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Loyola University Chicago

Financial Services

Capital Expenditure Policy

Capital budgeting at Loyola University Chicago requires advanced planning and management approval to ensure that projects are properly evaluated and prioritized and consistent with the university’s strategic vision and campus master plan.  


TABLE OF CONTENTS


PURPOSE 

To provide guidelines under which capital expenditures will be approved and prioritized for the current fiscal year capital budget and five year capital plan.  To ensure that capital expenditures are properly monitored and tracked.

SCOPE 

This procedure applies to all construction, capital improvements, major equipment purchases and other special projects requiring one or more expenditures totaling $25,000 or more.  This includes projects that are partially or fully funded by outside funding sources (e.g. grants, gifts, etc.). Examples include:

The VP of Facilities has been allocated a certain amount each year to address small maintenance and emergency projects under this threshold.  Other requests under $25,000 should be included in departmental operating budgets.  

WHO SHOULD KNOW THIS POLICY

  • President
  • Senior Vice Presidents
  • Provost
  • Vice Presidents
  • Deans
  • Area Directors
  • Business Managers
  • Other Finance/Accounting Personnel

CONTACTS 

For questions regarding this policy, please contact the Financial Planning Office (FPO) at extension 5-7676.

DEFINITIONS 

Capital

Capital assets are real or personal property that have a value greater than or equal to $5,000 and have an estimated life of greater than one year.  Capital assets are recorded at their historical costs, which include the vendor’s invoice, initial installation cost, modifications, attachments, and accessories necessary to make the asset usable.  Historical costs include ancillary charges such as freight, site preparation, and professional and legal fees. 

For a repair or replacement to be capitalized, it must be part of a major repair or rehabilitation project that increases the value and useful life of the building, such as the renovation of a student center or conversion of a basement to a usable classroom space.  A replacement may also be capitalized if the new item/part is of significantly improved quality and higher value compared to the old item. An example of a replacement that would be capitalized is an old shingle roof that is replaced with a new fireproof roof.  Replacement or restoration to original utility level would not qualify for treatment as a capital item.  Determinations must be made on a case by case basis.  

The following expenditures are examples of maintenance expenses that would not be capitalized:  interior renovation such as repainting, carpet replacement, plumbing or electrical repairs, or cleaning; replacement of a part of a building with a new part of the same type and performance capabilities, such as the replacement of an old boiler with a new one of the same type and performance capabilities. 

Capital Planning Committee

This committee will consist primarily of the Budget Review Team (President, Provost, Senior Vice Presidents, and Associate VP of Finance). 

The committee is responsible for assessing the university’s capital needs and opportunities, evaluating them with respect to the university’s overall strategic plan, and establishing priorities for project implementation.  They will prepare the current fiscal year capital budget and five year capital plan.   

RELATED DOCUMENTS/FORMS

Initial Capital Budget Request Form

Detailed Capital Budget Request Form

Capital Budget Amendment Form

Signature Card 

PROCEDURES

A.  CAPITAL FUNDING

In order to begin planning for future capital expenditures, there must be expendable funds available in the capital budget.  Expendable funds can be general funds or funds related to a specific project.

1.  General funds are defined as those funds available to be expended on any capital project authorized by the university. The university’s annual depreciation expense is the initial deposit to the capital budget.  At year end, the initial estimate of depreciation will be adjusted to actual.  

From time to time, other general funding becomes available and is assigned to the capital budget by the CFO.  These funds are available as general funding unless they are identified for a specific project.  

2.  Specific funding sources relate to a particular project.  An example would be a bond issue to finance a large construction project.  These funds will be segregated from general operating funds and brought into the capital budget as funds are expended on the project.

3.  Due to timing of project expenditures, funding will be broken out to equal current year expenditures.

B.  CAPITAL EXPENDITURE PLANNING PROCESS

The capital planning process will result in a prioritized list of projects for the current fiscal year capital budget and five year capital plan.  In general, the projects incorporated into the capital plan must reflect the university’s overall strategic vision, campus master plan, and academic initiatives.    

