F–5 STANDING COMMITTEES Finance and Asset Management Committee

F–5/212-19 12/12/19

Finance, Budget, and Capital Report INFORMATION This item is for information only. BACKGROUND This is a standing monthly report. Brian McCartan, Vice President, Finance, will speak to the Semi-Annual Debt Report, presented monthly until September 2019 and focusing on the University’s external debt. Sarah N. Hall, Vice Provost, Planning & Budgeting, will include an update on Activity-Based Budgeting (ABB), Phase III, along with her usual budget report. Lou Cariello, Vice President, Facilities, will present the new capital-planning process, in addition to the usual capital projects report. Attachments

1. Semi-Annual Debt Report – December 2019 2. Monthly Budget Report – December 2019 3. Activity-Based Budgeting Update – December 2019 4. Active Capital Projects Summary as of November 22, 2019 5. Revised Capital Project Approval Process

185$ 210 105

Total Debt Funding 500$

(1) 80/20 weighting between tax-exempt (assumes 5% coupons and a 10-year par call) and taxable 30-year interest rates to illustrate the University's portfolio (2) Due to commercial paper timing differences, project costs incurred in FY18 were refinanced with long-term debt in FY19

Remaining Debt Capacity (FY 2020-2024)

FY 2020-2024 (in millions)

Projects Pending Board Approval (B)Board Approved Projects (A)

Long-Term Credit Rating: Aaa/AA+Internal Lending Rate: 4.50%

Weighted Average Cost of Debt: 3.53%

Recent Events As of November 21st, the University's estimated borrowing cost was 3.31%(1), up 17 basis points since August 27th. Rates in both

the taxable and tax-exempt markets have trended up since reaching yearly lows in early October due to increases in issuance volumes and economic uncertainty

Currently there is $40 million in outstanding commercial paper, $25 million in tax-exempt and $15 million in taxable

In December, the University will roll outstanding commercial paper through February 2020

In January 2020, the University will issue $100 million in General Revenue Bonds to pay off commercial paper and to fund project cash flows. There are refunding opportunities for existing bonds that the University is monitoring

Estimated Future Funding

A revised debt capacity estimate was presented to the Board in June 2019. This analysis indicated $500 million in available debt capacity through FY24. Debt capacity remains constrained in the near-term

Additional capacity from the Capital Assets Pool is recalculated quarterly as the value of the Invested Funds (IF) changes and principal owed to the CAP is repaid. As of 9/30/2019, the available capacity was $120 million

Short-term equipment financing has minimal impact on debt capacity

External Debt Portfolio (as of 10/31/2019)

ILP Debt, 76%

Non-ILP Debt, 24%

Variable, 6%

Fixed, 94%

Debt Activity (in millions)

The University has $2,355 million of external debt outstanding. This is higher than July's outstanding balance due to $15 million of new commercial paper issued in September. Since July, $5 million in principal has been paid off

The weighted average cost of debt is 3.53%

Between 2009 and 2015 outstanding debt grew by 13% annually. From 2015 through 2018, the annual growth rate slowed to 5%. Debt has not materially grown since 2017 and outstanding debt is projected to remain stable through 2024

$133 million of internal funding from the CAP is excluded from the external debt portfolio

Semi-Annual Debt ReportDecember 2019

(A) Authorized projects include Destination One ($129M), Kincaid Hall ($31M), and NWH Childbirth Center ($25M)(B) Finance Transformation ($180M) and Health Science Education Building ($30M). Approval scheduled for December 2019

$68 $47

$378

$188

$262

$122$78

$142$117

$63(2)

($42)(2) ($8)

$12 $9 $9 $7

$1,018

$2,394

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$(50) $-

$50 $100 $150 $200 $250 $300 $350 $400

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24

Out

stan

ding

Deb

t

Net

Cha

nge

Net Change Outstanding Debt

ATTACHMENT 1F-5.1/212-19 12/12/19

Page 1 of 2

Project Purpose Balance (1) Final MaturityLife Sciences Building Instruction and Research $111.9 2049Animal Research and Care Facilities Instruction and Research 87.5 2047Molecular Engineering Building Instruction and Research 69.1 2043Dempsey Hall Instruction and Research 34.9 2041Foege Building Instruction and Research 24.5 2031UW Bothell Phase 3 Instruction and Research 23.4 2043William H. Gates Law School Instruction and Research 16.5 2028AAALAC Instruction and Research 19.5 2035Ben Hall Instruction and Research 14.3 2037Denny Hall Instruction and Research 14.3 2046Kincaid Hall Instruction and Research 0.0 2046Other Instruction and Research Instruction and Research 21.8 various

