Change the Conversation to Address Deferred Maintenance

Jim Kadamus – Vice PresidentSightlines

Cuba Plain – Assistant Vice President, Budget and PlanningUniversity of Missouri System

Walt Branson – Vice Chancellor for Finance and AdministrationMissouri University of Science and Technology

Bob Simmons – Associate Vice Chancellor for AdministrationUniversity of Missouri Kansas City

Changing the Conversation

Speaker:Jim Kadamus, Vice President

Company:Sightlines, LLC

Sightlines’ National and Regional Trends

Robust membership includes colleges, universities, consortiums and state systems

* U.S. News Rankings

Serving the Nation’s Leading Institutions:

• 70% of the Top 20 Colleges*• 75% of the Top 20 Universities*• 33 Flagship State Universities• 13 of the 14 Big 10 Institutions• 9 of the 12 Ivy Plus Institutions• 7 of 12 Selective Liberal Arts Colleges

Sightlines is proud to announce that:

• 450 colleges and universities are Sightlines clients including over 325 ROPA members.

• 93% of ROPA members renewed in 2014

• We have clients in 42 states, the District of Columbia and four Canadian provinces

• More than 100 new institutions became Sightlines members since 2013

Who partners with Sightlines?

Campus Space and Enrollment

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Growing Campus EnrollmentNational Average within Sightlines Database

National Space Growth National Enrollment Growth

Campus Space and Enrollment

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2008 2010 2012 2014 2008 2010 2012 2014 2008 2010 2012 2014

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Growing Campus EnrollmentNation By Constituent Group

Space Growth Enrollment Growth

Comprehensive Institution Research Institution Small Institution

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Constructed Space Since 1880

Sightlines Database

Database Construction Trends

Pre-War Post-War Modern Complex

The Aging Campus

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2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014

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Square Footage by Age Category

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Public Average Private Average

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2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014

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Capital Investment into Existing Space

Annual Capital One-Time Capital Average

Capital Spending Public vs Private

Public Average Private Average

Facilities Backlogs Continue to Rise

$83 $87 $88 $91 $93 $96 $98

$73 $74 $76 $79 $81 $82 $84

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Backlog $/GSF

Backlog/GSF Percentage Change of Backlog

Public Average Private Average

Facilities Operating Budgets Flat

$4.30 $4.61 $4.43 $4.54 $4.58 $4.60 $4.71

$0.26$0.27

$0.27 $0.28 $0.29 $0.30 $0.31

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National Operating Budget Average

Daily Service Planned Maintenance

$4.17$4.66

$4.37 $4.50 $4.54 $4.57 $4.71 $4.45 $4.55 $4.53 $4.60 $4.64 $4.63 $4.66

$0.23

$0.24$0.24 $0.26 $0.27 $0.27 $0.27

$0.31 $0.31 $0.32 $0.32 $0.33 $0.35 $0.37

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Operating Budget – Public vs. Private

Daily Service Planned Maintenance

Operating Budgets Short of Inflation

Public Average Private Average

The Predictions Have Not Become Reality –Why???

What Happened to Manage the Past Risks?

1. Maintenance organizations have, by default, taken an effective approach to manage the most critical repair risks for campus. Often lower cost repairs to systems rather than full system replacements have bought extra service time.

2. Because campuses are a collection of buildings – the risk is diversified over the portfolio.

3. Engineering lifecycle estimates are appropriately conservative and therefore systems tend to outperform their statistical target

4. The functional obsolescence of space drives investments that brings outside resources that fixes stuff!

How Do We Make the Case for Resources?

The old approach of defining needs in a way that makes the DM problem bigger and then requesting money will not work.

