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Shepherd College

Meeting of the
SHEPHERD COLLEGE
BOARD OF GOVERNORS
November 14, 2002
Agenda Item No. 10

CAPITAL BONDING PROJECT AND RELATED STUDENT FEE

The College staff have been working closely with Crews and Associates, an investment banking firm, to develop the capital bonding project which will fund the Frank Center Addition, the West Campus Parking Lot, the miscellaneous repairs and renovations (boilers, etc.), and the College¹s share of the Field House.

Under this plan, the College will sell approximately $5.6 million in bonds secured by the pledged revenues of a new Capital Financing Fee. Enclosed is a two-page summary of the capital projects which would be funded and the financing plan, followed by the extensive Financial Feasibility Study.

Bonding programs require the additional approval of the Policy Commission. Changes in the student fees of Community and Technical College students must be approved by the Board of Advisors of the CTC, now that it is constituted.

The progression of review that is presently anticipated is for the Board to take initial action, as recommended below, at the November meeting. The Board of Advisors would act on the fee proposals, as they effect CTC students, at an emergency meeting the date of which had not been established when the Agenda Book went to print. At the December meeting of the Board of Governors, it is anticipated that the Board will be able to take final action on setting the new fee rates and on the authorization to proceed with sale of the bonds. Implementation would be subject to the approval of the Policy Commission, which will have the project on its December 13 agenda. If all of these approvals proceed apace, the sale could go forward immediately following the Policy Commission¹s approval.

The following resolutions are recommended for adoption by the Board:

1. RESOLVED, That the Shepherd College Board of Governors approves the establishment of a Capital Financing Fee, to be effective as of the Fall 2003 academic semester; and RESOLVED, FURTHER, That the Shepherd College Board of Governors directs the President to submit a proposal to the Board of Advisors of the Community and Technical College of Shepherd for the Capital Financing Fee, which would be assessed to all students, including CTC students, for their review and approval, at the earliest possible time and to take such other actions as are necessary to allow the Board of Governors to take final action on fees necessary to support the Capital Bonding Project at the December meeting of the Board.

2. INDUCEMENT RESOLUTION STATING THE REASONABLE EXPECTATION OF THE SHEPHERD COLLEGE BOARD OF GOVERNORS TO REIMBURSE SHEPHERD COLLEGE FOR CAPITAL EXPENDITURES IN CONNECTION WITH THE PLANNING, DESIGN, ACQUISITION, CONSTRUCTION AND EQUIPPING OF A NEW ATHLETIC BUILDING, ART CENTER EXPANSION AND IMPROVEMENTS, NEW PARKING LOT AND OTHER CAPITAL IMPROVEMENTS FOR USE BY SHEPHERD COLLEGE MADE PRIOR TO THE ISSUANCE OF TAX-EXEMPT REVENUE BONDS AND TAKING OTHER ACTIONS IN CONNECTION WITH SAID BONDS

WHEREAS, Shepherd College (the ³College²) is an institution of higher education of the State of West Virginia governed by the Shepherd College Board of Governors (the ³Board²), which is empowered and authorized by Chapters 18 and 18B of the Code of West Virginia, 1931, as amended, among other things, in furtherance of the public purposes of the College, to issue revenue bonds of the College to finance capital improvements at the College and as security for the payment of the principal and redemption price of, and interest on, any such bonds so issued and any agreements made in conjunction therewith, to pledge the revenues and receipts from certain student fee revenues of the College to secure the payment of such bonds and interest thereon;

WHEREAS, the Board has heretofore determined that the planning, design, acquisition, construction and equipping of a new athletic building, art center expansion and improvements, new parking lot and other capital improvements for use by the College (collectively, the ³Project²) will be undertaken at an estimated aggregate cost not to exceed $6,000,000; and

WHEREAS, the Board desires to express its approval in concept of the issuance of tax-exempt revenue bonds in an aggregate principal amount not to exceed $6,000,000 to finance all or a portion of the costs of such Project (the ³Bonds²); and

WHEREAS, the Board reasonably expects that the College will reimburse itself for all or a portion of the costs of the planning, design, acquisition, construction and equipping of the Project, such reimbursement to not exceed $6,000,000, from the proceeds of the sale of the Bonds, which will be tax-exempt revenue bonds payable from certain student fee revenues pledged for such purpose; and

WHEREAS, the Board has determined to authorize the issuance of the Bonds to permanently finance the Project; and

WHEREAS, the Board has found and determined that the Project is desirable to provide improvements to the facilities of the College, for the benefit of its students and the citizens of the State of West Virginia (the ³State²), and is necessary and appropriate for the public interest of the State and citizens and residents of the State and such financing and the approval of the issuance of the Bonds are for a public purpose of the State.

