Gov. Ralph Northam is throwing a lifeline to Virginia’s public colleges and universities, which would save $300 million over the next two years through the proposed restructuring of their debt for capital projects as they struggle with the costs of the COVID-19 pandemic.
Northam unveiled the plan at George Mason University on Tuesday. The Fairfax-based institution would save $58.3 million under the governor’s proposal, primarily through deferred payments on state-backed debt, as well as bonds issued through the Virginia College Building Authority that are backed by revenues from university fees.
“The COVID-19 pandemic continues to have tremendous impacts on higher education, including the fiscal health of our colleges and universities,” the governor said. “Families all over the country are taking advantage of record low interest rates to refinance their home mortgages, and we want our public institutions to benefit as well. Refinancing will free up millions of dollars in savings allowing our colleges and universities to make critical investments, meet the needs of Virginia students, and continue offering a world-class education.”
George Mason faces a projected $115 million hole in its operating budget for the current academic year, but has led the way in controlling the spread of COVID-19 among students on campus because of spending on extensive testing and other precautions. Test results for about 2,400 students confirmed just 11 COVID-19 cases on Monday.
“Our message is that you don’t have to shut down,” GMU President Gregory Washington said in an interview on Tuesday. “You actually can manage this thing.”
However, the public health emergency has driven up operating costs while drying up revenues at Mason and other higher education institutions in Virginia.
“Clearly, what the governor has proposed will be a benefit to currently struggling institutions,” Washington said.
Business leaders also welcomed the governor’s debt restructuring plan.
Gil Minor, chairman of the Virginia Business Higher Education Council, called the plan “an important step in the commonwealth’s response to the unprecedented challenges facing Virginia’s higher education system and the students and communities they serve.”
The General Assembly would have to approve the portion of the plan that would refinance about $823 million in debt approved by the state Treasury and save institutions about $109 million in deferred payments over two years. The proposed refinancing would require the approval of two-thirds of each legislative chamber when the assembly convenes in January for a 46-day session.
The governor would not require legislative approval for the other part of the plan, which would refinance about $1.5 billion in debt and save higher education institutions $190 million through fiscal 2022-2023. Northam authorized the restructuring of those debts immediately.
“It gives them some flexibility at a time when they have a lot of uncertainty,” Secretary of Finance Aubrey Layne said in an interview.
The plan also would be a boost for Virginia State University and other historically Black colleges and universities, which are part of the debt pool for state-backed 9(c) bonds. Virginia State, based in Ettrick in Chesterfield County, would save an estimated $12.8 million over two years under the governor’s proposal, and Norfolk State University would save $8.2 million.
The plan also is projected to save:
- $43.7 million at James Madison University;
- $40.1 million at Virginia Tech;
- $33.7 million at the College of William & Mary;
- $29.8 million at Old Dominion University;
- $23.1 million at Virginia Commonwealth University;
- $14.4 million at Christopher Newport University;
- $9.7 million for the Virginia Community College System;
- $9.3 million for the University of Mary Washington;
- $8.2 million for Longwood University;
- $5.1 million for Radford University;
- $2.8 million for Virginia Military Institute;
- $344,000 at the University of Virginia; and
- $320,000 at Richard Bland College of William & Mary.
Five of the schools — UVA, Tech, William & Mary, VCU and James Madison — are Tier 3 institutions that could restructure their debts themselves because of their AA bond ratings. Layne said the state potentially could refinance at a lower interest rate because of its AAA bond rating on Treasury-backed bonds and AA+ rating on college building authority bonds.
“When we have Triple-A bond ratings we’re able to get lower interest rates,” said Northam, who said that the nation’s bond rating agencies already had reviewed the plan.
Protecting the state’s AAA bond rating is a top priority as the House of Delegates and Senate prepare to release their proposed changes to the revised budget that Northam submitted last month at the beginning of the special session. He initially called it to adopt a new revenue forecast that projects a $2.7 billion shortfall in the state’s two-year budget.
The leaders of the assembly’s budget committees said Tuesday that they will support the governor’s proposed plan for restructuring higher education debt when the legislature convenes in January.
“Our public higher education institutions are critical to Virginia’s success, and we know they are hurting right now,” said Janet Howell, D-Fairfax, chairwoman of the Senate Finance Committee. “Allowing them to refinance some of their debt is an innovative way to save money when they need it most." and I look forward to supporting the legislative portion of this proposal next session.”
House Appropriations Chairman Luke Torian, D-Prince William, said, "Helping public colleges and universities restructure their debt obligations allows them to focus their resources on the pressing needs they face right now as a result of the pandemic.”
The institutions still would have to repay the debt, but the proposal would defer any principal payments through the 2022-2023 fiscal year. Currently, the state-backed payments are due on June 1, 2021 and June 1, 2022, for the state-backed 9(c) bonds. Payments are due in September, 2021 and 2022 on 9-D bonds backed by the college building authority.
"Next to forgiving the debt, this is probably the next best thing," Washington said at George Mason.