Subject Area: Capital Planning and Budget Process
Responsible Office: Office of Financial Services
Sponsor: Chief Financial Officer
Originally Issued: March 2001
Revised: August 2006, September 2016, November 2020
Refer Questions To: Brett Padgett, 773-834-5819
Purpose: This policy outlines the University’s review and approval requirements, including those of the Board of Trustees, for certain capital projects and sets forth associated controls for project spending. Projects subject to this policy include new construction, renovations, infrastructure, major capital equipment purchases, and information technology improvements. This policy also facilitates a capital planning process that provides University leadership with clear information to make decisions regarding project cost, timeline, strategic impact, and prioritization.
Scope: This policy applies to all units of the University as well as to projects undertaken by University affiliates that are consolidated under the University for audited financial reporting purposes (other than MBL and the University of Chicago Medical Center) and whose operations are funded through the University’s budget. The policy covers the types of projects described in the “Purpose” section above that have a total cost of more than $100,000 and also meet one or more of the following criteria:
- Involve either new construction or renovation of existing University capitalized assets;
- Involve planning, design or studies for a future capital project;
- Are classified as capital spending under generally accepted accounting principles (GAAP) of the Financial Accounting Standards Board; or
- Request the use of “center” funding outside of a unit’s annual operating budget.
A project’s total cost for purposes of determining the required authorizations under this policy includes all spending necessary to bring the project to a state of completion (both capitalized and operating expenses).
Project spending incurs long-term impacts on the University’s balance sheet and affects operating performance in future years through depreciation, interest, contractual payments, and/or utility and maintenance costs. Due to the long-term nature of these investments, project spending at the University is determined by the University’s long-range financial model. As presented to the Board of Trustees, the long-range model defines the total annual amount of project authorization over a rolling five-year horizon. Projects included in the long-range model fall into three broad categories:
1) active projects that have been authorized and are in process,
2) planned projects to be submitted ‘in-cycle’ to the Board of Trustees for authorization as part of the regular annual capital budget process (including pools specifically defined for miscellaneous equipment purchases, library collections, allowance for Provost Academic Programs, ongoing IT refresh spending, etc.); and
3) off-cycle projects that are approved during the fiscal year and are either allocated authorization from the annual Off-Cycle Allowance, or are granted new authorization as part of an off-cycle Board approval that may occur at any time throughout the year.
A project has a specific, defined scope for spending to enhance University assets in facilities, equipment or information technology. Spending on a project may involve components that are both capitalized for recognition over the life of an asset or contract and operating expenses incurred in the course of completing the project, which are expensed in the annual operating budget. All project spending, both capital and operating, should be enumerated for purposes of authorization.
Authorization means authority from the Board of Trustees, or its Executive Committee, or as delegated to the applicable authorized approver listed below, to spend up to a defined amount of expenditures on a specific project. Any project of more than $5,000,000 must be broken out as an individual line item when presented for Board approval. Authorization is required prior to entering into any contracts with third parties for project spending. Projects submitted ‘in-cycle’ as part of the regular annual authorization of the capital budget may not commence spending until July 1 of the fiscal year for which they are authorized. Projects that are authorized must commence spending within the first fiscal year of authorization or authorization will expire and the project must be resubmitted for approval. Authorization to expend funds is not transferrable between projects and cannot be repurposed from its approved use towards another purpose. Project budgets may be increased only upon receiving additional authorization. When a project is approved, both capital and operating expenses will be authorized as part of the total approved project cost; however, administratively, the authorizations will be tracked as separate components in the University’s capital and operating budgets. Gifts, grants and other external funding or financing sources should be identified as part of analysis of a project, but do not reduce the authorization amount required.
Submission of Project Requests
University of Chicago Facilities Services initiates and manages most building and infrastructure-related projects on campus. Other campus units may initiate building and infrastructure project requests as well (following the process described below), but Facilities Services will generally manage all such projects on campus. Information Technology (IT) projects may be managed by Information Technology Services (ITS), or another administrative department on campus such as Human Resources, depending on the scope and purpose of the project. Requests for projects can be initiated by a unit or the center (generally the Office of the President, Office of the Provost, or Finance and Administration). Requests may be submitted either during the Annual Capital Budget Cycle or as an Off-Cycle Request as outlined below.
