Ch. 6 Finance and Administration Division

A. Objectives

The objectives of accounting services are to develop, implement, and maintain systems which provide internal control and safeguards for the assets of the university. The office also provides internal and external reports to the extent necessary to allow proper administration of university activities.

The budget office prepares all budgetary materials necessary for various constituencies including state authorities, legislators, university committees, executive officers, and the Board of Trustees. All requests for state appropriations must have Board of Trustees approval. The budget office is responsible for maintaining the university's list of approved positions, and the university's base General Fund Budget.

The objectives of business services are: (1) to support the educational programs of the institution; and (2) to improve campus life by providing special support services to students, faculty, and staff. Business services may be categorized as either auxiliary or general fund and may be financed partially or fully by charges applied to the user.

The purchasing office is to provide for the procurement and disposal of supplies and equipment in a professional and efficient manner.

B. Description of Fund Groups

The self-balancing fund groups in which the financial activity of the university takes place function as follows:

1. General Fund - Funds earned, contributed or appropriated without restriction and used for the current operations of the university.

2. Restricted Funds - Funds restricted by the donor or outside agency as to the specific purpose for which they may be expended and accepted by the Board of Trustees with this knowledge.

3. Designated Funds - These funds are restricted to uses designated internally by appropriate university authority.

4. Endowment Funds - Funds restricted by the donor that usually provide that the principal cannot be expended.

5. Plant Funds - These funds reflect the acquisition of physical properties including capital outlay construction accounts, debt payments and equipment.

6. Agency Funds - These are non-university owned funds held in trust for university-related activities.

7. Auxiliary Activities Funds - These funds concern those entities that exist to provide a service for students, faculty, or staff and that charge at a rate related to the cost of the service.

8. Student Loan Funds - These funds are gifts or other income which must be loaned to and replaced by students following the rules and regulations of the donor or agency providing the funds.

9. Retirement and Insurance Fund - These funds contain transactions related to pension plans administered by the university and certain self-insurance programs.

The treasurer is authorized to establish wherever sub-funds are necessary for the efficient operation of the university.

C. Financial Activities

The responsibility for the activities outlined above shall include but not be limited to the following:

1. Accounting - The accounting unit shall be responsible for maintaining records of all financial transactions for the self-balancing fund groups of the university and the preparation of all required budget reporting. The practices and procedures of the accounting unit shall conform to generally accepted principles of budgetary and fund accounting for universities, to applicable legal requirements, and to such uniform requirements as have been adopted by the Michigan state-supported institutions of higher education. Following the close of the fiscal year, financial statements for all funds shall be presented to the Board of Trustees at the first meeting following the completion of the statements.

2. Disbursement of Funds - The disbursement of funds shall be made by check or wire transfer only, properly documented and charged to the fund to which the disbursement applies, except that the disbursing officer may expend petty cash in lieu of a check when circumstances require such action. All checks or wire transfers must be drawn by an officer, or others authorized by the Board of Trustees and within the limits of Board resolutions.

3. Receipt and Custody of Funds - A cashier, or a person acting in a cashiering capacity, shall receive all funds, or evidence of deposit of funds, that belong to, or are to be held in trust by, the university. Funds received by the cashier from various operations and offices of the university shall be supported by appropriate documentation. Funds received shall be adequately protected, pending deposit, and shall be credited to the fund to which the receipt applies as often as reasonable and practicable.

4. Budget Office - The budget office works closely with officers, staff, and committees in preparing the university's internal budgets. The budget office prepares working budgets as needed which reflect the income expenditure plan for each account and/or fund. The budget office monitors spending in all funds as necessary and regularly advises appropriate persons and/or committees on the status of the budget. The budget office aids university officials with their questions and concerns as they arise. The budget office cooperates in preparing special reports and studies as needed. The budget office prepares materials needed by the Board of Trustees to approve fees applicable to all students.

5. Reserves for Maintenance, Renewals and Replacements - Reserves for maintenance, renewals and replacements of fixed assets will be established for various units. Such reserves will be funded by charging the appropriate operating units. Actual expenditures for maintenance, renewals and replacements for participating units shall be charged against the reserve as they are made.

For each unit that a reserve is established, procedures will be developed detailing the source and amount on funds and which expenditures are appropriate to charge to the reserve.

6. Retirement Plan Investment Committee - The Retirement Plan Investment Committee shall provide oversight of the university's retirement plans, work with a registered investment advisor approved by the treasurer and make recommendations to the treasurer.

D. Limitations of Authority

The authority of the vice president of finance and administration and the treasurer of the Board of Trustees shall be limited within the above overall responsibilities as follows:

1. Spending the net realized investment income of the restricted, designated, auxiliary, plant, and agency funds, which requires the approval of the Board of Trustees, except for reserves for future debt service in the plant fund that are a direct offset to interest expense paid on the related bonds.

