VOL. 126 | NO. 189 | Wednesday, September 28, 2011
UT, Board of Regents Looking to Cash in on Bond Prices
MEGAN BOEHNKE | Reporter, Knoxville News-Sentinel
Leaders at Tennessee's two higher education systems are looking to take advantage of historically low interest rates as a means of funding as much as $1.5 billion in new construction projects on college campuses across the state.
University of Tennessee and Tennessee Board of Regents officials are discussing with policymakers the potential for a major bond authorization during the next legislative session that could green light dozens of projects, including new science buildings on the Knoxville campus.
Historically, the state has used leftover revenue to pay for a handful of projects at time, though there has not been a new higher education construction project in several years, said UT President Joe DiPietro.
"The transformational move would be to do a big allocation so we can take care of the needs of higher education by bonding the money and making the state realize a commitment to higher education by building new buildings and fixing up the ones that are falling apart," said DiPietro.
UT is facing about $800 million in construction needs, he said. How much the two systems receive is still part of the discussions, but numbers have gone as high as $1 billion to $1.5 billion, DiPiero said.
DiPietro said he is hopeful the measure will pass during the session and bonds could be issued next summer, capitalizing on interest rates that are hovering around 4 percent. Most bonds are issued over 20 years, though they can vary.
It would cost about $58 million per year to bond $1 billion, said UT Trustee Robert Talbott, a Knoxville-based developer, at an executive and compensation committee hearing last week.
"We're not going to have this window very long," he told fellow trustees.
Officials with both systems have met in recent weeks with the Tennessee Higher Education Commission to consider the possibility of using bonds and are now each updating their building priority list to ensure needs are the same and the estimated costs are accurate. THEC would then merge the lists and present it to Gov. Bill Haslam. Leaders at both systems are hoping to convince the governor to include the authorization in his budget and lawmakers to approve it.
Leaders of both systems have told lawmakers for more than a year that the biggest needs in higher education are employee compensation and capital projects. Lawmakers and the governor have been largely sympathetic, acknowledged both DiPietro and David Gregory, vice chancellor for administration and facilities development at TBR.
"There is a real understanding about the needs of higher education, both in the operating side and the capital side but there's a lot frustration of how to get it done," Gregory said. "They're saying, 'We see the needs, but how do we accomplish it?' "
Haslam is interested in refining a strategic master plan process for higher education building projects, said David Smith, spokesman for the governor.
"Taking a closer look at funding alternatives will be part of the process, but working on what the master planning process looks like is the first step," Smith said in an emailed statement.
Terms of such a deal are still in the air, including the dollar amount, whether the campuses would be required to match the funding and how money would be allocated between the systems. Should there be a match requirement, UT campuses would consider raising private funds or turn to student fees. In Knoxville, Chancellor Jimmy Cheek said he would consider using a recently increased $270 per year facilities fee toward the new buildings.
At the top of UT's building wish list is a $52.5 million renovation of Strong Hall and a second $55 million academic building on Cumberland Avenue that would include undergraduate science labs.
"It hasn't been a recruitment issue as far as we can tell so far, but it will be," said DiPietro, who recently toured current lab facilities at Walters Life Sciences Building and contrasted it with the state-of-the-art Haslam Business Building. "It's kind of like a dungeon there and you're in a concrete bunker. The labs are just old."
At the top of the Board of Regents' list is an expansive science building at Middle Tennessee State University, where students also are currently using antiquated labs, Gregory said. Also on the list is an academic building at Nashville State Community College and a biology sciences building at the University of Memphis.
The Complete College Act, which refined the mission of some institutions and altered the funding formula to focus on graduation rates and other outcomes, also is forcing the systems to reconsider which buildings to five highest priority.
Still, knocking out several projects in the coming years would give both the campuses and the surrounding communities an economic boost, something leaders in both systems point to as another benefit of the proposal.
"It would give momentum to our system and it would people to work," said Gregory. "It has a ripple effect of putting people to work and creating other stimulus."
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