GEORGE MASON UNIVERSITY BOARD OF VISITORS. Finance and Land Use Committee Meeting February 4, 2015 AGENDA

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1 GEORGE MASON UNIVERSITY BOARD OF VISITORS Finance and Land Use Committee Meeting February 4, 2015 AGENDA I. Call to Order II. Approval of Minutes for December 8, 2014 (ACTION) E-3 III. New Business A. FY 2016 Financial Update E-7 B. Room and Board Rates, FY 2016 (ACTION) E-10 IV. Capital Budget Matters A. Campus Master Planning Initiative E-17 B. Debt Management Policy Approval (ACTION) E-19 C. Private Business Use E-37 VI. Adjournment APPENDICES Appendix A Capital Projects Review E-43 E-1

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7 ITEM NUMBER III.A: FY 2016 Financial Update (INFORMATION) PURPOSE OF ITEM: To brief the Board of Visitors on updates and review financial strategies as well as initiatives for FY APPROPRIATE COMMITTEE: Finance and Land Use Committee BRIEF NARRATIVE: The Senior Vice President for Administration and Finance will provide an update on financial activity impacting the FY 2016 budget plan: Commonwealth budgets impacts, Undergraduate and graduate enrollment, and Strategies to address the FY 2016 financial plan. STAFF RECOMMENDATION: For Board of Visitors information only. E-7

8 Commonwealth Budget Impacts: FY 2016 FINANCIAL UPDATE Governor s amendments to the biennium budget were released on December 17, Key points from the presentation was that education, both K-12 and intuitions of higher education, were integral to driving economic growth. The proposed amendments would provide the following impacts to Mason s funding: Intuitions of higher education would not have additional budget reductions beyond those provided in Chapter 3 Additional on-going funding for undergraduate student need-based financial aid Additional one-time funding increases for: o Maintenance of existing facilities o Equipment and maintenance funding for new and/or refurbishment of classroom technology Moderate health care insurance increases ~ 4% Revenue Bond Authority for Academic VII Budget amendments do not include funding for: o Compensation increases for FY 2016 o Funding for new capital projects Undergraduate and Graduate Enrollment and Tuition Pricing Strategy: The university has been working on both a review of its undergraduate and graduate enrollment process along with engaging Noel-Levitz in conducting a tuition pricing strategy. The tuition pricing strategy will build on the work and implemented strategy from last year s tuition pricing model for undergraduate, along with updating and expanding to include Mason s graduate programs. Specifically the market research study will: Analyze Mason s position relative to competitors Assess market value perceptions Measure price sensitivity Evaluate influence of student financial aid, discounting strategies; among others Elasticity of demand E-8

9 ITEM NUMBER III.B: Room and Board Rates, FY 2016 (ACTION) PURPOSE OF ITEM: To approve academic year (FY 2016) room and board rates. APPROPRIATE COMMITTEE: Finance and Land Use Committee BRIEF NARRATIVE: Approval of rates for FY 2016 is requested to allow update of marketing materials for distribution to new and returning students. The proposed weighted average room rate increase in FY 2016 is 3.0%. Board plans are proposed to increase a weighted average of 4.0%. Overall, the room and board rates are proposed to increase an average of 4.1% for Freshmen. ROOM & BOARD RATES FY16 Weighted Average Room Rate Increase 3.0% Average Board Rate Increase 4.0% Avg Freshmen Combined Room & Board Rate Increase 4.1% STAFF RECOMMENDATION: Staff recommends Board of Visitors approval. E-9

10 SUMMARY OF RATES For a freshman residing in a Traditional Double Room with the Silver Anytime Dining meal plan, the cost for room and board in FY16 will be $10,510, a 4.1% increase. ROOM & BOARD RATES FY15 FY16 $ CHANGE % CHANGE Freshman Traditional Double Room Rate + Anytime Silver Meal Plan $ 10,100 $ 10,510 $ % The proposed Fairfax campus room rate increase is 3.0%, an annual increase between $170 and $280, depending on room type. Recommended room rate increases range from 2.0% to 5.0%. The suggested rate increase for the Prince William campus is 3.0% and for Smithsonian Front Royal campus is 2.0%. ROOM RATES - FAIRFAX CAMPUS FY15 FY16 $ CHANGE % CHANGE Traditional Halls Singles $ 7,220 $ 7,420 $ % Double $ 6,000 $ 6,240 $ % Triple $ 4,800 $ 4,990 $ % Quad $ 5,640 $ 5,920 $ % Suites Single $ 7,960 $ 8,190 $ % Double $ 7,220 $ 7,430 $ % Triple $ 7,630 $ 7,850 $ % Apartments Single (Potomac Hts, Liberty Sq, Northern Neck, & Rogers) $ 9,570 $ 9,760 $ % Single (Student Apts & Townhouses) $ 7,960 $ 8,190 $ % Double (Potomac Hts, Liberty Sq, Northern Neck, & Rogers) $ 8,570 $ 8,740 $ % Double (Student Apts & Townhouses) $ 7,220 $ 7,430 $ % Weighted Average - 6,061 Beds 3.0% E-10

