Financing & Treasury
THE CALIFORNIA STATE UNIVERSITY
Office of the Chancellor
400 Golden Shore
Long Beach, California 90802-4275
|Executive Order No:
||Executive Order No. 876, Financing and Debt Management Policy
— Project Development and the Systemwide Revenue Bond Program
||July 18, 2003
||Executive Order No.703
Enclosed is a copy of Executive Order No. 876, which contains financing policies and
procedures for the development of capital projects that are to be supported by non-state
revenues. It provides management policy direction specifically on projects financed
through the Trustees Systemwide Revenue Bond Program (SRB), which is the Trustees' primary
program for issuance of debt.
In accordance with the policy of the California State University, the campus president
has the responsibility for implementing executive orders where applicable and for maintaining
the campus repository and index for all executive orders.
Should you have any questions, please contact Mr. Richard Leffingwell, Senior Director,
Financing and Treasury at (562) 951-4570.
Attachment (see below)
Executive Staff, Office of the Chancellor
Vice Presidents for Administration
Vice Presidents for Student Affairs
Vice Presidents for University Development
Deans of Students
Chancellor's Office Divisional Heads
Executive Order 876
THE CALIFORNIA STATE UNIVERSITY
Office of the Chancellor
401 Golden Shore
Long Beach, California 90802-4210
Financing and Debt Management Policy — Project Development and the
Systemwide Revenue Bond Program
July 18, 2003
Executive Order No.703
Section 1: General Policies Regarding Financing Activities of the CSU
1.1 Authority: This policy statement provides information and procedures in
connection with financing activities of campuses and auxiliary organizations. It is
issued pursuant to Standing Orders of the Board of Trustees, Chapter III, Sections 1
and 2, and the authority delegated to the Chancellor in the Trustees CSU Policy for
Financing Activities, (RFIN 03-02-02, Section 2.7; see Attachment B).
1.2 General Rule: Use of the capital markets to finance revenue-based non-state
funded capital outlay projects of CSU campuses and auxiliary organizations shall be
limited to the use of the Chancellor's Office tax-exempt commercial paper programs and
the issuance of notes, bonds and other instruments, as approved by the Trustees, within
the CSU Systemwide Revenue Bond Program as described below, hereafter referred to as the
SRB program. The aspects of the SRB program and this policy are based on the fact that
debt management is a dynamic undertaking, that evaluation of debt capacity and credit
quality involves many different measures, and that the choice to use the specific criteria
and measures in this policy may require change over time.
1.3 Alternative Financing Activities: An alternative financing structure to Section
1.2 above may be utilized if the campus is able to demonstrate significant benefits and if
the Trustees approve the alternative structure. The campus must not only demonstrate
benefits for the use of an alternative structure, but must also identify the detailed
structure of the proposed financing. In reviewing the proposed structure, the Office of
the Chancellor shall evaluate such things as 1) impacts on the CSU's financial statements,
2) the extent to which the financing will be counted as a use of the Trustees' credit, 3)
the relative cost of the proposed financing, 4) the proposed use of financing techniques
that involve greater repayment risk than are typically used in the SRB program, and 5) any
other short-term or long-term impacts to the Trustees' credit profile.
Section 2: Definitions
2.1 "PROJECT": Construction of a facility or group of facilities related
to the same use and constructed at the same approximate time (example; one or more dormitories
constructed with one construction contract).