NOW, THEREFORE, BE IT RESOLVED BY THE SHEPHERD COLLEGE BOARD OF GOVERNORS AS FOLLOWS:

Section 1. The Board hereby approves in concept the issuance of the Bonds in one or more series in an aggregate principal amount not to exceed $6,000,000 for the purpose of financing all or a portion of the costs of the Project.

Section 2. The Board reasonably expects that the College will reimburse itself from the proceeds of the Bonds for certain capital expenditures made not more than sixty (60) days prior to the date of adoption of this Resolution (and after date of such adoption, but prior to the issuance of the Bonds), in connection with the planning, design, acquisition, construction and equipping of the Project, such capital expenditures to be undertaken or incurred prior to the execution and delivery of the Bonds, which are reasonably expected to be executed and delivered within eighteen (18) months from the later of (i) the expenditure for payment of said cost, or (ii) the placing of the Project in service.

Section 3. This Resolution is intended to constitute a ³declaration of official intent² pursuant to Section 1.150-2 of the Treasury Regulations promulgated under the Internal Revenue Code of 1986, as amended.

Section 4. The source or sources of payment for such capital expenditures will be from the building and campus renewal fund of the College, and upon issuance of the Bonds, proceeds thereof not to exceed the amount of such capital expenditures will be applied to the reimbursement of the respective funds from which these expenditures were made.

Section 5. The maximum principal amount of the Bonds to be issued for the Project (including costs of issuance of the Bonds and related costs, but not including any original issue discount) and the maximum amount of reimbursable costs is $6,000,000.

Section 6. The College shall provide written evidence of all reimbursement allocations within the time provided in Section 1.150-2 of the Treasury Resolutions, which written evidence may be satisfied by one or more requisitions submitted in connection with the subject financing.

Section 7. The marketing of the Bonds by the Underwriter hereinafter designated is hereby authorized and approved, including, but in no manner limited to the preparation and distribution of a preliminary official statement or other offering document in such form as may be approved by Edward Magee, the Vice President of Administration and Finance of the College, after consultation with the College¹s legal counsel.

Section 8. The firm of Bowles Rice McDavid Graff & Love, PLLC is hereby appointed as Bond Counsel for the issuance and sale of the Bonds and the Board hereby approves and authorizes such Bond Counsel to prepare such documents as they deem necessary or appropriate for such purposes, provided that the fees and expenses of Bond Counsel shall be paid from the proceeds of the Bonds or other available funds of the College. All other costs of issuance shall be paid from the proceeds of the Bonds or other available funds of the College.

Section 9. The investment banking firm of Crews & Associates, Inc. is hereby designated as the ³Underwriter² with respect to the issuance of the Bonds and is hereby authorized to proceed with the preparation of all the necessary documents relating to the marketing and sale of the Bonds, all fees and expenses in connection with such services to be paid solely from the proceeds of the Bonds or other available funds of the College.

Section 10. The Bonds are special obligations of the College payable solely from the student fee revenues and other sources, if any, pledged for such purpose. The State and its counties, municipalities and political subdivisions shall not be liable for the payment or performance of the Bonds. The Bonds, as to both principal and interest, shall not constitute a debt or pledge of the full faith and credit or taxing power of the State or any county, municipality or other political subdivision of the State and are payable solely and exclusively from the revenues, funds and other collateral pledged for their payment. The holders of such Bonds shall have no right to have taxes levied by the West Virginia Legislature or the taxing authority of any county, municipality or any other political subdivision of the State for the payment of the principal of or interest on such Bonds.

Section 11. None of the present or future employees, officers or board members of the Board or the College, or any person executing the Bonds or any of the documents relating thereto shall be personally liable for the Bonds or any other obligation relating to the issuance of such Bonds, or be subject to any personal liability by reason of the issuance of the Bonds.

Section 12. The Board finds and determines that all formal actions relative to the adoption of this Resolution were taken in an open meeting of the Board and that all deliberations of the Board which resulted in formal action were conducted during meetings open to the public, in full compliance with all applicable legal requirements.

