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Bob Brown/Richmond Times-Dispatch/AP
Washington Post
With costs up and revenue down for public colleges during the pandemic, one governor has a plan: Refinance
By Susan Svrluga
September 23, 2020
Virginia Gov. Ralph Northam offered relief to public colleges and
universities in the state Tuesday with a refinancing plan that could
save the institutions more than $300 million over the next two years,
delaying debt payments as they grapple with the coronavirus.
With colleges across the country battered by the increased cost of
operating during a pandemic, public schools in particular are bracing
for government funding cuts that could further damage their finances.
By using the state’s AAA bond rating to obtain favorable interest
rates, Virginia is taking an innovative approach to help ease the
strain.
Colleges are facing added uncertainty as well as expenses, Northam (D)
said Tuesday at George Mason University, where he announced the plan.
“But one side effect of the pandemic has potential to help,” he said.
“That’s the low interest rates that we are seeing right now.”
“Families all over the country are taking advantage of record-low
interest rates to refinance their home mortgages, and we want our
public institutions to benefit as well,” Northam said. “Refinancing
will free up millions of dollars in savings, allowing our colleges and
universities to make critical investments, meet the needs of Virginia
students and continue offering a world-class education.”
Officials at GMU are still analyzing the details of the proposal, said
Gregory Washington, the school’s president. The university is facing a
$109 million gap, he said, more than 10 percent of its total budget.
“What the state has put forward is a great step,” Washington said
Wednesday. “It’s going to definitely be helpful. It’s not going to
resolve our fiscal challenge — I can tell you that unequivocally.”
The plan could produce a wide range of savings at different schools.
According to the governor’s office, it could save $58 million at GMU,
nearly $44 million at James Madison University, $40 million at Virginia
Tech, nearly $13 million at Virginia State University and $344,000 at
the University of Virginia.
At Tuesday’s announcement, Northam was joined by Washington and some
Democratic legislative leaders, who committed to support the portion of
the plan that would require lawmakers’ approval.
The plan would refinance bonds issued by the Treasury Board of Virginia
and the Virginia College Building Authority that schools use for
capital projects. Schools could defer their principal payments.
Some of the bonds are general-obligation bonds backed by the full faith
and credit of the commonwealth, said Aubrey Layne, secretary of
finance, and require approval by two-thirds of the General Assembly.
Others are backed by revenue from the institutions, and although the
state stands behind them, they don’t require legislative approval.
Layne said he anticipates legislative support for the measure.
University leaders have been talking with the governor’s office about
the ongoing costs related to the coronavirus, Layne said. “This gives
them a two-year window where they have flexibility to use that money”
on other needs, he said.
Washington, the GMU president, said he appreciated the efforts of the
governor and other state leaders to help struggling schools. “The fact
of the matter is we need cash now,” he said.
Still, he noted, “They delayed our payments, but we still have to make
the payments. And during the time of the delay, we’re still accruing
interest."
Universities have faced numerous economic challenges during the
pandemic, such as lower enrollment and therefore reduced revenue from
tuition and fees; higher costs related to social distancing
requirements; the expense of virus testing; and increased costs and
decreased revenue from athletics. According to Sue Menditto, senior
director of accounting policy with the National Association of College
and University Business Officers, public institutions typically have
not had access to some of the loan programs created for coronavirus
relief, such as the Main Street Lending Program and the Paycheck
Protection Program.
“As stewards of the Commonwealth’s finances, we are always seeking
creative solutions to financial issues,” House Appropriations Committee
Chairman Luke E. Torian (D-Prince William) said in a statement.
“Helping public colleges and universities restructure their debt
obligations allows them to focus their resources on the pressing needs
they face right now as a result of the pandemic.”
Caitlyn Read, a spokeswoman for JMU, said the school is analyzing how the plan might influence its budget.
“James Madison University is thankful to the Northam administration for
their continued support of higher education,” she wrote in an email,
“and the increased financial flexibility during these most challenging
times.”
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