2.2 "STAND-ALONE PROJECT": For a campus, a STAND-ALONE PROJECT is a
campus self-supporting activity supported by an ESTABLISHED CSU FEE that provides the source
for repayment of debt for only one campus related PROJECT (e.g. the first campus-operated
student housing facility). For an auxiliary organization a STAND-ALONE PROJECT is a single
PROJECT operated by the auxiliary that is supported by the project-related revenue, or all
of the auxiliary organization's available revenue (e.g. the first auxiliary-operated bookstore
2.3 "DEBT PROGRAM": For a campus, a DEBT PROGRAM is a campus self-supporting
activity funded by an ESTABLISHED CSU FEE that provides the source for repayment of debt for
more than one campus related PROJECT (e.g. two or more separately financed campus-operated
student housing facilities). For an auxiliary organization, a DEBT PROGRAM is a program
operated by the auxiliary that provides the source for repayment of debt for more than one
auxiliary-operated PROJECT (e.g. two separately financed auxiliary-operated food service
facilities). Note that a general revenue pledge of all available auxiliary organization
revenue makes it possible for the entire auxiliary organization program to be classified as
a single DEBT PROGRAM.
2.4 "ESTABLISHED CSU FEES": The following fee categories established in the
Education Code have been pledged to the repayment of bonds issued by the SRB program:
2.5 "NET REVENUE DEBT SERVICE COVERAGE RATIOS" (DSCR): A DSCR consists
of annual gross revenue, less annual operating expenses divided by annual debt service.
This ratio serves as a benchmark at the systemwide and campus level for decisions about
new debt and the management of debt (See Section 4).
- Parking Fees (Education Code Section 89701)
- Student Body Center Fees (i.e., Student Union Fees) (Education Code Section 89304)
- Rental Housing Fees (Education Code Section 89703)
- Health Center Facility Fees (Education Code Section 89702)
- Continuing Education Revenue Fund Fees (Education Code Section 89704)
Section 3: Systemwide Revenue Bond Program (SRB)
3.1 Trustee Approval: Each issuance of debt instruments under the SRB program shall
be approved by the Trustees.
3.2 Gross Revenue Pledge: Bonds issued under the SRB program are secured by a gross
revenue pledge of all ESTABLISHED CSU FEES.
3.2.1 Lawfully available revenue may be pledged from a campus or auxiliary
organization through a formal binding agreement if approved by the Trustees.
3.3 Commercial Paper Program: Within the capacity of the CSU Chancellor's Office
commercial paper program, each non-state funded capital outlay project may receive
acquisition or construction funding through the issuance of tax-exempt commercial paper.
3.4 Auxiliary Organization Projects: Except as indicated in Section 1.3, PROJECTS of
auxiliary organizations shall be financed through the SRB program.
3.4.1 Each auxiliary organization SRB project financing shall be supported
by the execution of a financing lease between the auxiliary organization and the CSU
with a legal structure that is permitted by the provisions of the State University Bond
Act and the SRB Master Resolution.
3.5 Structure and Timing of Bond Transactions: The structure and timing of each issuance
of SRB bonds shall be determined by the Chancellor's Office.
220.127.116.11 For auxiliary organizations with no existing debt obligations,
the lease shall contain provisions that 1) pledge all available corporation revenue
to the Trustees for payment of the lease obligations; 2) require deposit of all
pledged revenues (i.e., all revenues) into a pledged "gross revenue fund"
bank account; 3) establish criteria for issuance of additional bonds; and 4) covenant
that the auxiliary organization will set rates or otherwise maintain pledged income
that will generate the required net revenue (See Section 4.4).
3.4.2 At each campus the aggregate annual direct and indirect debt service for other
third-party financings and for auxiliary financings that are either part of or separate
from the SRB program, is limited to a maximum amount of 25% of the respective allocation
of debt capacity to the respective campus (See Section 5).
18.104.22.168 For auxiliary organizations with existing debt obligations, the lease
shall contain provisions that 1) require the corporation to abide by the criteria
of existing bonds for the issuance of "parity" debt; 2) establish that Trustees share
in pledged revenue with all other bondholders on a parity basis; and 3) require that
Trustees receive the same covenants as existing bondholders for the issuance of
additional bonds and the same coverage required for a rate covenant for the existing
22.214.171.124 The financing lease shall be considered parity debt with all other, existing
auxiliary organization debt.
