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.
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:
- Specifically included in a bill passed by the General Assembly authorizing such project, or authorized under the Higher Education Restructuring Act; and
- 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.
- Financing Alternatives: The University may seek financing for capital projects through:
- 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;
- 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;
- A Public Private Education partnership agreement; or
- 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.
- Accountability Requirements
All Longwood University bond issuance will be handled through the Virginia Department of the Treasury, and proceeds deposited with the State Non-Arbitrage Program (SNAP). The Treasury Board sponsors the SNAP Program to provide comprehensive investment management, accounting and arbitrage rebate calculation services for proceeds of tax-manager, rebate calculation agent, central depository and legal counsel. The University, in conjunction with the SNAP Program service providers, will ensure post-issuance bond compliance to include timely use of bond proceeds, arbitrage rebate and yield restriction liabilities, and adherence to private business use guidelines that would affect the tax-exempt status of the securities.
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 nine (9) percent or less. 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. While the common acceptable limit or target is seven (7) percent, debt burdens can range from five (5) percent to ten (10) percent in Higher Education based on the financial strength of the institution. Due to Longwood's policy of trending in debt, no debt will be undertaken until funds are available to cover the new debt service.
The debt burden ratio may exceed nine (9) percent 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 above one (1) to one (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.
Approved by the Board of Visitors, September 12, 2008.
Revised and approved by the Board of Visitors, March 27, 2009.