11 The weighted average student cost increase per meal plan is approximately 4.0%. Recommended annual rate increases for Anytime Dining plans are $170. Existing Traditional plans are proposed to increase between $60 and $164 per year. BOARD RATES FY15 FY16 $ CHANGE % CHANGE Traditional Plans 5 Meals w/ 50 Points $ 1,560 $ 1,620 $ % 10 Meals w/ 100 Points $ 3,540 $ 3,690 $ % 15 Meals w/ 100 Points $ 3,754 $ 3,910 $ % 19 Meals w/ 100 Points $ 4,046 $ 4,210 $ % SMSC $ 4,244 $ 4,420 $ % Mason INTO $ 5,100 $ 5,320 $ % Anytime Dining Plans Anytime Silver $ 4,100 $ 4,270 $ % Anytime Gold $ 4,300 $ 4,470 $ % Anytime Platinum 300 $ 4,500 $ 4,670 $ % Anytime Platinum 400 $ - $ 4,870 $ 4,870 N.A. Anytime Platinum 500 $ - $ 5,070 $ 5,070 N.A. Flex Plans Flex 130 w/ 100 Points $ 3,172 $ 3,300 $ % Flex 150 w/ 100 Points $ 3,286 $ 3,420 $ % Flex 175 w/ 100 Points $ 3,432 $ 3,570 $ % Flex 200 w/ 100 Points $ 3,546 $ 3,690 $ % Flex 230 w/ 100 Points $ 3,734 $ 3,890 $ % Declining Balance Plans Cost Freedom Bell $ 2,000 $ 2,200 $ % Freedom Rings $ 3,744 $ 3,800 $ % Freedom First $ 4,368 $ 4,400 $ % Weighted Average - 10,404 Plans 4.0% E-11

12 The number of available beds in FY16 will increase by 295 with the full-year addition of Taylor Hall. AVAILABLE BEDS: FY15 (# of Beds) FY16 (# of Beds) Room Types - Fairfax Traditional Double 1,134 1, Traditional Single, Triple, Quad, RAs Suite Style 2,016 2,016 0 Apartment Style 2,208 2,208 0 Mason Global Center TOTAL FAIRFAX CAMPUS 6,214 6, Room Types - Non-Fairfax Prince William Apartment Style (Grad) SMSC Apartment Style TOTAL NON-FAIRFAX CAMPUSES TOTAL HOUSING 6,474 6, Increase / (Decrease) Meal plans are not expected to increase equally with the number of beds in Taylor Hall, as the students scheduled to live in Taylor Hall in FY15 were accommodated in triples within housing. The number of traditional meal plans will decrease as current Freshmen continue to rise to upperclassmen and incoming Freshmen will be required to purchase an Anytime Dining plan. The total meal plans will increase in FY16 with growth of Mason INTO students. MEAL PLAN USAGE: Meal Plan Types FY15 (# of Plans) FY16 (# of Plans) Increase/(Decrease) Traditional 2, ,739 INTO Plans Anytime 4,477 7,576 3,099 Flex Plans 1, ,206 Declining Balance 1,191 1,191 0 TOTAL MEAL PLANS 10,089 10, E-12

13 GOALS The University reviews several factors in determining room and board rates. The goals for determining room and board rates are: Affordability Create an affordable living environment for on-campus students. Consideration is given to peer comparisons in the DC region and in the Commonwealth of Virginia. Local housing options and prices are reviewed. Accessibility Access to on-campus living and dining for those students who desire that option. Freshmen and Sophomores are guaranteed on-campus housing, though it is not a requirement. Involvement Improve student retention and graduation through involvement in activities and support groups in on-campus housing. Sense of Community Create an environment where students feel part of the Mason community. Neighborhoods are created around living and dining options. Access to 24-hour dining facilities allows students to gather with friends on their schedule. FY15 and FY16 CHANGES Mason Global Center (MGC) opened August 2014 for the Mason INTO program. MGC has 270 beds and 220 seats in the Globe dining room. Sodexo manages the Globe operations and there are specialized 365-day meal plans for Mason INTO residents. The renovated Ike s dining facility opened in August Ike s was expanded to 375 seats and became a full-service dining venue serving the Shenandoah neighborhood. The Anytime Dining program began in August 2014 with three levels of plans. All resident Freshmen are required to purchase an Anytime Dining meal plan. Upperclassmen who do not have an Anytime Dining meal plan have the option to be grandfathered into existing plans. As current freshmen become Upperclassmen, existing Traditional plans will expire and all Traditional plans will become Anytime Dining plans. Four new Anytime Dining plans will be added in FY16. Platinum 400 and Platinum 500 will have $400 and $500 in bonus dollars, respectively. The third new meal plan will provide meals during the early move-in period, Thanksgiving break and spring break with an annual cost of $4,550. The remaining new meal plan is for students who move in early and stay through all breaks, including winter break, with a cost of $5,320. Taylor Hall will house 295 freshmen in traditional doubles in the Shenandoah neighborhood. E-13

