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Section 5: Capital Project Accounting

Capital Projects Managed by the UT System Office of Facilities Planning and Construction

Effective Date:

02/08/10

Approved By:

Lenora Chapman, Associate Vice President for Financial Affairs

 

Last Revised On:

10/15/2013

For Assistance Contact:

Assistant Vice President, Financial Affairs and Controller:

Capital and Special Project Accountant:

PURPOSE/SCOPE

This guideline provides the approval, accounting, payment and closure procedures for capital projects managed by the UT System Office of Facilities Planning and Construction (OFPC).

AUTHORITY

Texas Education Code Chapter 61
UT System Regents’ Rules and Regulations:

  • Rule 80301, Capital Improvement Program

  • Rule 80402, Major Construction and Repair and Rehabilitation Projects

UT System policy UTS168 - Capital Expenditure Policy.

UNIVERSITY GUIDELINES

Table of Contents

A. Overview

Capital Projects are an integral aspect of UTSA’s overall strategic growth.  UTSA’s master plan provides direction for the future physical development of the campus.  Projects involving New Construction or Repair and Rehabilitation in excess of $4 million, Repair and Rehabilitation that is architecturally or historically significant, and debt-funded projects are considered major projects and require approval from the UT System Board of Regents (BOR).  These projects, if approved by the BOR, are added to the UTSA Capital Improvement Program (CIP).

B. Supporting Documents

1. Form 2

This form is also known as the Accounting Source Document.  It is the authorizing document to record project funding, appropriations and changes, movement of funds and expenditures, encumbrances, and in certain cases, expenditures and other miscellaneous debits and credits.  When a project is added to the CIP, a Form 2 is generated to record Temporary Funding, set up the OFPC management fee, and move funds as necessary to cover initial expenditures. When the project receives BOR approval, new accounts are established to record project funding. Temporary Funding is removed and full funding for the project is set up.

2. Form 4/5

Also referred to as the Project Close Out Form or the Construction Project Completion Report, Form 4/5 is initiated upon final completion when expenses are no longer recorded against the project. 

3. Form 9

Also known as the Construction Project Voucher Authorization, Form 9 is the authorizing document used to initiate payment for expenditures and to disencumber funds associated with a purchase order.

4. President's Letter

This letter signed by the UTSA president formally requests that a project be placed on the agenda for a BOR meeting.  The letter must include the following:

  • The official project name.

NOTE: The project name must match the name in the CIP database.

  • A description of the project, including its scope.
  • The estimated total project cost (TPC) for budgetary purposes.
  • The identified funding source(s).

Approval by the UT System Executive Vice Chancellor (EVC) for Academic Affairs or Health Affairs is also required.

 
5. Pro Forma

Projects that are fully or partially self-supportive from a funding perspective require a detailed pro forma (financial projection).  These are normally projects for which new auxiliary enterprise revenue will be generated to service the debt.    

a. UTSA Financial Affairs will contact the UT System Finance Office to obtain debt issuance assumptions (i.e., amortization term and rate) to be used in developing the pro forma.

b. The pro forma should cover a minimum of six years from the completion of the project and should forecast all operating revenues and expenses for that auxiliary enterprise.  For example, revenues and expenses for a new parking garage will be incorporated into the overall parking operations budget as there may be economies of scale and/or certain costs may not be easily allocated to one particular project.

c. Revenues will be compared to total expenditures to compute “net income” for the project for each forecast year.

d. The annual debt service costs are estimated based on the amortization term and interest rate.  Divide “net income” by debt service in each forecast year.

e. A 1.3x Debt Service Coverage (see the UT System Institutional Debt Capacity Methodology for more information) is required for revenue-generating projects to be approved by UT System.   

f. The pro forma must be developed or validated by the UTSA Associate Vice President of Financial Affairs (AVPFA) or designee.

g. The pro forma is submitted with the PPF when seeking BOR Design/Development (DD) approval.

NOTE:  When gifts are a source of funding for a capital project, see the Gift Funding definition for more information.

6. Project Planning Form (PPF)

The PPF is a uniform, web-based data collection system through the OFPC website designed to gather a complete set of data points pertinent to a specific project. 
A complete, current PPF is required to be submitted by UTSA when a project is going before the BOR, including projects returning to the BOR for additional approvals.  
The PPF is accompanied by:

    a. The President’s Letter (see “President’s Letter”).  PPFs submitted without the President’s Letter are considered incomplete and will not be accepted.

    b. Any required exhibits or attachments such as a project pro forma.  The internet location of the PPF System is:  https://www.utsystem.edu/PPFSystem.

NOTE:  The PPF may also be used outside the project approval phase to update important project information such as TPC increases of less than 10%, changes in expected delivery dates, changes in projected expenditures, etc. 
These project details will be updated in the CIP at least quarterly by the senior project manager or by UTSA if the project is institutionally managed.

