THE UNIVERSITY OF NORTH CAROLINA Continuing Operational Efficiencies October 10, 2013

Setting the Stage Mr. Charles Perusse, Chief Operating Officer UNC Resourcing Survey Analysis Mr. Ken Craig, UNCFIT Program Management Officer Public-Private Partnerships Dr. Rick Niswander, Chief Financial Officer, East Carolina University Unlocking Capital Assets Mr. Jonathan Womer, Associate VP for Finance and Economic Analysis Moving Forward Mr. Charles Perusse, Chief Operating Officer Continuing Operating Efficiencies Outline 2

Student Quality and Success Efficiency and Effectiveness Fiscal Stability and Sustainability Economic Development Setting the Stage Guiding Principles 3

Providing instruction, research, and public service excellence within the context of declining or finite resources Increased focus on Return on Investment (ROI) Heightened demand for transparency and accountability Setting the Stage Higher Education Trends 4

Ernst & Young McKinsey & Company UNC / OSBM Efficiency Report Goal 4: Maximizing Efficiencies UNC Strategic Plan GA ExecutionCampus Execution Campus- Initiated Innovation (i.e. Bain) PACE UNC Resourcing Survey Analysis Setting the Stage UNC Efficiency Background 5

UNC Resourcing Survey Analysis 6

Fully Supported By Campus: Business functions performed solely by campus Examples: business affairs services, law enforcement, student tutoring, or library operations Intra-campus Resource Share: Business functions performed by sharing resources with other campuses Examples: regional facility maintenance and IT support Contracted: Business functions performed external to UNC System Examples: energy performance contracting, printing services, and facility maintenance operations UNC Resourcing Survey Analysis Definitions 7

In continuing the Strategic Plan efforts regarding Maximizing Efficiencies, General Administration conducted a campus survey in July to:  Determine similarities related to campus services being delivered internally, co-sourced, or outsourced;  Provide examples of campus effectiveness efforts; and  Identify building blocks for new operational efficiency actions. UNC Resourcing Survey Analysis Campus Innovation 8

UNC Resourcing Survey Analysis Survey Results 9

UNC Resourcing Survey Analysis Selected Examples – Facilities 10

UNC Resourcing Survey Analysis Selected Examples – Finance and Administration 11

UNC Resourcing Survey Analysis Selected Examples – Information Technology 12

UNC Resourcing Survey Analysis Selected Examples – Student Services 13

UNC Resourcing Survey Analysis Selected Examples – System-wide Services 14

Public-Private Partnerships 15

1.Contract between a public and private entity to complete a project (or run an operation) 2.Often exchange of public revenue stream for constructing asset or up-front payment 3.Both public and private directly share the risks and rewards of completing the project: Typically the private is not paid if benefits are not realized even if the project is completed Focused on outcome rather than output Often requires long time frames What are PPPs? Public-Private Partnerships 16

Potential Risks: Requires more vendor/contract management skills It’s “different” – legal, process, financial issues Potential Benefits: Vendor and the public agency can focus on core expertise Start without a big budget or get large up-front payment Recent construction example (2013): Public-Private Partnerships What are PPPs? 17

Includes consolidating Pediatrics, OB/GYN, fertility lab, and other operations that are currently located in multiple far flung locations Approximately K gross square feet Savings of $750K+ from consolidation Original Project: Self Liquidating Bond Included a 900-space parking deck Amount authorized for self-liquidating issue = $71,605,960 Annual payment on a 30-year full amortization at 4.5% = $4,396,000 (4% is $4,140,980) Public-Private Partnerships ECU Physicians Women’s and Children’s Clinical Operations 18

New Project: Lease term will be 10 years and ECU will have the right to enter into another 10-year lease with option to purchase at fair market value Annual lease cost is estimated to be $2.5M to $3.1M, depending on eventual size and the types of operations within the facility  Annual cash flow savings between $1.3M to $1.9M Parking deck not needed since facility will be built in a lower density area where surface parking is sufficient Adjacent to two leased clinical buildings and across the street from Brody School of Medicine Public-Private Partnerships ECU Physicians Women’s and Children’s Clinical Operations 19

