PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 6, 2017 Ratings: Moody’s: “Aa2” S&P: Applied For New Issue-Book Entry Only (See “Municipal Bond Ratings”) In the opinion of Bond Counsel, interest on the Series 2017A Bonds will be excludable from gross income, and will not be included in the alternative minimum taxable income of individuals, for federal income tax purposes under existing law. See “TAX MATTERS FOR SERIES 2017A BONDS” for a discussion of Bond Counsel’s opinion including the alternative minimum tax consequences for corporations.
Interest on Series 2017B Taxable Bonds will not be excludable from gross income for federal income tax purposes under existing law. See “TAX MATTERS FOR SERIES 2017B TAXABLE BONDS” herein. BOARD OF REGENTS OF THE UNIVERSITY OF HOUSTON SYSTEM
$345,070,000* $11,635,000* CONSOLIDATED REVENUE AND CONSOLIDATED REVENUE AND
nor shall there be any sale of these securities in any jurisdiction in which REFUNDING BONDS, REFUNDING BONDS, SERIES 2017A SERIES 2017B (Taxable) Dated Date: February 1, 2017 Interest Accrual Date: Date of Delivery Due: February 15, as shown on inside cover page
The $345,070,000* Board of Regents of the University of Houston System Consolidated Revenue and Refunding Bonds, ities may not be sold nor may offers to buy be accepted prior to the time theSeries Official Statement is 2017A (the “Series 2017A Bonds”) and the $11,635,000* Board of Regents of the University of Houston System Consolidated Revenue and Refunding Bonds, Series 2017B (Taxable) (the “Series 2017B Taxable Bonds” and, together with the Series 2017A Bonds, the “Bonds”), are special obligations of the Board of Regents (the “Board”) of the University of Houston System (the “System”) issued pursuant to a master resolution, as amended and restated (the “Master Resolution”), and a Twenty-Seventh Supplemental Resolution adopted by the Board (the “Twenty-Seventh Supplemental Resolution” and, together with the Master Resolution, the “Resolutions”) and are secured by and payable solely from the Pledged Revenues, including the Pledged Tuition, and certain other legally available funds of the Board, all as more fully described herein. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF TEXAS (THE “STATE”) OR ANY POLITICAL SUBDIVISION OF THE STATE OF TEXAS IS PLEDGED AS SECURITY FOR THE BONDS. NEITHER THE BOARD NOR THE SYSTEM HAS ANY TAXING POWER. See “SECURITY FOR PARITY DEBT OBLIGATIONS.”
The Bonds are issuable only as fully registered bonds, without coupons, in denominations of $5,000 or any integral multiple thereof, and, when issued, will be initially registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Bonds. The Bonds will be available to purchasers only in book-entry form. For as long as Cede & Co. is the exclusive registered owner of the Bonds, the principal of, redemption premium, if any, and interest on the Bonds will be payable by the paying agent/registrar (the “Paying Agent/Registrar”), initially Wells Fargo Bank, N.A., to DTC, which will be responsible for making such payments to DTC Participants (as defined herein) for subsequent remittance to the owners of beneficial interests in the Bonds. See “THE BONDS-DTC and Book-Entry.” Interest on the Bonds will accrue from the date of delivery, until maturity or prior redemption, at the respective per annum rates of interest shown on shown on page 2, and will be payable to DTC on each February 15 and August 15, commencing August 15, 2017. rior to registration or qualification under the securities laws of any such jurisdiction. The Bonds are subject to redemption prior to maturity, as described herein. See “THE BONDS- Redemption Provisions”
MATURITY SCHEDULE, INTEREST RATES, INITIAL YIELDS, AND CUSIP NUMBERS SEE SCHEDULES ON THE INSIDE COVER PAGE no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy The Bonds are offered when, as, and if issued, subject to approval of legality by the Attorney General of the State of Texas and the opinion of Andrews Kurth Kenyon LLP, Bond Counsel, Houston, Texas. Bonds in book-entry form are expected to be available for delivery through the facilities of DTC in New York, New York, on or about February 16, 2017.
BIDS DUE JANUARY 19, 2017, AT 9:30 A.M., C.S.T.* FOR SERIES 2017B TAXABLE BONDS BIDS DUE JANUARY 19, 2017, AT 10:30 A.M., C.S.T.* FOR SERIES 2017A BONDS
* Preliminary, subject to change. (see Official Notice of Sale - “Advance Modification of Principal Amounts” and “Post Bid Modification of Principal such offer, solicitation or sale would be unlawful p delivered in final form. Under This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These secur Amounts”) MATURITY SCHEDULE, INTEREST RATES, INITIAL YIELDS, AND CUSIP NUMBERS
$345,070,000* CONSOLIDATED REVENUE AND REFUNDING BONDS, SERIES 2017A
Maturity Principal Interest Initial Maturity Principal Interest Initial Feb. 15 Amount* Rate Yield CUSIP(1) Feb. 15 Amount* Rate Yield CUSIP(1) 2018 $8,690,000 % % 2029 $15,615,000 % % 2019 9,160,000 2030 16,345,000 2020 9,625,000 2031 17,110,000 2021 10,095,000 2032 18,180,000 2022 10,635,000 2033 22,785,000 2023 11,355,000 2034 23,880,000 2024 17,775,000 2035 25,175,000 2025 18,585,000 2036 26,470,000 2026 20,265,000 2037 27,805,000 2027 14,655,000 2038 5,650,000 2028 15,215,000
$11,635,000* CONSOLIDATED REVENUE AND REFUNDING BONDS, SERIES 2017B (TAXABLE)
Maturity Principal Interest Initial Maturity Principal Interest Initial Feb. 15 Amount* Rate Yield CUSIP(1) Feb. 15 Amount* Rate Yield CUSIP(1) 2018 $395,000 % % 2029 $550,000 % % 2019 405,000 2030 570,000 2020 405,000 2031 595,000 2021 420,000 2032 620,000 2022 435,000 2033 645,000 2023 445,000 2034 675,000 2024 460,000 2035 705,000 2025 475,000 2036 735,000 2026 490,000 2037 770,000 2027 510,000 2038 800,000 2028 530,000
(1) CUSIP numbers have been assigned to the Bonds by Standard & Poor’s CUSIP Global Services, managed by S&P Global Market Intelligence on behalf of the American Bankers Association, and are included solely for the convenience of the owners of the Bonds. Neither the System nor the Initial Purchasers are responsible for the selection or correctness of the CUSIP numbers set forth herein. * Preliminary, subject to change. (See Official Notice of Sale - “Advance Modification of Principal Amounts” and “Post Bid Modification of Principal Amounts”) THE UNIVERSITY OF HOUSTON SYSTEM
Board of Regents
Term Expires Name Occupation 31-Aug Tilman J. Fertitta, Chairman Chairman of the Board and CEO, Landry's, Inc. 2021
Welcome W. Wilson, Jr., Vice-Chairman President and CEO, GSL Welcome Group 2017
Spencer D. Armour, III, Secretary Chairman of ProPetro Services, partner at PT Petroleum LLC and 2017 Managing Partner of Armada Gas & Oil Company
Durga D. Agrawal President & CEO of Piping Technology & Products, Inc 2019
Beth Madison Insurance Broker and Trustee of Madison Charitable Foundation 2021
Gerald McElvy Member of the advisory board of the Texas Academy of Math and Science 2021
Paula M. Mendoza President and CEO of Possible Missions, Inc 2019
Peter K. Taaffe Counsel, the Buzbee Law Firm 2019
Roger F. Welder Retired 2017
(1) Joshua Freed Student Regent 2017 ______(1) Term expires on May 31
The University of Houston System Administration
Name Title Dr. Renu Khator Chancellor Jim McSham Senior Vice Chancellor for Administration and Finance Dr. Paula Myrick Short Senior Vice Chancellor for Academic Affairs Dr. Ramanan Krishnamoorti InterimVice Chancellor for Research and Technology Eloise Dunn Stuhr Vice Chancellor for University Advancement Jason Smith Vice Chancellor for Governmental and Community Relations Dr. J. Richard Walker Vice Chancellor for Student Affairs and Enrollment Services Dona Hamilton Cornell Vice Chancellor for Legal Affairs and General Counsel Raymond Bartlett Senior Associate Vice Chancellor for Finance Roberta Puryear Treasurer
University Presidents
University of Houston Dr. Renu Khator University of Houston-Clear Lake Dr. William A. Staples University of Houston-Downtown Dr. Michael A. Olivas* University of Houston-Victoria Dr. Raymond Victor Morgan, Jr. ______*Interim.
3 No dealer, broker, salesman, or other person has been authorized by the Board, the System, or the Initial Purchasers to give any information or to make any representations other than those contained in this Preliminary Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing.
This Preliminary Official Statement does not constitute, and is not to be used in connection with, an offer to sell or the solicitation of an offer to buy the Bonds in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.
The information set forth in this Preliminary Official Statement has been obtained from the Board, the System, The Depository Trust Company, and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Initial Purchasers or, as to information from other sources, by the Board. Any information and expressions of opinion contained in this Preliminary Official Statement are subject to change without notice, and neither the delivery of this Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Board or the System or other matters described herein since the date hereof.
TABLE OF CONTENTS
MATURITY SCHEDULE, INTEREST RATES, INITIAL YIELDS, AND CUSIP NUMBERS ...... ii OFFICIAL STATEMENT SUMMARY...... 5 INTRODUCTION...... 7 PLAN OF FINANCING...... 7 THE BONDS...... 7 SOURCES AND USES OF FUNDS...... 12 SECURITY FOR PARITY DEBT OBLIGATIONS...... 13 MUNICIPAL BOND RATINGS ...... 19 PRO FORMA DEBT SERVICE REQUIREMENTS...... 20 THE RESOLUTIONS ...... 21 THE SYSTEM...... 24 TAX MATTERS FOR SERIES 2017A BONDS ...... 35 TAX MATTERS FOR SERIES 2017B TAXABLE BONDS...... 37 LEGALITY FOR INVESTMENT ...... 38 LITIGATION ...... 39 FORWARD LOOKING STATEMENTS ...... 39 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE...... 39 CONTINUING DISCLOSURE...... 40 FINANCIAL ADVISOR...... 41 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS...... 42 INITIAL PURCHASERS...... 42 MISCELLANEOUS...... 42
APPENDIX A – Financial Reports of the System APPENDIX B – Form of Bond Counsel Opinion APPENDIX C – Summary of Schedules Related to Continuing Disclosure of Information APPENDIX D – Summary of the Refunded Obligations
4 OFFICIAL STATEMENT SUMMARY
The following material is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement, reference to which is made for all purposes. No person is authorized to detach this Official Statement Summary from this Official Statement or to otherwise use it without this entire Official Statement (including the appendices).
The Issuer...... The Board of Regents (the “Board”) of the University of Houston System (the “System”).
The Issue ...... The $345,070,000* Consolidated Revenue and Refunding Bonds, Series 2017A (the “Series 2017A Bonds”) and the $11,635,000* Consolidated Revenue and Refunding Bonds, Series 2017B (Taxable) (the “Series 2017B Taxable Bonds” and, together with the Series 2017A Bonds, the “Bonds”), are dated February 1, 2017 and interest will accrue from delivery, maturing on February 15 in the years and in the principal amounts set forth in the tables on page 2 hereof, subject to prior redemption as described herein. Interest is payable on August 15, 2017 and on each August 15 and February 15 thereafter until the earlier of maturity or prior redemption. See “THE BONDS.”
Redemption...... The Board reserves the right, at its option, to redeem Bonds, having stated maturities on and after February 15, 2027, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2026, or any date thereafter, at the par value thereof plus accrued interest from the most recent interest payment date to the date of redemption. See “THE BONDS-Redemption Provisions – Optional Redemption,” and “-Scheduled Mandatory Redemption.”
Authority for Issuance ...... The Bonds will be issued pursuant to Chapter 55, Texas Education Code, as amended and Chapters 1207 and 1371, Texas Government Code, as amended. See “PLAN OF FINANCING.” The Bonds are also being issued pursuant to a master resolution establishing a Consolidated Revenue Financing Program for the University of Houston System which was approved and adopted by the Board on April 25, 1990, as amended and restated by resolutions adopted February 16, 1995, June 19, 1997 and May 16, 2002 (collectively, the “Master Resolution”), and a Twenty-Seventh Supplemental Resolution to the Master Resolution authorizing the Bonds (the “Twenty-Seventh Supplemental Resolution”) which was approved and adopted by the Board on December 1, 2016. See “THE RESOLUTIONS” and “SECURITY FOR PARITY DEBT OBLIGATIONS.”
Source of Payment ...... The Bonds and any other Parity Debt Obligations (as defined herein) are and will constitute special obligations of the Board payable solely from the Pledged Revenues (as defined herein) pledged thereto pursuant to the Master Resolution. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED AS SECURITY FOR THE BONDS OR ANY OTHER PARITY DEBT OBLIGATIONS. NEITHER THE BOARD NOR THE SYSTEM HAS ANY TAXING POWER.
Municipal Bond Ratings...... The presently outstanding consolidated revenue debt of the System is rated “Aa2” by Moody's Investors Service, Inc. (“Moody's”) and an application for a contract rating from S&P Global Ratings (“S&P”) has been applied for. The System will pay the cost of the ratings from Moody’s and S&P.
Use of Proceeds...... Proceeds from the sale of the Bonds will be used to (i) refund and defease certain outstanding notes and bonds of the System (the “Refunded Obligations” as more particularly described in Appendix D), (ii) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System, and (iii) pay the costs of issuing the Bonds and refunding the Refunded Obligations. See “SOURCES AND USES OF FUNDS” and “APPENDIX D – Summary of the Refunded Obligations” herein.
Tax Status...... In the opinion of Bond Counsel, under existing law, the interest on the Series 2017A Bonds will be excludable from gross income for federal income tax purposes, subject to the matters described under “TAX MATTERS FOR SERIES 2017A BONDS” herein, and will not be included in computing the alternative minimum taxable income of individuals or, except as described herein, corporations.
Interest on the Series 2017B Taxable Bonds will be included in gross income for federal income tax purposes. See “TAX MATTERS FOR SERIES 2017B TAXABLE BONDS.”
Bond Counsel ...... Andrews Kurth Kenyon LLP, Houston, Texas
Financial Advisor ...... FirstSouthwest, a Division of Hilltop Securities Inc., Houston, Texas
* Preliminary, subject to change. (See Official Notice of Sale - “Advance Modification of Principal Amounts” and “Post Bid Modification of Principal Amounts”)
5 [THIS PAGE INTENTIONALLY LEFT BLANK]
6 PRELIMINARY OFFICIAL STATEMENT
Relating to
BOARD OF REGENTS OF THE UNIVERSITY OF HOUSTON SYSTEM
$345,070,000* $11,635,000* CONSOLIDATED REVENUE AND CONSOLIDATED REVENUE BONDS, REFUNDING BONDS, SERIES 2017B SERIES 2017A (TAXABLE)
INTRODUCTION
This Official Statement, including the cover page and appendices hereto, provides certain information concerning the Board of Regents (the “Board”) of the University of Houston System (the “System”) $345,070,000* Board Consolidated Revenue and Refunding Bonds, Series 2017A (the “Series 2017A Bonds”) and the $11,635,000* Consolidated Revenue and Refunding Bonds, Series 2017B (Taxable) (the “Series 2017B Taxable Bonds” and, together with the Series 2017A Bonds, the “Bonds”).
The Bonds are being issued pursuant to Chapter 55, Texas Education Code, as amended, and Chapters 1207 and 1371, Texas Government Code, as amended. See “PLAN OF FINANCING.” The Bonds are also being issued pursuant to the Master Resolution and the Twenty-Seventh Supplemental Resolution. The Master Resolution and the Twenty-Seventh Supplemental Resolution are collectively referred to herein as the “Resolutions.” See “THE RESOLUTIONS.”
This Official Statement contains a description of the Board, the System, the Bonds, the Resolutions and the security for the Bonds and any other Parity Debt Obligations (as defined herein) issued pursuant to the Master Resolution. The descriptions of the Bonds and the Resolutions are summaries only and are qualified in their entirety by reference to complete copies of such documents which may be obtained by prospective purchasers of the Bonds from the Board upon request to the System Administration’s offices located at the University of Houston, 4800 Calhoun, E. Cullen Building, Room 128, Houston, Texas 77204-6001, telephone (832) 842-3446.
PLAN OF FINANCING
Purposes
Proceeds of the Bonds will be used to (i) refund and defease certain outstanding notes and bonds of the System (the “Refunded Obligations” as more particularly described in Appendix D), (ii) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System, and (iii) pay the costs of issuing the Bonds and refunding the Refunded Obligations. Proceeds of the Bonds to be used to refund the Refunded Obligations, together with additional amounts, if any, will be deposited in escrow for that purpose under an Escrow Agreement with Wells Fargo Bank, N.A., as escrow agent for the Refunded Obligations, and retained as cash or invested in U.S. Treasury obligations that will be verified by an accountant to mature on dates and in amounts sufficient to pay the interest on the Refunded Obligations until, and to redeem the Refunded Obligations on, their respective redemption dates. See “VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS” herein.
* Preliminary, subject to change. (see Official Notice of Sale - “Advance Modification of Principal Amounts” and “Post Bid Modification of Principal Amounts”)
7 THE BONDS
Description
The Bonds will be issued as fully registered bonds and will be initially registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Bonds. The Bonds will be available in book-entry form only as more fully described herein, in denominations of $5,000 or any integral multiple thereof. The principal of, redemption premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar for the Bonds to Cede & Co. as the registered owner of the Bonds and DTC will be responsible for making such payments to DTC Participants (as defined herein) for subsequent remittance to the owners of beneficial interests in the Bonds. See “THE BONDS- DTC and Book-Entry.”
The Bonds will mature on February 15 in the years and in the principal amounts set forth on page 2 hereof, subject to prior redemption. The Bonds will bear interest from the date of delivery, until maturity or prior redemption, at the respective per annum rates of interest set forth on page 2 hereof. Interest accrued on the Bonds will be payable to DTC on August 15, 2017 and on each February 15 and August 15 thereafter until maturity or prior redemption (each an “Interest Payment Date”). Interest on the Bonds will be calculated on the basis of a 360-day year composed of twelve 30-day months.
DTC and Book-Entry
This section describes how ownership of the Bonds is to be transferred and how the principal of and interest on the Bonds are to be paid to and credited by The Depository Trust Company (“DTC”), New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The System believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof.
The System cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC.
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access 8 to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owners entered into the transaction. Transfers of ownership interest in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participant to whose account such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the System as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds and principal and interest payments on the Bonds will be made to DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the System or the Paying Agent/Registrar on payable dates in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as in the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Paying Agent or the System, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal and interest to DTC is the responsibility of the System, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the System and the Paying Agent/Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered.
The System may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered.
9 Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Order will be given only to DTC.
Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the System, the Financial Advisor or the Initial Purchasers.
Effect of Termination of Book-Entry-Only System. In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the System, printed Bonds will be issued to the holders and the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Resolutions and summarized under “THE BONDS – Transfer, Exchange and Registration” below. Termination of the Book-Entry-Only System of DTC by the Issuer may require the consent of Participants under DTC Operational Arrangements.
Redemption Provisions
Optional Redemption. Bonds maturing on or after February 15, 2027, are subject to redemption prior to maturity at the option of the Board, in whole or in part, on February 15, 2026, or any date thereafter, at 100% of the principal amount thereof, plus accrued interest to the redemption date.
If less than all of the Bonds are to be so redeemed, the Board may select the maturity or maturities to be redeemed. If less than all of the Bonds of any maturity are to be redeemed, the particular Bonds or portions thereof of such maturity to be redeemed shall be selected by the Paying Agent/ Registrar by lot or other random method in integral multiples of $5,000. In selecting for redemption portions of Bonds in denominations greater than $5,000, each such Bond will be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000.
Scheduled Mandatory Redemption. In the event any of the Bonds are sold as term bonds subject to mandatory sinking fund provisions, the following shall apply. The Bonds of a maturity subject to mandatory sinking fund redemption prior to their scheduled maturity shall be redeemed by the Board, in part, prior to their scheduled maturity, with the particular Bonds or portions thereof of that maturity to be redeemed to be selected by lot or other customary random method (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof plus accrued interest from the most recent interest payment date to the date of redemption, on the date, and in the principal amount set forth in the Official Statement.
On or before 30 days prior to each scheduled mandatory redemption date, the Paying Agent/Registrar is required to (i) determine the principal amount of such term bonds that must be mandatorily redeemed on such scheduled mandatory redemption date, after taking into account deliveries for cancellation and optional redemptions as more fully provided for below, (ii) select, by lot or other customary random method, the term bonds or portions of term bonds of the applicable maturity to be mandatorily redeemed on such scheduled mandatory redemption date, and (iii) give notice of such redemption. The principal amount of any term bonds to be mandatorily redeemed on a scheduled mandatory redemption date will be reduced by the principal amount of such term bonds which, by the 45th day prior to such scheduled mandatory redemption date, either have been purchased in the open market and delivered or tendered for cancellation by or on behalf of the Board to the Paying Agent/Registrar or optionally redeemed and which, in either case, have not previously been made the basis for a reduction as described in this sentence. In addition, if in the exercise of its right of optional redemption, the Board has redeemed part but not all of the term bonds of a particular maturity, the principal amount to be mandatorily redeemed on the next scheduled mandatory redemption date or dates following the date of such optional redemption will be reduced by the principal amount optionally redeemed and which has not previously been made the basis for a reduction as described in this sentence.
10 Notice of Redemption
Notice of any mandatory or optional redemption identifying the Bonds to be redeemed in whole or in part is required to be given by the Paying Agent/Registrar at least 30 days prior to the date fixed for redemption by sending written notice by United States mail, first class postage pre-paid, to DTC as long as a book-entry registration is used for the Bonds, or if the Bonds subsequently are issued in certificated form, to the registered owners of the Bonds to be redeemed in whole or in part at the address shown on the registration books kept by the Paying Agent/Registrar. See “THE BONDS-DTC and Book-Entry.” Such notice is required to identify the Bonds or portions thereof to be redeemed by stating the CUSIP number, certificate number, date of issuance, interest rate and maturity date of such Bonds or portions thereof to be redeemed, and is required to state the redemption date, any conditions to such redemption, the redemption price, the amount of accrued interest payable on the redemption date, the place at which Bonds are to be surrendered for payment and, if less than the entire principal or maturity amount of a Bond is to be redeemed, the portion thereof to be redeemed. Any notice so given will be conclusively presumed to have been duly given, whether or not the Beneficial Owner or the Owner (as defined in the Twenty-Seventh Supplemental Resolution), as the case may be, receives such notice.
When the Bonds have been called for redemption in whole or in part and due provision has been made with the Paying Agent/Registrar to redeem such Bonds, the Bonds or portions thereof so redeemed will no longer be regarded as Outstanding except for the purpose of receiving payment solely from the funds provided for the redemption thereof, and the rights of the Owners to collect interest which would otherwise accrue after the redemption date on any Bond or portion thereof called for redemption will terminate on the date fixed for redemption.
Persons Entitled to Payment
The Board, the Paying Agent/Registrar and any other person may treat the person in whose name any Bond is registered, initially Cede & Co. as nominee of DTC, as the absolute Owner of such Bond for the purpose of making and receiving payment of the principal and redemption premium, if any, of and interest thereon, and for all other purposes, whether or not such Bond is overdue, and neither the Board nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary and neither the Board nor the Paying Agent/Registrar will have responsibility or Bond to any person who holds a beneficial interest in an Bond but whose name does not appear in the Register as the Owner of such Bond. All payments made to the person deemed to be the Owner of any Bond in accordance with the Twenty-Seventh Supplemental Resolution will be valid and effectual and will discharge the liability of the Board and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. See “THE BONDS - DTC and Book-Entry.”
Amounts held by the Paying Agent/Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owners after the expiration of three years from the date such amounts have become due and payable will be reported and disposed of by the Paying Agent/Registrar in accordance with the applicable provisions of Texas state law, including Title 6, Texas Property Code, as amended.
Paying Agent/Registrar
Wells Fargo Bank, N.A., Dallas, Texas, has been named to serve as initial Paying Agent/Registrar for the Bonds. The Board has covenanted that at all times while any Bonds are outstanding it will provide a national or state banking association, which will be a corporation organized and doing business under the laws of the United States or any state, authorized under such laws to exercise trust powers and subject to supervision or examination by federal or state authority, to act as Paying Agent/Registrar for the Bonds. The Board has reserved the right to change the Paying Agent/Registrar for the Bonds on not less than 60 days written notice to the Paying Agent/Registrar, so long as any such notice is effective not less than 60 days prior to the next succeeding principal or Interest Payment Date on the Bonds. Promptly upon the appointment of any successor Paying Agent/Registrar, the previous Paying Agent/Registrar is required to deliver the registration books, or a copy thereof, to the new Paying Agent/Registrar and the new Paying Agent/Registrar is required to notify each Owner, by United States mail, first class postage paid, of such change and of the address of the new Paying Agent/Registrar.