7. Business Plan (new construction only)

Following are examples of elements that may be included in the Business Plan depending on the nature of the project and funding sources:
•  Project description including funding, space utilization efficiency metrics and other relevant background information
•  Justification for the project and reasonable options for moving forward with the project
•  Summary of economic analysis including items such as comparative cost data and project life cycle cost analysis
•  Opportunities and risks analysis (opportunities related to UTSA’s goals, and risks applicable to the project such as revenue, cost, regulatory and environmental risks)
•  Success criteria (measurable and time-specific criteria that will indicate the project is achieving the goals set by UTSA)
•  Impact of project postponement (implications if the project is not approved or is delayed)
•  Appendices as appropriate, such as site maps, engineering reports, and other supporting documents.

 

8. Six-Year Forecast

This forecast is used for projects that are not self supporting. Contact the UT System Office of Finance to obtain the most recent six-year forecast on file.

a. Add the new project and its incremental debt into the Future Debt tab.

b. Build incremental revenues and expenses associated with the project into the UTSA Statement of Revenues, Expenses and Changes in Net Assets (SRECNA).

c. Meet at least two of the following standards:

            At least 1.8x Debt Service Coverage
            At least 80% Expendable Resources-to-Debt
            No more than 5% Debt Service-to-Operations

d. Submit with PPF when seeking BOR DD Approval

NOTE:  When gifts  are a source of funding  for a capital project see the Gift Funding definition for more information.

C. Approval Process

1. The UTSA Office of Facilities (Facilities) drafts the President’s Letter and forwards it to the president’s office for review and to obtain the applicable signature(s).

2. The signed President’s Letter, PPF, project Business Plan (if applicable) and any other attachments (such as a pro forma if the project is revenue generating or a six-year forecast if the project is not revenue generating) are sent by the UTSA Office of Facilities Planning and Development to the EVC for Academic Affairs.

NOTE: PPF requirements are the same for Library, Equipment, Repair and Rehabilitation (LERR) projects as for any other project, except that a President’s Letter is not required for LERR projects; approval in the LERR budget serves in place of a President’s Letter. Additions to the CIP for LERR Repair and Rehabilitation projects are automatically approved provided that the TPC and funding sources have not changed from the documentation that accompanied the LERR budget (LERR Library and Equipment projects are not included in the CIP).

3. The President’s Letter, PPF, project Business Plan (if applicable) and other attachments are submitted to the BOR for review and approval.

NOTE: 
Once added to the CIP, LERR Repair and Rehabilitation projects are subject to TPC change rules applicable to all major projects, as described in Regents’ Rules and Regulations Rule 80402.  TPC changes may generally be approved by the Chancellor in lieu of the BOR, unless the cost change will cause a variance of more than 10% from the original BOR-approved TPC, and that variance exceeds $500,000.
Pro forma should be submitted to UTSA Financial Affairs for review two weeks in advance of submission to UT System.

4. The UT System Office of Finance provides the Finding of Fact before BOR DD approval.

5. BOR provides DD approval, appropriates funding and authorizes expenditures.

NOTE: UTSA may spend Temporary Funding up to 5% of the preliminary project cost for DD (or up to 10% with explicit EVC for Business Affairs approval) once the project is approved for inclusion in the CIP.  These costs cannot be reimbursed until debt is issued.

6. Full BOR approval is required if the estimated TPC at the end of DD varies by more than 10% from the estimate provided when the project was added to the CIP.

7. The Texas Bond Review Board approves the bond issuance.

8. The Texas Attorney General approves the legality of the bond issuance.

D. Account Establishment

  1. Upon notification from the OFPC Project Unifier System (OPUS), the UTSA Capital and Special Project (CSP) Accountant downloads Form 2 (see “Form 2”).
  2. When requested by the CSP Accountant, Accounting Services establishes a new account for the approved capital project.  
  3. As indicated in Form 2, if OFPC has contracted with vendors for different components of construction, the CSP Accountant allocates funds to separate accounts designated for payments to each vendor.
  4. The budget should equal the total approved project cost and should approximate the line items in the PPF.
  5. Accounts for LERR capital projects are established based on the project submitted for CIP approval by Accounting Services.

NOTE: Contracts submitted to the UTSA  Associate Vice President  for Administration for execution that are CIP-approved projects must include supporting documentation (email, etc.) to substantiate inclusion in the CIP.  If Institutional Funds will be used to supplement a CIP-approved project, additional documentation will be required (see FMOG - Institutionally Managed Capital Projects for additional requirements).

