Ohio University is set to take out a bond worth $250 million in order to fund deferred maintenance projects for the next 100 years.
Ohio University officials are hoping investors will fund their future — specifically until the year 2114.
If the Board of Trustees approve a century-long bond in October, the university will ask investors to give them $250 million to fund deferred maintenance projects for the next 100 years.
OU’s deferred maintenance is necessary repairs for buildings on campus. OU is choosing now to ask for a bond because of the state of the economic market, citing low interest rates available on loans and bonds.
The university will only use $10 million every year and pay back the interest on the $250 million bond every year. The principal amount ($250 million) will be due in 100 years.
The bond will rack up OU’s total debt, currently valued at about $337.6 million, to about $587 million, according to university documents.
Officials say student tuition rates will incur “no direct effect” as a result of the bond.
In simple terms, OU will become its own bank in what administrators have dubbed a “central bank model.”
For example, if Facilities requests $10 million for deferred maintenance one year, the university will loan that money to Facilities from the century bond. Facilities would be responsible for paying back that $10 million, along with any interest accrued with it to the university. In turn, the university will use that money to pay back its own interest rate on the $250 million bond.
“The idea would be you can spend the money multiple times over the hundred years and still set aside the amount of money you need to maintain that interest over time,” said John Day, associate provost for academic budget and planning.
Administrators project the fixed interest rate of the bond to be between five to eight percent, and cost the university about $14 million annually, or $1.4 billion over 100 years.
That $14 million in interest will be paid back each year, using existing university income and reserves, officials said.
In 2011, Ohio State University became the first public institution to issue a 100-year bond, valued at $500 million.
If approved, OU would be the third public university in the United States to take out a century bond, said Beth Greene, director of Debt Management.
“This is an opportune time for us to lock in … a very attractive rate,” said Deborah Shaffer, senior associate vice president for finance and administration. “Any portfolio is expected to lose value at any point in time … the safest way to invest is for long periods of time because you smooth out those (economic) cycles.”
The university is also preparing to give back the money a hundred years from now. Officials are putting aside $7 million from university reserves to generate interest that will ultimately pay for the principle and last interest payments in 2114 — $264 million.
The proposed bond is estimated to lower the university’s deferred maintenance backlog per square foot from $87 per gross square foot to $59, which should save money in the long run, according to university documents.
Construction using bond money will be started on the Lausche Heating Plant and utility upgrades on campus, Day said.
“The program may be unusual, but that is really attributable to the interest rate environment we are in,” said Stephen Golding, vice president for finance and administration, in an email. “The university does not have (the) capacity to deal with its deferred maintenance backlog today and it is growing every year. The goal of this program is to try and get ahead of the problem.”
Administrators plan to present a timeline to the Board of Trustees with goals for how much of the debt they plan to have repaid at five-year intervals.
“You actually have to have investors to say ‘I want to buy your debt,’ ” said OU Budget Director Chad Mitchell. “There has to be a market for it.”
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