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Strategic System: How UMass is Reducing its Deferred Maintenance Backlog

LeeAnn Pasquini, Jonathan King, and Brendon Martin

October 17, 2016

2

Agenda

Background on UMass System and Campuses

UMass System Challenges

Standardizing the Planning Process

What we learned and how we are going to use it

Questions & Discussion

UMass System Facts

> System Facts> Locations: Amherst, Boston, Dartmouth, Lowell, and Worcester

> GSF: 23.5M GSF

> Students: 73,744 (HC)

> Annual Operating Budget of $3.1 billion

> Key programs align with the workforce needs of the region: Computer & Information Sciences, Natural Sciences, Health Sciences, Engineering, Mathematics, Business, and Education.

> Replacement value: $11.2B

> Average annual capital spend: $154M into existing space> Facts about how the UMass System works:

> Governed by 22 member Board of Trustees (19 voting, 3 non-voting)

> System President, Campus Chancellors provide leadership and direct University operations

> Two-step review and approval process for capital projects exceeding $2M project cost

> UMass Building Authority (UMBA) issues bonds on behalf of UMass for debt-financed capital projects

> Commonwealth of Massachusetts approves UMBA bond issuance and provides some funding for projects, which are managed by DCAMM in collaboration with UMass and UMBA

3

UMass – Board Policy Re: Capital Planning & Reporting

> Per Board Policy, the University’s five-year capital plan contains priority projects that are consistent with the campuses overall master and strategic plans.

> The goal of the five-year plan is to ensure that campuses are planning for future capital needs consistent with the campus master plan. The five year capital plan also serves as a prioritized list to advocate and seek funding for projects and other capital support.

> The Five Year Capital Plan includes:> A prioritized list of all campus capital projects over $2 million in total project cost that

are planned to be initiated over the next five years;> Five-year capital budget projection along with the revenue source(s) for each project.

> The 5-year capital plan is refreshed every 2 years; on a quarterly basis, the University reports on the progress of approved projects, seeks approval of new projects or projects where the design is complete and reports on various key indicator dashboards.

4

UMass Capital Plan – Sources of Funds

> University – Local Funds – Funded using campus’s resources.

> University – External Funding including Fundraising and Grants – Funded through specific fund raising efforts or grant applications from federal, local or private sources.

> University – Borrowing – UMBA / HEFA / WCCC / Other – Borrowing for which the campus is responsible for principal and interest payments annually.

> State Approved – GO Bonds, Life Sciences, Supplemental Appropriations – These are funds authorized, borrowed or appropriated by the State in support of capital projects.

> P3 – Public Private Partnership

Prelim. Campus Estimate

Full Project Approval

Vote 1 Vote 2University - Local Funds $78,790,000 $109,676,000 $88,874,000 $277,340,000 $0University - External Funds $17,500,000 $37,965,000 $7,500,000 $62,965,000 $5,000,000University - Borrowing $112,300,000 $1,070,479,500 $0 $1,182,779,500 $282,700,000State Funding $0 $559,675,000 $0 $559,675,000 $655,150,000P3 $27,500,000 $186,600,000 $0 $214,100,000 $0Total $236,090,000 $1,964,395,500 $96,374,000 $2,296,859,500 $942,850,000

In Projection, Not Approved

Funding Source Total ApprovedPresident Approval

5

UMass Debt Ratio and Annual Debt Service

> Board Policy caps the debt to operating expense ratio at 8% (higher requires Board Approval).

> Annually a 5-year financial projection is completed and reflects the borrowing needs associated with approved capital projects.

FY15 FY16 FY17 FY18 FY19 FY20 FY21Debt Ratio Actual Projected Budget Projected Projected Projected ProjectedUniversity 6.6% 6.5% 6.5% 6.5% 6.6% 6.9% 6.8%

Pricipal + Interest FY15 FY16 FY17 FY18 FY19 FY20 FY21(in millions) Actual Projected Budget Projected Projected Projected ProjectedUniversity 190,487$ 200,209$ 211,046$ 218,377$ 230,196$ 248,779$ 253,464$

6

Tracking Deferred MaintenanceHistorical Reporting Process

> Addressing deferred maintenance has always been a key component of the capital planning process and in recent years campuses were required to report on the amount of deferred maintenance investment annually.