2. Spending the unrestricted income earned by the principal of the endowment fund, which requires the approval of the Board of Trustees.

3. Borrowing from the principal of the endowment fund, which requires the approval of the Board of Trustees.

4. The establishment of tuition and room and board rates, which requires the approval of the Board of Trustees.

5. All fees and charges, other than those set by the Board of Trustees resolution, are to be initiated by the unit involved, approved by the appropriate authorized individual, and submitted to the vice president of finance and administration for review and approval prior to final administrative approval.

6. The establishment of interest rates to be charged on all student loans, which requires the approval of the Board of Trustees.

7. The determination of the class of investment for endowment gifts, which requires the approval of the Board of Trustees.

8. Purchase and sale of land and construction of buildings, which requires the approval of the Board of Trustees. Notwithstanding the foregoing, the vice president of finance and administration and the treasurer of the Board of Trustees are authorized to dispose of securities and real and personal property previously received by the board as gifts.

9. Adoption, amendment, ratification of prior amendments or restatement of any retirement plan pursuant to Internal Revenue Code Sections 401(a), 403(b) or 457 in the following circumstances:

a. To comply with changes in the law affecting the plan,

b. To effect a new plan or benefit or other changes approved by the Board, or

c. Where the change will not materially increase the cost of benefits under the plan or its maintenance or administration and is determined by the Treasurer to be prudent and in the best interest of the University.

10. Appoint members to the Retirement Plan Investment Committee, receive and review its recommendations with the Senior Management Team and to make final investment decision as the fiduciary of the retirement plans. The treasurer shall make an annual report of the retirement plans' investments to the Board of Trustees.

E. Audits

An annual audit of the university's operations shall be performed by an independent CPA firm of recognized competency to be approved by the Board. Contracts with independent auditors shall be reviewed at least every five years. The treasurer will provide the chief contact with the state auditors and respond to their findings as appropriate.

F. Investment Management

Investment management shall be the responsibility of the treasurer or assistant treasurer of the Board of Trustees. The treasurer, assistant treasurer, or authorized designee shall have authority to sell, assign, endorse for transfer, and do all other things necessary to secure the transfer of certificates representing stocks, bonds or other securities registered in the name of Grand Valley State University or such other name which denotes a subdivision of Grand Valley State University.

In compliance with Article IX, sections 19 and 20 of the Michigan Constitution, investments in instruments issued by any financial institution organized under Federal or State law are not to exceed 50% of the net worth of that institution.

1. Real Estate Investments

The treasurer shall have authority to manage real estate investments for the production of rental income by entering into leases and by expending accumulated income there from for the repair, renovation, or alteration of any property held as an investment.

2. Operating Cash and Investments Pool

Operating cash and investments pool is the collective cash balance held in bank accounts plus funds invested with the intent of generating a return and is exclusive of restricted and endowment cash and investments.

The overall philosophy of the operating cash and investments is to have sufficient liquidity to support the operating needs of the university and to preserve purchasing power with a secondary emphasis on capital growth while not exposing the university to undue risk of loss of principal. This may be accomplished through either direct ownership of securities, participation in pools or funds managed by external managers, or through use of a custom portfolio managed by one or more external managers.

In order to qualify to hold university funds, financial institutions organized under Federal or State law must meet or exceed the following financial criteria:

Viability ratio (defined as equity capital to total assets) must be at least 5% of the total assets.

Maximum safe dollars (defined as the total amount invested at an institution to that institution's assets) cannot exceed .5% of the total institutions assets.

No more than 10% of operating cash and investments may be invested in any industry. No more than 5% of operating cash and investments may be invested in the securities of any single issuer with the exception of U.S. Government and Agency obligations. No more than 10% of operating cash and investments can be invested in securities with a rating of BBB or below.

a. Operating Cash

Operating cash is the cash needed for daily operations.

b. Short-term Investments

1. Objective

The primary investment objective for short-term investments will be to provide for preservation of capital with a secondary emphasis upon maximization of investment income without undue exposure to risk. Investments with a duration of less than one year will be considered short-term.

2. Parameters

a) Types of investments include interest-bearing time deposits, short-term cash funds, money market funds that maintain net asset value, commercial paper, banker's acceptances, U.S. Government Obligations, obligations of U.S. Government Agencies and other investment types with similar investment objectives.

b) Commercial paper must be, at the time of purchase, rated within the highest classifications established by not less than two national rating services.

3. Benchmark

The performance of short-term investments will be evaluated based on the Merrill Lynch 91-Day Treasury Bill Index.