126.96.36.199 The financing lease payment from the auxiliary organization to the CSU shall
be calculated to include: 1) debt service associated with the bonds including the cost
of participation in the commercial paper program, interest and principal on bonds
issued to permanently finance the project and other debt management related costs of
the CSU; and 2) any costs incurred by the auxiliary organization's campus for operation
and maintenance for the financed facility. (See Executive Order No. 753)
3.6 Allocation of Costs: Debt service and other debt management costs shall be allocated
to campuses on the basis of a formula determined by the Chancellor's Office.
Section 4: DSCR Benchmarks
4.1 Systemwide DSCR: For the system, the DSCR is computed using the total of the
gross revenue of the ESTABLISHED CSU FEES plus any pledged revenue supporting SRB capital
lease payments from auxiliary organizations. Operating expenses and debt service for the
computation consist of the total operating expenses and debt service relating to these
programs. The systemwide DSCR should be maintained at or above 1.45. If the SRB systemwide
DSCR falls below 1.45, the campus benchmarks may be changed to strengthen the credit position
of the program. (See also Attachment A)
4.2 Campuswide DSCR: At the campus level, the DSCR is similar to the systemwide DSCR
test except that the amounts of pledged revenue, operating expense and debt service are
related to the specific campus pledged revenues of the campus' ESTABLISHED CSU FEES. The
minimum requirement of the DSCR for a campus is 1.35.
4.3 Campus PROJECT and DEBT PROGRAM DSCR: The DSCR for a campus PROJECT that is part
of a campus DEBT PROGRAM must be equal to a minimum of 1.0 and the related DEBT PROGRAM DSCR
equal to a minimum of 1.10. The DSCR for a campus STAND-ALONE PROJECT must be equal to a
minimum of 1.10. For these requirements the DSCR is computed from pledged revenue, operating
expense and debt service that is related to the specific PROJECT, DEBT PROGRAM or the
4.4 Auxiliary Organization PROJECT and DEBT PROGRAM DSCR: The DSCR for a campus
auxiliary organization SRB PROJECT that is part of an auxiliary organization DEBT PROGRAM
must be equal to a minimum of 1.1, and the related auxiliary DEBT PROGRAM equal to a minimum
of 1.25. The DSCR for a campus SRB auxiliary organization STAND-ALONE PROJECT must equal a
minimum of 1.25. For these requirements the DSCR is computed from pledged revenue, operating
expense and debt service that is related to the specific auxiliary organization PROJECT or
4.5 DSCR and Effective Year: The chief financial officer of a campus is responsible
to implement plans and budgets so that the required DSCRs for campus CSU ESTABLISHED FEE
programs and campus auxiliary organizations be supportable and maintained at or above the
minimum level for the first operating year, and at or above for all subsequent years of
operation for STAND-ALONE or DEBT PROGRAM PROJECTS.
Section 5: Debt Capacity
5.1 General Rule: Financing shall not be recommended by the Chancellor's Office if
the issuance of new bonds will cause the total amount of issued and outstanding SRB bonds
to exceed the CSU's debt capacity as determined by the Trustees.
5.2 Calculation of the CSU's Debt Capacity: Debt service on all issued and outstanding
SRB bonds shall not at any time exceed an amount that would cause the quality of the CSU's
credit to fall below a minimum level as determined by the Trustees.
5.3 Allocation of Debt Capacity to Campuses: Capacity, as measured by debt service on
campus debt, shall be allocated to CSU campuses as follows:
5.3.1 Campus general allocation: The aggregate debt service related to a
campus' individual projects shall not exceed an amount computed from its net unrestricted
expenditures times two-thirds (2/3) of the same ratio that the Trustees have recognized as
appropriate for the system.
5.3.2 Chancellor's Office special allocation: With concurrence of the Trustees, the
Chancellor's Office may allocate portions of up to an additional one-third (1/3) of the CSU's
debt service capacity to individual campuses for special priority purposes.