Problem is too big to address in total – must break it down in size and priority

How do we … Lower Demands - Space ManagementMake the Problem “Smaller” – Use Building Portfolio ManagementSustain Impact of Finite Funding - Create Multi Year PlansMitigate Risk - Target Capital to Safety, Reliability and Program IssuesIncrease Funding - Invest in Operations to release savings that self-funds stewardship

Speaker:Cuba PlainAssistant Vice President, Budget and Planning

University of Missouri System

Land grant institution with four campuses, hospital & clinics, system administration,

experiment station and farms

24,000 Employees

77,283 Student Headcount

59,565 Student FTE

29.5MGSF

1,500+ Buildings

$8.5BFacilities

Replacement Value

Total Operating Budget:

$3B

System Profile

38% growth in headcount and 45% growth in FTE students since FY2001

Legislative limits on tuition increases equal to CPI State operating appropriations per FTE student

have declined 32% in nominal terms and 50% in real terms since 2001.

Flat nominal state operating appropriations since 2010 which resulted in a cumulative real loss of $300 million through FY14

No new state capital appropriations since FY2008, minimal investment between FY2001 and FY2008

Changes and Challenges

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Actual Appropriation Received CPI Adjusted Appropriation Cumulative Difference

State Appropriations Over Time

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2009 2010 2011 2012 2013 2014

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UM Annual M&R Spendingby Sightlines

One‐time capital SourcesInstitutional Recurring CapitalSightlines Recommended Annual M&R Target

Maintaining or Increasing Value

Decreasing Value

Funding Levels Fall Short

Backlog of Need Increased by 69%

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illions

Facility Needs Backlog by Priority

Immediate Within 1 Year 2‐5 Years 6‐10 Years

$838

$1,415

Facilities Condition by Campus

Shaping Campus Policies

Predicting Future Condition

31%

24% 23%

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35% 35%

55%

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MU UMKC S&T UMSL

FCNI

FY 2014 FCNI INDEX FY 2023 PROJECTED FCNI INDEX

Best Practice ≤ 0.30 FCNI

Potential Funding Sources

State Bond Issue$200 million plan15 Year financing

$17.7 million annual debt service 50/50 Match – Private gifts and State

FundingDedicated Recurring State AppropriationStudent Facilities Fee

• $300 to $350 annual fee per student FTE

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UM Annual M&R Spendingby Sightlines

Annual M&R Renovation and Other Capital

Projected Impact of $200M

Recent Developments

More Aggressive Marketing to Elected Officials State Bond Issue - $95M appropriated for

Maintenance and Repair from new state bonds as part of a $200M funding package for higher ed University leveraged an additional $32.5M to complete 5 projects,

eliminating $88M in deferred maintenance

50/50 Match – Private gifts and State match -$28.6 million in state general funds appropriated Leveraged against $29.7M private gifts to build 4 academic buildings

Impact of these 9 projects

Recent Developments

Projects will eliminate 6.2% of the $1.4 billion M&R backlog, but it continues to grow …

$1.20

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Backlog Impact of State's Aid

Current backlog with funding at current level adjusted for inflation

Current Backlog with funding to stablize facilities conditions

Current backlog with funding at current level adjusted for inflation with State's Aid

Current Backlog with funding to stablize facilities conditions with State's Aid

Strategy Moving Forward

We must continue to make it a priority to reallocate more internal funding to facility needs.

We need sustainable funding sources so renovations and repairs may be planned.

We must examine the utilization of our existing space and work towards ‘right sizing’ the campuses with the type of space needed.

We are evaluating a policy of NO net new space without net new revenue.