Section 13. The issuance of the Bonds may be authorized by future resolution of the Board upon the approval of the various documents relating to such Bonds by the Board and its duly appointed legal counsel.

Section 14. This Resolution shall become effective on the date of its adoption.

Frank Arts Center Addition A 6,800 square foot addition to the Frank Arts Center will be built to provide a large rehearsal hall for all ensembles and additional teaching and storage spaces. The College must build the additional space to comply with the National Association of Schools of Music (NASM) minimum requirements for accreditation. The College must have additional space for ensemble rehearsals and adequate space for individual practice. The next scheduled visit by NASM is during the spring semester of 2004. The anticipated useful life of the addition is 50 years. This addition will also significantly improve the quality of the existing instructional spaces and offices in the Frank Center because it will reduce the degree to which sound from music rehearsal areas permeates the entire building.

Athletics Facilities Building The College will build a new 8,700 square foot athletics facilities building to house locker rooms and storage space for athletic events. The Football Athletics Expansion project of 1999-2000 included the planning and design for a Facilities Building, and the prospective building was included as a bid ­alternate, but funding was not available to include the building in the construction at that time. The building will replace the badly deteriorated and inadequate locker rooms currently located in the Sara Cree building. The anticipated useful life of the building is 50 years.

Parking and Roadwork for West Campus A 350 to 450 space parking lot and roadway will be built behind the West Woods Residence Halls. Students who live in the west campus residence halls will be assigned to this area for parking. As the student enrollment has increased over the years, the need for additional parking has become critical. The anticipated useful life of the lot and roadway is 30 years.

Boiler Replacement/Lighting systems Boiler and lighting systems will be replaced. The replacement of two building boilers and the replacement of several lighting systems are deferred maintenance priorities. Replacing the boilers and lighting systems will improve energy efficiency, which will translate into utility savings, and will preclude a system failure which might otherwise develop if not addressed. The expected useful life of each replacement is 15 years.

FINANCIAL FEASIBILITY STUDY

This Financial Feasibility Study is being submitted for inclusion in the Biennial Budget for 2002 ­ 04.

Submission Date

Name of Agency/Institution Shepherd College Agency Code 0486

Project Name Frank Arts Center Renovation ,Stadium Facilities Building, Roadwork and Parking Lot, and Boiler/Lighting Systems Project Code ____

Project Amount

Proposed Financing Arrangement: Bond X Capital Lease Other (specify)

Requested Type of Financing Revenue Bonds.

Submitted by: Name Ed Magee

Title Vice President for Administration and Finance

E-mail emagee@shepherd.edu

Telephone Number 304 876 5490

Telefax Number 304 876 5002

The attached Financial Feasibility Study has been prepared using information and projections believed to be reliable and accurate for the purpose of estimating the demand and affordability of the proposed capital project.

Signature (Chief Financial/Fiscal Officer)

Section 1 - General Information ­ To be completed for all projects.

1. Describe the project in sufficient detail so that an uninformed reader has a clear understanding of the project. Indicate whether the project involves new construction or is a renovation/addition to an existing facility. A. Frank Arts Center Addition Construction of an addition to the Frank Arts Center to provide a large rehearsal hall for all ensembles and additional teaching and storage spaces. B. Stadium Facilities Building Construction of a new stadium facilities building to house locker rooms and storage space for athletic events C. Parking and Roadwork for West Campus Construction of a 435 space parking lot on the West Campus D. Boiler Replacement/Lighting Systems. Replacement of boilers and lighting systems

2. Describe how the project is essential to fulfilling the institution's/agency's mission. Address the alternatives available if the project is not undertaken.

These capital projects are included in the Campus master plan and will fulfill unmet needs in the following areas: A. Frank Arts Center Addition The College must build the additional space to comply with the National Association of Schools of Music (NASM) minimum requirements for accreditation. The College must have additional space for ensemble rehearsals and adequate space for individual practice. The next scheduled visit by NASM is during the Spring semester of 2004. B. Stadium Facilities Building The Football Stadium Expansion project of 1999-2000 included the planning and design for a Facilities Building, and the prospective building was included as a bid ­alternate, but funding was not available to include the building in the construction at that time. The building will replace the badly deteriorated and inadequate locker rooms currently located in the Sara Cree building. C. Parking and Roadwork for West Campus As the student enrollment has increased over the years, the need for additional parking has become critical. D. Boiler Replacement/Lighting Systems The replacement of two building boilers and the replacement of several lighting systems are deferred maintenance priorities. Replacing the boilers and lighting systems will improve energy efficiency, which will translate into utility savings, and will preclude a system failure which might otherwise develop if not addressed.