Section 6: General Financial Planning Principles For Projects
6.1 Project Size: The CSU SRB program is intended to provide a mechanism to finance
revenue based non-state capital outlay projects pursuant to the State University Revenue Bond
Act of 1947 and the issuance of debt to the public through a complex legal structure and
financial marketing process. As such, the program is suitable for projects of greater than
$5 million at campuses of more than 10,000 FTE and $3 million for campuses of less than 10,000
FTE, and with a useful life of greater than ten years. See Section 7 for program-related costs
that should be funded through a reserve plan rather than through the issuance of debt.
6.2 Allocation of Debt Service: The plan of finance for SRB PROJECTS shall assume level
debt service and allocation of long-term debt over 25 or 30 years unless the useful life of the
asset financed is less.
6.3 Timing of Bond Sale: The plan of finance shall assume the sale of long-term debt at
the time of initiation of construction (i.e., including capitalized construction period
interest) to meet net revenue debt coverage ratio tests.
6.4 Interest Rate Assumptions: The plan of finance for PROJECTS shall incorporate a
moderate interest rate contingency for unfavorable changes in interest rates between the time
of the initial financial plan and the time long-term bonds will be sold. In the preliminary
feasibility analyses, depending upon market conditions and timing of projects, a 100 basis
point cushion may be incorporated. As PROJECTS progress, updated financial plans shall be
adjusted to incorporate changes in market conditions. Plan for 50 basis point cushion for
market uncertainty between market interest rates at the time of Trustees approval and issuance
of bonds as permanent financing for the PROJECT. There may be specific conditions that further
adjust this contingency.
6.5 Consistency of Computations: Upon request the Chancellor's Office will provide the
debt service information to be used in all financial plans relating to debt issuance in order
to ensure that information regarding the debt is consistently prepared.
6.6 Calculation by Chancellor's Office: The Chancellor's Office shall calculate the
DSCRs and debt capacity from audited data or other data provided through the CSU corporate
management information system (FIRMS), and from new project and program data provided by the
Section 7: Reserves
7.1 Reserve Development: The campus president and chief financial officer are
responsible for developing and maintaining a campus policy to provide reserves from project
revenues for projects funded by debt issued by the Board of Trustees. The campus reserve
policies, at a minimum, should address the following needs:
7.2 Reserve Review: At a minimum of once every three years, each campus shall conduct
an in-depth review to assess the adequacy of the reserves and the campus reserve policies
applicable to the projects funded by debt, and shall make necessary adjustments and changes
to account for changing conditions. For Major Maintenance and Repair/Capital Renovation and
Upgrade Reserves, the reviews should include formal studies of facility systems and necessary
funding levels to cover all aspects of cost of replacement through the reserve funding plan.
- Major Maintenance and Repair/Capital Renovation and Upgrade
- Working Capital
- Capital Development for New Projects
- Catastrophic Events
Charles B. Reed
Date: July 18, 2003
Executive Order No. 876
Executive Order No. 876
CSU Policy for Financing Activities
Board of Trustees' Resolution
WHEREAS, The Board of Trustees of The California State University
("the Board" or "the Trustees") finds it appropriate and necessary to
use various debt financing programs afforded to it through the methods statutorily established
by the legislature, and to use to its advantage those programs available to it through debt
financing by recognized auxiliary organizations of the California State University; and
WHEREAS, The Board wishes to establish and maintain policies that provide a framework
for the approval of financing transactions for the various programs that enable appropriate
oversight and approval by the Trustees; and
WHEREAS, Within a policy framework the Board desires to establish appropriate
delegations that enable the efficient and timely execution of financing transactions for the
CSU and its recognized auxiliary organizations in good standing; and
WHEREAS, The Board recognizes that there is a need from time to time to take advantage
of rapidly changing market conditions by implementing refinancings that will lower the cost of
debt financing for the CSU and its auxiliary organizations and that such refinancings could be
better implemented by reducing the time required to authorize such refinancings; and
WHEREAS, The Board finds it appropriate to establish the lowest cost debt financing
programs for the CSU, and to use the limited debt capacity of the CSU in the most prudent
WHEREAS, There are certain aspects of the tax law related to the reimbursement of
up-front expenses from tax-exempt financing proceeds that would be more appropriately satisfied
through a delegation to the Chancellor without affecting the Trustees' ultimate approval
process for such financings; now, therefore be it
RESOLVED, by the Board of Trustees of The California State University as follows:
Section 1. General Financing Policies
1.1 The State University Revenue Bond Act of 1947 (Bond Act) provides the Board of
Trustees with the ability to acquire, construct, or refinance projects funded with
debt instruments repaid from various revenue sources.
