Spending Money We Don’t Have Has to Stop!

Requiring Universities to have Upfront Money Needed to Pay for New Debt

       I want to share with you the purpose behind SB 200.  I believe state entities such as universities should not borrow money without first showing fully how they are going to pay it back.  You and I can’t spend money we don’t have; government entities should not either. 

In 2006, Southeast issued bonds that they knew they had no way of paying for to construct the River Campus.  And as the project went forward and as Southeast became in danger of defaulting, they came to you, the taxpayer, to bail them out and pick up the tab.  To prevent a massive tuition increase, then Governor Blunt found a revenue source in MOHELA and bailed the University out.  This was an unprecedented state bailout, never seen in the history of Missouri.  

But five years later, Southeast is at it again.  The University recently issued more than $59 million in bonds for renovation projects without a complete, sound revenue stream to pay the debt off.  Fool us once shame on you; fool us twice shame on us.  Today’s regents want to renovate buildings today that the future cannot afford to pay for using a risky capital scheme that jeopardizes both students’, staff, and faculty’s future. 

This is exactly how our economy began its downward spiral.  Banks issued loans they knew home owners could not pay off with the income levels they were reporting.  This led to a massive debt to banks that people could not pay back.  And taxpayers bailed the banks and Wall Street out with your money borrowed from China.  Congress has since passed financial reform that prevents this scheme and now home buyers cannot borrow money this way anymore.  If you were to go to the bank and ask for a home loan without proof of a way to pay the payments, the loan officer would laugh you out of their office. 

Missouri must reform and learn from our past mistake, requiring that universities demonstrate they have reliable identified revenue to pay their debt off at the time they issue the bonds, not after the fact tuition increases.  Instead, for the second time, Southeast has issued bonds without a fully identified and reliable revenue stream to pay them off except for massive fees and tuition increases on future students or a state taxpayer bailout.   

The bonds will require an annual payment of $3.47 million from Southeast.  When proposing the issuance they identified both reliable (real money) and unreliable (not real money) sources of funding to make this yearly payment.  Southeast said energy savings (equivalent to you telling your banker that you will pay your mortgage off by turning down the thermostat) would be enough to pay off their debit.  This is not a reliable revenue stream to pay debt with.  Their other source of funding would be made by continuing a student fee and adding a new student fee that will phase in, only paid by future students, not current student who voted for the fee.

As a former President of the Southeast student government, I am disappointed at the current student leaders who voted to increase fees on student who are not enrolled, yet, would not agree to tax themselves for these improvements.  They have taken a chapter from the federal government, spending money they do not have, racking up enormous levels of debt, and passing the payment off to a future generation.  

The following list is what Southeast says would pay for the bonds:

         After an $11 per credit hour fee increase, Southeast issued these new bonds with only $2.25 million in reliable money of the annual $3.47 million needed.  This leaves a gap of $1.21 million in their annual payment from unreliable money.  What happens if next year they do not realize the energy savings they think they will?  Southeast’s track record indicates they will either ask you, the taxpayer, to bail them out or massively raise tuition on students. 

The tuition game with future students has already begun.  First, as they were working to issue these bonds, Provost Ronald Rosati was quoted in the Southeast Missourian as having no plan to raise tuition.  But now that the bonds have been issued, President Dobbins announced a 4 to 5 percent tuition increase on top of the $11 per credit hour fee increase.  Southeast should be required to be upfront and transparent about reliable sources of revenue needed to pay for their borrowing, not disclose after the fact different revenue streams needed.    

I believe the state and its institutions should not spend what they do not have and it is time to bring accountability and oversight to how Universities borrow money.  As of December 2010, Missouri universities have $3.2 billion in debt, not including Southeast’s new $59 million of debt.  As a protector of the state’s AAA bond rating, I introduced Senate Bill 200 to require a university to clearly lay out how they will pay off borrowed money so that your hard earned tax dollars are not on the hook for this enormous debt.

I am asking our universities to operate with greater transparency, the same asked of all the other entities borrowing money, including you.  They should detail what they are borrowing the money for, detail exactly what reliable revenue will pay for it as opposed to future undisclosed tuition and fee hikes, and go through an approval process to keep them accountable for not spending what they do not have.