Frequently Asked Questions about the
USM Facilities Renewal Program
Projected Impact of USM FR program on the Backlog*
$1,800,000,000
$1,600,000,000
$1,400,000,000
Backlog Amount
$1,200,000,000
$1,000,000,000
$800,000,000
$600,000,000
$400,000,000
$200,000,000
If no change in operating or capital budget spending
Combination INCREASED CAPITAL AND OPERATING Spending Annually
$0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Years
One of the stated priorities of the Chancellor and Board of Regents of the University
System of Maryland (USM) is to maintain an adequate annual investment in the
maintenance and renewal of capital assets. Current USM programs and policies are
intended to reduce an existing backlog of deferred maintenance and help restore a
manageable balance between the detrimental impact of time, weather and use on facilities
and adequate spending to combat their deterioration.
How is USM facility assessment performed? How are projects prioritized?
The facilities (physical plant) staff at each USM institution identify and compile lists of
maintenance issues based on regular inspections of building condition and by tracking
problems as they are reported on campus (e.g., via service orders). Building condition is
summarized in the annual SGAP reports. Each institution manages these emerging
concerns in priority order through one of three different ways: (1) routine maintenance
(operating funding); (2) capital maintenance (e.g., the capital FR program); or (3) a
capital project to renovate or replace an entire building. If funding is insufficient to deal
with a particular problem (e.g., replacing a leaking roof), repairs are made to meet the
immediate concerns and the replacement is "deferred" (e.g., becomes part of the backlog).
In FY2005, the USM asked for a specific assessment of FR need from each institution.
These were estimates only. (In order to establish a consistent baseline across the System,
a facilities audit of all institutions by a third-party consulting team would have been
USM Facilities Renewal, page 2
required. Such a detailed facilities audit has been discussed in the past, but the cost to do
so was deemed prohibitive, given operating budget constraints.) The aggregate baseline
backlog for the System was determined to be just over $1.7 Billion. By FY 2007, this
estimate was further adjusted to $1.6B based on subsequent funding and the exclusion of
some non-maintenance (e.g., remodeling) work that may have been included in the
original. Given the challenges and dynamics of evaluating such a large physical plant
that spans the various regions of the State, this approach seems reasonable.
How does project procurement work? How are projects managed?
Procurement of construction-related services is done in compliance with the limits and
requirements of the USM procurement policies and procedures, as approved by the Board
of Public Works in 2000. Details can be found at:
http://www.usmd.edu/regents/bylaws/SectionVIII/VIII300.html
Routine maintenance is performed by internal crews or via established maintenance
contracts. Smaller projects funded via the “FR” line item in the capital budget are
managed by the institutions. Larger capital projects (those exceeding $1M) are approved
via the capital budget and then managed directly or through delegation by one of two
USM Architectural/Engineering/ Construction Service Centers (at UMB for Baltimoreregion institutions; or at UMCP for others). Additional information about USM project
management for capital projects can be found at:
http://www.usmd.edu/regents/bylaws/SectionVIII/VIII1030.html
Historically, how has the program been funded?
Funding to support this effort is intended to be from the operating budget. Historically,
however, operating funds have not been able to sustain an adequate level of facilities
renewal funding and the backlog of unmet need has grown. Assuming a manageable
backlog of deferred maintenance (thought to be about 5% or less of the replacement value
of the overall physical plant) an annual investment of about 2% of the aforementioned
replacement cost would be needed to maintain the status quo.
In the case of the USM, investment had been only about ½ to 1% (or less) of replacement
cost in the operating budget. Some institutions did more than others, but the bottom line
was that the minimum 2% could not be funded within the constraints of the budget. A
portion of that shortfall, then, contributed to an already growing backlog of deferred
maintenance work. Over time, less-than-adequate capital funding (for total building
renovation or replacement) coupled with the operating budget shortfall, led to the
estimated $1.6B backlog we see today.
Since a backlog of projects exists, how can funding levels be increased to meet this
backlog?
Reversing the problem and reducing the backlog of deferred maintenance must be done
in a methodical and deliberate way, to match the multi-faceted way the problem grew in
the first place. To this end, through recent policy changes, the Board of Regents has
USM Facilities Renewal, page 3
enacted two facilities renewal (“FR,” a combination of deferred maintenance and related
renovation work) backlog reduction strategies:
1. Pare down the backlog to a manageable size through deliberate spending on major
renovation and replacement in the capital budget (see graph above); and
2. Adopt an annual operating spending formula (with help from the Academic
Revenue Bond-funded "FR" line item in our capital budget) based on a target
guideline of 2% of the replacement value (RV) of campus buildings. This
ongoing spending is intended to keep the backlog from growing, or to keep on top
of the problem, once it is "fixed" with higher capital spending.
