Officials say higher burden is manageable
USC has more than quadrupled its debt since 2001 and now owes almost $460 million — $240 million more than it owed five years ago.
And as the university has incurred debt, students have paid the price. Students now pay $632 in tuition dollars each year just to service the debt; that number was about $450 five years ago, according to university documents. Tack on another $69 a year each student pays just to service athletics facilities — a fee started in 2006 that has continued, said Leslie Brunelli, USC’s associate vice president for finance and planning.
University officials now say they can incur no more debt without “freeing up current obligations.”
“If we take more debt, that will affect our credit rating,” Provost Michael Amiridis said. “And the credit rating is non-negotiable to us.”
USC’s current credit rating, as determined by Moody’s Investors Service, is A-2 — the same as Clemson and most other schools in the SEC. That’s below a handful of top-tier schools but above the majority of universities and colleges rated by the agency. The rating determines how much interest the university will owe on debt and how able a university is to meet its financial obligations.
There is no cause for serious concern, though, according to the university’s financial team. They say long-term planning shows the university can easily answer its obligations through “identifiable funding streams,” many of which are accrued due to the debt, like higher rates for housing complexes because of improvements.
And low interest rates and construction costs mean there has never been a better time to build, Brunelli said.
“All of our debt has been thoughtful, planned, structured, organized and anticipated,” said Charlie FitzSimons, director of capital budgets and financing.
What has caused the debt?
University officials point to a combination of aging buildings and little state funding for higher education construction. The General Assembly hasn’t issued funds for the university to build in more than a decade.
“We don’t borrow for operations, and we don’t borrow to pay the bills,” said Ed Walton, USC’s chief financial officer. “Imagine what people would say if we let everything deteriorate.”
Much of the university’s debt is a product of new residence halls and new athletics facilities. Both housing and athletics don’t depend on tuition dollars or state appropriations. Instead, their customers — in this case, students or fans — will pay off the debt with higher fees.
USC currently owes about $136 million in housing debts.
Kirsten Kennedy, USC’s housing director, and other USC officials point to deteriorating buildings across campus as an unavoidable impetus to build and renovate. Many of the facilities have lived well past their 30 to 50 year lifespan. Federal dollars — supplied in an era of post World War II posterity — helped many universities build a slew of facilities, Kennedy said, but now those dollars are gone. And newer, nicer facilities are much needed, according to Kennedy.
For housing, more debt is on the way. The university is currently preparing for a master housing plan, which will cost about $200 million and eventually raze five dorms and construct six more. That plan, set to happen over 11 years, will basically recreate all university housing.
In turn, housing rates will rise for new dorms or facilities that receive extensive renovations. Rates typically rise 10 to 15 percent, Kennedy said, putting the facilities “at market value.”
That — coupled with housing reserve funds — allows the housing office to pay its debts within the 20 or 30 year period prescribed in the terms of the bond.
Will students pay those rates and fill the residence halls? Recent indications say probably. Housing officials have seen the size of waiting lists in recent years surge — a result of swelling freshmen classes, full of students who are required to live on campus. That’s left upperclassmen fighting for the fewer remaining spots.
But a recent housing study, conducted by a consulting firm at the behest of USC, shows that the off-campus housing market here is very competitive. The report warned the university it would struggle to compete with off-campus complexes and private homes for upperclassmen students who are concerned about costs.
Athletics also has embarked on a building frenzy as of late. Consider the athletics village — complete with a parking garage, several academic facilities, a new softball stadium, football stadium upgrades and more. The university will open another luxury tailgating area next year in the old farmer’s market near Williams-Brice Stadium.
How have they paid the debt? Obligations are met through $3 on each football ticket sold, $4 on each men’s basketball ticket sold and $1 on each women’s basketball ticket sold.
They’re also helped with the $69 every full-time student pays each year. The YES! Seat licensing fee, a controversial plan which charges season ticket holders a fee to purchase seats, has helped meet the obligation. The plan has led thousands to drop their season tickets. But indications show sales are up again this year, and athletics director Eric Hyman said last month at a board of trustees meeting that he remains confident they will eventually return.