Subtotal Instruction and Research $437.7South Lake Union (Ph I, II, 3.1, & 3.2) UW Medicine 330.2 2048UWMC Expansion UW Medicine 195.0 2046NW Hospital UW Medicine 61.5 2033UWMC Surgery Pavilion UW Medicine 29.3 2028NWH Childbirth Center UW Medicine 2.9 2041Destination One UW Medicine 13.2 2035Other UW Medicine UW Medicine 16.9 various

Subtotal UW Medicine $649.0HFS Expansion Student Life 548.1 2045Husky Union Building Student Life 95.4 2043IMA Building Student Life 26.0 2030Radford Court Apartments Student Life 26.7 2032Nordheim Court Student Life 17.6 2033Bothell Student Center Student Life 16.1 2046Ethnic Cultural Center Student Life 11.9 2043UW Tacoma YMCA Student Life 11.0 2046Other Student Life Student Life 24.5 various

Subtotal Student Life $777.3UW Tower Academic Support 91.9 2037HR Payroll Modernization Academic Support 28.4 2027Cobb Building Academic Support 30.6 2045West Campus Utility Plant Academic Support 25.3 20474225 Roosevelt Academic Support 13.1 20294545 Building Academic Support 12.0 2024Other Academic Support Academic Support 29.3 various

Subtotal Academic Support $230.6Husky Stadium Athletics 212.2 2045Husky Ballpark Athletics 11.1 2045Other Athletics Athletics 3.5 various

Subtotal Athletics $226.8

Available Proceeds Unallocated 33.2 TBDTotal University Outstanding Debt $2,354.6

(1) Estimated allocation. Will not exactly match ILP balances reflected in the Semi-Annual ILP report due to bond premium and use of the CAP and FAST programsProjects still drawing on ILP loans

% by Purpose

100%

Outstanding External Debt (in millions)

Long-Term Credit Rating: Aaa/AA+Internal Lending Rate: 4.50%

Weighted Average Cost of Capital: 3.53%

Unallocated , 1.4%

Athletics , 9.6%

Academic Support ,

9.8%

Student Life , 33.0%

UW Medicine , 27.6%

Instruction and Research ,

18.7%

Semi-Annual Debt ReportDecember 2019

F-5.1/212-19 12/12/19

Page 2 of 2

OFFICE OF PLANNING & BUDGETING

MONTHLY BUDGET REPORT – DECEMBER 2019

CORE OPERATING BUDGET

The UW’s core operating budget consists of activities within the General Operating Fund (GOF) and Designated Operating Fund (DOF), which include state appropriations, tuition revenue, indirect cost recovery, institutional and administrative overhead, as well as several smaller sources. Data displayed below consist of expenditures against permanent and temporary spending authority distributed to campus business units.

Overview – through October 2019 Month-End

The first figure displays FY20 budget and expenditures. The UW’s core operating budget is trending on target for FY20. Expenditures ran at 27.6% of the annual budget as of October 2019 (33.3% of the fiscal year completed), which tracks to year over year historical averages.

Core Operating Budget Enterprise-Level Trends

• Compensation expenditures on core funds are up 2.9% (from $220 million to $226 million), compared to the same period last year.

• Benefit expenditures on core funds are down 1.3% (from $68 million to $67 million), compared to the same period last year.

• Non-compensation operating expenditures on core funds are up 12.3% (from $89 million to $100 million), compared to the same period last year.

• In total, expenditures on core funds are up 4.4% (from $376 million to $393 million) compared to the same period last year.

• The figure to the right shows trends over the last five years.

