The university’s current debt acquisition began in 2002 when it took on $15 million in bond debt. About $5 million of that has been paid back, but its debt increased again in 2008 when it added another $10 million in bond debt. Then, in 2009, it went up by about $61 million, according to Clint Carlson, JSU’s vice president of business affairs.
The total amount owed by the university stands at $81 million.
Universities and public schools in Alabama do not receive regular state funding for building projects so they use bond money to pay for construction and renovation projects. Bill Newton, the state director of finance, likened it to a person who wanted to use a loan to pay for a home they can’t afford to pay for with cash.
“A university, a state government, a county or a city is in a very similar situation,” Newton said.
Although the debt soared in recent years, it has not increased so much that the institution can’t afford to pay it back, according to Carlson. He said the $4 million JSU is required to pay on the debt each year totals just 4 percent of its 2011 budget.
And, like that individual who takes out a loan for a handsome new house, the university has something to show for its debt. Among the projects being paid for through the issuance of bonds is a refurbished Ayers Hall, a building at McClellan and the latest project — the combination dorm construction and stadium expansion. At a cost of about $65 million, that expansion accounts for the bulk of the money.
The university’s board of trustees met in Montgomery last week to select an underwriter that will help officials explore the possibility of refinancing what remains of the school’s debt from 2002. The board chose Michael Dunn with Merchant Capital LLC to investigate whether the university can secure a lower interest rate. If successful, the university might save between $350,000 and $500,000, said university President Bill Meehan.
It’s in the university’s interest to ensure bond debt stay manageable because at other institutions such an obligation can result in increased tuition and fees. In such cases, the debt is paid off through what is called a “building fee,” according to Susan Cagle, director of finance for the Alabama Commission on Higher Education.
JSU charges no building fee.
Most of the school’s bond debt, the $65 million being used for the expansion and construction project, is being paid back from revenue generated by ticket sales and rent from the dorms. The remaining debt is paid for by state appropriations and student tuition, Meehan said.
Carlson said while the debt level at JSU is manageable, it is still significant because of the scope of the stadium expansion and dorm construction.
“This institution has never done anything of that size,” Carlson said.
Nonetheless, said Cagle, the university’s debt service is low compared to that of some other institutions. According to Cagle, Auburn University’s annual debt payments total $50 million and that the University of Alabama’s debt service totals $34 million.
Star staff writer Laura Johnson: 256-235-3544.