3. Was the project part of the agency¹s 2002-2004 capital outlay submission? If so, include a copy of the project narrative. Yes

4. Describe the effect the project will have on those students or users who will financially support the project. A. Frank Arts Center Addition The addition will provide much needed space for ensembles. Other classes will not be disturbed because the space will be acoustically isolated. Students will continue to participate in a program accredited by NASM. B. Stadium Facilities Building Students who participate in the Intercollegiate Athletics program will have adequate locker room facilities C. Parking and Roadwork for West Campus Students will have adequate parking. D. Boiler Replacement /Lighting systems. The College will realize costs savings from increased energy efficiency. These savings will reduce the need for future increases in tuition and fees.

5. Explain whether the project will affect the institution's need for student financial aid. The planned projects will be paid primarily by increasing student user fees. This will be reflected in a higher cost of attendance for Shepherd College students and in turn will affect the institution¹s need for student financial aid. The increased student needs will be addressed through the use of Title IV Federal Student aid programs, in addition to State programs. As theses costs increase, the College will work to maximize the number of students who apply for financial aid.

6. Describe the probable effects of the project on the community and environment, including changes to the value of property as a result of the project. The local community is invited to many events at the Frank Arts Center. The rear of the facility will be enhanced to provide an attractive entry to the facility. The Stadium Facilities Building is a one-story building that will have little impact on the community and environment. The number of students parking in residential and business areas will decrease because they will use the on-campus lot.

7. Explain how the project and its impact have been conveyed to local officials and their reaction/response. The construction of the Stadium Facilities building was discussed with and accepted by the local community before the stadium was built. Parking issues were discussed with the local community during the development of the master plan.

8. Describe any other positive or negative effects the project may have.

9. Briefly describe the financing proposal. Indicate if this proposal is for a bond financing, a capital lease, or some other less traditional financing arrangement.

10. Are specific revenues planned to support debt service or lease payments? (If so, you will need to complete Section 3.) Yes

Private Use

11. Will any person or entity other than the governmental unit provide (directly or indirectly) any part of debt service on the portion of the bonds issued for the project? For example, will a private foundation or federal agency be required (or expected) to make an annual contribution toward the payment of debt service.

___ Yes _X_ No. If yes, please identify the person or entity and the percent of debt service to be provided.

12. Do you anticipate that any person or entity other than the state institution/agency will have a contractual right, different from the rights available to the general public or students, to use any part of the project or to use or buy goods or services produced at the project? For instance, have you contracted parking spaces in a parking deck to a nearby corporate office?

Yes X No If yes, briefly summarize the planned contractual agreement.

13. Do you contemplate any part of the project being managed or operated by any person or entity other than the state institution/agency under a management or service contract, incentive payment or other ³privatized² arrangement? Examples include contracts for food service, parking service, dormitory management, bookstore management, etc.

Yes X No If yes, summarize the anticipated contractual arrangement (i.e., contract term, renewal options, compensation arrangements, etc.).

Note: These arrangements may impact whether the project is eligible for tax-exempt financing. Once tax-exempt bonds have been issued, entering into this type of contract or arrangement may affect the bond¹s tax-exempt status and as a result, could have an adverse affect on the bondholders. So long as the bonds are outstanding, the terms of any such arrangement must be reviewed and approved by the State Treasurer prior to the execution of any contract.

Section 2 ­ Cost Information (complete for all projects)

14. Do you anticipate the need for capitalized interest on any bond financing (i.e., to pay interest during construction)? If so, explain.

15. Itemize the capital costs of the project. Estimate the costs of issuance at 2% of the cost of the project. Please subtotal project costs net of the 2% cost of issuance and then show a gross cost of project including the cost of issuance. Note that the total cost should be used as the AMOUNT BORROWED field of the worksheet. Attach the CO-2 estimate or further estimate of project cost, if available.

16. What is the anticipated useful life of the project? A. Frank Arts Center Addition 50 Years B. Stadium Facilities Building 50 Years C. Parking and Roadwork for West Campus 30 Years D. Boiler Replacements/Lighting systems 25 Years

17. Discuss the need for a Reserve Fund to support the proposed project, any anticipated uses of the reserve during the life of the bonds, and the plan for replenishment of the reserve. The Reserve Fund Limit in the spreadsheet should be approximately 10% of the project cost. Debt Service Reserve Funds for these projects may not be required due to the source of the revenues pledged to the bond issues.