Each request for a capital expenditure is subject to the following steps: 

Capital Planning ProcessTime line
1.  Initial Development and Review of a Capital Proposal       August - September
2.  Provost/Vice President Review and Ranking  September - October
3.  Capital Planning Committee Review November - April
4.  Finalize/Approve Current Fiscal Year Budget May
5.  Project Authorized for Spending to Begin  Throughout Year

1.  Initial Development and Review of a Capital Proposal        

When an individual identifies a capital need that falls under the above scope, he/she should complete an Initial Capital Budget Request Form and submit it to his/her Provost or Senior Vice President.  The proposal should meet a specific objective such as an academic or infrastructure requirement and be consistent with the university’s strategic plan and campus master plan.  The purpose of this form is to encourage the flow of ideas and allow for advanced planning. 

The Initial Capital Budget Request Form should include the following: desired project timing, a brief description and justification of the project, a rough estimate of the project cost, and identification of potential funding sources such as grants or gifts.  A very detailed analysis is not required at this point.  This will be done after management’s initial review in order to prevent unnecessary work if it is determined that the project is not feasible given the university’s priorities and limited resources.  Detailed instructions on how to prepare an Initial Capital Budget Request Form are included in Section C below.

An annual submission deadline will be set during the annual budgeting process each year in order for the capital projects to be included in the following fiscal year capital budget.  If this date is missed, the forms may be submitted throughout the year for consideration in subsequent years’ Capital Budgets and the 5-year Capital Plan.  

2.  Provost/Vice President Review of Capital Proposals   

The Provost or Senior Vice President will review the Initial Capital Budget Request Forms developed by his/her staff and approve those they believe are consistent with institutional and academic priorities and the university’s strategic plan. If the Provost and/or Senior Vice President is submitting multiple projects, he/she should assign a preliminary ranking of the project’s importance using a letter grade (A being the highest) and add additional commentary if necessary.  As the university has limited resources, he/she should only submit those projects that have a realistic funding potential. This is not intended to be a ‘wish’ list.  SVPs should limit their list to projects for which there is genuine and pressing need. SVPs will then forward the Initial Capital Budget Request Forms (fully completed, approved, and ranked) to the Capital Planning Committee for further consideration.

3.  Capital Planning Committee Review   

The Capital Planning Committee will review the university’s master list of projects (maintained by the VP of Facilities) and various Initial Capital Budget Request Forms submitted by the Provost and Senior Vice Presidents. The committee will rank the projects and assign a priority. They will decide which have the highest priority/immediate need and merit further investigation.  The committee will discuss various potential funding sources, internal and external, for the agreed upon projects. The committee may also choose to defer some projects in order to make way for other more urgent projects that come up in the planning process. Senior Vice Presidents will be notified which projects are selected for further development. 

The capital planning committee will use the master list of projects to develop the five year capital plan and current fiscal year capital budget.  To do so, they will need input from the SVP of Finance and the President about the estimated total institutional budget for capital projects in the coming fiscal year and the next several years. 

Please keep in mind that the process of prioritizing capital projects must allow for some flexibility. The development of the five year capital plan is a continual process, and changing or unanticipated circumstances must be taken into consideration and incorporated into the plan.   

4.  Finalize Current Fiscal Year Budget 

The Senior Vice President of Finance and the President will determine the total institutional budget for capital projects.   The portion of the capital budget dedicated to facilities renewal (deferred maintenance, repair, and renovation) and infrastructure development will typically be roughly equal to the annual depreciation expense at the university. 

The Capital Planning Committee will review the master list of projects for the projects determined to have an immediate need or opportunity and finalize the current fiscal year budget.  The total amount of the current fiscal year capital budget and any individual expenditure over $3 million should be forwarded to the Board for approval.  

5.  Project Authorized for Spending to Begin  

In order for spending on a project to begin, the project administrator must complete a Detailed Capital Budget Request Form and submit it to his/her divisional SVP or Provost for approval. Final authorization must be given in the approval section of the Detailed Capital Budget Request Form as follows:

Level of ResponsibilityApproval Limit
SVP/Provost < $100,000
President < $3,000,000
Board > $3,000,000

In addition, all projects are subject to the following approvals:

VP Facilities Required for all projects that involve construction/remodeling
Chief Information Officer Required for all projects that involve information services
CFO Required for all projects

All projects greater than $3 million require presentation to the Board, and Board approval is required before commitment can be made to proceed with any type of expenditure.  Projects under $3 million should be reviewed by the SVP/Provost of the area under which the project is submitted and the President (if over $100,000).  All projects should be reviewed by the CFO to ensure that they are consistent with university objectives and are financially viable. All facility projects should be reviewed by the VP of Facilities to ensure accurate cost estimates and consistency with the campus master plan.  Any new system implementations or IT projects require the approval of the CIO. 