14 Retail dining changes include the opening of Manhattan Pizza in May 2014 in Merten Hall, and a second Starbucks in August 2014 in the Johnson Center. Panera Bread opened in January 2015 in the Johnson Center. The SMSC Executive Committee has determined that the SMSC rates will be set at the highest Fairfax campus rates approved by the BOV. For FY15 the rates are $9,570 for singles and $8,570 for doubles. The proposed FY16 rates are $9,760 for singles and $8,740 for doubles, a 2.0% increase. The Prince William Beacon Hall graduate housing beds are all 11-month leases. The proposed total lease amounts will increase by 3.0%. FY15 FY16 Studio $10,280 $10,590 One Bedroom $13,180 $13,580 Two Bedroom (Per Person) $7,820 $8,050 E-14

15 EXHIBITS Regional and Commonwealth of Virginia Comparison Rates Room Rate Benchmarking Traditional Double Rates I. Regional Universities Mason room rate compared to regional universities. Regional Universities - Traditional Double Rate 3.0% Comparison Institute City FY15 FY16 American University Washington, DC $ 9,608 $ 9,896 Georgetown University Washington, DC $ 9,498 $ 9,783 George Washington University Washington, DC $ 7,790 $ 8,024 University of Maryland College Park, MD $ 6,424 $ 6,617 University of Maryland, Baltimore Baltimore, MD $ 6,376 $ 6,567 Average 5 Schools $ 7,939 $ 8,177 George Mason University Fairfax, VA $ 6,000 $ 6,240 Board Rate Benchmarking Traditional 15 Meal Plan I. Regional Universities Mason Anytime Dining meal plan compared to Traditional 15 Meal Plans offered at other regional universities. Regional Universities - Traditional 15 Meal Plan or Equivalent 4.0% Comparison Institute City FY15 Meal Plan Required FY16 Meal Plan Required American University Washington, DC $ 5,246 $ 5,456 University of Maryland, Baltimore Baltimore, MD $ 4,578 $ 4,761 Georgetown University Washington, DC $ 4,476 $ 4,655 University of Maryland College Park, MD $ 4,328 $ 4,501 George Washington University Washington, DC $ 3,400 $ 3,536 Average 5 Schools $ 4,406 $ 4,582 George Mason University (Anytime Dining) Fairfax, VA $ 4,100 $ 4,270 E-15

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17 ITEM NUMBER IV.A: Campus Master Planning Initiative (INFORMATION) PURPOSE OF ITEM: This item provides update on the university s master planning efforts. APPROPRIATE COMMITTEE: Finance and Land Use Committee BRIEF NARRATIVE: Staff continues efforts to develop a new 10-year Facilities Master Plan to replace the university s 2002 plan. Work through the summer and fall this year focused on clarifying the focus of each of our campuses and other locations. Previous master plan updates to the Board identified that capacity exists at both Prince William and Arlington campuses. Recent discussions sought to minimize capital expenditures for new space by identifying opportunities to take advantage of this capacity to both strengthen programs at the two principal distributed campuses and alleviate space shortfall at the Fairfax campus. As part of this effort, the Provost hosted full-day planning sessions at Prince William and Arlington campuses comprised of both community members and Mason faculty and staff. At Fairfax, the university co-sponsored a three-day session with the City of Fairfax examining opportunities to expand the City s downtown area potentially through encouraging development in support of university housing and retail needs. Results of these planning sessions are helping to frame a new multi-campus strategy focused around efficient delivery of education as well as regional economic development. In the board meeting, staff will discuss the framework of this multi-campus strategy and the implications on the physical master plan. Significant personnel changes within Sasaki Associates, our planning consultant, has forced a re-assessment of our contract and contract schedule. Master planning efforts will continue through spring 2015 in advance of a May submission of the university s next six-year capital plan. STAFF RECOMMENDATION: For information only E-17

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19 ITEM NUMBER IV.B: Debt Management Policy Approval (#2111): 2015 Annual Review (ACTION) PURPOSE OF ITEM: Board of Visitors annual review of the University s compliance with the Debt Policy (#2111), This Policy was approved by the Board on February 5, APPROPRIATE COMMITTEE: Finance and Land Use BRIEF NARRATIVE: The Debt Policy applies to all debt financing activities of the University. The use of debt is an important funding mechanism for the University s capital plan. The Debt Policy links the use of debt to the University s mission and strategic goals during this continued period of growth. The Policy incorporates a portfolio approach to managing the University s debt level, debt composition and risk profile. The portfolio risk is viewed in the context of the University s assets, liabilities and operations. Debt Policy compliance highlights: Maintain an A category rating by a nationally recognized rating agency. Review of multiple market derived benchmarks and/or Key Financial Indicators (debt capacity, debt affordability and overall financial strength). Establishment of a Debt Advisory Committee reporting to the SVP. The Board authorizes issuance of debt and adopts reimbursement resolutions when required. The Board annually reviews the University s compliance with the Policy. STAFF RECOMMENDATION: The staff recommends BOV approval of this resolution that the University is in compliance with the Debt Policy. E-19

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21 E-21 Debt Management Issuance Debt Portfolio Post - Issuance 1) Issuance : Debt Policy Annual Review 2) Post Issuance : Private Business Use Policy Update

22 E-22 1) Guidelines for debt capacity and affordability assessment in order to maintain Mason s longterm financial health 3) Outline debt management and risk considerations Policy Objectives Debt Policy 2) Framework to allocate debt to projects that most support Mason s mission and strategic goals 4) Guidelines for Debt reporting Comprehensive Approach: evaluate University s overall financial strength, debt capacity & affordability with its current & future debt financings Portfolio Approach: manage debt level, debt composition & risk profile in context of University s assets, liabilities & operations 11/10/14 JLARC study : Mason s new debt policy - referenced as a best practice.

