Financial Services
401 Golden Shore, 5th Floor
Long Beach, CA 90802-4210
www.calstate.edu
Mary Ek
Assistant Vice Chancellor/Controller
562-951-4540
Coded Memo: FS 2016-01,
supersedes FS 2011-05
D
ate:
To:
From:
March 18, 2016
Assistant Vice Presidents
and Financial Officers’ Association Delegates
Mary Ek, Assistant Vice Chancellor/Controller
Subj
ect: Definition of Major (Non-recurring) Maintenance & Repair Costs as Used in Executive Order 994
and Chapter 15 of the Legal Accounting and Reporting Manual - UPDATED
De
ar Colleagues,
In 2011, guidance was requested in connection with the definition of “major” maintenance and repair costs as used
in Executive Order (EO) 994 since the term “major” was subject to varying interpretations throughout the CSU. The
prior version of this memo, FS 2011-05, was intended to provide information to assist in the achievement of system-
wide consistency in the recording of these costs. The definition affected the selection of CSU fund for posting these
costs and the calculation of the debt service coverage ratio (DSCR).
This update has been prompted by the inclusion of a new chapter in the
Legal Accounting and Reporting Manual,
Chapter 15, Capital Projects – Funding for University Facilities. Chapter 15 addresses the accounting aspects of the
spending authority granted by the California legislature in connection with both deferred maintenance and new
construction projects. It introduces new terminology in connection with repair and maintenance costs and changes
both the nature and the descriptions of certain CSU funds.
S
ection 2.7 of EO 994 states: “For a Project or Program Extraordinary Expenses and Major Maintenance and Repairs
will not be included in the DSCR . . .”; Chapter 15 applies different terminology so that “major” maintenance and
repair costs are referred to as “non-recurring”. “Recurring” maintenance and repair costs are those that are
“routine”. See Chapter 15 for complete definitions of “recurring” and “non-recurring” maintenance and repair
costs. “Recurring” repair costs are included in the DSCR to evaluate financial viability of capital projects by CSU
management; “non-recurring” repair costs are excluded from the calculation.
D
SCR is a standard financial analysis calculation used to evaluate the ongoing cash flow strength of a program or
entity with debt service obligations. As the financing market prescribes, the calculation is based on current period
revenue and expenditures, not based on reserves, in order to measure an entity’s ability to generate cash from
operations on a consistent basis. The higher the DSCR, the more favorably an entity is viewed by investors and
rating agencies.
Digitally signed by
Mary Ek
Date: 2016.03.18
10:03:33 -07'00'
“Non-recurring” maintenance and repairs are not synonymous with capital expenditures. Capital expenditures are
costs incurred to acquire or construct a capital asset, defined in Chapter 13 of the GAAP Reporting Manual as “. . . real
or personal property that has a unit acquisition cost equal to or greater than $5,000 and an estimated life greater than
one year.” The cost of “recurring” maintenance and repairs should be recorded either in auxiliary enterprise operating
funds or in the CSU operating fund, if the expenditure pertains to academic or administrative buildings. The cost of
“non-recurring” repairs should be recorded either in auxiliary enterprise repair and maintenance funds or in the
academic repair and maintenance fund, if the expenditure pertains to academic or administrative buildings. The choice
of an appropriate CSU fund is important since it is used as the identifier to distinguish between “recurring” maintenance
and repairs and “non-recurring” maintenance and repairs.
For your reference, below is a listing of auxiliary enterprise operating funds, repair and maintenance funds, and
academic program funds
1
in state fund 0948 that are used in the calculation of the DSCR:
Operating Funds (to record "recurring" maintenance and repair)
Program
SCO Fund
CSU Fund
Description
Academic
0948
485
TF CSU Operating Fund
Housing
0948
531
TF Housing-Operations and Revenue
Student Union
0948
534
TF Campus Union-Operations and Revenue
Parking
0948
472
TF Parking Revenue Fund-Parking Fees
Health Center
0948
452
TF Facility Revenue Fund-Health Facilities Fee
Continuing
0948
441
TF Extended Education Operations
Maintenance and Repair Funds (to record "non-recurring" maintenance and repair)
Program
SCO Fund
CSU Fund
Description
Academic 0948 486 TF-Academic Maintenance & Repair
Housing 0948 532 TF-Housing Maintenance & Repair
Student Union 0948 535 TF-Campus Union Maintenance & Repair
Parking
0948
474
TF-Parking Maintenance & Repair
Health Center 0948 454 TF-Facility Maintenance & Repair
Continuing
Education
0948 443 TF-Extended Education Maintenance & Repair
1
“Academic Program” in the context of maintenance and capital improvements, the subject of Chapter 15, is defined
to include academic and other non-self-support facilities, such as administration buildings, library and classrooms.
3
Additionally, below is a listing of auxiliary enterprise and academic capital improvement funds. Only capital
improvement expenditures should be recorded in these funds.
Capital Project Funds (to record capital expenditures)
Program
SCO Fund
CSU Fund
Description
Academic 0948 487 TF-Academic Capital Improvements
Housing 0948 533 TF-Housing Capital Improvements
Student Union
0948
536
TF-Campus Union Capital Improvements
Parking 0948 473 TF-Parking Capital Improvements
Health Center 0948 453 TF-Facility Capital Improvements
Continuing
Education
0948
442
TF-Extended Education Capital Improvements
Regarding the choice of object codes, object code 660021, Repairs & Maintenance, is available to record both
“recurring” and “non-recurring” repairs as well as both building and equipment repairs. Because this object code is
no longer associated with a specific FIRMS program code, the department in which the expense is recorded will
determine the FIRMS program code to which it is derived (i.e., based on Rule 4, the department ID). Object code
660021 is the only choice when recording repairs and maintenance in operating funds, however, other object codes
for non-capital expenditures may be used in the maintenance and repair funds if they more accurately describe the
nature of the expenditures (e.g., 613001, etc.). Capital project expenditures should be recorded in the object code
series 607XXX.