11 Transfer, Exchange and Registration
In the event the Book-Entry-Only System is discontinued, printed certificates will be delivered to the owners of the Bonds and thereafter the Bonds may be transferred, registered and assigned on the registration books only upon presentation and surrender of such printed certificates to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration and transfer. A Bond may be assigned by the execution of an assignment form on the Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Bond or Bonds will be delivered by the Paying Agent/Registrar in lieu of the Bond being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States registered mail to the new Owner at the Owner’s request, risk and expense. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the Owner or assignee of the Owner in not more than three (3) business days after the receipt of the Bonds to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in authorized denominations and for a like kind and aggregate principal amount as the Bond or Bonds surrendered for exchange or transfer. See “THE BONDS – DTC and Book-Entry” herein for a description of the system to be utilized initially in regard to the ownership and transferability of the Bonds.
The Board or the Paying Agent/Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental change that may be imposed in connection with the transfer or exchange of such Bond.
Neither the Board nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond during the 45- day period prior to the date fixed for redemption of such Bond; provided, however, that such limitation shall not apply to an exchange by the Owner of the unredeemed portion of a Bond called for redemption in part.
Defeasance
The Resolutions contain provisions for the defeasance of the Bonds in certain circumstances. See “THE RESOLUTIONS – Defeasance of Parity Debt.”
SOURCES AND USES OF FUNDS
Series 2017A Series 2017B Sources of Funds: Bonds Bonds Par amount of the Bonds Original issue premium/(discount) Issuer Contribution Total Sources $ - $ -
Uses of Funds: Project Fund Refunding Escrow Deposit Costs of Issuance Underwriter’s Discount Total Uses $ - $ -
12 SECURITY FOR PARITY DEBT OBLIGATIONS
Financing Program
The Master Resolution established a consolidated financing program for revenue-supported debt obligations of the Board (the “Financing Program”) which are issued for the benefit of System institutions which are participating members of the Financing Program (the “Members”). The Board anticipates that most future revenue-supported debt obligations of the Board (including the Bonds, but excluding debt obligations of the System supported by State constitutional appropriations) which are issued on behalf of the Members will be issued pursuant to the Master Resolution and one or more Supplemental Resolutions as part of the Financing Program. Any such revenue- supported debt obligations of the Board which are issued pursuant to the Master Resolution and any Supplemental Resolution, including the Bonds and the System’s Parity Debt Obligations listed below in Schedule 1, are herein collectively referred to as the “Parity Debt Obligations” and will be secured equally and ratably by a lien on the Pledged Revenues described below. Pursuant to the Master Resolution, the Board has pledged the Pledged Revenues to the payment of the Parity Debt Obligations, including the Bonds, and to the establishment and maintenance of the debt service fund and any reserve fund which may hereafter be created to secure an issue of Parity Debt Obligations.
SCHEDULE 1 – Outstanding Parity Debt Obligations
The following table sets forth the Parity Debt Obligations outstanding as of September 30, 2016:
Par Amount Outstanding as of Parity Debt Obligations September 30, 2016 Consolidated Revenue Variable Rate Demand Bonds, Series 2004 1,680,000 Consolidated Revenue and Refunding Bonds, Series 2008(1) 34,255,000 Consolidated Revenue and Refunding Bonds, Series 2009(1) 59,540,000 Consolidated Revenue and Refunding Bonds, Series 2009A 50,635,000 Consolidated Revenue and Refunding Bonds, Series 2010A (Taxable) 19,470,000 Consolidated Revenue and Refunding Bonds, Series 2010B (BABs) 79,975,000 Consolidated Revenue and Refunding Bonds, Series 2011A(1) 213,475,000 Consolidated Revenue and Refunding Bonds, Series 2011B (Taxable) 18,500,000 Consolidated Revenue and Refunding Bonds, Series 2013A 43,530,000 Consolidated Revenue and Refunding Bonds, Series 2013B (Taxable) 93,120,000 Consolidated Revenue and Refunding Bonds, Series 2014 43,390,000 Consolidated Revenue and Refunding Bonds, Series 2016A 100,650,000 Consolidated Revenue and Refunding Bonds, Series 2016B (Taxable) 184,350,000 Consolidated Revenue Commercial Paper Notes, Series A 70,130,000 Total Parity Debt Obligations $ 1,012,700,000
______(1) Excludes the Refunded Obligations. Preliminary, subject to change.
All Parity Debt Obligations, including the Bonds, constitute special obligations of the Board payable solely from the Pledged Revenues (as defined herein) pledged thereto pursuant to the Master Resolution, as amended. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED AS SECURITY FOR THE BONDS OR ANY OTHER PARITY DEBT OBLIGATIONS. NEITHER THE BOARD NOR THE SYSTEM HAS ANY TAXING POWER.
13 Description of Commercial Paper Authority
The System has authority to have outstanding at any time Commercial Paper in aggregate principal amounts of up to $125,000,000. Such Commercial Paper is secured on a parity basis with the Bonds, but the purpose of commercial paper is to better match construction payments with borrowing needs, and the commercial paper is expected to be paid from issuance of additional Parity Debt Obligations.
The Board has agreed to provide sufficient liquidity to pay the principal of all outstanding Commercial Paper and interest thereon at the Maximum Interest Rate (currently 10%) for the maximum term to maturity authorized for any Commercial Paper, which may not exceed 270 days. The Board will provide liquidity from its investment resources, consisting of same day funds in money market funds and, to the extent that such money market funds do not contain assets sufficient to provide the required liquidity, United States Treasury obligations and Government Sponsored Entity Agency Securities. As of September 30, 2016, the System's investments in cash and cash equivalents, United States Treasury obligations and Government Sponsored Entity Agency Securities available to provide liquidity for the Commercial Paper was valued at approximately $457 million. While the composition of the liquid funds varies over time depending on investment strategies, the composition and value as of September 30, 2016 are representative of the System’s capacity at any given time. In addition to providing self-liquidity for the Commercial Paper, the Board provides self-liquidity from the sources identified above for its currently outstanding Consolidated Revenue Variable Rate Demand Bonds, Series 2004, which are currently outstanding in the aggregate principal amount of $1.68 million. See “SCHEDULE 8 – Investment of Non-Endowed Funds.”
In addition, the Board agrees to provide or cause to be provided to the holders of the Commercial Paper notice prior to entering into a Liquidity Agreement with regard to its obligations under the Commercial Paper. In addition, no such liquidity facility will be entered into with respect to or supporting the Outstanding Commercial Paper. In the event a Liquidity Agreement is entered into with respect to the Commercial Paper, the Board agrees to provide or cause to be provided notice to the Issuing and Paying Agent and the holders of the Commercial Paper prior to substituting a new Liquidity Agreement or terminating the then existing Liquidity Agreement.
Pledged Revenues
Pledged Revenues consist of all revenues, incomes, receipts, rentals, rates, charges, fees, grants and tuition levied or collected from any public or private source by a Member, including interest and other income from those funds, and any other “revenue funds” as defined in Chapter 55, Texas Education Code, as amended (other than Excluded Payments and Restricted Funds), including without limitation (i) the Pledged Tuition and (ii) any or all of the revenues, funds, and balances (other than the Excluded Payments and Restricted Funds described below) now or hereafter legally available to the Board for payment of Parity Debt Obligations, including the Bonds, which are derived from or related to any Member; provided, however, that the following are not included in Pledged Revenues unless and to the extent set forth in a Supplemental Resolution: (a) amounts received by the System or a Member under Article VII, Section 17 of the State Constitution, including the income therefrom and any fund balances relating thereto; and (b) except to the extent so specifically appropriated, general revenue funds appropriated to the Board by the State Legislature.
Certain items of revenue are specifically not available to the Board for the payment of the debt service on any Parity Debt Obligations under current State law. Currently, none of the amounts and funds listed below are included as Pledged Revenues:
(a) Excluded Payments, which generally consist of any payments to the Board or any Member which, if used to pay any Parity Debt Obligations, would cause the interest on such Parity Debt Obligations to be includable in the gross income of the Owners thereof for federal income tax purposes (except any Parity Debt Obligations which were sold as taxable obligations); and
(b) Restricted Funds, which generally consist of revenues derived by the Board or any Member from any gift, grant, contract, loan, or endowment which by the terms and conditions of such gift, grant, contract, loan or endowment are not available to pay the debt service on any Parity Debt Obligations.
14 The Board has covenanted in the Master Resolution that for each fiscal year in which Parity Debt Obligations are outstanding it will establish, maintain, and use reasonable efforts to collect Pledged Revenues, which, if collected, will be at least sufficient to meet all financial obligations of the Board relating to the Financing Program, including all deposits or payments due on or with respect to Outstanding Parity Debt Obligations, including the Bonds, for such Fiscal Year. Reference is made to the following table for a summary of the categories of revenue which under current State law constitute Pledged Revenues.
Tuition Revenue Bonds
During its 2014 legislative session, the Texas Legislature authorized $362,456,000 of additional tuition revenue bonds (“TRBs”), and the System began issuing TRBs in 2016 and is issuing $196,620,000* of the Series 2017A Bonds as TRBs. The TRBs will be issued as additional Parity Debt Obligations, and will be used to finance specific projects for campuses in the System, as specified by statute. Additionally, proceeds of certain of the Series 2017A Bonds will be used to refund approximately $12,755,000* of previously issued TRBs, and such Series 2017A Bonds will be treated as TRBs. Historically the legislature has appropriated from general revenues of the State an amount sufficient to pay principal of and interest on TRBs during the next biennium, but there is no binding or enforceable legal obligation for the legislature to do so, and unless specifically specified in the appropriation any payments received are not Pledged Revenues for payment of the TRBs, any other Parity Debt Obligations, or the Bonds.
Summary of Availability of Revenue Sources
Revenues Which Constitute Revenues Which Partially Revenues Which Do Not Pledged Revenues Constitute Pledged Revenues (2) Constitute Pledged Revenues Pledged Tuition State Grants and Contracts State Appropriations-General Revenue (3) Other Fees(1) Local Gifts, Grants and Contracts State Appropriations-Higher Education Sales and Services-Auxiliary Private Gifts, Grants and Contracts Assistance Fund Enterprises Student Service Fees Federal Grants and Contracts Federal Interest Subsidy Investment Income Sales and Services-Educational Payments(4) Endowment Income Activities National Research University Fund ______(1) Other Fees consist of other fees which the Board is authorized by law to charge to students including, but not limited to, recreational facility fees as established by Section 54.528, Texas Education Code, laboratory fees, and enrollment and registration fees. (2) The revenues from these sources will constitute Pledged Revenues only to the extent that such revenues are not restricted by the terms of the grant or contract from being used for debt service for Parity Debt Obligations. A large majority of such revenues are restricted and will not constitute Pledged Revenues. (3) “State Appropriations – General Revenue” are not expected to constitute Pledged Revenues. However, it is expected that the State Legislature will appropriate amounts out of the general revenue fund of the State to reimburse the Board for the payment of portions of the principal of and interest on certain Parity Debt Obligations. However, there is no obligation of the State or of the State Legislature to make any appropriation for this purpose and neither the Parity Debt Obligations nor the Bonds (or any portion of debt service thereon) are general obligations of, or are secured by the full faith or credit of, the State or the System. (4) The System receives interest subsidy payments directly from the Secretary of the U.S. Treasury in relation to the Series 2010B Bonds issued as Qualified Build America Bonds, and any such interest subsidy payments will be allocated solely to pay interest on, or to reimburse the System for the payment of interest on, the Series 2010B Bonds.
Rate Covenant
The Board is required by State law to, and has covenanted in the Master Resolution that it will, establish, maintain, charge and use reasonable efforts to collect, at each Member, Pledged Revenues which, if collected, will be at least sufficient to meet all financial obligations of the Board relating to the Financing Program, including all deposits or payments with respect to Outstanding Parity Debt Obligations for each Fiscal Year. The Master Resolution requires the Board to increase the amount of the Pledged Tuition when and if necessary to the extent needed to provide Pledged Revenues sufficient to make, when due, all payments and deposits required in connection with Outstanding Parity Debt Obligations. The Board is allowed to fix and collect the Pledged Tuition in any manner, within its sole discretion, and in different amounts from students enrolled at each Member, as long as total Pledged Revenues are at least sufficient to meet all financial obligations of the Board relating to the Financing Program, including all payments and deposits required in connection with Outstanding Parity Debt Obligations. ______*Preliminary , subject to change. 15 Pledged Tuition
Pursuant to the Master Resolution, as amended, the Pledged Tuition has been pledged to secure the payment of the Parity Debt Obligations, including the Bonds.
The Pledged Tuition means all tuition charges now or hereafter required or authorized by law to be imposed on tuition paying students enrolled at each and every institution, branch and entity of the System which the Board is authorized by law to pledge to the Parity Debt Obligations, subject to any senior pledges of “Prior Encumbered Revenues” or “Prior Encumbered Tuition” to secure the “Prior Encumbered Obligations” (all as defined in the Master Resolution).
SCHEDULE 2 - Pledged Revenues and Fund Balances
The following table sets forth the historical aggregate amount of Pledged Revenues collected at all System Members during the fiscal years indicated and the Fund Balances for each year.
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Tuition & Fees $ 529,722,857 $ 556,263,436 $ 581,404,842 $ 622,295,632 $ 658,665,707 Investment Income 3,272,274 3,306,367 328,457 3,861,679 4,338,860 Sales & Services 67,639,533 78,667,183 79,152,795 92,533,160 107,018,933 Federal Interest Grant - - - - - Bond Proceeds 287,111,593 - 152,575,000 - 185,955,000 Legislative Appropriations (1) 23,963,183 23,681,357 22,467,172 22,473,695 22,355,339 Subtotal Pledged Revenues $ 911,709,439 $ 661,918,343 $ 835,928,266 $ 741,164,166 $ 978,333,839
Pledgeable Unappropriated Fund & Reserve Balances (2) 324,486,746 347,722,983 330,494,994 302,211,939 371,067,513
Total Pledged Revenue & Fund Balances $1,236,196,185 $1,009,641,326 $1,166,423,260 $1,043,376,105 $1,349,401,352
(1) Represents amounts appropriated by the State Legislature to reimburse the Board for payment of portions of the debt service on certain Outstanding Parity Debt Obligations. See “SECURITY FOR PARITY DEBT OBLIGATIONS - Pledged Revenues” for information regarding the availability of legislative appropriations to pay debt service on Parity Debt Obligations. (2) In addition to current year Pledged Revenues, any unappropriated or reserve fund balances remaining at year-end are available for payment of the subsequent year’s debt service.
Pledged Revenues that are not required to pay debt service on Parity Debt Obligations are available to pay other costs of operating and maintaining the System. Continued operation and maintenance of the System at current levels is substantially dependent upon the availability to the System of revenues derived from various sources, including (a) revenues from sources that constitute Pledged Revenues and (b) general revenue appropriations from the State Legislature that are not part of Pledged Revenues. See SCHEDULE 7 – “Combined Statement of Revenues, Expenses and Changes in Net Assets” and “APPENDIX A – Financial Reports of the System” for additional information regarding the System’s various sources of revenue and categories of expenditures.
Perfection of Security
Chapter 1208, Texas Government Code, applies to the issuance of the Bonds and the pledge of the Pledged Revenues thereto, and such pledge is, therefore, valid, effective, and perfected. Should Texas law be amended at any time while the Bonds are outstanding and unpaid, the result of such amendment being that the pledge of the Pledged Revenues is to be subject to the filing requirements of Chapter 9, Texas Business & Commerce Code, in order to preserve to the Owners of the Bonds a security interest in such pledge, the System has agreed to take such measures as it determines are reasonable and necessary to enable a filing of a security interest in said pledge to occur.
16 Exemptions and Waivers
The Board has covenanted in the Master Resolution to charge to and collect from each student enrolled at each Member the Pledged Tuition, except any students exempt by law from the payment of such amounts or for which a waiver of payment has been granted. The Board is currently authorized and in some cases required by the Texas Education Code to grant exemptions and waivers to certain qualifying individuals from certain of the charges, fees, and dues imposed generally upon students enrolled at the System institutions, including the Pledged Tuition. The Master Resolution allows the Board to continue to grant the discretionary exemptions and waivers so long as total Pledged Revenues are at least sufficient to meet all financial obligations of the Board relating to the Financing Program.
SCHEDULE 3 - Exemptions and Waivers
The following table sets forth the total number of students who were either exempt from paying all or a portion of the tuition charges and/or other fees (which includes Pledged Tuition) or for whom the payment of student use and service fees (which includes the former Pledged General Fee) was waived for the fall semester of the fiscal years indicated.
Total Number Number of of Students Students Granted Fall Semester Granted Exemptions and Fiscal Year Exemptions Waivers as % of Ended August 31 and Waivers Total Headcount 2005 2,336 4.11% 2006 2,363 4.13% 2007 2,409 4.29% 2008 2,698 4.75% 2009 3,486 5.71% 2010 3,565 5.58% 2011 3,717 5.70% 2012 4,285 6.38% 2013 4,019 5.73% 2014 4,126 6.03% 2015 4,240 6.05% 2016 4,122 5.82%
Additional Parity Debt Obligations
The Board has reserved the right to issue debt which will be subordinate to the lien of the Parity Debt Obligations. In addition, the Board has reserved the right and power to issue or incur additional Parity Debt Obligations, for any purpose authorized by law, including the refunding of any Outstanding Parity Debt Obligations or Prior Encumbered Obligations, which Parity Debt Obligations, if and when issued, will be secured by and payable from a lien on and pledge of the Pledged Revenues, subject only to any liens on or pledges of Prior Encumbered Revenues securing Prior Encumbered Obligations. See “SECURITY FOR PARITY DEBT OBLIGATIONS-Admission and Release of Members of the Financing Program.” Such additional Parity Debt Obligations, if and when issued, will be in all respects of equal dignity and on a parity with any other then Outstanding Parity Debt Obligations, including the Bonds.
No installment, series, or issue of additional Parity Debt Obligations may be issued, incurred, or delivered unless:
(a) the Designated Financial Officer of the System (as defined in the Master Resolution) delivers to the Board a written certificate stating that, to the best of his or her knowledge, the Board is in compliance with all covenants contained in the Master Resolution and each Supplemental Resolution and is not in default in the performance and observance of any of the terms, provisions, and conditions thereof; (b) the Board determines, either at the time of the authorization or issuance of the additional Parity Debt Obligations, or at the time of the adoption of the annual budgets for the Financing Program, that it will have funds to meet the financial obligations of the Financing Program, including sufficient Pledged Revenues to satisfy the annual debt service requirements of the Financing Program as shall be calculated from time to time by the Designated Financial Officer; and
17 (c) prior to the issuance of such additional Parity Debt Obligations, the Designated Financial Officer prepares a written certificate, which is approved by the Board, to the effect that (i) the estimated maximum amount per semester hour of that portion of the Pledged Revenues (based on then current enrollment and conditions) during any future semester necessary to provide for the payment when due of the principal of and interest on the Parity Debt Obligations then being issued, together with (ii) the aggregate amount of all of the Pledged Revenues which were levied on a semester credit hour basis for the then current semester to pay the principal of and interest on all previously issued Parity Debt Obligations (including Prior Encumbered Obligations) do not exceed the amount or amounts permitted by law. See “SECURITY FOR PARITY DEBT OBLIGATIONS- Pledged Tuition.”
Admission and Release of Members of the Financing Program
The Board has reserved the right in the Master Resolution to admit as additional Members of the Financing Program certain institutions which are not now but hereafter may become components of the System through State legislative action, which institutions might, at the time of their admission to the Financing Program, have Prior Encumbered Obligations secured by Prior Encumbered Revenues. In each such case, such Prior Encumbered Revenues will automatically become part of the Pledged Revenues but will only be available to pay the debt service on any Parity Debt Obligations to the extent such Prior Encumbered Revenues are not needed to pay the Prior Encumbered Obligations. The Board has covenanted that in each such case it will not issue or incur any additional bonds or obligations on parity with any such Prior Encumbered Obligations.
The Board has reserved the right to consolidate, combine, and divide any Members, including institutions which may hereafter become Members, so long as the surviving consolidated, combined, or divided institutions are Members that continue to be governed by the Board.
Subject to the conditions set forth below, any Member or portion thereof may be closed and abandoned by law or may be removed as a Member of the Financing Program without violating the terms of the Master Resolution if:
(a) the Board approves a certificate of the Designated Financial Officer to the effect that, to the best of his or her knowledge, after the release of such Member or portion thereof, the Board will have sufficient funds during each Fiscal Year in which Parity Debt Obligations will be Outstanding to meet the financial obligations of the Financing Program, including the annual debt service requirements of the Financing Program; (b) the Designated Financial Officer has delivered to the Board an opinion of a nationally recognized tax or bond counsel which states that such release will not affect the status for federal income tax purposes of interest on any Outstanding Parity Debt Obligations and that all conditions precedent provided in the Master Resolution and any Supplemental Resolution relating to such release have been complied with; and (c) (i) if the Member or portion thereof to be released from the Financing Program is to remain a component of the System, the Board is required to provide, from lawfully available funds, including Pledged Revenues attributable to such withdrawing Member, for the payment as it becomes due, or the discharge of, such Member's allocable share of the Parity Debt Obligations as determined by the Designated Financial Officer and approved by the Board; or (ii) if the Member or portion thereof to be released from the Financing Program is to no longer be a component of the System under the governance of the Board, the Board is required to enter into a binding obligation with the new governing body of the withdrawing Member or portion thereof, obligating such governing body to make payments to the Board at times and in amounts sufficient to provide for the payment when due, or the discharge of, the allocable share of the Parity Debt Obligations attributable to such Member or portion thereof as determined by the Designated Financial Officer and approved by the Board.
Although the Board has reserved the right in the Master Resolution to admit and release Members to the Financing Program, the Board has covenanted in the Master Resolution that so long as any Parity Debt Obligations or interest thereon are Outstanding and unpaid, it will maintain the System as a system of institutions of higher education in accordance with the Constitution and laws of the State, and it will not do or suffer any act or thing to occur to the System or the Financing Program that would impair the ability of the Financing Program to generate sufficient Pledged Revenues to provide for the payment of the Parity Debt Obligations.
The Board has no current plans to release any of the Members from the Financing Program.
18 MUNICIPAL BOND RATINGS
The presently outstanding consolidated revenue debt of the System is rated “Aa2” by Moody's and an application for a contract rating from S&P has been applied for. The System will pay the cost of the ratings from Moody’s and S&P. Ratings reflect only the views of the rating agencies, from whom an explanation of the significance of such ratings may be obtained. There is no assurance that ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely if, in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal could have an adverse effect on the market price of the Bonds. The Board and the Financial Advisor will undertake no responsibility to oppose any revision or withdrawal of such ratings.
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19 PRO FORMA DEBT SERVICE REQUIREMENTS*
The following table sets forth the projected annual debt service requirements for the Outstanding Parity Debt Obligations plus the annual principal and interest requirements for the Bonds.
