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SRB: Bond Financing & Debt Management

SRB: Bond Financing & Debt Management. 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. SRB Debt Outstanding.

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SRB: Bond Financing & Debt Management

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  1. SRB: Bond Financing &Debt Management Rosa H. Renaud, Financing & Treasury Nancy Freelander-Paice, Capital Planning, Design & Construction

  2. SRB: Bond Financing & Debt Management • Agenda: • Debt Outstanding • Process • IRS Tax-Exempt Bond Requirements • Debt Management

  3. 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: Continuing Education

  4. Process • Coordinated effort between: • Campuses • Campus Planning, Design and Construction (CPDC) • Financing and Treasury (F&T)

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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/

  10. 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]

  11. 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

  12. 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

  13. 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/

  14. 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

  15. 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

  16. 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

  17. 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

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