Annual Capital Budget Cycle Requests
All proposed projects for the upcoming fiscal year should be submitted to the University Budget Office during the annual capital budget cycle (typically open each August to November) through the Capital Project Budget Request (CPBR) submission tool available at https://budgetoffice.uchicago.edu/capital-budget/. Between November and January the Budget Office will submit proposed projects to the Vice Provost with responsibility for space and capital planning for review and evaluation in advance of submission for Board authorization of the annual capital budget (generally, at the first calendar year meeting of the Financial Planning Committee, except for new construction, renovation projects and other capital project requests in excess of $15 million, for which review by the Board’s Institutional Capacity Committee is also required). Information Technology (IT) projects submitted for the annual capital budget cycle will be reviewed and prioritized for submission to the Board by the Provost’s Information Technology (IT) Committee, which is convened annually by the Vice Provost for this purpose. Members of this committee include the Vice Provost and various executive leaders from multiple units across campus including Information Technology Services (ITS), the Office of Research, and other administrative and academic units with significant IT infrastructure.
Generally each year an “Off-Cycle Contingency Allowance” amount is included in the annual capital budget approved by the Board. Any potential projects requiring urgent attention that are proposed to commence during the current fiscal year or requesting increased authorization to prior budgets should be submitted to the Budget Office as soon as a unit is aware of a potential need through the Off-Cycle Request (OCR) Capital Project Budget Request (CPBR) submission tool available at https://budgetoffice.uchicago.edu/capital-budget/. The Vice Provost with responsibility for space and capital planning will prioritize these requests and fund them from the annual “Off-Cycle” allowance approved in the February meeting of the Board. Any project request for Off-Cycle funding is subject to the approval and written documentation requirements outlined in Table 1 below. Any Off-Cycle project with a total cost greater than $5 million must be submitted to the Board of Trustees for approval. Projects approved Off-Cycle by the Board will receive new authorization within the fiscal year of approval, and these approved authorization amounts will be added to the total budget authority for that fiscal year.
The documentation and level of approval required for a project to receive authorization from this Off-Cycle Contingency Allowance is governed by the total anticipated costs of the project as detailed in the following table. In cases where the project consists only of a study or schematic design, which will inform the development of a project at a later date, it is the total cost of the study that determines the initial necessary documentation and level of approval. Any project developed from such a study must be subsequently submitted for approval based on the total cost of the proposed project, including the previously authorized study costs.
Approval Levels for Use of Off-Cycle Allowance Authorization
1. Up to $499,999
Capital Project Budget Request form signed by the Budget Director
2. $500,000- $2,999,999
CFO and Provost
Capital Project Budget Request form signed by the CFO and Provost
3. $3,000,000- $4,999,999
Capital Project Budget Request form signed by the CFO, Provost, and President
4. $5,000,000 and above
Board of Trustees or the Executive Committee
Board document from Secretary’s office with Board seal
The CFO and Provost will notify the Chair of the Board of Trustees and the Chair of the FPC of any projects $3 million or above that the President plans to approve under the process outlined above prior to approval.
At the end of each fiscal year, the Board will receive a list of all projects authorized by each responsible approver.
If the total estimated cost of a project increases after the project has received authorization, additional approvals are required for the project to proceed. If a project is expected to exceed the Board-approved authorization by less than or equal to 5%, then approval need only be obtained for the additional estimated costs, subject to the approval authority and documentation requirements outlined above. If a project is expected to exceed the Board-approved authorization by greater than 5%, then authorization for the new total project costs must be obtained subject to the approval and documentation requirements outlined above.
By way of example, if a project with budget authorization of $5,000,000 incurs cost increases of $200,000 (+4%), then authorization for the increase must be obtained from the Budget Director. The incremental authorization approved by the Budget Director would reduce the remaining “Off-Cycle Allowance” balance by $200,000. Alternatively, if a project with budget authorization of $5,000,000 incurs cost increases of $300,000 (+6%), then authorization for the new total $5,300,000 total cost must be obtained from the Board of Trustees.
By way of another example, if a project with budget authorization of $100,000,000 increases in cost by $4,000,000 (+4%), this increase would require approval from the President and would reduce the remaining “Off-Cycle Allowance” balance by $4,000,000 (assuming the remaining “Off-Cycle Allowance has sufficient remaining balance). Alternatively, if a project with budget authorization of $100,000,000 incurs cost increases of $6,000,000 (+6%), then authorization for the new total $106,000,000 total cost must be obtained from the Board of Trustees.
