A plan to restructure the University’s debt will save the school more than half a million dollars a year in interest payments.
At a meeting of the Board of Regents Financial Operations Committee, Roger Paschke, associate vice president for the Treasurer’s Office, told regents of a plan to sell the University’s debt in order to secure a lower interest rate.
The University currently carries debt of $189 million. An increase in interest on that debt of just 1 percent can cost the University $3 million dollars per year, Paschke said. Under the plan to restructure the debt, the University would save .35 percent per year on interest — a projected savings of more than $2.5 million over the next five years, he said.
The plan would allow the University to issue new fixed-rate bonds to pay off variable-interest rate debt. The new bonds will have a fixed rate of 5 percent.
The underwriting firm of Goldman Sachs would sell the University $154 million in securities. The University would buy the securities with $154 million in commercial paper. Commercial paper is a short-term debt instrument that is reinvested after a short period of time, Paschke said.
Because commercial paper is short-term debt, the interest rate is almost always lower than it is on long-term debt, Paschke said.
The result is that Goldman Sachs gets rid of $154 million in securities and pays the University a fixed rate for the ability to do so. The University ends up paying the same interest rate as the short-term commercial paper but has the extra benefit of the fixed-rate that Goldman Sachs pays the institution.
Regents also heard a report from a committee about a plan to consider having outside companies provide services at the University, a process called outsourcing.
Carolyn Parnell, the chairwoman of the Advisory Group on Service Delivery Alternatives, told regents the University needed to figure out it’s best abilities and concentrate resources there. The advisory group was charged with finding an inclusive and agreeable process which units can use to study outsourcing possibilities in their areas.
The group recommends the University take more into consideration than just cost savings when considering sending services to outside companies, Parnell said. The University’s culture and mission must also be considered, she said. In addition, the level of service the University provides must be maintained, she said.
The committee recommends all units analyze their efficiency and cost effectiveness, although units funded by maintenance or operations budgets will be the first to consider outsourcing.
The process for evaluating outsourcing has been approved by administrators, Parnell said. The unions have looked at the plan and even though they don’t recommend outsourcing, she said, they know the study will go on at the University and approve of the process.