General Policies
Responsible Office: President's Office
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Policy
1009: Debt Management General Policies Responsible Office: President's Office |
Policy 1009
DEBT MANAGEMENT
I. PURPOSE
The purpose of this policy is to establish a guideline for the management of
University debt that supports the mission and strategic objectives of the
Institution, maintains existing buildings and infrastructure, and invests in a
new facility while monitoring the University's financial condition.
II. POLICY
The President, acting through the Vice President for Administration and Finance, shall be authorized to create and implement any and all debt management policies as part of the management of University financial resources. The University shall have the authority to issue bonds, notes or other obligations consistent with debt capacity and management policies and guidelines established by the Board of Visitors.
The University recognizes that there are numerous types of financing structures and funding sources available, each with specific benefits, risks and costs. All potential funding sources shall be reviewed by the President, acting through the Vice President for Administration and Finance, to ensure that any financial product or structure is consistent with the University’s objectives.
No capital project shall be undertaken if not:
1. Specifically included in a bill passed by the General Assembly authorizing such
project, or authorized under the Higher Education Restructuring Act; and
2. Approved by the University’s Board of Visitors as a project to be undertaken by the Institution as evidenced by the adoption of a formal Resolution.
Prior to any debt issuance, the Vice President for Administration and Finance will evaluate the University’s financial condition. This evaluation includes conducting an analysis of debt capacity and revenue streams to ensure affordability. Upon approval of non-general fund capital projects to be financed through bond proceeds, as evidenced by General Assembly authorization or language of the Higher Education Restructuring Act, the University shall develop a plan to trend in adequate revenues to cover debt service through increased tuition and/or fees. Debt will be issued only if financial resources are sufficient to support required principal and interest payments.
A. Financing Alternatives: The University may seek financing for capital projects through:
1. The Department of Treasury's Virginia General Obligation Bond Program in an
effort to finance 9c projects, revenue-producing capital projects whereby
obligations are secured by project revenues, such as residence halls, dining and
parking facilities;
2. The Department of Treasury’s Virginia College Building Authority (VCBA)
Pooled Bond Program in order to finance 9d projects, those projects that are
not secured by specific revenues;
3. A Public Private Education partnership agreement; or
4. Any other alternative financing mechanism authorized by legislation.
The University may enter into a written agreement or agreements with the Longwood University Real Estate Foundation. Such alternative financing arrangements may be utilized for the development of student housing projects, or other real estate requirements of the University.
The University may request financing for equipment through Department of Treasury’s Master Equipment Lease Program (MELP), through other Treasury financing options, or from private sources (with Treasury approval) when doing so better meets the needs of the institution and achieves an overall lower cost of funding. Items to be considered include more favorable interest rates and repayment terms.
B. Accountability Requirements
The University has established guidelines relating to the total permissible amount of outstanding debt by monitoring the following ratios that measure debt compared to University balance sheet resources and annual debt service burden. These measures are monitored and reviewed regularly in light of the University’s strategic initiatives and expected debt requirements. The Board of Visitors shall periodically review and approve the University’s debt capacity and debt management guidelines.
The University will maintain a debt burden ratio of 7% or less, which represents the standard for higher education institutions. The debt burden ratio reflects annual debt service (principal and interest payments) as a percent of total University operating expenditures. This ratio measures the institution’s flexibility in meeting its debt service obligations.
The debt burden ratio may exceed 7% in instances involving the debt of revenue-producing capital projects when such obligations are secured by income associated with the project.
The University will maintain a leverage ratio of at least 2 to 1, which represents the standard for higher education institutions. The leverage ratio reflects the amount of leverage on University assets, and is a measure of unrestricted and temporarily restricted net assets to outstanding debt.
The debt issued in any fiscal year will not exceed an amount required to comply with the debt burden and leverage ratios outlined above.
The University Budget Office shall maintain all documentation associated with University financing, to include debt service schedules.
Approved by the Board of Visitors, March 25, 2006.