Capital Project FAQs
1. What is a capital project?
A capital project is a project that results in a major asset, such as the construction of a new building (including planning, design and construction), major facility renovation, construction of utility infrastructure (water, electrical, gas and other utility systems) or the purchase of major building-related equipment. The project results in an asset that will have a life of longer than a year and a cost of more than $400,000.
Capital projects are initiated for a variety of purposes, but most typically are to provide sufficient facilities to serve the growth in student population or programs, to renovate a facility to meet current usage needs, or to improve facility life-safety for its occupants, such as seismic safety upgrades or asbestos removal. Capital projects are usually initiated by the campus and if costing under $60 million can be approved by the Chancellor; otherwise the projects require Regental approval.
2. What are "student service" capital projects and how are they funded?
Student facilities are buildings and grounds that support student services and activities, rather than instructional and research activities. These facilities include competitive and recreational sports areas, student unions, retail and food services, residence halls and the multiple buildings that provide student services and programs as well as most all of the university's "public venues" (excluding the Mondavi Center and the Buehler Alumni Center). All told, there are approximately 180 student facilities on campus and more than 50 acres of fields and open spaces managed by the Division of Student Affairs.
2. What types of capital projects are considered "student facilities" and how are they funded?
"Student facilities" are buildings and grounds that house student services and activities, rather than instructional or research activities. Student service capital projects include such facilities as competitive and recreational sports areas, student unions, retail and food services, residence halls and the multiple buildings that provide student services and programs as well as most all of the university's "public venues" (excluding the Mondavi Center and the Buehler Alumni Center). All told, there are approximately 180 student service facilities and more than 50 acres of student-related fields and open spaces.
Student facilities capital projects may be funded by a variety and combination of sources, although each fund source often has legal, contractual or policy restrictions on the type of project that can be funded by the fund source:
General Funds. General Funds are funds received from the state in support of higher education. These funds may be used towards instructional or research facilities but are specifically unallowable for use on student service facilities with the exception that if a student facility includes programs that provide academic support (such as learning skills assistance), some use of general funds may be allowable.
Education Fee funds. These are systemwide fees, established by the Regents, and paid by students to support the academic mission activities of the campus (instruction, research and financial aid) that are not fully funded by the state general funds. Education Fee funds may not be used for student service facilities, unless the service is considered "academic support."
Student Services Fee funds. Student services fees are systemwide fees, established by the Regents, and paid by students in support of student services, programs and activities. In contrast to General Funds and Education Fee funds, these fees may not be used for instruction or research related purposes but only for student services, such as student programs, operating costs of student services and capital projects related to student services. Generally, the Student Services Fees support annual operating costs, though perhaps not to the degree needed, leaving limited funds for capital purposes.
Campus-Based Fees. Campus-based fees are implemented by individual campuses and may either be imposed by the chancellor to address critical life-safety concerns (such as with the Facilities Safety Fee) or are fees that students choose to vote upon and impose upon themselves for specific purposes, such as the Facilities and Campus Enhancement Fee and the Campus Expansion Initiative Fee, both of which were initiated by and voted upon by students to address specific student service needs for which other funding was not available or not sufficient. These two fees have either partially or fully funded student facilities including the multi-use Stadium, the Schaal Aquatic Center, the Activities and Recreation Center, the Equestrian Center covered arena, the Student Health and Wellness Center and the Student Community Center. A key point to bear in mind is that these fees were adopted for specific purposes and cannot be redirected for other purposes.
Other Sources. Other sources that may be used to fund capital projects include various revenue streams and gift funds. For example, Student Housing and Memorial Union (MU) Auxiliary generate revenue through their activities, though these revenue streams generally need to be directed towards Housing or MU expenses and projects, rather than for broader purposes. Gift funds donated by charitable persons or organizations are an important source of funding for capital projects. Gift funds are usually donated for a legally restricted purpose, such as a new building or wing of a building.
3. How are capital funds different from operating budget funds?
Capital funds are simply funds designated for funding capital projects while operating funds are funds directed towards ongoing staffing and operating costs of programs and services. Although capital and operating funds may stem from similar source types (registration fees, campus-based fees, revenues, gifts), they are appropriated for specific purposes and are often not interchangeable. For example, campus-based fees that were approved by students in official referenda documents to construct a specific new facility cannot be redirected in any significant way to other uses.
There are a few areas in which capital and operating funds can be used for the same purposes, most notably in the area of building maintenance. The custodial, utilities, building repairs and grounds maintenance costs may be paid from either capital or operating funds and often are paid with a mix of these sources since one single source may not be sufficient.
4. Why are we constructing new facilities now while we are in a period of severe budget reductions? Why can't we use the building funds for services and programs instead?
On the surface, it may seem inappropriate that new buildings are being constructed while operating budgets are being drastically cut and it's reasonable to question the wisdom of this approach. However, there are a number of reasons why it may be appropriate for construction to continue, even during the budget crisis:
- Capital projects take many years to plan and design before construction begins. A facility being built today is the result of planning and financing that started pre-budget crisis. Significant resources have already been invested in the project and to halt it midstream would be a waste of those resources and would likely result in significant penalty payments to the building contractor companies for project termination. Re-starting a project later would require updated planning and design and ultimately add to the project cost.
- Most student service capital projects are financed by restricted sources (as described above) and the funds could not be redirected to operating budgets, so delaying a project would not be of any help in solving the budget crisis. In addition, the students or donors who are paying for the new facility expect it to be built in a reasonably timely manner.
- Constructing buildings during a recession can actually be a fiscally-wise route to take because the price that contractors quote to construct a building drops in a very significant way since the contractors may be more motivated to earn the university contract. For example, a recent bid for a student residence hall was 42% less than the originally estimated bid price that was made before the recession.
- The university has a responsibility to provide safe, modern facilities for the campus and delays in fulfilling this responsibility are not desirable.
5. What roles do students play in planning the new facilities? And, what role do students have in overseeing the use of student fee funds once the capital projects are completed?
Students play an integral role in the conceptualization, design, construction and governance of student service facilities.
In many cases, they are the first ones involved in advocating for a new or renovated facility and play the principal role in developing and approving a campus-based fee to fund the costs of facility construction and operation. Buildings such as the Activities and Recreation Center (ARC) or the new Health and Wellness Center were developed in this way and the funding associated with these and other similar facilities was approved by students through a student referendum and a corresponding election. Students also serve as members of the planning committees that are established for every construction project and that oversee the selection of architects, as well as all aspects of the design and construction phases of a building. Lastly, students remain involved in these projects through their on-going participation on the student-majority committees that are established to oversee the buildings operation and maintenance activities and the corresponding use of student fees. Their ideas and continuing involvement, from start-to-finish, are essential in ensuring that student service facilities and programs always reflect evolving student needs.