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State Treasurer Harlan Boyles has joined with the UNC system in proposing
legislation that could make billions of dollars available for building projects
throughout the 16-campus system.
The proposed legislation would expand the ways the state system could sell
bonds to pay for either new buildings or renovations to existing structures.
Using bonds for construction projects is common in other university systems
and for local governments throughout North Carolina but would be a change for
the UNC system. Here the state legislature has traditionally used a
pay-as-you-go system in which the money for a building is appropriated in total
from state funds.
That system no longer works, according to Boyles and UNC President Molly
Broad. A recently completed study of the UNC system shows $6.9 billion in
needed capital projects over the next 10 years. Nearly half of that total
stems from deteriorating buildings that are overdue for repairs or
renovations.
"We've relied too heavily on the pay-as-you-go system," Boyles said. "To
continue to rely on pay-as-you-go means we would get further and further
behind."
The proposed bond legislation would allow the UNC system to sell two types of
bonds. Boyles estimated that the UNC system could raise $3.5 billion during the
next five years.
Boyles estimated that $1.5 billion in bonds could be funded by revenue
generated by buildings (such as research funds or rent for residence hall
rooms). The remaining $2 billion could be paid through usual funding the
General Assembly sets aside for capital projects. That capital project funding
would not have to increase from the 1997 total of $125 million to cover the
bonds.
Addressing the Board of Governors on May 14, Boyles said that using bonds in
the proposed manner is common both among local governmental entities in North
Carolina and for higher education in other states.
The two types of bonds Boyles has proposed are called limited obligation bonds
and special obligation bonds. The limited obligation bonds work the same way as
a home mortgage in that the campus building being built or improved serves as
security for the bonds. Special obligation bonds use a specific revenue source
-- such as the receipts for overhead in research grants -- to pay the debt.
Such bond financing is not an unusual practice, Broad said.
"While it is standard practice in higher education and standard practice for
local governments, it is not a standard idea for North Carolina higher
education," Broad said.
Acting Chancellor William O. McCoy said the bond proposals would be helpful to
Carolina, which has a long list of needs for both renovation and new
construction.
"This legislation would give us some flexibility and more opportunities to
meet the needs we have on campus," McCoy said.
The need for new financing methods stems from a report by Eva Klein, a
Maryland-based consultant who spent more than a year assessing the quality of
the buildings on all 16 state campuses. Klein also determined what additional
buildings the state would need to educate the 48,000 additional students
expected to enroll in the state system by 2008.
Klein told the Board of Governors repeatedly that while the pay-as-you-go
approach meant never having to take on debt, it also meant building decisions
were made by the amount of available funds, not the needs of the universities.
Klein said pay-as-you-go caused needed repairs and renovations to get put off
too often.
Bonds were one of the new financing methods Klein suggested in her report and
it's an idea Boyles embraced. Boyles said he did so because the UNC system is
one of the state's best resources.
"As the state's banker, I'm here to say that I want to be of help," Boyles
said. "The university system is a good investment and to not meet those needs
would be abdicating a high fiduciary responsibility."
The challenge facing the Board of Governors and UNC system is to get the
General Assembly to agree to pass the legislation. At their May 14 meeting,
board members were optimistic about their chances of getting such passage.
Jim Phillips, chair of the board's public affairs committee, said he has been
pleased with the response of legislative leaders and the Council of State to
the UNC system's request for alternative financing methods.
"The sense of urgency they have shown, the desire to start in this session,
has been extremely gratifying," Phillips said.
In addition to Boyles, the UNC system has the support of N.C. Senate President
Pro Tempore Marc Basnight.
Benjamin Ruffin, chair of the Board of Governors, said he believed some
version of bond financing legislation could be passed this year. "It's going
to be some heavy lifting," Ruffin said. "But I think we'll be successful
because of the justification for this program and the real need for this
program."
In other business at the Board of Governors meeting, Broad announced that Roy
Carroll, the UNC system's vice president for academic affairs, would retire at
the end of the year after 20 years with the state system.
Risa Palm, the dean of the University's College of Arts and Sciences, will
chair a search committee to nominate Carroll's replacement.
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