Funding for new residence halls at LSU has been threatened amid a state budget crisis that has put Louisiana colleges and universities at risk of deep cuts in the coming year.
National investors pulled out of a large portion of a $114 million bond deal, citing concerns over LSU’s financial outlook, state Treasurer John Kennedy said.
“LSU pulled the deal. I don’t know if they had a choice. It was wise. It’s not LSU’s fault,” Kennedy said in an interview Thursday. “It could have ramifications for other universities in Louisiana and for the state’s overall bond rating, and it could impact the interest rate on future state bond issues.”
In a statement from the university, LSU officials wrote that the university had “decided to postpone” the issuance of the bonds.
“The investors have been notified (Friday) that the bond sale has been postponed. It became evident there were concerns among investors due to the unpredictability of the state budget and its potential impact on LSU, and it became prudent to postpone the sale at this time,” according to another LSU statement from the university’s press department.
“I’ve seen deals blow up before,” Kennedy said. “It’s usually the investors who say, ‘We want to wait a while.’ I think LSU did the right thing and pulled back. You don’t want to have a failed sale.”
The $114 million in bonds were to be used to finance the construction of a family housing complex and another new residence hall, and for renovations to the Evangeline Residence Hall, as well as to refinance previous bonds. The bonds, which were to be sold next week, would have been repaid with fees.
“These institutional investors are very savvy,” Kennedy said. The investors have been studying Louisiana’s financial situation closely.
Investors likely acted for a variety of reasons, including a recent credit downgrade by ratings services and incorrect media reports that LSU was filing exigency, Kennedy said. They were concerned about the financial stability of higher education in Louisiana, given all the cuts to the state’s funding over the past seven years.
Gov. Bobby Jindal’s statement on Thursday that he would veto the entire state budget if it contained any revenue enhancements he considers a tax probably caught their attention, too, Kennedy said.
Also, investors were aware that the only budget proposal being considered now is the governor’s. “I mean, the best-case scenario in his budget is a $211 million cut in funding,” Kennedy said.
All schools have been instructed by the state Board of Regents to prepare for a “doomsday scenario” that would see their state funding drop by about 80 percent, as the state Legislature grapples with a $1.6 billion funding shortfall in the coming year. Given that worst-case scenario, college leaders have been asked to prepare for a total of $123 million in funding divided among all the universities.
Colleges have begun that process.
On Friday, the Southern University System board considered delaying some promotions until the budget is finalized. The board eventually approved the nine promotions, but any associated pay increase will be contingent on what the final budget looks like.
Higher education leaders recently testified to state lawmakers that the worst-case scenario would mean mass layoffs and even some campus closures.
LSU President and Chancellor F. King Alexander said in a statement emailed campuswide Wednesday that the university had “decided to begin contingency planning for exigency” because of the potential budget threat. Those comments were widely reported. Alexander did not return requests for comment Friday.
Other higher education leaders also said they were examining the process out of caution.
Any official start to the exigency process would require a vote of the LSU System board, which has not taken place.
LSU Board of Supervisors Chairwoman Ann Duplessis sought to tamp down fears and address the exigency concerns with a statement Friday.
“President Alexander has not formally requested, nor has the LSU Board of Supervisors voted, to declare financial exigency,” she said. “However, we are working together on a wide range of contingency plans in preparation for the final outcome of the budget process. While it is unfortunate, given that the 2015 Legislative session ends only three weeks before the start of the new fiscal year, we are simply being prudent by exploring the process and the timeline required for exigency as part of our contingency planning efforts.”
Kennedy said he’s sure Alexander’s statements and subsequent media coverage played a role in the investors balking but probably not a major one. All the higher education administrators are preparing for future contingencies, which is what they are supposed to be doing.
“King did the right thing. And let me tell you, you have got to tell the investors the truth. They’re entitled to know,” Kennedy said. “They’re going to find out anyway.”
Also, earlier this week, Moody’s Investors Service lowered LSU’s credit outlook from positive to stable, citing limited prospects for sustained revenue growth. That action put LSU one step away from a negative outlook, which could result in a downgrade for the university’s credit rating. LSU regularly borrows money for building projects.
According to Moody’s, the revision was a reflection of “limited prospects for sustained revenue growth due to potential reductions in state operating funding, tight state control of tuition pricing and pricing sensitivity limiting out-of-state enrollment revenue growth.”
Elizabeth Crisp and Mark Ballard, of the The Advocate’s Capitol news bureau, contributed to this report.