Status Reporting to the Board of Trustees
The Chief Financial Officer regularly delivers status reports about spending to date on major projects, including those managed by the University’s Facilities Services, Information Technology Services and UCMC Facilities. These reports include information on cost (including hard costs, soft costs, contingency, etc.) and key benchmarks (square feet, IT metrics, etc.).
Documentation and Management-Level Review Process for Major Projects
Any project that exceeds $5 million in total costs is classified as a major project and must first be submitted to the Capital Project Review Committee (CPRC) for review and approval. CPRC is supported by an associated Working Group that conducts assessments and review.
The Capital Project Review Committee will consist of the President, the Provost, the Executive Vice President in the Office of the President and the Vice President and Chief Financial Officer. The Working Group will consist of staff designated by these four officers. For each project, the Working Group will present to the CPRC a report that addresses the below topics as well as any other relevant matters:
- Strategic and programmatic rationale for the project
- Site, architect, and design options
- Project costs, square footage, and other key metrics
- Impact on campus planning, operations and environment
- Anticipated schedule (including anticipated start and end dates)
- Legal considerations and transaction structure
- Financial impacts
Additionally, major projects that meet one or more of the criteria below will be submitted to the “Deal Team” comprising certain Vice Presidents of the University for review:
- A potential significant long-term strategic relationship between the University and a third party in which any deal team member believes the University would share material exposure regarding reputational, financial, and operational resources and risks
- Acquisition/Disposition (including of long-term leasehold interest)
The Deal Team will discuss and make recommendations to leadership concerning each project in regard to strategic rationale, campus planning, legal commitments, financial impact, community relations and University reputation. The Deal Team will prepare a brief report summarizing its analysis and recommendations for leadership review.
Funding and Budget Impact
The source of funding for the project may be either center or unit sources of funds. The expected source of funding is identified at the time of submission for a project request. The Budget Office will review and verify availability of funding for project requests as they are received.
Under the University budget model, units may fund projects upfront from three sources, including any combination of them:
- Gifts made to a unit and restricted for the purpose of funding a specific project;
- Units’ current year revenues; and
- Banked funds or accumulated fund balances
Under the University budget model, units that fully-fund projects using the above sources will not incur future depreciation or interest expenses from the University Space Allocation model in their operating budgets once those projects are completed and asset(s) have been capitalized. However, units will be responsible for ongoing utilities and operation and maintenance expenses for any space they occupy, regardless of funding source to construct or alter those spaces.
Projects where costs are not funded by unit funding sources may be approved by the Budget Office to be funded with central sources of funding. Projects that receive central funding will incur depreciation and interest chargebacks to a unit’s operating budget (as well as utilities and maintenance operating expenses) under the University’s Space Allocation model once the project is complete. IT projects that receive central funding will charge back depreciation and interest through the ITS Chargeback model.
Additional Space Allocation charges do not release units from commitments regarding operating budgets. For projects with a central funding component under review by the CPRC for recommendation for Board authorization, the Budget Director and AVP for Finance will prepare a multi-year estimate of future operating costs for review by the unit’s Finance Director and work with the unit to identify adequate sources of incremental revenue or operating savings to absorb the additional expense within existing operating budget targets. The unit Dean or Vice President will then determine whether or not to commit to the incremental project expense prior to a project moving forward to recommendation for Board authorization. Any adjustments to a unit’s operating budget target must be approved by the Provost.
Subject to Budget Office approval, projects may receive central funding for a portion of a project’s costs, in which case future depreciation and interest chargebacks to a unit’s operating budget will be prorated.
Projects that receive authorization from the appropriate approval level will be entered into the University’s accounting system using 8-ledger project accounts, once Capital Asset Accounting receives the appropriate documentation. Budget Office will provide Capital Asset Accounting with line item detail for the individual projects authorized by the Board as part of the annual capital budget. Capital Asset Accounting processes around capital assets are defined in University Financial Policies 1004.1-8.
On an annual basis, the Budget Office and Capital Asset Accounting will review all open projects to determine the status of the project and to determine if projects should be closed. Project accounts should be closed upon completion of the project. If a project does not commence spending within the fiscal year for which it received authorization, the project account will be closed and the project must be re-submitted for authorization.
At the time a project is closed, any remaining authorized budget will be closed out and will not be reallocated to another project. On all projects that are jointly funded by both the center and a unit, unit funds will be expended first. Any funds remaining at the end of the project will be returned to the center, up to its total contribution, and then any remaining funds will be returned to the unit.