4. Maximum Allowable Investment

Short term investments can be up to 100% of the monthly available operating cash and investments pool.

c. Intermediate-term Investments

1. Objective

The primary investment objective for the intermediate-term investments will be preservation of capital and maximization of income without undue exposure to risk. Investments with a duration of one to five years will be considered intermediate-term.

2. Parameters

Types of investments include corporate bonds, U.S. Government Obligations, U.S. Government Agency Obligations and other investment types with similar investment objectives.

These funds would be available on a weekly or monthly basis.

3. Benchmark

The performance of intermediate-term investments will be evaluated based on the Barclay's US Aggregate Bond Index.

4. Maximum Allowable investment

Intermediate-term investments and long-term investments added together cannot exceed 90% of the monthly operating cash and investments pool. Month end balances of operating cash and investments will be calculated on a 12-month rolling average to determine compliance with this parameter.

d. Long-term investments

1. Objective

The primary objective for the long-term investments will be to provide a return over a five year period, greater than short- and intermediate-term investments. Investments with a duration greater than five years will be considered long-term.

2. Parameters

Types of investments include corporate bonds, U.S. Government Obligations, U.S. Government Agency Obligations and other investment types with similar investment objectives.

3. Benchmark

The performance of long-term investments will be evaluated based on the Lehman Brothers' Long-Term Government/Credit Index.

4. Maximum allowable investments

Long-term investments cannot exceed 30% of the monthly operating cash and investments pool. Month end balances of operating cash and investments will be calculated on a 12-month rolling average to determine compliance with this parameter.

5. Collateralization

The treasurer or assistant treasurer may collateralize the long-term investments in order to secure a line of credit from a Board-approved bank or brokerage firm that holds the long-term investments, up to the value of the long-term investments.

e. Reverse Repurchase Agreements

Reverse repurchase agreements involving the purchase and sale of securities and guaranteed investment contracts from a Board-approved bank or brokerage firm that holds university investments, the par value of which is collateralized by the perfected first pledge of, or security interest in, or the payments of which are unconditionally guaranteed by, obligations of the type set forth in paragraph b, or c of this section 2, which collateral is held by the university, or for the benefit of the reverse repurchase agreement, with a collateralized value of at least 102% of the par value of such reverse repurchase agreement or guaranteed investment contract or 102% of the market value thereof, valued at intervals of no less than monthly and which collateral is not subject to any other pledge or security interest.

3. Endowment Funds

The Board of Trustees is aware of its responsibility to manage prudently those Endowment Funds which are given to the university. It is assumed that Endowment Funds will have permanent life and that investment policies will be followed which will protect the principal of the funds and produce maximum total return without assuming extraordinary risks. Funds designated as endowment will be managed according to the same goals.

The Board of Trustees and the designated investment managers shall adhere to the following goals:

a. To provide spendable Endowment income levels which are reasonably stable and sufficient to meet budgetary requirements;

b. To maintain a spending rate that insures a proper balance between the preservation and the enhancement of the purchasing power of Endowment principal.

In order to administer the Endowment Funds the following policies shall be applied:

a. Each year the Board of Trustees will approve the spending rate for individual Endowment accounts for the succeeding fiscal year upon recommendation of the treasurer who shall consult with the investment managers and the appropriate Board Committee.   The spending rate will be applied on the trailing twelve-quarter average of the Endowment account value.

b. Any income in excess of the approved spending rate on the Endowments shall be reinvested as retained earnings in each Endowment Account.

c. To the extent that the annual distributed income and retained earnings for an individual endowment is insufficient to meet the spending rate, the Undistributed Endowment Income account shall be used.

d. Endowment assets will be placed with two or more investment managers at the discretion of the treasurer.

e. Complete discretion in selecting individual investments is delegated to the investment managers. The GVSU treasurer and the appropriate Board Committee shall monitor the investment manager's performance but take no part in the buy-sell decisions or transactions. Ongoing Endowment gifts are to be deposited with the designated investment managers at the discretion of the treasurer. Investment decisions for asset funds not managed by the investment managers and that exceed 5% of the asset value of the Endowment Funds will be submitted to the Board of Trustees for approval after reviewing the decision with members of the appropriate Board Committee.

f. The treasurer will provide the Board of Trustees with an annual report of all long-term Endowment investment funds.

G. Debt Policy

1. Purpose - The purpose of this debt policy is to ensure the appropriate mix of funding sources for capital improvements is utilized and to provide guidance on the strategic use of debt as a funding source.

