Counting The Cost

March 29, 2006
In February, interim editor Allison Holden talked with Reagan Ramsower, vice president for finance and administration, about the financial aspects of the Brooks Village project.

Q: What will Baylor's overall debt level be after the Brooks Village bonds are issued?
A:
Baylor's total bond debt after the issue of this latest debt of $63,500,000 will be $290,325,000. Since issuing the 2002 bonds, we have paid down $20,675,000 on the principal of those bonds.

Q: How does that amount compare to our peer institutions?
A:
It keeps us in line with higher education institutions that have a "AA" bond rating. That means that relative to the endowment that we have, relative to operating budgets for institutions of our size, student demand and selectivity, we are on solid financial footing.

Q: How do you address concerns that our debt level is already too high?
A:
Honestly, we don't have a significant amount of borrowing capacity left. One indication that our debt level is not too high is the fact that the credit markets priced the recent Brooks Village bond issue at a "AA" rating. However, we do not want to fall below an "A" bond rating so that's why we don't have a significant amount of borrowing capacity left. Also, Brooks Village project is a financially viable project, and by that, I mean that we are going to charge room and board for students who live there. It is a project that pays for itself over time. ... We also obtain significant revenues from parking at Baylor, so parking garages also pay for themselves.

Q: Why did Baylor decide, after many years of foregoing indebtedness, to build facilities through debt?
A:
One motivation for borrowing money is to spread the cost of a new facility across the many years of use that the facility would provide. Take, for instance, the science building -- it is a facility that is going to be used by faculty and students for many, many years. Borrowing to build the facility allowed Baylor to amortize the cost of the facility over 30 years, thereby matching the costs with the future benefits derived from the facility. Of course, the caveat is that the institution must have both the capacity to borrow the money and sufficient budgetary resources to pay it back. A second motivation is to use Baylor's donor capacity for funding endowments for student scholarships and facilities that support academic programs and don't directly generate revenue. The institution can borrow money on financially viable projects that pay for themselves. A third motivation relates to the increasingly competitive nature of higher education. Excellent, attractive facilities are required to stay competitive and realize the dreams set forth in Baylor 2012. When your peer institutions are using their borrowing capacity to construct outstanding campus facilities, you put yourself at a competitive disadvantage if you don't leverage your borrowing capacity to upgrade and improve your campus. If we stayed in our "let's never borrow mode," we would lose ground on the very important front of the attractiveness of the campus and the facilities we offer. ... But, again, while it's a competitiveness issue, borrowing has to be tempered with a requirement that Baylor remain financially prudent. A final motivation is that interest rates have been at record-low levels. The interest rate on Brooks Village is less than 4 percent over 30 years and that's quite remarkable. That our interest rate is that low is also a testament that the credit markets feel like Baylor is on very solid financial footing. ... And, remember, the Brooks Village project was so financially viable that many for-profit companies would have been happy to borrow, build, own and operate it, if we had chosen to go that direction.

Q: Were there other options and issues?
A:
We carefully studied the cost of demolition and what could be done to salvage [Brooks Hall]. ... There are a number of people, including our president, who have the utmost love for Brooks Hall. ... Dr. Lilley wanted to be absolutely sure in his own mind that we had exhausted every financially viable option to preserve the building. ... But, as much as we love it, because of the way it was constructed, there was no financially prudent way to preserve it.
Having more students live on campus is an important piece of what was envisioned in Baylor 2012. Based on the demand for North Village, we feel confident that there is sufficient demand among our students to justify Brooks Village. Of course, the facilities have to be sufficiently attractive with the necessary amenities so that upperclass students will elect to stay on campus.
Are you looking for more News?