23 E-23 Debt Policy Policy Compliance? Maintain a minimum of an A category rating by a nationally recognized rating agency 2014 S&P Affirmed A Rating (2/18/14) 2015 S&P Annual Rating Review Meeting (1/13/15) Report to the Board on the University s debt capacity, debt affordability and overall financial strength Utilize Multiple Key Financial Indicators / Ratios Compare to Market Derived Benchmarks A2 medians for public universities Peer institutions ratios

24 E-24 Debt Policy : 2015 Dashboard Report Overview - Existing & Future Debt Capital Projects Capital Projects : Future Debt Issuance Cost ($million) State Debt GMU Gifts / Cash GMU Debt Fall 2014 (FY15) Fall 2015 (FY16) Fall 2016 (FY17) Health Sciences - Academic 7 (*) $71.00 $62.00 $9.00 $0.00 $0.00 $0.00 $0.00 Total $71.00 $62.00 $9.00 $0.00 $0.00 $0.00 $0.00 (*) In FY14 GMU received $20M in additional state funding for Academic 7 capital project - no plans to issue debt at this time. S&P presentation (1/15) displayed $30M placeholder for new housing project debt (FY15-FY16) based on projected housing demand, although additional housing capacity may be available thru re-evaluation of housing assignment policies

25 E-25 Debt Policy : 2015 Dashboard Report Key Financial Indicators / Ratios

26 E-26 Capital Strategies Implemented No new additional debt in FY15 Restructured debt Transferred $3.5M bond proceeds VCBA advance refunding 9d bonds ($5.4 m in debt service savings over 13 years) Debt de-authorization of $31M Fundraising FY 9(d) 9(c) FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 = Bonds sold = Bonds not sold

27 E-27 Debt Portfolio Next? Other Capital Strategies Enterprise Debt Portfolio Policies / Guidelines Post Issuance Compliance Guidelines Reserve Policy

28 E-28 Board Resolution The Finance & Land Use Committee recommends the Board of Visitors approve the resolution confirming the University is in compliance with the Debt Policy. MOTION: SECOND:

29 George Mason University University Policy Number 2111 I. Scope This policy applies to all debt financing activities of the University. Component units of the University may undertake debt financings, which are not covered by this policy. This policy supersedes the University s Debt Policy No that was approved on July 23, II. Policy Statement Purpose George Mason University s mission as a public, comprehensive, research university in the National Capital Region in the Commonwealth of Virginia is to create an innovative and inclusive academic community committed to creating a more just, free, and prosperous world. One of the largest four-year public universities in the Commonwealth, the University continues to grow and expand its programs and mission within the region and the State. The use of debt is an important funding mechanism for the University s capital plan. This policy links the use of debt to the University s mission and strategic goals during this continued period of growth. The objectives of the debt policy are to: 1) Provide guidelines for debt capacity and affordability assessment in order to maintain the long-term financial health of the University 2) Establish a framework for allocating the use of debt to projects that most support the mission and strategic goals of the University 3) Outline debt management and risk considerations 4) Provide debt reporting guidelines Oversight and Approval The Board of Visitors shall authorize the issuance of debt and execution of financing agreements. Additionally, federal tax law requires that the Board of Visitors pass a Reimbursement Resolution when required. The Office of the Senior Vice President for Administration and Finance ( Senior Vice President ) is responsible for implementing this policy and for all debt financing activities of the University. Compliance, Reporting and Monitoring The Board of Visitors shall no less than annually, and upon requests for debt authorization, review University compliance with this policy. The Senior Vice President will report to the Board of Visitors on the University s debt capacity, debt affordability, and overall financial strength to demonstrate compliance with this policy. The Senior Vice President may establish a debt advisory team to serve in an advisory capacity on debt-related matters. Goals The University seeks to manage its debt and overall financial profile as follows: E-29

