ATLANTA — At a time when legislators have been fretting over tight budgets, the state’s public colleges have engaged in a $3.6 billion building boom through a financing arrangement that skirts the usual safeguards in state government.
The 20 projects begun in the last fiscal year alone added $566 million, and more are in the pipeline. The Board of Regents that oversees the 35 public colleges in the University System of Georgia has another project on its agenda for approval this week, the $21 million replacement of Bolton Dining Commons at the University of Georgia.
These projects,173 and counting, are at 33 of the 35 schools and involve student housing, parking garages, stadiums and recreation centers. The financing arrangement is designed to avoid the long-standing limit in Georgia law on state debt by setting up new organizations to carry the debt on their books rather than the state.
As large as the program has grown – 355 percent since 2002 – few people seem to know about it, and fewer still understand it.
Inquiries about the program have met with surprising responses in state government, even a request for a total of the outstanding projects.
“I would have to do a little research to have an opinion on this,” said Sen. Jack Hill, the Reidsville Republican who chairs the Senate Appropriations Committee and soon to be the longest-serving member of the Senate.
His House counterpart, Rep. Terry England, R-Auburn, also acknowledges having paid little attention to it until recently.
“There is little to no legislative oversight,” he said. “This is just one of those things that no one was looking at.”
Private, budget-watchdog groups say they know no details about this $3 billion mystery.
“We unfortunately don’t have the resources to follow higher-education issues closely,” said Kelly McCutcheon, the president of the Georgia Public Policy Foundation.
Even the governor’s press secretary passed questions about the details to the regents. The board of regents is made up mostly of businessmen and lawyers appointed by the governor, with the sole authority to approve or deny these projects. However, they routinely rubber stamp proposals with no discussion.
THE UNIVERSITY SYSTEM calls the program “public-private ventures” although no private entities are involved. Instead, it taps one of its 96 foundations or creates a new one to lease land from one of the schools and build a dorm, gym or garage on it. The foundation sells bonds that pay tax-exempt interest to investors, just like the government does.
Repayment comes from dorm rent or new fees that all students are required to pay. The foundation bonds, though, aren’t included in the ones the legislature approves for sale each year. So, they’re not subject to either legislative approval or the statutory limit on bonds, the financial safeguards that govern the rest of state spending.
That bond limit plays a large role in saving taxpayers money by preserving Georgia’s sterling AAA bond rating, in addition to ensuring a conservative approach to borrowing. Running the debt through the foundations is a way to borrow more money behind the rating agencies’ back, so to speak.
While the practice predated Gov. Nathan Deal, his press secretary, Stephanie Mayfield, bristled at the comparison to off-the-books debt the failed energy company Enron exploited through its dozens of subsidiaries.
“All debt is clearly reported and is part of the public record. The bonded indebtedness for PPV projects appears on the annual, audited, financial statements of the foundations as well as in the foundations’ annual tax filings,” she said in an e-mail. “In addition, PPV debt is reported in the state of Georgia’s Comprehensive Annual Financial Report as capital-lease debt. All the projects are approved by the regents in a public meeting.”
The information is available for those who dig in, and the bond rating agencies are starting to do that. Rumor has it they’re considering whether to declare it a factor in the grade they give the state’s balance sheet. That could force major changes in the program, according to Hill and England.
One issue is the state’s obligation if one of these ventures flops. The University System says it has an arm’s-length relationship with the foundations and declares it in the sales circular for the bond investors. But a court might disagree since the regents create the foundations, pick the board members, provide the administration, approve the building designs, and set the fees.
MOST OF THE PROJECTS are built with an eye toward attracting prospective students. Campus housing today is more like apartments with private bedrooms, in-suite bathrooms and kitchen appliances. Student centers and gyms are upgraded, too.
To ensure they are appealing, colleges require students to vote on the designs as part of the approval process. The students also have to agree that 20 years of additional, mandatory fees are worthwhile, even though many of the students who vote will have left campus by the time the fees begin. Parents who pay the fees and tuition don’t get a say.
“We feel that any parent or student that pays a nickel into the process should have a vote,” said Harold Cohn, a Camden County taxpayer.
Mandatory fees and housing charges provide steady income for paying down the foundations’ bond debt. They’re almost recession proof since enrollment usually rises when jobs are scarce.
“The program began at a time of pent-up demand for facilities and grew rapidly for a number of years,” said University System spokesman John Millsaps. “Now that a lot of those pent-up needs have been met the program will slow, and in fact some projects have been either delayed or turned down pending further assessments.”
Charging the users rather than the state’s taxpayers is appealing to some older Georgians whose children have already graduated, like Ed Dennis of St. Simons Island.
“In general, I don’t see anything wrong with the current plan other than the fees should be terminated as soon as the facility is paid for, and every project (fee) should be listed on the tuition statement,” he said.
Indeed, the fees charged by Georgia’s public colleges have escalated in recent years while the University System continues to note that its tuition is among the lowest in the nation.
Russ Wigh, a business professor at the private Savannah College of Art and Design, sees the benefit from his perspective as a taxpayer and academic.
“No, it does not bother me – on the surface. Colleges must have freedom to improve their assets to be competitive and to keep the state’s college graduates competitive,” he said.
UNIVERSITY SYSTEM Chancellor Hank Huckaby, Deal’s handpicked choice, announced after taking the post that he was imposing greater scrutiny on proposed ventures. A one-time director of the Governor’s Office of Planning and Budget, Huckaby now requires every proposal to get approval from his vice chancellors of academics, finance and facilities. And he’s launched a study of ways to better use existing buildings.
The General Assembly’s Department of Audits & Accounts also includes a tally of the projects and their total when it audits the University System and individual schools. Those totals show up in its government-wide audit with a footnote explanation.
The University System gives the college presidents broad autonomy over their institutions. Long-range campus plans require central-office approval, but that’s where the internal politics come in, observers say.
“Clearly, there needs to be transparency and accountability,” said Alan Essig, the executive director of the Georgia Budget & Policy Institute, an Atlanta think tank. “We have 35 schools, and in many ways they’re individual fiefdoms.”