Fiscal Outstanding Less: Total Year Net Debt Refunded Plus: The Series 2017A Bonds Plus: The Series 2017B Bonds Debt End 8/31 Service (1)(2) Bonds* Principal* Interest (3) Principal* Interest (3) Service(1)(2)* 2017 99,122,776 1,463,831 8,578,824 $ 212,694 106,450,463 2018 96,801,209 2,927,663 $ 8,690,000 17,036,250 395,000 424,427 120,419,223 2019 94,074,412 2,927,663 9,160,000 16,590,000 405,000 416,999 117,718,748 2020 91,700,710 2,927,663 9,625,000 16,120,375 405,000 407,846 115,331,268 2021 91,749,858 2,927,663 10,095,000 15,627,375 420,000 397,218 115,361,789 2022 83,120,113 2,927,663 10,635,000 15,109,125 435,000 385,324 106,756,900 2023 74,570,730 3,127,281 11,355,000 14,559,375 445,000 372,075 98,174,898 2024 74,044,902 9,146,806 17,775,000 13,831,125 460,000 357,680 97,321,900 2025 74,062,998 9,055,850 18,585,000 12,922,125 475,000 342,249 97,331,522 2026 72,263,097 9,805,400 20,265,000 11,950,875 490,000 325,840 95,489,412 2027 69,509,633 2,946,938 14,655,000 11,077,875 510,000 308,208 93,113,778 2028 69,108,277 2,769,906 15,215,000 10,331,125 530,000 289,090 92,703,586 2029 59,341,276 2,371,375 15,615,000 9,560,375 550,000 268,565 82,963,841 2030 58,661,490 2,291,875 16,345,000 8,761,375 570,000 246,720 82,292,710 2031 52,575,887 2,224,625 17,110,000 7,925,000 595,000 223,414 76,204,676 2032 50,135,341 2,412,875 18,180,000 7,042,750 620,000 198,128 73,763,344 2033 47,304,810 6,256,125 22,785,000 6,018,625 645,000 171,120 70,668,431 2034 39,884,032 6,273,375 23,880,000 4,852,000 675,000 142,938 63,160,596 2035 36,242,678 6,253,250 25,175,000 3,625,625 705,000 113,475 59,608,529 2036 33,390,474 6,255,500 26,470,000 2,334,500 735,000 82,731 56,757,205 2037 23,343,630 6,385,625 27,805,000 977,625 770,000 50,600 46,561,229 2038 15,875,275 6,826,500 5,650,000 141,250 800,000 17,080 15,657,105 2039 7,275,575 - 7,275,575 2040 7,277,075 - 7,277,075 2041 7,269,550 - 7,269,550 2042 7,277,175 - 7,277,175 2043 7,278,950 - 7,278,950 2044 1,219,600 - 1,219,600 2045 1,226,200 - 1,226,200 2046 1,221,000 - 1,221,000 2047 1,224,000 - 1,224,000 $1,448,152,733 $100,505,450 $345,070,000 $214,973,574 $11,635,000 $5,754,419 $1,925,080,275 ______(1) Includes the System’s Consolidated Revenue Variable Rate Demand Bonds, Series 2004, Consolidated Revenue and Refunding Bonds, Series 2008, Consolidated Revenue and Refunding Bonds, Series 2009, Consolidated Revenue and Refunding Bonds, Series 2009A, Consolidated Revenue and Refunding Bonds, Series 2010A (Taxable), Consolidated Revenue and Refunding Bonds, Series 2010C, Consolidated Revenue and Refunding Bonds, Series 2010B (Direct-Subsidy Build America Bonds) (Taxable), Consolidated Revenue and Refunding Bonds, Series 2011A, Consolidated Revenue and Refunding Bonds, Series 2011B (Taxable), Consolidated Revenue and Refunding Bonds, Series 2013A, Consolidated Revenue and Refunding Bonds, Series 2013B (Taxable), Consolidated Revenue Refunding Bonds, Series 2014, Consolidated Revenue and Refunding Bonds, Series 2016A, and Consolidated Revenue and Refunding Bonds, Series 2016B (Taxable). Interest on the Consolidated Revenue Variable Rate Demand Bonds, Series 2004 is calculated at a rate of 4.50% for purpose of illustration. Net of capitalized interest. (2) Net of the expected subsidy payments related to the Series 2010B Bonds issued as Direct-Subsidy Build America Bonds. (3) Interest payments on the Bonds have been estimated for the purpose of illustration. * Preliminary, subject to change. (See Official Notice of Sale - “Advance Modification of Principal Amounts” and “Post Bid Modification of Principal Amounts”)
20 THE RESOLUTIONS
The information contained in this section is a summary of certain provisions of the Master Resolution and the Twenty-Seventh Supplemental Resolution and is in addition to other information in such documents which is summarized elsewhere in this Official Statement under the captions “THE BONDS” and “SECURITY FOR PARITY DEBT OBLIGATIONS.” This information is intended as a summary only and is qualified in its entirety by reference to the complete Master Resolution and the Twenty-Seventh Supplemental Resolution, copies of which may be obtained from the System Administration at 4800 Calhoun, E. Cullen Building, Room 10F, Houston, Texas 77204-2009, Attention: Treasurer.
Establishment of Financing Program
The current Members of the Financing Program are the System Administration and the four component universities of the System: the University of Houston; the University of Houston-Clear Lake; the University of Houston- Downtown; and the University of Houston-Victoria. The Board may admit as additional Members of the Financing Program institutions which may hereafter become System institutions (“System Institutions”) or it may release as Members of the Financing Program institutions or portions thereof which are currently Members, all pursuant to the applicable provisions of the Master Resolution. See “SECURITY FOR PARITY DEBT OBLIGATIONS-Admission and Release of Members of the Financing Program.” The fact that an institution which is not currently a System Institution may hereafter become a part of the System does not necessarily mean that such new institution will also become a Member of the Financing Program.
Funds and Accounts
Pursuant to the Master Resolution, the Board has established on its books and records an account entitled the “Revenue Financing Program Debt Service Fund” (the “Debt Service Fund”) in order to pay when due all Outstanding Parity Debt Obligations. The Board is required to deposit to the credit of the Debt Service Fund such amounts as are necessary to pay when due the principal of, interest on, and any other payments required to be made on or in connection with any Parity Debt Obligations. It is further required to make such amounts, and any other legally available funds if necessary, available to the Paying Agent/Registrar on or before each date on which principal of, interest on, or any other payments on Parity Debt Obligations are due in order to make such payments. The Board is not required by the Master Resolution to make periodic deposits to the Debt Service Fund at regular intervals in order to accumulate the amount on deposit therein prior to a payment date nor does the Board currently anticipate making any such periodic deposits.
The Master Resolution allows the Board to establish one or more reserve funds or accounts to further secure any Outstanding Parity Debt Obligations. A reserve fund has not been established to secure the payment of the Bonds.
Investments
Money in any fund or account established by the Master Resolution or any Supplemental Resolution is required to be invested and secured in the manner prescribed by law for such funds and in accordance with written investment policies of the Board. See “THE SYSTEM – Investment Policies and Procedures.”
Tax Covenants
It is the Board's intent that the interest on the Series 2017A Bonds be excludable from gross income of the Owners thereof for purposes of federal income taxation. To that end, the Board has generally covenanted in the Twenty- Seventh Supplemental Resolution not to take any action, or knowingly omit to take any action within its control, that if taken or omitted would cause the interest on the Series 2017A Bonds to be included in gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended (the “Code”), of the Owners of the Series 2017A Bonds for purposes of federal income taxation. It has further made a number of specific covenants relating to the use and investment of the Series 2017A Bond proceeds, arbitrage, the required arbitrage rebate, information reporting, and other matters the continuing compliance with which is intended to ensure that the interest on the Series 2017A Bonds will remain excludable from the gross income of the Owners of the Series 2017A Bonds for federal income tax purposes. Bond Counsel will rely on future compliance by the Board with such general and specific tax covenants in rendering their opinion that the interest on the Series 2017A Bonds is excludable from the
21 gross income of the Owners of the Series 2017A Bonds for federal income tax purposes, subject to the matters described in “TAX MATTERS FOR SERIES 2017A BONDS” herein, including the alternative minimum tax consequences for corporations. See “TAX MATTERS FOR SERIES 2017A BONDS - Tax Exemption” and “APPENDIX B – Form of Bond Counsel Opinion.”
Sole Remedy for Events of Default
In the event of a default in any covenant contained in the Master Resolution or any Supplemental Resolution or in the payment when due of the principal of, interest on, or any other payment required in connection with any Parity Debt Obligations, the only remedy provided by the Master Resolution to Owners of Parity Debt Obligations is to require the Board, its officers and employees, and any appropriate official of the State, to carry out, respect or enforce such covenants and obligations by all legal and equitable means, including specifically, but without limitation, the institution in any court of competent jurisdiction of mandamus proceedings against such parties or any other necessary or appropriate party. Neither the Master Resolution nor the Twenty-Seventh Supplemental Resolution provides additional remedies to a Registered Owner. Specifically, neither the Master Resolution nor the Twenty-Seventh Supplemental Resolution provide for the appointment of a trustee to protect and enforce the interests of the Owners or for the acceleration of maturity of the Bonds upon the occurrence of a default in the System's obligations. Consequently, the remedy of mandamus is a remedy which may have to be enforced from year-to-year by the Owners.
Under Texas law, the System is immune from suits for money damages unless its sovereign immunity to suit is expressly waived by the Texas Legislature. Further, no judgment obtained against the System may be enforced by execution of a levy against the System's public purpose property. The Owners themselves cannot foreclose on property within the System or sell property within the System in order to pay principal of or interest on the Bonds. In addition, the enforceability of the rights and remedies of the Owners may be limited by federal bankruptcy laws or other similar laws affecting the rights of creditors of a political subdivision.
Amendment of Resolutions
The Master Resolution and any Supplemental Resolution and the rights and obligations of the Board and of the Owners of the Outstanding Parity Debt Obligations may be modified or amended at any time without notice to or the consent of any Owners of the Outstanding Parity Debt Obligations, but only to the extent permitted by the Constitution and laws of the State, solely for any one or more of the following purposes:
(a) to add to the covenants and agreements of the Board contained in the Master Resolution or any Supplemental Resolution, other covenants and agreements thereafter to be observed, or to surrender any right or power reserved to or conferred upon the Board in the Master Resolution or any Supplemental Resolution;
(b) to cure any ambiguity or to cure or correct any defective provision contained in the Master Resolution or any Supplemental Resolution, upon receipt by the Board of an approving opinion of nationally recognized tax or bond counsel that the amendment is needed for such purpose and will more clearly express the intent of the Master Resolution or Supplemental Resolution;
(c) to supplement the security for the Outstanding Parity Debt Obligations, replace or provide additional credit facilities or change the form of the Outstanding Parity Debt Obligations or make such other changes in the provisions of the Master Resolution as the Board may deem necessary or desirable and which will not, in the judgment of the Board, materially adversely affect the interests of the Owners of the Outstanding Parity Debt Obligations; or
(d) to make any changes or amendments requested by any bond rating agency then rating or requested to rate Parity Debt Obligations, as a condition to the issuance or maintenance of a rating, which changes or amendments do not, in the judgment of the Board, materially adversely affect the interests of the Owners of the Outstanding Parity Debt Obligations.
22 Subject to the provisions described in the immediately succeeding paragraph, Owners of the Outstanding Parity Debt Obligations aggregating fifty-one percent (51%) in Outstanding principal amount have the right to approve any other amendment to the Master Resolution or any Supplemental Resolution which may be deemed necessary or desirable by the Board; provided, however, without the approval of the Owners of one hundred percent (100%) of the Outstanding Parity Debt Obligations, no amendment may be made the effect of which would be to:
(a) make any change in the maturity of the Outstanding Parity Debt Obligations;
(b) reduce the rate of interest borne by any of the Outstanding Parity Debt Obligations;
(c) reduce the amount of the principal payable on the Outstanding Parity Debt Obligations;
(d) modify the terms of payment of principal of or interest on the Outstanding Parity Debt Obligations, or impose any conditions with respect to such payment;
(e) affect the rights of the Owners of less than all of the Parity Debt Obligations then Outstanding; or
(f) change the minimum percentage of the Outstanding principal amount necessary for consent to such amendment.
If and to the extent that any Parity Debt Obligations, including the Bonds, are insured by a municipal bond insurance policy, or secured by a letter of credit, surety bond or other surety device issued by a financial institution such that the Parity Debt Obligations so insured or secured are rated in one of the two highest rating categories by any nationally recognized municipal bond rating agency then rating the Parity Debt Obligations, the financial institution so insuring or securing payment of such Parity Debt Obligations shall be deemed to be the Owner of such Parity Debt Obligations for purposes of voting on amendments to the Master Resolution which require the consent of Owners of only 51% of the Outstanding principal amount to approve such amendments, whether or not an event of default has occurred with respect to such Parity Debt Obligations. Any such financial institution will not be deemed to be the Owner of such Parity Debt Obligations for purposes of voting on any amendments which require the consent of the Owners of 100% of the Outstanding principal amount of the Parity Debt Obligations.
Defeasance of Parity Debt Obligations
Any Parity Debt Obligations and the interest thereon will be deemed to be paid, retired, and no longer Outstanding (a “Defeased Obligation”) when the payment of all principal and interest payable with respect to such Parity Debt Obligation to the due date or dates thereof (whether such due date or dates be by reason of maturity, upon redemption, or otherwise) either (i) has been made or caused to be made in accordance with the terms thereof (including irrevocable provisions being made for the giving of any required notice of redemption), or (ii) has been provided for on or before such due date or dates by irrevocably depositing with or making available to the Paying Agent/Registrar for such payment (A) lawful money of the United States of America sufficient to make such payment, or (B) Government Obligations which mature as to principal and interest in such amounts and at such times as will ensure the availability, without reinvestment, of sufficient money to provide for such payment, or (C) any combination of (A) and (B) above, and when proper arrangements have been made by the Board with the Paying Agent/Registrar for the payment of its services until after all Defeased Obligations have become due and payable. At such time as a Parity Debt Obligation is deemed to be a Defeased Obligation, such Parity Debt Obligation and the interest thereon will no longer be secured by, payable from, or entitled to the benefits of, the Pledged Revenues, and such principal and interest will be payable solely from such money or Government Obligations, and will not be regarded as Outstanding for any purposes other than payment, transfer, and exchange.
In connection with the Bonds (and any Parity Debt Obligation), the Master Resolution provides that the term “Government Obligations” means (i) direct noncallable obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, which may be United States Treasury obligations such as its State and Local Government Series, and which may be in book-entry form; (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the Board adopts or approves the proceedings authorizing the issuance of refunding bonds or otherwise provides for the
23 funding of an escrow to effect the defeasance of the Bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent; and (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the Board adopts or approves proceedings authorizing the issuance of refunding bonds or otherwise provides for the funding of an escrow to effect the defeasance of the Bonds, are rated as to investment quality by a nationally recognized investment rating firm no less than “AAA” or its equivalent.
THE SYSTEM
General
The University of Houston System. The University of Houston (“UH”) was established in 1927 under the administration of the Houston Independent School District (HISD) and was originally named Houston Junior College. The institution was elevated to four-year university status and renamed University of Houston in 1934, becoming a private university separate from HISD in 1945.
In 1961, the Texas Legislature authorized the establishment of the University of Houston as a state-supported public university governed by a Board of Regents appointed by the Governor.
By the early 1970s, higher education centers affiliated with UH were in operation in Clear Lake, downtown Houston, and Victoria. These centers eventually became free-standing universities, and in 1977 the Texas Legislature established the University of Houston System, comprised of all the institutions then under its management, plus any institution that subsequently became part of the UH System.
The UH System currently includes four universities (University of Houston, University of Houston-Clear Lake, University of Houston-Downtown, and University of Houston-Victoria) and three off-campus teaching centers in Sugar Land, Pearland, and Northwest Houston with additional programming being delivered in the Texas Medical Center, Katy and San Antonio. In addition, the system operates Houston Public Media, which includes the Public Broadcasting Service television station KUHT-TV (the nation’s first educational station) and a National Public Radio station, KUHF-FM.
The UH System universities are complementary institutions, each meeting specific educational and community needs. Today, more than 70,000 students system-wide enjoy a wide range of academic programs available to them, including graduate and research programs and a variety of academic opportunities for full-time or part-time undergraduate study. Admission to the UH System’s component universities ranges from access-driven to competitively selective.
The UH System Administration. The University of Houston System Administration provides leadership, coordination and support for university activities and conducts those academic, fiscal, and other functions that are most effectively centralized in a large and complex institution. Its primary objectives are to develop the strongest possible academic programs without undesirable duplication of programs or facilities, to ensure public accountability and responsiveness to public needs, and to foster understanding of the overall mission of the UH System.
The top administrative positions of the UH System and the University of Houston are combined. Renu Khator serves as the Chancellor of the UH System and President of the University of Houston.
The UH System Administration’s offices are located on the University of Houston campus, 4800 Calhoun, E. Cullen Building, Room 212, Houston, Texas 77204-2018. Information concerning the UH System and its universities may be obtained by visiting the UH System web page at www.uhsystem.edu.
Component Universities
The University of Houston. The University of Houston, the oldest and largest of the UH System’s four universities, is a comprehensive research university located on 665-plus acres approximately three miles south of downtown Houston. UH has the most competitive admissions standards within the UH System. UH is among the top research universities in the state and is one of the most ethnically diverse research universities in the nation. The student body is also very international—one in ten students is from another country. Enrollment for the fall 2016 semester totaled
24 43,774. UH offers undergraduate and graduate academic programs on campus and online through its 14 academic schools and colleges. Undergraduates can choose from 110 bachelor degree programs. At the graduate level, UH offers 119 masters, 47 doctoral, and three professional degree programs in law, pharmacy, and optometry. UH also has a multi-disciplinary Honors College which is ranked among the top 10 in the nation. UH awards more than 9,000 degrees annually.
UH is the primary, research-oriented component of the UH System. In 2011, UH joined the ranks of the nation’s top research universities when the Carnegie Foundation for the Advancement of Teaching placed UH in its top category of research universities.
UH has 25 research centers and institutes that conduct a significant amount of research activity. These include the: Center for Electromagnetic Compatibility, Center for Life Sciences Technology, Center for Neuromotor and Biomechanics Research Center, Center for Advanced Materials, Center for Neuro-Engineering and Cognitive Sciences, the Institute for Climate and Atmospheric Science, Institute for Nanoenergy, the Texas Center for Superconductivity, and the Texas Institute for Measurement, Evaluation and Statistics. UH also has more than 40 research laboratories engaged in various fields of research including Applied Electromagnetics, Biomedical Optics, Scanning Probe Microscopy, Smart Materials and Structures, and High Pressure and Low Temperature Physics. In fiscal year 2015, total research expenditures exceeded $150 million.
The University of Houston-Downtown. Founded in 1974, the University of Houston Downtown (UHD) is the second largest, four-year, public university in Houston and ranks 42nd nationally for graduating Hispanic and 53rd nationally for graduating African-American students with bachelor's degrees. UHD, located just north of Houston’s central business district, had an enrollment of 14,242 students in fall 2016. The university is primarily an undergraduate institution that expanded into graduate programs a few years ago. Through its four colleges, UHD offers undergraduate degrees in 44 fields of study and graduate degrees in eight fields. Its broad-based academic programs are designed to prepare students for immediate entry into Houston area business and industry.
UHD is a robust, urban university. Students come to UHD from a variety of backgrounds. Most work full- or part- time while pursuing their degrees and many are the first in their families to attend college. In addition, most UHD students transfer from community colleges or other higher education institutions. Its non-residential campus attracts students from throughout the Greater Houston area, and the university's diverse student body reflects Houston's wealth of cultures, languages and nationalities. The metropolitan area is home to 24 Fortune 500 companies and many other world-class institutions in the areas of energy, medicine, aerospace, manufacturing, and business services. The university's proximity to downtown provides opportunities for internships at major corporations and enables excellent access to these and other resources including museums, art galleries and professional sport venues.
The University of Houston-Clear Lake. Established in 1974, the University of Houston-Clear Lake (UHCL) provides educational opportunities to students in the Houston-Galveston area and beyond through upper-level undergraduate and graduate programs. In 2011, UHCL received approval from the Texas Legislature for downward expansion, which authorizes the upper-level university to add freshman- and sophomore-level courses to its roster. Beginning in fall 2014, UHCL offered this new programming to freshman and sophomores. UHCL is located on the south side of Houston on 524 acres adjacent to NASA’s Lyndon B. Johnson Space Center. In fall 2016, UHCL’s enrollment stood at 8,669 students. UHCL offers more than 80 undergraduate degree programs through four schools. UHCL is committed to maintaining solid academic programs largely through its emphasis on teaching excellence. All of the university’s professors hold doctorates or the highest possible degree in their respective fields.
Additionally, UHCL is committed to supporting the region's various commercial, engineering, human services and trade sectors, especially in the computing, medical, petrochemical and aerospace industries. The university's numerous institutes and centers, including the Environmental Institute of Houston, Center for Autism and Developmental Disabilities, Center for Educational Programs, Psychological Services Clinic and Center for Executive Education, help fulfill these needs.
The University of Houston-Victoria. The University of Houston-Victoria (UHV), located 120 miles southwest of Houston, was founded in 1973 as the UH Victoria Center. Ten years later, a bill was passed by the Texas Legislature to allow the center to become UHV with permanent status as a degree-granting university offering junior-, senior- and graduate-level courses. Legislation signed into law in 2009 allowed UHV to admit its first underclassmen (freshmen and sophomores) in fall 2010.
25 UHV is now a dynamic destination university in the Coastal Bend region of Texas that serves the educational needs, promotes the economic well-being, and advances the quality of life for the university and community through teaching, research and service excellence. UHV had an enrollment of 4,144 students in fall 2016. UHV offers undergraduate and graduate level courses both on campus and online. UHV offers bachelor’s degree programs in 34 fields of study and master’s degree programs in 26 fields such as nursing, education, business, publishing, forensic psychology and computer information systems. It also offers nearly two dozen professional certification programs.
Houston Public Media
KUHT-TV. KUHT-TV signed on the air in May 1953 as the nation’s first non-commercial public (educational) television station. KUHT is licensed to broadcast on analog station KUHT-TV, Channel 8, and on digital station KUHT-DT, Channel 9. It now reaches 2.5 million viewers, ranging from preschoolers to adults, in a 31-county area. KUHT-TV is licensed to the UH System Board of Regents. As a public service entity, KUHT-TV brings its viewing community unique and diverse educational, cultural, and entertainment programming. The station broadcasts original, local programs as well as distributing programs from independent, regional, and national producers. It also carries a schedule of instructional programs. KUHT-TV is a member of the national Public Broadcasting Service.
KUHF-FM. Houston Public Radio has one station, KUHF 88.7. It is a non-profit, listener supported station licensed to the University Of Houston System Board Of Regents that operates in the public interest as an outreach to the greater Houston community. The station is certified by the Corporation for Public Broadcasting. Founded in 1950, KUHF-FM serves listeners in Houston and communities within a 150-mile radius with award-winning public affairs programs and in-depth news from National Public Radio. It is also affiliated with American Public Media and Public Radio International. Its programming is broadcast on 88.7 FM (main station) and 88.7 FM HD channel 1 (news) and 88.7 FM HD channel 2 (classical music).
Teaching Centers
University of Houston Sugar Land Campus. The University of Houston Sugar Land Campus, under the University of Houston’s administration, offers students in Southwest Houston and Fort Bend County the opportunity to complete 12 undergraduate degrees and 11 graduate degrees in such high-demand fields as technology, education and nursing. A partnership with Wharton County Junior College, which is co-located at the campus, allows students to complete freshman and sophomore level coursework prior to transferring into one of the undergraduate degree programs at the University of Houston Sugar Land Campus. The campus houses faculty, advising and support staff, computing resources, a library, and large public meeting spaces.
University of Houston Northwest Campus and University of Houston-Downtown Northwest Campus. UH and UH-Downtown operate teaching centers in partnership with Lone Star College at the Lone Star College-University Park, which provides classroom space, computer labs, a library and testing center, dining facilities, faculty offices, and student support/advising staff. UH and UHD currently offer several undergraduate degrees and graduate degrees at the University Park location.
UH-Clear Lake Pearland Campus. The UH-Clear Lake Pearland Campus opened in fall 2010, bringing to the region junior, senior and graduate level courses in high-demand degree programs such as business, education, nursing, and psychology. The new modern facility, which is shared with the Pearland Economic Development Corporation, includes classrooms, a library, a student lounge, teaching labs, offices and a faculty suite. A new Health Sciences and Classroom building is in the planning stages.
Texas Higher Education Coordinating Board
The Texas Higher Education Coordinating Board (the “Coordinating Board”) is a State agency which has jurisdiction over all public institutions of higher education in the State, including the University of Houston System institutions. In general, the Coordinating Board's purpose is to provide coordination among the various public institutions of higher education in the State so that the State may maximize the quality of higher education through efficient and effective utilization of resources and the elimination of duplications in program offerings, faculties and physical plants. To that end, the Coordinating Board has broad oversight powers including, but not limited to: (i) the power to prescribe maximum enrollment limits for a State institution of higher education; (ii) the power to initiate, consolidate, or eliminate degree or certificate programs at institutions if such action is in their best interest or furthers the purposes of the Coordinating Board; (iii) the power to approve or disapprove of any new department, school, degree program, or certificate program at any institution; and (iv) the power to devise formulas for the use in making appropriations recommendations to the State Legislature for all institutions of higher education.
26 Enrollment
The following tables show historical enrollment at each of the System’s component universities.
SCHEDULE 4 - Historical Headcount Enrollment and Semester Credit Hours (1)
The following table shows the historical headcount enrollment at each component university and the number of semester credit hours taken by the students at each component university for the fall semester of the fiscal years indicated.
Fall Semester Fiscal Year University of Houston UH-Clear Lake UH-Downtown UH-Victoria Totals Ended Headcount Credit Headcount Credit Headcount Credit Headcount Credit Headcount Credit August 31(2) Enrollment Hours Enrollment Hours Enrollment Hours Enrollment Hours Enrollment Hours 2005 35,180 393,258 7,785 64,058 11,408 114,305 2,418 17,909 56,791 589,530 2006 34,582 398,106 7,853 65,305 11,484 116,017 2,491 18,116 56,410 597,544 2007 34,334 390,848 7,706 64,082 11,449 115,450 2,652 19,385 56,141 589,765 2008 34,663 393,594 7,532 63,070 11,793 119,004 2,784 20,350 56,772 596,018 2009 36,104 411,283 7,658 63,822 12,283 121,312 3,174 23,474 59,219 619,891 2010 37,000 421,637 7,643 64,681 12,742 125,981 3,655 27,720 61,040 640,019 2011 38,752 442,534 8,099 68,636 12,900 126,336 4,095 33,750 63,846 671,256 2012 39,820 456,697 8,185 69,855 12,918 128,512 4,331 36,378 65,254 691,442 2013 40,747 465,982 8,153 69,255 13,916 138,558 4,335 36,766 67,151 710,561 2014 39,540 455,036 8,164 70,659 13,757 137,920 4,491 38,213 65,952 701,828 2015 40,914 475,609 8,665 77,026 14,439 142,708 4,407 39,647 68,425 734,990 2016 42,704 497,522 8,906 80,925 14,262 138,189 4,152 38,563 70,024 755,199 2017(3) 43,774 511,891 8,669 79,690 14,242 135,133 4,144 38,577 70,829 765,291 ______(1) These figures include students who were either exempt from paying tuition and other fees or for whom the payment of the Pledged Tuition was waived by the Board as allowed by law and the Master Resolution. See “Security for Parity Debt Obligations-Exemptions and Waivers.” (2) Enrollment during the spring semesters and during each term of each summer session is generally less than the previous fall semester enrollment. (3) Projected
27 SCHEDULE 5 - Full-Time Equivalent Enrollment (1)
The following table shows the historical amount of “full-time equivalent” students enrolled at each of the component universities for the fall semester of the fiscal years indicated.
