Ohio University President Roderick McDavis presented a report on the university's ambitious capital improvements plan to Faculty Senate Monday night, prompting faculty concerns about how the plan will be funded.
One faculty member suggested that if OU cut its student enrollment in half, allowing it to attract better students and knock down several dorms, this would be the wisest financial course to take.
The capital improvement plan, utilizing long-term borrowing, will be broken down into two payment plans, one for six years and one for 20 years, McDavis told faculty senators. That will put 70 percent of OU's academic and residential buildings on schedule for renovations or replacement.
At a recent meeting, the OU Board of Trustees approved the capital improvements plan. However, Monday night some faculty senators expressed reservations about the university going further into debt.
McDavis pointed out that the university pays off $10 million to $12 million each year from its current debt, but has not added to the debt principal for eight or nine years.
The improvement plan is a $2.57 billion investment, but will decrease the amount of estimated deferred maintenance cost in campus buildings from $78 per gross square foot to about $60, according to the board.
McDavis added that the debt OU will acquire under the capital improvement plan will be aggregated over a 20-year period. According to his chief of staff Becky Watts, the trustee board has approved borrowing as one of a number of revenue sources that will be used to fund the capital improvement plan. "In addition to borrowed funds, the university will use general funds (tuition, fees and state support), gifts, and grants to fund CIP projects," Watts wrote in an e-mail. She said OU "anticipates borrowing a total of $1.4 billion over the 20-year period, with the remainder of the $2.57 billion coming from the other sources she listed.
"Our projection on near-term debt issuance for the six-year CIP is that general fund debt issuance will grow to $44 million, from the current total of $22 million," Watts added. "There is additional anticipated debt issuance related to the residential housing plan, which is anticipated to require an additional $13 million in debt issuance for the housing auxiliary (not general fund)."
The CIP, according to Watts, "will be managed based on the availability of revenue from all sources."
McDavis's explanation at the faculty senate meeting came in response to Scripps College professor Joe Slade's expressed concern about where the money for the plan will come from.
"Without this plan, OU is in danger of reaching $100 per gross square foot (in deferred maintenance costs) by 2020, meaning that there is a chance the university could lose its campus," McDavis said. "We recognize that certain classroom buildings and residence halls need updated in order to improve the overall quality of the university and keep us in competition with other universities"
Accounting professor Leon Hoshower proposed that over the long term, OU should consider getting smaller while improving its academic quality. "The university could decrease the enrollment of students to 10,000, so we will have better quality students and knock down the bad dorms. Then we will have an improved institution without increasing our debt," he said.
McDavis noted that students are the main source of revenue for OU, adding that the university has seen the largest number of applications in three years, as well as the most out-of-state applications.
"We plan to pay the debt service back in a reasonable way and have gone to great lengths not to become Greece," he said, referring to the debt-ridden European nation. "By increasing the quality of the campus and taking more aggressive measures toward growth, there will be an overall improvement of the facilities to make OU appealing to prospective students, as well as our current ones."
The capital improvement plan was presented to the Board of Trustees five years ago, but was not ready to move forward at that time. Additionally, "money is cheap right now" and can be paid back easier due to inflation, according to McDavis.
"Now, with the 20- and six-year payback period, they feel more comfortable with us going in debt," he said, referring to the OU Board of Trustees. "They (the board) are conservative with fiscal matters and would not have passed this if it would run OU into the ground."
