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$1 billion in bonding for higher education

By Mark Green

Kentucky colleges and universities got the green light in Frankfort this spring to begin more than $1 billion in construction and renovation projects in the 2014-2016 biennium, with a focus on science facilities expected to improve the quality of the state’s workforce in coming years.

Northern Kentucky University got the biggest of the projects authorized for funding by state General Fund bonds, whose debt service is directly from the state budget. NKU will build a new Health Innovations Center and renovate its existing Old Science Center at a total expected cost of $97 million.

The General Assembly approved $97 million in General Fund bonds for Northern Kentucky University’s new 125,000-s.f. Health Innovations Center, shown here in a preliminary planning illustration, and renovation of it Old Science Building. NKU’s actual new building has not yet been designed.
The General Assembly approved $97 million in General Fund bonds for Northern Kentucky University’s new 125,000-s.f. Health Innovations Center, shown here in a preliminary planning illustration, and renovation of it Old Science Building. NKU’s actual new building has not yet been designed.

The General Assembly approved $475.4 million in General Fund bonds for 10 projects and authorized the public universities and the Kentucky Community and Technical College System to issue another $596.3 million in agency bonds for another 25 projects. The individual institutions must service their own agency bond debt.

The eight public universities and 16-college KCTCS all got at least one project.

“The projects authorized are primarily student-instruction-oriented projects,” said Sherron Jackson, senior policy advisor at the Kentucky Council on Postsecondary Education. “They are badly needed projects on campus to allow instruction to accomplish learning.”

Facilities at some universities are decades out of date, Jackson said, or simply don’t exist to begin with. It is difficult for professors and instructors to teach Kentucky students the latest technology in amenities built long before modern innovations occurred. New and renovated classrooms and labs, he said, will “reflect current pedagogy and job environments that students will be going into to support business and industry.”

NKU’s new 125,000-s.f. Health Innovations Center will collaborate with its College of Informatics to create tools to evaluate outcomes and aims to become a national leader in education and programs focused on population health. Renovating its existing Old Science Building, also 125,000 s.f., has been a state priority project for a decade.

Eastern Kentucky University receives $66.3 million in General Fund bonds for Phase II construction and completion of its science building. Murray State University gets $31.9 million to complete a new science complex and $32.5 million to replace its Breathitt Veterinary Center, whose research and food testing plays a key role in food product manufacturing in western Kentucky.

Western Kentucky University gets $48 million for the Phase IV completion of its science campus.

University of Louisville students and faculty will get a new $80.5 million classroom building on the main Belknap campus.

The University of Kentucky gets $35 million in General Fund bonds as well as $30 million in agency bonds for renovation and expansion of its law school. UK received agency bond approval for $160 million to renovate and expand its student center complex, and $150 million for renovating and upgrading the neonatal intensive care unit its healthcare system operates.

“Good for our system, good for our state”

Higher education will endure further painful cuts in operational funding from state government, but the infrastructure money in the 2014-16 budget was very welcome news. It comes after two financially challenging bienniums when legislators and the governor left ‘zeroes’ on the new-debt-service budget line for public universities and colleges.

Schools require General Assembly approval to issue agency bonds that they repay themselves. Having received Frankfort’s required blessing, the schools now may issue bonds if their boards of trustees or regents certify they have appropriate revenue to commit to debt service and commit that money.

The legislature approved the Kentucky Community and Technical College System to issue $133.5 million in agency bonds for 16 projects, and  $24 million in General Fund bonds for an advanced manufacturing technician training facility in Georgetown at Toyota Motor Manufacturing Kentucky.
The legislature approved the Kentucky Community and Technical College System to issue $133.5 million in agency bonds for 16 projects, and $24 million in General Fund bonds for an advanced manufacturing technician training facility in Georgetown at Toyota Motor Manufacturing Kentucky.

“I’m extremely happy,” said President Michael B. McCall, head of KCTCS, which got $24 million in General Fund bonds to build an Advanced Manufacturing Technician training facility in Georgetown at the sprawling Toyota Motor Manufacturing Kentucky. The BCTC-TMMK student worker training program is the centerpiece of a skilled worker preparation program that already is being copied by other states and other Toyota facilities.

Another 16 projects authorized for funding by agency bonds brings the KCTCS total to $157.5 million.

“This is good for our system, good for our state, and one of the most significant things that has happened in the past 10 years in terms of capital construction projects,” McCall said of KCTCS’ overall capital project funding and authorization. “We got everything we asked for. Those were the 16 projects I worked with the governor’s office to move forward for consideration in the budget, and ultimately that’s what was passed by the House and the Senate.”

Creating a debt service revenue stream

After assessing its physical needs, financial capacity and the ability of its students to pay any more, McCall said, the state community and technical college system is creating a new student fee of $8 per credit hour in two steps over the next two years. That money will be pooled and go toward debt service of all KCTCS agency bonds.

The $133.3 million in agency bonds, however, will cover only 75 percent of each project’s cost. McCall said the individual schools must provide a 25 percent match, which can come from the college’s own resources, from grants, from their local community or from private sector donations.

“Each college will come up with a plan for how they will come up with their 25 percent,” McCall said.

KCTCS came up with this unique approach of its own for capital project financing, McCall said, after having to pass on potential participation in a state higher-ed agency bonding initiative that resulted in $363.3 million in bonding early in the 2013 legislative session for six universities. KCTCS had no revenue stream available to commit to debt service.

Eastern Kentucky University received $66.3 million in bonds for Phase II construction and completion of its science building.
Eastern Kentucky University received $66.3 million in bonds for Phase II construction and completion of its science building.

The exercise to create a bond repayment mechanism appears to have paid off, however.

“It was the best year that I’ve had since I’ve been here,” McCall said of the 16 projects authorized for 2014-16. McCall, who has led KCTCS for 15 years and recently announced he will leave his position on Jan. 15, 2015, said past years typically might see one, two or three projects authorized.

The capital construction commitment for the next biennium is comparatively large but is merely a beginning step toward meeting what higher education officials in Kentucky believe the needs are. While not wanting to appear ungrateful, they suggest meeting the top priorities identified under various campus master plans for fulfilling their institutional missions – to give commonwealth students the skills to contribute to and build the state economy – would require billions more future budgets.

A 2007 study by Boston-based facilities and capital management firm VFA Inc. identified $7 billion in Kentucky higher education needs even before the worst recession since the Great Depression struck in 2008, requiring multiple midyear state spending cuts the ensuring four years on top of reductions already enacted into the budgets.

Jackson suggested that the capital projects funded by 2014-16 bonding will contribute to broader future tax bases as well as job growth.

Mark Green is editorial director of The Lane Report. He can be reached at [email protected]

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