1.2 The long-term debt programs of the Board of Trustees established pursuant to the
Bond Act shall be managed by the Chancellor to credit rating standards in the "A"e
1.3 The intrinsic rating of any debt issued by the Trustees shall be at investment
grade or better.
1.4 The Trustees debt programs should include the prudent use of variable rate debt
and commercial paper to assist with lowering the overall cost of debt.
1.5 The Trustees programs shall be designed to improve efficiency of access to the
capital markets by consolidating revenue bond programs where possible.
1.6 The Chancellor shall develop a program to control, set priorities and plan the
issuance of all long-term debt consistent with the five-year non-state capital outlay
1.7 The Chancellor shall annually report to the Trustees on the activity related to the
issuance of long-term debt.
Section 2. Financing Program Structure of the CSU's Debt Program
2.1 To use the limited debt capacity of CSU in the most cost effective and prudent
manner, all on-campus student, faculty and staff rental housing, parking, student union,
health center, and continuing education capital projects will be financed by the Trustees
using a broad systemwide multi-source revenue pledge under the authority of the Bond Act
in conjunction with the respective authority of the Trustees to collect and pledge
Other revenue-based on-campus and off-campus projects will also be financed through this
program and the Bond Act unless there are compelling reasons why a project could not or
should not be financed through this program (see Section 3 below).
2.2 The Chancellor shall establish minimum debt service coverage and other requirements for
Bond Act financing transactions and/or for the related campus programs, which shall be used
for implementation of the Trustees' debt programs. The Chancellor shall also define and
describe the respective campus program categories.
2.3 The Chancellor, the Executive Vice Chancellor and Chief Financial Officer, the Assistant
Vice Chancellor Financial Services, the Senior Director of Financing and Treasury, and each
of them (collectively, "Authorized Representatives of the Trustees"), are hereby
authorized and directed, for and in the name and on behalf of the trustees, to take any and
all actions necessary to refinance any existing bonds issued pursuant to the Bond Act of 1947
if the refinancing transaction will result in net present value savings, as determined by an
Authorized Representative of the Trustees and which determination shall be final and
conclusive. Authorized Representatives of the Trustees are authorized to execute, acknowledge
and deliver, and to prepare and review, as each of them deems appropriate, all bond
resolutions, bond indentures, official statements and all other documents, certificates,
agreements and information necessary to accomplish such refinancing transactions.
Section 3. Other Financing Programs
3.1 The Board recognizes that there may be projects, or components of projects, that a campus
wishes to construct that are not advantaged by, or financing is not possible, or is
inappropriate for the Bond Act financing program. A campus president may propose that such a
project be financed as an auxiliary organization or third party entity financing if there is
reason to believe that it is more advantageous for the transaction to be financed in this
manner than through the Bond Act financing program.
3.1.1 Such financings and projects must be presented to the Chancellor for approval early
in the project's conceptual stage in order to proceed. The approval shall be obtained prior
to any commitments to other entities.
3.2 The Chancellor may require campus presidents to establish campus procedures applicable to
campus auxiliary organizations for the issuance of debt instruments to finance or to
refinance personal property with lease purchase, line-of-credit, or other tax-exempt
financing methods. The procedures issued by the Chancellor need not contain a requirement
for approval of the Trustees or the Chancellor but may include authority for campus
presidents to take all actions to assist the auxiliary organization on behalf of the Trustees
to complete and qualify such financing transactions as tax-exempt.
