1. The Capital Budget Game August 2006 The University of North Carolina Presentation to SHEEO Professional Development Conference Robert O. Nelson Vice President-Finance

2. The University of North Carolina 2 UNCW WSSU NCSA UNCG A&TNCCU ECSU NCSU ECU FSU UNCP UNCC UNC-CH UNCA WCU ASU University of North Carolina 16 Constituent Institutions

3. The University of North Carolina 3 Appalachian State University13,416 East Carolina University21,744 Elizabeth City State University2,285 Fayetteville State University4,965 North Carolina A& T State University9,964 North Carolina Central University6,727 North Carolina School of the Arts1,080 North Carolina State University25,532 University of North Carolina at Asheville3,249 University of North Carolina at Chapel Hill25,255 University of North Carolina at Charlotte16,872 University of North Carolina at Greensboro13,700 University of North Carolina at Pembroke4,601 University of North Carolina at Wilmington10,555 Western Carolina University7,655 Winston-Salem State University4,649 TOTAL172,249 Appalachian State University13,416 East Carolina University21,744 Elizabeth City State University2,285 Fayetteville State University4,965 North Carolina A& T State University9,964 North Carolina Central University6,727 North Carolina School of the Arts1,080 North Carolina State University25,532 University of North Carolina at Asheville3,249 University of North Carolina at Chapel Hill25,255 University of North Carolina at Charlotte16,872 University of North Carolina at Greensboro13,700 University of North Carolina at Pembroke4,601 University of North Carolina at Wilmington10,555 Western Carolina University7,655 Winston-Salem State University4,649 TOTAL172,249 The University of North Carolina 2005-06 Average Annual FTE Enrollment

4. The University of North Carolina 4 North Carolina Capital Improvements Planning Act Requirements (1) An inventory of facilities owned by State agencies. (2)Criteria used to evaluate capital improvement needs. (3)A six-year capital improvement needs inventory. (4)A six-year capital improvement plan. Requirements (1) An inventory of facilities owned by State agencies. (2)Criteria used to evaluate capital improvement needs. (3)A six-year capital improvement needs inventory. (4)A six-year capital improvement plan.

5. The University of North Carolina 5 General Fund Repairs and Renovations New Construction Land Acquisition Non-General Fund Campus Requests for Non-Appropriated Projects Housing Parking Dining Athletics Bookstores Student Recreation General Fund Repairs and Renovations New Construction Land Acquisition Non-General Fund Campus Requests for Non-Appropriated Projects Housing Parking Dining Athletics Bookstores Student Recreation UNC Board of Governors Capital Plan and Budget

6. The University of North Carolina 6 The University of North Carolina Approval of Debt Constitution of North Carolina requires voter approval of all general obligation bonded indebtedness Revenue bonds are approved by the North Carolina General Assembly North Carolina’s State Capital Facilities Finance Act allows issuance of special indebtedness without voter approval

7. The University of North Carolina 7

8. 8 The University of North Carolina Capital Funding (including R & R & 1993 Bonds) Appropriated and Non-Appropriated Capital Funding – Selected Years

9. The University of North Carolina 9 The University of North Carolina Bond Expenditures – 2000 Bond Referendum Millions

10. The University of North Carolina 10 Enrollment growth requires additional facilities Competitiveness requires investments in facilities modernization and expansion Capital needs are significant and well documented Alternatives to historic “pay-as-you-go” financing must be found to protect the state’s capital investment in the University Enrollment growth requires additional facilities Competitiveness requires investments in facilities modernization and expansion Capital needs are significant and well documented Alternatives to historic “pay-as-you-go” financing must be found to protect the state’s capital investment in the University The University of North Carolina 1999 Capital Equity/Adequacy Study Key Conclusions

11. The University of North Carolina 11 Competitive posture will require continued investments in renewal and expansion Annual “pie” is too small for identified needs Pay-as-you-go overemphasizes new construction Pay-as-you-go is not explicit capital development policy Political influence on choice of projects Insufficient emphasis on private fundraising The University of North Carolina 1999 Capital Equity/Adequacy Study Overview of Funding Issues

12. The University of North Carolina 12 Matrix of Financial Responsibility

13. The University of North Carolina 13 University of North Carolina 2000 Bond Program Use of Funds Infrastructure13% Land2% Modernization34% New26% Replacement25%

14. The University of North Carolina 14 Cash Flowing Projects The bond program relies on cash flow financing to support the build out of bond projects. The cash-flow method applies the proceeds from the bond sales to the projects incurring the first costs up to established allotments for each campus. Cash flow financing differs from more typical capital budgeting that would allot funds to campuses in a proportional fashion until bond programs are completed.

15. The University of North Carolina 15 Cash Flow Timing

16. The University of North Carolina 16 Higher Education Facilities Finance Act n Best Practices Comprehensive study Standards, analyses, and metrics Ten-year plan with five-year phases List of projects – established scopes and set dollar amounts Identified sources of funds and fiscal responsibility Process for increased costs/use of savings Accountability Source of funds for construction administration Identified long-term operating impact n Best Practices Comprehensive study Standards, analyses, and metrics Ten-year plan with five-year phases List of projects – established scopes and set dollar amounts Identified sources of funds and fiscal responsibility Process for increased costs/use of savings Accountability Source of funds for construction administration Identified long-term operating impact

17. The University of North Carolina 17 Innovations in Place Alternate construction delivery methods Independent design assessment Program scheduling and cash flows Project Partnering Dispute Mediation Because there is a funded program and UNC is working as an alliance

18. The University of North Carolina 18 Higher Education Bond Oversight Committee n Reports The University Facilities Office of each institution of the University of North Carolina The Facilities Office of the General Administration of the University of North Carolina The State Construction Office of the Department of Administration The president of each community college, or the president’s designee The Administrative and Facilities section of the North Carolina Community College System Office n Responsibilities Whether expenditures of the proceeds from the bonds issued under this act are in compliance with the provisions of the bond bill Whether the awarded contracts are consistent with the budget and scope of the approved projects Whether changes in construction methods could enhance cost savings and promotion of on-time completion of projects Whether the bond issuances are adequately timed to reflect cash-flow requirements of the project n Reports The University Facilities Office of each institution of the University of North Carolina The Facilities Office of the General Administration of the University of North Carolina The State Construction Office of the Department of Administration The president of each community college, or the president’s designee The Administrative and Facilities section of the North Carolina Community College System Office n Responsibilities Whether expenditures of the proceeds from the bonds issued under this act are in compliance with the provisions of the bond bill Whether the awarded contracts are consistent with the budget and scope of the approved projects Whether changes in construction methods could enhance cost savings and promotion of on-time completion of projects Whether the bond issuances are adequately timed to reflect cash-flow requirements of the project