Public-Private Partnerships ECU Women’s and Children’s Clinic Greenville, NC 20

Benefits: Lowers risk and higher return Reduces leverage on balance sheet Reduces operating risk to ECU Physicians Facility built to ECU specifications Shorter time of construction Helps control fixed costs Public-Private Partnerships ECU Physicians Women’s and Children’s Clinical Operations 21

Unlocking Capital Assets The Ohio State University Parking Case Study 22

Exchanging the long ‐ term operation and use of infrastructure assets (or other capital assets with a revenue stream) for an up-front cash payment: Sale vs. lease Must be able to isolate (enough) from core services to enable independent operation Legal constraints and possible tax benefits Deal must be big enough Common public sector examples: highways, parking, water treatment plants Unlocking Capital Assets What is asset monetization? 23

Potential Benefits: More value can be extracted from the asset Access to a lot of money now Transformative Recent parking in higher education example (2012): Potential Risks: Performance oversight and unanticipated change Loss of annual revenue Use of up-front payment Unlocking Capital Assets Benefits and Risks 24

About 70,000 student FTEs 10% of budget comes from state funds ($6,000 per FTE) AA Bond Rating but endowment behind aspirational peers What was OSU selling?  36,000 parking spaces for 82,000 students and employees at about a 2% annual growth rate  City of Columbus: 2,300,000 population, campus two miles from downtown  $28.8 million in annual revenue and $11.5 million in operations, maintenance and annualized capital outlays  Permit prices have increased at about 5% a year Unlocking Capital Assets Ohio State University (OSU) – Background 25

Transportation Parking Services Public Safety Ohio State University Unlocking Capital Assets OSU Lease Parking Operations 26

March 2011 – University Working Team formed  Hired Morgan Stanley as financial advisor  Mapping/questioning business processes, inventory and condition of assets September 2011–Board authorization October 2011–RFQ issued for Concessionaires January 2012–Four bidders begin Due Diligence April 2012–RFP issued to three remaining bidders May 2012–Three proposals received by OSU June 29, 2012–University awards to QIC September 21, 2012–Closing Day Forums, protests, meetings, faculty papers, campaigns Governance Unlocking Capital Assets Ohio State University Timeline 27

$483M one-time up-front payment ($375M was minimum bid allowed) 20% higher than other two bids 5.5% cap on rate increases for the first 10 years and 4% thereafter Protections against competition Acceptance of OSU Transportation Sustainability Plan Performance requirements Faculty/student parking benefits remain Giving up about $17.3M a year – funded buses and other transportation Unlocking Capital Assets Ohio State University – Accepted Bid Terms 28

$483M put into endowment and designated for: Faculty Initiatives & Research: $200M Transportation & Sustainability: $150M CABS (partial funding of the bus system) Pedestrian friendly infrastructure Energy efficiency projects Student Scholarships: $83M Arts District: $50M 9% Expected Growth Remaining transportation operating costs coming from other sources. 4.75% Reinvest 4.25% Spend Unlocking Capital Assets Ohio State University – Where the money is spent? 29

Ohio State Larger endowment Removed from permit/rate setting/parking deck construction process (somewhat) Transportation Sustainability Plan accurate for 50 years? Good performance/contract management? Risk of operation and capital cost vs. rate of return (9%?) Private Investor/Operator Stability of transportation/ infrastructure assets. Able to extract more revenue in the future? Significant urban public demand? Able to operate more efficiently than in the past? Able to meet performance requirements? Unlocking Capital Assets Ohio State University – Was it a good deal? 30

Moving Forward 31

Efficiency Cost (ROI) Mission Quality Moving Forward Priorities 32

Continue expanding energy conservation efforts and reducing energy consumption Implement a spend analysis tool to enable further catalog and strategic sourcing savings Continue expanding strategic sourcing efforts with Department of Administration, public schools, and private colleges and universities Expand IT shared services for ERP hosting and DBA support services Moving Forward On-going Plans 33

Leverage center of excellence support from UNC-CH/NCSU to constituent campuses Develop facilities maintenance optimization plans to reduce operating costs, seek private- public facility partnerships, and leverage existing capital assets Moving Forward Future Plans 34

BOG Discussion Questions? 35