The Waco Tribune-Herald: Baylor officials defend building campaign that critics say raised tuition too muchMay 8, 2012
Article reprinted with the permission of The Waco Tribune-Herald.
By CINDY V. CULP
Tuesday May 8, 2012
This is the third of a six-part series examining the successes and failures of Baylor University's 10-year growth and visioning plan known as Baylor 2012.
Nothing provides more concrete evidence of Baylor University's drive to become one of the nation's top schools than its massive building campaign during the past decade.
Baylor added more than 1.8 million square feet in new facilities, creating a new look for its campus. Hulking new academic buildings, majestic sports venues and sleek student housing now dominate the scenery.
While there's no debate the results of the building spree are impressive, some Baylor constituents expressed concern about the price tag. Before the launch of Baylor 2012, the school's 10-year strategic plan, the university typically didn't build facilities unless it had money in the bank to pay for them.
But to finance the capital component of the vision, Baylor issued $247 million in bonds. Some said the university was foolishly mortgaging its future, and they predicted skyrocketing tuition.
A decade later, opinions about the wisdom of building so much so fast remain varied. But university officials point to an array of facts and figures as proof the financial sky has not fallen.
"We've existed since 1845, and we'll exist for another 150 years or until Jesus comes, as some say," said Reagan Ramsower, Baylor's vice president for finance and administration.
A key measure of a university's indebtedness is how much of its operating budget goes to debt service. Nationally, that number averages just less than 5 percent for schools of Baylor's size, said Ken Redd of the National Association of College and University Business Officers.
The university's goal with Baylor 2012 was to keep debt service at 6 percent or less, Ramsower said. It has done that with the exception of a few brief periods.
Currently, about 5.5 percent of the university's operating budget is spent on paying down the debt.
Another measure of a university's financial health is its credit rating. Baylor has a AA-minus rating, which is common for universities, Ramsower said. The rating indicates Baylor has 1.5 times the resources in cash and other assets to pay off its debt, he said.
To be sure, the university is heavily dependent on tuition.
About 77 percent of Baylor's overall revenue is from tuition and fees. The operating budget, which is what debt service is paid from, gets about 83 percent of its revenue from tuition and fees, Ramsower said.
Since the beginning of the strategic plan, Baylor's net tuition and fee income has more than doubled, from $155 million to $319 million annually. A small part of that bump came from increasing the size of the student body. The extra revenue is primarily the result of rate increases. The total average cost of attending Baylor -- tuition, fees and room and board -- has gone up 122 percent, from $18,233 to $40,396 per year.
But those "sticker prices" can be misleading, Ramsower said, since virtually no one pays them. More than 90 percent of Baylor students receive a discount.
The average amount of the discount is now 43.5 percent, putting the true annual cost of a Baylor education at just under $23,000.
Prior to the 10-year plan, the average discount rate was 17.9 percent, Ramsower said. That made the actual annual cost just under $15,000.
That means the actual average cost of attending Baylor today is about 53 percent higher than a decade ago.
Calculating how much of that increase is a result of Baylor 2012 is tricky, Ramsower said.
The financial model assumed numerous variables.
The university's endowment coincidentally increased by the same amount as its debt, so one theoretically could argue the building campaign didn't affect tuition, Ramsower said. But isolating variables like that is not how the budget really works, he said.
Plus, much of the tuition increase came early on, in 2002. That is when the university moved to a flat-rate tuition system so its rates could catch up to peer institutions.
Ramsower said he sometimes is perplexed by the contention that tuition revenue shouldn't fund university improvements. That would be like saying a furniture store shouldn't pay for an expansion with proceeds from furniture sales, he said.
"Yes, tuition did pay for it," Ramsower said. "But that's our business."
Not everyone agrees with the university's expansion strategy. Bette McCall Miller, daughter of former Baylor president Abner McCall and a vocal critic during the past decade, said Baylor has priced itself out of the market for most Baptist families. Students from such families tend to be service-oriented, she said, and interested in careers in areas like education or social work. They need to get a good education without having to take on a lot of debt, she said.
"Almost all of my friends could not have gone to Baylor under the current tuition," Miller said.
She agrees Baylor needed to implement some of the 2012 vision's goals, such as upgrading facilities, hiring more professors and increasing faculty salaries. But, Miller said, those things should have been accomplished primarily by growing the university's endowment. Instead, Baylor went on a spending spree while simultaneously alienating faithful donors who expressed concern about the university's direction, she said.
Ella Prichard, a former Baylor regent and another critic of some facets of the 10-year plan, made a similar point. Baylor went from being extremely conservative in its financial approach to very liberal, she said.
For example, no one made an initial, lead gift for the Baylor Sciences Building, Prichard said. But the university went ahead with the project anyway, opening it in 2004.
"We voted to stress the endowment and the next thing you know, we're building a $103 million science building," Prichard said. "Frankly, (former Baylor President) Robert (Sloan) did not have the patience. He wanted all this grandiose stuff, and he wanted it now."
As a result, Baylor had to raise its tuition and admit more students, Prichard said. That, she said, has been counterproductive to growing the endowment, which pays for scholarships and certain faculty positions.
"If there's one thing we haven't understood as well as we could have, it's that every time we take in more students, we water down the endowment," Prichard said.
Ramsower said the university feels it still offers students a good value. If the price increase is spread out over the strategic plan period, it amounts to an average increase of 4.86 percent per year.
Ramsower also noted the average family income of Baylor students who seek financial aid has remained roughly the same, adjusted for inflation. In 2001, the average family income of such students was $60,000.
This fall, it was $86,000. That represents a 3.25 percent average annual increase, which is about the same as inflation.
"We haven't become an elite rich school," Ramsower said. "We don't want to be that."
As for the notion Baylor shouldn't build things it can't pay cash for, Ramsower said that's a specious argument. While being debt-free is laudable for an individual or household, he said, institutions are different.
Individual debt is typically taken on early in a person's adult life, with the goal of paying it off by retirement. A home mortgage is a good example, he said. But institutions don't have a finite life cycle. They constantly evolve and have continual cash needs, he said.
Plus, spreading the costs of university improvements out over the long term is a more equitable way of paying for them, Ramsower said. That way, the cost of a particular facility is borne by generations of students rather than just a few classes.
The science building is a good example, Ramsower said. At $103 million, it was the most expensive project in Baylor's history. But it should have a life span of at least 50 years, he said.
"Debt is a structure that allows you to spread that burden out over time," Ramsower said.
Another consideration is that delaying capital projects can increase costs. The science building, for example, probably would cost $300 million today, he said.
Similarly, Baylor saved money by taking advantage of the historically low interest rates available when the vision launched, Ramsower said.
So what's in store for the coming decade? While Baylor regents approved $120 million in construction projects last fall, expansion will not be nearly as brisk as it was under Baylor 2012, Ramsower said.
Finances are one reason. Baylor can't raise tuition much more and remain competitive. It also can't take on a new level of large debt, he said.
But even if funding wasn't an issue, Baylor almost certainly wouldn't pursue as much capital growth in the near future, Ramsower said. The building campaign that was part of Baylor 2012 was in many respects a function of Baylor needing to "play catch-up," he said.
"I think it will probably be remembered as one of the most expansionary decades in Baylor history," Ramsower said.