Funding Guidelines for Capital Projects

• Use of debt funds must be approved in advance by the Board of Trustees or via the Form 1 process.  
• Debt funding requests not approved through the Capital Plan process (i.e. off-cycle approval) must be approved by the Senior Vice President for Finance and Administration. The Office of the Treasurer will coordinate off-cycle debt requests with the Senior Vice President for Business Affairs/CFO.
• University debt may only be used for capital purchases (capital projects and financed equipment), and for “Faculty Staff Housing” loans, unless otherwise approved by the CFO.
• Please refer to Administrative Guide Policy 5.2.1: Financing of Purchases for more information.
• For more information about using debt for the project, refer to Debt Program and Manage Debt. 

• Once a project is approved
  • A PTA (Oracle Project-Task-Award) setup form is given to Capital Accounting for each funding source.
  • Once the PTAs are identified, the appropriate funds are transferred to the capital project account (unless otherwise stated in the project's Funding Agreement), up to the level of project approval.
  • The project approval process may have several stages, with varying levels of funding. The funding level should not exceed the approval level, but the funding may be less than the approval level if the project manager is not planning to commit 100% of the funding.
  • For Funding Agreements, “Construction Approval,” signifies 100% of the project funding is approved.   At this stage, all funds are transferred to the capital project account unless otherwise indicated in the funding agreement.
  • Any gift funds approved to fund a capital project but are not yet in hand must have an alternate funding source identified in the funding agreement. The funding agreement will clarify what funds to use until the gift funds are received or if the gift funds are determined to no longer be viable.
• Use of Funds
  • Unless the hierarchy of funding sources is arranged in advance: 
    • Or are based on gift donation schedules
    • Or are specifically indicated in the funding agreement with regard to the project savings plan
  • The following funding order, and use/commitment of funds, will apply:
    • Government Grants
    • Restricted Funds (gifts or non-government grants)
    • Unrestricted Funds
    • School or Department Reserves
    • University Reserves (President or Provost reserves)
    • University Debt
• Upon completion of the project, the remaining budgets are reduced to match expenditures, and any remaining departmental funds are transferred back to the original funding source(s). Remaining debt funds are removed from that project and will be reassigned through the capital budget process.
• Unless stated in the Funding Agreement, any project cost savings is applied in the following order:
  • University Debt
  • University Reserves (President or Provost reserves)
  • School/Department Reserves
  • Unrestricted Funds
  • Restricted Funds (gifts or non-government grants)
  • Government Grants

Projects should be responsibly estimated to allow the proper amount of debt to be allocated. Unless approved by the Provost, Capital Accounting does not transfer debt funds to incomplete projects, which would result in a transfer of budget savings and/or debt allocation from one year to the next. Although budgeted debt funding may cross budget years (on construction projects that cross fiscal years), budget savings may not, unless approved by the Provost. If a project budget savings reduces the amount of debt required to be expended, then that debt allocation is returned to the university and must be reassigned through the capital budget process.

Exceptions exist for:

• Written agreements between the Provost and school(s)/department(s).
• Debt allocation is made to a department program (e.g., Capital Utilities Program) for use on a number of projects during that fiscal year. If this occurs, debt savings on a project using current year debt allocations may be used on another project during that fiscal year. If the project is completed after the budgeted fiscal year, those funds are considered debt savings and returned to the university for use in future debt allocations through the capital budget process, unless approved otherwise.

Fund substitution is defined as moving expenditures made on one fund to another fund, thereby replenishing the cash available in the first fund, or replacing the funds used for an expenditure with another funding source, making the initial funds available again. Once a fund (debt and/or non-debt) is used, substitution of funds is generally not permitted unless previously agreed upon in writing (or in the Board of Trustee Write-up or funding agreement). That is, once existing funds are used and new funding is received, expenditures are not reallocated from the existing awards to the new Award. However, the department may request to use the new award prior to other existing awards for future expenditures.

Once university debt is used and a new funding source is received, substitution of gift/reserve funds for debt are only made if:

• Capital Accounting, in collaboration with the Office of the Treasurer, determines reallocation of debt is necessary for debt compliance and/or debt management.
• Requested by the department/school, however, once debt is expended and removed, the amount removed will no longer be available to the project.
• University Reserves (e.g., Facilities Reserves) are used as seed money for a project that is later debt or gift funded.

Bridge financing is the temporary use of either an unrestricted fund or debt fund, prior to receiving gift funds. Debt bridge financing must be arranged prior to “Construction Approval,” have approval from both the Provost and CFO, and must be outlined in an approved funding agreement. Refer to Administrative Guide Policy 5.2.1: Financing of Purchases for more information.

If bridge financing is permitted, it is the responsibility of the project manager and/or the school/department sponsoring the project to notify the project accountant when the funds are received and available for substitution. Fund transfers and/or expenditure transfers may be done at any time during the year as needed. The following guidelines apply:

• The Funding Agreement outlines the method of replacing funds used for bridge financing  other gift or non-gift awards.
• If the expenditures used on the bridge financing award were incurred in a prior year and/or the project has been placed-in-service, Capital Accounting may choose the best method:
  • Fund transfer between funds with detailed journal description indicating purpose of transfer.
  • If the award used for bridge financing  is debt, an accelerated amortization payment may be made, drawing upon the gift funds for payment.
• If the project was not placed-in-service, Capital Accounting may elect to transfer expenditures between funds/awards.
• If a gift is scheduled after construction begins or after a project is completed, it is recommended that the gift pledge state something to the effect that “The gifts may also be used to repay, replenish, and/or substitute funds already used towards the construction of a project.”

Funds transferred to cover a project's overdraft will not be returned. Permanent funding must be approved via a Form 1 or funding agreement and provided before the month-end close.

Fund substitutions are generally not permitted after a project’s in-service date and subsequent capitalization to the Fixed Assets System. However, such substitutions may occur with the appropriate approvals.  This is particularly relevant for projects with bridge financing arrangements or other funding substitutions outlined in the funding agreement or plan. An asset is placed in-service upon substantial completion.

• Debt for financed equipment is applied to the Budget Fiscal Year in which the requisition is approved (not when the asset is received or the invoice is paid).
• The capitalization policy that should be used for financed equipment is determined by the date the asset is received. For example, to determine if an expenditure item is capital or non-capital, apply the capitalization rules that are in effect on the day the asset is received.

• Early pay-down of debt is always accepted.
• For more on Debt Amortization and repayment, refer to Administrative Guide Policy 5.2.1: Financing of Purchases.