 

E. Payment Process

The preferred expenditure order created by the UT System Office of Finance allows institutions to earn as much income on debt proceeds as possible prior to expending the debt.
The preferred expenditure order is:

  • TRB Debt proceeds
  • PUF Debt proceeds
  • Income on PUF Debt proceeds
  • RFS Debt proceeds
  • Institutional Funds

The payment process for an OFPC-managed project is:

    1. As work is completed, the OFPC project manager instructs the OFPC Accounting Office to initiate payments for completed construction. 

    2. UTSA is notified that a Form 9 (see “Form 9”) is available for download from OFPC. 

    3. The CSP Accountant downloads and reviews Form 9, records the account number on the form, and verifies availability of funds. 

Payments for Construction in Progress or furniture/equipment with a value of $5,000 or more are coded as capital expenditures.
Payments for furniture/equipment less than $5,000 are coded as non-capital expenditures. 

    4. The CSP Accountant sends Form 9 to Disbursements and Travel Services (DTS) for payment voucher processing.

    5. Upon final approval, DTS forwards the voucher to Accounting Services for review.

    6. Accounting Services verifies the account number and confirms that the project meets capitalization thresholds. 

NOTE:  LERR projects, although included in CIP, are institutionally managed and are subject to the payment procedures described in  FMOG - Institutionally Managed Capital Projects.

F. Project Status Report

The Office of the Assistant Vice President for Financial Affairs/University Controller (AVPFA/Controller) prepares a quarterly Capital Project Status Report that includes:

  • budget information
  • amount expended
  • amount encumbered
  • available budget balance.

The report is sent to Facilities to update the estimated date of completion and current status field, and the final report is sent to the AVPFA.

G. Project Close Out

A  Project Close Out form (see “Form 4/5”) is completed by Facilities once construction of a capital project has been completed and expenditures are no longer recorded against it.

1.  The completed form is sent to OFPC. 
2.   Accounting Services reconciles UTSA accounts and OFPC accounts.
3.   The disposition of remaining funds is determined according to the types of funds remaining. 

  • If remaining RFS or TRB funding is not yet issued, the authorization lapses. 
  • If remaining RFS or TRB funding has been issued and debt proceeds are on hand, those proceeds are either used by the UT System Office of Finance to pay debt service, or they are moved to another fully-authorized project (with necessary institutional and/or legislative approval). Remaining PUF funding lapses, unless the Chancellor approves transferring the funds to another fully-authorized PUF project.  Remaining Institutional Funds are returned to the originating source of the funds.

4.   Facilities and the AVPFA/Controller receive Form 4/5 from the OFPC.  The approved form authorizes UTSA to close the account, and provides instructions to lapse any remaining funds in the capital project budget. 
5.   Facilities verifies that the project is ready to be closed and notifies the AVPFA/Controller, who verifies the request and forwards it to the UTSA Vice President for Business Affairs for approval.
6.   When the request is approved, the CSP Accountant processes, deactivates and closes the account.





DEFINITIONS

Term

Definition

Capital Improvement Program (CIP)

The CIP is a UT System-generated report that details the long-range plan to preserve and enhance facility assets. It is a six-year projection of major Repair and Rehabilitation and New Construction projects to be implemented and funded from institutional (UTSA) and Systemwide revenue sources.

Design/Development (DD) Approval

DD Approval is granted by the BOR for New Construction  and Repair and Rehabilitation projects that are in excess of $4 million, as well as Repair and Rehabilitation projects that are not in excess of $4 million but are architecturally or historically significant.

For Repair and Rehabilitation projects that are not architecturally or historically significant, DD Approval is granted by the Chancellor unless the project is institutionally managed, in which case DD Approval is granted by the UTSA president.

In all cases, DD Approval occurs subsequent to the BOR meeting at which the project was added to the CIP.  For New Construction projects, DD Approval and the appropriation and authorization of funds typically occur simultaneously at a BOR meeting. For Repair and Rehabilitation projects, DD Approval occurs outside the purview of a BOR meeting, and after the appropriation and authorization of funds.       

Faculty STARs (Faculty Science and Technology Acquisition and Retention)

A grant program to support recruitment and retention of highly qualified faculty through building and enhancing research infrastructure (typically funded with PUF Debt proceeds).

Finding of Fact

Finding of Fact is required by the Master Resolution establishing the Revenue Financing System (RFS). Before any RFS debt is issued, the BOR must make a determination that:

  • The BOR will have sufficient Pledged Revenues to meet all financial obligations relating to the RFS, and
  • The members (institutions) on whose behalf debt is issued possess the financial capacity to satisfy their direct obligations.

The UT System Office of Finance makes these two determinations on behalf of the BOR by analyzing debt capacity.  Finding of Fact is required before the BOR may grant DD approval for any RFS- or TRB-funded project.

