University administrators have declared that they remain optimistic the state will grant their multi-million dollar construction funding requests despite Michigan’s difficult financial situation.
As part of the annual state capital allocation process, the University has submitted as its top construction priority a new biology building that would at least partially replace the Kresge Science Buildings. The University has requested around $75 million for the new building, which is estimated to cost a total of $100 million. In contrast, the usual request from public universities and community colleges for a capital outlay runs around $15 to $20 million.
Each year, public universities and community colleges submit facilities evaluations to the state Joint Capital Outlays Committee.
Applications submitted to the committee will be evaluated this year in the context of a tight state budget and in light of the recent downgrading of Michigan’s bond rating by Moody’s Investor Services.
The state funds capital appropriations by taking on debt, which must be paid in subsequent years. The rates at which this debt must be paid back rely on bond ratings issued by investment services such as Moody’s, which evaluates how risky it might be to offer debt to the state. A higher rating allows the state to pay back debt more cheaply; the rating downgrade indicates that debt issued this year will be more risky, and therefore is more expensive. The amount of debt the state can take on each year is also limited, so legislators must consider how much debt can be used for capital outlays as compared to other projects.
Vice President for Government Affairs Cynthia Wilbanks said these applications are granted on a “sporadic” basis, whereas in some other states capital outlays for colleges are a part of the regular yearly budget.
Wilbanks said that, despite the tight financial situation, she believes this could be a good year for getting state money for construction projects. “We know the state’s budget is still relatively tight and it could be challenging, but I think we’re optimistic that they might consider some type of outlay for buildings in this next year,” she said.
She added that budget discussions start in February and that Gov. Jennifer Granholm’s State of the State speech is often an early indication of whether an outlay will occur.
State Sen. Shirley Johnson, chair of the joint Capital Outlays Committee, said the state House has yet to name their committee members and that the first meeting will hopefully occur by the end of February. She said she was hopeful about the possibility of an outlay this year. “As soon as we’ve got things pulled together, we’re going to move on capital outlay,” she said. “I promised everybody that and I intend to move on that promise.”
U.S. Rep. Joe Schwarz, who served for many years on the joint committee, said he thinks “it’s always time” for capital outlays, but that term limits have made the political environment trickier for outlays.
“In a term-limited legislature with numbers of legislators who aren’t that familiar with the process or may be reticent to increase the state’s indebtedness, (capital outlays) are going to be a hard sell,” he said. “You don’t have people who have been there long enough — a majority of the people don’t have a very deep knowledge of our 15 universities.”
Schwarz added that he thinks raising the bond cap to provide outlays is good idea, and that he believes debt is often wrongly perceived as a bad thing by state legislators.
The last capital outlay occurred in the 1996-97 budget and included funding for projects on all campuses. The University at that time got money for the Haven Hall, LSA Building, Perry Building and West Hall projects. More recently, former Gov. John Engler vetoed a request for $43 million to carry out the School of Public Health renovations in 2001.
University Provost Paul Courant said the School of Public Health project would have occurred four years ago had the University been able to secure an outlay. He also cited the Frieze Building project as one that suffered from lack of state funding.
The joint committee typically looks at many factors when considering outlay applications. Wilbanks said projects that contribute to academic opportunities or might not be funded through private donations get higher priority.
The University can issue bonds independently of the state, and plans to fund the new North Quad residence and academic complex through debt which will be paid back using housing fees generated by the new residence hall.