KSU builds with bonds
While Georgia’s public colleges and universities slash their budgets and furlough employees,…
Georgia (Aug 17, 2009) — While Georgia’s public colleges and universities slash their budgets and furlough employees, money is still flowing from the bond market for big-ticket buildings for state schools.
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Just take a look at Kennesaw State University to see how alternative financing has fostered a rapidly growing campus.
When classes start Monday, students will eat in a new $22 million “green,” Styrofoam-free dining hall. The money for The Commons - Student Culinary Center didn’t come from Georgia’s Board of Regents, as it does for classrooms and laboratories.
Instead, KSU’s foundation tapped into the bond market to pay for the dining hall, which features an on-site herb and vegetable garden. The foundation has used the tax-exempt bonds issued through Cobb County’s development authority for a slew of buildings in the last decade.
“It’s something that’s been a tremendous benefit,” Kennesaw State University President Daniel Papp said.
While the university itself can’t take advantage of this type of bond financing, its foundation can — and does. KSU’s foundation plans to ask for about $50 million more this year to finance a sports and recreation complex that will include an 8,300-seat sports stadium and nine soccer-sized fields, said Wes Wicker, KSU Foundation’s executive director and vice president of university advancement.
The evolution of tax-exempt revenue bond financing for state schools began 20 to 30 years ago, when the Board of Regents moved away from building dining halls or dormitories or parking decks, Papp said.
“You could request a dorm or a parking lot from the state, but they just weren’t funding them,” said Linda Daniels, the University System of Georgia’s vice chancellor for facilities. “There was just a real dry spell where we did not build a lot of new housing. You saw these projects just get pushed further and further to the side as far as priorities.”
The alternative? “You’d just have to go without,” Daniels said.
The state does issue general obligation bonds to build university classrooms and laboratories — buildings that don’t generate a revenue stream, Daniels said. The state bonds are paid back from general state revenues. The state prefers not to use them for non-instructional buildings.
About a decade ago, the University System began fostering public-private partnerships to help the bulldozers start moving on more university projects.
The prototype involved Southern Polytechnic State University and Marietta’s development authority. The bond issued paid for student housing at the school, Daniels said.
In the past decade, about 30 development authorities in Georgia have issued a combined $3.6 billion in tax-exempt revenue bonds to pay for state university buildings, according to documents from the University System of Georgia.
These types of bonds are meant to help nonprofit organizations. They offer tax-free interest to the bond holder and that, in turn, means the borrower gets a very low interest rate, said Marty Nance, the University System’s executive director for real estate ventures.
For KSU, the rate has been in the 4 percent to 6 percent range, depending on the market, Wicker said.
KSU Foundation has financed about $474 million in projects, with the help of the Development Authority of Cobb County. That’s more than Georgia State University, which has financed $446 million, and more than the University of Georgia, at $262 million. It’s second only to Georgia Institute of Technology, which has financed $617 million through such bonds, according to University System numbers.
“That’s a reflection of the dramatic growth at Kennesaw State University,” said John Vanchella, a spokesman for the University System.
The bonds are used for buildings such as dormitories, parking garages and dining halls — buildings that generate revenue from parking fees, meal plans and dorm fees.
And that has helped some commuter universities like Kennesaw State in their evolution towards a full-campus experience.
Kennesaw State’s student enrollment is 22,500, with 3,200 living in residence halls. Thousands more live in apartments and condominiums nearby, Papp said.
In the past decade, KSU has made a dent in meeting the demand for housing but there are still 250 students on the waiting list for campus housing.
Still, that full-campus experience comes with a price.
To help assure revenue to repay the dining hall bond, KSU will require all full-time undergraduates and resident graduate students to purchase a meal plan. For incoming freshman, who will be required to buy the most meals, the cost of the plan is $355 for commuters and $928 for residents, a school spokeswoman said.
In contrast, Georgia State requires only full-time students living in its newly opened freshman hall to sign up for the meal plan.
Other students are not required to do so, said Georgia State spokeswoman Andrea Jones. Georgia Tech and UGA offer meal plans, but do not require students to sign up for them, said John Millsaps, University System spokesman.
To get the bond money, the foundation applies to the Development Authority of Cobb County, which determines that the project is sound, will add jobs to the county and will promote the public good. It then issues bonds and loans the money to the foundation. The revenue from the buildings is used to pay back the bonds, typically over 20 to 30 years.
Neither the development authority nor the county is responsible for repaying the bonds, said Don Beaver, executive director of the Development Authority of Cobb County.
Jim Monacell, a partner with the law firm Smith, Gambrell & Russell in Atlanta, said the government entities, by law, are not allowed to be held responsible in case of default.
“The KSU Foundation is completely at risk,” said foundation executive director Wicker. “We very carefully study opportunities. We have consistently outperformed expectations on every bond issue.”
Such bond issues for state universities are considered safe, Monacell said.
“No one defaults at all in obligations of that type. If any had defaulted, no one would be buying these bonds,” he said.
A leader in innovative teaching and learning, Kennesaw State University offers undergraduate, graduate and doctoral degrees to its more than 41,000 students. With 11 colleges on two metro Atlanta campuses, Kennesaw State is a member of the University System of Georgia and the second-largest university in the state. The university’s vibrant campus culture, diverse population, strong global ties and entrepreneurial spirit draw students from throughout the region and from 126 countries across the globe. Kennesaw State is a Carnegie-designated doctoral research institution (R2), placing it among an elite group of only 6 percent of U.S. colleges and universities with an R1 or R2 status. For more information, visit kennesaw.edu.