University of California debt soars to $17 billion; regents consider new borrowing policy

By Katy Murphy

The University of California’s debt has ballooned to $17.2 billion since the start of the recession, more than doubling as the system borrowed to repair buildings, fund pensions, and build medical centers and student housing.

In the past decade, as states have cut support for capital projects, public universities across the U.S. have piled on debt to repair old buildings and build new ones. But some, including Gov. Jerry Brown, have expressed wariness about all the borrowing. Along with access to needed cash, UC is locking itself into more costs — and is fast approaching its limit for borrowing cheaply from the market.

But with the board of regents this week considering UC’s first-ever debt policy, university leaders insist the borrowing spree is strategic, given unusually low interest rates and federal tax exemptions on university financing.

“If we had not taken advantage of that and had to build buildings out of our operating budget, it would have been a risky or foolish way of doing it,” university CFO Nathan Brostrom said in an interview this week.

Financial reports show UC paid more than $558 million in interest alone in the 2014-15 year — roughly $2,200 per student. That figure does not include the $104 million UC reported it paid in interest on medical center-related borrowing, which Brostrom says is covered by the centers’ revenues.

Nationally, public colleges’ debts doubled between 2003 and 2012, while their annual spending on interest rose by 45 percent per student, according to a paper published this year in the Oxford University Press journal, the Socio-Economic Review.

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[Source]: The Mercury News