2. Objectives - The objectives of the debt policy include the following:

a. Prudent utilization of debt to provide a low cost source of capital to fund long-term capital investments in order to achieve the University's mission and strategic objectives.

b. Manage the University's overall debt level in order to maintain the highest acceptable credit rating with appropriate access to capital. The minimum acceptable underlying rating for a University issue is the "A" rating categories by a nationally recognized rating organization.

c. Limit risk within the University debt portfolio by balancing the goal of attaining the lowest cost of capital with the goal of managing interest rate risk.

d. Without attempting to "market time" specific transactions, manage outstanding debt over time to achieve a low cost of capital and to take advantage of interest rate cycles and refunding opportunities.

e. Assure projects financed have a feasible plan of repayment and that secondary pledges are utilized prudently.

3. Funding Capital Projects - The University will use the following guidelines in making decisions about financing options and use of debt, although they are not intended to be all-inclusive:

a. Other sources of funding. In assessing the possible use of debt, other financing and revenue sources will be considered such as: State appropriations/bonds, philanthropy, project-generating revenues, grant revenues, including administration cost reimbursement, expendable reserves, and other sources.

b. Plan of construction and repayment. Every project for financing must have a defined, supportable plan of costs (construction and incremental operating) approved by management.

4. Debt Management Practices

a. Debt Capacity - Debt capacity shall be consistent with the "A" rating categories as assigned by a nationally recognized rating organization. Core financial ratios that are strongly correlated with "A" rated public higher education peers will be monitored to ensure oversight of leverage levels. The three ratios that will be most closely monitored, which are strongly correlated to the rating level, are:

1. Unrestricted Net Assets to Debt

2. Unrestricted Net Assets to Operations

3. Maximum Annual Debt Service to Operations

b. Structure and Maturity - Debt will be structured so as to be consistent with a fair and equitable allocation of costs to current and future beneficiaries or users of the asset(s) being financed with the proceeds of debt.

The amortization and maturity of debt shall be established based on (1) statutory or governmental restrictions, including tax regulations (2) the types of assets financed, and (3) projected availability of cash flows to meet debt service requirements.

Debt shall be issued only for a time period that is consistent with the life of the project for which the debt was issued, generally not to exceed 30 years. Tax-exempt debt must meet the "120 percent of useful life" test set forth in federal tax law. This test requires that weighted average term of tax-exempt borrowings be limited to not more than 120 percent of the estimated usefully life of the asset(s) being financed with the proceeds of the issue. As market dynamics change, maturity structures should be reevaluated. Call features should be structured to provide the highest degree of flexibility relative to cost and to be consistent with market requirements.

Subject to compliance with federal tax law, the use of bullet maturities or balloon principal payments is not precluded by this policy if it can be demonstrated that the retirement of such bullet maturities or making such balloon principal payments have been adequately and appropriately considered.

c. Fixed and Variable Rate Debt - Variable-rate debt may be used as a component of its debt portfolio in order to:

1. Take advantage of prepayment and restructuring flexibility,

2. Benefit from historically lower average rate interest costs,

3. Provide a "match" (or natural hedge) to the university's short-term liquid investment balances,

4. Enhance the ability to undertake optimal financial structure management,

5. Enhance the ability to undertake risk management strategies, and

6. Potentially provide an economically more attractive funding alternative than cash.

While variable rate debt can provide for relatively lower costs of capital than fixed rate debt, variable rate debt also introduces additional risk (including the risk of inability to acquire and maintain required liquidity facilities) and potential volatility with the debt portfolio. The University will seek to manage the debt portfolio over time in a manner that will achieve a range of between 25%-60% of the portfolio in variable rate debt instruments, taking into account the impact of related derivative products. Forty percent (40%) will be considered the neutral portfolio.

The portfolio allocation to variable rate debt will: (1) be analyzed on an after-derivative basis, (2) have an appropriate relationship to short-term liquid assets, and (3) take into consideration rating and other implications. The allocation of variable rate debt may be managed or adjusted through the issuance of new debt or refunding of outstanding debt and through the use of interest rate swaps and other derivative products such as caps and collars.

d. Taxable Debt - The University may use taxable debt for projects that cannot be financed using tax-exempt debt. The University will allocate its capital funding sources in a manner that will minimize the need for taxable debt to keep its cost of borrowing as low as possible.

e. Method of Sale - Bonds shall normally be sold through a "negotiated sale" with the senior underwriter for a specific series of bonds. Notwithstanding, any particular bond issue may be sold through a competitive bidding process rather than a negotiated sale, if circumstances are such that a competitive sale may produce a more optimal result for the University in the current market conditions. Private placements will be considered for debt issuance where the size is too small or the structure is too complicated or not appropriate for public debt issuance.

f. Bond Insurance and Other Credit Enhancement - Bond insurance and other credit enhancement opportunities (e.g. bank liquidity facilities and letter of credit) may be considered and utilized if they are deemed cost effective and do not place onerous covenants upon the University.