Fall Semester Fiscal Year University of Ended Aug. 31 Houston UH-Clear Lake UH-Downtown UH-Victoria Totals 2005 27,849 4,680 7,638 1,305 41,472 2006 28,130 4,771 7,746 1,335 41,982 2007 27,421 4,658 7,707 1,422 41,208 2008 27,639 4,593 7,945 1,517 41,694 2009 29,387 4,637 8,101 1,749 43,874 2010 29,747 4,682 8,413 2,046 44,888 2011 31,086 4,962 8,437 2,433 46,918 2012 32,114 5,036 8,583 2,584 48,317 2013 32,843 5,006 9,254 2,591 49,694 2014 32,114 5,117 9,218 2,769 49,218 2015 33,524 5,563 9,561 2,788 51,436 2016 34,983 5,817 9,287 2,636 52,723 2017(2) 35,928 5,713 9,114 2,693 53,448 ______(1) Full-time equivalent enrollment is calculated by assuming that an undergraduate student is enrolled for fifteen semester credit hours, a master's candidate is enrolled for twelve semester credit hours, and a doctoral candidate is enrolled for nine semester credit hours. (2) Projected.
Accreditation
The System or the System institutions are members of the following professional associations and fully accredited by those which apply accreditation standards: Commission on Colleges of the Southern Association of Colleges and Schools; Association of Texas Colleges and Universities; American Council on Education; American Association of State Colleges and Universities; and National Association of State Universities and Land-Grant Colleges.
Financial Management
Financial management of the System is the responsibility of the Senior Vice Chancellor for Administration and Finance, who reports to the Chancellor. The Office of Finance, which includes the Senior Associate Vice Chancellor for Finance, is responsible for financial management and operational activities of debt, cash, risk and investment management of the System’s operating and endowment funds. The Vice President for Administration and Finance for each respective institution is responsible for budgets, accounting and financial statements.
28 Financial Statements. Not later than November 20 of each year, the unaudited primary financial statements of the System dated as of August 31, prepared from the books of the System, must be delivered to the Governor, the Comptroller of Public Accounts of the State, the Legislative Reference Library, the State Auditor and the Legislative Budget Board. Each year, the State Auditor must certify the financial statements of the State as a whole, inclusive of the System. No outside audit in support of this detailed review is currently required or obtained by the Board.
As an agency of the State, the System’s financial records reflect compliance with applicable State statutes and regulations. The significant accounting policies followed by the System in maintaining accounts and in the preparation of the primary financial statements are in accordance with the State Comptroller of Public Accounts’ Annual Financial Reporting Requirements. Historically, these requirements followed, as nearly as practicable, the American Institute of Certified Public Accountants (AICPA) Industry Audit Guide, Audits of Colleges and Universities, 1996 Edition, as amended by AICPA Statement of Position (SOP) 74-8, Financial Accounting and Reporting by Colleges and Universities, and as modified by applicable Financial Accounting Standards Board (FASB) pronouncements issued through November 30, 1989, and as modified by all applicable Governmental Accounting Standards Board (GASB) pronouncements cited in Codification Section Co5, “Colleges and Universities.” The requirements were also in substantial conformity with the Financial Accounting and Reporting Manual for Higher Education published by the National Association of College and University Business Officers (NACUBO).
During Fiscal Year 2002, the System adopted GASB Statement No. 35, Basic Financial Statements - and Management’s Discussion and Analysis - for Public Colleges and Universities, as amended by GASB Statement No. 37, Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments Omnibus, and GASB Statement No. 38, Certain Financial Statement Note Disclosures (collectively, the “New Financial Reporting Model”). These statements establish standards for external financial reporting for public colleges and universities and require that financial statements be presented on a consolidated basis to focus on the System as a whole. Previously, financial statements focused on the accountability of individual fund groups rather than on the System as a whole. The New Financial Reporting Model has materially affected the System’s financial data accumulation and financial statement presentation processes. Following is a list of significant changes to the System’s financial statements mandated by the New Financial Reporting Model, including certain changes mandated by the revised Financial Reporting Requirements of the State Comptroller of Public Accounts.
• The measurement focus and basis of accounting is presented in full accrual, consistent with the accounting method used by private-sector institutions. All current year’s revenues and expenses are recognized when earned or incurred, regardless of when cash is received or disbursed.
• Resources are classified for accounting and reporting purposes into the following four net asset categories: invested in capital assets - net of related debt; restricted nonexpendable; restricted expendable; and unrestricted.
• Revenues and expenses are categorized as operating or non-operating. Previously, a measure of operations was not presented. Significant recurring sources of the System’s revenues, including state appropriations, gift contributions and certain investment income (loss), are considered non-operating.
• Depreciation of capital assets is now recognized. Previously, the historical costs of capital assets were not systematically reduced to reflect the use of these assets over time. Accumulated depreciation for prior periods is reflected as a restatement to net assets and current year’s depreciation expense is shown as an operating expense on the Statement of Revenues, Expenses and Changes in Net Assets.
• Receivables, cash advances and unearned revenues for sponsored programs and student tuition and fees are now recorded as deferred revenue. Previously, only unearned cash receipts were recognized as deferred revenue.
• Scholarships and fellowships applied to student accounts are now shown as a reduction of student tuition and residence fee revenues, while stipends and other payments made directly to students continue to be presented as scholarship and fellowship expenses. Previously, all scholarships and fellowships were presented as expenditures.
29 The System is not required to restate, and has not restated, prior year financials consistent with the New Financial Reporting Model. The significant changes caused by these new accounting standards and the time required to implement the changes on a consistent basis for all of the members of the System, and in accordance with the related rules of the State Comptroller of Public Accounts, made a restatement of the prior year impractical. As such, historical financial data will not be comparable to the data presented under the new format.
The System’s primary financial report covers all financial operations of the System Administration and all member institutions of the System. Amounts due between member institutions, amounts held for member institutions by the System Administration and other duplications in reporting are eliminated in combining the individual financial reports.
Attached to this Official Statement in “Appendix A - Financial Reports of the System” are the most recent unaudited primary financial statements of the System for the System’s Fiscal Year ended August 31, 2016. The System’s unaudited primary financial statements consist of the Statement of Net Assets as of August 31, 2016; the Statement of Revenues, Expenses and Changes in Net Assets for the Year Ended August 31, 2016; and the Statement of Cash Flows for the Year Ended August 31, 2016. See “APPENDIX A - Financial Reports of the System.”
SCHEDULE 6 –Condensed Statement of Net Assets(1)
The following table reflects the condensed Statement of Net Assets of the System as of August 31st of each year.
FY2012 FY2013 FY2014 FY2015 FY2016 Assets: Current Assets $ 845,651,749 $ 708,947,976 $ 718,610,131 $ 805,513,525 $ 918,390,617 Non-Current Investments 638,584,140 735,821,874 803,939,050 762,477,421 808,606,074 Other Non-Current Assets 54,885,525 56,155,178 56,785,934 71,949,639 88,806,963 Capital Assets, net 1,122,843,262 1,270,431,177 1,332,340,385 1,365,649,015 1,409,852,116 Total Assets $ 2,661,964,676 $ 2,771,356,205 $ 2,911,675,500 $ 3,005,589,600 $ 3,225,655,770
Liabilities: Current Liabilities $ (352,423,283) $ (414,297,916) $ (429,199,310) $ (502,849,161) $ (488,463,910) Non-Current Liabilities (861,030,410) (821,786,688) (898,360,822) (1,047,560,999) (1,199,955,219) Total Liabilities $(1,213,453,693) $(1,236,084,603) $(1,327,560,133) $(1,550,410,160) $(1,688,419,129)
Net Position: Invested in Capital Assets, Net of Related Debt $ 450,813,216 $ 494,737,995 $ 467,615,691 $ 520,083,073 $ 536,991,846 Restricted 627,181,423 663,714,745 672,503,995 719,884,212 701,058,578 Unrestricted 370,516,345 376,817,799 444,052,728 215,212,156 299,186,217 Net Position $ 1,448,510,984 $ 1,535,270,539 $ 1,584,172,414 $ 1,455,179,441 $ 1,537,236,641
______(1) For more detailed information, see "APPENDIX A - Financial Reports of the System – Statement of Net Assets as of August 31, 2016."
30 SCHEDULE 7 – Combined Statement of Revenues, Expenses and Changes in Net Assets
The following table presents the Statement of Revenues, Expenses and Changes in Net Assets of the System for fiscal years ending August 31. Only a portion of the revenues shown in the following table may be legally used by the Board to pay debt service on the Parity Debt Obligations and no inference should be drawn that all of such revenues constitute Pledged Revenues. See “SECURITY FOR PARITY DEBT OBLIGATIONS – Pledged Revenues.”
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Operating Revenues Net Student Tuition and Fees $ 442,261,452 $ 436,002,372 $ 458,880,231 $ 498,049,168 $ 526,116,863 Net Sales and Services of Auxiliary Enterprises 68,546,446 78,028,650 78,166,472 82,744,719 94,559,729 Net Other Sales and Services 37,866,276 45,717,993 54,047,479 54,848,094 59,951,367 Federal Grant Revenues 60,407,951 64,417,144 63,685,340 66,780,324 68,998,055 Federal Pass-Through Revenues (net of admin costs) 7,687,704 6,785,814 5,977,562 4,901,234 5,322,110 State Grant Revenues (net of refunds to grantors) 9,515,244 7,429,272 6,154,113 6,457,576 11,125,170 State Pass-Through Revenues 41,713,369 42,961,247 40,481,557 41,405,886 55,307,308 Other Grants and Contracts 19,298,095 27,123,268 33,662,041 29,234,103 26,286,984 Other Operating Revenue 893,613 903,448 1,458,686 1,206,078 1,266,872 Total Operating Revenues $ 688,190,149 $ 709,369,208 $ 742,513,481 $ 785,627,182 $ 848,934,458 Operating Expenses Instruction $ 290,881,984 $ 297,370,217 $ 305,359,815 $ 317,821,953 $ 319,313,774 Research 97,794,819 111,203,556 112,335,392 127,580,610 143,554,823 Public Service 44,697,819 43,862,090 47,269,982 47,544,289 50,050,200 Academic Support 168,312,893 182,827,524 185,622,132 191,012,817 213,241,150 Student Services 38,417,287 43,092,611 44,529,863 44,367,549 50,503,323 Institutional Support 97,461,355 106,636,843 104,332,619 107,314,060 115,971,261 Operations and Maintenance of Plant 54,490,664 59,896,134 54,989,209 57,608,154 64,971,626 Scholarships and Fellowships 72,390,396 93,608,791 99,897,166 92,358,698 95,350,880 Auxiliary Enterprises 91,819,800 97,695,139 107,530,821 113,837,489 124,720,876 Depreciation and Amortization 78,675,741 82,040,770 91,620,247 97,867,086 97,313,523 Total Operating Expenses $ 1,034,942,758 $ 1,118,233,675 $ 1,153,487,245 $ 1,197,312,705 $ 1,274,991,436 Operating Income (Loss) $ (346,752,609) $ (408,864,467) $ (410,973,764) $ (411,685,523) $ (426,056,978) Nonoperating Revenues (Expenses) Legislative Revenue $ 337,312,889 $ 358,675,573 $ 350,112,791 $ 350,440,785 $ 371,776,001 Gifts 78,122,390 76,495,557 68,309,314 94,570,857 62,275,633 Investment Income 15,521,016 28,367,292 48,630,460 56,659,976 25,875,581 Interest Expense and Fiscal Charges (38,013,587) (39,741,099) (33,519,100) (33,814,414) (39,009,047) Net Increase (Decrease) in Fair Value of Investments 16,096,586 22,559,316 32,157,254 (77,300,556) (4,532,928) Other Nonoperating Revenues (Expenses) 9,743,633 (18,429,893) (70,797,112) (8,708,617) (10,264,306) Total Nonoperating Revenues (Expenses) $ 418,782,926 $ 427,926,745 $ 394,893,607 $ 381,848,031 $ 406,120,935
Income (Loss) $ 72,030,318 $ 19,062,278 $ (16,080,156) $ (29,837,492) $ (19,936,043)
Other Revenues, Expenses, Gains, Losses and Transfers HEAF Appropriation Revenue $ 50,929,094 $ 50,929,094 $ 50,929,094 $ 50,929,094 $ 51,202,606 Additions to Permanent and Term Endowments 8,313,139 9,974,321 9,845,439 13,521,768 18,316,903 Legislative Transfer In/Out 1,533,130 1,931,981 1,717,770 1,795,148 10,842,651 Legislative Appropriations Lapsed (58,820) (833,856) (8,762) (183,148) (243,164) Total Other Revenues, Expenses, Gains, Losses & Transfers 60,716,544 62,001,540 62,483,541 66,062,862 80,118,996 Total Changes in Net Position $ 132,746,862 $ 81,063,818 $ 46,403,385 $ 36,225,370 $ 60,182,953 Beginning Net Position 1,315,995,481 1,448,510,984 1,535,271,601 1,584,074,583 1,448,966,033 Restatements of Beginning Net Position (231,359) 5,696,799 2,399,597 (171,333,919) 897,664 Beginning Net Position as Restated 1,315,764,122 1,454,207,783 1,537,671,198 1,412,740,664 1,449,863,697 Ending Net Postion $ 1,448,510,984 $ 1,535,271,601 $ 1,584,074,583 $ 1,448,966,033 $ 1,510,046,650
31 Investment Policies and Procedures
The University of Houston System invests its non-endowed funds in accordance with the Board approved Investment Policy for Non-Endowed Funds. The System employs an external firm to manage these investments in accordance with guidelines approved by the Board of Regents. Authorized investments include securities issued by the United States government or federal agencies, municipal obligations of states, cities, counties and political subdivisions rated A and above, SEC registered money market funds, commercial paper rated A-1/P-1 with maturity under 270 days, and corporate debt obligations rated AA and above.
SCHEDULE 8 -Investment of Non-Endowed Funds
The following table sets forth the University of Houston System’s allocation of investments of its non-endowed funds as of September 30, 2016. % of % of All Market Value Pool Pools Cash Pool (1) Cash and Cash Equivalents $ 233,300,358 100% subtotal - Cash Pool $ 233,300,358 54.53% Liquidity Pool (2) Cash, Cash Equivalents and Net Receivables $ 2,442,878 1.1% US Treasuries & Aaa-rated Agencies with Maturities < 3 years 69,062,278 30.9% US Treasuries & Aaa-rated Agencies with Maturities > 3 years 85,537,225 38.3% Highly Rated Fixed Income Securities (Aa3 or higher) 56,252,340 25.2% Investment Grade Fixed Income Holdings (Below Aa3) 10,172,055 4.6% subtotal - Liquidity Pool $ 223,466,776 45.47% Total Non-Endowed Funds $ 456,767,134
(1) Represents investments in Aaa rated money market funds, local government pool, cash in operating accounts at banks, and balance in sweep accounts. (2) A high quality, intermediate term fixed income portfolio actively managed by JPMorgan Asset Management.
Funding for the System and its Component Institutions
Funding for the System is derived from operating and non-operating revenues. The amounts and the sources of such funding vary from year to year and there is no guarantee that the source or amounts of such funding will remain the same in future years. Following are brief discussions of certain major funding sources.
State Appropriations. The System receives a portion of its operating funds from State appropriations. The Board has no assurance that the Texas Legislature will continue to appropriate to the System the general revenue funds of the State at the same levels as in previous years. Future levels of State support are dependent upon the ability and willingness of the Texas Legislature to make appropriations to the System taking into consideration the availability of financial resources and other potential uses of such resources.
In addition, both the System and its component institutions receive a portion of an annual appropriation of funds made by the State Legislature pursuant to the provisions of Article VII, Section 17 of the State Constitution. In 2015, the State Legislature approved a 5 year annual allocation (effective September 1, 2015, the beginning of the System’s fiscal year). For Fiscal Year 2016, the annual allocation to the System (including its component institutions) was $51 million. For fiscal years 2017 through 2020, the annual allocation is $76 million. The System and its component institutions may use the appropriation for acquiring land either with or without permanent improvements; constructing and equipping buildings or other permanent improvements; major repair or rehabilitation of buildings or other permanent improvements; acquisition of capital equipment, library books and library materials; and paying for acquiring, constructing or equipping or for major repair or rehabilitation of buildings, facilities, other permanent improvements, or capital equipment used jointly for educational and general activities and for auxiliary enterprises to the extent of their use for educational and general activities. In addition, bonds may be issued against such appropriation and pledge up to 50% of the appropriation to secure the debt service payments due on such bonds. Currently, the Board has no outstanding Higher Education Assistance Fund bonds.
32 State appropriations are not pledged to payment of the Notes.
Tuition and Fees. Each component institution of the System granting degrees, charges tuition and fees as set by the State Legislature and the Board under Chapters 54 and 55 of the Texas Education Code.
Stated Mandated Tuition. Section 54.0512(d), Texas Education Code, currently permits (i) undergraduate tuition applicable to state residents to be charged up to $50 per semester credit hour for the 2015-2016 academic year; and (ii) tuition of a non-resident student at a general academic teaching institution or medical and dental unit to be increased to an amount equal to the average of the non-resident undergraduate tuition charged to a resident of the State at a public state university in each of the five most populous states other than the State (the amount of which would be computed by the Coordinating Board for each academic year). For the 2016-2017 academic year, the Coordinating Board computed $458 per semester credit hour for non-resident undergraduate tuition.
Board Designated Tuition. In 2003, the Legislature deregulated a portion of tuition that a governing board of an institution of higher education, such as the Board, has the authority to charge under Section 54.0513 of the Texas Education Code. Prior to the amendment to Section 54.0513, Texas Education Code, the amount of tuition that a governing board of an institution of higher education could independently charge students was capped at the levels described above with respect to State Mandated Tuition. Effective Spring 2004 semester, a governing board of an institution of higher education may charge any student an amount (referred to herein as “Board Designated Tuition”) that it considers necessary for the effective operation of the institution. This legislation also granted authority to a governing board of an institution of higher education to set a different tuition rate for each program and course level offered by the institution. This authority offers more opportunity for the Board to develop a tuition schedule that assists in meeting its strategic objectives in terms of access, affordability, effective use of campus resources, and improvement of graduation rates. The Board will authorize any changes in Board Designated Tuition only after they have been thoroughly evaluated by the Chancellor of the System and the administration of each Participant. If an increase in Board Designated Tuition is approved by the Board, no less than 15% of the Board Designated Tuition charged in excess of $50 per resident undergraduate semester credit hour shall be set aside to provide financial assistance to resident undergraduate students, consistent with the provisions of Subchapter B, Chapter 56, Texas Education Code, which are contained in House Bil1 700 of the 84th Legislature.
The Board has additional authority to set an additional tuition amount for graduate students in an amount not to exceed one times the State Mandated Tuition for residents (the State Mandated Tuition for resident graduate students, other than Law students, is $50 per semester credit hour). The Board has additional authority to set an additional tuition amount for the Law School and the Pharmacy School in an amount not to exceed three times the State Mandated Tuition for residents at each respective school (the State Mandated Tuition for residents at the Law School is $80 per semester credit hour; the State Mandated Tuition for residents at the Pharmacy School is $50 per semester credit hour). The Board also has authority to set an additional tuition amount for the College of Optometry in an amount not to exceed four times the State Mandated Tuition, which is $50 per semester credit hour.
Total tuition for a resident student enrolled in the Law School and pursuing a doctorate in jurisprudence for the fall 2016 semester is $949.00 per semester credit hour. Total tuition for a nonresident student enrolled in the Law School and pursuing a doctorate in jurisprudence for the Fall 2016 semester is $1,427.00 per semester credit hour.
Total tuition for a resident student enrolled in the Pharmacy School and pursuing a Pharm.D degree for the fall 2016 semester is $602.00 per semester credit hour. Total tuition for a nonresident student enrolled in the Pharmacy School and pursuing a Pharm.D degree for the Fall 2016 semester is $1,110.00 per semester credit hour.
Total tuition for a resident student enrolled in the College of Optometry and pursuing a O.D. degree for the Fall 2016 semester is $579.00 per semester credit hour. Total tuition for a nonresident student enrolled in the College of Optometry and pursuing a O.D. degree for the Fall 2016 semester is $1,087.00 per semester credit hour.
Effective fall 2014 semester, Sections 54.016 and 54.017 of the Texas Education Code required governing boards of general academic teaching institutions to offer a fixed tuition price plan to entering undergraduate students, including undergraduate students who transfer to the institution. Eligible freshmen or transfer students must be offered the opportunity to participate in a fixed tuition price plan for 12 consecutive semesters from the point of initial enrollment at a public or private institution, regardless of whether the student enrolls at any institution in those semesters. The statute permits the Board to establish restrictions and qualifications. The fall 2016 fixed rate tuition amount is $4,952.00, $3,792.00, $3,608.00, and $3,633.00 for 15 semester credit hours at University of Houston, University of Houston-Clear Lake, University of Houston-Downtown, and University of Houston-Victoria, respectively.
33 SCHEDULE 9 - Current Tuition Rates
The following table shows the current tuition rates charged at System Institutions. Pursuant to the State Legislature and Board action, tuition has become the primary source of credit for the Bonds and the Outstanding Parity Debt Obligations. See “SECURITY FOR PARITY DEBT OBLIGATIONS” herein.
2014-2015 Academic Year 2015-2016 Academic Year 2016-2017 Academic Year Tuition Rates Tuition Rates Tuition Rates (per semester credit hour) (per semester credit hour) (per semester credit hour) Non- Non- Non- Resident Resident Resident Resident Resident Resident Undergraduate Students(1) $ 350.93 $ 812.60 $ 355.67 $ 847.00 $ 362.00 $ 870.00 Law Students(2) 930.00 1,362.00 930.00 1,390.00 949.00 1,427.00 Pharmacy Students(3) 602.00 1,064.00 602.00 1,092.00 602.00 1,110.00 Optometry Students(4) 568.00 1,030.00 568.00 1,058.00 579.00 1,087.00 Other Graduate Students(5) University of Houston 738.00 1,200.00 755.00 1,245.00 770.00 1,278.00 UH-Clear Lake 519.00 931.00 519.00 953.00 624.00 1,103.00 UH-Downtown 260.00 572.00 280.00 620.00 306.00 714.00 UH-Victoria 359.00 721.00 386.20 776.20 398.00 806.20 ______(1) Undergraduate tuition rate varies by degree program at the University of Houston main campus. This rate represents an average for undergraduates at the University of Houston. (2) Tuition rate is for a law student pursuing a doctorate in jurisprudence. (3) Tuition rate is for a pharmacy student pursuing a Pharm.D. degree. (4) Tuition rate is for an optometry student pursuing an O.D. degree. (5) Tuition rate is for a graduate student pursuing a professional master’s degree in business.
Mandatory Fees. Mandatory fees, at the University of Houston main campus, are comprised of charges for certain activities and services utilized by all students and include, but are not limited to, Student Service Fee, Recreational and Wellness Center Fee and University Center Fee. Each component institution charges various types of fees and in various amounts. In addition, certain departments are permitted to charge additional fees for students participating in certain areas of study.
Any changes in tuition or fees will originate and be recommended by the President of the component institution, reviewed by the Chancellor and approved by the Board of Regents. Any changes in tuition will be implemented only after thorough consultation and review.
Gifts, Grants, and Contracts. The System and its component institutions receive federal, state, local and private grants and contracts for research.
Investment and Endowment Income. Investment and endowment income is received on both a restricted and unrestricted basis.
Sales and Services. Other educational activities and auxiliary enterprises generate revenue from sales and services which is unrestricted.
Other Interest Income. The System and its component institutions generate interest from the investment of cash pursuant to investment policies adopted by the Board in accordance with State law.
34 TAX MATTERS FOR SERIES 2017A BONDS
Tax Exemption
The delivery of the Series 2017A Bonds is subject to delivery of the opinion of Bond Counsel to the effect that interest on the Series 2017A Bonds for federal income tax purposes (1) will be excludable from gross income, as defined in section 61 of the Code, as amended to the date of such opinion, pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. A form of Bond Counsel's anticipated opinion is reproduced as Appendix B. The statute, regulations, rulings, and court decisions on which such opinion will be based are subject to change.
