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Policy Manual – Operating and Capital Budgets

FINANCIAL AFFAIRS
Section 701 Operating & Capital Budgets

Effective: 1/23/89
Last Revised: 1/25/99; 03/10/08; 5/21/12; 9/24/12
Responsible Office:   Finance

Policy Statement:

In accordance with the laws of the State of Maine, “The Board of Trustees, in consultation with the Chancellor, shall be the governing and planning body of the University System and in addition shall have responsibility for preparing and approving the operating and capital budgets of the University System …” In accordance with the Board of Trustees Bylaws, “The Board of Trustees shall, in consultation with the Chancellor, be responsible for the preparation and approval of all operating and capital budgets, together with University System requests for appropriations, bond issues, and statutory changes, and for their presentation to executive or legislative branches of Maine government in accordance with the provisions of the Maine statutes.”

One of the principal “authorities” that is widely delegated throughout the System is the right to commit University System dollars, either directly through the approval of a specific purchase or indirectly by appointment authority or other commitments. The commitment of University operating funds, however, is made within the limits of a budget approved by the Board of Trustees.

In further accordance with the laws of the State of Maine, the Board of Trustees also establishes competitive procurement as the standard procurement method of the University and authorizes the Treasurer to promulgate such policies and practices as the Treasurer determines necessary to implement that standard, including regarding the conditions under which competitive procurement may be waived.

Operating Budgets

The University System has two principal categories of operating budgets – (1) Educational and General (E&G) budgets are prepared for educational activities which are supported by the state appropriation, by student tuition, and by other miscellaneous unrestricted revenue. (2) Auxiliary Enterprise budgets are prepared for activities such as bookstores, residence halls, and dining services.  Auxiliary Enterprises are self-supporting – i.e., supported entirely by fees charged to users.  Any year-end surpluses or deficits in auxiliary enterprise operations are carried forward to the next year in appropriate reserve accounts for the purpose of supporting the auxiliary operation.

The Board of Trustees annually approves the overall E&G and Auxiliary Enterprise budgets as well as rates for tuition, fees, room, and board.  Compensation comprises a significant portion of the annual operating expense budget with the remainder covering costs in areas such as purchased services, supplies, utilities, library materials, and maintenance.  To increase assurance that specific expenditures are directly related to the System’s mission and activities, the Board, effective for the FY2014 E&G and Auxiliary Enterprise budgets, specifically approved an annual budget for contributions and for travel, meals and entertainment as required by the Maine statue.  In addition, the Board of Trustees receives periodic reports on such expenditures.

Restricted Project Budgets

In addition to the E&G and Auxiliary Enterprise annual operating budgets, Universities have restricted budgets for grants, contracts and gifts.  Since many restricted budgets, such as grants and contracts, are for time periods that may span multiple fiscal years, these budgets are “project based” rather than annual.  The terms of the donor/sponsor restriction along with the available balance govern expenditures, rather than an annual Board-approved budget process.

Capital Budgets

Capital assets purchased, constructed, or donated that have a useful life exceeding one year and that meet or exceed University of Maine System established cost thresholds will be capitalized. Thresholds for determining capitalization are established for major classes of assets, ranging from land and land improvements at any cost, to equipment costing $5,000 or greater,up to new construction and building improvements costing $50,000 or greater.

Capital budget items that have a total cost of $500,000 or more require advance approval by the Board of Trustees unless they meet the equipment exception discussed in subsequent paragraphs. Capital budget items include:

  • Capitalizable costs such as the purchase/construction of land, buildings, building renovations, software (purchased or developed), and an individual piece of equipment (purchased or fabricated)
  • Noncapitalizable costs for the repair or replacement of failed or failing building components as necessary to return a facility to its currently intended use; to prevent further damage; or to make it compliant with changes in laws, regulations, codes, or standards.

When equipment expenditures of $500,000 or more are funded primarily by grants, the expenditures will be in accordance with the related award documents and budgets, rather than an annual budget and do not require Board approval except under the following circumstances:

  • Equipment to be used in operations: Board approval is required regardless of funding source when equipment costing $500,000 or more will be used in general operations, thereby requiring that depreciation be funded in the annual E&G budget to support ongoing maintenance and eventual equipment replacement.
  • Mixed source funding: Board approval is required when University or other funds totaling $500,000 or more contribute to the acquisition of grant funded equipment.

Projects in the capital budget will include a brief description of the project, a justification for the project, estimated expenditures by funding source, and an estimate of annual operating costs (e.g., utilities, maintenance, planned renewal of components, depreciation) for the project after it is completed.While a capital project subject to Board approval is active, project status reports will be provided at each regular meeting of the Board of Trustees.

The expenditure approved by the Board for a project may not be exceeded without the advance approval of the Board, except that variations of up to 10 percent of the amount approved by the Board and other such changes in project scope, scale or funding sources, may be approved by the Chancellor. Any changes approved by the Chancellor shall be reported to the Board.

In emergency or other extenuating circumstances that do not permit advance consideration by the Board, the Chancellor may approve more substantial changes to a project upon consultation with the Executive Committee of the Board and the consensus of the majority of members present.

Funding for the capital budget may come from one or more sources. The more common sources of funds for the capital budget are: State revenue or general obligation bonds; State appropriations; grants or contracts; University bonds, reserves, or internal borrowing; private fund raising; student fees or the allocation or reallocation of University funds. As the Auxiliary Enterprise is supported entirely by fees charged to users, any Auxiliary Enterprise capital budget item funded by bonds or other loans must be repaid as a part of the Auxiliary Enterprise operating budget.

Campuses may borrow against their reserves at a prudent level. Additionally, internal loans may be available when the System has debt capacity and the campus has borrowing capacity.

Related documents:

UMS Board of Trustees Policies:
Section 703 Tuition
Section 704 Student Fees
Section 801 Acquisition of Real Property

Administrative Practice Letters:

Section I-G.2: General Accounting for Capital Assets

Section III-A: Institutionally Designated Account Guidelines

Section III-C: System Internal Loans

Section III-F: Auxiliary Enterprises

Section IV-A: Accessibility of University Programs, Services and Facilities

Section VIII-B: Restricted Account Guidelines

Delegation of Board of Trustee Authority to the Finance/Facilities Committee Matrix