U should think twice about taking more debt

By By Matt Plummer and By Matt Plummer

By Matt Plummer

The U’s desire for building and infrastructure is rivaled by few. Obviously there are some downsides to this drive for expansion and construction. For example, the Ambassador Building and the Orthopaedic Center for U Hospitals and Clinics in 2001 and 2004 have left a combined $36 million debt on the U. The U is now looking for financial assistance in paying off this debt.

The U Board of Trustees had a meeting Oct. 13 where they discussed and approved issuing a revenue bond to pay off the $36 million debt.

In a separate interview, Gordon Crabtree, chief financial officer of the U Hospitals and Clinics said, “The approval was given to effectively pay off the existing debt and issue new debt.”

The revenue bond would be sold for an immediate sum of money to pay off the $36 million debt, according to the Board of Trustees agenda, then that immediate sum would be paid back over time with interest. Crabtree clarified the meeting agenda and said the actual amount of the revenue bond was “not to exceed $37 million.”

The problem here is that the U could not make good on its first debt with these buildings, so it is now issuing more debt to pay it off with interest during a long period of time. By taking on new debt to pay off its existing debt, the U is effectively taking out a second mortgage on the Ambassador Building and Orthopaedic Center.

Taking on debt is not necessarily a bad thing in every circumstance, but taking on debt needs a more limited use than what the U is doing with this revenue bond, especially during a time when state funding has been cut.

The U General Administration and Operations Regulations Policy 3-052 of Institutional debt states, “Debt will be considered a financing tool to fill in the resource gaps that cannot be met by other means. Capital projects will generally not be funded by issuing debt if existing resources are available and adequate to fully fund the cost of construction or renovation being planned, or the cost of a capital asset being purchased.”

Capital projects, which demand financial resources, are abundant. But just because there is always room for improvement doesn’t mean the U can handle it.

The Board of Regents and the State must approve this $36 million revenue bond before it is sold. Utah Code Title 11 Chapter 17 Section 17 states that the Regents can approve bonds as long as they do not exceed $10 million dollars. Bonds exceeding $10 million must get approval from the Legislature. Crabtree said that after this bond is approved, the revenue bond will “be sold via U.S. bond markets.”

The “why” factor of project approval need not focus on a proposal being worthwhile; the “why” factor needs to focus on if it is the appropriate time, its effectiveness and if it can be a realistic success. There is nothing wrong with saying, “We can’t do this right now, we don’t have the financial resources.” However, it’s unfortunate this wasn’t said before a bond seemed so necessary.

At this point, it seems there is no escaping this revenue bond. The debt is there now. But in the future, the Board of Trustees, Board of Regents and our Legislature need to hold off the borrowing and spending at the U.

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