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Business Officer Magazine

Business Briefs

Short news articles based on research surveys and peers’ business experiences that can benefit institutions

Community College Secures Rating to Facilitate Bond Issue

Endowments Dive Since Start of FY09


The estimated decline in the Standard and Poor’s 500 stock index from July 1, 2008, to Nov. 30, 2008, the first five months of FY09 at most higher education institutions.


The average percentage loss for higher education endowments during the same time span.


The estimated loss in endowment market value because of market declines that occurred in the first five months of FY09.


Share of institutions that plan to reduce their endowment withdrawal amounts due to the losses in market value they have incurred since the start of FY09.

Source: 2008 NACUBO–Commonfund Endowment Study Follow-up Survey, January 2009. To download at no charge, go to and click on the “Research” tab.

About two years ago, National Park Community College’s leadership began evaluating the feasibility of building a new nursing and health sciences center on our campus in Hot Springs, Arkansas. Preliminary discussions convinced us that the project would require more money than our capital campaign, already under way, would generate.

We considered other options, such as building a smaller facility, but we recognized that if we issued bonds we would be able to construct a building of the size and scope that we felt was needed.

The estimated project cost was $8 million. The board of trustees was comfortable with the idea of raising about half the funds through a bond issue, so the board, along with our president, the bond underwriter, the bond counsel, and I, made the decision to apply for a Moody’s rating. We sought that distinction because it makes the bonds bank-qualified, meaning that we could sell the bonds to banks (and individuals) across the nation, not only in Arkansas. It also meant that we could secure a better interest rate.

Business Office Prep

A remarkable amount of information had to be gathered. Moody’s was interested in the college itself, particularly in terms of stable enrollment and income. Obviously, their representatives looked at our financial statements. But many other factors influence a rating, such as what is happening in the county. Is the area growing? Is there manufacturing to drive jobs? Are employers moving in or out? What is the unemployment rate? All these trends tie in with the stability of the community and hence the college.

With the help of the business office staff, who gathered much of the data, I did much of the preparation. We needed to create a list of the largest employers in the area and the number of people that each employed, determine how effective the tax collector was at collecting taxes, find out the per capita income, and so forth. All this information became part of the official statement governing the bond issue.

I also had to spend some time educating our board on tuition revenue bonds. They were aware of millage-based bonds, which we had issued previously, that were backed by county tax revenues. But tuition revenue bonds were new to us, and we needed to understand how they worked and what funds were obligated for repayment.

In our case, the rating company did not visit the campus. We exchanged information only by telephone and e-mail. When it comes to scheduling site visits, our bond underwriter, James Alexander, first vice president in public finance, Morgan Keegan and Co. says, “Unless an institution has questionable credit, Moody’s generally doesn’t do a site visit. They are more interested in the financials and want to see all of those documents.”

Contributing Factors to Ratings

Some might think that it’s more difficult for a community college to obtain a high rating than it is for four-year institutions. But, it’s really more about growth and revenue than about two-year versus four-year programs. If a community college is growing and continually increasing its revenue, it will likely be able to obtain a higher rating than a four-year institution that is stable but not growing and not increasing its revenue.

As Alexander puts it: “It was significant that National Park Community College was building a nursing school and had been turning down 40 to 50 students per semester who wanted to enroll in the nursing program.”

In fact, the college’s revenue has been steadily growing. And our fall 2008 enrollment increased about 23 percent compared to 2007. That often happens with a general economic downturn, which the nation is clearly facing now. People are coming back to train for better jobs; they are more likely to come to community colleges because of convenient location and lower costs.

We were hoping for an A-1 (which is really an A+) rating, but received an A-3 (an A-) instead. However, our bonds sold just as well as they would have if we’d received an A-1. Most all were bought by Arkansas banks and were purchased the same day we released them for sale.

We chose 25-year bonds because we thought that our revenue stream from tuition and fees was sufficient to pay back the bonds within that time. While the payments are a little more, the total interest will be less, and we will owe less in the long run.

If revenues are up and we are able to, we will retire the bonds early. We will monitor our income and plan accordingly.

Partners in the Rating Process

We retained a bond underwriter and bond counsel to help us work through the bond issue process. The underwriter planned the details of the bond issue, while the bond counsel actually drew up the official statement and all the other documents required by the state. Counsel was from a totally separate firm. Moody’s provided an information booklet, but it was lengthy and complex, and we left it to the underwriter to develop and implement the details.