Interest on the Series 2017A Bonds owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust (“FASIT”). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code will be computed.
In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the System made in a certificate dated the date of initial delivery of the Series 2017A Bonds pertaining to the use, expenditure, and investment of the proceeds of the Series 2017A Bonds and will assume continuing compliance by the System with the provisions of the Resolutions subsequent to the issuance of the Series 2017A Bonds. The Resolutions contain covenants by the System with respect to, among other matters, the use of the proceeds of the Series 2017A Bonds and the facilities financed or refinanced therewith by persons other than state or local governmental units, the manner in which the proceeds of the Series 2017A Bonds are to be invested, the periodic calculation and payment to the United States Treasury of any “arbitrage profits” from the investment of the proceeds, and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the Series 2017A Bonds to be includable in the gross income of the owners thereof from the date of the issuance of the Series 2017A Bonds.
Except as described above, Bond Counsel will express no other opinion with respect to any other federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Series 2017A Bonds. Prospective purchasers of the Series 2017A Bonds should be aware that the ownership of tax-exempt obligations such as the Series 2017A Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances.
Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the System described above. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the IRS. The IRS has an ongoing program of auditing the tax-exempt status of the interest on tax-exempt obligations. If an audit of the Series 2017A Bonds is commenced, under current procedures the IRS is likely to treat the System as the “taxpayer,” and the Owners of the Series 2017A Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Series 2017A Bonds, the System may have different or conflicting interests from the Owners of the Series 2017A Bonds. Public awareness of any future audit of the Series 2017A Bonds could adversely affect the value and liquidity of the Series 2017A Bonds during the pendency of the audit, regardless of its ultimate outcome.
35 Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest, such as interest on the Series 2017A Bonds, received or accrued during the year.
Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the Series 2017A Bonds from gross income for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Series 2017A Bonds. Prospective purchasers of the Series 2017A Bonds should consult with their own tax advisors with respect to any proposed or future changes in tax law.
Tax Accounting Treatment of Discount and Premium on Certain Series 2017A Bonds
The initial public offering price of certain Series 2017A Bonds (the “Discount Series 2017A Bonds”) may be less than the amount payable on such Series 2017A Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Series 2017A Bond (assuming that a substantial amount of the Discount Series 2017A Bonds of that maturity are sold to the public at such price) and the amount payable at maturity on such Discount Series 2017A Bond constitutes original issue discount to the initial purchaser of such Discount Series 2017A Bond. A portion of such original issue discount allocable to the holding period of such Discount Series 2017A Bond by the initial purchaser will, upon the disposition of such Discount Series 2017A Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Series 2017A Bonds described above under “Tax Exemption.” Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Series 2017A Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Series 2017A Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during its tax year.
However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for the purposes of calculating a corporation’s alternative minimum tax imposed by Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with “subchapter C” earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Series 2017A Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Series 2017A Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Series 2017A Bond was held) is includable in gross income.
Owners of Discount Series 2017A Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Series 2017A Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Series 2017A Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Series 2017A Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment.
The initial public offering price of certain Series 2017A Bonds (the “Premium Series 2017A Bonds”) may be greater than the amount payable on such Series 2017A Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Series 2017A Bond (assuming that a substantial amount of the Premium Series 2017A Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Series 2017A Bonds. The basis for federal income tax purposes of a Premium Series 2017A Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Series 2017A Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser's yield to maturity.
36 Purchasers of the Premium Series 2017A Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Series 2017A Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Series 2017A Bonds.
TAX MATTERS FOR SERIES 2017B TAXABLE BONDS
General
The following is a general summary of United States federal income tax consequences of the purchase and ownership of the Series 2017B Bonds. The discussion is based upon laws, Treasury Regulations, rulings and decisions now in effect, all of which are subject to change (possibly with retroactive effect) or possibly differing interpretations. No assurances can be given that future changes in the law will not alter the conclusions reached herein. The discussion below does not purport to deal with United States federal income tax consequences applicable to all categories of investors. Further, this summary does not discuss all aspects of United States federal income taxation that may be relevant to a particular investor in the Series 2017B Bonds in light of the investor’s particular personal investment circumstances or to certain types of investors subject to special treatment under United States federal income tax laws (including insurance companies, tax exempt organizations, financial institutions, broker-dealers, and persons who have hedged the risk of owning the Series 2017B Bonds). The summary is therefore limited to certain issues relating to initial investors who will hold the Series 2017B Bonds as “capital assets” within the meaning of section 1221 of the Code, and acquire such Series 2017B Bonds for investment and not as a dealer or for resale. This summary addresses certain federal income tax consequences applicable to beneficial owners of the Series 2017B Bonds who are United States persons within the meaning of section 7701(a)(30) of the Code (“United States persons”) and, except as discussed below, does not address any consequences to persons other than United States persons. Prospective investors should note that no rulings have been or will be sought from the IRS with respect to any of the U.S. federal income tax consequences discussed below, and the discussion below is not binding on the IRS.
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES 2017B BONDS.
Stated Interest On The Series 2017B Bonds
The stated interest on the Series 2017B Bonds will be included in the gross income, as defined in section 61 of the Code, and in the net investment income, for purposes of the 3.8% Medicare tax imposed by Section 1411 of the Code, of the beneficial owners thereof and be subject to U.S. federal income taxation when paid or accrued, depending on the tax accounting method applicable to the beneficial owners thereof.
Disposition Of The Series 2017B Bonds
A beneficial owner of the Series 2017B Bonds will generally recognize gain or loss on the redemption, sale or exchange of a Series 2017B Bond equal to the difference between the redemption or sales price (exclusive of the amount paid for accrued interest) and the beneficial owner’s adjusted tax basis in the Series 2017B Bond. Generally, the beneficial owner’s adjusted tax basis in a Series 2017B Bond will be the beneficial owner’s initial cost, increased by any original issue discount previously included in the beneficial owner’s income to the date of disposition and reduced by any amortized bond premium. Any gain or loss generally will be capital gain or loss and will be long-term or short-term, depending on the beneficial owner’s holding period for the Series 2017B Bond.
37 Backup Withholding
Under section 3406 of the Code, a beneficial owner of the Series 2017B Bonds who is a United States person, as defined in section 7701(a)(30) of the Code, may, under certain circumstances, be subject to “backup withholding” with respect to current or accrued interest on the Series 2017B Bonds or with respect to proceeds received from a disposition of the Series 2017B Bonds. This withholding applies if such beneficial owner of the Series 2017B Bonds: (i) fails to furnish to the payor such beneficial owner’s social security number or other taxpayer identification number (“TIN”); (ii) furnishes the payor an incorrect TIN; (iii) fails to report properly interest, dividends, or other “reportable payments” as defined in the Code; or (iv) under certain circumstances, fails to provide the payor with a certified statement, signed under penalty of perjury, that the TIN provided to the payor is correct and that such beneficial owner is not subject to backup withholding.
Backup withholding will not apply, however, with respect to payments made to certain beneficial owners of the Series 2017B Bonds. Beneficial owners of the Series 2017B Bonds should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedures for obtaining such exemption.
Withholding On Payments To Nonresident Alien Individuals And Foreign Corporations.
Under sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding at the current rate of 30% (subject to change) on periodic income items arising from sources within the United States, provided such income is not effectively connected with the conduct of a United States trade or business. Assuming the interest income of such beneficial owners of the Series 2017B Bonds is not treated as effectively connected income within the meaning of section 864 of the Code, such interest will be subject to 30% withholding, or any lower rate specified in an income tax treaty, unless such income is treated as portfolio interest. Interest will be treated as portfolio interest if: (i) the beneficial owner provides a statement to the payor certifying, under penalties of perjury, that such beneficial owner is not a United States person and providing the name and address of such beneficial owner; (ii) such interest is treated as not effectively connected with the beneficial owner’s United States trade or business; (iii) interest payments are not made to a person within a foreign country which the IRS has included on a list of countries having provisions inadequate to prevent United States tax evasion; (iv) interest payable with respect to the Series 2017B Bonds is not deemed contingent interest within the meaning of the portfolio debt provision; (v) such beneficial owner is not a controlled foreign corporation, within the meaning of section 957 of the Code; and (vi) such beneficial owner is not a bank receiving interest on the Series 2017B Bonds pursuant to a loan agreement entered into in the ordinary course of the bank’s trade or business.
Assuming payments on the Series 2017B Bonds are treated as portfolio interest within the meaning of sections 871 and 881 of the Code, then no withholding under section 1441 and 1442 of the Code and no backup withholding under section 3406 of the Code is required with respect to beneficial owners or intermediaries who have furnished Form W-8 BEN, Form W-8 EXP or Form W-8 IMY, as applicable, provided the payor does not have actual knowledge or reason to know that such person is a United States person.
Reporting Of Interest Payments
Subject to certain exceptions, interest payments made to beneficial owners with respect to the Series 2017B Bonds will be reported to the IRS. Such information will be filed each year with the IRS on Form 1099 which will reflect the name, address, and TIN of the beneficial owner. A copy of Form 1099 will be sent to each beneficial owner of a Series 2017B Bond for U.S. federal income tax purposes.
LEGALITY FOR INVESTMENT
Under the Texas Public Security Procedures Act (Texas Government Code, Chapter 1201), the Bonds (1) are negotiable instruments, (2) are investment securities to which Chapter 8 of the Texas Uniform Commercial Code applies, and (3) are legal and authorized investments for (a) an insurance company, (b) a fiduciary or trustee, or (c) a sinking fund of a municipality or other political subdivision or public agency of the State of Texas. The Bonds are eligible to secure deposits of any public funds of the State, its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. For political subdivisions in Texas which have adopted investment policies and guidelines in accordance with the Public Funds Investment Act (Texas Government Code,
38 Chapter 2256), the Bonds may have to be assigned a rating of “A” or its equivalent as to investment quality by a national rating agency before such Bonds are eligible investments for sinking funds and other public funds. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with at least $1 million of capital and savings and loan associations. No review has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states.
No representation is made that the Bonds will be acceptable to public entities to secure their deposits or acceptable to such institutions for investment purposes. The Board has made no investigation of other laws, rules, regulations or investment criteria which might apply to any such persons or entities or which might otherwise limit the suitability of the Bonds for any of the foregoing purposes or limit the authority of such persons or entities to purchase or invest in the Bonds for such purposes.
LITIGATION
Neither the Board, the System nor any System Institution is a party to any litigation or other proceeding pending or, to the Board's knowledge, threatened, in any court, agency or other administrative body (either state or federal) which, if decided adversely to the Board, the System or any System Institution, would have a material adverse effect on the financial condition of the System. On the date of delivery of the Bonds to the Initial Purchasers, the Board will execute and deliver to the Initial Purchasers a certificate to the effect that no litigation of any nature has been filed or is pending, as of that date, to restrain or enjoin the issuance or delivery of the Bonds or which would affect the provisions made for their payment or security, or in any manner questioning the validity of the Bonds.
FORWARD LOOKING STATEMENTS
The statements contained in this Official Statement, and in any other information provided by the Board or the System, that are not purely historical, are forward-looking statements, including statements regarding the Board’s and the System’s expectations, hopes, intentions or strategies regarding the future.
Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the Board and the System on the date hereof, and the Board and the System assume no obligation to update any such forward-looking statements.
The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate.
REGISTRATION AND QUALIFICATION OF BONDS FOR SALE
The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any other jurisdiction. The Board and the System assume no responsibility for qualification of the bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated, or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions.
39 CONTINUING DISCLOSURE
In the Resolutions, the System has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The System is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the System will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors.
Annual Reports: The System will provide certain updated financial information and operating data to the Municipal Securities Rulemaking Board (the “MSRB”) through the Electronic Municipal Market Access System (“EMMA”) annually. The information to be updated includes all quantitative financial information and operating data with respect to the System of the general type included in the schedules listed in APPENDIX C and in “APPENDIX A- Financial Reports of the System.” The System will update and provide this information within six months after the end of each fiscal year. The System will provide the updated information to the MSRB through EMMA.
The System may provide updated information in full text or in such other form consistent with the agreement, or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the “Rule”) and the Resolutions. The updated information will include audited financial statements, if the System commissions an audit and it is completed by the required time. If audited financial statements are not provided by that time, the System will provide audited financial statements when and if they become available, but if such audited financial statements are unavailable, the System will provide such financial statements on an unaudited basis within the required time. Any such financial statements will be prepared in accordance with the accounting principles described in APPENDIX A or such other accounting principles as the System may be required to employ from time to time pursuant to state law or regulation. It is not expected, at this time, that the System will commission an audit. Hence, unaudited financial statements, as shown in APPENDIX A, are expected to be provided. The System is however, audited as a part of the State of Texas audit, but separate financial statements are not available.
The System’s current fiscal year end is August 31. Accordingly, it must provide updated information by the last day in February of the following year, unless the System changes its fiscal year. If the System changes its fiscal year, it will notify the MSRB through EMMA of the change.
Material Event Notices: The System will also provide notices of certain events to the MSRB through EMMA of any of the following events with respect to the Bonds in a timely manner, and not more than 10 business days after occurrence of the event: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determination of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices of determinations with respect to the tax-exempt status of the Series 2017A Bonds, or other material events affecting the tax-exempt status of the Series 2017A Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership, or similar event of the System, which shall occur as described below; (13) the consummation of a merger, consolidation, or acquisition involving the System or the sale of all or substantially all of its assets, other than in the ordinary course of business, the entry into of a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. For these purposes, any event described in the immediately preceding paragraph (12) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the System in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the System, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the System. No provision has been made in the Resolutions for debt service reserve or credit or liquidity providers. In
40 addition, the System will provide timely notice of any failure by the System to provide information, data, or financial statements in accordance with its agreement described above under “Annual Reports.” The System will provide each notice described in this paragraph to the MSRB through EMMA.
Availability of Information from the MSRB: The System has agreed to provide the foregoing information only to the MSRB through EMMA. The MSRB intends to make the information available to the public without charge through EMMA.
Limitations and Amendments: The System has agreed to update information and to provide notices of material events only as described above. The System has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The System makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The System disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the System to comply with its agreement.
The System may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the System, if the agreement, as amended, would have permitted an initial purchaser to purchase or sell Bonds in the offering made hereby in compliance with the Rule and either the holders of a majority in aggregate principal amount of the outstanding Bonds consent or any person unaffiliated with the System (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The System may also amend or repeal the agreement if the Commission amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, and the System may amend the agreement in its discretion in any other circumstance or manner, but in either case only to the extent that its right to do so would not prevent an initial purchaser from purchasing the Bonds in the offering described herein in compliance with the Rule. If the System amends its agreement, it must include with the next financial information and operating data provided in accordance with its agreement described above under “Annual Reports” an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of information and data provided.
Compliance with Prior Undertakings: The System has previously entered into continuing disclosure agreements for certain of its previously issued Parity Debt Obligations. During the last five years, the System has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule.
FINANCIAL ADVISOR
First Southwest, a Division of Hilltop Securities Inc. (the “Financial Advisor”) is contracted by the System as financial advisor in connection with the issuance of the Bonds and, in such capacity, has assisted the System in the preparation of documents. The Financial Advisor's fees for services rendered with respect to the sale of the Bonds are not contingent upon the issuance and delivery of the Bonds. Additionally, the Financial Advisor may receive additional compensation from the System for additional services rendered including but not limited to the provision of certain investment services and or arbitrage rebate services either directly or through a subsidiary.
The Financial Advisor has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this official statement in accordance with, and as part of, its responsibilities to the System and, as applicable, to investors under the Federal Securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information.
41 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS
Grant Thornton LLP, a firm of independent public accountants, will deliver to the System, on or before the settlement date of the Series 2017A Bonds, its verification report indicating that it has verified, in accordance with attestation standards established by the American Institute of Certified Public Accountants, the mathematical accuracy of (a) the mathematical computations of the adequacy of the cash and the maturing principal of and interest on the federal securities to be purchased with proceeds of the Series 2017A Bonds, to pay, when due, the maturing principal of, interest on and related call premium requirements, if any, of the Refunded Obligations and (b) the mathematical computations of yields and other calculations used by Bond Counsel to support its opinion that interest on the Series 2017A Bonds will be excluded from gross income for federal income tax purposes. The verification performed by Grant Thornton LLP will be solely based upon data, information and documents provided to Grant Thornton LLP by the Financial Advisors on behalf of the System. Grant Thornton LLP has restricted its procedures to recalculating the computations provided by the Financial Advisors on behalf of the System and has not evaluated or examined the assumptions or information used in the computations.
INITIAL PURCHASERS
After requesting competitive bids for the Bonds, the System accepted the bids of ______to purchase the Series 2017A Bonds (the “Series 2017A Initial Purchaser”) at the interest rates shown on the inside cover page of this Official Statement at a price of ______par plus a cash premium (if any) of $______, and ______to purchase the Series 2017B Taxable Bonds (the “Series 2017B Initial Purchaser” together with the Series 2017A Initial Purchaser the “Initial Purchasers”) at the interest rates shown on the inside cover page of this Official Statement at a price of ______par plus a cash premium (if any) of $______. The Initial Purchasers can give no assurance that any trading market will be developed for the Bonds after their sale by the System to the Initial Purchasers. The System has no control over the price at which the Bonds are subsequently sold and the initial yield at which the Bonds will be priced and reoffered will be established by and will be the responsibility of the Initial Purchasers.
MISCELLANEOUS
Certain provisions of the Bonds and the Resolutions are summarized in this Official Statement. Such summaries do not purport to be comprehensive or definitive and reference is made to such documents for a full and complete statement of their provisions.
This Official Statement is submitted solely in connection with the sale of the Bonds and may not be reproduced or used, as a whole or in part, for any other purpose.
The execution and delivery of this Official Statement in connection with the issuance and sale of the Bonds has been duly authorized by the Board.
Any statements in this Official Statement involving matters of opinion, estimates, or financial projections, whether or not expressly so stated, are intended as such and not as representations of fact. All estimates, statements, and assumptions in this Official Statement have been made based on the best information available and are believed to be reliable and accurate. This Official Statement is not to be construed as a contract or agreement between the Board and the Owners of any of the Bonds.
42 Certification of the Official Statement
At the time of payment for and delivery of the Bonds, the Initial Purchasers will be furnished a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the System contained in its Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of said Bonds and the acceptance of the best bid therefore, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the System and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities, other than the System, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the System believes to be reliable and the System has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the System since the date of the last audited financial statements of the System.
43 APPENDIX A
Financial Reports of the System
UNIVERSITY OF HOUSTON SYSTEM
UNAUDITED COMBINED ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED AUGUST 31, 2016
Includes Primary Financial Statements for UHS Campuses and Administration:
University of Houston University of Houston – Clear Lake University of Houston – Downtown University of Houston – Victoria University of Houston – System Administration
UNIVERSITY OF HOUSTON SYSTEM
TABLE OF CONTENTS
MISCELLANEOUS DATA SECTION Letter of Transmittal ...... I Organizational Data ...... II Statement of Procedure Regarding Annual Financial Report ...... III
PRIMARY STATEMENTS Combined Balance Sheet / Statement of Net Position – Proprietary Funds ...... 1 Combined Statement of Revenues, Expenses, and Changes in Net Position – Proprietary Funds ...... 2 Combined Matrix of Operating Expenses Reported by Function – Proprietary Funds ...... 3 Combined Statement of Cash Flows – Proprietary Funds ...... 4 Notes to the Financial Statements ...... 5
REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE TRS-A (Not Applicable) ...... 6A TRS-B (Not Applicable) ...... 6B
SUPPORTING STATEMENTS SCHEDULE 2-A Combined Miscellaneous Bond Information ...... 7 2-B Combined Changes in Bonded Indebtedness ...... 8 2-C Combined Debt Service Requirements ...... 9 2-D Combined Analysis of Funds Available for Debt Service ...... 10 2-E Combined Defeased Bonds Outstanding ...... 11 2-F Combined Early Extinguishment and Refunding ...... 12 3 Combined Reconciliation of Cash in State Treasury ...... 13
UHS CAMPUS PRIMARY STATEMENTS University of Houston ...... 14 University of Houston - Clear Lake ...... 15 University of Houston - Downtown ...... 16 University of Houston - Victoria ...... 17 University of Houston - System Administration ...... 18
David J. Ellis, CPA, CGMA Executive Director
Division of Administration and Finance Financial Reporting Department
November 17, 2016
Honorable Greg Abbott, Governor Honorable Glen Hegar, Texas Comptroller Ursula Parks, Director, Legislative Budget Board State Auditor’s Office
Ladies and Gentlemen:
We are pleased to submit the annual financial report of the University of Houston System for the year ended August 31, 2016, in compliance with Texas Government Code Annotated §2101.011 and in accordance with the requirements established by the Texas Comptroller of Public Accounts.
Due to the statewide requirements embedded in Governmental Accounting Standards Board (GASB) Statement No.34, Basic Financial Statements-And Management’s Discussion and Analysis-for State and Local Governments, the Comptroller of Public Accounts does not require the accompanying annual financial report to comply with all the requirements in this statement. The financial report will be considered for audit by the State Auditor as part of the audit of the State of Texas Comprehensive Annual Financial Report (CAFR); therefore, an opinion has not been expressed on the financial statements and related information contained in this report.
If you have any questions, please contact Ms. Linda Klemm at 713-743-4407. Ms. Kärin Livingston may be contacted at 713-743-4415 for questions related to the Schedule of Expenditures of Federal Awards.
Sincerely,
David J. Ellis, CPA Executive Director, Financial Reporting University of Houston System
5000 Gulf Freeway Houston, Texas 77204-0901 Location: UH Energy Research Park, Building 1, Room 232 Office: 713.743.8754 Fax: 713.743.0166 [email protected] www.uh.edu/finance
University of Houston System
Organizational Data August 31, 2016
Board of Regents
Spencer D. Armour, III, Midland Term Expires August 31, 2017 Roger F. Welder, Victoria Term Expires August 31, 2017 Welcome W. Wilson, Jr., Houston Term Expires August 31, 2017 Durga D. Agrawal, Houston Term Expires August 31, 2019 Paula M. Mendoza, Houston Term Expires August 31, 2019 Peter K. Taaffe, Houston Term Expires August 31, 2019 Tilman J. Fertitta, Houston Term Expires August 31, 2021 Beth Madison, Houston Term Expires August 31, 2021 Gerald W. McElvy, Houston Term Expires August 31, 2021 Joshua Freed (Student Regent), Houston Term Expires May 31, 2017
Officers of the Board (Fiscal Year 2016):
Tilman J. Fertitta Chairman Welcome W. Wilson, Jr. Vice Chairman Spencer D. Armour, III Secretary
Officers of the Board (Fiscal Year 2017):
Tilman J. Fertitta Chairman Welcome W. Wilson, Jr. Vice Chairman Spencer D. Armour, III Secretary
Administrative Officers
Renu Khator Chancellor Paula Myrick Short Senior Vice Chancellor for Academic Affairs Jim McShan Senior Vice Chancellor for Administration and Finance Ramanan Krishnamoorti Interim Vice Chancellor for Research and Technology Transfer Dona H. Cornell Vice Chancellor for Legal Affairs and General Counsel Eloise Dunn Stuhr Vice Chancellor for University Advancement J. Richard Walker Vice Chancellor for Student Affairs and Enrollment Services Jason Smith Vice Chancellor for Governmental and Community Relations
Renu Khator President – University of Houston William A. Staples President – UH - Clear Lake Michael A. Olivas Interim President – UH - Downtown Raymond V. Morgan Jr. President – UH - Victoria
University of Houston System
Financial Statements (With Detailed Supportive Schedules)
Statement of Procedure Regarding Annual Financial Report
Present herein are the financial statements with detailed supportive schedules for the University of Houston System for the fiscal year ended August 31, 2016. These statements and detailed supportive schedules are in compliance with the guidelines in Reporting Requirements for Annual Financial Reports of State Agencies and Universities, published by the Texas Comptroller of Public Accounts. Additionally, this report has been prepared in accordance with the requirements in Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – For State and Local Governments.
The State Auditor has not audited the accompanying annual financial statements and, therefore, an opinion has not been nor will be expressed on the financial statements and related information contained in this report. The information contained in the combined financial statements of the University of Houston System, and its related components, is part of and included in the State of Texas Comprehensive Annual Report. The Annual Financial Report of the University of Houston System is reviewed by the State Auditor as part of the audit of the State of Texas Comprehensive Annual Financial Report, upon which an opinion is expressed.
