Supplemental Capital Budgeting Request 1

Board of TrusteesFinance & Audit Committee MeetingDecember 15, 2014

UT CAPITAL SPEND VS. HIGHER ED INDUSTRY

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Moody's A1

Moody's A2

UT FY 14 Actual

UT FY 15 Budget

Capital Spendingas a % of Depreciation

Average Age of Plant 11.5 12.4 14.1 14.1

126 120 97 51

Key Take-Away Message:1. UT spending on physical plant lags the industry2. Our physical plant is older than the industry3. Our current pace of funding will cause the University to fall further

behind. 4. This same picture exists if we looked only at UTMC.

INVESTMENT IN CAPITAL ASSETS – THE CONUNDRUM

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FY 15 Budget (in millions)Cash from OperationsNet Income (26.5)$

Depreciation 58.6 Principal Payments (14.0) Cash Available from Operations 18.1$

Capital Needs:Depreciation 58.6$

Sources:Cash Available from Operations 18.1 State Capital Appropriations 11.8 Total Sources 29.9

Capital Funding Below Depreciation 28.7$

Cash from Operations and State Capital Appropriations are insufficient to properly re-invest in the capital assets of the University.

To properly fund depreciation, the University would need to use institutional reserves or debt.

This is not sustainable over the long-term.

The University capital funding is $28M short of depreciation and approximately $40M short of the higher education industry. This shortfall is split roughly 50/50 between the academic and clinical missions.

FY 15 CAPITAL BUDGET ALLOCATION

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FY 15 Capital Budget and Allocation (in millions)FY 15 Capital Budget 18.0$

Allocation:Facilities 5.0$ Provost 4.0 IT 3.0 Hospital 6.0

18.0$

Hospital Break-down:CEO Contingency 1.0$ Individual Leaders (projects < $80K) 1.5 Clinical 1.5 Facilities 1.0 IT 1.0

6.0$

FY 15 Capital Budget was determined based on a break-even cash flow model.

The Academic portion was allocated between Facilities, IT, and Provost.

The Hospital portion was allocated between top management and individual leaders. Management’s portion was further allocated between Clinical, Facilities, and IT related initiatives.

UT LIQUIDITY VS. INDUSTRY

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Moody's A1

Moody's A2

UT FY 14 Actual

140 124 111Days Cash on Hand

Key Take-Away Message:1. UT liquidity lags the industry2. For context, one day of cash for UT equals $2.3 million3. This same picture exists if we looked only at UTMC.

A PRACTICAL REALITY

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1. The University cannot accomplish its Academic and Clinical missions on capital spending from operations and statement appropriation of only $29.9 million (FY 15 Budget)

2. Not properly investing in our plant will accelerate a downward spiral that will drive patients, physicians, students, faculty and staff away from the institution.

3. While we are diligently exploring ways to increase capital funding, we must continue to run the hospital and university.

4. We recommend that $28.7 million of supplemental capital funding be approved, with actual spending to happen over the next three fiscal years. This total amount would reduce cash on hand by 12 days, if no other management action is taken over that three year period.

REQUEST OF SUPPLEMENTAL CAPITAL FUNDING

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Project Total Amount FY15 FY16 FY17Parking Garage Stabilization and Maintenance 1.5$ 0.7$ 0.8$ UC Data Center 3.0 0.3$ 2.7 North Engineering HVAC Replacement 3.0 0.3 1.5 1.2$ Bridge Repairs/Replacement 2.0 2.0 Building Envelop/Water Project 1.8 1.8 IT projects 8.1 7.0 1.1 Emergency Power-Phase 2 1.8 0.9 0.9 CT Scanner replacement 1.5 1.5

EMR updates (ED, PT/OT, oncology) 0.8 0.8 Telecom coverage 0.9 0.5 0.4 Kobacker - Peds 0.5 0.3 0.2

Ultrasound 0.1 0.1

Ambulatory investment 3.8 0.4 2.0 1.4

Total Capital Funding 28.7$ 4.3$ 20.8$ 3.7$

Likely timing of cash outflow