NDPPS Template Guide

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Facilities Reinvestment A Strategic Approach
for the Future
October 2003
This Presentation was developed by SANDOR
CONSULTINGGary Sandor, President (formerly of
KPMG Consulting), 905-762-0107
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Facilities Reinvestment The Context

• The current demands on the college system in
  Ontario are significant. Over the past two years,
  enrolments have increased 15.7, while provincial
  government revenues have not kept pace. The
  mandate of Colleges to respond to the marketplace
  has resulted in differentiated missions and new
  programming requirements. These measures have
  increased the complexity of college operations
  and reduced their flexibility to respond, placing
  a strain on the college system.
• Within this environment, facility managers are
  responding to demands for
• increased janitorial and facility maintenance in
  response to significant growth in campus
  population
• specialized learning facilities to meet unique
  and changing programming needs
• managing tight budget constraints
• rising utility expenditures of 15 and 6 over
  the past two years
• retiring deferred maintenance and
• full compliance with building/fire/health, safety
  and environmental regulation.
• Within this context, its time to get the most
  out of available funds, reduce the cost of
  ownership by increasing the useful life of the
  facilities, and maximize the return on
  investment!

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The Key Messages about Facilities Reinvestment

• Buildings and facilities, the capital investment
  of colleges, are critical supports to the
  activity of learning and provide learners,
  faculty and staff with safe working conditions.
• Current operating budgets are insufficient to
  provide appropriate service and maintenance
  levels to meet industry standards for facilities.
• Funding for new facilities currently coming on
  stream has not been identified.
• The majority of college facilities are now
  between 25 35 years old and many components are
  in need of repair or upgrade.
• Colleges must continue to increase their capacity
  to support the evolving technological needs of
  all programs. Facilities must be regularly
  maintained to support the most recent
  technologies and ensure appropriate access for
  students.
• As some of the colleges Key Performance
  Indicators are based on students satisfaction
  with facilities, colleges have a vested interest
  in spending monies on Facilities Reinvestment.
• Resources spent in relation to Facilities
  Reinvestment provide a return that can be
  measured in
• - optimized operational and capital
  expenditures thereby ensuring longer facility
  lifetimes - sustainable
  occupancy and environmental comfort - increased
  flexibility of facilities to maximize utilization

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Facilities Reinvestment Understanding the
Background

• Deferred Maintenance is made up of several
  different factors related to the true cost of
  Facilities Ownership. Insufficient funding in any
  one of these factors contributes to deferred
  maintenance. The contributing factors include
• Operational Maintenance and Repair (OMR)
  Regular repairs and maintenance that should be
  funded at 2 to 4 of building replacement value
  annually. Colleges are currently funded at 1.6,
  leaving an annual short fall of 47 million.
• Cyclical Renewal and Replacement (CRR) Capital
  replacement of structural elements, building
  equipment, systems and finishes that are at the
  end of their useful life. Industry standards
  indicate funding at 1.5 to 2.5 per year.
  Colleges are currently funded at .38,
  representing an annual shortfall of 56 million.
• Legislative Codes and Safety Standards Work
  related to maintaining compliance that is not
  completed or postponed indefinitely until funds
  are available.

Sources for these industry figures include the
Federal Facilities Council and the National
Research Council (both U.S.)
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Facilities Reinvestment Understanding the
Current Situation

• At the end of the 2002/03 fiscal year, Ontario
  Colleges estimated that deferred maintenance
  stood at approximately 300 million!
• No increased spending in operational maintenance
  will add approximately 141 million to deferred
  maintenance over the next three years.
• No growth in Capital funding will add
  approximately 168 million to deferred
  maintenance over the next three years.
• By the end of fiscal 2006, deferred maintenance
  will climb to 600 million.
• There is a firm belief that the figures noted in
  the previous four points are very likely
  understated due to the recent calculation that
  the Building Replacement value has increased from
  185 per square foot to 225 per square foot.
• Colleges are not in compliance with new
  Legislation and Regulations now and will continue
  to extend their liability in the future. Issues
  such as PCB transformers and banned refrigerants
  must be dealt with.
• Each year we add to the risk of serious failure
  of any one of our buildings or systems.