18. List and describe any initial Non-Recurring Costs related to the project and the source of funding for each of these items.

19. List and estimate the Incremental Annual Operating Expenses. Provide any supporting documentation and illustrate how your estimate was made. These expenses include personnel costs, utilities, contractual services, supplies and materials, indirect costs, equipment, etc.

Annual Operating Expenses Personal Services $28,320 Contractual Services Supplies and Materials $5,000 Utiltities $29,197 Equipment and Repair $15,000 Total Expenses $77,517

Section 3 Revenue Information. (Complete for all revenue-producing projects)

20. Describe the Revenue Sources that will be used for payment of debt service and the expenses associated with these revenues. Consider what other expenses are planned to be supported by the revenues, and how much revenue will actually be available for debt service.

A student fee will be charge to all students to support the debt service related to this bond issue.

21. If revenues will be derived from a group of similar facilities (a system) and an increase in system revenues will be used to support the debt, provide justification for any system contribution and any marginal increase in system-wide fees.

Not Applicable

22. If revenues will be derived from just one facility of several similar facilities in a campus system, show all fees for all similar facilities and justify any differential in pricing between the facilities.

Not Applicable

23. Will project revenues or revenues pledged to the payment of debt service be available prior to completion of the project? Describe the timing of revenues and when they will be available and sufficient to begin servicing the debt. The College has received $500,000 in lottery funds for the Frank Arts Center Addition. The Shepherd College Foundation raised $500,000 for the Stadium Facilities Building. The revenues from the proposed fee increase will become available during the fall 2003 semester.

24. What studies have been completed to demonstrate the demand for the facility and the reliability of the revenue stream? (Attach copies if available.) The NASM accreditation review requires the College to upgrade its facilities for music instruction.

25. If any portion of the revenues are already pledged or otherwise committed to other debt service payments, provide a schedule of debt service payments (by issue) and cumulatively. Clearly identify the portion of the revenue source that is committed or being used to pay debt service.

26. If any revenues are projected to increase, explain how the projections were calculated. Do not use an automatic growth rate.

27. If institutional reserves are to be used to service the debt, include the source of funds, balances for the last five years, and impact on future balances. Identify the authorization for using these funds to pay debt service and other costs.

Not Applicable

28. If any amounts currently used for debt service are expected to be available and used for debt service on this project (i.e., the existing debt will be retired), provide the name(s) of the existing project(s), the bond series, and the annual amount to be available. Address the status of the existing facility's physical condition and plans for repair or maintenance. Conversely, explain why any such amounts scheduled to be available are not planned for use for debt service on this project.

Not Applicable

Using the information described above, complete Spreadsheet #2 ­ Revenue Components

Section 4 General Financial Condition - Complete this section for all projects

29. Provide the following revenue/funding information.

30. Provide the following FTE enrollment and admissions information

31. Provide the following tuition and fee information.

32. Operating Revenue Sufficiency ­ Using the format below, forecast the net operating revenue sufficiency for the project. Net current fund revenues must be projected to exceed maximum annual debt service by 10%.

Net Current Fund Revenues (Current fund revenues minus expenditures and mandatory transfers) $
Maximum Projected Annual Debt Service $
Percentage Coverage

33. Maximum Debt Service as a Percent of Operating Expenses - Using the format below, compute the agency¹s maximum estimated annual debt service payments compared to unrestricted current fund expenditures. (Note: Lease payments under the Virginia College Building Authority Equipment Trust Fund (EFT) do not need to be included.)

Debt Service Ratio FY ___ $
Total unrestricted current fund expenditures
Mandatory Transfers
Subtotal (a)
Maximum Annual Debt Service (current)
Maximum Annual Debt Service (new project(s))
Maximum Capital Lease Payments (current)
Maximum Capital Lease Payments (new project(s))
Subtotal (b)

Maximum Debt Service Ratio (b/a)

Section 5 Capital Lease Projects ­ Complete Items 34 through 37 only if the financing involves a capital lease.

34. Discuss the alternatives that were considered before deciding that the capital lease structure was the best option.

35. Who is the Lessor? Who is the Lessee?

36. Who will manage the facility during and after construction?

37. Who will be issuing bonds or otherwise financing the project? Will it be tax-exempt debt?