g. Refunding and Restructuring of Debt - Periodic reviews of all outstanding debt will be undertaken to determine refunding opportunities. Refunding will be considered (within federal tax law constraints) if and when there is a net economic benefit of the refunding or the refunding is essential in order to modernize covenants essential to the University's financial or operating position.

h. Derivative Products - Derivatives may take the form of interest rate swaps, options on swaps and other hedging mechanisms such as caps, floors, collars and rate locks. Derivative products can be an important interest rate management tool which, when used properly, can increase the University's financial flexibility, provide opportunities for interest rate savings, alter the pattern of debt service payments, create variable rate exposure, and limit or hedge variable rate payments. It is essential that the character of and risk associated with these transactions be evaluated and clearly understood prior to entering into a debt-related derivative. In connection with the use of swaps and derivative products, the University will adhere to the University's Interest Rate Management Agreements Policy.

i. Bond Proceeds Investment - Bond proceeds shall be invested appropriately to achieve the highest return available under arbitrage limitations while providing appropriate flexibility relative to the University estimated construction schedule. When sizing bond transactions, consideration shall be given to funding on a net basis.

j. Selection of Service Providers - The selection of service providers associated with the individual debt transactions shall be made by the Treasurer.

5. Debt Compliance and Reporting

a. Continuing Disclosure Compliance - The University will meet the ongoing disclosure requirements in accordance with SEC Rule 15c2-12. The University will submit all reporting required with respect to outstanding debt to which such Rule is applicable.

b. Arbitrage Rebate Compliance - The University will comply with arbitrage requirements on invested tax-exempt bond proceeds. Arbitrage calculations will be performed as needed and rebate payments to be remitted to the IRS periodically as required.

H. Interest Rate Management Agreements Policy (Swaps)

1. Purpose - In order to reduce debt service cost and interest rate risk and to alter the debt mix, an interest rate management agreement ("Swap" or "Agreement") may be entered into for the purpose of hedging existing and planned General Revenue debt for financing capital items. Such Agreements include, but are not limited to: interest rate swaps or swaptions, interest rate caps, collars, floors, and rate locks.

Prior to entering into any Agreement, a review shall be conducted of the long-term implications associated with entering into such Agreement, including the costs of borrowing, historic interest rate trends, variable rate capacity, credit enhancement capacity, impact on current and future bond ratings, opportunities to refund related debt obligations, the fact that in most cases swaps are economically non-callable, the risks associated with the swap, as described below, and other similar considerations.

2. Authority - The Board may authorize a Swap as a part of its resolution for the approval of the original bond financing or in a subsequent resolution.

3. Legality - In order to enter into an Agreement, the University must receive a legal opinion acceptable to the market that the Agreement relating to the swap transaction is a legal, valid and binding obligation of the University and that entering into the transaction complies with applicable State and Federal Laws.

4. Features of the Agreements

a. Form of Agreements - Any Agreement shall include security, collateral, default, remedy, termination, and other terms, conditions, provisions and safeguards as deemed necessary or desirable by the Treasurer. All Agreements shall be payable only in the currency of the United States of America. Each transaction shall be evidenced by a Confirmation setting forth the payment terms, notional amount and amortization.

b. Terms of Swaps - Subject to the provisions contained herein, the terms of any Swap shall use the following; however the Treasurer may permit variances if the University is otherwise adequately protected:

1. "Downgrade provisions" triggering terminations or requiring collateralization shall in no event be worse for the University than those affecting the counterparty.

2. The "specified indebtedness" related to credit events in any Agreement should be narrowly defined and should refer only to General Revenue indebtedness of the University.

3. "Collateral thresholds" should be set on a sliding scale reflective of credit ratings, size and directional market risk of the transaction. Collateral requirements, including safekeeping requirements, should be established and based upon the credit ratings of the University and of the counterparty or its guarantor.

4. "Eligible collateral" shall be limited to those obligations determined by the Treasurer to be sufficiently liquid.

5. The University shall have the right to "optionally terminate" an Agreement at "Market" at any time over the term of the Agreement.