“SELF-SUSTAINING” ENTERPRISE REVENUES AND EXPENDITURES

The UW’s “Self-Sustaining” enterprise consists of many business-type activities that are established with the understanding that these activities generate sufficient revenue to cover direct expenditures and institutional overhead costs. This group encompasses a wide range of instructional, research, student, and institutional support functions. Data displayed in this section consist of revenues and expenditures, net of transfers. These data exclude UW Medicine, which is reported in a discrete item.

Overview – through October 2019 Month-End

Revenues, net of transfers exceeded expenditures by $50 million, with a net margin of 13.6%.

“Self-Sustaining” Enterprise-Level Trends

On self-sustaining funds, net of transfers: • Revenues are up 2.3% (from $356 million to $364 million), compared to the same period last

year. • Compensation expenditures are up 4.8% (from $157 million to $164 million), compared to the

same period last year. • Benefit expenditures are roughly even ($50 million), compared to the same period last year. • Non-compensation operating expenditures are down 2.8% (from $104 million to $101 million), compared to the same period last

year.

*All current year and comparison data is as of October month-end

*Data reflects Activity as of October 2019

ATTACHMENT 2F-5.2/212-19 12/12/19

Page 1 of 1

ACTIVITY BASED BUDGETING UPDATE DECEMBER 2019

BACKGROUND

Activity Based Budgeting (ABB) is a revenue allocation model that allocates a significant portion of the $1.4 billion General and

Designated Operating Fund (GOF and DOF) revenues according to measurable student and research activities. Implemented fully in

fiscal year 2012 (FY12), ABB has brought clarity to the UW’s budget process by allowing leaders to measure, project, and plan activities

with some guaranteed formulaic funding distribution. Further, it has increased University transparency by allowing unit leadership to

review allocations and funding decisions for all other departments.

One of the model’s aims is to direct revenues to where costs are generated. The model allocates revenues to Seattle schools and

colleges, where each dean and unit leader determines how to allocate funds within their unit. ABB does not generate or reduce

revenue, and when revenues flag or shrink, it functions to redistribute existing or declining resources. Its formulaic allocation methods

serve to supplement, but not replace, the University’s comprehensive and mission-oriented holistic long-range budget planning.

There are three primary components of the model affecting distributions of GOF and DOF: the supplement, tuition (i.e., net operating

fee), and indirect cost recovery. For a full explanation of each fund type and distribution method, please see pages 29-32 of the FY20

Operating Budget.

ABB: DEFINITIONS, ALLOCATION METHODOLOGIES & POTENTIAL PHASE III RECOMMENDATIONS

Supplement

The supplement is the non-formulaic portion of the ABB model that provides funding support for activities that do not generate tuition

revenue (e.g. research, service), and for tuition-generating instructional programs that generate insufficient tuition revenue to cover

instructional costs. Included in this category of funding is a historical cutover calculation that held harmless units’ GOF/DOF budget

when the University first launched ABB. The principles that established the supplement, and govern distribution of supplement funds

currently, are to:

Continuously evaluate supplement levels in light of the University’s mission and strategic goals, with an intent to balance or

right size unit-level resources;

Honor specific state appropriation instructions, such as provisos, which direct certain state funding to specific purposes or

goals;

Facilitate Provost and President strategic allocation of resources; and

Encourage optimal redirection of investments, even during financially distressed periods.

Since ABB’s implementation, the undergraduate tuition pool has significantly changed due to tuition rate changes, enrollment growth,

and migration of activity between schools and colleges. These three factors resulted in substantial, new tuition funding being

distributed to schools and colleges and, ultimately, shifting between schools and colleges. These funding shifts have meant that static

supplement funding, paired with tuition revenue losses, have put significant financial pressures on certain schools and colleges. As a

result of these changes, several task forces have advanced possible changes to supplement funding levels.

As part of the third formal review of ABB, a subcommittee of faculty, staff, and student representatives has reviewed a number of

models to shift a small fraction of supplement funding. Out of the $1.4 billion of core operating funds, the amount of funding in scope

for a potential shift is $125 million. We are evaluating the efficacy and impact of models that would provide subvention funding for

mission critical activities and strategic reinvestment. For example, one model would address the demographic shift in Arts & Sciences,

where student credit hours (SCH) in Natural Sciences disciplines have increased, and activity in Arts & Humanities has decreased.