Unlike its process for hiring an architect or general contractor, Arkansas does not require that institutions go through a competitive-bid process to hire a bond underwriter; we can hire whomever we want. However, in 2004, when we built another facility, we did send out requests for proposal. We had several companies make presentations to our board of trustees. So, when we issued these bonds four years later, we stayed with the same firm because we were quite happy with what our underwriter had done.

The biggest challenge was with our board; members didn’t want to borrow more than about $4 million. So we had to run the numbers several different ways (in terms of number of years, related payments, and so forth) to reach an issue that they felt they could live with. In the end, the bond issue raised $3.8 million. Interest on the bonds is payable on March 1 and September 1 of each year, from 2008 through 2033; rates range from 4.0 percent to 4.65 percent. Alexander says that interest rates are higher today and more likely to be around 5.5 percent.

Meanwhile, we broke ground on the center late last summer and expect to move into the facility in August 2009. With enrollments and revenues up, we feel confident that our bond issue was an effective way to finance this important project. Alexander says, “Despite the credit crunch, there is still a large demand for bonds as investors continue to move funds to safer choices. And, after the events of the past few months, it’s more important than ever for institutions to have a rating.”

SUBMITTED BY JANIS SAWYER, vice president for financial affairs, National Park Community College, Hot Springs, Arkansas


Spotlight—Comprehensive and Doctoral Institutions
Vacancy Assessment Policy Helps Fund Priorities

With increasing budget cuts and constraints in higher education, institutions need to identify creative methods to fund special initiatives, institutional priorities, and emerging needs. The University of Wisconsin–Stout (UW–Stout), Wisconsin’s polytechnic university in Menomonie, developed a vacancy assessment policy to address this issue.

UW–Stout is one of the 13 publicly supported universities in the University of Wisconsin System. Our vacancy assessment policy uses salary dollars from open positions to fund projects and activities that the leadership team has identified as important. As formulated, the policy does not reduce departmental operating budgets, but rather pulls excess dollars that are generated through position vacancies into a central pool that we can tap as needed. In place since FY06–07, the policy is a revision of our previous plan in that it improves the tracking and timing of the unused salary dollars.

Policy Particulars

When we finalize our annual operating budget by April 30 each year, the budget, planning, and analysis office generates a list of vacant positions. Departments are assessed 7 percent of the annual base salary of each of their openings on a one-time basis.

Additionally, once a month, from October through May, the vice chancellor’s office reviews positions that become vacant after the budget is finalized. The 7 percent assessment is applied, but a prorated amount is calculated according to the percentage of full-time-equivalent hours left in the year based on the date that the particular incumbent leaves. The human resources department provides the exact number, using the following formula: vacant position’s base salary multiplied by .07, multiplied by the percentage of full-time-equivalent hours remaining in the year (for example, if someone leaves after 50 percent of the year is over, the percentage of FTE hours remaining would be 50). For a position with a base salary of $50,000 that was open for half the year, for example, the dollars calculated for the central pool would be $50,000 times 7 percent ($3,500) times 50 percent ($1,750).

If a particular job is filled before the next budget is finalized, the position is not assessed again. Conversely, if the position is still open after the subsequent budget is finalized, the vacancy is assessed again.

A Host of Advantages

The benefits of this policy are numerous and include the following:

  • Substantial pooled dollars. In FY07–08, the assessments generated $308,022, which was used to fund such purchases as computer replacements, laboratory and classroom upgrades, and a technology software conversion.
  • Early disbursement. The dollars are available at the beginning of the fiscal year so that they can be used to meet institutional needs as they arise.
  • Department efficiencies. The plan removes the task of tedious payroll calculation from department budget officers. Instead, the assessment is calculated by formula and applied centrally by the vice chancellor’s office.
  • Better budgets. Department budget officers can more accurately project available budgets, because they know the exact amount of their assessments.
  • Overall flexibility. Our institution has the flexibility to control the amount of vacancy assessment revenue it collects by modifying the percentage that is assessed.

College deans and other administrators have seen the positive impact of this program. UW–Stout’s participatory planning process ensures that institution leaders collectively identify priorities that require funding—and eventually see those projects move forward. In these tough economic times, working together to pool resources helps everyone face challenges as a team.

SUBMITTED BY MERIDITH WENTZ, director, budget, planning, and analysis, University of Wisconsin–Stout, Menomonie