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Office of General Counsel Policies & Guidelines

Consideration of University Budgets : 4:01:00:05

Policy/Guideline Area

Business and Finance Policies

Applicable Divisions

Universities, System Office, Board Members

Purpose

The purpose of this policy is to specify the manner in which the Board of Regents will, under the FOCUS Act, consider for approval university budgets, including data and metrics required to be submitted by universities.

Definitions

  • “Agreement” means the Second Program Financing Agreement entered into between the Authority and the Board on behalf of the Institutions.
  • “Annual Financing Charges” means amounts payable to the Authority for (i) the payment of principal of and premium, if any, and interest on debt for all projects, (ii) any payments to fund or replenish reserves therefor as may be required by the Resolution, regardless of Project, and (iii) any other payments required to be made by or on behalf of the Authority under or pursuant to the Resolution with respect to any Project, the University or the Board.
  •  “Authority” means the Tennessee State School Bond Authority.
  • “Board” means the Tennessee Board of Regents.
  • “Board System Office” means the Board’s offices located at 1 Bridgestone Park, Third Floor, Nashville, TN 37214.
  •  “Fees and Charges” means all revenues, fees, rentals and other charges and moneys received by or on behalf of the University, or received by or on behalf of the University, which may be available for the purpose of paying Annual Financing Charges. For purposes of this policy, Fees and Charges include all revenues of a University which are accounted for as unrestricted revenues. For purposes of this policy, Fees and Charges exclude restricted revenues of a University.
  • “Institution" means: The state university and community college system, including all of its constituent institutions wherever located (whether or not conferring degrees), and the services, programs and activities provided therein, and the board of regents of the state university and community college system, in the aggregate.
  •  “Locally Approved Budget” means a University budget that has been considered and approved by a state university board.
  •  “Project” means buildings, structures, improvements and equipment of every kind, nature and description which may be required by or convenient for the purposes of the University or other things which are authorized by law (at the relevant time) to undertake or use, in each case if and to the extent (i) capitalizable by the University, including but not limited to a capital lease, and (ii) approved by the Authority upon application therefor in such form, substance and manner as may be prescribed by the Authority.
  • “Resolution” means collectively or individually as the context may require, the resolutions of the Authority authorizing the issuance of Debt if, as and when adopted by the Authority, and however styled, and any resolutions authorizing the issuance of notes or other obligations (including but not limited to commercial paper), in each case as amended and supplemented pursuant to the provisions thereof.
  • “University” means the four year institutions governed by a state university board. University specifically includes Austin Peay State University, East Tennessee State University, Middle Tennessee State University, Tennessee State University, Tennessee Tech University, and the University of Memphis.