30 1) Identify and prioritize projects for debt financing that are critical to the mission and advance the strategic objectives of the University 2) Strategically allocate the University s debt capacity to these projects 3) Align the financial position of the University consistent with a minimum rating in the A category in order to: a. Maintain access to the capital markets on a standalone basis b. Obtain favorable costs of capital, flexibility, and favorable terms 4) Optimize the University s debt composition within its desired risk management profile 5) Manage the debt repayment schedule of the portfolio in order to preserve debt capacity and flexibility over the longer term, while meeting the liquidity and strategic objectives of the University. Project Prioritization It is essential that the University has cost effective access to capital. The University recognizes that debt as a source of capital is limited. The University will make decisions relative to the use of debt as it considers each capital project in the context of the University s mission. The University will evaluate the funding sources (including but not limited to state funding, cash reserves, philanthropy, self-funding, and debt funding) for proposed capital projects in the context of the project s role in supporting the University s mission and strategic priorities. The University will establish its strategic priorities for capital projects and debt capacity in conjunction with preparation of the six-year capital plan, which is reviewed annually and updated bi-annually. Business plans for debt-funded projects must address the plan to support debt service. Debt Capacity and Affordability In evaluating its debt capacity, debt affordability, and overall financial strength, the University will consider its current debt levels, future debt financings, and overall financial health of the University. Debt capacity considers the University s financial resources and the University s ability to leverage its financial resources to finance certain capital projects. Debt affordability considers the University s ability to pay the debt service on an annual basis through its operating budget and identified revenue streams. The University will benchmark Key Financial Indicators to external sources such as higher education medians for the A rating category published by nationally recognized rating agency services (such as Moody s or S&P), universities in its national peer group, or other public universities in the Commonwealth. The University evaluates its performance against these measures with a long-term view and will monitor the trend of the ratios over time. The University recognizes that financing a strategically important project may cause one or more of the financial ratios to perform poorly against the trend, median or peer comparison in the short-term, but the University takes a long term view and evaluates the project accordingly. Based on changing market conditions, the University may change the Key Financial Indicators to better monitor the financial health of the University. Debt Management The University views its debt holistically and will manage its debt level, debt composition, and risk profile from a portfolio standpoint. In considering available financing structures and funding sources, the University will evaluate the benefits, risks, and costs of each financing structure and funding source, including the optimal way to access capital. The E-30

31 financing structure is reviewed within the context of the goals of this policy, and the University performs a financial and risk analysis to determine the impact of the proposed financing on select financial ratios. The University may actively manage its debt portfolio to take advantage of current market conditions, either to generate savings, take advantage of financing structures that would optimize its debt structure in the context of its goals, or for strategic purposes. Risk Management The University recognizes there is a correlation between risk and cost, and there are risks it may assume in order to optimize its debt portfolio. The University also recognizes its debt portfolio risks should be viewed holistically and in the context of its assets, liabilities and operations. The University evaluates the risks of its debt portfolio to inform decisions regarding the debt structure of the existing portfolio and that of potential new debt. Risks in the debt portfolio can be broadly categorized as interest rate risk, liquidity risk, and counterparty risk. Interest rate risk impacts the budget and its ability to absorb volatility in interest expense. Liquidity risk impacts the balance sheet and its ability to absorb unexpected calls on liquidity. Counterparty risk represents the impact a counterparty may have on the University s access to the capital markets and its impact on the interest rate and liquidity risk of the University. In addition, the University considers the risks associated with concentration of banking services, credit, and counterparty providers, in order to diversify its dependency risk on individual financial institutions. The University recognizes the value and flexibility that short-term debt or variable rate financing may contribute to its debt portfolio. The University also recognizes that cost alone should not drive debt portfolio management decisions, as the lowest cost alternative may expose the University to an unacceptable level of risk. While interest rate risks associated with variable rate debt can be mitigated through asset/liability management, liquidity risk and access to the market risk remain in certain financing structures. The University will maintain Committed Debt of no less than 70% of its total debt portfolio. The University may consider the use of derivative products in order to achieve the goals outlined in this policy. Derivatives may be undertaken by the University only upon quantification and evaluation of their risks and in accordance with the University s Interest Rate Swap Guidelines. Post Issuance Compliance The University adheres to the post issuance compliance procedures established through the Treasury Board and the Virginia College Building Authority to ensure it complies with federal tax law requirements for the use of taxexempt debt. The University established a Private Business Use Policy for the ongoing use of facilities in order to ensure it meets federal tax law requirements for the use of tax-exempt debt financed facilities. Key Financial Indicators Examples of Key Financial Indicators include the following higher education medians (as provided in the Moody s Public College and University Financial Ratio Definitions report): a. Expendable Resources to Debt: this ratio measures the availability of liquid and expendable net assets to aggregate debt and is a determinant of medium- to long-term financial health based on the strength of its balance sheet. Expendable financial resources are the sum of unrestricted net assets plus restricted net assets and temporarily restricted net assets less foundation net investment in plant. E-31

