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Chapter 6
ASSET AND RISK MANAGEMENT

This chapter of the report reviews the asset and risk management functions of Austin Community College (ACC) in five areas:

A. Cash and Investment Management
B. Employee Benefits
C. Insurance Programs
D. Fixed Assets
E. Bond Issuance and Indebtedness

E. BOND ISSUANCE AND INDEBTEDNESS

ACC issues revenue bonds to purchase, acquire, construct, renovate and equip college facilities. Revenue bonds are not secured by the taxing powers of the issuer; rather, they are paid from revenues generated from user fees. ACC imposes additional fees to raise funds to repay its bonds. The college imposesa building fee of $12 per semester credit hour for each semester of the regular session and each term of the summer session; however, only $9 per semester is pledged as security for bond repayment. A student services fee of $3 per student per term is also charged for a total tuition fee of $15. The $15 is charged for each regular fall and spring semester and $7.50 for each summer, special or other session. Debt of approximately $55.5 million is outstanding from four bond issuances dating back to 1995. Exhibit 6-24 provides a summary of ACC's outstanding debt as of March 4, 2002. There are no plans to issue more bonds in the immediate future.

Exhibit 6-24
ACC Outstanding Bond Debt as of March 4, 2002
Bond Series Outstanding
Principal		 Average
Debt Service		 Final
Maturity
1995 $4,950,000 $820,428 2011
1998 $9,000,000 $2,289,108 2015
2000 $31,140,000 $4,174,562 2021
2002 $10,389,519 $1,026,753 2023
Total $55,479,519  
Source: First Southwest Company, Official Statement, March 4, 2002.

ACC issued bonds most recently in February 2002 and during fiscal 2000. The proceeds from the bond sales were used to refund outstanding bonds, fund a land purchase and acquire, construct and renovate various facilities. Exhibit 6-25 presents current and planned use of Series 2000 and 2002 bond proceeds.

Exhibit 6-25
Current and Planned Uses for Series 2000 and 2002 Bond Proceeds
Source of Funds 2000 Series 2002 Series Total
Bond Proceeds $31,365,000 $10,389,516 $41,754,516
       
Current Use of Funds      
Refunded bonds 3,862,714 4,417,838 8,280,552
Bond discount 144,216 92,692 236,908
Bond issuance costs 655,095 192,465 847,560
Accrued interest expense   285,104 285,104
Bond covenant reserve 1,000,000   1,000,000
Service Center land & building 5,674,155   5,674,155
Health Science building 1,176,305   1,176,305
Riverside retrofit 171,001   171,001
Highland Business Center retrofit 4,834   4,834
Remodeling/equipment purchases 1,000,000   1,000,000
South Austin land & building   2,218,684 2,218,684
Total Current Uses 13,688,320 7,206,783 20,895,103
       
Planned Use of Funds      
Health Science building 16,091,952   16,091,952
Riverside retrofit 428,999   428,999
Highland Business Center retrofit 245,166   245,166
Remodeling/equipment purchases 500,000   500,000
Pinnacle parking   715,000 715,000
Remodeling/equipment purchases   1,500,000 1,500,000
Total Planned Uses 17,266,117 2,215,000 19,481,117
Remaining Bond Proceeds $410,563 $967,733 $1,378,296
Source: ACC Business Services Analysis, March 26, 2002.

FINDING

In March 2002, ACC refunded $4.4 million of Series 1992 bonds, which resulted in cash flow savings of approximately $3.5 million over the next four years (2002 through 2006). Refunding occurs when new bonds are issued to repay principal and accrued interest on older outstanding bonds. Typically, the interest rate paid on the older bonds is higher than the rate on the new bonds, which results in savings. Exhibit 6-26 summarizes cash flow savings achieved from the bond refunding.

Exhibit 6-26
Savings from Bond Refunding
Fiscal
Year		 Net Cash
Savings
2002 $252,000
2003 569,000
2004 606,000
2005 1,148,000
2006 883,000
Total Savings $3,458,000
Source: ACC Business Services.

COMMENDATION

ACC achieved cash savings of approximately $3.5 million after refunding Series 1992 bonds.