Ultimately, the classification of a repair and maintenance item as either “recurring” or “non-recurring” is a matter of
judgment and will vary depending on the campus size and the nature of the repair. It is critical that a careful evaluation
of the classification of each repair expenditure be made to ensure the accuracy of the DSCR. EO 994 establishes
minimum values that must be met for the campus’s debt program. Falling below these benchmarks could jeopardize
the campus’s ability to finance future projects.
The attachment to this memo provides an example of inappropriate recording of non-recurring (major) maintenance
and repair expenses and an example of appropriate recording of these costs, with a demonstration of the impact of
each on calculation of the DSCR.
The effective date of this document is July 1, 2016. Should you have any questions, please feel free to contact Roberta
McNiel at 562-951-4668 or Sedong John at 562-951-4577.
Cc: Chancellor’s Office Financing and Treasury, FSAC Members, CPDC
4
Prepared by: Financing and Treasury
May 4, 2011
Z:\FS-Admin\1-Admin Shared Files\FS Communications\Memos\Coded Memo\2016\memo 16 att_2016 update
Example of Inappropriate Recording of Non-recurring M&R Expenses
and Impact to Debt Service Coverage Ratio (DSCR)
Object Code Amount
Revenue
Sales and Services of Auxiliary Enterprise 504000 6,500,000
Interest from SMIF 507001 80,000
Other Operating Revenues 580090 1,500
Total Revenue 6,581,500
Expenses
Management and Supervisory 601201 1,000,000
Support Staff Salaries 601300 100,000
Benefits 603000 650,000
State prorata
612001 180,000
Chancellor's Office
660025 40,000
Services from Other Funds/Agencies 617001 400,000
Supplies and Services 660003 1,500,000
In this example, Non-recurring M&R Expenses totalling
$1,200,000 were incorrectly recorded as Supplies and
Services.
Maintenance and Repair (Recurring M&R) 660021 60,000
Total Expenses
3,930,000
Net Income 2,651,500
Debt Service 2,750,000
Debt Service Coverage Ratio (DSCR) 0.96
The DSCR is understated and does not meet the minimum
requirement of 1.10. If M&R had been recorded properly,
the DSCR would be 1.40.
Transfer to M&R Reserve 250,000
Transfer to Construction 100,000
Transfer to Catastrophic Event Reserve 500,000
Net Income after
debt service and transfers
(948,500)
Beginning Balance 5,550,000
Ending Balance 4,601,500
Reserve Funds
M&R Reserve
Beginning balance 3,500,000
Transfer in 250,000
Expenditures 0
The Non-recurring M&R expenses totalling $1,200,000 that
were incorrectly recorded as Supplies and Services under
Operating Expenses and should have been recorded here.
Ending balance 3,750,000
Construction Reserve
Beginning balance 1,500,000
Transfer in 100,000
Expenditures -
Ending balance 1,600,000
Catastrophic Event Reserve
Beginning balance 2,500,000
Transfer in 500,000
Expenditures -
Ending balance 3,000,000
Coded Memo: FS 2016-01 - Attachment A
Prepared by: Financing and Treasury
May 4, 2011
Z:\FS-Admin\1-Admin Shared Files\FS Communications\Memos\Coded Memo\2016\memo 16 att_2016 update
Example of Appropriate Recording of Non-recurring M&R Expenses
and Impact to Debt Service Coverage Ratio (DSCR)
Object Code Amount
Revenue
Sales and Services of Auxiliary Enterprise 504000 6,500,000
Interest from SMIF 507001 80,000
Other Operating Revenues 580090 1,500
Total Revenue 6,581,500
Expenses
Management and Supervisory 601201 1,000,000
Support Staff Salaries 601300 100,000
Benefits 603000 650,000
State prorata
612001 180,000
Chancellor's Office
660025 40,000
Services from Other Funds/Agencies 617001 400,000
Supplies and Services 660003 300,000
Appropriate M&R Expense which
does NOT include Non-recurring
M&R.
Maintenance and Repair (Recurring M&R) 660021 60,000
Total Expenses 2,730,000
Net Income 3,851,500
Debt Service 2,750,000
DSCR 1.40
Appropriate DSCR which meets
minimum benchmark of 1.10.
Transfer to M&R Reserve 250,000
Transfer to Construction 100,000
Transfer to Catastrophic Event Reserve 500,000
Net Income after
debt service and transfers
251,500
Beginning Balance 5,550,000
Ending Balance 5,801,500
Reserve Funds
M&R Reserve
Beginning balance 3,500,000
Transfer in 250,000
Expenditures 1,200,000
Appropriate Recording of Non-
recurring M&R Expense.
Ending balance 2,550,000
Construction Reserve
Beginning balance 1,500,000
Transfer in 100,000
Expenditures -
Ending balance 1,600,000
Catastrophic Event Reserve
Beginning balance 2,500,000
Transfer in 500,000
Expenditures -
Ending balance 3,000,000
Coded Memo: FS 2016-01 - Attachment B