Once the VP of Facilities and/or the CIO have authorized the request, it is forwarded to the FPO.  This department will verify that the project has been preliminarily approved in the current fiscal year budget and has a funding source identified.  FPO will secure the authorization of both the SVP of Finance and the President so that spending on the project may begin.

Due to the changing environment in which the university operates and the desire to react quickly (and change priorities if necessary), these authorizations will be given throughout the course of the fiscal year rather than at budget time.  Project administrators must ensure that the necessary authorizations have been obtained on the Detailed Capital Budget Request Form before committing to any type of expenditure.  FPO will assign an accounting unit only after the form has been fully authorized.  

C.  COMPLETING AN INITIAL CAPITAL BUDGET REQUEST FORM 

When an individual identifies a capital need that falls under the above scope, he/she should complete an Initial Capital Budget Request Form and submit it to his/her Provost or Senior Vice President.  The proposal should meet a specific objective such as an academic or infrastructure requirement and be consistent with the university’s strategic plan and campus master plan.  The purpose of this form is to encourage the flow of ideas and allow for advanced planning.  Typically, these forms are submitted as part of the annual budgeting process.  

Section 1 - Project Details

Please provide a descriptive title detailing the project such as “Lewis Towers First Floor Renovation” and the estimated life of the new capital asset.  Specify the Project Originator’s name, department, phone number, and campus location.  The Project Originator is the individual who first recognized the need for a capital expenditure.  Provide the desired project timing including start date and completion date.  

Section 2 – Project Description and Justification

Include a brief description of the project and justify the need for the project.  

Section 3 – Project Cost Estimate

Provide a rough estimate of the total cost of the project. 

Section 4 – Project Funding Sources

Funding relates to the source of cash.  Please specify here if it is known that some of the cash to fund the project will come from a gift, grant, endowment or operating budget.    

Section 5 – Management Review of Project

This section will be used by the SVP/Provost and Management to evaluate the project.  The project originator will be notified if a project has been selected to move onto the next phase and a more detailed analysis is required.  

D.  COMPLETING A DETAILED CAPITAL BUDGET REQUEST FORM

Each project is required to have a completed and approved Detailed Capital Budget Request Form (CBR) before any spending takes place.  The Detailed CBR is designed to ensure that each project is properly and critically evaluated (technical concurrence, accurate cost estimate, justified strategically, alternatives considered, financially viable) and formally approved prior to committing to any type of expenditure. 

The large majority of projects will already have been preliminarily approved as part of the current fiscal year budget. However, there may be times when extraordinary circumstances/changing priorities necessitate that a project be completed that has not been included in the current fiscal year budget.  In this case, this form must be completed and fully authorized before any commitments are made.  These projects will be noted in the Project Cost Estimate section of the Detailed CBR Form as not being included in the current fiscal year budget.

Section 1 - Project Details

Please provide descriptive title detailing the project such as “Lewis Towers First Floor Renovation”, the estimated start and end date of the project and the estimated life of the new capital asset.  Also specify the Project Administrator’s name, department, phone number, and campus location.  The Project Administrator will be responsible for managing the project and its costs.  

Section 2 – Project Description and Justification

Include a detailed description of the project and justify the need for the project.  The justification should include one or more of the following (as appropriate): 

Section 3 – Project Cost Estimate

Provide the anticipated cost of the project and source of the estimate.  Attach a detailed estimate that breaks down the individual project costs such as construction, furniture, equipment, contingency.  This can include, but is not limited to, bid proposals, agreements between Loyola and its vendors, blueprints, and signed contracts stating the nature of the work, cash flow estimates, and agreed detailed costs.  Facilities related projects should have a Facilities Department Cost Estimate attached.  The project should not exceed this estimate.  Any proposed expenditure above the cost estimate will require the approval of a Capital Budget Amendment.  Please also provide the anticipated timing of the cash flows if the project is going to span multiple years.  

