SD3 - Review of Capital Outlay in Higher Education

  • Published: 1996
  • Author: Joint Legislative Audit and Review Commission
  • Enabling Authority: Senate Joint Resolution 135 (Regular Session, 1989)

Executive Summary:
From 1988 to 1994, the General Assembly appropriated approximately $1.86 billion to fund capital outlay projects at Virginia's institutions of higher education. Chart: Higher Education Capital Funding by Source. A capital project can take a decade or more from the initial request for funding to project completion. The capital outlay process involves reviews by as many as ten State agencies, as well as the Art and Architecture Review Board (AARB).

The Department of Planning and Budget (DPB) is responsible for developing the Governor's capital budget proposals, but the State Council of Higher Education for Virginia (SCHEV) is statutorily responsible for developing recommendations to the Governor and the General Assembly on higher education's capital outlay needs. The Department of General Services (DGS), through its Bureau of Capital Outlay Management (BCOM), reviews project plans and specifications for code compliance, suitability and adequacy, cost effectiveness, and compliance with the Procurement Act. The Department of Environmental Quality (DEQ) is responsible for coordinating reviews by environmental agencies of a project's environmental impact report.

JLARC's review of capital outlay in higher education was mandated by Senate Joint Resolution 135, approved by the 1989 General Assembly. JLARC last reviewed the State's capital outlay process in 1978. Major conclusions of the current study are:

• The capital outlay process for higher education is generally adequate;

• Future higher education capital outlay requests need to be more thoroughly evaluated by effectively linking master planning, enrollment projections, utilization data, SCHEV's fixed asset guidelines, and DPB's six-year plan for capital outlay;

• The State should decentralize significant tasks of capital outlay management to institutions of higher education; and

• The State faces a significant maintenance reserve backlog.

The report contains 25 recommendations to make the higher education capital outlay process more efficient and effective.

Improved Capital Planning and Space Utilization Could Affect New Construction Needs

The State's capital outlay process could benefit from improved planning. The General Assembly should consider five significant planning instruments in assessing capital outlay needs of institutions of higher education: master plans, enrollment forecasts, utilization data, SCHEV's fixed asset guidelines, and DPB's six-year plan. Through better planning, the need for expensive capital projects could be reduced.

Master plans are prepared by institutions of higher education, but many plans have not been approved at the State level. The State does not have a clear definition of what a master plan should be and has not clearly established responsibility for the review of master plans. The General Assembly should consider delegating approval of master plans to the boards of visitors at senior institutions of higher education and to the State Board for Community Colleges, provided the plans follow appropriate guidelines.

Enrollment forecasts made by institutions of higher education and approved by SCHEV project significant increases in student enrollment. However, these increases are concentrated in a few selected institutions primarily in urbanized areas. The most recent enrollment projections, released in April 1995, do not indicate a compelling need for new construction throughout the system of higher education. There are, however, substantial renovation and maintenance needs. The enrollment forecasts should be used in combination with other planning instruments to thoroughly assess the need for capital projects.

Another factor which could lessen the future need for expensive capital projects is better use of existing classrooms and laboratories. Most institutions of higher education are not utilizing their existing space in accordance with SCHEV guidelines for space utilization. Chart: Institutions Meeting the SCHEV Classroom Utilization Standard. Institutions of higher education have prepared restructuring plans that address, among other issues, increasing utilization of existing space. SCHEV should monitor the implementation of these restructuring plans.

SCHEV's fixed asset guidelines are also important in determining capital outlay needs. These revised guidelines are a significant improvement over the previous guidelines, but could be enhanced by including criteria for evaluating proposed renovation projects and new campuses, based on use of existing space and estimates of enrollment growth.

The six-year plan for capital outlay needs was developed at the direction of the Secretary of Finance in 1990. This process has significantly improved long-term capital planning. However, an effective six-year planning process requires consistent funding.

Capital Outlay Management Should Be Decentralized for Institutions of Higher Education

The General Assembly should consider decentralizing capital outlay management for institutions of higher education, which could result in a less cumbersome and time-consuming process. The Department of General Services would continue to provide an analysis of the appropriate overall project budget. Building code compliance review could be conducted using Assistant State Building Officials, local building officials, and private firms as recently recommended by the Governor's Commission on Government Reform.

In addition, the administrative thresholds for approval of change orders should be raised, the number of agencies involved in environmental reviews should be streamlined, and the review by the AARB should be strictly advisory to institutions of higher education. Institutions of higher education should also be permitted to more routinely use alternative construction approaches such as design-build and construction management. However, institutions of higher education should more consistently document the performance of general contractors and architectural and engineering firms.

The State Invests Significantly in Maintenance but Faces a Backlog of Maintenance Reserve Projects

The State has invested significant resources in the maintenance reserve program. However, the State has a backlog of validated maintenance reserve projects in excess of $100 million. This maintenance reserve backlog has a significant, negative impact on the condition of higher education facilities.