IUP aims to control its budget 'albatross'

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Indiana University of Pennsylvania has grown tired of its debt -- at least the $34 million in bonds that in 2010 helped it finish the Kovalchick Convention and Athletic Complex on campus.

So the school that is one of Pennsylvania's 14 state-owned universities is asking something unusual within a system of campuses that seemed the last decade to grow comfortable with fast-rising construction debt.

It wants permission this morning from the State System of Higher Education's board of governors to buy back those bonds early.

Since its opening in March 2011, the Kovalchick center, with its 5,000-seat arena, has become a steadily-booked venue for large and small events including conferences, campus officials said.

But the yearly debt service payments of $2.24 million have become an unwanted drag on IUP's education and general budget, especially as it lives with deep state funding cuts in a still-recovering economy.

"The Kovalchick ... has become an economic driver," said Jonathan Mack, a member of IUP's council of trustees and a member of the system's board of governors. "But the debt has been an albatross. It has been a tremendous burden on the university."

On Wednesday, during committee meetings held in advance of this morning's full board session, officials detailed a complex process through which IUP hopes it can avoid $18.2 million in interest payments it otherwise would face on top of the $29 million still outstanding from the bond itself.

It involves tapping into IUP's reserves to pay much of the $32 million to $35 million that IUP President Michael Driscoll told board members may be needed "to make this go away."

That would leave IUP with approximately $20 million in reserves to handle yearly debt service payments and various emergency expenses, an amount university officials have deemed sufficient.

It was unclear Wednesday how often a buyback of this magnitude has been undertaken across the State System. Spokesman Kenn Marshall said he could not recall a similar case at least since the late 1990s.

The move drew praise Wednesday from Mark Staszkiewicz, who heads IUP's chapter of the Association of Pennsylvania State College and University Faculties. His union has criticized escalating debt for construction as a detriment to campus finances, and Mr. Staszkiewicz said the president properly consulted with his union and other campus groups in advance.

"From the perspective of APSCUF, this is a very big step," he said. "It will save the university a great deal of money over the long run."

"Rather than to use the money for one-time purposes now, we do see the value of taking this long-term approach," he added.

Back in 2010, with costs for the Kovalchick rising and fundraising lagging, the State System used its borrowing authority to float the $34 million for IUP as part of the system's overall bond issue that year. By agreement, repayment was the university's responsibility.

The bond alone was equal to about half the $62 million in various debt that IUP carried as of June 30, 2012, the most current estimate available Wednesday from the State System. The early repayment will reduce that to about $20 million, university officials said.

That does not count privatized auxiliary debt for housing projects that the State System has asserted is not the university's responsibility.

Ron Henry, chairman of the finance committee, said it was not necessarily a guarantee that the buyback would ultimately be favorable financially, given factors including bond market fluctuations.

Mr. Mack said officials at IUP have given the matter serious thought and that he believes it "creates the best situation for IUP" under the circumstances.

Across the State System universities, a building boom spanning more than a decade yielded trendy suite-style student residences, modern classrooms and performance halls and other enhancements. But it has also helped fuel debt.

In 2012, the State System put its debt across the 14 universities officially at $942 million, double what it was a decade ago. But after factoring in privately financed student housing and other projects built by university-affiliated groups -- a sum estimated by Moody's Investors Service to be nearly $1 billion -- total debt associated with the 14 schools approached $2 billion.

Bill Schackner: bschackner@post-gazette.com, 412-263-1977 and on Twitter: @BschacknerPG.


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