6. "Termination value" should be set by utilizing a Market Quotation Methodology, Second Method (as defined in the International Swaps and Derivatives Association, Inc. Master Agreement), unless the Treasurer deems an alternate method as appropriate.

c. Qualified Counterparties - The University shall not enter into an Agreement with a counterparty that does not have (1) (a) a general credit rating or a guarantor with a credit rating in the "A" rating categories, as assigned by a nationally recognized rating organization or (b) a subsidiary rated "AAA" by at least one nationally recognized rating organization and (2) a demonstrated record of successfully executing municipal swap transactions. In addition to the rating criteria specified herein, the University shall seek additional credit enhancement and safeguards concerning qualified counterparties in the form of contingent credit support or enhancement, collateral consistent with the policies contained herein, ratings downgrade triggers, or guaranty of parent, if any.

d. Counterparty Exposure - The University shall endeavor to diversify its exposure to counterparties.

e. Methods of Soliciting and Procuring Swaps - Agreements can be procured via competitive or on a negotiated basis as determined by the Treasurer on a case-by-case basis. The competitive process should include a minimum of three firms with counterparty ratings as set forth herein. Agreements may be procured on a negotiated basis when the Treasurer makes a determination that:

1. Due to the size, complexity, or credit features of a particular financing, a negotiated transaction would result in the most favorable pricing.

2. In light of the facts and circumstances, doing so will promote the University's interest by encouraging and rewarding innovation.

3. Marketing of the Swap will require complex explanations about the security for repayment or credit quality.

4. Market timing is important, such as coordination of multiple components of the financing is required.

5. To the extent consistent with law, participation from minority or women owned firms is enhanced.

6. Based on the recommendation of the Swap and Derivatives Advisors, special circumstances exist such that a negotiated transaction would result in the most favorable pricing.

7. If it determined that negotiations might allow greater flexibility in changing Agreement terms in the future.

8. Negotiation of the Agreement will not adversely affect the tax-exempt status of related bonds.

Regardless of the method of procurement, the Treasurer shall obtain an independent finding that the terms and conditions of any derivative entered into reflect a fair market value of such derivative as of the date of its execution.

f. Term and Notional Amount - The maximum term, including any renewal periods, of any Agreement may not exceed the latest maturity date of the bonds, notes, debt, or prospective debt referenced in the Agreement. From and after its effective date, the notional amount of any Agreement shall not exceed the outstanding principal amount of the debt to which such agreement relates.

g. Pledging of Collateral - As part of any Agreement, based on credit ratings of the counterparty or as may be requested by the counterparty or the University, collateralization or other forms of University credit enhancements to secure any or all payment obligations of the counterparty or the University under the Agreement may be required. As appropriate, the Treasurer may require of the counterparty, or grant thereto, collateral or other credit enhancement to be posted subject to the collateral threshold amounts specified for such Agreement. Additional collateral for a further decrease in the credit rating and/or an increase in mark-to-market exposure of either counterparty shall be posted by that counterparty in accordance with the provisions contained in the Agreement or collateral support agreements related thereto.

Threshold collateral amounts shall be determined by the Treasurer on a case by case basis who will determine the reasonable threshold limits for the initial deposit and for increments of collateral posting thereafter. Collateral shall be pledged to the trustee, an independent third-party, or as mutually agreed upon between the University and the counterparty. A list of acceptable securities that may be posted as collateral and the valuation of such collateral will be determined and mutually agreed upon under the Agreement. The market value of the collateral shall be determined on a not less than a monthly basis or more frequently if the Treasurer determines it is in its best interest given the specific collateral security.

h. Prohibited Agreements - The University shall not enter into Agreements that:

1. Are purely speculative or create extraordinary leverage or risk,

2. Lack adequate liquidity to terminate without incurring a significant bid/ask spread,

3. Provide insufficient price transparency to allow reasonable valuation, or

4. Are not connected to existing outstanding debt or debt that will be issued within five years from the inception of the Agreement.

5. Management of Swap Transaction Risk - In order to manage the associated risks, guidelines and parameters are as follows:

a. Interest Rate Risk - Interest rate risk is the risk that interest costs on a bond or an Agreement will increase and cost more than the rates associated with a fixed-rate obligation. In the initial financing program for each bond issue, the University will consider hedging the interest rate risk exposure in a manner that results in a net interest cost that is lower than that associated with a fixed-rate obligation. An annual evaluation of interest cost will be conducted. Interest rate risk also includes the risk that changes in the level of interest rates affects the mark-to-market (MTM) value of the University's swaps. Inherent in interest rate risk is also yield curve risk, as changes in the shape of the yield curve (i.e. flattening and steepening) affects the overall level of interest rates. For floating-to-fixed rate swaps, the University MTM will be favorably impacted when interest rates rise. Conversely, when interest rates decline the University MTM will be negatively impacted.

b. Basis Risk - Basis risk is the risk of a mismatch between the actual variable interest rate on the University's debt and the floating rate option index from which any payments under an Agreement are received. Prior to entering into any Agreement, a review of historical relationships and trading differentials between the variable rates on similar bonds and the index will be conducted when deciding whether the relationship is sufficiently close to accept such risk. Any index chosen as part of an interest rate swap agreement shall be a recognized market index including but not limited to The Bond Market Association (BMA) or the London Interbank Offered Rate (LIBOR).