Shifting the supplement would provide needed resources for foundational disciplines at the UW, which are disciplines that benefit all

schools and colleges. Alternative models brought forth by subcommittee members seek to provide additional dollars to Provost

Reinvestments using a flat tax or redistribution through the formulaic portions of the model.

Tuition (Net Operating Fee Revenue)

The tuition component is a subset of gross projected operating fee revenue (tuition is comprised of operating fees and building fees, but

only net operating fee revenue is distributed, because the building fee is distributed by the legislature). Gross operating fee revenue is

the sum of operating fees charged to all students, or the product of the number of students enrolled in a given tuition category by the

F-5.3/212-19 12/12/19

Page 1 of 2ATTACHMENT 3

operating fee charged based on the number of credit hours taken. The difference between gross and net operating revenue is driven by

financial aid, including tuition waived (foregone revenue) and revenue used for aid.1 After the provision of financial aid, net operating

fee revenue is distributed to Seattle schools and colleges as follows:

70 percent is distributed, and 30 percent is held back, for the Provost Reinvestment Fund (PRF); and

Of the 70 percent distributed, 80 percent based on SCH, 20 percent on degrees/majors.

These formulae allow for support to flow where teaching effort occurs and is considered a best practice among similar models at other

institutions. As enrollments grow and/or shift, these formulae have made funds more immediately available to provide necessary

instructional resources. The principles that guide our continuous review and improvement to this area of the model are to:

Provide incentive for positive behaviors, innovation, and operational efficiencies;

Be transparent;

Be as simple as possible to understand, administer, and implement;

Assign revenues to the units responsible for the activity that generates those revenues;

Clearly identify cross subsidization; and

Recognize the importance of maintaining current funding levels or phasing‐in funding reductions.

Each spring, final revenue from the current fiscal year is known and revenue for the next year is projected. A school or college’s net new

funding from tuition is the sum of its trued-up activity from the prior year, and its projection of new activity for the coming year. The 30

percent tax component is also projected and trued up; investments from this pool are shared with the Board of Regents annually and

become the basis of compensation support for central administrative, student support, and research/scholarly support units.

As part of the third formal review of ABB, a subcommittee of faculty and staff are reviewing formulae shifts we implemented in FY18,

where we began emphasizing SCH to achieve our goals to support interdisciplinary course taking, and the notion of allocating resources

more closely to student activity. The subcommittee has found that the shift did not significantly impact the bottom line of any school or

college; the impact of the formulae change is +/- 1 percent. The subcommittee is also considering a new framework for taxation.

Indirect Cost Recovery (ICR)

External research funding consists of both direct research funding and indirect cost recovery (ICR). Direct research funding is applied to

documented, allowable costs of conducting research, and is restricted by the terms of the sponsored research agreement. ICR rates are

negotiated with, or specified by, the awarding agency. These rates provide reimbursement to the UW for infrastructure costs generated

by research activity.

Under ABB, ICR is distributed back to the schools and colleges that generate research activity; and,

ICR is taxed at a rate of 65 percent to fund central costs such as facilities, research administration, central administration,

utilities, etc.

Though our indirect reimbursement rates are in line with peers, they insufficiently cover the costs of our research enterprise for two

reasons: first, administrative costs are capped by sponsor agencies and foundations; and second, our facilities costs exceed

reimbursement rates.

As part of the third formal review of ABB, a subcommittee of faculty, administrators, and principle investigators is examining several

areas. First, they are examining the balance of ICR funds going to central, compared to schools and colleges, and the implications of

making a shift (i.e., if more ICR goes to central for deferred maintenance, what support would schools/colleges need for local

discretionary funding). Second, they are considering how the method may better accommodate interdisciplinary research. Finally, the

subcommittee is considering how internal campus recharge structures may be deployed differently in cases of “heavy users” of certain

research support services.

