Debt of Ohio public universities tops $6.5B

Nearly all of the money college officials have borrowed is a result of building booms on Ohio’s campuses.

Among the projects financed with debt: an $80 million football stadium at the University of Cincinnati, a $37 million neuroscience research center at Wright State University, a $25.8 million “state-of-the-art” recreation center at the University of Akron and a $1.1 billion medical center expansion at The Ohio State University.

College officials say they’ve built necessary academic havens, such as medical centers or engineering classrooms. But some experts argue higher education leaders have gone on unnecessary spending sprees to lure students to campus by building rock climbing walls or lazy rivers.

The trend is one that’s swept the nation — most public universities across the country have doubled their debt in the last decade, Susan Fitzgerald, senior vice president of Moody’s Investors Service, said. Moody’s rates the risk of university bond issues.

“Part of it is absolutely driven by a highly competitive environment,” Fitzgerald said of the debt upswing. “Frankly, there’s a risk from not borrowing and investing in facilities because then you can lose competitiveness and enrollment.”

You’ll pay for this

Building binges help to drive up the cost of college nationwide and here in Ohio, higher education experts say.

A college education was once more accessible for more Ohioans, according to Jerry Kochendorfer, 74, of Lebanon. And while the retired grandfather of a college student and a high school senior understands the need to maintain property, he thinks some universities are spending for the wrong reasons.

“I think that drives the cost, because (universities) want the best dormitories, they want the best food, they want the best everything to attract the higher echelon of students,” Kochendorfer said.

Roughly 30 percent of the $2 billion Ohio State owes, for example, has been dedicated to new student amenities, including the new $118 million student union. Students there are charged $75 per semester to finance the new student center.

“Students are, in essence, paying for that over time,” said Mike Papadakis, Ohio State’s treasurer.

Miami University in Oxford, too, charges students $110 per semester for the new $53 million Armstrong Student Center unveiled last year.

At the University of Akron, which is $487 million in debt, officials say construction and borrowing has led to heftier room-and-board, facilities and transportation fees for students.

Since the early 2000s, Akron constructed 24 new buildings and carried out 20 additions or renovations of existing buildings.

Akron students pay $18.55 per credit hour to pay down bills incurred for the construction of a Student Union and Student Recreation and Wellness Center, according to the university. Both new buildings were completed in 2004.

“We were going to fund the bonded debt repayment on a number of things, but principally being funded back on various student fees,” said Nathan Mortimer, associate chief financial officer for University of Akron.

“We know that we’ve got a substantial debt load that we need to address over the coming years,” Mortimer said.

At Cincinnati, where officials say the campus there has been “re-invented” in recent years, debt will be paid off with multiple funds — including extra costs imposed on students, said Bob Ambach, the senior vice president of finance. Dorm upgrades, for example, will be paid with residence fees. Meanwhile, an $80 million renovation of the school’s stadium will be paid mostly through fundraising and tickets fees.

In the end, students and their families are likely picking up the tab for the extra amenities, said Richard Vedder, an economics professor at Ohio University and director for The Center for College Affordability and Productivity.

“There are no free lunches in this world,” Vedder said.

“Anytime you borrow money and spend that money, you’re using resources, and you’re using dollars for that purpose. The state isn’t increasing its subsidies to finance all of this. I think universities are adding to their annual costs and someone is paying for it.”

Enrollment pressure

Because universities rely on students to help pay back debts, they’re counting on student enrollment numbers to stay steady in coming years.

Funding sources from the state government are limited, said Jeannie Reifsnyder, senior associate vice president for finance and administration at Kent State University.

“The only way to try to raise our revenue streams for operating costs and debt payment is through enrollment,” Reifsnyder said.

Student enrollments haven’t been a problem for the state’s larger universities — such as Cincinnati, Ohio University, Miami and Ohio State, where enrollment numbers have continued to climb.

But overall, some of the state’s public universities are showing signs of a struggle to lure students into classrooms. The number of students who attended a four-year public college dropped from 338,300 students in 2010 to 331,156 students in 2013, according to Ohio Board of Regents.

“I wouldn’t make the assumption that enrollments will keep growing and growing,” Vedder said. “I would be ultra cautious about borrowing huge sums for huge constructions. I think we’re getting carried away.”

Kent State’s enrollment has tapered off from 42,513 students in fall 2012 to 41,214 last fall.

“We’ve obviously been focusing on outside Ohio as well as inside in order to try to grow that enrollment,” Reifsnyder said. “The other thing we have been focused on is the retention of our students as well.”

Slow the spending?

But not all of the debt universities have piled up in recent years will be paid for with student funds.

Northeast Ohio Medical University, too, which had zero debt before 2011, will use some of the money it wins from research grants to pay down the debt from a $42 million research and graduate education building, John Wray, vice president for administration and finance, said.

At Wright State University, about a third of the roughly $30 million that’s been borrowed to make energy upgrades on campus will actually be paid off in savings, said Mark Polatajko, the vice president of business and finance for the university. Wright State has installed more energy efficient upgrades, including new lights in every building and even parking lots. The changes will save $2 million annually on utility costs.

The university has focused on needed upgrades, new academic building construction or amenities, Polatajko said. The university owes $100 million, with the biggest debt being a $20 million borrowing for the university’s new $37 million Neuroscience and Engineering Collaboration building.

“We’ve strategically developed a balance,” Polatajko said. “We wanted to enhance our research agenda … and then some student amenities in terms of a concert hall and the center for creative arts.”

Some of the spending, too, has focused on necessary facelifts for buildings that haven’t been upgraded in decades.

“For us, competition is not only universities within the state — we’re competing with some of the larger big 10 institutions as well as some of the national universities. We’re always looking at what everyone else is doing obviously,” Papadakis, of OSU, said. “But, the things we’ve done are honestly facilities that haven’t been touched in 30 or 40 years — our student union and dorms — we’re systematically looking at assets that are getting older.”

Other universities are getting more creative with how they borrow.

Rather than pay to borrow new money every year or two, Ohio University this budget year turned to investors to borrow $250 million over 100 years, said Beth Green, OU’s director of debt management.

By borrowing $250 million now, the university estimates it will be able to recycle it and invest a total $1.3 billion before the bill is due in year 2115.

Almost like a line of credit, the university will lend portions of the $250 million for a project, repay it and spend it again before the debt expires 100 years from now, Green said.

“We realized that we could lock in an extremely attractive interest rate over the next 100 years,” Green said. “The idea is we want to put a significant dent in our deferred maintenance backlog so we don’t become at a point where we are today in the future.”

Officials at some universities say they plan to slow down on borrowing for now.

At UC, for example, leaders plan to hold the line on the $1.1 billion dollars they owe.

“I don’t think we want to go above that level,” Ambach said. He added that over the next 10 years, the university plans to pay down 48 percent of the outstanding debt.

Ohio State doesn’t have plans to borrow or build anytime soon, but officials say the state’s largest school could borrow more comfortably, if they want.

Although college debt has doubled in the last decade, Fitzgerald of Moody’s, said the giant increase isn’t of too much concern to the credit rating agency. She said revenues and enrollments have grown with debts.

“From our perspective, debt levels remain manageable for most universities,” Fitzgerald said.

But, Vedder says Ohio should consider putting caps on what colleges can borrow, like some other states have done.

“If we did that kind of thing, it might slow down the academic arms race,” Vedder said, referring to competition among college campuses.