c. Tax Risk - Tax risk is the risk that tax laws will change, resulting in a change in the marginal tax rates and the valuation of the swaps or the performance of the swaps in accomplishing the anticipated hedging or cost savings functions. Tax event provisions contained in proposed Agreements will be reviewed and also discuss the impact of potential changes in tax law on payments under related bonds, or under the proposed Agreement, based on modeling of historical data and taxable indices and shall take into account the reduction in the University's fixed payer rate in return for accepting tax risk.

d. Termination Risk - Termination risk occurs when a swap transaction is terminated prior to its stated expiration, which can happen for a variety of reasons, some of which may be beyond the control of the University. In the case of a termination, normally a settlement payment will owe from one party to the other, in order to maintain the original financial benefits of the transaction, and without regard to which party's actions may have caused the termination. Risks can arise either because the University may be required to make a settlement payment it did not anticipate, or because the University might not, in light of changed circumstances, be able to replace the swap on favorable terms, and could therefore lose some or all of the hedge or cost savings associated with the swap. Risk will be assessed by an annual review of the market value for all existing and proposed Agreements. The termination provisions of any swap agreement shall be bilateral; however, the Treasurer shall have the right to optionally terminate a swap agreement at any time over the term of the agreement (elective termination right). In general, exercising the right to optionally terminate an agreement should produce a benefit to the University, either through receipt of a payment from a termination, or if a termination payment is made by the University, a conversion to a more beneficial debt instrument or credit relationship.

e. Counterparty Risk - Counterparty risk occurs when there is the failure of the counterparty to make required payments under the Agreement. The Treasurer will monitor exposure levels, ratings thresholds, and collateralization requirements and will take action to enforce remedies when appropriate. The Treasurer will also consider termination of any counterparty whose ratings fall below the minimum required for entering into an Agreement with the University.

f. Liquidity Risk - As described in the University's Debt Policy, liquidity risk occurs when there is an inability to renew a liquidity facility on a related floating rate bond issue. In the event that a current provider has liquidity problems or will not renew its agreement at an acceptable price, the Treasurer shall request bids from other liquidity facility providers in addition to considering alternative bond structures, such as auction rate bonds.

6. Reporting Requirements - The University's financial statements include an annual disclosure on the status of all interest rate swaps, including descriptions of all swaps with notional value and interest rates, credit ratings for the relative counterparties and market valuation. The University will disclose information concerning any material event involving outstanding Agreements, including a counterparty's default or termination and actual collateral postings by the University, if any, per Agreement and in total by swap counterparty to the Finance and Audit Committee.

I. Contracts

Contracts executed in the name of Grand Valley State University may be obligated only by persons specifically given that responsibility and authority by the Board of Trustees, or, if appropriate, the president or vice presidents of the university or their designee. The Treasurer will report, on an annual basis, the contracting authority that has been delegated to individuals at the University.

J. Purchasing Policy

A central purchasing office shall be maintained to serve the needs of the entire university. This office shall be responsible for the purchase of all materials, supplies, and services costing more than $5,000, as well as both purchased and rental equipment, with the following exceptions:

1. Books, pamphlets, and periodicals for the library

2. Bookstore merchandise for resale

3. Professional consulting services

4.Architectural and consultant services, new constructions, contractual repairs and remodeling

5. Pro shop merchandise for resale

6. Software licenses and related maintenance agreements

Purchases of $5,000 and less or purchases involving sole source will be handled in accordance with procedures issued by the treasurer for the efficient procurement of these items. The purchasing office shall develop standards for equipment and supplies and encourage the use of the standards throughout the university.

The selection of a vendor is the responsibility of the purchasing office. In the selection, the purchasing office shall not in any way discriminate against any vendor because of race, creed, age, sex, or national origin, nor shall the university continue to patronize vendors known to practice any forms of discrimination.

The purchasing office shall accept no gift or gratuity from a vendor nor shall they, in the name of the university, make or attempt to make personal purchases for faculty or staff.

No commitment of funds shall be made by the purchasing office without prior approval of the unit to which the commitment is to be charged.

For all purchases exceeding $10,000 and when appropriate on lesser amounts, the purchase shall be preceded by competitive bids. These bids should be written except when time or other circumstances do not permit, in which case verbal bids are acceptable if properly documented. Only qualified reputable vendors shall be asked to bid. After the award is made, the list of bidders and the amount of each shall become public information available to anyone on request. For all purchases exceeding $25,000, with the exception of professional services, such as legal, architectural and engineering, or other consulting services, the purchase shall be preceded by competitive sealed bids. The bids are to be returned in envelopes furnished and so marked. The bid request will state the day and time due. At that time they are to be publicly opened and read aloud. No sealed bids can be accepted if received after the date and time specified. Unsuccessful bidders may appeal the decision of the purchasing office to improve procedures in future purchasing or to correct any misunderstanding that may have arisen. Purchase of items when there is a sole source need not be bid.

