Debt mounts from state school building boom
By Richard Gazarik
Published: Monday, July 23, 2012, 12:17 a.m.
Updated: Tuesday, February 19, 2013
The agency overseeing Pennsylvania's 14 state-owned schools has amassed nearly a billion dollars in debt by joining a nationwide “campus arms race” to build luxurious dormitories and elaborate academic facilities, according to state records.
State System of Higher Education officials say they've been forced to replace aging buildings with state-of-the-art facilities to remain competitive in a fierce marketplace in which bare-bones dorms and classrooms no longer make the grade.
Some of the system's 900 buildings are a century old and “well past their life cycle,” said system spokesman Kenn Marshall.
“We're looking at the market and what students and their parents are expecting,” he added.
Critics wonder if the system is on a never-ending spending merry-go-round.
“It's unsustainable,” Nathan Benefield of the Harrisburg-based think tank the Commonwealth Foundation said about the system's $942 million debt, which requires more than $74.5 million in annual payments.
“It's really time for universities to rethink what they're spending and their mission,” he said. “State schools are suffering from an edifice complex.”
Benefield's comments come as the credit rating agency Moody's Investors Services last week placed the system on review to possibly downgrade its quality Aa2 bond rating — the third-highest rating offered by the service — making it more expensive to borrow money. Moody's tied the move to concerns about declining enrollment and uncertain state funding.
Marshall said the system fully expected Moody's to review its rating, which generally stands one notch below the state's. Also last week, the state's rating was lowered from Aa1 to Aa2 on concerns about spiraling pension costs.
Still, Marshall said the system will continue building projects into the foreseeable future, although he admitted they may be “slowed.”
“Nobody pays off their debt. The state system is pretty well regarded,” he said. “We'll continue to incur debt and pay off debt.”
Alan Shankel, managing director for Janny Montgomery & Scott in Philadelphia, said if the system rating drops and the cost of borrowing increases, it's “not a terrible penalty.”
The system's priciest building projects have been at East Stroudsburg University, which spent $125 million for an ultra-modern complex combining classrooms, a library and a student center; Indiana University of Pennsylvania, which spent $79 million to build its elaborate convocation facility; and California University of Pennsylvania, which spent $59 million to construct its sprawling convocation center, according to records.
All of the schools have built comfortable, apartment-like dorms with amenities similar to those found in commercial properties.
The Indiana and California convocation projects received various government funding before construction, but the state system was forced to rescue both plans by floating additional debt just to complete them, records show.
IUP asked for $34 million for cost overruns, and California University asked for an additional $15 million to finish its 6,000-seat convocation facility, records indicate.
Before construction, California officials said they had about $7 million on hand for the project and planned to raise about $5.5 million, records show. Three years later, after building began, officials said they had no money on hand and had raised only $4,000.
“We had to do something (to ensure completion of the projects),” said Marshall, the state system spokesman.
Proof of funding
Angry state system board members recently began drafting a policy that ironclad proof of sufficient funding must be produced before ground is broken on future projects.
The State University of New York system, also with 14 schools, carries about $2 billion in debt, largely due to construction projects, according to a spokesman. The system has a higher Moody's rating of Aa- because the state is in a better position to weather economic problems than Pennsylvania, said Moody's spokesman David Jacobson.
Charles S. Lenth of the State Higher Education Executive Officers Association said public schools everywhere have rushed to build bigger, better facilities, with the cost of borrowing money for these projects most often passed on to students through higher tuition and fees.
California University's faculty blasted recently fired President Angelo Armenti Jr. for building a convocation center at the expense of academic programs.
At Kutztown University, officials spent $26 million on a visual arts center, $3.5 million to expand its dining halls and $3.5 million to upgrade its student union. Since 2010, the university has cut expenses by 10 percent each year to offset building project deficits that could reach as high as $22.4 million by the 2013-14 school year, school officials said.
Paul Abramson, president of Stanton Leggett & Associates, an educational consulting firm, cited a survey indicating that 91 percent of parents said quality on-campus housing is important when deciding where their children will attend college.
“Mothers in particular, want to see where their progeny are going to live, how comfortable they will be and, most important, how safe they will be,” he said.
Richard Gazarik is a staff writer for Trib Total Media. He can be reached at 724-830-6292 or at firstname.lastname@example.org.
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