From: William Merck Sent: Wednesday, July 27, 2016 1:09 AM To: Dale Whittaker Subject: Fwd: Board item FF-4 and five year capital plan Dale, Dave had a bad address for you so you didn't get the initial message. This should catch you up. I'll address the new question he asks later. It is a very insightful. Bill Sent from my iPhone Begin forwarded message: From: David Walsh <[email protected]> Date: July 26, 2016 at 11:57:35 PM EDT To: William Merck <[email protected]> Cc: Lee Kernek <[email protected]>, Thad Seymour <[email protected]>, "[email protected]" <[email protected]>, Rick Schell <[email protected]> Subject: Re: Board item FF-4 and five year capital plan From: William Merck <[email protected]> Sent: Tuesday, July 26, 2016 5:37 PM To: David Walsh Cc: Lee Kernek; Thad Seymour; [email protected]; Rick Schell Subject: RE: Board item FF-4 and five year capital plan Bill.....Deeply appreciate the clarifications. A few comments principally echoing my understanding...... ....one final question at the end. Trustee Walsh: I will address your questions in the order presented below. Colbourn Hall will not be demolished until the new Trevor Colbourn Hall (approved by the Board of Trustees prior to your joining the board) is complete and the current occupants of Colbourn Hall are relocated into the new building. The projected cost of the demolition is $300,000. This amount is incorporated in the project budget for Trevor Colbourn Hall. Following state procedures, demolition will occur following a state-sponsored survey recommendation. Pretty complete summary, thanks Bill. Would suggest to have the above thoughts verbalized in respect to the demolition budget and schedule, along with the critical path activity of the State Survey recommendation when FF-4 is presented. 1 The capital improvement plan is a little complicated. The short answer is yes, the plan is tied to the strategic plan, as well as the state’s required educational plant survey, with added elements. The first item on the list for state funding is maintenance money to maintain what we already have. This is followed by a request for a building to support our current and growing research needs, a high priority in our strategic plan. It is so important to UCF that we are using internal funds to move forward now. If the state funds these projects, it will be a major budget relief that will allow us to move on to the next academic priority. The Colbourn Hall project is one that is timing-related. The building is in bad shape, not unsafe, but its remaining useful time is limited. It houses approximately 300 faculty and other related academic programs. The three above mentioned specific projects appear essentially important without question. Most particularly the first one mentioned. We can’t modify the format for the capital improvement plan we submit to the state as it is their form. However, we can provide the trustees with an internal document that cross- references the strategic plan. Good idea. Thanks much Bill......this cross referencing would tie it all together. As for a capital improvement amount (capex) we cannot live without, I think that would be problematic because the state is going to decide how much we get, regardless of what we request. In our discussions with the Board of Trustees, we can specify what we believe we need in the upcoming three year period to meet our strategic plan goals. Thus challenging us to find ways to generate the funds that the state doesn’t provide. An example of meeting a current need the state would have funded prior to the 2008-2009 recession is our newly completed Global Building. We funded this project using gains on our investments and auxiliary overhead dollars. In addition to the PECO list, which is funded by the state (if they choose to do so), the rest of the capital improvement plan lists revenue-generating projects that we may fund ourselves through bond issues when the necessity arises. Opportunistic projects that may be funded from philanthropy or the private sector will have legislative approval in place. Lastly, projects that could come from state sources other than PECO are also listed should the legislature choose to fund them. The legislature doesn’t fund anything we don’t have on a list that has received approval from the Board of Trustees and the Board of Governors. All of this makes our list a long one. We are always looking for opportunities for the private sector to pay for some of our projects. This funding model could be used on any projects on our list. However, these opportunities come up on a case-by-case basis and are difficult to predict when we are composing our capital list. Again, the project must be on the list because if we use developer financing as an alternative to bonds or state efinancing, we must still meet the Board of Governors’ P-3 guidelines. 2 Developer funded investment ..........clearer now, I think you're saying these need to be listed due to the underlying financial commitment they represent (similar to a lease), even if not direct capital in that case........got it. I think overall it was clearly mentioned in Committee that you, Dr. Hitt, and Dale had already culled out a number of capital concepts submitted Departmentally, so the list does fairly represent a somewhat reduced/refined Senior management consensus. I suppose one remaining question then.......if the entire $2.6B were approved, based on our anticipated five year student census growth projection, would the resulting added debt service (for the non state funded and non-donor projects), depreciation, and particularly ongoing maintenance costs associated with the proposed capital programs imperil our cost structure and related overall efforts to reduce cost per credit hour? Another relativistic measure might be what's been spent over the past five years, as a gauge of the overall magnitude of the request summary. If you wish to discuss any of this further, please let me know. William F. Merck II Vice President Administration and Finance Chief Financial Officer From: David Walsh [mailto:[email protected]] Sent: Monday, July 25, 2016 3:20 PM To: William Merck <[email protected]> Cc: Lee Kernek <[email protected]>; Thad Seymour <[email protected]>; [email protected]; Rick Schell <[email protected]> Subject: Board item FF-4 and five year capital plan Bill and Lee: Several observations regarding the meeting materials prepared for this week’s board meeting Thursday. Please pass to Chairman Marchena and Finance and Facilities Committee Chair Martins as necessary. Item FF-4, razing of building 18: 3 Assume this project is contingent upon subsequent approval of the new Coburn Hall building requisition, and that related demolition actions would not commence until then? Also, what is the stand-alone specific cost of the demolition being approved? While discussed in the budget committee meeting, not clear from the brief summary material provided for the overall board. Suggestion……….if too late to add to the brief summary on this, both above being verbalized when presented would make more clear to the Board. Five year capital plan: Discussed at budget committee meeting, the following follow-up points to that discussion: Has the overall summary of state, and requests for non-state sourced projects been cross related to the Collective Impact Strategic Plan just completed and approved? Would suggest a new column is introduced to integrate how each project relates or ties in to which specific strategic imperative. The Collective Impact Strategic Plan contains five Promises……as subsets of each of these, there are collectively some 84 discrete “strategies to achieve” listed. A simple cross reference to each of the prioritized capital programs would be useful to provide a visual to capture integration of the capex plan with the strategic plan. Second topic addressed in Committee……..Board of Trustees approval is a critical checkpoint or guidepost. In this context, can we not develop an aggregate five capex value that we cannot live without, once tied to the strategic plan, in terms of essential replacement and new capacity projects being taken into consideration. Overall, the “feel” of the process is “this is a wish list we hope to attain BOG approval for some of…..let’s see what we get”. The BOT owes a higher standard than this to capex approval………there ought to be a value related to the $2.4Billion five year listing that UCF cannot live without, and at the same time, supports our operational strategic and growth plans. I’m not sure this is being presented. The board, I think, has a fiduciary obligation extending beyond what might otherwise be characterized as passing along to the BOG a “wish list” five year value. Is UCF leadership putting forward that if 60 or 70% of this is ultimately approved we’re satisfied? Not clear. Last question, a more detailed one within the plan……some $114M in parking related facilities are listed (no doubt much needed) in the capex planning process…..if for example on these, developer financing and owning of these were pursued (such as the great platform example of our approved on campus hotel)…….would such projects necessarily require being listed as capex….or is this perhaps a separate designation we should highlight for alternate approach than state or university funded projects? If my takeway on the five year capex process is imprecise……let’s discuss ahead of the meeting for clarification.