3.1.2 These projects must have an intrinsic investment grade credit rating, and shall be
presented to the Trustees to obtain approval before the financing transaction is undertaken
by the auxiliary organization or other third party entity.
3.1.3 If a project is approved by the Trustees, the Chancellor, the Executive Vice
Chancellor and Chief Financial Officer, the Assistant Vice Chancellor Financial Services,
the Senior Director of Financing and Treasury, and each of them (collectively,
"Authorized Representatives of the Trustees") are hereby authorized and directed,
for and in the name and on behalf of the Trustees, to execute, acknowledge and deliver, and
to prepare and review, as each of them deems appropriate, any and all documents and
agreements with such insertions and changes therein as such Authorized Representatives of
the Trustees, with the advice of the General Counsel, may require or approve, such approval
to be conclusively evidenced by the execution and delivery thereof, in order to assist with
the planning, design, acquisition, construction, improvement, financing, and refinancing of
Section 4. State Public Works Board Lease Revenue Financing Program
4.1 The authorizations set forth in this section shall be in full force and effect with respect
to any State Public Works Board project which has been duly authorized by the Legislature in a
budget act or other legislation and duly signed by the Governor and which is then in full force
4.2 The Chancellor, the Executive Vice Chancellor and Chief Financial Officer, the Assistant
Vice Chancellor Financial Services, the Senior Director of Financing and Treasury, and each of
them (collectively, "Authorized Representatives of the Trustees") are hereby authorized and
directed, for and in the name and on behalf of the Trustees, to execute, acknowledge and
deliver, and to prepare and review, as each of them deems appropriate, any and all construction
agreements, equipment agreements, equipment leases, site leases, facility leases and other
documents and agreements with such insertions and changes therein as such Authorized
Representatives of the Trustees, with the advice of the General Counsel, may require or
approve, such approval to be conclusively evidenced by the execution and delivery thereof, in
order to provide for the planning, design, acquisition, construction, improvement, financing,
and refinancing of the projects.
Section 5. Credit of the State of California
5.1. The delegations conferred by this resolution are limited and do not authorize the
Chancellor or other Authorized Representatives of the Trustees to establish any indebtedness of
the State of California, the Board of Trustees, any CSU campus, or any officers or employees of
any of them. Lending, pledging or otherwise using the credit established by a stream of
payments to be paid from funds appropriated from the State of California for the purpose of
facilitating a financing transaction associated with a capital project is permitted only if
specifically authorized by a bond act or otherwise authorized by the legislature.
Section 6. Tax Law Requirement for Reimbursement of Project Costs
6.1 For those projects which may be financed under the authority of the Trustees, the
Chancellor, the Executive Vice Chancellor and Chief Financial Officer, the Assistant Vice
Chancellor Financial Services, the Senior Director of Financing and Treasury, and each of them
(collectively, "Authorized Representatives of the Trustees"), are hereby authorized
to make declarations on behalf of the Trustees solely for the purposes of establishing
compliance with the requirements of Section 1.150-2 of the U.S. Treasury Regulations; provided,
however that any such declaration:
6.1.1 Will not bind the Trustees to make any expenditure, incur any indebtedness,
or proceed with the project or financing; and
6.1.2 Will establish the intent of the Trustees at the time of the declaration to use proceeds
of future indebtedness, if subsequently authorized by the Trustees, to reimburse the Trustees
for expenditures as permitted by the U.S. Treasury Regulations.
Section 7. Effective Date and Implementation
7.1 Within the scope of this financing policy, the Chancellor is authorized to further define,
clarify and otherwise make and issue additional interpretations and directives as needed to
implement the provisions of this policy.
7.2 This resolution supercedes RFIN 11-98-18 and shall take effect immediately. However, the
Chancellor shall have the authority to authorize on a individual basis, auxiliary organization
projects that are in the planning stage as of the adoption of this policy to proceed under the
previous policy in order to prevent situations that would result in additional project costs or
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