Speaker:Walter BransonVice Chancellor for Finance and Administration

Missouri University of Science & Technology

Leader in green:First US university to receive ISO 14001

certification for environmental managementSolar village

Sightlines member since 2007

2.7M GSF165

Maintained Acres

8,642 Students

Founded 1870

Campus Profile

Operating Costs by Building Size

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Average Building Size

*Ozanne analytics

$3.00/GSF

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Smaller Buildings Than Peers

20% 14% 14% 19%

19% 27% 24%25%

41% 40% 44% 27%

20% 20% 19%29%

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Campus Age by Renovation Age Category

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Space ProfileRenovations and new construction are managing campus age

Capital Profile

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Institutional Recurring Capital One-Time Capital Sources Target Need

Capital investments falling short of target

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Institutional Recurring Capital One-Time Capital Sources Infrastructure

Capital ProfileSignificant infrastructure spending for geothermal energy

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5-Year Historical Investment Mix

Envelope Systems

Space Safety/Code

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Backlog Growth Since FY03

Backlog Maint/ Repair Backlog Modernization Backlog Infrastructure

Recent investment curbs growth in infrastructure, Repair/Maint growsTotal Backlog

Balancing Institutional Demands

Speaker:Bob SimmonsAssociate Vice Chancellor, Administration

University of Missouri –Kansas City

Engaged and Green:The President’s Higher Education Community

Service Honor Roll with Distinction. RecycleMania 2012 Grand Champion Winner.

Sightlines member since 2007

5.1M GSF

149 Maintained Acres

11,397 Students

Founded 1933

University of Missouri – Kansas City

Changing Campus Density

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Density Factor Rate of Change

UMKC Change Peer Change

*Density Factor is measured in Users/100kGSF

2010-2020 Strategy Statement:By 2020 we will grow enrollment to

20,000 and increase graduation rates 10% by ensuring student

success through a small college experience as Kansas City’s community engaged urban research institution, while

leveraging our strengths in the visual and performing arts, life and

health sciences and entrepreneurship.

23% 17%

18%20%

46%42%

14% 21%

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UMKC '03 UMKC '14

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Campus Renovation Age

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Age Shifts Over Last 10 Years

Buildings Under 10Little work. “Honeymoon”

period.Low Risk

Buildings 10 to 25Short life-cycle needs; primarily space

renewal.Medium Risk

Buildings 25 to 50Major envelope and mechanical life cycles

come due.Higher Risk

Buildings over 50Life cycles of major building components are past

due. Failures are possible.Highest risk

Changing Funding Sources

$-

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UMKC Capital History - Sources1990 - 2012

State Federal Private Campus Bonds Other (PPP)

As state funding decreases, shifting toward creative use of bond funding

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Capital Spending vs. AR Backlog

Backlog Maint/ Repair Capital Spending/GSF

Capital Spending and BacklogLarge infusions of capital have significant impact on backlog

Leaner Budget Than Peers

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5- year Avg. Planned Maintenance

PM Avg. Avg. w/o Highest Peers

Planned MaintenanceIncreased PM efforts has improved in-house PM performance

Institutions ordered by tech rating

$0.12$0.31 $0.29

$0.17$0.13

$0.25 $0.27

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UMKC PM

In-HouseExternal

Driving Capital Investment Strategy

Program ValueSAMPLE DATA

Strategies to Address Deferred Maintenance

Strategy 1: Change the conversation throughout higher education. Educate policy makers about the impacts of the space profile, capital plans that are aligned with the institutional mission and risk, and improving operating effectiveness while lowering costs.

Strategy 2: Set capital priorities to address the deferred maintenance needs in aging buildings that are determined to be critical to the mission and programmatic needs of universities.

Strategy 3: Consider eliminating or replacing aging space with new modern facilities, especially buildings with certain construction vintages where poor quality construction was prevalent. Sometimes less is more when it comes to addressing aging buildings with lots of deferred maintenance.

Strategies to Address Deferred Maintenance

Strategy 4: New construction must support the mission of the university and support the future program needs of each university.

Strategy 5: Make annual stewardship (keep-up) investment that addresses building components as they come due a priority at every campus. The more a campus keeps-up with life cycles as they come due, the less deferred maintenance grows.

Strategy 6: Institute facilities operational practices that are proactive at extending the life cycles of key expensive building components like HVAC, electrical systems and roofs. Proactive maintenance is not only a good idea when it comes to managing university facilities, it will save money in the long-run.