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Guidelines for Expenditure of Higher Education Assistance Funds Purpose

The purpose of this document is to establish guidelines for the appropriate use of Higher Education Assistance Fund (HEAF) resources by participating universities.

Background

With the repeal of the Ad Valorem Tax, many state colleges and universities no longer had resources for construction, improvements, major repair and rehabilitation, and the acquisition of capital equipment.

The Legislature of the State of Texas recognized the need to provide permanent capital funding for those colleges and universities which were not participants in the permanent university fund. H.J.R. No. 19 was passed by the Legislature on May 25, 1983. This joint resolution proposed a constitutional amendment “to provide funds for the support of higher education and to restructure the permanent university fund.”

The proposed constitutional amendment was submitted to and approved by the people of the State of Texas. Following approval of the amendment to Article VII, Section 17 of the Texas Constitution, the Legislature established the Higher Education Assistance Fund by adding Chapter 62 to the Texas Education Code.

The amendment of Article VII, Section 17(a) of the Texas Constitution provided for the appropriation of $100 million annually, beginning September 1, 1985, out of the first money coming into the state treasury not otherwise appropriated by the constitution for the purpose of

  • acquiring land, either with or without permanent improvements
  • constructing and equipping buildings and other permanent improvements
  • major repair or rehabilitation of buildings or other permanent improvements
  • acquisition of capital equipment, library books and library materials

Section 17(e) enables each governing board authorized to participate in the distribution of money under this section to issue bonds or notes and to pledge up to 50 percent of the money allocated to the governing board to secure the payment of the principal and interest of such bonds and notes.

Section 17(e) permits each governing board to use the proceeds of bonds and notes for the purposes of

  • refunding bonds or notes issued under this section or prior law
  • acquiring land either with or without permanent improvements
  • constructing and equipping buildings and other permanent improvements
  • major repair or rehabilitation of buildings or other permanent improvements

Article VII, Section 17(f) provides that the funds appropriated by Section 17 may not be used to finance student housing, intercollegiate athletics, or auxiliary enterprises. The constitutional amendment made other provisions which are not directly pertinent to the purpose of this document.

General Principles

This section of the guidelines articulates the general principles which support the specific provisions authorized under Article VII, Section 17. These principles are expressed as definitions of terms which are pertinent to the purpose of this document and relate to acquiring, constructing or improving tangible assets.

Tangible assets are best defined by emphasizing their characteristics which are that the asset (a) be intended for use in current or future operations and not for the purpose of resale, (b) be relatively long lived, (c) have physical substance and (d) provide measurable future benefit to the entity. These characteristics are the foundation of the principle of determining the nature of an asset.

For purposes of these guidelines, costs of acquiring, constructing, or improving tangible assets include all directly related reasonable and legitimate costs, including salaries (except library salaries), incurred in placing an asset in the position where it is to be used and ready for productivity in the broad business sense. This principle is applicable whether performance is by university employees or by third parties.

The types of costs that are to be included in the total cost of an asset will vary depending upon the nature of the asset being acquired, whether purchased, constructed or improved, but the principles for identifying the cost of an asset are applicable to all acquisitions.

These guidelines relate to acquiring, constructing, or improving tangible assets, and not to the appropriate levels of capitalizing those assets on the universities' financial records. Capitalized costs are expenditures that are recorded to an asset account or to accumulated depreciation. All tangible assets are not capitalized because, in practice, capitalization of expenditures is not based solely on whether the property acquired meets the definition of a tangible fixed asset. Practical considerations which take into account minimum level dollar limitations influence whether an asset is capitalized or considered to be a current expense.

Specific Provisions

The following paragraphs are intended to define the nature of appropriate expenditures of Higher Education Assistance Funds. These definitions will include examples as needed to express the intent of these definitions; however, the list of examples should not be considered to be all-inclusive. As a means of further defining the nature of appropriate expenditures, descriptive commentary may be provided.

The first four sections below are applicable to HEAF bond proceeds; the second through fifth sections are applicable to general revenue fund expenditures.

1. Refunding bonds or notes issued under this section or prior law

Authority is given to the governing board of each institution covered by Article VII, Section 17 to issue bonds for the purpose of refunding outstanding bonds or notes which were issued under this section of the constitution or bonds which have been issued under prior laws. Only bond proceeds issued under this section can be used to refund bonds issued under prior law.

2. Acquiring land with or without permanent improvements

Land refers to the surface or crust of the earth which can be used to support structures, and may be used to grow crops, grass, shrubs and trees.

The cost of land can include the purchase price, commissions, fees for examining and recording titles, surveying, drainage costs, land clearing, demolition of existing improvements (less salvage), landfilling, grading, interest on mortgages accrued at the date of purchase, accrued and unpaid taxes at the date of purchase, and other costs incurred in acquiring the land.