The backlog and the capital budget. The current backlog is an estimated $1.6 billion list
of facilities needs that may be characterized as major replacement and renovation capital
projects. Without intervention, it would have continued to grow each year with the
increased cost of construction and as a result of unfunded maintenance. The backlog is a
major focus in the Capital Budget and it is in the capital budget where the biggest impact
in reducing the backlog can be made.
In December of 2005, the Board of Regents approved an expansion to their 1992 policy
on facilities renewal to meet the backlog challenge. Details can be seen at:
http://www.usmd.edu/regents/bylaws/SectionVIII/VIII1010.html
The new policy states that the Regents will approve an annual Capital Budget request to
the State that includes, at a minimum, the FY2006 level of funding building renovation
and replacement ($70 million) adjusted for inflation. (Annual target amounts for the
FY2010-2014 CIP, for instance, range from about $95-120M using this formula.) These
are the large-scale projects typically included in the overall capital program for the
System. The current CIP request of the Board of Regents exceeds these targets.
Factors such as "age" and "condition" of facilities are some of the measures that help
define the existing backlog of FR need for a particular institution. Thus, the allocation of
funding for replacement and renovation projects in the capital budget varies depending on
the specific needs of each institution. Institutions requiring more intense investment in
existing facilities will be appropriated a higher proportion of the capital budget until
those needs are adequately addressed. This is especially true where enrollment pressures
demand such investment.
The role of the operating budget. Included in the policy action, the Board of Regents
approved language in the facilities renewal policy that requires institutional operating
spending for FR to be targeted at 2% of the current replacement value (CRV) of all
institutional capital assets. Operating funds shall be enhanced at each institution until the
2% of replacement value spending level is reached. To assist institutions in achieving
this goal, annual spending targets increasing in increments of 2/10ths of 1% have been
established. Also, until institutions are able to fully fund the required 2%, they may
include their allocated share of the $17M FR capital budget line item appropriation
(funded through USM Academic Revenue Bonds or “ARBs”) in the target calculation.
USM Facilities Renewal, page 4
The 2% or replacement value spending amount is a minimal target--one of many industry
standards for maintenance. Obviously, the real needs could be more or less, depending
on the age/condition of the physical plant. The percentage allocations of the $17M each
year in ARBs attributed to each institution changes little year-to-year because they are
based solely on the replacement value of the academic (State-support) facilities at
each. In other words, the ARB amount is allocated annually among our institutions on a
formulaic basis (based on the replacement value of the academic physical plant).
As mentioned earlier, however, building condition is a critical part of the way institutions
request (and the Regents recommend) capital projects like total building renovation or
replacement. That's where USM is able make a difference for the schools that need
it. Building condition is not factored into this calculation. To do so could create a
disincentive for institutions to work to maintain facilities in an efficient way. Instead, as
mentioned above, building condition (aka "need") plays a key role in the project selection
through the Regents' overall capital funding strategy for major renovation and
replacement.
Is there a more efficient system for dealing with this problem? If so, what would it
entail?
Assuming funding levels can be maintained, this approach will be very effective in
dealing with the problem. Evaluating need and establishing priorities is best left to the
institution, as is the management of FR-related projects. The Regents’ approach that
makes an ever-increasing level of capital spending on renovation or replacement a
requirement in the capital program is a significant step toward reduction of the backlog.
Furthermore, making the increment toward the 2% spending goal a high priority within
the operating budget helps ensure progress made toward backlog reduction is maintained.
The State has recognized the overall discipline expressed by the Board and the
institutions in this effort, and the budget committees noted the exemplary nature of the
policy as recently as the last legislative session. A Statewide study of facilities renewal is
to commence this year and the USM has been asked to participate.
________________________________________________________________________
*Note regarding the graph. The model assumes the following parameters:
●
●
●
●
For now, the Operating Budget Spending includes $15M (historically, now $17M) in capital "FR"
funded with USM academic revenue bonds. Ultimately, the 2% target is intended to be from operating
budget resources only.
The Replacement Value of the physical plant is increased 4% per year.
An estimated two-thirds (2/3) of the shortfall (2% target less actual) in the operating budget for FR
reverts to the backlog each year.
The model assumes a 5% growth in the capital budget each year and a 1:1 direct ratio of capital
renovation or replacement spending on backlog reduction.
An Excel-based version of the graph is available should the reader be interested in assessing the impact of
changes to these parameters.
Revised 6-16-08, University System of Maryland Office of Capital Planning