Officials: Debt is not always a bad thing

Despite IU's $662 million in debt, IU officials aren't too worried.\n"Debt is not a bad thing," IU Treasurer MaryFrances McCourt said. \nUniversity debt has come back into the spotlight after a recently published article in the State College, Pa., Centre Daily Times revealed Penn State's debt could hit the $1 billion mark soon. While officials predict that IU's debt will continue to increase during the next few years, they not only assured that the University's debt is under control but said IU plans to continue to spend more money on life sciences in order to help both the state and the University. \nCoincidentally, life science expenditures are what sent Penn State further into the red, according to the article. \nStill, Judith Palmer, IU vice president and chief financial officer, said IU's financial status is still healthy for a number of reasons. \nShe said the University's bonds, which help fund projects like academic and residential facilities, are still selling well, unlike Penn State's. \n"The bond rating at Penn State has moved from a positive (outlook) to stable, whereas IU's rating remains a positive outlook," Palmer said.\nShe said the state also supports the University's initiatives and IU has taken steps to monitor and alleviate the debt load. \nShe said plans are routinely reviewed with the board of trustees, IU President Adam Herbert and other IU administrators. In addition, the state monitors the amount of debt being issued and outside assessments of IU's debt capacity are taken. \nAlso, to lower costs, the debt is refinanced as interest rates decline, McCourt said.\nPalmer said she is aware that $662 million is a large number, but to fully understand the concept of debt, one must first understand that IU faces several different types of debt and has various resources to help alleviate debt.\nMcCourt gave the example of fee-replacement debt, in which the state provides funds for projects that will benefit both the state and IU.\n"The state authorizes the University to issue bonds for an academic facility, such as a classroom building," Palmer said. "Fee-replacement debt retires the debt the state authorizes."\nHistorically, the state has provided funds for the construction of classrooms. More recently, however, the state has asked IU to match the amount it provides because of its declining economic status, Palmer said.\nPalmer gave an example of another way of covering debt, called indirect cost recovery, which applies to the construction of residential facilities on campus. For example, the revenue bonds IU issues in order to build dorms are covered by housing fees students pay to live on campus. \nMcCourt said the same type of bond can be applied to parking facilities.\nYet another way of acquiring funds is through something called plant expansion.\nMcCourt said IU can request plant expansion from the state, and the money is used to fund new projects at IU. The state must approve of the plans before the University receives the money.\n"We send requests to the state every two years, and the annual budget is based on whether our requests were approved," Palmer said. "And then tuition is set." \nThough tuition might be based on the budget, which is affected by how much money IU needs to fund projects, tuition money cannot be used to cover IU debt. \nThe tuition IU students pay goes to fund operating expenses, McCourt said.\n"Two-thirds of the funds (from tuition) compensate the faculty and staff, and the remainder covers day-to-day expenses, such as equipment and lighting for buildings," Palmer said.\nDespite having to spend more money -- and thus incur more debt -- the University is willing to comply with the state's request for IU to build better life sciences facilities in order to help the state's declining economy. \n"We're moving from a manufacturing state to a knowledge center, and the field of life sciences is at the core," McCourt said. "This is creating more jobs and improving Indiana's economic status, and IU is being put in the limelight in life sciences."\nMcCourt said it might appear debt is increasing rapidly in the next few years. However, the debt is not bad when one looks at the strategic initiatives that are being financed through it, she said.\n"You can look at debt as really investing in the future," Palmer said. "Future IU students will have good classroom space and research facilities"