> However, prior to the implementation of Sightlines across the system, campuses were responsible for independently reporting deferred maintenance needs and annual spending toward addressing those needs.

> Some campuses utilized outside consultants to help in this process, including Sightlines, while others conducted their own internal review.

> This led to inconsistent definitions of projects and varying levels of details which made it difficult to truly quantify the University’s deferred maintenance need.

7

UMass System Challenges

Challenge Number 1: Aging Facilities

> 23.5 million Gross Square Feet

> $11.2 billion Replacement Value

> Over 67% of assets are more than 25 years old and 53% of space inventory built between 1965 and 1980> Amherst Campus - 65% built in 1960’s &

’70’s; 25% prior to the 1950’s> Boston Campus - opened in 1974> Dartmouth Campus - core of campus

opened in 1970’s> Lowell Campus - most buildings date to

pre-1975 merger> Medical School - core campus opened

1970

9

Challenge Number 2: Meeting Enrollment Demands

> Enrollment continues to outpace square footage growth. The University does not take an “if you build it they will come” approach to building.

> > Over the last 5 years (FY12 thru

FY16), FTE enrollment has grown by 6.5%.

> Projected enrollment growth from FY17-21 is 6.5%; on average 1.6% annually.

> UMass campuses are below other peers in program space per student.

> The investments made have allowed us to address the needs of students while addressing our deferred maintenance.

10

Challenge Number 3: Estimated Quantity of DMUMass Campuses: 10 Year Needs

Remaining Renewal Need:• Life cycle needs coming due between

2018-2024.

Immediate Need:• The subsystem has already failed• The subsystem is functioning with

substantial degradation of efficiency or performing at increased cost

Infrastructure & Modernization Need:• Estimated using a combination of the

Sightlines’ database & BPS analyses.

Total$0.0

$500,000,000.0

$1,000,000,000.0

$1,500,000,000.0

$2,000,000,000.0

$2,500,000,000.0

$3,000,000,000.0

$1,580,194,352.9

$547,590,867.1

$396,754,465.9

10 Year Needs

Immediate NeedFY18-24 Renewal NeedInfrastructure & Modernization

Tota

l Dol

lars

(Mill

ions

)

11

Challenge Number 4: Higher Risk Building NeedsUMass Campuses: 10 Year Needs

Total$0.0

$500,000,000.0

$1,000,000,000.0

$1,500,000,000.0

$2,000,000,000.0

$2,500,000,000.0

$3,000,000,000.0

$905,571,486.0

$302,788,800.4

$371,834,066.5

10 Year Needs

High Risk Medium Risk Low Risk

Tota

l Dol

lars

(Mill

ions

)

57%19%

24%

High = HVAC, Electrical, PlumbingMedium = Exteriors, Roofing

Low = Interiors, Sm Bldg

UMass: Immediate Needs by Risk

12

Standardizing the Planning Process

13

UMass Capital Plan

> The University’s capital program has been critical to our ability to step forward and emerge as a great public university.

> Major State investment has helped create science and technology centers at all five campuses.

> Our construction and renovation efforts have employed thousands and have contributed to the $6 billion annual economic impact that UMass provides across the Commonwealth.

> Our Board was engaged in updating our Capital Planning Policy and ensuring a more robust approval process for all capital projects.

> Being able to accurately report on Deferred Maintenance needs is critical to our conversations with the Board, the State and other key stakeholders.

14

Asset reinvestment progress at UMA since 2009Needs in existing space reduced by 30% - over $400 million reduction

April 09 Update

Fall 09 Update

June 2010 Update

June 2011 Update

June 2012 Update

June 2013 Update

June 2014 Update

June 2015 Update

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$1,475,383,245 $1,416,048,167 $1,411,079,138 $1,240,920,941 $1,219,569,932 $1,179,205,155 $1,124,796,853 $1,031,943,003

$105,512,965 $90,088,072 $83,527,544

$82,022,368 $82,002,725 $82,257,005 $70,141,020 $172,196,569

$456,809,974 $434,170,465 $409,674,173

$571,383,434 $540,708,117 $442,344,322

$341,000,000 $306,234,547

Building Needs Infrastructure New Space*Data shown is for E&G Space at UMass Amherst

15

Addressing the Backlog

> Amherst has had a $450 million decline to their deferred maintenance since 2005. The vast majority of public universities experienced an increase in their deferred maintenance estimates over this same period.

