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Monday, December 22, 2014

UNM's debt at $575.7 million

Official calls figure normal for a university

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By William Aranda / New Mexico Daily Lobo

Andrew Cullen, associate vice president for the Office of Planning and Budget Analysis, discusses UNM’s debt portfolio in a Board of Regents meeting Tuesday morning. In his presentation, Cullen said UNM is currently $575.7 million in debt.

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After making its last payment of the past year on June 1, UNM is still more than $500 million in debt.

In a presentation at a Board of Regents meeting Tuesday morning, Andrew Cullen, associate vice president of the Office of Planning and Budget Analysis, said the University has an outstanding balance of $575.7 million with regard to its projects’ bonds. He said the University expects to pay the outstanding balance by 2036, although future projects might still result to more debt in the future.

“Over the years, there have been many projects funded by bonds,” he said. “Recently, these projects include various Academic Affairs projects: Mitchell Hall renovation, Student Support and Services Center, Tamarind Institute…Outside of the academic category the largest project in recent history is the University Hospital Pavilion. Over the years, there have been hundreds of projects.”

According to the UNM Debt Service Schedule, UNM has 11 outstanding project bonds, which are loans issued to University projects. The outstanding bonds originally totaled $729.2 million, and UNM has been paying principal payments to pay the balance yearly. According to the document, the University has spent $46.7 million toward paying off its debt during the past school year.

Cullen said UNM’s nine-figure debt is normal for a university.

“UNM’s debt is quite normal for a higher education institution,” he said. “Compared to a peer institution like the University of Washington, who has $1.6 billion, or the University of Arizona, who has $1.25 billion in outstanding debt, UNM’s would not be categorized as large.”

According to schedule, the University has been paying its debt using saved money from University revenues, and is currently searching for more opportunities to do so. The University is also considering to defer paying for some of its bonds until when the University’s “savings are more substantial,” as long as they pay these bonds within the allotted time to do so. Cullen said bonds usually last for 30 years.

Cullen said bonds concerning UNM Hospital are reflected in these amounts.

Cullen said instead of borrowing from banks, the University issues bonds to finance large-scale projects because it is more practical. He said UNM has been issuing bonds since 1971.

Once a project is planned, the Board of Regents decides whether to approve funding for it through bonds, Cullen said. Most bonds have a fixed interest rate and usually last 30 years, he said. He said the University pays the interest twice a year, in June and in December.

However, Cullen said because state funding for capital projects has decreased, the University has found fewer ways of funding its projects, which resulted to more debt during recent years.

“At the same time (as the funding decrease) the number of higher education institutions has increased, which has corresponded in a smaller portion for UNM,” he said. “Additionally, as deferred maintenance on campus has increased, the need to renovate and to replace facilities has become urgent.”

Graduate and Professional Student Association President Priscila Poliana said although she agrees that UNM’s debt is in line with average university debt in the country, she is still worried that bonds might be downgraded, which could result to higher interest rates. But she said she believes UNM will be able to manage the bonds efficiently.

“This is not unusual for any university to have,” she said. “There is a concern about the bonds being downgraded, but I think this is being worked out. Andrew (Cullen) is working really hard to find the right time to refund our bonds.”

Poliana said GPSA is talking with Cullen about how the University manages its debt.

But Poliana said the debt would not affect students.

“There is no reason to worry at this point,” she said.
Associated Students of UNM President Isaac Romero said he is not worried about UNM’s debt. He said the University will be able to pay the debt on time.

“Debt isn’t always a bad thing,” he said. “Businesses often run on debt. It seems to be a large amount, but if it’s manageable we can get through it.”

Cullen said that although he is feeling positive about the University’s plan for paying its debt, he said that additional debt for future University projects might affect student fees.

“The effect of new debt on students would depend on the types of projects,” he said. “If they were student-focused projects on academic facilities, that may result in an increase in student fees. Conversely, if the debt is going toward an auxiliary or department that can pay debt service, such as parking, Physical Plant utilities and Athletics, then that would not affect student fees.”

UNM updates departments who have outstanding bonds for their projects about their bonds’ outstanding balance, Cullen said.
Cullen said he is unsure whether UNM’s debt would increase or decrease in the coming years.

“It is dependent upon the amount of state support we receive and the University’s desire to renew and to replace its facilities,” he said. “The state economy has started to rebound and as such, UNM is hopeful that it will receive more capital appropriations.”