Controversy has erupted over the revealed financing plan for a project at the UConn Health Center. Rather than work with the state to realistically discuss feasible and cost-effective financing options, the university has opted to accept financing at a high interest rate.
As noted in the Hartford Courant in July, it is a plan that “auditors say will cost the state $77 million in ‘unnecessary’ interest.” There were less costly financing opportunities available and it is unclear why the university did not pursue them.
When the state authorized the Health Center project as part of the state’s bioscience initiative, UConn was asked to strike a deal with private developers who would both construct and finance the facility, with the university making lease payments to the developer at a market interest rate.
Unfortunately, UConn was unable to secure any private financing. However, rather than return to the legislature to say they could not obtain private financing, the university turned to the University of Connecticut Health Center Finance Corporation, a quasi-public entity. The Finance Corporation then obtained a loan from the Teachers Insurance and Annuity Association-College Retirement Equities Fund at 4.8 percent interest.
As the Courant reported, auditors claim that had UConn returned to the state legislature, they could have received financing from state bonds at a 2.4-percent interest rate. The university’s failure to pursue this option before accepting financing at a much higher interest rate is unacceptable.
The legislature asked UConn to obtain financing from a private developer and when they failed to do so they should have returned to the legislature rather than accept financing from a source the legislature had not explicitly authorized.
As quoted in Courant, Senate Minority Leader Len Fasano suggested “administration officials ‘didn’t want this to come back before the legislature because they were afraid the criticism would start up all over again.’”
While the failure of any private developers to take an interest in a Health Center project is certainly an embarrassment and does not bode well, that is not sufficient reason to evade the state legislature. After all, the Health Center is directly responsible for the payments on the financing, but should it meet fail to meet its obligations, the state must cover the shortfall.
The university should have done more to guarantee low-cost financing for the Health Center project, even if it meant embarrassment in front of the legislature. The decision to place an extra $77-million burden on the Health Center, and potentially the taxpayer, is unacceptably careless.