3. Constructing and equipping buildings and other permanent improvements

Constructing and equipping defines the process of erecting buildings and of providing equipment which will assure that the buildings can be used for the purpose intended and the constructing and equipping of other permanent improvements. This category includes additions to existing buildings and equipping of existing buildings.

Buildings are defined as roofed structures (whether by conventional means or by land covering underground structures) that house operations and include structures which are used for storage purposes. Additions to buildings meeting this definition are included in this category.

Other permanent improvements are defined as assets which enhance the quality of land or buildings or facilitate the use of land or buildings, and which have finite but extended lives.

Permanency is relative and should be interpreted in terms of the periods of usefulness. Only land can be considered to be permanent in any absolute sense.

Other permanent improvements can include such assets as paving; lighting; fences; sewers; electrical distribution systems; water systems; sewer systems; landscaping; air conditioning; elevators; vent hoods: energy management systems; mechanical, plumbing and electrical systems; voice-and-data systems; computing systems and the like.

While individual components of these permanent improvements may be moved, upgraded, or replaced from time to time, the systems themselves are not by design mobile. Therefore, systems which, in normal usage, could be moved from building to building or from room to room are not included as permanent improvements.

The cost of buildings can include the original contract price or cost of construction (see below); expenses for remodeling, reconditioning or altering a purchased building to make it suitable for the purpose for which it was acquired; payment of unpaid or accrued taxes on the building to the date of purchase; cancellation or buy-out of existing leases and other costs related to placing the asset into operation.

Construction costs of buildings and other permanent improvements can include the completed project cost; cost of excavation or grading or filling of land for a specific building; expenses incurred for the preparation of plans, specifications, blueprints and so on; cost of building permits; architects', engineers', and/or management fees for design and supervision; legal fees; costs of temporary buildings used during construction and unanticipated costs such as rock blasting, piling, or relocation of the channel of an underground stream. Also includable are drainage costs, land clearing, and demolition of existing improvements. Maintenance agreements which are purchased as part of the original acquisition are appropriate costs in this category, such as maintenance agreements for software application programs and operating system, energy management systems and the like.

Equipping costs, fixed or movable, can include the original contract or invoice price; freight-in, import duties, handling and storage; specific in-transit insurance charges; sales, use and other taxes imposed on the acquisition; cost of site preparation; installation charges; charges for testing and preparation for use; and cost of reconditioning used items when purchased. Maintenance agreements which are purchased as part of the original acquisition are appropriate costs in this category as are development costs of software application programs and operating systems.

4. Major repairs or rehabilitation of buildings or other improvements

Major repairs or rehabilitation of buildings or other improvements includes but is not limited to repairs, renovations, replacements or betterments which are normally expected to extend the useful life, to improve operating efficiency, to eliminate health and safety hazards, to correct structural or mechanical defects, to upgrade the quality of existing facilities, or convert these assets to more useful functions, but are not considered routine maintenance.

The cost of major repairs or rehabilitation of buildings or other improvements can include the contract price or cost of construction; and other costs that would be applicable to make the building or improvement suitable for its intended use. Examples of other costs can include those identified in item 3, above.

5. Acquisition of capital equipment, library books and library materials

Capital equipment is defined as fixed or moveable tangible assets to be used for operations, the benefits of which extend over more than one fiscal year. These assets may be acquired through purchase from an outside vendor or by construction or development by university employees. Computer software operating systems and application programs are considered capital equipment under this definition. The development, excluding routine maintenance, and acquisition of computer software are includable equipment costs.

Equipment costs may also include the original contract or invoice price; freight-in, import duties, handling and storage; specific in-transit insurance charges; sales, use and other taxes imposed on the acquisition; cost of site preparation; installation charges; charges for testing and preparation for use; and cost of reconditioning used items when purchased. Maintenance agreements which are purchased as part of the original acquisition are appropriate costs in this category.

For the purposes of these guidelines, a library is defined as a collection of books and/or materials in locations approved by university administration which are accessible to the general university community.

A library book is a literary composition bound into a separate volume, generally, identifiable as a separately copyrighted unit. Books should be distinguished from periodicals and journals.

Library materials are information sources other than books (either owned or accessed), which include journals, periodicals, microforms, audio/visual media, computer-based information, manuscripts, maps, documents and similar items which provide information essential to the learning process or which enhance the quality of university library programs.

The cost of library books and library materials can include the invoice price; freight-in, handling, and insurance costs; binding; electronic access charges; reproduction and like costs required to put these assets in place, with the exception of library salaries.

Source: Texas Higher Education Coordinating Board (THECB).

If you have any questions regarding HEAF, please contact the Purchasing Office at 882-8219.

Contact Information:
Purchasing Office
451 E. Alton Gloor
Brownsville, Texas 78526
Phone: 956-882-8219
Email: Purchasing@utb.edu
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Office Hours:
Monday - Friday
8:00 a.m. - 5:00 p.m.

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