CONCLUSION

In conclusion, a merit of the current ABB model is that it provides allocation changes that automatically accompany any change in grant

and contract or tuition-generating activity. A demerit, though, is that ABB does not necessarily provide the correct change in allocation,

due to the differential cost structures of the units. ABB formulae could in principle provide too much or too little. Thus, our work to

improve the model is continuous. By necessity, it is responsive to external factors related to tuition policy, state funding, federal

funding, and internal factors such as enrollment shifts, faculty retirements and interdisciplinary work.

1 Note that all net operating fee revenue generated by UW Bothell and Tacoma is distributed to each campus.

F-5.3/212-19 12/12/19

Page 2 of 2

ACTIVE CAPITAL PROJECTS SUMMARY

as of November 22, 2019

Project Name Financial Details Schedule Project Health Trending

Regent

Approval Budget Forecast

Funding

Committed Target Forecast Budget Funding Schedule Safety

Business

Equity

M/W Equity

Goal %

M/W Equity

Forecast

NCH Phase IV(b): Denny Field,

Haggett & Oak Halls Kieran Timberlake/Absher II, 02/19 $65.50 $65.45 $65.50 7/20 7/20

*

*

*

(1)

*

N/A 3%

Hans Rosling Center for

Population Health Miller Hull Partnership/LCL II, 01/18 $230.84 $228.69 $230.84 7/20 7/20

*

*

*

*

*

15% 25%

Parrington Hall Renovation INTEGRUS Architecture, PS/Absher II, 4/19 $23.80 $23.80 $23.80 8/20 8/20

*

*

*

*

*

15% 19%

HFS Stevens Court Exterior

Enclosure Rehabilitation (206686) RDH Building Sciences Inc./GLY Delegated $9.30 $9.30 $9.30 11/20 11/20

*

*

*

*

(2)

15% 9%

Kincaid Hall Renovation Perkins+Will/Skanska II, 4/19 $43.22 $43.00 $43.22 3/21 3/21

*

*

*

(3)

*

15% 18%

Northwest Hospital Childbirth

Center ZGF Architects/ABBOTT II, 11/18 $26.80 $26.80 $25.00 7/21 9/21

*

*

(4)

*

*

15% 20%

Founders Hall LMN Architects/Hoffman II, 11/19 $75.10 $75.10 $75.10 12/21 12/21

*

*

*

*

(5)

15% 3%

Seismic Improvements - Phase 2 Schacht/Aslani

Architects/CLARKCONS Delegated $15.00 $15.00 $15.00 12/21 12/21

*

*

*

*

*

TBD TBD

UW Bothell | Cascadia College

STEM 4 /LCL I, 03/19 $79.65 $79.44 $79.40 4/22 4/22

*

*

*

*

*

TBD TBD

Health Sciences Education

Building Miller Hull Partnership/LCL I, 07/18 $100.62 $103.76 $12.76 5/22 5/22

(6)

(7)

*

*

*

15% 15%

UW Tacoma Milgard Hall / I, 11/19 $50.00 $50.00 $50.00 1/23 1/23

*

*

*

*

*

TBD TBD

University District Development

at Sound Transit / I, 09/18 Pending 5/23

*

*

*

*

*

N/A N/A

UWB Husky Village

Redevelopment / I, 07/19 Pending 7/23

*

*

*

*

*

N/A N/A

Behavioral Health Teaching

Facility Clark Construction Group,

LLC/ABBOTT I, 07/19 $224.50 $224.50 $33.03 11/23 11/23

*

*

*

*

*

TBD TBD

Totals $942.33 $945.38 $653.66

$ All Dollars in Millions

ATTACHMENT 4F-5.4/212-19 12/12/19

Page 1 of 2

ACTIVE CAPITAL PROJECTS SUMMARY

as of November 22, 2019

Targets Legend

Budget: Budget is equal to or greater than Forecast (1% Tolerance) Meeting Target

Funding: Funding and cashflow as planned Not Meeting Target, Plan in Place

Schedule: Forecast is equal to or sooner than Target Not Meeting Target, No recovery Plan in Place

Safety: Total Recordable Incident Rate of 2 or lower

Business Equity: Green=meeting plan; Yellow=behind plan, recovery plan in place; Red=currently behind plan, recovery not possible.

Notes:

(1) Minor safety incidents have occurred exceeding the target safety goal for the project. The contractor and University project teams are committed to finishing the project with

no additional incidents.