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Facilities Reinvestment Understanding the
NumbersThe Erosion of the Spending Dollar

• The chart on the left represents the Total
  Facilities Operating Expenses for 14 Ontario
  Colleges between 1995/96 and 2001/02.
• During that time period, the Consumer Price
  Index rose 12, while the operating expenses for
  Ontario Colleges only increased 3.
• While the previous point describes a 9
  difference between operating expenses and CPI
  over the past seven years, in some particular
  years, this difference was far greater than 9.
• For instance, in 1998/99, operating expenses
  dropped just over 12, while the CPI rose 2, for
  a difference of 14
• The loss of spending power directly impacts
  Colleges ability to appropriately maintain and
  service their facilities.

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Facilities Reinvestment Understanding the
NumbersThe Erosion of the Spending Dollar

• The chart on left illustrates the dramatic
  impact of utilities expenditures on system
  facilities funding. It shows a 7.6 million
  increase in utilities costs for 19 colleges
  reporting from 1996/97 to 2002/03.
• Utilities expenditures represent 56 of the
  total facilities increase between 2001/02 and
  2002/03.
• Maintenance, Cleaning and Admin expenditures for
  the same period make up less than one third of
  the overall increase in facility expenditure.
  (These are the Operational Maintenance and Repair
  expenditures.)
• As Colleges add significant square footage to
  their inventories (to deal with the double
  cohort), there does not appear to be new money on
  the horizon for operating and maintaining these
  facilities.
• If no new operating and capital money is
  forthcoming, Colleges will be forced to reduce
  their maintenance and operation activities to
  ensure basic necessities such as heat and
  lighting are provided in existing and new
  facilities. Facility cleanliness and the general
  state of repairs will continue to decline at an
  accelerated rate.

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Facilities Reinvestment Understanding the
NumbersThe Erosion of the Spending Dollar
Weighted Funding Unit Analysis

• The chart above displays an analysis of
  Weighted Funding Units.
• The chart shows how funding per weighted unit
  has increased almost 13 over the past three
  fiscal years, while at the same time, the
  Full-Time Head Count in Ontario Colleges has
  also increased by almost 14.
• The difference in the ratio between these two
  figures (-1.40) points again to an erosion of
  spending power.
• As further evidence of the erosion of the
  spending dollar, ACAATO has documented that
  Colleges received approximately 45 less per
  student in 2001-01 than they did in 1990-91. In
  the same period, enrolment increased by 34.

ACAATO Funding Facts, Number 5, February 2003
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Facilities Reinvestment Understanding the
Consequences

• The Facilities Condition Index (FCI) represents
  the ratio of the cost to correct a facilitys
  deficiencies to the current replacement value of
  that facility.
• General industry guidelines provide the following
  FCI levels
• 0 to 5 is good
• 5.01 to 10 is fair and
• Greater than 10 is poor
• The FCI for Ontario Colleges in 2002/03 was 9.01
  and is projected to be 13.06 by 2006/07.
• This figure places Ontario Colleges increasingly
  into the unacceptable category of FCI
  guidelines.
• By comparison, universities in the United States
  show an FCI of 7.

As noted in Slide 4, recent estimates have
shown that the Building Replacement has increased
from 185 per square foot to 225 per square foot
hence the unacceptable rating for the FCI may
also be understated.
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Facilities Reinvestment Conclusions

• The majority of Ontarios college facilities are
  between 25-35 years old and components are in
  need of replacement, repair or upgrade.
• Expansions to college facilities have increased
  the number and amount of facilities which must be
  covered by already-strained capital and operating
  budgets.
• Addressing barrier-free access was conducted
  utilizing special funding a number of years ago,
  however, insufficient funding has left a
  considerable amount of work incomplete.
• Energy conservation projects (with short payback
  periods) were completed, but there remains a
  significant amount of work that could be done if
  capital funding were available Estimates put
  the savings in energy consumption at 30.5
  million
• Ongoing increases in enrolments will place
  further pressure on colleges buildings and
  facilities in the coming years.
• Cyclical Renewal and Replacement must be
  conducted to ensure that facilities can support
  the most recent technologies, ensuring facility
  relevance and widespread access.

Association of Facilities Administrators,
Position Paper presented to the Investing in
Students Task Force, December 2000, p. 2-4