Policy/Guideline

  1. Background
    1. Tennessee Code Annotated, Section 49-8-203 (a) (1), as amended by the FOCUS Act of 2016, provides, in relevant part, that:
      1. (1) With respect to the institutions they govern, each state university board and the board of regents has the power to:* * *
        1. (C)  Approve the operating budgets and set the fiscal policies for the schools and programs under its control. Each state university board shall have the power to approve the operating budget and set the fiscal policy for the university under its control. In order to ensure the ability to satisfy both contractual obligations to the Tennessee state school bond authority and obligations to that authority's bondholders, the board of regents shall have authority over, and shall give final approval to, the operating budget of each state university. The funds appropriated for each state university shall initially be distributed by the department of finance and administration to the board of regents, which shall then distribute such funds to each state university in such amounts as were appropriated minus any deduction or deductions required to be made by the board of regents pursuant to any financing agreement, or other similar agreement, then existing by and between the board of regents and the Tennessee state school bond authority or any successor organization. Notwithstanding any provision of law, the board of regents shall retain all powers and duties with respect to each state university, state community college, and Tennessee college of applied technology, including, but not limited to, any projects at such institutions which are necessary for the board of regents to fulfill its covenants, representations, agreements, and obligations under any financing agreement, then existing by and between the board of regents and the Tennessee state school bond authority, or any successor organization, on July 1, 2016, as the same may be amended pursuant to the terms thereof, or any successor or similar agreement subsequently entered into by and between the board of regents and the Tennessee state school bond authority.
    2. One purpose of the FOCUS Act was to provide greater flexibility to state university boards in managing the financial affairs of individual university institutions.
      1.  However, in recognition of existing contractual obligations entered into between the Board of Regents and bondholders through the Tennessee State School Bond Authority, a continuation of the review and approval of university budgets by the Board of Regents is required.
      2. Consistent with the intent of the FOCUS Act, the Board of Regents’ consideration of university budgets is limited to those matters that are necessary to fulfill existing covenants, representations, agreements, and obligations under financing agreements entered into with the Tennessee State School Bond Authority.
  2. Required Information and Metrics
    1. Fees and Charges Coverage Metric
      1. Pursuant to the Agreement, the Institution is required to establish and collect Fees and Charges at a level sufficient to produce in each Fiscal Year no less than two times the amount required for the payment of the aggregate (without duplication) of: (i) all Annual Financing Charges in such Fiscal Year payable with respect to all Projects for the Institution, plus (ii) the aggregate of all prior charges, pledges, liens and claims on or payable from said Fees and Charges in such Fiscal Year with respect to the Institution (the “Coverage Metric”).
      2. Pursuant to T.C.A. § 49-8-203(a)(1)(C), the Board is empowered to ensure that each University fulfills the covenants, representations, agreements, and obligations under the Agreement.
        1. Retrospective Requirement. A University shall be required to meet the Coverage Metric for the most recent two fiscal years for which financial statements are available (the “Retrospective Requirement”). The Board shall develop a reporting format to be used to evidence compliance with this metric, using information contained in the Institution’s financial statements.
        2. Prospective Requirement. A University shall be required to meet the Coverage Metric for the budget year subject to approval (the “Prospective Requirement”). For purposes of the Prospective Requirement the University shall, in addition to all Projects currently subject to the Agreement, include estimated Fees and Charges arising from currently disclosed Projects proposed to be financed by the Authority and estimated Annual Financing Charges for such currently disclosed Projects proposed to be financed by the Authority. The Board shall develop a reporting format to be used to evidence compliance with this metric.
    2. Required Representations.
      1. To ensure compliance with the Agreement, during each budget cycle each University shall review all outstanding projects financed in whole or part by the Authority and submit a certification approved by its state university board asserting the following:
        1. The University has full power and authority to undertake or use each Project and to comply with all requirements of the Agreement entered into between the Board and the Authority;
        2. All necessary approvals or authorizations by the State (or any agency, subdivision or sub-entity) with respect to each Project have been or will be obtained;
        3. Construction, acquisition, renovation or improvement by the University (directly or indirectly) with respect to each Project shall be conducted pursuant to State law;
        4. The University will proceed with due diligence towards completion of each Project, and will complete each Project with other funds available to the University if Authority funds are not sufficient to complete the Project;
        5. The University will complete each Project free and clear of all liens and encumbrances;
        6. The University will neither (i) permit any encumbrance which affects the Board’s ability to honor its commitments under the Agreement nor (ii) assign the Agreement or the Board’s rights, title or interest in or to any Project;
        7. The University will operate, maintain and keep, or cause the operation, maintenance and functioning of, the Project in good repair and condition, including the provision of and payment for necessary utilities and insurance coverage in accordance with State policy;
        8. The University will comply with all laws, rules and regulations governing the University and each Project;
        9. The University will permit the Authority or its representatives to enter Projects during regular business hours for purpose of inspection;
        10. The University will take no action, nor will it fail to take any action, which would cause the Authority to violate any tax covenant with respect to any Project; all representations made by the University to the Board, whether or not contained in the Agreement, as to the use of Projects shall at all times be true, complete and correct; and the University will inform the Board in advance of any actual or potential change in use or ownership of any Project at the time such change is first known to or considered by the Institution; and
        11. The University has provided to the Board System Office, Office of System wide Internal Audit, copies of any external or internal audits that address Deficiencies in Internal Controls, a Significant Deficiency, or a Material Weakness, all as defined in Statement on Auditing Standard 115, or an Instance of Non-Compliance Required to be Reported as defined in the December 2011 Revision of Government Auditing Standards as issued by the Comptroller General of the United States, Government Accountability Office.
    3. Reporting the Results of University Budget Reviews
      1. During each budget cycle, staff shall provide the Board information that reports the Coverage Metric and compliance with Required Representations set forth above.
      2. After review of this information the Board shall take action it deems appropriate including, but not limited to, approval of the budget as submitted, rejection of the budget as submitted, or referral of the budget to the state university board for further consideration.
  3. Procedure
    1. Consideration by the Board of Locally Approved Budgets will occur during each of the three (3) existing budget cycles as required the Tennessee Higher Education Commission (“THEC”) and Board Policy.
    2. University budget submissions will be in the form required by THEC and will include any supplemental schedules required by the Board as deemed necessary to fulfill the Board’s statutory budget approval responsibilities.
    3. As part of issuance of budget instructions to community colleges and colleges of applied technology, the Board System Office will notify the Universities of the date the Board will consider University budgets and the date by which draft University budgets must be submitted to the Board System Office for review.
    4. To provide adequate time for review, it is anticipated that University budgets will be submitted to the Board System Office in draft form prior to consideration by the state university boards.
      1. In addition to review of the budget submission for compliance with the Coverage Metrics and Required Representations, the Board System Office staff will perform a preliminary review of University budgets for mathematical accuracy and consistency of the budget with supplemental information and analysis forms.
      2. Board System Office staff will notify University staff of any questions, deficiencies, or need for clarification.
    5. University staff will submit the Locally Approved Budget, including required representations, to the Board System Office as soon as practical after action by the state university board. University staff shall identify any amendments made to the draft budget originally submitted, including revisions to required supplemental schedules, if any.
      1. Board System Office staff will review Locally Approved Budgets submitted for compliance with the Coverage Metrics and Required Representations and to ensure mathematical accuracy and consistency of the budget with supplemental information and analysis forms.
      2. Board System Office staff will notify University staff of any questions, deficiencies, or need for clarification of Locally Approved Budgets.
      3. Board System Office staff will provide the University with the Board transmittal summarizing the staff’s analysis of the Locally Approved Budget as well as the date the Locally Approved Budget will be considered by the Board.

Sources

NEW Policy approved by Board, March 31, 2017

Contact

Mickey Sheen
615-366-4437
mickey.sheen@tbr.edu