The UC Board of Regents convened Wednesday at UCLA to discuss a proposed university debt policy to govern the use, structuring and management of growing systemwide debt.
The proposal came to fruition in response to the growth of the university’s debt portfolio, which represents its financial necessities. Since the end of the 2008 fiscal year, the university’s diversified debt portfolio has grown from $6.79 billion to $17.2 billion of long-term debt outstanding.
The new debt policy aims to maintain the AA credit rating for its General Revenue Bond and to continue the use of the university’s differentiated credit strategy, which reserves the university’s primary credit for essential projects. In 2014, the university’s credit rating was downgraded by two agencies because of persistent operating deficits, the committee’s agenda said.
The proposed policy also aims for the university to incur no additional systemwide borrowing if the UC Retirement Plan, or UCRP, funded ratio — the ratio of a pension plan’s assets to its liabilities — falls below 70 percent.
Finally, the policy would delay systemwide borrowing so long as the university’s unrestricted net assets — which can be spent at the university’s discretion — remain negative. It would also ensure that all campuses execute third-party financings in close partnership with the Office of the Chief Financial Officer.
Of the $17.2 billion of outstanding debt, $10.3 billion has been issued to the General Revenue Bond, which is the university’s primary borrowing vehicle used to finance core projects. Meanwhile, $3.8 billion has been issued to the Limited Project Revenue Bond, used to finance housing and parking, and $3.1 billion has been issued to the Medical Center Pooled Revenue Bond, which finances the university’s five medical centers.
According to UC Chief Financial Officer Nathan Brostrom, the university’s most immediate financial needs lie in student enrollment, seismic safety and deferred maintenance, given the ages of the different UC campuses.
Brostrom added at the meeting, however, that despite the university’s increase in debt, its debt levels remain manageable.
Regent Russell Gould expressed concern regarding the effect of the new debt policy on the retirement plan.
“We have borrowed to support UCRP,” Gould said at the meeting. “I think that’s still the major vulnerability for the UC.”
Meanwhile, UC Santa Cruz Chancellor George Blumenthal expressed concern regarding the effect of the debt limits of the individual UC campuses on the overall university debt policy. According to Blumenthal, most of the UC campuses are currently running up against their individual debt limits.
The regents will revisit the debt policy as an action item at their November meetings at UC San Francisco.