Ohio University officials project it will take decades to pay off the debt used for construction projects and deferred maintenance—an expense they also hope won’t jeopardize its competitive credit rating.
The university’s list of construction projects between now and fiscal year 2020 will cost $966.9 million, nearly 61 percent of which is funded by debt issuances.
Total debt issuance for these projects totals $124.4 million so far. The university will issue $91 million in fiscal year 2014.
Mismanaging debt issuance could result in budget cuts or a drastic increase in costs for students so that the university can meet its debt obligations.
OU projects it will take up to 2048 to pay off the debt issued over the next six years to cover the first phase of a capital improvement plan, which includes the interdisciplinary science facility and new residence halls.
Spending so much so quickly poses a risk to the university’s gleaming credit rating.
At its highest point, OU estimates paying off university debt to rise to 7.7 percent of OU’s operating budget with $714 million in total university debt by fiscal year 2018, according to Board of Trustees documents.
Moody’s, a credit rating agency, reaffirmed in May 2013 that OU’s credit rating should remain at AAA, indicating the university’s debt obligations are “of the highest quality,” according to board documents.
“We consider it a credit positive that management and the Board of Trustees carefully reviewed the six-year capital plan in fiscal year 2013 before issuance of (debt) and reduced the overall plan and borrowing amount,” Moody’s wrote in its evaluation of OU’s plan to issue debt for the plan.
The university’s Senate Bill 6 score, which is in place to update Ohio’s General Assembly on the financial health of universities, has increased from 3.2 in 2007 to 4.7 out of 5 in fiscal year 2012 — the most recent data available, said David Cannon, vice chancellor for finance at the Ohio Board of Regents.
The score is determined by comparing universities’ assets, debt, revenues and expenses in three different ratios to come up with the composite score.
OU is tied with Northeast Ohio Medical University for the highest Senate Bill 6 score in the state.
“Knowing Steve Golding (vice president for finance and administration) and knowing OU, they’re not going to do anything that will jeopardize their Senate Bill 6 score,” Cannon said.
Golding and other OU budget and facilities planners have said they carefully created the Capital Improvement Plan to not cripple the university’s finances.
“The ratio would, by definition, be negatively impacted by growth in the debt service if you are not at the same time growing the balance sheet,” Golding said. “Our challenge is we have to figure how to grow our balance sheet while we are also issuing additional debt.”
Golding cited the university’s investment strategy and private donations as ways to keep OU’s bottom line strong while issuing debt.
Harry Wyatt, associate vice president for facilities and key player in formulating the university’s Capital Improvement Plan, said he has “ultimate confidence” in OU’s financial planners to properly budget for the plan.
“It’s very important to get it right,” Wyatt said. “I’m confident that they’re doing a great job in terms of the overall financial health of the institution over the next six, eight to 10 years.”
dd195710@ohiou.edu
@WillDrabold
This article appeared in print under the headlilne "Credit agency: OU’s AAA rating not at risk, even with new debt"
