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UI debt more than doubles in past five years

BY JORDYN REILAND | NOVEMBER 18, 2011 7:20 AM

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University of Iowa officials said they are not concerned with the school's increased debt that has nearly doubled in the past five years.

The UI's outstanding debt has increased from around $349.8 million in fiscal 2005 to more than $780.2 million as of June 30. That increase means interest on the debt totals $33.3 million for this fiscal year.

Barry Fick, a senior vice president with Springstead Financial and an adviser to the state Board of Regents, said the three regent universities and the regents are exempt from state and federal income taxes, which keep the rate of debt interest low.

"The Legislature has allowed some places in Iowa, including most of the Board of Regents debt, to be exempt," Fick said. " [The] benefit there is, over the long run, if you can issue it at a lower cost, it helps keep tuition lower compared with if they were not exempt."

Fick said both the UI and the regents are cautious not to take on too much debt.

UI spokesman Tom Moore said the amount of debt doesn't necessarily affect the use of state appropriations. The primary factor used in determining if external financing is necessary is the total cost of the capital project.

"If the cost exceeds $10 million, then we start considering external bond financing as a source of funds," Moore said.

External funding makes it possible to fund larger projects, such as flood recovery, officials said.

"It would be very difficult, if not impossible, to fund projects such as the renovation of the Chemistry Building, the upgrade of Macbride Auditorium, or the construction of the new, first-ever home of the College of Public Health without external financing," Moore said.

And while the increase is dramatic, UI officials said it is lower than at other peer institutions.

As of fiscal 2011, the University of Minnesota reported just over $1.1 billion in outstanding debt, a slight increase over previous years. That school is paying $37 million in interest.

"We have issued some new debt during fiscal year 2011, which was nothing unusual," said Minnesota director of debt management Carole Sleck.

Ongoing construction and numerous renovations largely contribute to the outstanding debt, and the interest is offset by regular payments on the debt.

Gail Bourkland, director of debt management at Indiana University, said that while the interest incurred on the debt has increased over the year, the university is not concerned.

The interest incurred during fiscal year 2011 at Indiana is more than $57.6 million; it was approximately $52.4 in 2010.

"We pay down very rapidly on our debt," Bourkland said.

One education expert said the size of the debt depends on how institutions plan to pay it off.

If a project is funded by revenue bonds, the debt is paid back through revenue earned in the department, said Larry Isaak, the president of Midwestern Higher Education Compact.

"If they were building additional dorms, the bonds would be paid from room and board fees," Isaak said, and the debt's effect is momentary and will quickly be paid off.


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