SEMO, Mizzou projects both relied on bonds
Friday, February 24, 2006
A high-visibility project at the University of Missouri-Columbia is being financed with bonds dependent on year-to-year appropriations from the Missouri Legislature to pay off those bonds.
Officials familiar with state lending operations say the financing plan for the $75 million Mizzou Arena is in many ways similar to the financing plan for Southeast Missouri State University's River Campus for the arts.
Southeast's sale of bonds, in anticipation of state funding to pay a portion of the total cost of the River Campus, has been criticized by House Speaker Rod Jetton. Southeast, however, has had a backup plan all along in the event state appropriations never become a reality for the project.
The River Campus is currently under construction on the site of a former Roman Catholic seminary overlooking the Mississippi River near the Bill Emerson Memorial Bridge.
Repayment of the Mizzou Arena bonds, on the other hand, is entirely dependent on annual appropriations from the legislature.
"Either the state pays it, or nobody pays it," said Mike Lause, counsel for the Missouri Health and Educational Facilities Authority in Chesterfield, Mo., which issued the bonds for the state's share of the funding for Mizzou Arena. The arena opened in October 2004. The University of Missouri isn't responsible for paying off any of the bond debt.
The University of Missouri project mirrors Southeast's River Campus funding mechanism, says Lause.
MH&EFA, created by the legislature in 1979, provides low-interest loans to not-for-profit public and private health and educational institutions in Missouri. The loans are exempt from federal and state income taxes.
The legislature must appropriate money annually to make the bond payments, Lause said Thursday. He said then-governor Bob Holden's Office of Administration approved the Mizzou financial plan and legally committed the state to retire the debt over the next 20 to 30 years.
Southeast's River Campus project also involved the issuance of bonds that officials of the Cape Girardeau school say had the support of Holden and the Office of Administration. But in Southeast's case, the state didn't formally authorize the issuance of bonds, Lause said.
The billionaire Laurie family, Wal-Mart heirs, donated $25 million to the Mizzou Arena project. The University of Missouri raised another $15 million for the basketball facility, which was originally named Paige Arena for the Lauries' daughter. The state is paying the rest, amounting to a little less than half the total cost of the project.
If lawmakers failed to appropriate the annual bond payments for Mizzou Arena, the bonds would be in default and the state would probably be unable to borrow money again, Lause said.
In the late 1980s, the University of Missouri also financed construction projects on its campus with bonds that committed the state to pay off the debt, Lause said.
Lause said the state and other governmental entities routinely issue bonds to finance projects that are ultimately funded with tax dollars.
Southeast authorized the issuance of more than $36 million in bonds by the Missouri Development Finance Board, another state-created authority, to help fund construction of the River Campus. No lawmakers voiced any opposition to the finance board about the River Campus bond plan before the bonds were issued in 2003, finance board executive director Bob Miserez said.
House Speaker Jetton, R-Marble Hill, and state Sen. Jason Crowell, R-Cape Girardeau, subsequently voiced concern about the bond plan, suggesting Southeast acted irresponsibly in proceeding without state funding in place to retire that debt.
Southeast president Dr. Ken Dobbins said the university expected the state to come through with state funding but assured the bond counsel that the school would raise student fees if needed to retire the debt.
Miserez said the finance board has issued other bonds in the past that allowed the state to lease-purchase buildings for state offices.
Southeast, like other state universities, could have issued revenue bonds on its own. But Miserez said it was easier to issue bonds through the finance board rather than have the university issue one set of bonds and the city of Cape Girardeau -- a River Campus partner along with the university and the state -- issue a second set. The city's portion of the project's funding comes from hotel and restaurant sales taxes.
The finance board was already involved in the project, issuing $5 million in tax credits to help Southeast in its goal to raise $10 million in private donations for the development.
In that situation, having the finance board handle the entire financing package made sense, Miserez said. "It was a matter of saving on professional fees, time and effort," he said.
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