Chronicle IX: Debt 101
The CFO recently confessed that from a “debt perspective,” SSU is “highly
leveraged for a campus of our size” (PBAC minutes 12-13-07). One can only wish that
the CFO had followed the sage advice given by Mr. Micawber to young David
Copperfield: “Annual income twenty pounds, annual expenditure nineteen, nineteen and
six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds
ought and six, result misery. The blossom is blighted, the leaf is withered, - and in short
you are forever floored.”
Yes, SSU has faced budgets cuts in the past and is facing one in the immediate
future. We are constantly regaled with stories of the “Orange Book” and its legacy of
funding inequities within the CSUs, that SSU gets less per FTEs than other campuses of
similar size to the tune of $7 million a year (Appendix B University Strategic Plan). If
one looks more carefully at the numbers, however, this is a ruse. If one tosses out
Humboldt, the funding gap significantly decreases. Likewise the litany of budget cuts in
03-04 and 04-05; these were system-wide and SSU even got a “special initiative” in 0405 to partially offset their share (CSU Campus Final Budget Allocations, 8-3-04).
Budget cuts are painful but SSU’s “misery” is compounded by the inordinate
amount of funds taken off the top for debt service. This campus runs in crisis mode
during good years and bad—to the detriment of student learning. The issue is not so
much how much money the campus receives but how the campus decides to spend the
funds that it does receive and who is included in those decisions. This is a matter of
campus priorities. One only needs to compare the opulence of A&F’s concourse to the
dreary dungeon classrooms in Ives Hall. How can something as integral to the campus as
graduation “not have a permanent funding source” (PBAC minutes 12-13-07), while top
administrators receive double-digit salary increases? Between 2000 and 2006, the cost of
administration and facilities at SSU increased by 20% relative to core, educational costs.
Every year proportionally less funds are available to achieve the educational mission.
The President and CFO find themselves with a collapsing pyramid. They bet on
increased enrollment for growth funding and got growth without the funding; they
invested in housing and real estate as that market collapsed; they waited for big donors
while Green Music Center (GMC) costs soared. By 2008-2009 SSU was to reach
“capacity,” with the GMC opening and generating at least 797 FTEs. A&F estimated the
construction at just over $65 million, $4,740,000 of which came via Systemwide
Revenue Bonds (SRB) to be repaid by future events. Costs included an estimated
$3,686,360 in financial costs (GMC Powerpoint 3-06). With costs now estimated at $110
million and a need for donations of $21 million to complete the project (GMC webpage),
it is abundantly clear that the end is not in sight. The President and CFO have mortgaged
SSU’s future and should be asked now to disclose just how much debt the campus is
under and how they intend to pay it back.
The following are known debts. Our numbers are based on financial statements,
Larry Furukawa-Schlereth’s Budget 101, PBAC minutes, and other handouts.
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Housing has a “substantial level of outstanding debt” at $135 million with
annual debt service of $5.1 million. Their annual budget is $15.7 million, of
which 33% is debt payment (PBAC minutes 12-13-07).
Housing invested in the GMC hospitality center for which they pay another
$70,000 in rental fees associated with SRB #1 (Budget 101).
The School of Extended Education has an annual debt service obligation of
$400,000 under the SRB #2 for the GMC; it is challenged by the loss of
summer school. Annual budget $3.9 million of which 10% is debt service
(Budget 101; PBAC minutes). The School will also absorb any losses related
to the Greenfarm program.
Parking has outstanding debts of ca. $9 million with debt service payments of
$630,000. Their annual budget is $2.1 million, of which 30% is debt payment
for the GMC parking lot (PBAC minutes).
The Student Union has a debt obligation of $15 million for the Rec Center
with debt service payments of ca. $1 million. Their annual budget is $2.2
million of which 45% is debt (PBAC minutes).
Sonoma State Enterprises (SSE) owes the SSU Foundation $5.4 million for
the renovation of Salazar Hall. Annual debt service (@ 7% interest) is
$525,000 or 6% of their budget of $9 million. SSE now owns a component of
Salazar, which they rent back to A&F (PBAC minutes).
SSE also has debt associated with the GMC hospitality center and restaurant
and $70,000 in rental fees associated with SRB #1 for same (Budget 101).
SSE needs $1 million for GMC restaurant equipment and furnishings
(Schlereth, A&F Strategic Planning).
Historically, cash flow for the Grant & Contract Program came from the
Foundation, then from other campus entities like Parking. Recently, with
every campus fund leveraged, cash flow has come as loans from the SSU
Foundation or other trust accounts at interest rates upwards of 8%. This costs
the program about $500,000 a year.
Instructionally Related Activities are generated via mandatory student fees.
These fees will fund “the cost of presenting season tickets” for the GMC
(GMC Powerpoint 2006).
The GMC is meant to be “self supporting.” The Santa Rosa Symphony (SRS)
will “fully fund the cost of its program and will reimburse the University for
any services the campus provides (GMC Powerpoint 2006). According to the
SRS, “the reality for nonprofit arts organizations is that ticket sales never
cover costs.” Ticket sales cover less than 42% of their costs; the remainder
comes from fund raising and other activities (Press Democrat 3-30-08). This
puts SRS and every other small arts program in direct competition for donors.
Private donors undertook financial obligations for loans made to SSU for the
GMC. What is the status of these loans?
Debt for the GMC has been spread all over campus and out into the wider
community. These debts must be paid now, while construction continues and without
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the growth FTEs. Even the CFO admits, “this [reduction in growth] could have a
considerable impact related to the GMC” (PBAC minutes).
The CFO’s Code of Ethics Statement for financial management concludes with
what might be seen as his guiding principles: “Achieve responsible use of and control
over all University assets and resources employed.” We question if he has achieved
either. Surely, the debt entered into here without consultation (and the $21 million in
needed contributions is a debt as well) is highly irresponsible. One individual should
not have such control without other guiding principles that recognize the interests,
priorities, and rights of others.
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