UAHuntsville: Dave's Blog

      Additional Links
      • About Huntsville
      • Administration
      • Alumni
      • Current Students
      • Directories
      • Faculty / Staff
      • Future Students
      • Site Index
      • Visitors Center

Wilson Hall Renovation

As you may have read recently in the Huntsville Times, the UA System Board of Trustees recently approved the go-ahead for the renovation of Wilson Hall and if you have been in the vicinity you’ll know that this process is now underway. The plans for the renovation are on the web at: http://facilities.uah.edu/architect/wilsonhall.htm.

This renovation, which was included in our previous five-year plan will significantly increase the space for our College of Nursing to train nurse practitioners in a simulated hospital environment, and also give our students in the College of Liberal Arts more space for their creativity. In addition, our Continuing Education team under Karen Clanton’s leadership will have modern facilities in which to pursue what is a most important apart of the University’s outreach to the world. Last, but not least, Professor David Harwell and his theatre students will find yet another venue for their performances in the renovated Wilson Hall lecture theater.

The financing for the Wilson Hall renovation provides a useful insight into how universities are able to grow, even in challenging economic times. The cost of the Wilson Hall renovation is ~ $11.5M. Of this, $3.6M comes via a bond issue from the State government last year. UAHuntsville was allotted $3.6 M in this bond issue (just above 0.3% of the total $1B bond issue – the rest went to other State universities and the K-12 education system.

So we have to raise the funds to pay for the $7.9M balance. We will do this by securing a bond issue to cover the costs up front and spend 30 years paying back the loan, in much the same way as a homeowner pays back a mortgage. The debt payments on Wilson Hall will be ~ $600k per year, depending on market conditions. We have been planning this construction for some time, so these costs have already been built into the University’s operating budget and will not require a budget increase. But it is important to recognize that these payments come out of our tuition income and state appropriation.

The majority of state governments employ comprehensive capital and financial planning that includes higher education. In these states, bonds are routinely issued by the state to fund new facilities and renovate existing ones on university campuses. While the financing structure varies from state to state, a common arrangement is a centralized state bond issue, with the state government paying the annual debt service on the bonds over a twenty to thirty year period.

Unfortunately, the State of Alabama does not routinely provide funds for capital projects for its universities, and as a result UAHuntsville has been required to issue its own institutional bonds for many capital improvements over the years. We then have to pay the annual debt through tuition and other revenues that would otherwise be available for academic programs and other uses. Our sister institutions at UA and UAB, as well as Auburn and others, finance their buildings in the same manner.

We are currently paying off previous bond issues to cover some of the University’s facilities constructed in the past 20 years; academic buildings such as the Business Administration Building as well as residence halls that generate their own revenues to retire the associated debt. Currently UAHuntsville’s total institutional debt is $55 million, with annual debt payments of over $4 million. About half of this debt is related to student housing and is fully funded through student rental fees. However, the remaining half must be paid from tuition and other unrestricted revenue sources. As a fraction of our total annual budget of $160M a debt service of $4M is a very good ratio in comparison with many other universities.

In order to get a bond issue we have to convince the bond companies that our credit is good – no mean task these days. Both Moody’s and Standard & Poor’s routinely rate the University’s credit-worthiness. The ratings process provides an independent validation of the financial health of UAHuntsville. Our favorable ratings of A1 from Moody’s and A from Standard & Poor’s are attractive to potential bond buyers. A good rating also permits us to get a favorable interest rate on any bond issue repayment. A poorer rating means we pay more interest on the bond. The University has to prove that it operates on a sound financial basis and is likely to be around for the 30 years needed to pay off the loan. The financial health of the State of Alabama is a major factor underlying the rating, and the University obviously has no control over this. However, we do have the ability to impact our bond rating by operating in a fiscally sound manner. Here are some of the major positives for UAHuntsville cited in the most recent Standard & Poors report, dated October 31, 2008:

Our position in the University of Alabama flagship system;
Stable enrollment;
Niche in technical studies due to a location near several high-tech and space-science facilities, including one of the nation’s largest research parks and a critical NASA facility;
Strong record of operating surpluses and healthy liquidity;
Above-average student quality as measured by an average ACT score for freshmen of 24 compared with the national average of 21.

Moody’s also cited similar strengths for UAHuntsville in its most recent report, dated November 19, 2007 (before the State appropriation reductions). At that time, the University’s credit rating was upgraded to A1 due primarily to the following factors:

Further growth of enrollment and net tuition per student;
Established research profile, with research representing approximately one third of operating expenditures;
Strong growth of financial resource base;
Healthy growth of operating support from the State of Alabama.

The University’s Power of Ten Goals developed during the last academic year and now the focus of our campus-wide strategic planning process will strengthen all the above criteria and permit us to continue to borrow money in a fiscally sound manner as we grow the university in response to the growing needs of the Huntsville community. A growing student body (goal 104), evident in the initial results from Rick Barth and Sandra Patterson’s recruitment efforts this last year (currently a 13% increase in applicants, 16% increase in admissions) will help with Moody’s criteria. A 16% growth of research awards last year to $84M (goal $108 in expenditures, 102 PhDs/year) under the leadership of Ron Greenwood and John Christy over the last year will likewise strengthen our financial profile as rated by Moody’s criteria. Growth in annual giving (goal $107) already evident under Jeff Sands’ new Advancement team will further strengthen our financial base and ensure our continued liquidity. A key component of financial liquidity, and operational services is our cash reserve – again built into our annual budget and dependent on tuition income and the state appropriation. Our long record of fiscal stability means that we will be able to invest in more student dorms, in continued renovation of rebuilding of our aging infrastructure and in new buildings for our ongoing research and teaching needs.

So, despite the recent reduction in the State appropriations and the prospect of further reductions in future years, the best course forward for the university is that we continue to focus on growth that we can control – growth in new students (both undergraduate and graduate), in more scholarly research, focused hiring of new faculty in response to growth and in key academic areas and in more external giving. To succeed in all these areas will require a campus-wide commitment to realizing our Power of Ten goals.

Give Dave your comments here!