UNIVERSITY OF HOUSTON SYSTEM
PRIMARY STATEMENTS
Unaudited
University of Houston System (797) Combined Statement of Net Position August 31, 2016
Total 2016 Assets Current Assets Cash and Cash Equivalents Cash on Hand $ 69,975.00 Cash in Bank (186,577,971.73) Cash in Transit/Reimburse From Treasury 3,642,602.43 Cash in State Treasury 64,056,115.64 Cash Equivalents 275,912,206.78 Short Term Investments 217,211,690.89 Restricted: Cash In Bank 204,655,978.74 Legislative Appropriation 124,408,394.41 Receivables: Federal Receivables 33,241,561.44 Interest and Dividends 751,913.31 Accounts Receivable 41,567,129.74 Gifts 53,319,478.97 Other 1,880,402.77 Due From Other Agencies 18,611,971.56 Consumable Inventories 443,126.58 Merchandise Inventories 1,351,017.02 Prepaid Costs 44,205,828.85 Loans and Contracts 18,479,971.29 Total Current Assets 917,231,393.69
Non-Current Assets Restricted: Receivables 47,463,848.81 Loans and Contracts 5,474,252.84 Investments 808,606,073.98 Capital Assets Non-Depreciable or Non-Amortizable 271,350,991.25 Depreciable or Amortizable, Net 1,153,954,641.63 Total Non-Current Assets 2,286,849,808.51 Total Assets 3,204,081,202.20
Deferred Outflow of Resources Loss on Bond Refunding 2,794,136.42 Pensions 32,591,587.00 Total Deferred Outflow of Resources 35,385,723.42
Total Assets and Deferred Outflow of Resources 3,239,466,925.62
1 - 1 Unaudited
University of Houston System (797) Combined Statement of Net Position August 31, 2016
Total 2016 Liabilities Current Liabilities: Payables: Accounts Payable 45,870,629.82 Federal Payable 59,255.60 Payroll Payable 65,191,279.35 Other Payable 2,870,345.23 Due to Other Agencies 831,404.17 Unearned Revenues 239,210,494.68 Notes and Loans Payable 54,472,000.00 Revenue Bonds Payable 59,890,461.99 Claims and Judgments Payable 256,111.40 Employees' Compensable Leave 13,054,097.23 Capital Lease Obligations 537,658.77 Funds Held for Others 26,639,981.58 Total Current Liabilities 508,883,719.82
Non-Current Liabilities Revenue Bonds Payable 995,462,540.90 Net Pension Liability 177,321,437.00 Employees' Compensable Leave 13,254,201.79 Capital Lease Obligations 6,759,887.32 Total Non-Current Liabilities 1,192,798,067.01 Total Liabilities 1,701,681,786.83
Deferred Inflow of Resources Pensions 27,738,489.00 Total Deferred Inflows of Resources 27,738,489.00
Total Liabilities and Deferred Inflow of Resources 1,729,420,275.83
Net Position Invested in Capital Assets, Net of Related Debt 552,445,363.52 Restricted for: Debt Retirement 2,621,984.39 Capital Projects 27,859,604.58 Funds Held as Permanent Investments Non-Expendable True Endowments, Annuities 415,235,601.62 Expendable Term Endowments 1,240,679.53 Funds Functioning as Endowments 44,326,073.56 Other Restricted 221,105,088.35 Unrestricted 245,212,254.24
Total Net Position $ 1,510,046,649.79
1 - 2 Unaudited
University of Houston System (797) Combined Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended August 31, 2016
Total 2016 Operating Revenues Sales of Goods and Services (PR-Chgs for Services) Tuition and Fees-Pledged $ 658,508,627.16 Discounts and Allowances (132,391,764.45) Auxiliary Enterprise-Pledged 107,017,933.25 Discounts and Allowances (12,458,204.32) Other Sales of Goods and Services-Pledged 59,951,367.44 Federal Revenue-Operating (PR-OP Grants/Contributions) 68,998,055.02 Federal Pass Through Revenue (PR-OP Grants/Contributions) 5,322,109.88 State Grant Revenue (PR-OP Grants/Contributions) 11,125,170.15 State Grant Pass Through Revenue (PR-OP Grants/Contributions) 55,307,308.31 Other Grants and Contracts-Operating (PR-OP Grants/Contributions) 26,286,983.59 Other Operating Revenues (PR-Chgs for Services) 1,266,872.42
Total Operating Revenues 848,934,458.45
Operating Expenses Instruction 319,313,774.29 Research 143,554,823.27 Public Service 50,050,199.60 Academic Support 213,241,150.46 Student Services 50,503,322.54 Institutional Support 115,971,261.45 Physical Plant 64,971,626.16 Scholarships & Fellowships 95,350,880.01 Auxiliary Enterprises 124,720,875.88 Depreciation and Amortization 97,313,523.34
Total Operating Expenses 1,274,991,437.00
Operating Income (Loss) (426,056,978.55)
Non-Operating Revenues (Expenses) Legislative Revenue (GR) 248,454,126.00 Additional Appropriations (GR) 18,873,775.04 Federal Revenue Non-Operating (PR-OP Grants/Contributions) 102,907,878.95 State Pass Through Revenues Non-Operating 1,540,221.00 Gifts (PR-OP Grants/Contributions) 62,275,633.19 Interest and Investment Income (PR-Chgs for Services) 25,875,581.44 Interest Expense and Fiscal Charges (39,009,046.97) Net Incr (Decr) in Fair Value of Investments (PR-OP Grants/Contrib) (4,532,928.06) Other Nonoperating Revenues 11,011,775.78 Other Nonoperating Expenses (21,276,081.51)
Total Nonoperating Revenues (Expenses) 406,120,934.86
2 - 1 Unaudited
University of Houston System (797) Combined Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended August 31, 2016
Total 2016
Income (Loss) before Other Revenues, Expenses, Gains, Losses and Transfers (19,936,043.69)
Other Revenues, Expenses, Gains, Losses and Transfers Capital Appropriation (HEAF) 51,202,606.00 Additions to Permanent and Term Endowments 18,316,902.98 Transfers-In 10,050,400.11 Transfers-Out 7,396.30 Legislative Transfers-In 784,855.00 Legislative Appropriations Lapsed (243,163.88)
Total Other Revenues, Expenses, Gains, Losses and Transfers 80,118,996.51
Changes in Net Position 60,182,952.82
Net Position, Beginning 1,448,966,032.79 Restatements 897,664.18
Net Position, Beginning, as Restated 1,449,863,696.97
Net Position, Ending $ 1,510,046,649.79
2 - 2 Unaudited
University of Houston System (797) Combined Matrix of Operating Expenses Reported by Function For the Year Ended August 31, 2016
Public Academic Student Operating Expenses Instruction Research Service Support Services
Cost of Goods Sold $ $ $ 1,225,218.51 $ 4,691.23 $ Salaries and Wages 263,091,248.93 63,625,843.63 18,197,394.46 122,050,536.99 26,346,963.73 Payroll Related Costs 40,021,551.52 12,132,040.27 4,871,822.71 27,613,726.82 7,206,274.55 Professional Fees and Services 2,592,440.09 12,401,458.15 11,046,087.19 12,834,179.51 4,689,913.59 Federal Pass Through Expenses 1,186,144.48 1,362,441.19 24,350.03 State Pass Through Expenses 372,207.90 Travel 1,703,058.72 4,000,753.79 492,683.66 4,341,118.23 1,101,470.68 Materials and Supplies 3,674,035.57 10,461,656.30 1,680,385.34 10,773,648.72 2,544,432.25 Communication and Utilities 901,435.54 925,634.22 1,374,432.94 12,817,493.11 1,130,361.77 Repairs and Maintenance 242,940.26 1,563,823.00 707,818.80 5,091,148.65 180,051.20 Rentals and Leases 741,905.85 17,914,624.51 5,600,581.40 6,501,289.95 1,198,855.47 Printing and Reproduction 247,103.72 229,485.66 512,291.96 1,262,001.35 572,265.63 Depreciation and Amortization Interest 4,979.82 5,832.66 5,481.43 8,990.56 47,285.23 Scholarships 2,469,293.60 514,518.09 51,522.63 1,165,624.96 277,629.98 Claims and Judgments 30.89 Other Operating Expenses 3,623,780.67 18,220,769.72 2,922,037.38 8,752,350.35 5,207,818.46
Total Operating Expenses $ 319,313,774.29 $ 143,554,823.27 $ 50,050,199.60 $ 213,241,150.46 $ 50,503,322.54
3 - 1 Unaudited
University of Houston System (797) Combined Matrix of Operating Expenses Reported by Function For the Year Ended August 31, 2016
Operation and Scholarships Depreciation Institutional Maintenance of and Auxiliary and Support Plant Fellowships Enterprises Amortization Total Expenses
$$$$1,433,735.11 $ $ 2,663,644.85 68,364,211.96 19,050,800.53 1,394,136.98 42,402,519.95 624,523,657.16 17,769,978.21 6,352,270.89 36,176.77 10,052,901.42 126,056,743.16 6,259,952.34 10,520,289.12 304,681.88 32,840,695.91 93,489,697.78 2,572,935.70 372,207.90 679,392.73 22,312.00 66,744.23 4,979,297.89 17,386,831.93 6,612,299.06 1,627,783.03 72,682.22 5,934,492.88 43,381,415.37 1,819,222.79 17,886,681.40 1,782.73 10,635,524.79 47,492,569.29 3,703,369.16 3,616,799.67 10,001.27 3,162,703.55 18,278,655.56 1,660,115.50 4,860,813.51 2,454.26 1,391,386.75 39,872,027.20 701,878.88 85,593.39 461.00 626,645.95 4,237,727.54 97,313,523.34 97,313,523.34 45,973.66 2,934.88 197.47 12,561.54 134,237.25 3,917,549.90 93,348,222.84 805,505.18 102,549,867.18 985,063.10 380.00 985,473.99 3,452,254.16 945,347.74 113,338.36 10,442,524.96 53,680,221.80
$ 115,971,261.45 $ 64,971,626.16 $ 95,350,880.01 $ 124,720,875.88 $ 97,313,523.34 $ 1,274,991,437.00
3 - 2 Unaudited
University of Houston System (797) Combined Statement of Cash Flows For the Year Ended August 31, 2016
Total 2016
Cash Flows From Operating Activities Receipts from Customers $ 81,716,743.05 Proceeds from Tuition and Fees 534,640,038.05 Proceeds from Research Grants and Contracts 169,610,462.93 Proceeds from Loan Programs 146,430,338.94 Proceeds from Auxiliaries 99,558,113.01 Proceeds from Other Revenues 1,266,872.42 Payments to Suppliers for Goods and Services (275,234,163.22) Payments to Employees for Salaries (592,478,586.06) Payments to Employees for Benefits (122,476,586.03) Payments for Loans Provided (143,710,149.03) Payments for Other Expenses (161,561,676.68)
Net Cash Provided (Used) by Operating Activities (262,238,592.62)
Cash Flows from Noncapital Financing Activities Proceeds from State Appropriations 278,838,620.21 Proceeds from Gifts 67,900,665.17 Proceeds from Endowments 18,316,902.98 Proceeds of Transfers from Other Funds 23,304,799.21 Proceeds from Grants 104,417,285.44 Payments for Transfers to Other Funds (8,139,150.07)
Net Cash Provided (Used) by Noncapital Financing Activities 484,639,122.94
Cash Flows from Capital and Related Financing Activities Proceeds from the Sale of Capital Assets Proceeds from Debt Issuance 285,000,000.00 Proceeds from Other Financing Activities 32,307,471.59 Proceeds from Capital Contributions 51,202,606.00 Payments for Additions to Capital Assets (160,316,399.79) Payments of Principal on Debt Issuance (117,540,000.00) Payments of Interest on Debt Issuance (41,803,183.39) Payments of Other Costs on Debt Issuance (47,666,589.22)
Net Cash Provided (Used) by Capital and Related Financing Activities 1,183,905.19
Cash Flows From Investing Activities Proceeds from Sales of Investments 633,063,279.93 Proceeds from Interest Income (75,286.25) Proceeds from Investment Income 25,875,581.44 Payments to Acquire Investments (846,962,136.25)
Net Cash Provided (Used) by Investing Activities (188,098,561.13)
Net Increase (Decrease) in Cash and Cash Equivalents 35,485,874.38
Cash and Cash Equivalents, September 1 326,273,032.48
Cash and Cash Equivalents, August 31 $ 361,758,906.86
4 - 1 Unaudited
University of Houston System (797) Combined Statement of Cash Flows For the Year Ended August 31, 2016
Total 2016
Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities
Operating Income (Loss) $ (426,056,978.55)
Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operating Activities Pension Expense 15,698,248.00 Depreciation and Amortization Expense 97,313,523.34 Operating Income and Cash Flow Categories: Classification Differences 2,720,189.91 Changes in Assets and Liabilities: (Increase) Decrease In Receivables 30,668,746.86 (Increase) Decrease in Inventories (87,551.84) (Increase) Decrease in Prepaid Expenses (23,873.57) (Increase) Decrease in Other Assets (2,214,678.31) Increase (Decrease) in Payables (8,333,058.08) Increase (Decrease) in Deferred Income 9,723,684.37 Increase (Decrease) in Compensated Absences 1,317,868.13 Increase (Decrease) in Benefits Payable 18,609,112.10 Increase (Decrease) in Other Liabilities (1,573,824.98)
Total Adjustments 163,818,385.93
Net Cash Provided (Used) by Operating Activities $ (262,238,592.62)
Non Cash Transactions Net Change in Fair Value of Investments $ (4,532,928.06)
Non Cash Transactions $ (4,532,928.06)
4 - 2
Blank Page University of Houston System (797) Unaudited
UNIVERSITY OF HOUSTON SYSTEM NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2016
NOTE 1: Summary of Significant Accounting Policies
Entity
The University of Houston System (the System) is an agency of the State of Texas and its financial records comply with state statutes and regulations. This includes compliance with the Texas Comptroller of Public Accounts' Reporting Requirements for State Agencies.
The System serves the state as the primary provider of educational and cultural opportunities, skilled employers and leaders, technical knowledge, and innovative research to the Houston metropolitan area and the Gulf Coast region. Houston and the upper Gulf Coast region represent approximately one fourth of the state’s population and economy.
The System includes within this report all components as determined by an analysis of their relationship to the System as listed below.
Due to the statewide requirements embedded in Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, the Comptroller of Public Accounts does not require the accompanying annual financial report to comply with all the requirements in this statement. The financial report will be considered for audit by the State Auditor as part of the audit of the State of Texas Comprehensive Annual Financial Report; therefore, an opinion has not been expressed on the financial statements and related information contained in this report.
The accompanying financial statements and related information have been prepared in conformity with the instructions contained in the State Comptroller’s manual, Reporting Requirements for Annual Financial Reports of State Agencies and Universities. The instructions and the accompanying report are designed to assist the Texas Comptroller of Public Accounts in compiling and preparing a Comprehensive Annual Financial Report for the State of Texas. Since the System’s annual financial report is not subject to a separate financial audit, certain information, such as a Management Discussion and Analysis and a complete set of Government-Wide Financial Statements, are not included in the accompanying report. The System’s financial statements are considered to be materially accurate in all respects.
Blended Component Units No component units have been identified which should have been blended into an appropriated fund.
Discretely Presented Component Units These component units are legally separate from the state, but are financially accountable to the state, or have a relationship with the state; such that exclusion would cause the financial statements to be misleading or incomplete. The component unit columns of the financial statements include the financial data of these entities.
No component units have been identified which should have been discretely presented in the financial statements.
Fund Structure
The accompanying financial statements are presented on the basis of funds, each of which is considered a separate accounting entity.
5 - 1 University of Houston System (797) Unaudited
Governmental Fund Types & Government-wide Adjustment Fund Types
General Fund The General Fund is the principal operating fund used to account for most of the state's general activities. It accounts for all financial resources except those accounted for in other funds.
Special Revenue Funds Special Revenue funds are used to account for the proceeds of specific revenue sources (other than for private-purpose trusts or for major capital projects) that are legally restricted to use for specified purposes.
Debt Service Funds Debt Service funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest.
Capital Project Funds Capital Project funds are used to account for financial resources used for the acquisition, repair, renovation or construction of major capital facilities (other than those financed by proprietary or similar trust funds).
Permanent Funds Permanent funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the state's programs.
Capital Asset Adjustment Fund Type The Capital Asset Adjustment fund type will be used to convert governmental fund type capital assets from modified accrual to full accrual.
Long-Term Liabilities Adjustment Fund Type The Long-Term Liabilities Adjustment fund type will be used to convert governmental fund type debt from modified accrual to full accrual.
Other Adjustments Fund Type The Other Adjustments fund type will be used to convert all other governmental fund type activity from modified accrual to full accrual.
Proprietary Fund Types
Enterprise Funds Enterprise funds are used to account for any activity for which a fee is charged to external users for goods or services. Activities must be reported as enterprise funds if any one of the following criteria is met:
1. The activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity.
2. Laws or regulations require that the activity's costs of providing services including capital costs (such as depreciation or debt service), be recovered with fees and charges.
3. The pricing policies of the activity establish fees and charges designed to recover its costs, including capital costs.
Internal Service Funds Internal Service funds are used to account for the financing of goods and services provided by one department or agency to other departments or agencies of a governmental unit, or to other governmental units, within the state, on a cost reimbursement basis.
5 - 2 University of Houston System (797) Unaudited
Fiduciary Fund Types Fiduciary funds account for assets held by the state in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. When assets are held under the terms of a formal trust agreement, either a pension trust fund, or a private purpose trust fund is used.
Pension Trust Funds Pension trust funds are used to account for resources held in trust for the member and beneficiaries of defined benefit pension plans. A separate pension trust fund is used for each separate pension plan. Separate pension trust funds also may be established to account for supplemental pension benefits.
External Investment Trust Funds External investment trust funds are used to account for the state's external portion of investment pools reported by the sponsoring government.
Agency Funds Agency funds are used to account for assets the government holds on behalf of others in a purely custodial capacity. Agency funds involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments.
Private-Purpose Trust Funds Private-purpose trust funds are used to account for all other trust arrangements whose principal and interest benefit individuals, private organizations, or other governments.
Component Units The fund types of individual discrete component units are available from the component units' separately issued financial statements. Additional information about component units can be found in Note 19.
Governmental Component Units are used to account for discretely presented component units that follow governmental fund accounting principles.
Proprietary Component Units are used to account for the discretely presented component units which follow proprietary fund measurement focus and accounting principles.
Business-Type Activities The operations of universities are considered to be a Business-Type Activity. The System charges fees to external users for goods and services. Consequently the accompanying financial statements are presented using the proprietary fund type structure.
Basis of Accounting The basis of accounting determines when revenues and expenditures or expenses are recognized in the accounts reported in the financial statements. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus.
Governmental fund types that build the fund financial statements, are accounted for by using the modified accrual basis of accounting. Under the modified accrual basis, revenues are recognized in the period in which they become both measurable and available to finance operations of the fiscal year or liquidate liabilities existing at fiscal year-end. The State of Texas considers receivables collected within sixty days after year-end to be available and recognizes them as revenues of the current year for Fund Financial Statements prepared on the modified accrual basis. Expenditures and other uses of financial resources are recognized when the related liability is incurred.
Governmental adjustment fund types that will build the government-wide financial statements, are accounted for using the full accrual basis of accounting. This includes capital assets, accumulated depreciation, unpaid Employee Compensable leave, the unmatured debt service (principal and interest) on general long-term liabilities, long-term capital leases, long-term claims and judgments and full accrual revenues and expenses. The activity will be recognized in these fund types.
5 - 3 University of Houston System (797) Unaudited
Proprietary funds, pension trust funds, external investment trust funds and private-purpose trust funds are accounted for on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized at the time liabilities are incurred. Proprietary funds distinguish operating from non-operating items. Operating revenues and expenses result from providing services or producing and delivering goods in connection with the proprietary funds’ principal ongoing operations. Operating expenses for the enterprise and internal services funds include the cost of sales and services, administrative expenses, and depreciation on capital assets.
Budget and Budgetary Accounting The budget is prepared biennially and represents appropriations authorized by the legislature and approved by the Governor (the General Appropriations Act).
Additionally the System prepares an annual budget which represents anticipated sources of revenues and authorized uses. This budget is approved by the System’s Board of Regents.
Unencumbered appropriations are generally subject to lapse 60 days after the end of the fiscal year for which they were appropriated.
Assets, Liabilities, and Fund Balances/Net Position
ASSETS Cash and Cash Equivalents Short-term highly liquid investments with an original maturity of three months or less are considered cash equivalents.
Securities Lending Collateral Investments are stated at fair value in all funds except pension trust funds in accordance with GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. For pension trust funds, investments are required to be reported at fair value using the accrual basis of accounting in accordance with GASB Statement 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans.
Securities lent are reported as assets on the balance sheet. The costs of securities lending transactions are reported as expenditures or expenses in the Operating Statement. These costs are reported at gross.
Restricted Assets Restricted assets include monies or other resources restricted by legal or contractual requirements. These assets include proceeds of enterprise fund general obligation and revenue bonds and revenues set aside for statutory or contractual requirements. Assets held in reserve for guaranteed student loan defaults are also included.
Inventories and Prepaid Items Inventories include both merchandise inventories on hand for sale and consumable inventories. Inventories are valued at cost, generally utilizing the last-in, first-out method. The consumption method of accounting is used to account for inventories and prepaid items that appear in the governmental and proprietary fund types. The cost of these items is expensed when the items are consumed.
Capital Assets Assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year are capitalized. These assets are capitalized at cost or, if purchased, at appraised fair value as of the date of acquisition. Purchases of assets by governmental funds are reported as expenditures, Depreciation is reported on all exhaustible assets. Inexhaustible assets such as works of art and historical treasures are not depreciated. Road and highway infrastructure is
5 - 4 University of Houston System (797) Unaudited
reported on the modified basis. Assets are depreciated over the estimated useful life of the asset using the straight-line method.
All capital assets acquired by proprietary funds or trust funds are reported at cost or estimated historical cost, if actual historical cost is not available. Donated assets are reported at fair value on the acquisition date. Depreciation is charged to operations over the estimated useful life of each asset, using the straight-line method.
Current Receivables - Other Other receivables include year-end revenue accruals. This account can appear in governmental and proprietary fund types.
For the System, the balance in Other Receivables consists of $24,188,439.02 in miscellaneous receivables, which resulted from sales of investments related to the System Endowment and Consolidated Intermediate Investment Funds at or near the balance sheet date.
Non-Current Receivables - Other Receivable balances not expected to be collected within one year of fiscal year end.
LIABILITIES Accounts Payable Accounts payable represent the liability for the value of assets or services received at the balance sheet date for which payment is pending.
Current Payables - Other Payables are the accrual at year-end of expenditure transactions. Payables may be included in either the governmental or proprietary fund types.
Non-Current Payables - Other Payable balances not expected to be paid within one year of fiscal year end.
Employees' Compensable Leave Balances Employees' Compensable Leave Balances represent the liability that becomes due upon the occurrence of relevant events such as resignations, retirements, and uses of leave balances by covered employees. Liabilities are reported separately as either current or non-current in the Statement of Net Position.
Capital Lease Obligations Capital lease obligations represent the liability for future lease payments under capital lease contracts contingent upon the appropriation of funding by the Legislature. Liabilities are reported separately as either current or non-current in the Statement of Net Position.
Bonds Payable - General Obligation Bonds The unmatured principal of general obligations bonds is accounted for in the Long-term Liabilities column. Payables are reported separately as either current or non-current in the Statement of Net Position.
Bonds Payable are recorded at par. The bond proceeds are accounted for as an Other Financing Source in the governmental funds when received, and expenditures for payment of principal and interest are recorded in debt service funds when paid. These amounts are adjusted in the Long- Term Liabilities column.
Bonds Payable - Revenue Bonds Revenue bonds are generally accounted for in the proprietary funds. The Bonds Payable are reported at par, less unamortized discount or plus unamortized premium. Interest expense is reported on the accrual basis, with amortization of discount or premium. Payables are reported separately as either current or non-current in the Statement of Net Position.
5 - 5 University of Houston System (797) Unaudited
FUND BALANCE/NET POSITION The difference between fund assets and liabilities is Net Position on the government-wide, proprietary, and fiduciary fund statements, and the Fund Balance is the difference between fund assets and liabilities on the governmental fund statements.
Reservations of Fund Balance Fund balances for governmental funds are classified as either reserved or unreserved in the fund financial statements. Reservations are legally restricted to a specific future use and are not available for expenditure.
Reserved for Encumbrances This represents commitments of the value of contracts awarded or assets ordered prior to year- end but not received as of that date. Encumbrances are not included with expenditures or liabilities. They represent current resources designated for specific expenditures in subsequent operating periods.
Unreserved/Undesignated This represents the unappropriated balance at year-end.
Invested In Capital Assets, Net Of Related Debt Invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for bonds, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets.
Restricted Net Assets Restricted net assets result when constraints placed on net asset use are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation.
Unrestricted Net Assets Unrestricted net assets consist of net assets, which do not meet the definition of the two preceding categories. Unrestricted net assets often have constraints on resources, which are imposed by management, but can be removed or modified.
INTERFUND ACTIVITIES AND BALANCES The System has the following types of transactions between funds:
Transfers Legally required transfers that are reported when incurred as Transfers In by the recipient fund and as Transfers Out by the disbursing fund.
Reimbursements Reimbursements are repayments from funds responsible for expenditures or expenses to funds that made the actual payment. Reimbursements of expenditures made by one fund for another are recorded as expenditures in the reimbursing fund and as a reduction of expenditures in the reimbursed fund. Reimbursements are not displayed in the financial statements.