(2) Business equity to date is currently less than the intended plan. A recovery plan is in place. Procurement of two buildings remain with a plan to achieve the project equity

goals.

(3) A safety incident during the demolition phase of work resulted in arm laceration. The worker was treated and returned to work that day. The project hours and this incident

result in a yellow indicator light.

(4) City of Seattle permit delays combined with shifting the start of construction is the cause of the schedule delay. Occupancy impacts as a result of the delay are being

accommodated.

(5) A consultant specializing in equity inclusion is being added to the project team. A revised equity inclusion plan will be developed to help assure the project can achieve the

equity goals.

(6) The budget forecast exceeds the approved budget. A budget recovery plan is being implemented with full recovery anticipated.

(7) Funding plan is not yet finalized with the six Health Science Schools.

UPC OMING PROJ EC T APPROVALas of November 22, 2019

Fund Source

Donor/

State

Donor

Project Overview

Planned

Regent

Action

Construction

CompleteFinancial EstimatesProject Name

The building will be approximately 340,000 GSF and will house

UW clean energy researchers and other public and private sector

tenants with compatible research and technologies. Using a P3

procurement method, a developer will design, finance, construct,

operate and maintain a development that provides well-

integrated core uses aligned with UW goals as well as house a

variety of uses that provide a variety of supporting benefits, such

as spaces for dining, meeting and informal gathering consistent

with the 2019 CMP.

$309M

Fall 2023

Spring 2023Center for Advanced Materials

and Clean EnergyFall 2019

Spring 2023Spring

2020

ICA Health & High Performance

Center

Spring

2020

Developer

Lease/

Rent

College of Engineering

Interdisciplinary Education

Create a student-focused, interdisciplinary center for the College

of Engineering to promote project-based learning, collaboration

and innovation for faculty and students in a curricular and co-

curricular setting among new construction, renovation, and

strategically reallocated spaces while fostering College of

Engineering and campus connectivity.

The project will demolish the existing pavilion pool building

and construct a new Health and High Performance facility for

UW Men’s and Women’s Basketball programs. The renovated

building will supplement Hec. Ed. Building functions and

circulation.

$45M

$75M

F-5.4/212-19 12/12/19

Page 2 of 2

Revised Capital Project Approval Process

Shifting to a single stage approval from the Board of Regents for capital projects allows the projects

to proceed in a much more efficient manner by taking some of the unknowns out of the process. All

of the same controls will remain, but in many cases they simply shift to a point earlier in the process.

The intent is to create a much more predictable process. The diagram below compares the controls

that accompanied the previous two stage approval process to the controls associated with the single

stage approval.

Previous Approval Process Proposed Approval Process

Board of Regents Action

One Capital Plan Approval

Board of Regents Action

Stage 1 Approval

Board Action

Stage 2 Approval

Board of Regents Information

Monthly Reporting

Projects identified & prioritized

Fund sources identified & balanced

O&M funding strategy identified

Board of Regents Action

5 Year Capital Budget Approval

Board of Regents Action

Project Approval

Board of Regents Information

Monthly Reporting

Projects identified & prioritized

Fund sources validated & tested

O&M funding committed

Target budget established

Business case approved

Benchmarks identified

Preliminary site selected

Project cost range estimated

Fund sources identified

Business case approved

Benchmarks identified

Preliminary site selected

Pre-design completed

Pre-construction budget approved

Authority delegated to select team

Final site approved (after EIS)

Project budget approved

Funding plan approved

All funding committed

100% pledges, 50% cash in hand

Project schedule established

Budget vs. forecast

Schedule vs. forecast

Funding status

Safety

Inclusion plan vs. forecast

Authority delegated to select team

Final site selected (after EIS)

Project budget approved

Funding plan approved

All funding committed

100% pledges, 50% cash in hand

O&M funding budgeted

Project scheduled established

Note: Internal check prior to construction to confirm all

capital and O&M funding is in hand

Budget vs. forecast

Schedule vs. forecast

Funding status

Safety

Inclusion plan vs. forecast

ATTACHMENT 5F-5.5/212-19 12/12/19

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