Section 4 – Project Funding Sources

Funding relates to the source of cash.  If the project is going to be funded by a gift, grant, or endowment fund, please specify the accounting unit and amount of funding.  The cash from the gift, grant, or endowment should already be received and available to spend at the time this Detailed CBR is submitted.  

Section 5 – Annual Operating Cost Impact

Provide an estimate of the annual impact of this project on the operating budget. For example, detail the increased cost associated with additional staffing that may be needed for a new or expanded program or specify the decreased maintenance and energy cost associated with an energy conservation project.  If any additional revenue is to be generated from a new program or service, please include an estimate of this amount as well.  Inclusion in this form does not in any way mean that these additional operating costs are included in an individual unit’s operating budget. Any increase in the operating budget must be approved through the normal budgeting process.

Section 6 – Financial Analysis

If the project is revenue generating and/or cost saving in nature and large in scope, financial calculations that show the net present value, internal rate of return, and annual payback may be necessary.  For example, a large system implementation or a new program expansion would require these calculations.   They are not required on a mandatory building repair or small renovation to keep buildings up-to-date.  These calculations will be done by the University Budgeting & Financial Analysis Department on a project by project basis. 

Section 7 – Authorization

Final Authorization must be given before any commitment or spending begins as detailed in section B5 above.  

Section 8 – Finance Use Only

This section is reserved for the department of University Budgeting & Financial Analysis to assign accounting units.

E.  COST OVERRUNS AND CAPITAL BUDGET AMENDMENT FORMS

A Capital Budget Amendment Form must be completed for any project that will exceed its approved amount by 5% or $10,000.  These amendments should be filed as soon as the Project Administrator anticipates the overspend situation.  A reason for the overspending should be provided as well as what actions are being undertaken to minimize the overspending.  An amendment should also be filed if the timing of the project is going to change significantly and cross several years.  The amendments require the same signature authority as the Detailed CBR Form. There are several procedures in place to ensure a project does not exceed its approved amount without an amendment being filed:

CAPITAL BUDGET AMENDMENT INSTRUCTIONS

Section 1 - Project Details

Provide the project name and accounting unit (66xxxx), name of the Project Administrator, and the original approval date of the project.   

Section 2 - Nature of Change and Cost Details

Provide the reason for the change (an amendment to the original project estimate approved or a time extension), the original amount approved, additional amount needed, and new estimated total project cost.  If the amendment relates to a time extension that crosses fiscal years, please provide the original scheduled start date and new proposed start date.  

Section 3 - Reason for Change

Provide a reason for the overspending and the actions being taken to minimize the overspending.  If related to a time extension, please provide a reason for the early start or delay.  

Section 4 – Authorization

Final Authorization must be given before any additional commitment or spending over the original approved amount begins.  Amendments are subject to the same approval authority as the Detailed CBR Forms described in section B5 above.  

Section 5 - Finance Use Only

This section is reserved for the department of University Budgeting & Financial Analysis to assign accounting units.  

F. PROJECT SET-UP AND TRACKING

When the completed Detailed Capital Budget Request Form has been fully authorized per section B5, it should be forwarded to University Budgeting & Financial Analysis.  University Budgeting & Financial Analysis will then assign a Capital Project Number (66xxxx) in Lawson.  A copy of the fully authorized project and associated Capital Project Number will be sent to the Project Administrator.  A Capital Account Signature Card should also be prepared and signed by the Project Administrator(s).  This card should be forwarded to Accounts Payable, where it is used to verify that each invoice charged to the capital project has been approved by the budget administrator. 

Note: If a capital project is fully or partially funded by another source (e.g. grant), an accounting unit is provided by the requestor.  In this case, a copy of the capital project should be sent to the Assistant Controller of Sponsored Program Accounting for verification that the funds have been received before a Capital Project Number has been assigned.  

 

POLICY NUMBER:  09200301

RESPONSIBLE OFFICE:  University Budgeting & Financial Analysis

LAST REVISED: May 2014 ‌

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