Interfund Receivables and Payables Interfund loans are reported as interfund receivables and payables. If repayment is due during the current year or soon thereafter, it is classified as Current. Repayment for two (or more) years is classified as Non-Current.
Interfund Sales and Purchases Charges or collections for services rendered by one fund to another are recorded as revenues of the recipient fund and expenditures or expenses of the disbursing fund. The composition of the System’s interfund activities and balances are presented in Note 12.
5 - 6 NOTE 2: Capital Assets A summary of changes in Capital Assets for the year ending August 31, 2016 is presented in Table 2.
Table 2 - Capital Assets University of Houston System Balance Inc-Int'agy Dec-Int'agy Balance Business-Type Activities: 09/01/15 Adjustments Completed CIP Trans Trans Additions Deletions 08/31/16
Non-Depreciable/Non-Amortizable Assets Land & Land Improvements $ 108,443,539.31 $ - $ - $ - $ - $ 12,872,001.10 $ (673,680.32) $ 120,641,860.09 Construction in Progress 135,016,987.02 - (101,756,156.92) - - 114,395,462.18 (38,091.35) 147,618,200.93 Other Tangible Capital Assets 3,043,730.23 - - - - 47,200.00 - 3,090,930.23
Total Non-Depreciable and Non-Amortizable Assets 246,504,256.56 - (101,756,156.92) - - 127,314,663.28 (711,771.67) 271,350,991.25 University of Houston System (797) Unaudited Depreciable Assets Buildings & Building Improvements 1,512,134,908.42 (355,186.56) 87,056,559.06 - - 8,884,932.98 - 1,607,721,213.90 Infrastructure 43,297,217.46 ------43,297,217.46 Facilities & Other Improvements 245,334,515.15 (592,586.00) 14,620,125.25 - - - - 259,362,054.40 Furniture & Equipment 236,422,676.02 663,012.16 79,472.61 650,773.27 (686,048.27) 18,744,205.38 (5,569,339.65) 250,304,751.52 Vehicle, Boats & Aircraft 6,669,753.05 - - - - 740,107.64 (176,949.83) 7,232,910.86 Other Capital Assets 158,981,737.48 (16,212.68) - - - 6,631,304.77 (1,822,428.93) 163,774,400.64
Total Depreciable Assets 2,202,840,807.58 (300,973.08) 101,756,156.92 650,773.27 (686,048.27) 35,000,550.77 (7,568,718.41) 2,331,692,548.78
Less Accumulated Depreciation For: Buildings & Building Improvements (726,190,106.37) 1,748,614.34 - - - (58,385,731.72) - (782,827,223.75) Infrastructure (40,049,976.87) - - - - (492,303.08) - (40,542,279.95) Facilities & Other Improvements (54,450,726.52) 2,709.32 - - - (8,140,001.52) - (62,588,018.72) Furniture & Equipment (162,629,479.19) (579,274.47) - (497,283.42) 532,558.42 (19,662,247.51) 4,821,360.32 (178,014,365.85) Vehicle, Boats & Aircraft (4,894,037.69) 1.10 - - - (582,932.49) 175,165.09 (5,301,803.99) Other Capital Assets (103,461,519.50) 26,586.97 - - - (6,957,956.12) 1,811,990.03 (108,580,898.62)
Total Accumulated Depreciation (1,091,675,846.14) 1,198,637.26 - (497,283.42) 532,558.42 (94,221,172.44) 6,808,515.44 (1,177,854,590.88)
Depreciable Assets, Net 1,111,164,961.44 897,664.18 101,756,156.92 153,489.85 (153,489.85) (59,220,621.67) (760,202.97) 1,153,837,957.90
Amortizable Assets-Intangible Computer Software 84,095,942.59 55,455.19 - - - - (107,273.29) 84,044,124.49 Other Intangible Capital Assets 9,578,225.18 - - - - - (9,578,225.18) -
Total Amortizable Assets-Intangible 93,674,167.77 55,455.19 - - - - (9,685,498.47) 84,044,124.49
Less Accumulated Amortization For: Computer Software (81,665,899.36) (55,455.19) - - - (2,313,359.50) 107,273.29 (83,927,440.76) Other Intangible Capital Assets (4,028,471.35) - - - - (778,991.40) 4,807,462.75 -
Total Accumulated Amortization (85,694,370.71) (55,455.19) - - - (3,092,350.90) 4,914,736.04 (83,927,440.76)
Amortizable Assets-Intangible, Net 7,979,797.06 - - - - (3,092,350.90) (4,770,762.43) 116,683.73
Total Business-Type Activities - Capital Assets, Net $ 1,365,649,015.06 $ 897,664.18 $ - $ 153,489.85 $ (153,489.85) $ 65,001,690.71 $ (6,242,737.07) $ 1,425,305,632.88
5 - 7 University of Houston System (797) Unaudited
NOTE 3: Deposits, Investments, & Repurchase Agreements The University of Houston System is authorized by statute to make investments following the “prudent person rule”. There were no significant violations of legal provisions during the period.
Deposits of Cash in Bank As of August 31, 2016, the carrying amount of deposits was $18,078,007.01 as presented below:
Governmental and Business-Type Activities Cash in Bank-Carrying Amount $ 18,078,007.01 Total Cash in Bank per Annual Financial Report $ 18,078,007.01
Reconciliation of Cash per Annual Financial Report Proprietary Funds, Current Assets, Cash in Bank (186,577,971.73) Proprietary Funds, Current Assets, Restricted Cash in Bank $ 204,655,978.74 Cash in Bank per Annual Financial Report $ 18,078,007.01
These amounts consist of all cash in local banks. These amounts are included on the Statement of Net Position as part of the “Cash and Cash Equivalents” accounts.
As of August 31, 2016, the total bank balance was as follows:
Governmental and Business-Type Activities $ 1,598,728.65
Custodial Credit Risk – The System has no deposits that are at risk of recovery due to the failure of a depository financial institution.
Foreign Currency Risk – The System maintains no foreign bank accounts.
Investments As of August 31, 2016, fair value of investments were:
Governmental and Business-Type Activities Fair Value U.S. Government Agency Obligations $ 25,615,150.10 U.S. Treasury Securities 154,841,542.11 Corporate Obligations 61,146,188.41 Equities 71,585,759.92 International Equities 127,007,428.06 Fixed Income Money Market and Bond Mutual Funds 275,912,206.78 Other Commingled Funds (TexPool) 216,387,919.90 Other Commingled Funds 22,942,072.48 Externally Managed Investments-Domestic 109,746,450.43 Externally Managed Investments-International 232,451,751.31 Real Estate 110,749.00 Miscellaneous Investments 3,982,753.15 Total Investments $ 1,301,729,971.65
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Reconciliation of Investments per Annual Financial Statements Proprietary Funds, Current Assets, Cash Equivalents $ 275,912,206.78 Proprietary Funds, Current Assets, Short Term Investments 217,211,690.89 Proprietary Funds, Non-Current Assets, Investments 808,606,073.98 Investments per Annual Financial Statements $ 1,301,729,971.65
Custodial Credit Risk (Investments) – The System has no direct investments held by its custodians that are not covered by insurance.
Foreign Currency Risk (Investments) – The System has no direct investments subject to foreign currency risk, nor any denominated in a foreign currency.
Credit Risk (Investments) – Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The general investment policy of the System limits investments in debt securities that are not in the top three investment grade ratings issued by nationally recognized statistical rating organizations to 5% of total investments. As of August 31, 2016, the System had no direct investment in securities with credit risk exposure that exceeded its policy limit. As of August 31, 2016, the System’s credit quality distribution for securities with credit risk exposure was:
Investments as Rated by Standard & Poor’s
Fund GAAP Type Fund Investment Type AAAf AAAm AAf Af BBBf NR
05 9999 US Govt Agency Obligations 25,615,150.10
Corporate Obligations 43,810,242.36 15,996,238.45 1,339,707.60
Fixed Inc MM & Bond Mutual Funds 275,912,206.78
Miscellaneous Investments 3,982,753.15
Concentration of credit risk is the risk of loss attributable to the magnitude of investment in a single issuer. As of August 31, 2016, the System’s concentration of credit risk in any single issuer did not exceed 5% of total investment assets as reported on the Statement of Net Position.
Reverse Repurchase Agreements The System has no investments in reverse repurchase agreements.
Securities Lending The System does not participate in a security-lending program.
NOTE 4: Short-Term Debt In the prior fiscal year, the System issued commercial paper (Consolidated Revenue Commercial Paper Program, Series A) to facilitate renovation and construction projects at the University of Houston. The balance remaining from the prior year issuance was redeemed during fiscal year 2016. Additional commercial paper was issued during fiscal year 2016, the proceeds of which were used to provide interim financing for renovation and construction projects at UH, UHCL, UHV, and UHD. Additional information about the System’s long-term debt liabilities can be found in Note 5.
5 - 9 University of Houston System (797) Unaudited
Table 4 – Commercial Paper Activity
Balance Balance Business Type Activities 9/01/15 Additions Reductions 8/31/16 Commercial Paper $ 68,236,000.00 $ 32,150,000.00 $ 45,914,000.00 $ 54,472,000.00
NOTE 5: Long-Term Liabilities Changes in Long-Term Liabilities During the year ended August 31, 2016, the following changes, presented in Table 5.1, occurred in liabilities:
Table 5.1 – Long Term Liabilities
Business- Type Balance Other Balance Due Within Due Activities 9/1/15 Additions Reductions Changes 8/31/16 1 Year Thereafter Claims and Judgments $ 217,569.83 $ 2,022,053.40 $ 1,983,511.83 $ $ 256,111.40 $ 256,111.40 $ 0.00
Capital Lease Obligations 5,858,558.87 1,880,718.06 441,730.84 7,297,546.09 537,658.77 6,759,887.32 Employee Compensable Leave 24,990,430.89 13,718,119.94 12,400,251.81 26,308,299.02 13,054,097.23 13,254,201.79 Notes & Loans Payable 450,000.00 450,000.00 0.00 0.00 0.00 Revenue Bonds Payable 878,206,727.48 301,857,648.60 124,711,373.19 9,686,275.41 1,055,353,002.89 59,890,461.99 995,462,540.90
Total $ 909,723,287.07 $ 319,478,540.00 $ 139,986,867.67 $ 9,686,275.41 $ 1,089,214,959.40 $ 73,738,329.39 $ 1,015,476,630.01
Claims and Judgments At August 31, 2016, various lawsuits and claims involving the System were pending. While the ultimate liability, if any, with respect to litigation and other claims asserted against the System cannot be reasonably estimated at this time, such liability, to the extent not provided for by insurance or otherwise, is not expected to have a material effect on System accounts.
Capital Lease Obligations See Note 8 for detailed capital lease note disclosure requirements.
Notes and Loans Payable The System held a loan payable; the proceeds of which were used to establish and construct the Dave Williams Golf Academy building and practice facility. The loan was paid in full during the fiscal year 2016.
Employees' Compensable Leave A state employee is entitled to be paid for all unused vacation time accrued, in the event of the employee's resignation, dismissal, or separation from State employment, provided the employee has had continuous employment with the State for six months. Expenditures for accumulated annual leave balances are recognized in the period paid or taken in governmental fund types. For these fund types, the liability for unpaid benefits is recorded in the Statement of Net Position. An expense and liability for proprietary fund types are recorded in the proprietary funds as the benefits accrue to employees. No liability is recorded for non-vesting accumulating rights to receive sick pay benefits.
5 - 10 University of Houston System (797) Unaudited
Full-time state employees earn annual leave from eight to twenty-one hours per month depending on the respective employees' years of state employment. The state's policy is that an employee may carry his accrued leave forward from one fiscal year to another fiscal year with a maximum number of hours up to 532 for those employees with 35 or more years of state service. Accrued leave in excess of the normal maximum was converted to sick leave at the conclusion of fiscal year 2016. Employees with at least six months of state service who terminate their employment are entitled to payment for all accumulated annual leave up to the maximum allowed.
Non-debt liability obligations are usually paid from the same funding source from which the employee’s salary or wage compensation was paid.
Lump sum payments made to employees, who separated from state service during the 2016 fiscal year, for accrued vacation and compensatory leave, totaled $ 2,472,867.56.
Revenue Bonds Payable See Note 6 for required Revenue Bond disclosures.
NOTE 6: Bonded Indebtedness Bonds Payable Detailed supplemental bond information is disclosed in Schedule 2-A, Miscellaneous Bond Information, Schedule 2-B, Changes in Bonded Indebtedness, Schedule 2-C Debt Service Requirements, Schedule 2-D, Analysis of Funds Available for Debt Service, Schedule 2-E, Defeased Bonds Outstanding, and Schedule 2-F, Early Extinguishment and Refunding.
Revenue Bonds Consolidated Revenue Variable Rate Demand Bonds, Series 2004 - To finance the acquisition, purchase, construction, improvement, renovation, enlargement, and equipping of any property, buildings, structures, facilities, roads, or related infrastructure for the University of Houston System, including the individual campuses of the System. - Proceeds were used to repair damage from Tropical Storm Allison (UH). - $25,000,000: all bonds authorized have been issued (UH – $25,000,000). - Issued 06-16-2004. - Source of revenue for debt service – Tuition and various other fees, and revenues and balances that may be legally available for payment of debt obligations. (Funding for fiscal year 2016 fully from Legislative Appropriation-Tuition Revenue Bonds.) - The bonds bear interest at a variable rate, which is determined on a weekly basis on each Wednesday, and the rate is effective for a seven-day period commencing on the immediately following Thursday. The variable rate in effect on August 31, 2015 was 0.02%. - Bondholders have the option to tender their bonds for purchase at a price equal to the principal amount thereof, plus accrued interest, at the times and subject to the conditions described in the bond resolution. Tendered bonds may be remarketed and remain outstanding. Bonds tendered for purchase will be paid first from the proceeds of remarketing, if any, and then from legally available money advanced by the Board of Regents. In order to provide for the payment of the purchase price of tendered bonds, the Board has agreed to provide self-liquidity. The Board has not entered into an agreement with an outside entity to provide liquidity in the event that the remarketing agent is unable to remarket the bonds on an optional tender date. Liquidity support for the bonds will be provided by the System’s funds and is expected to be provided first from funds invested in the System’s non-endowed investment pool and money market accounts. - Outstanding bonds maturing subsequent to 02-15-2017, totaling $175,000 were extinguished early by using existing assets.
General Obligation Bonds At August 31, 2016, the System had no bonds payable classified as General Obligation Bonds.
5 - 11 University of Houston System (797) Unaudited
Refunding Bonds Consolidated Revenue and Refunding Bonds, Series 2008 - To (a) refund and defease certain outstanding commercial paper notes of the System and (b) finance the acquisition, purchase, improvement, enlargement and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on the behalf of the System, including individual campuses of the System. - In addition to the defeasement of the commercial paper noted above, the proceeds were used to finance the construction of the Calhoun Lofts, East Parking Garage Part 1, and MacGregor Land purchase (UH), the Allied Health Facility, The Regional Center for Economic Development, and Building 2, Sugarland (UHV). - $175,030,000: all bonds have been issued (UH – $143,615,000 and UHV – $31,415,000). - Issued 07-01-2008. - Source of revenue for debt service – Tuition and various other fees and revenues and balances that may be legally available for payment of debt obligations. (Funding for fiscal year 2016 partially from Legislative Appropriations–Tuition Revenue Bonds.) - Sufficient funds from proceeds of advance refunding bonds were deposited with an escrow agent to provide for full payment of all outstanding obligations related to the 2008 series bonds that mature subsequent to 02-15-2019 totaling $67,525,000, after they are called for early redemption on 02-15-2018.
Consolidated Revenue and Refunding Bonds, Series 2009 - To (a) defease certain outstanding commercial paper notes of the System and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operation and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the commercial paper noted above, the proceeds were used to finance the Science Lab renovations, the purchase of Bayou Oaks, the construction of the Stadium Parking Garage Part 1 and East Garage Part 2 (UH) and the renovation of the Arbor Building (UHCL). - Issued 02-04-2009. - $108,395,000; all bonds authorized have been issued (UH – $98,230,000 and UHCL – $10,165,000). - Source of revenue for debt service – Tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations. (Funding for fiscal year 2016 partially from Legislative Appropriation-Tuition Revenue Bonds.)
Consolidated Revenue and Refunding Bonds, Series 2009-A - To (a) refund and defease $20,515,000 of outstanding Consolidated Revenue Bonds, Series 1999 and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operation and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the bonds noted above, the proceeds were used to finance the construction of Cougar Village Part 1 (UH). - Issued 07-02-2009. - $71,175,000; all bonds authorized have been issued ($52,200,000 revenue bonds: UH; and $18,975,000 refunding bonds: UH – $6,829,102.50, UHD – $4,267,477.50, and UHV – $7,878,420.00). - Source of revenue for debt service – Tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations. (Funding for fiscal year 2016 partially from Legislative Appropriation-Tuition Revenue Bonds.) - Average interest rate of bonds refunded - 4.885%. - Net proceeds from refunding series - $20,892,799.63, after receipt of bond premium of $1,719,638.50 and additional available funds of $377,640.50 and payment of $179,479.37 in underwriting fees, insurance, and other issuance costs. - Sufficient funds were deposited with an escrow agent to provide for full payment of all outstanding obligations related to the 1999 series bonds, after they were called for early redemption. - The 1999 series bonds maturing subsequent to 02-15-2009 are considered fully defeased, and the obligation for those bonds has been removed from the reported liabilities of the System. - Refunding of the 1999 series bonds reduced the System's debt service payments over the life of the bond issues by approximately $2,023,239.08. - Economic gain - $1,742,552.43; the difference between the net present value of the old and new debt service payments.
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Consolidated Revenue and Refunding Bonds, Series 2010-A - To (a) defease certain outstanding commercial paper notes of the System and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the commercial paper note above, the proceeds were used to finance construction costs related to the renovation of UH Moody Towers Dining Hall and the purchase of UH Energy Research Park. - Issued 04-15-2010. - $23,305,000; all bonds authorized have been issued (UH – $23,305,000). - Source of revenue for debt service – Designated tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations.
Consolidated Revenue and Refunding Bonds, Series 2010-B - To (a) defease certain outstanding commercial paper notes of the System and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the commercial paper note above, the proceeds were used to finance costs related to the construction of a classroom/business building and the Health and Biomedical Sciences building (UH), the renovation of certain facilities at the UH Energy Research Park (UH) and construction costs related to Jaguar Residence Hall (UHV). - This bond issue is a qualified Build America Bond (BAB) as defined within Sections 54AA and 6431 of the Internal Revenue Code of 1986, as amended. - Issued 04-15-2010. - $79,975,000; all bonds authorized have been issued (UH – $74,595,000 and UHV – $5,380,000). - Source of revenue for debt service – Designated tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations. The System will receive interest subsidy payments from the U.S. Treasury equal to 35 percent of the interest payable on related qualified Build America Bonds contemporaneously with the interest payment dates of the qualified Build America Bonds.
Consolidated Revenue and Refunding Bonds, Series 2010-C - To (a) defease certain outstanding commercial paper notes of the System and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the commercial paper note above, the proceeds were used to finance construction costs for Stadium Parking Garage Part 2, and renovation of certain facilities at the UH Energy Research Park (UH) and at construction costs related to Jaguar Residence Hall (UHV). - Issued 04-15-2010. - $18,255,000; all bonds authorized have been issued (UH – $16,620,000 and UHV – $1,635,000). - Source of revenue for debt service – Designated tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations.
Consolidated Revenue and Refunding Bonds, Series 2011-A - To (a) refund and defease $78,195,000 of outstanding Consolidated Revenue Bonds, Series 2002-A and $9,255,000 of Consolidated Revenue Refunding Bonds, Series 2002-B and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operation and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the bonds noted above, the proceeds were used to finance the acquisition, construction, or renovation of the University Center, Quadrangle, Moody Towers, Cougar Place, Cougar Village 2, Radio Station, Parking Garage 1A, and various buildings at UH Energy Research Park (UH) and Residential Housing (UHV). - Issued 12-29-2011. - $265,500,000; all bonds authorized have been issued ($75,640,000 refunding bonds: UH - $35,921,187.96, UHCL – $18,691,900.89, UHD – $9,487,588.77, and UHV – $11,539,322.38; and $189,860,000 revenue bonds: UH – $179,785,000 and UHV – $10,075,000).
5 - 13 University of Houston System (797) Unaudited
- Source of revenue for debt service – Tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations. (Funding for fiscal year 2016 partially from Legislative Appropriation-Tuition Revenue Bonds.) - Average interest rate of bonds refunded - 4.464013%. - Net proceeds from refunding series - $89,366,528.00, after receipt of bond premium of $12,525,317.05 and additional available funds of $1,427,621.11 and payment of $226,410.16 in underwriting fees, insurance, and other issuance costs. - Sufficient funds were deposited with an escrow agent to provide for full payment of all outstanding obligations related to the 2002-A and 2002-B series bonds, after they were called for early redemption on 02-15-2012. - The 2002-A and 2002-B series bonds maturing subsequent to 02-15-2012 are considered fully defeased and the obligation for those bonds has been removed from the reported liabilities of the System. - Refunding of the 2002-A and 2002-B series bonds reduced the System's debt service payments over the life of the bond issues by approximately $12,683,166.71. - Economic gain - $11,417,870.29; the difference between the net present value of the old and new debt service payments. - Outstanding bonds maturing subsequent to 02-15-2016, totaling $7,360,000 were extinguished early by using existing assets.
Consolidated Revenue and Refunding Bonds, Series 2011-B - To (a) defease certain outstanding commercial paper notes of the System and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the commercial paper note above, the proceeds were used to finance construction costs for West Dining Hall and renovation of the University Center (UH). - Issued 12-29-2011. - $21,310,000; all bonds authorized have been issued (UH – $21,310,000). - Source of revenue for debt service – Designated tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations.
Consolidated Revenue and Refunding Bonds, Series 2013-A - To (a) refund and defease $5,175,000 of Consolidated Revenue Refunding Bonds, Series 2003; $16,355,000 of Consolidated Revenue Bonds, Series 2005; and $10,415,000 of Consolidated Revenue and Refunding Bonds, Series 2006, and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operation and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the bonds noted above, the proceeds were used to finance the acquisition, construction, or renovation of the Girard Street Parking Garage (UHD), Jaguar Court Residence Facility (UHV), and UH Energy Research Park renovations and improvements (UH), and (b) to defease certain outstanding commercial paper notes of the System. - Issued 9-17-2013. - $50,155,000; all bonds authorized have been issued ($30,110,000 refunding bonds: UH - $20,335,000, UHD – $9,605,000, and UHV – $170,000; and $20,045,000 revenue bonds: UH – $10,045,000, UHD – $6,035,000, and UHV – $3,965,000). - Source of revenue for debt service – Tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations. (Funding for fiscal year 2016 partially from Legislative Appropriation-Tuition Revenue Bonds.) - Average interest rate of bonds refunded - 4.74%. - Net proceeds from refunding series - $33,077,545.71, after receipt of bond premium of $3,186,375.65 and payment of $218,829.94 in underwriting fees, insurance, and other issuance costs. - Sufficient funds were deposited with an escrow agent to provide for full payment of all outstanding obligations related to the 2003, 2005, and 2006 series bonds, after they were called for early redemption on 02-15-2015. - The advance refunded 2003, 2005, and 2006 series bonds maturing subsequent to 02-15-2015 are considered fully defeased and the obligation for those bonds has been removed from the reported liabilities of the System.
5 - 14 University of Houston System (797) Unaudited
- Refunding of the 2003, 2005, and 2006 series bonds reduced the System's debt service payments over the life of the bond issues by approximately $3,116,482.36. - Economic gain - $2,640,370.82; the difference between the net present value of the old and new debt service payments. - Accounting Loss (deferred outflow of resources) - $515,099.28; the accounting loss (the difference between the reacquisition price and the net carrying value of the refunded bonds) resulted from the advance refunding.
Consolidated Revenue and Refunding Bonds, Series 2013-B - To (a) defease certain outstanding commercial paper notes of the System and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the commercial paper note above, the proceeds were used to finance the construction of a Football Stadium (UH), a Multidisciplinary Research and Engineering Building (UH), UH Energy Research Park renovations and improvements (UH), and Jaguar Court Residence Facility (UHV). - Issued 9-17-2013. - $102,420,000; all bonds authorized have been issued (UH – $101,200,000 and UHV – $1,220,000) . - Source of revenue for debt service – Designated tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations.