32 Expendable financial resources divided by direct debt b. Debt Service to Adjusted Operating Expenses: this ratio measures the percentage of operating expenses that support debt service and is a determinant of the University s operating flexibility to finance existing obligations and new initiatives. Adjusted operating expense is the total operating expense plus interest expense. Debt service divided by Adjusted operating expenses times 100 c. Debt Service Coverage Ratio: this ratio measures the University s ability to cover debt service requirements with operating revenues and is a determinant of the strength of the operating income to meet its annual obligations. Operating surplus (deficit) plus interest and depreciation divided by annual debt service d. Days Cash on Hand: this ratio measures the number of days the University is able to operate (cover its cash operating expenses) from unrestricted cash and investments that can be liquid annually and is a determinant of the liquidity and flexibility the University maintains to finance existing obligations, potential liquidity funding, and new initiatives. Annual liquidity times 365 divided by total expenses less depreciation and unusually large noncash expenses e. Expendable Resources to Operating Expenses: this ratio measures the availability of liquid and expendable net assets to operating expenses and is a determinant of the financial health of the University to meet its current obligations. Expendable financial resources are the sum of unrestricted net assets plus restricted net assets and temporarily restricted net assets less foundation net investment in plant. Expendable financial resources divided by total operating expenses Definitions 1) Committed Debt is defined as any debt that is either committed to maturity without a put option by the credit provider or bondholder, or has a put option that is exercisable in no less than two years. 2) Debt Composition describes the different types of financing structures that comprise the University s outstanding debt obligations. The financing structures include but are not limited to fixed rate, variable rate, short- term, long-term, direct debt, indirect debt, public debt, private debt, and capital leases. 3) Risks a. Interest Rate Risks, may include the following: i. Market Rate Risk Traditionally thought of as interest rate risk, but limited to market risk only (risk that interest rates will rise) ii. Credit Risk Risk that any actual or perceived change in creditworthiness will result in a higher cost of capital iii. Tax Risk Risk that any actual or potential change in Federal and/or State law will adversely impact the pricing or availability of tax-exempt debt E-32

33 iv. Basis Risk Risk that interest rate hedges will be inefficient or mismatched v. Bank Liquidity or Credit Facility Repricing Risk Risk that the cost of liquidity facilities to support uncommitted debt or working lines of credit will increase vi. Swap Counterparty Risk Risk that expected payments from swap counterparties are not received b. Liquidity Risk, may include the following: i. Roll/Remarketing Risk Risk that put bonds, commercial paper or variable rate demand bonds cannot be remarketed or rolled over ii. Bank Liquidity Facility or Credit Facility Renewal Risk Risk that liquidity facilities to support uncommitted debt or working capital lines of credit may not be available at all or on acceptable terms iii. Failure of a Liquidity Facility Provider Risk that a liquidity facility provider ceases to operate Swap Collateralization Risk Risk that collateral may need to be posted under a swap agreement Swap Termination Risk Risk of voluntary or involuntary termination of a swap contract c. Counterparty Risk, may include the following: i. Commonwealth of Virginia Risk Risk that the Commonwealth of Virginia is downgraded, resulting in an increased cost of capital or policies change regarding financing programs ii. Financial Institutions Risk- Risk that a change in regulations or credit quality of a banking partner could result in an increased interest cost, liquidity risk, or change in terms of service arrangement. 4) Reimbursement Resolution is a Board approved resolution declaring its intent to issue tax-exempt debt in order to reimburse the University for expenditures incurred more than 60 days prior. The resolution does not obligate or authorize the University to issue tax-exempt debt for the identified projects. In accordance with federal tax law, the University may issue debt to reimburse itself up to three years after the adoption of a Reimbursement Resolution. III. Dates: 1) Effective Date: Approved by the Board of Visitors by Resolution on February 5, ) Date of Most Recent Review: N/A IV. Timetable for Review This policy, and any related procedures, shall be reviewed annually. E-33

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35 RESOLUTION OF THE BOARD OF VISITORS OF GEORGE MASON UNIVERSITY WHEREAS, it is the strategic intent of the George Mason University to make investments that make it a University for the world; and WHEREAS, George Mason University has long-term facilities requirements that can only be met through capital construction; and WHEREAS, George Mason University uses limited debt in meeting the goals of the University s strategic and capital plans. WHEREAS, the George Mason University Board of Visitors performed its annual review of the University s Debt Policy. NOW, THEREFORE, BE IT RESOLVED by the George Mason University Board that the University is in compliance with its Debt Policy. Adopted: February 4, 2015 Kelly McNamara Corley Secretary Board of Visitors George Mason University E-35

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37 ITEM NUMBER IV.C: Private Business Use of University s Buildings Financed by Tax-exempt Debt (INFORMATION) PURPOSE OF ITEM: This item provides an overview of the University s Private Business Use Policy (#2115) that was approved by Senior Management on January 30, The Policy addresses the Private Business Use in buildings financed with Taxexempt Debt. APPROPRIATE COMMITTEE: Finance and Land Use BRIEF NARRATIVE: Where tax-exempt debt is used to finance Capital Projects, the University must comply with IRS laws and regulations applicable to Private Business Use. Pursuant to the Private Business Use test set forth at 26 USC 141, the tax-exempt status of a bond issuance is jeopardized if more than 10% of the tax-exempt bond proceeds are used for Private Business Use. Private Business Use Policy highlights: The University s debt financing program will comply with all IRS laws and regulations applicable to Private Business Use in tax-exempt financed facilities. The Private Business Use in the facility needs to remain below the applicable limit for as long as the debt (including refundings) remains outstanding. The Senior Vice President for Administration and Finance is responsible for ensuring that any space in debt financed buildings allocated to Private Business Use does not exceed the legal tax limits. If the Private Business Use of the facility is determined to exceed the applicable legal limits, corrective action will be required by the Senior Vice President for Administration and Finance. The Private Business Use Committee is to be chaired by the Vice President for Facilities and will include representatives from the Controller and Budget Office. STAFF RECOMMENDATION: For information only E-37

