Types of Debt
Intermediate Term Lease Purchase Agreements:
The college will use lease purchase agreements when it is economically feasible and efficient. Lease purchase agreements may be entered for:
All lease purchase agreements must be approved by the college’s board of trustees.
Leases for Rental Property
The college may enter into agreements to lease property for college operations. The lease agreement with the landlord may or may not include leasehold improvements. All leases for rental property must be approved by the college’s board of trustees and must be subject to cancellation for non-appropriation.
The college may not incur long-term debt for the acquisition of real estate and improvements. However, the college may be obligated to the county or HCCEF for debt that those entities may incur on behalf of the college. The college may also utilize the following entities, which may borrow funds on the college’s behalf, for specific projects:
All long-term debt must be approved by the college’s board of trustees.
Vested Vacation Benefits
Vacation benefits are earned by college employees based on time in service and the rights to such benefits are vested. The college records vested vacation benefits as earned in accordance with generally accepted accounting principles. In the unrestricted fund, only the amount owed to employees at year-end is accrued as an expense and recorded as a liability. The amount of vested vacation benefits is not included in measures used to evaluate the college’s debt affordability.
Expenses that the college incurs during the course of current operations may be accrued as accounts payable at year-end. The amount recorded as accounts payable is not included in measures used to evaluate the college’s debt affordability.
Short-term Operating Debt
The expense associate with day-to-day operations of the college will be covered by current revenues. However, because the college may experience temporary cash shortfalls, prior to receipt of state or county payments, the college may incur short-term debt, which would be defined as a line of credit or a loan. This debt would be for a year or less. The amount of the short-term debt will be based on cash flow projections for the fiscal year and will comply with applicable federal and state regulations. Operating revenues will be pledged to repay the debt, which will generally be repaid in one year or less. The costs of such borrowings will be minimized to the greatest extent possible.
In the event Howard Community College does issue debt, it will not use variable rate debt instruments, interest rate exchange agreements or swaps, and other derivatives including futures and options.
All short-term operating debt shall be approved by the college’s board of trustees.
Term of Debt
Debt Affordability Measure
The college shall review current year debt service payments and debt as a percentage of total revenues (unrestricted, restricted, plant and student activity before debt service income) annually with the audit and finance committee of the board of trustees. Ten percent or below is considered an appropriate level with 15 percent and above as a cause for concern. Included in the numerator of the debt calculation shall be the current year debt service for:
If unexpended funds are available, the board may designate funds to cover future debt service payments.
The college shall continually review outstanding obligations for opportunities to achieve savings through early pay-offs and refinancing when economically feasible and advantageous.
Adopted by the Howard Community College Board of Trustees: October 28, 2009