University of Tennessee changes debt policy to fast-track construction on campuses
The University of Tennessee at Knoxville will no longer have to wait for state money to develop expensive campus buildings after the University of Tennessee System successfully lobbied the state to allow a new bond-based financing strategy for all of its campuses.
The new program could play a key role in achieving Chancellor Donde Plowman’s goal. growth targetsincludes modernization of buildings and we continue to welcome record number of students with each new class.
The first beneficiary of this program will be a new civics and ROTC building to replace the 65-year-old Massey Hall, UT System Senior Vice President and Chief Financial Officer David Miller told Knox News.
The UT System currently receives bonds issued by the United States. Tennessee State School Bond Authorityor TSSBA, for revenue-generating buildings — places like cafeterias that make money from food sales and repay their loans.
The new policy would allow the system to issue bonds for non-revenue-generating buildings, such as academic buildings with classrooms. System campuses can then use up to 3% of their Education and General or E&G operating budgets to pay down debt from the new bonds.
For the Knoxville campus, 3% will represent $45.65 million of $1.52 billion in E&G revenue. Additional debt capacity under this program (meaning the amount of debt the Knoxville campus can assume when revenue, cash flow, and other obligations are taken into account) is $422.39 million.
Board member Bill Rhodes said the new strategy will mostly benefit the Knoxville campus and allow UT to “expedite one or two major projects.”
“This is a new tool, and we are very grateful to the state for supporting it,” Miller said at the Oct. 23 UT System Board of Regents meeting.
The policy was presented at a board meeting after being approved by the TSSBA on October 20. Nothing about the policy will change how the bonding authority issues bonds, how buildings are approved or how money is allocated to projects.
Miller identified some potential risks, namely the concern that the state may give less funding to projects knowing UT System campuses have this tool in their back pockets.
Under this policy, the bond authority says public universities must show five years of E&G growth and provide a three-year forecast of revenue growth. UT System campuses are also required to reserve a year’s worth of debt payments, and revenues must be higher than debt by a multiple of 1.75 (for example, $10 million in debt would require $17.5 million in revenue, Miller said).
