Bonding 101: all about bonds and student fees
During the coming months, Utah State University administrators will work to decide the fate of millions of dollars of student fee money through the process of bonding.
The university has used the bonding process to finance construction of new buildings and improvements to old buildings in the past. One of the major bonds in recent memory that has impact on USU student fees is the Stadium/Spectrum Bond.
With the Stadium/Spectrum Bond expiring in December 2005, administrators have the option of extending the bond to finance a major project like renovation to the Taggart Student Center, Romney Stadium or the Fieldhouse.
Last month, rumors surrounding administrators’ plans for a renewed bond circulated around campus, causing some concern among students. A meeting planned by administrators with student leaders was canceled in order to allow students more input on where money from an extended bond would go.
With some students potentially unaware of what is involved in the bonding process, University Controller Clint Moffitt explained the process.
“It’s a loan,” Moffitt said. “Bonding is a little different than personal loans that a student might have.”
On a personal loan, the creditor looks at the ability of an individual to repay the loan, but they also take collateral, in most cases a car or a home, Moffitt said.
With a revenue bond, he said, the State of Utah issues the bond in behalf of universities and then looks to the repayment of the bond and when the revenues that will guarantee the bond holders have returned their principle and their interest due on the bond.
The main thing expected of bondholders is repayment of the amount loaned, Moffitt said.
“They are not looking to come and foreclose and take possession of the asset that was created,” he said. “But they want to guarantee that there are sufficient revenues to pay for the bond expenses [and] the bond repayments.”
There are three different types of bonds the university typically uses, Moffitt said. Research and revenue bonds help provide the school a way to build research facilities for ongoing research, auxiliary-revenue bonds are used for housing or TSC projects and student fee bonds are used for purposes similar to the Stadium/Spectrum Bond: providing or improving amenities on campus.
Moffitt said the decision for the school to bond is based on the need for a good project and a verifiable revenue source, like student fees. Tax-exempt interest rates also play a large factor in the decision.
“Today, there are historically low tax-free interest rates,” he said. “If you have a good project and you have a verifiable revenue stream, then it’s an excellent time to bond.”
When planning for the amount of money that will be paid back over the time period of a bond, Moffitt said, conservative estimates of student growth at the university are made to account for the additional student fees that would be brought in with more students.
“You want to be conservative because you want to eliminate as much risk as you can,” he said.
Overall, bonding is felt to be a safe process to raise money for university building projects, but other avenues like fundraising are always the top priority when seeking money, Moffitt said.
Before a bond receives final approval, it has to be approved by the university’s central administration, the Board of Trustees, the Board of Regents and the legislature, Moffitt said. The entire process takes eight to 12 months before the institution has funding in its hands.
Decisions regarding the Stadium/Spectrum Bond will be made during spring semester. Vice President for Student Services Juan Franco said last month that he encourages students to become involved in the process and let their voices be heard about what they would like to be done with the money.
-str@cc.usu.edu