Gift Funding

Because of the unique nature of gift funding, particularly the unpredictability of the timing and amount of gift receipts, RFS Debt is often used to “backstop” gifts, either as interim financing pending actual gift collections or as permanent financing to cover any unanticipated fundraising shortfall.

For projects where gifts have not been received or firmly committed to be received during construction (as evidenced by a signed gift instrument) at the time of authorization of expenditure, the UT System Office of Finance requires that another acceptable source of funds be denoted in the Funding Source Table in lieu of the uncollected and uncommitted gifts (e.g., RFS Debt or Institutional Funds).

If RFS Debt is selected as the alternate funding source, gifts to be collected in the future must be dedicated to the repayment of the RFS Debt, to the extent permitted by the donor.

Institutional Funds

Any type of non-debt funding source including Auxiliary Enterprises balances, Available University Fund (AUF), designated funds, Energy Conservation Financing, gifts, grants, Higher Education Fund (HEF), hospital revenues, insurance claims, interest on local funds, Medical Services Research and Development Plan (MSRDP), Dental Practice Plan (DPP), Allied Health Practice Plan (AHPP), professional fees, parking fee balances, private developer, Student Union Fee, Unexpended Plant Fund, and utility revenues. 

Library, Equipment, Repair and Rehabilitation (LERR)

Library books, library materials, capital equipment, or repair and rehabilitation projects funded in whole or in part with PUF Debt proceeds.

New Construction

A project that will result in the addition of gross square footage that was not previously in inventory.

OPUS

The Office of Facilities Planning and Construction (OFPC) Project Unifier System (OPUS) is a web based system for managing OFPC capital improvement projects serving program management, project management, and project accounting functions.  

Permanent University Fund (PUF)

A constitutional fund and public endowment that provides financial support to the University of Texas and Texas A&M Systems. 

Permanent University Fund (PUF) Debt

Bonds and/or notes authorized by Article VII, Section 18 of the Texas  Constitution.

Pledged Revenues

The specific revenues that have been formally committed to directly collateralize or secure debt of a UT System or institution, or directly or indirectly collateralize or secure debt of a component unit.

Repair and Rehabilitation

A project that involves the major repair, replacement, or renovation of critical building systems and components or site components and infrastructure.  Differs from other maintenance projects in that it is not for routine or scheduled maintenance projects.

Revenue Financing System (RFS)

The RFS was established in 1991 to provide a cost-effective debt program to institutions of the UT System and to maximize the financing options available to the BOR.   

Revenue Financing System (RFS) Debt

Bonds and/or commercial paper issued as parity debt by the BOR under the RFS Debt program. 

Tuition Revenue Bond Debt (TRB Debt)

Bonds and/or commercial paper authorized by the Texas Legislature.  TRB Debt is issued by the BOR under the Revenue Financing System debt program.  Debt service on TRB Debt has historically been reimbursed by the State, although the State is not legally obligated to do so.  Every two years, UT System requests an appropriation for debt service on TRB Debt for projects that were approved during previous Legislative sessions.  Despite the name, TRB Debt is not necessarily repaid from tuition collected at the institutions.   

REFERENCES/LINKS

UT System Regents’ Rules and Regulations:
•  Rule 80301, Capital Improvement Program
(http://www.utsystem.edu/bor/rules/80000Series/80301.pdf)
•  Rule 80402, Major Construction and Repair and Rehabilitation Projects
(http://www.utsystem.edu/bor/rules/80000Series/80402.pdf)
UT System policy UTS168 - Capital Expenditure Policy
(http://www.utsystem.edu/bor/procedures/policy/policies/uts168.html)
UT System Institutional Debt Capacity Methodology
http://www.utsystem.edu/fin/Debt%20Capacity.htm

 

RELATED FORMS/WORKSHEETS

1.    Project Planning Form
2.    Form 2 (sample)
3.    Form 4/5 (sample)
4.    Form 9 (sample)

 


REVISION HISTORY

Date Description

10/15/13

Update based on SB 215 (83rd legislature) that removed the Coordinating Board’s authority to approve construction projects and land acquisition.

12/04/12

The Business Plan now shows update that it is required for new construction only. Fixed typographical lettered and numbered list errors, re-arranged DEFINITIONS section to now be in alphabetical order. Updated section B(8) ordering.

10/10/12

Updated title of FMOG. Added material on exempton from Coordinating Board approval based on 82nd Legislature revisions to Texas Education Code ("Overview" section). Expanded Authority section. Added definitions/forms/references/links and updated exisiting links. Edits for language consistency. Added material on the new Business Plan CIP requirement ("Supporting Documents" section).

04/27/10

Updates made to the Approval Process and Account Setup sections. Added additional types of projects that undergo BOR review and approval within the DD Approval definition. Created Supporting Documents section and moved forms that previously appeared in the Definitions section.

02/08/10

Published guideline.

 


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