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39 universitypolicy.gmu.edu Private Business Use (Use of Buildings Financed with Tax- Exempt Debt) University Policy Number 2115 I. Scope Where tax-exempt debt is used to finance Capital Projects, the University must comply with IRS laws and regulations applicable to Private Business Use. Pursuant to the Private Business Use test set forth at 26 USC 141, the taxexempt status of a bond issuance is jeopardized if more than 10% of the tax-exempt bond proceeds are used for Private Business Use. II. Policy Statement The University s debt financing program will comply with all IRS laws and regulations applicable to Private Business Use in tax-exempt financed facilities. The University s Senior Vice President for Administration and Finance is responsible for ensuring that any space in debt financed buildings allocated to Private Business Use does not exceed the legal tax limits. III. Definitions Basic Research: Any original investigation for the advancement of scientific knowledge not having a specific commercial objective (see IRS Rev. Proc ). Capital Projects: the renovation, construction or acquisition of facilities and capital equipment. Private Business Use: Use in a Trade or Business carried on by or for the benefit of any Non-Governmental Person. Private Business Use does not include use of a facility by a member of the general public where the facility is open to the public and the user has no special legal entitlement to use of the facility. Trade or Business: Any activity carried on by a Non-Governmental Person other than an individual acting as a member of the general public. Safe Harbor: A provision that shields a party from liability under the law provided that certain conditions are met. IRS revenue procedures contain several Safe Harbors relating to activities which could generate Private Business Use, the most important of which pertain to management contracts and research contracts. IV. Types of Private Business Use Most Private Business Use in a tax-exempt financed facility arises from five types of arrangements: A. Ownership: A sale or transfer of ownership to a Non-Governmental Person of tax-exempt financed property. Ownership is determined under federal income tax principles. B. Leases: Any arrangement that is properly characterized for federal income tax purposes as a lease to a Non- Governmental Person. C. Management Contracts: A management contract is any arrangement whereby a Non-Governmental Person actively manages the operations of a facility. Management contracts include, for example, contracts for dining E-39

40 services, facility management, or vivarium services (management of an animal facility). However, there are exceptions for certain contracts meeting the Safe Harbors set forth in Rev. Proc In order to meet the Safe Harbors, the contract must provide for reasonable compensation to the Non-Governmental Person for services rendered with no compensation based in whole or in part on a share of net profits. Arrangements that generally are not treated as net profit arrangements and therefore satisfy the Safe Harbor requirements include contracts for a percentage of gross revenues or expenses (but not both), or a per person or per unit fee. Management contracts must be analyzed in advance by the Private Business Use Committee for their impact on tax exempt financed facilities. D. Research Agreements: Sponsored research by a Non-Governmental Person (including the federal government and its agencies) may result in Private Business Use unless the terms of the sponsorship agreement meet the Safe Harbors set forth in Rev. Proc In general, sponsored research will not result in Private Business Use if: (i) the research in question is properly characterized as Basic Research; (ii) the University s licensing of the resulting technology to the sponsor is on terms no more favorable than those the University would extend to an unrelated, nonsponsoring party; and (iii) the price paid for that license is determined at the time the resulting technology is available for use. Additional exceptions (as described in Rev. Proc ) apply for federally sponsored research and industry-sponsored cooperative research agreements. E. Other Actual or Beneficial Use: Any other arrangement that conveys special legal entitlements to a Non- Governmental Person for beneficial use of tax-exempt financed property, such as an arrangement that conveys priority rights to use a tax-exempt financed facility, will result in Private Business Use. Examples of such special legal entitlements include summer camps having the exclusive right to use an athletic facility, specially designed courses open only to one company, signage on an athletic facility or use of a parking garage for a private event. V. Compliance The Private Business Use in the facility needs to remains below the applicable limit for as long as the debt (including any refundings) remains outstanding. For new capital projects, if debt financing is a contemplated, the Vice President for Facilities[1] will distribute the University s Private Business Use Questionnaire to the Deans and Directors of the planned space. After completion of a Capital Project, the Vice President for Facilities is responsible for monitoring and reporting on the Private Business Use in the facility. To monitor compliance, the Vice President for Facilities will distribute the University s Private Business Use Questionnaire to the Deans and Directors annually. When completing the Private Business Use Questionnaire, the Deans and Directors are to include all necessary information for identifying and quantifying potential sources of Private Business Use. Annually, the Vice President of Facilities will report the Private Business Use space data obtained and maintained from the Private Business Use Questionnaires to the Private Business Use Committee. The Private Business Use Committee will complete a Private Business Use analysis report. The Private Business Use Committee will be chaired by the Vice President for Facilities and will include representatives from the Controller and Budget Office. University Counsel shall attend Committee meetings in an advisory capacity. Annually, the Senior Vice President for Administration and Finance will utilize this Private Business Use analysis report to certify compliance to the Commonwealth of Virginia. If the Private Business Use of the facility is determined to exceed the applicable legal limits, corrective action will be required by the Senior Vice President for Administration and Finance. VI. Forms Private Business Use Questionnaire VII. Dates: 1. Effective Date: E-40

