With a bond sale beginning today, Yale is raising the funds to complete ongoing construction projects, even as the University cuts its capital spending budget by over 60 percent.
The University will borrow $540 million to pay for several building projects, including unpaid bills from Rosenkranz Hall, the development of West Campus, and the renovations of Morse and Stiles colleges, according to a report released last week by Moody’s Investor’s Service. About $90 million of the proceeds will be used to pay off existing debt.
University President Richard Levin announced the suspension of most construction projects last January in an effort to save $2 billion in capital spending. This latest bond sale has been planned for some time to complete the few projects that survived the construction freeze, such as the renovations of Morse and Stiles and the conversion of the School of Medicine power plant to a co-generation plant, he said Monday.
“These are the last funds needed for those projects,” Levin said.
In addition to funding ongoing projects, the bond sale will also settle Yale’s remaining bills from completed projects, such as the construction of Rosenkranz Hall (the new home of the Political Science Department), the MacMillan Center for International and Area Studies and the Jackson Institute for Global Affairs.
The money Yale poured into capital projects annually grew almost sixfold between 1998 and 2008 to $568.9 million, according to the University’s most recent financial report. That period saw construction of Kroon Hall and the Class of 1954 Chemistry Research Building, among others, and the renovation of the Divinity School and nine residential colleges. By June 30, annual capital spending may hit $600 million, according to financial statements accompanying the bond offering.
But over the next five years, starting next year, Yale will cut about 60 percent from a capital spending budget that originally topped $3 billion over five years, bringing the total spending down to about $1 billion.
“Were we in a boom?” Levin said. “Sure. We were in the midst of one of the two great rebuilding periods in Yale’s history.” The other, he said, was the period between the world wars when the residential colleges, Law School, Divinity School and Sterling Memorial Library were built.
In the years before the budget crisis, funds from the operating budget paid for many of the millions of dollars needed to maintain Yale’s buildings and build new ones. But since the endowment’s 24.6 percent plunge as of June 30, the University cannot afford to fund the construction of two new residential colleges or any other projects unless these buildings are paid for with donations, as with the Yale Art Gallery and the School of Management’s new campus.
“Until greater funding becomes available, capital expenditures will continue although at a slower pace,” Yale officials wrote in documents explaining the bond offering.
For now, capital projects not covered by gifts will go forward on the strength of Yale’s bond sales, which the University could only use to raise funds this year after the credit markets unfroze, Deputy Provost Lloyd Suttle said.
But the endowment must recover before Levin can carry out the rest of his ambitious expansion plans, Levin said.
“The hope would be to pick up again, but the economy would have to pick up a lot,” he said. “That will take time.”
Moody’s has rated the new bonds triple-A, the highest designation available, and reaffirmed the top-notch ratings on the rest of Yale’s debt, which now totals $3.8 billion.