Consolidated Revenue Refunding Bonds, Series 2014 - To refund $18,385,000 of Consolidated Revenue Bonds, Series 2006; and $32,715,000 of Consolidated Revenue and Refunding Bonds, Series 2006. - Issued 11-18-2014. - $47,915,000; all bonds authorized have been issued (UH – $29,525,000, UHD – $17,765,000, and UHV – $625,000). - Source of revenue for debt service – Tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations. (Funding for fiscal year 2016 partially from Legislative Appropriation-Tuition Revenue Bonds.) - Average interest rate of bonds refunded - 4.67%. - Net proceeds from refunding series - $52,309,205.77, after receipt of bond premium of $5,037,241.05 and payment of $643,035.28 in underwriting fees, insurance, and other issuance costs. - Sufficient funds were deposited with an escrow agent to provide for full payment of all outstanding obligations related to the 2006 series bonds, after they were called for early redemption on 02-15-2015. - The advance refunded 2006 series bonds maturing subsequent to 02-15-2015 are considered fully defeased and the obligation for those bonds has been removed from the reported liabilities of the System. - Refunding of the 2006 series bonds reduced the System's debt service payments over the life of the bond issues by approximately $9,051,334.58. - Economic gain - $7,400,593.85; the difference between the net present value of the old and new debt service payments. - Accounting Gain (deferred inflow of resources) - $445,456.16; the accounting gain (the difference between the reacquisition price and the net carrying value of the refunded bonds) resulted from the advance refunding.
Consolidated Revenue and Refunding Bonds, Series 2016-A - To (a) refund and defease $67,525,000 of Consolidated Revenue and Refunding Bonds, Series 2008, and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the bonds noted above, the proceeds were used to finance the acquisition, construction, or renovation of Sophomore housing facilities – 3200 N. Ben Wilson Residence Facility (UHV), and (b) to defease certain outstanding commercial paper notes of the System. - Issued 2-16-2016. - $100,650,000; all bonds authorized have been issued ($63,605,000 refunding bonds: UHSA - $10,260,000, UH – $49,480,000, and UHV – $3,865,000; and $37,045,000 revenue bonds: UH – $21,290,000, UHSA – $6,910,000, and UHV – $8,845,000). - Source of revenue for debt service – Designated Tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations.
5 - 15 University of Houston System (797) Unaudited
- Average interest rate of bonds refunded - 5.106634%. - Net proceeds from refunding series - $73,326,358.81, after receipt of bond premium of $10,146,107.80 and payment of $424,748.99 in underwriting fees, insurance, and other issuance costs. - Sufficient funds were deposited with an escrow agent to provide for full payment of all outstanding obligations related to the 2008 series bonds maturing subsequent to 02-15-2019, after they are called for early redemption on 02-15-2018. - The advance refunded 2008 series bonds maturing subsequent to 02-15-2019 are considered fully defeased and the obligation for those bonds has been removed from the reported liabilities of the System. - Refunding of the 2008 series bonds reduced the System's debt service payments over the life of the bond issues by approximately $11,368,241.94. - Economic gain - $9,431,071.76; the difference between the net present value of the old and new debt service payments. - Accounting Loss (deferred outflow of resources) - $3,725,515.23; the accounting loss (the difference between the reacquisition price and the net carrying value of the refunded bonds) resulted from the advance refunding.
Consolidated Revenue and Refunding Bonds, Series 2016-B - To (a) defease certain outstanding commercial paper notes of the System and (b) finance the acquisition, purchase, construction, improvement, enlargement, and equipping of property, buildings, structures, activities, services, operations and other facilities, roads, or related infrastructure for or on behalf of the System, including individual campuses of the System. - In addition to the defeasement of the commercial paper note above, the proceeds were used to finance a portion of the Multidisciplinary Research and Engineering Building (UH), Science, Technology, Engineering, and Mathematics Building (UHCL), and Health and Biomedical Building 2 (UH). - Issued 2-16-2016. - $184,350,000; all bonds authorized have been issued (UH – $120,300,000 and UHCL – $64,050,000). - Source of revenue for debt service – Designated tuition and various other fees, revenues and balances that may be legally available for payment of debt obligations. (Funding for fiscal year 2016 was partially from Legislative Appropriations–Tuition Revenue Bonds.)
Pledged Future Revenues GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, makes a basic distinction between sales of receivables and future revenues, on the one hand, and the pledging of receivables or future revenues to repay a borrowing (a collateralized borrowing), on the other. The following table provides the pledged future revenue information for the System’s revenue bonds:
Government Business-Type Component Activities Activities Units Pledged revenue required for future principal and interest on existing revenue bonds $ NA $ 1,463,570,226.03 $ NA Term of commitment year ending 08/31 NA 2047 NA Percentage of revenue pledged NA 100% NA Current year pledged revenue $ NA $ 852,191,344.97 $ NA Current year principal and interest paid $ NA $ 82,123,157.19 $ NA
Pledged revenue sources: Governmental activities – None. Business-type activities – Operating income from tuition and fees, and sales and service revenue from auxiliary and non-auxiliary activities including intercollegiate athletics, residential life, parking, rental of facilities, continuing education, royalties, publications, clinics, bookstores, and vending commissions. Component Units – None.
5 - 16 University of Houston System (797) Unaudited
Build America Bonds Build America Bonds (BABs) were created as part of the federal American Recovery and Reinvestment Act of 2009 (ARRA). Taxable bonds were issued by governmental entities, including state agencies and state universities, as Tax Credit BABs or as Direct Payment BABs. Tax Credit BABs provide a federal tax credit to investors equal to 35 percent of the interest received from the bond issuer. Direct Payment BABs provide a direct federal reimbursement to state and local governmental issuers equal to 35 percent of the interest paid on the bonds. Authority to issue BAB’s expired on December 31, 2010.
During the 2010 fiscal year the University of Houston System issued $79,975,000 of Consolidated Revenue and Refunding Bonds, Series 2010-B, taxable revenue bonds under the Direct Payment BABs program. A balance of $79,975,000 remained outstanding at August 31, 2016. No Tax Credit BABs were issued.
Pursuant to the requirements of the Balanced Budget Emergency Deficit Control Act of 1985, as amended, certain automatic reductions occurred as of March 1, 2013, until further amended. These reductions apply to certain qualified bonds, including BABs. The sequestration reduction applicable to the Series 2010-B bonds was $107,450.08. The full amount of interest due to bond holders was paid by the System.
NOTE 7: Derivative Instruments Not Applicable
NOTE 8: Leases Operating Leases Included in the expenditures reported in the financial statements are the following amounts of rent paid or due under operating lease obligations:
Fund Type Amount Proprietary Fund $ 12,499,460.41
Future minimum lease rental payments under non-cancelable operating leases having an initial term in excess of one year are as follows:
Year Ending August 31, Amount 2017 $9,999,568.33 2018 7,499,676.25 2019 4,999,784.16 2020 2,499,892.08 2021 1,249,946.04 2022-2026 3,124,865.10 2027-2031 1,562,432.55 Total Minimum Future Lease Rental Payments $ 30,936,164.51
Capital Leases The System has entered into long-term leases for financing the purchase of certain capital assets. Such leases are classified as capital leases for accounting purposes and are recorded at the present value of the future minimum lease payments at the inception of the lease. A summary of the original capitalized costs of all such property under lease in addition to the accumulated depreciation as of August 31, 2016 is as follows:
5 - 17 University of Houston System (797) Unaudited
Assets Under Capital Leases Year Ended August 31, 2016
Primary Government − Business-Type Activities Sum of Assets under Principal Class of Property Capital Lease Payments Total Buildings $ 9,650,588.00 $ 2,353,041.91 $ 7,297,546.09 Total $ 9,650,588.00 $ 2,353,041.91 $ 7,297,546.09
Primary Government − Business-Type Activities Assets under Accumulated Class of Property Capital Lease Depreciation Total Buildings $ 9,650,588.00 $ 2,057,769.05 $ 7,592,818.95 Total $ 9,650,588.00 $ 2,057,769.05 $ 7,592,818.95
Future Capital Lease Payments Year Ending August 31, 2016
Primary Government − Business-Type Activities Total Future Minimum Lease Year Principal Interest Payments 2017 $ 537,658.77 $ 301,051.00 $ 838,709.77 2018 541,470.91 273,761.09 815,232.00 2019 547,015.13 247,873.99 794,889.12 2020 550,123.04 221,434.24 771,557.28 2021 559,321.65 197,809.47 757,131.12 2022-2026 2,847,602.54 621,515.86 3,469,118.40 2027-2031 1,714,354.05 97,116.61 1,811,470.66 Total $ 7,297,546.09 $ 1,960,562.26 $ 9,258,108.35
NOTE 9: Pension Plans and Optional Retirement Program The State has joint contributory retirement plans for substantially all its employees. The System participates in the plans administered by the Teachers Retirement System of Texas. Future pension costs are the liabilities of the Retirement System. The Retirement System does not account for each State agency separately. Annual financial reports prepared by the Retirement System include audited financial statements and actuarial assumptions and conclusions.
The state has also established an Optional Retirement Program for institutions of higher education. Participation in the Optional Retirement Program is available to certain eligible employees and is in lieu of participation in the Teacher Retirement System.
The contributions made by plan members and employers for the fiscal year ended August 31, 2016 are:
5 - 18 University of Houston System (797) Unaudited
TRS ORP Total Participants Participants Contributions Member Contributions $ 24,043,158.45 $ 13,802,353.00 $ 37,845,511.45
Employer Contributions 22,797,602.87 15,062,806.00 37,860,408.87 Total $ 46,840,761.32 $ 28,865,159.00 $ 75,705,920.32
NOTE 10: Deferred Compensation (Administering Agencies Only) Not Applicable.
NOTE 11: Postemployment Health Care and Life Insurance Benefits (UT, A&M, TRS, and ERS) Not Applicable.
NOTE 12: Interfund Activity and Transactions Not Applicable.
NOTE 13: Continuance Subject to Review The System is not subject to the provisions of the Texas Sunset Act (Chapter 325, Texas Government Code Annotated). The Act provides for the regular assessment of the continuing need for state agencies to exist. Certain agencies, such as institutions of higher education and courts, are not subject to the Sunset Act.
NOTE 14: Adjustments to Fund Balances/Net Position During fiscal year 2016, certain accounting changes or adjustments were made that required the restatement of fund balances or net position. The restatements are presented below:
Table 14.1 – Restatement of Net Position for FY2016 Enterprise Funds Fund Balance/Net Position, 09/01/15 $ 1,448,966,032.79 Current Year Restatements 897,664.18 Fund Balance/Net Position, 09/01/15 Restated $ 1,449,863,696.97
Table 14.2 – Changes in Net Position for FY2015 Enterprise Funds Change in Net Position, 08/31/15 $ 42,438,776.60 Current Year Restatements 897,664.18 Change in Net Position, 08/31/15 Restated $ 43,336,440.78
A restatement of $897,664.18 in Enterprise Funds is due to corrections related to asset valuation in the prior period.
NOTE 15: Contingencies and Commitments Unpaid Claims and Lawsuits As mentioned in Note 5, various lawsuits and claims involving the System were pending. While the ultimate liability, if any, remains uncertain, management does not expect any possible adverse ruling to have a material effect on System accounts.
5 - 19 University of Houston System (797) Unaudited
Federal Assistance The System has received several federal grants for specific purposes that are subject to review and audit by the grantor agencies. Such audits could lead to a request for reimbursements to grantor agencies for expenditures disallowed under the terms of the grant. Based on prior experience, management believes such disallowances, if any, will be immaterial.
Arbitrage Rebatable arbitrage is defined by Internal Revenue Code, Section 148, as earnings on investments purchased with the gross proceeds of a bond issue in excess of the amount that would have been earned if the investment were invested at a yield equal to the yield on the bond issue. The rebatable arbitrage must be paid to the federal government.
The System monitors its investments to restrict earnings to a yield less than the bond issue and, therefore, limit any arbitrage liability. The System estimates that rebatable arbitrage liability, if any, will be immaterial to its overall financial conditions.
Construction Commitments The System has several contractual agreements with various external housing management entities to construct, maintain, and manage off-campus student housing complexes. Under certain circumstances, the System may have contingent liabilities to these entities. Based on prior experience, previous years’ liabilities have been immaterial, and management believes no such liabilities currently exist. Additional information is provided in Note 19.
Investment Funds The System has entered into contractual commitments to fund private investments made by external investment managers. Investments in which a public market does not exist have an inherent uncertainty of valuation. Because of this uncertainty, the estimate of fair value for alternative investments may differ from the values that would have been used had a ready market existed. As displayed in Note 3, the fair value of Externally Managed Investments is: Domestic – $109,746,450.43 and International – $232,451,751.31. The total amount of unfunded commitment is: $104,203,248.00, composed of Domestic – $47,335,217.00 and International – $56,868,031.00.
NOTE 16: Subsequent Events Not Applicable.
NOTE 17: Risk Management The System is exposed to a variety of civil claims resulting from the performance of its duties. It is System policy to periodically assess the proper combination of commercial insurance and retention of risk to cover losses to which it may be exposed.
The System assumes substantially all risks associated with tort and liability claims due to the performance of its duties. Currently there is the purchase of some commercial insurance, and the System is not involved in any risk pools with other government entities.
The System’s liabilities are reported when it is both probable that a loss has occurred and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Liabilities are reevaluated periodically to consider current settlements, frequency of claims, past experience and economic factors. There were no significant reductions in insurance coverage in the past year and losses did not exceed funding arrangements during the past three years. Changes in the balances of the agency’s claims liabilities during fiscal 2015 and 2016 were:
5 - 20 University of Houston System (797) Unaudited
Table 17.1 – Balance of Claims Activity
Beginning Ending Balance Increase Decrease Balance 2015 $ 197,572.25 $ 2,029,896.75 $ 2,009,899.17 $ 217,569.83 2016 $ 217,569.83 $ 2,022,053.40 $ 1,983,511.83 $ 256,111.40
Liabilities include an amount for estimated future workers’ compensation and unemployment claims that have been incurred as of the fiscal year end, but that have not been reported. Increases and Decreases also include current year assessments and payments of legal settlements in the amount of $162,371.98.
NOTE 18: Management’s Discussion and Analysis Not Applicable.
NOTE 19: The Financial Reporting Entity Not Applicable.
NOTE 20: Stewardship, Compliance and Accountability Not Applicable.
NOTE 21: Reserved for Future Use Not Applicable.
NOTE 22: Donor Restricted Endowments Expenditure of endowed funds is not permitted without the express consent of the donor. The majority of the System’s Endowments are held in perpetuity. In many cases, endowment earnings are expendable for student financial assistance or other purposes as specified by the donor. In other cases endowment earnings are reinvested.
The Regents of the University of Houston System have established an endowment policy which attempts to balance the long term objective of maintaining the purchasing power of the endowment with the goal of providing a reasonable, predictable, stable and sustainable level of income to support current needs. Payout is derived from interest, dividends and realized gains net of portfolio management fees. The historical rate of payout has been 4 to 5 percent, with any change to this range to be approved by the Board.
The net appreciation (cumulative and unexpended) on donor-restricted endowments, presented below in Table 22, is available for authorization and expenditure by the System.
Table 22 – Net Appreciation of Endowments
Donor-Restricted Amount of Net Endowments Appreciation/(Depreciation) Reported in Net Assets True Endowments $ 104,167,289.94 Restricted Expendable Term Endowments 227,326.22 Restricted Expendable Total $ 104,394,616.16
(A fair market value decrease of $3,985,497.82 was recognized for endowments at or above historical cost, and a fair market value decrease of $24,995.94 was recognized for endowments below historical cost.)
NOTE 23: Extraordinary and Special Items Not Applicable.
5 - 21 University of Houston System (797) Unaudited
NOTE 24: Disaggregation of Receivable & Payable Balances Not Applicable.
A. Taxes Receivable Not Applicable.
B. Federal Receivable Not Applicable.
C. Tax Refunds Payable Not Applicable.
D. Other Receivables - Current Not Applicable.
E. Other Payables – Current Not Applicable.
F. Other Receivables – Non-Current Not Applicable.
G. Other Payables – Non-Current Not Applicable.
NOTE 25: Termination Benefits Not Applicable.
NOTE 26: Segment Information Not Applicable.
NOTE 27: Service Concession Arrangements Not Applicable.
NOTE 28: Deferred Outflows of Resources and Deferred Inflows of Resources In fiscal 2016, The System reported deferred outflows of resources and deferred inflows of resources in connection with the TRS pension plan.
Deferred Deferred As of Outflows of Inflows of August 31, 2016 Resources Resources
Loss on Bond Refunding $ 2,794,136.42 $ Pension Plans 32,591,587.00 27,738,489.00
Total $ 35,385,723.42 $ 27,738,489.00
Deferred outflows of resources represents a consumption of net position that applies to a future period and therefore will not be recognized as an expense or expenditure until that time.
Deferred inflows of resources represents an acquisition of net position that applies to a future period and therefore will not be recognized as revenue until that time.
5 - 22 University of Houston System (797) Unaudited
NOTE 29: Troubled Debt Restructuring Not Applicable.
NOTE 30: Non-Exchange Financial Guarantees Not Applicable.
5 - 23 APPENDIX B
Form of Bond Counsel Opinion 600 Travis, Suite 4200 Houston, Texas 77002 +1.713.220.4200 Phone +1.713.220.4285 Fax andrewskurth.com
______, 2017
We have acted as bond counsel in connection with the issuance by the Board of Regents of the University of Houston System (the ‘‘Issuer”) of its Consolidated Revenue and Refunding Bonds, Series 2017A (the “Bonds”), in the aggregate principal amount of $______.
In rendering the opinions herein we have examined and relied upon an executed Bond; original or certified copies of the proceedings had in connection with issuance of the Bonds, including the Twenty-Seventh Supplemental Resolution, adopted by the Issuer, supplementing the Board’s Master Resolution Establishing a Consolidated Revenue Financing Program (collectively, the “Resolutions”), authorizing the Issuer to issue, sell, and deliver the Bonds; certificates of officers of the Issuer related to, among other matters, the expected use and investment of proceeds of the sale of the Bonds and certain other funds of the Issuer, which are within its sole knowledge and control; and such other material and such matters of law as we deem relevant to the matters discussed below. In such examination, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies, and the accuracy of the statements contained in such certificates.
Based upon such examination, we are of the opinion, that, under applicable law of the United States of America and the State of Texas in force and effect on the date hereof:
1. The Bonds are valid and legally binding special obligations of the Issuer payable from the sources, and enforceable in accordance with the terms and conditions, described therein, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors’ rights or the exercise of judicial discretion in accordance with general principles of equity.
2. The Bonds constitute “Parity Debt Obligations” under the Resolutions and, together with outstanding Parity Debt Obligations and any Parity Debt Obligations hereafter issued, assumed, or incurred, are payable from and secured by a lien on and pledge of the “Pledged Revenues,” as defined and provided in the Resolutions, and subject to the prior lien of any Prior Encumbered Obligations, as provided in the Resolutions.
3. Pursuant to the Internal Revenue Code of 1986, as amended and in force on the date hereof (the “Code”), and existing regulations, published rulings, and court decisions thereunder, assuming continuing compliance with the provisions of the Resolutions relating to sections 141 through 150 of the Code, interest on the Bonds is excludable from the gross income, as defined in section 61 of the Code, of the owners
ANDREWS KURTH KENYON LLP Austin Beijing Dallas Dubai Houston London New York Research Triangle Park Silicon Valley The Woodlands Washington, DC thereof for federal income tax purposes pursuant to section l03 of the Code, and such interest will not be included for federal income tax purposes in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. Interest on the Bonds owned by a corporation will be included in such corporation’s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit (REMIC), a real estate investment trust (REIT), or a financial asset securitization investment trust (FASIT). A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed.
We express no other opinion with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, “S” corporations with ‘‘subchapter C” earnings and profits, certain foreign corporations doing business in the United States, individual recipients of Social Security or Railroad Retirement benefits, taxpayers otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations.
Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any change in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service or any court; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.
Very truly yours, 600 Travis, Suite 4200 Houston, Texas 77002 +1.713.220.4200 Phone +1.713.220.4285 Fax andrewskurth.com
______, 2017
We have acted as bond counsel in connection with the issuance by the Board of Regents of the University of Houston System (the ‘‘Issuer”) of its Consolidated Revenue and Refunding Bonds, Series 2017B (Taxable) (the “Bonds”), in the aggregate principal amount of $______.
In rendering the opinions herein we have examined and relied upon an executed Bond; original or certified copies of the proceedings had in connection with issuance of the Bonds, including the Twenty-Seventh Supplemental Resolution, adopted by the Issuer, supplementing the Board’s Master Resolution Establishing a Consolidated Revenue Financing Program (collectively, the “Resolutions”), authorizing the Issuer to issue, sell, and deliver the Bonds; certificates of officers of the Issuer related to, among other matters, the expected use and investment of proceeds of the sale of the Bonds and certain other funds of the Issuer, which are within its sole knowledge and control; and such other material and such matters of law as we deem relevant to the matters discussed below. In such examination, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies, and the accuracy of the statements contained in such certificates.
Based upon such examination, we are of the opinion, that, under applicable law of the United States of America and the State of Texas in force and effect on the date hereof:
1. The Bonds are valid and legally binding special obligations of the Issuer payable from the sources, and enforceable in accordance with the terms and conditions, described therein, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors’ rights or the exercise of judicial discretion in accordance with general principles of equity.
2. The Bonds constitute “Parity Debt Obligations” under the Resolutions and, together with outstanding Parity Debt Obligations and any Parity Debt Obligations hereafter issued, assumed, or incurred, are payable from and secured by a lien on and pledge of the “Pledged Revenues,” as defined and provided in the Resolutions, and subject to the prior lien of any Prior Encumbered Obligations, as provided in the Resolutions.
Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any change in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on any court; rather,
ANDREWS KURTH KENYON LLP Austin Beijing Dallas Dubai Houston London New York Research Triangle Park Silicon Valley The Woodlands Washington, DC such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.
Very truly yours, APPENDIX C
Summary of Schedules Related to Continuing Disclosure of Information
Schedule 1: Outstanding Parity Debt Obligations
Schedule 2: Pledged Revenues and Fund Balances
Schedule 3: Exemptions and Waivers
Schedule 4: Historical Headcount Enrollment and Semester Credit Hours
Schedule 5: Full-Time Equivalent Enrollment
Schedule 6: Condensed Statement of Net Assets
Schedule 7: Combined Statement of Revenues, Expenses and Changes in Net Assets
Schedule 8: Investment of Non-Endowed Funds
Schedule 9 Current Tuition Rates APPENDIX D Summary of the Refunded Obligations*
Consolidated Revenue Commercial Paper Notes, Consolidated Revenue and Refunding Bonds, Series 2008 Sub-Series A-1 Original Interest Principal Redemption Redemption Original Interest Principal Redemption Redemption Maturity Date Rate Amount* Date Price Maturity Date Rate Amount Date Price 2/15/2023 5.250% $ 205,000 2/15/2018 100.00 1/10/2017 0.700% $ 2,200,000 2/16/2017 100.00 2/15/2024 5.250% 275,000 2/15/2018 100.00 1/17/2017 0.700% 16,410,000 2/16/2017 100.00 2/15/2025 5.250% 190,000 2/15/2018 100.00 2/6/2017 0.670% 20,300,000 2/16/2017 100.00 2/15/2026 5.250% 970,000 2/15/2018 100.00 2/9/2017 0.560% 6,784,000 2/16/2017 100.00 2/15/2027 5.250% 1,100,000 2/15/2018 100.00 2/16/2017 0.680% 7,600,000 2/16/2017 100.00 2/15/2028 4.750% 975,000 2/15/2018 100.00 $51,094,000 2/15/2029 5.000% 615,000 2/15/2018 100.00 2/15/2030 5.000% 565,000 2/15/2018 100.00 2/15/2031 5.000% 525,000 2/15/2018 100.00 Consolidated Revenue Commercial Paper Notes, 2/15/2032 5.000% 745,000 2/15/2018 100.00 Sub-Series A-2 (Taxable) 2/15/2033 5.000% 4,725,000 2/15/2018 100.00 Original Interest Principal Redemption Redemption 2/15/2034 5.000% 4,965,000 2/15/2018 100.00 Maturity Date Rate Amount Date Price 2/15/2035 5.000% 5,220,000 2/15/2018 100.00 2/16/2017 0.600% $ 4,644,000 2/16/2017 100.00 2/15/2036 5.000% 5,490,000 2/15/2018 100.00 2/16/2017 0.700% 929,000 2/16/2017 100.00 2/15/2037 5.000% 5,770,000 2/15/2018 100.00 $ 5,573,000 2/15/2038 5.000% 6,065,000 2/15/2018 100.00 $38,400,000
Consolidated Revenue and Refunding Bonds, Series 2009 Original Interest Principal Redemption Redemption Maturity Date Rate Amount* Date Price 2/15/2024 5.000% $ 6,115,000 2/15/2019 100.00 2/15/2025 5.000% 6,435,000 2/15/2019 100.00 2/15/2026 5.000% 6,765,000 2/15/2019 100.00 $19,315,000
Consolidated Revenue and Refunding Bonds, Series 2011A Original Interest Principal Redemption Redemption Maturity Date Rate Amount Date Price 2/15/2034 5.000% $ 20,000 2/15/2021 100.00 2/15/2037 5.000% 135,000 2/15/2021 100.00 2/15/2038 5.000% 595,000 2/15/2021 100.00 $ 750,000
* Preliminary, subject to change.