41 This policy will become effective upon the date of approval by the Senior Vice President for Administration and Finance and Provost. 2. Date of Most Recent Review: N/A VIII. Timetable for Review This policy, and any related procedures, shall be reviewed annually. IX. Signatures Approved: /S/ Jennifer Wagner Davis, 1/30/2014 Date Senior Vice President for Administration and Finance Approved: /S/ Peter N. Stearns, 1/27/2014 Date Provost [1] Vice President for Facilities applies to the Vice President or designee. E-41

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43 Appendix A: Capital Projects Review This section provides the regular report on the status of capital construction projects on all three university campuses. The project stoplight chart provides a summary review. For purposes of black and white printing, all stoplights are Green unless otherwise noted. Scoring definitions: Red : Likely to exceed approved budget, schedule, or scope Yellow : At risk to exceed approved budget, schedule, or scope, but can still recover Green : Within approved budget, schedule, or scope White : on-hold Changes/updates since the December, 2014 report include: Renovate Field House Weight Room work completed and facility fully reoccupied January 2015 as planned. Fire and life safety systems to complete testing by end of January after installation of gas line supply to emergency generator by local utility company. Remaining roof coatings and exterior signage and graphics will complete once weather and temperatures are suitable for materials application. Discovery Hall Life Science Lab Building, PW Construction to complete in January with a February occupancy. Third floor fit-out project scope being refined for separate design and construction contracts. Campus Drive Underpass construction completion impacted by cold weather, but expected to be completed by mid-february. Canceled January 7, 2015 ribbon cutting. Shenandoah Housing, Taylor Hall Project schedule delayed for significant design revisions to respond to BCOM review comments and achieve life, fire, and safety building code compliance. Contractor has provided notification of significant cost and schedule impacts. Working with design-build contractor and BCOM to finalize design, mitigate delays, and complete the project. Projected completion date is now March 19, Potomac Science Center Environmental approvals obtained; final design continues. Pile driving and site work is underway. Occupancy scheduled for May Health Sciences/Academic VII Final design continues. Expect construction to start in May Project completion planned for summer of Hylton Performing Arts Center Addition Design contract awarded and proposals under evaluation for Construction Manager selection. Projecting Fall 2016 project delivery. E-43

44 Point of View - Conflict Analysis Facility - Project completion has slipped by approximately one month due to issues with the Storm Water Plan and weather delays. Project remains on track for Fall 2015 occupancy and use. Central Utility Plant Expansion Design is nearing completion. New chiller has been manufactured and delivered to the site and boilers are in manufacturing. Construction schedule slipped due to inability to negotiate an agreement with the selected Construction Manager within our current construction budget. E-44

45 E-45 Project # Project Name Facilities Projects Listing Scope(sf) New Scope(sf) Reno Total Budget Budget Status Schedule Scope Construction Start date Occupancy date Construction Shenandoah Dining (384 seats) 15,928 13,526 $ 11,723,435 Y 9/8/2013 8/25/ % Renovate Field House 126,850 $ 5,806,762 R 11/15/2013 1/7/ % PPEA Discovery Hall Ph II & Fitout 77,264 $ 38,936,310 Y Y 6/15/2012 2/4/ % Campus Drive 4,022 $ 18,740,593 Y R 12/1/2012 2/15/ % Housing VIII Phase B - Shenandoah (295 beds) 68,377 $ 18,805,862 Y R 4/1/2013 3/19/ % Point of View - Conflict Analysis Facility 24,447 $ 10,809,614 Y 6/10/2014 7/16/ % Fenwick Library 157,359 $ 60,060,129 Y 11/1/2012 1/15/ % Potomac Science Center 115,783 $ 30,007,364 Y Y 10/1/2014 4/30/ % Design Central Utility Plant Expansion* 4,500 6,000 $ 10,381,527 Y Y 2/27/ /30/2015 N/A Hylton Center Addition* 17,886 $ 8,600,000 5/1/ /1/2016 N/A Health Sciences - Academic VII (est cost $73M)* 166,000 $ 3,488,126 Y 6/2/2015 7/2/2017 N/A Planning Housing VIII Phase B - Rappahanock - On Hold 103,000 $ 27,300,000 TBD TBD N/A Spuhler Field Renovation - Phase I - On Hold 10,000 $ 4,000,000 v v v TBD TBD N/A Life Sciences - Bull Run Add (est cost $43M) - On Hold 100,000 23,000 $ 2,000,000 v v v TBD TBD N/A Recent Authorization Grand Total This Report 864, ,376 $ 250,659,722 * Pool Funded Project; will require DPB/BCOM approval for release of funds after Preliminary Design Construction % Complete Data as of January 2015 STOPLIGHT KEY Red: Likely to exceed approved budget/schedule/scope Y Yellow: At risk to exceed approved budget/schedule/scope Green: Within approved budget/schedule/scope Page 1 of 1

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