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NDSU $117.8M IN THE RED

Students aren't the only ones racking up debt at North Dakota State University. The university's debt has more than doubled in the past five years, prompting recent financial reviews to caution about the impact of additional borrowing. But NDSU's...

Major bonding project

Students aren't the only ones racking up debt at North Dakota State University.

The university's debt has more than doubled in the past five years, prompting recent financial reviews to caution about the impact of additional borrowing.

But NDSU's bond rating has remained strong and the university's top finance administrator says the school's ability to pay off the debt is within their guidelines.

A growing enrollment - which means growing revenue - has boosted NDSU's ability to absorb debt.

"As your financial picture expands, then your capacity to handle more debt expands as well," said John Adams, vice president for finance and administration.

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NDSU has $117.8 million

in debt, compared to

$51.4 million in 2003.

Each year since 2004, NDSU has had a major bonding project for residence halls, the Memorial Union expansion or the Wellness Center addition.

Those projects were financed with 30-year revenue bonds, which are paid back using student fees and other revenue the buildings generate.

NDSU will ask the Legislature this spring for permission to borrow another $20 million to construct campus apartments, which are needed to alleviate a housing shortage.

Also under discussion is a future parking ramp, which could cost about $14 million, according to a recent consultant's report. That also would be financed with revenue bonds.

Adams said NDSU officials work closely with their financial adviser and Moody's Investor Services to determine how much borrowing is appropriate.

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"We keep a very close eye on that," Adams said.

It's not the total amount of debt that's important to watch, but the university's ability to handle the debt, Adams said.

NDSU spent 2.3 percent of its operating budget on interest payments in fiscal year 2007, the most recent data available.

The university's guideline is to keep that ratio under

5 percent, Adams said.

"The ratio has come down a little bit over the years as we've added debt, but it's still within tolerable limits," he said.

Moody's has assigned an A1 bond rating to NDSU, meaning upper-medium grade.

The most recent report from Moody's says NDSU's financial strengths are its enrollment growth, expected growth in state funding and an increase of resources during the past decade.

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Moody's lists NDSU's growing debt as one financial challenge.

Other challenges are endowment assets that remain modest relative to the university's ambitions and a projected 23 percent decline in high school graduates through 2017.

The most recent financial review by the North Dakota University System said NDSU should carefully evaluate the impact of additional debt.

A similar caution was issued to the University of North Dakota, which had

$105 million of debt as of June 30.

UND spent nearly

2.5 percent of its operating budget on interest payments in fiscal year 2007.

Valley City State University and Mayville State University spent slightly more of their operating budgets on debt that year, according to financial reports.

The state Board of Higher Education gave NDSU permission to move forward with the campus apartment proposal, which would require borrowing

$20 million.

If the Legislature gives the OK, board members will review the request more closely to look at bonding limitations, said Laura Glatt, vice chancellor for administrative affairs.

"Obviously, NDSU is in a pretty good financial situation with growing enrollment, and they obviously have to solve their housing problem," Glatt said.

Readers can reach Forum reporter Amy Dalrymple at (701) 241-5590

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