Requirements
 Financing Policy – Key Benchmarks continued:
 Reserve Requirements

Campus policy




Major Maintenance & Repair/Capital Renovation & Upgrade
Working Capital
Capital Development for New Projects
Catastrophic Events
 Reserve Review

Campus required to conduct an in-depth review
 Assess reserves and policies at minimum every 3 years
11
Tax-Exempt Bond Requirements
 IRS requires documentation to substantiate eligibility
of tax-exempt bond status
 Lower interest rate bonds but at the expense to the
federal government
 Private Use limited to 10%
 Applies to facilities funded by tax-exempt bonds
 10% calculated by



Assignable square footage
Time
Cost
12
Tax-Exempt Bond Requirements
 Potential Private Use
 An outside operator, such as parking services or a
housing operator
 Leases with outside parties, for example dining services
and retail space
 Special economic benefits arranged, advertising and
marketing of logos
 Grant funded research
 For guidelines see F&T website at:
http://www.calstate.edu/ft/taxexemptbonds/
13
Tax-Exempt Bond Requirements
 IRS requires record retention for life of bonds plus
3 years
 CSU has extended this to plus 5 years
 Maintain records for 35 years
 Construction start initiates record retention period
14
IRS Audit on the SRB Program
 2011, IRS audits SRB program
 Series 2005A and 2005B

20 projects built in the 2004-2006 timeframe
 Two prior bond refundings

15 projects originally built between 1983 and 1999
 Favorable outcome
 Accepted with no findings
 Identified internal deficiencies
 Improved internal process
15
Debt Management
 Strategic CSU Plan
 Campus needs
 Financial viability of projects
 Continuous oversight


Debt service coverage ratios
Reserve balances
 Oversight and prioritization
 Board of Trustees
 Chancellor’s Office
 Campuses
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Debt Management
 Secure lowest rate of borrowing for CSU
 Commitments by campuses and Chancellor’s Office


Maintain strong financial benchmarks and credit ratings
Meet IRS requirements for tax-exempt bonds
17
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