> Since 2011 Amherst has eliminated 105,000 square feet of building space which accounted for a reduction in their deferred maintenance of $21.1 million.

> Amherst's annual investments have allowed them to avoid growth in their backlog while reducing it at the same time.

> In the case of Boston, once the new buildings are completed nearly 937,952 GSF will be demolished significantly reducing their deferred maintenance.

> Investments by all other campuses (not including the flagship) have avoided nearly $85 million in growth in the backlog.

16

Creating a Successful Capital PlanA Successful Capital Plan will be:

Sightlines‘ Building Portfolio Solutions move the institution forward by aligning resources and creating affordable capital plans that support

mission and mitigate risk.

Inclusive

Credible

Flexible Affordable

Sustainable

17

A Credible Assessment of Needs

Repairs & Renovations

Campus Modernization

Utility Infrastructure

Master Plans

Commonly Codified Database

Consistent Pricing & Priorities

Multi-Year Capital Phase Out Plan

18

Fast FactsSources of Information and Scope of Work

Building Walkthroughs UMass-Boston and UMass-Medical

Separate Studies Collected UMass-Medical and UMass-Lowell

Sightlines Studies Updated UMass-Amherst and UMass-Dartmouth

# of Projects 8,652

# of People Interviewed 60-70

# of hours of Supervisor Interviews 165 hours

Other Reports Included VFA, and ISES

19

Core Observations

> Defining the 10-Year Comprehensive System Project Inventory– The grand total System inventory is $4.65 Billion; split between $1.45 Billion of new construction (renovation thru replacement space and new programming space) projects and $3.20 Billion of existing space projects.

> Quantifying the Deferred Maintenance Need– $1.45 Billion of the $3.20 Billion of existing space projects are considered “deferred maintenance.”

> Consolidating Project Inventory through Building Portfolios– The BPS identifies 5 primary building portfolios for strategic planning: 1.) Building Renovation 2.) Maintain 3.) Repurpose/Alteration 4.) Campus-Wide 5.) Transitional.

20

UMass: What we learned and how we are going to use it

21

How has this process helped UMass Plan?

> Standardized the language and the process for inventorying deferred maintenance

> Ensured our biennial capital plan and approved projects were addressing deferred maintenance

> Identified spending goals to prevent further growth of deferred maintenance

22

Standardizing the Inventory

> Sightlines analysis has identified a 10-year asset reinvestment backlog totaling $3.1 B. This is the accumulated backlog of repair and modernization needs and the definition of resource capacity to correct them.

> Of this total, $1.41B is defined by Sightlines as “deferred maintenance”, consisting of Timeframe A projects with Investment Criteria of Reliability, Asset Preservation, or Safety/Code.

23

Combined 10-Year Total Project Inventory Total Deferred Maintenance Total Deferred Maintenance after Current Capital Plan$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

$3,204,235,325

$848,307,918 $628,509,791

$591,498,437

$273,120,310

BPS Identified Project Inventory - E&G Only

Existing Space Project Inventory Asset Preservation & Safety Code Need Reliability Need

Cross-walking Sightlines Data to the UMass Capital Plan

Identifying Deferred

Maintenance

Current Plan Addressing 38% of BPS Identified DM

24

Setting Spending Targets

> Because of State Support and increased borrowing over the last several years, the University is meeting investment targets for deferred maintenance.

> In FY15, Sightlines established an annual stewardship and infrastructure target of $129.9M for the University system. This is the amount of spending necessary to maintain buildings in their current condition and to maintain the grounds and utility infrastructure.

> The total actual spending in FY15 totaled $154.9M – over $25M more than the established target.

25

How will we use this information going forward?How to strategically address Deferred Maintenance in the future

> Projects must address deferred maintenance.

> Continue to be consistent and work with our state partners around the needs of the University to ensure we continue to get our share of limited capital resources.

> Hold ourselves accountable and review progress toward addressing deferred maintenance with our leadership and Board regularly.

26

Questions & Discussion

27