This office shall be responsible for the orderly disposal of surplus, obsolete, and worn out equipment.

K. Travel and Meetings Policy

Expenditures and/or reimbursement for travel and meetings are authorized to the extent that they are necessary and reasonable and are on university business; and are subject to such limitations and documentation requirements as the president of the university may set. The vice president of finance and administration shall publish current policy and the disbursing officer shall audit all claims and requests prior to payment.

The president may approve that the university provide a vehicle for use by an employee when appropriate. All limitations and requirements for use of such vehicles must be approved in advance.

L. Fidelity Bonds

Separate fidelity bonds shall be maintained as required by law and in amounts set by the Board of Trustees.

M. Facilities

1. Capital Projects

The responsibility for capital expenditures rests with the Board of Trustees and is delegated to the president and the treasurer at appropriate stages for specific projects.

The facilities services & planning office shall prepare a Capital Outlay Request of capital outlay needs for review and recommendation by the president for approval by the Board of Trustees and submission to appropriate state and/or federal offices. Preparation of this statement shall be done with the consultation or participation of other university administrative officers as appropriate.

Planning for and construction administration, which includes remodeling, of capital projects shall primarily be the responsibility of facilities planning staff who shall consult with and involve other members of the university community as appropriate. For capital projects of $3,000,000 or less, the president or his/her designee shall review and approve such capital projects. The Board of Trustees shall review and approve the following items for each project over $3,000,000:

a. the architect or engineer

b. the budget

c. the funding source

d. the schedule

e. the site plan

f. the floor plans

g. the authorization to proceed with the project as presented

h. the general contractor or construction manager will be reported to the appropriate Board committee prior to approval by the full Board. If the low bidder is not proposed, the reason for not selecting the low bidder will be reported to the appropriate Board committee.

i. Construction contract change orders that cause the project budget to exceed the approved budget.

2. Contracts

Contracts for architectural and engineering services, related consultant services, new construction, remodeling and alterations, special maintenance and repairs, and property leases may be executed by the president, the vice president for finance and administration, or to those designated by the president or the vice president for finance and administration.

3. Public Safety

The university shall maintain a public safety force to include trained, sworn officers with the responsibility of enforcing institutional rules and regulations and state and local law to provide a safe environment for students, faculty, staff, and campus visitors. A traffic and parking ordinance shall be approved by the President.

4. Naming of Buildings

The Board will approve naming of buildings when they are named for individuals, foundations and corporations. Once the building or area named has been conferred, that name shall remain as long as the building or area exists unless the Board subsequently determines otherwise.

The authority to name university buildings is delegated to the President for those instances when the building name is simply functional in nature, e.g., Living Center. The President shall approve the assignment of names to building areas and spaces when less then an entire building.

N. Intercollegiate Athletics

This office is responsible for coordination, implementation and development of all athletic programs and related activities, financial support and liaison between other schools and communities for the institution, pertaining to the students involved.

O. Economic Development

Consistent with its public service mission, the University has a responsibility for supporting the economic development of the state, particularly west Michigan through a variety of initiatives including but not limited to the Van Andel Global Trade Institute, the West Michigan Science and Technology Initiative through the Grand Rapids SmartZone and the Muskegon SmartZone. These efforts will involve the development and commercialization of intellectual property using University resources which may result in royalty or ownership interests for the benefit of the University.

In compliance with MCL 15.321 et seq., the President must review any conflict of interest and authorize such activities as may be deemed necessary when the University is an interested party in the joint development or commercialization of intellectual property with any employee of the University or a business in which the University employee has an equity interest. The President shall report his/her approval of such conflicts, including a summary of the issues and the rationale for his/her decision, at the next regularly scheduled board meeting, and shall make an annual report of all such conflicts.

P. Tuition and Fees

The tuition and fee schedule shall be approved by the Board of Trustees and is published in Appendix A of this Chapter 6. The President shall approve the schedule and procedures as it relates to students in international programs affiliated with the university.

Q. Authorization to Approve Collective Bargaining Agreements

The Board of Trustees' Audit and Finance Committee shall review and approve collective bargaining agreements between the University and the duly authorized organization representing certain employees of the University that are presented to the Finance and Audit Committee by the University's administration provided such agreements are within the budget approved by the Board. 

>>>Click here to go to Appendix A and Appendix B

Page last modified January 24, 2017