Howard Community College Debt Procedure - 62.09.01
College Policy Number/Title:
Types of Debt
Intermediate Term Lease Purchase Agreements:
Howard Community College (HCC) will use lease purchase agreements when it is economically feasible and efficient. Lease purchase agreements may be entered for:
- Personal property including fixtures, as long as the personal property or equipment serves as security for the transaction; or
- Energy savings contracts where the lease payments are funded by future savings in utility costs.
Lease purchase agreements are approved by the college’s board of trustees within the applicable purchasing thresholds
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 Howard Community College Educational Foundation 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:
- Howard County Revenue Authority;
- Maryland Economic Development Corporation (MEDCO);
- Maryland Health and Higher Education Facilities Authority (MHHEFA);
- Maryland Industrial Development Financing Authority (MIDFA);
- Maryland Small Business Development Financing Authority (part of the Maryland Department of Business and Economic Development); and
- Maryland Transportation Authority.
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. The financial statements include the total liability owed to employees at year-end. The net change in the liability is reflected in the functional expenditures of the college.. 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 associated 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. 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
Any debt incurred for lease purchase agreements or long-term debt financed by others will not have a term that exceeds the economic life of the asset or improvement that is financed. Long-term debt is not considered appropriate for any recurring purpose such as current operating and maintenance expenditures.
Debt Affordability Measure
The college shall review current year debt service payments and debt as a percentage of total revenues (unrestricted, auxiliary, 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:
- Intermediate term lease purchase agreements;
- Any capital leases; and
- Any long-term debt with the county or other approved entities that the college has agreed to repay.
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, changes approved November 19, 2014. Amendments to the local debt policy must be board approved and the college must submit its revised policy to the State Treasurer, who determines if the policy is consistent with the Maryland Constitution and applicable State and local laws.
Effective Date: 11/19/14
President's Office Use: VPAF/PRES