Heartland Community College in Normal, IL plans to borrow $12M to pay for campus maintenance debt and IT investments for its campuses in Normal, Peoria and Lincoln. According to HCC President Keith Cornille, the school plans to issue revenue-backed bonds to pay for the work.
The irony here, of course, is that the solution to the institution’s maintenance debt has created actual debt. HCC plans to repay the debt issue over eight years. Of course, performing maintenance regularly and setting aside money annually for capital refreshes might obviate the need to issue bonds in the first place. And there’s no source of income for repayment of the debt besides the school’s General Fund.
Additionally, some of the bond proceeds will fund IT improvements on the HCC campuses. Those improvements consist of new network equipment. Of course, the average network switch has an anticipated useful life of about five years. In fact, most modern network equipment has a useful lifespan of between 3 and 7 years. Edge switches can have a longer expected lifespan of 7-10 years. HCC’s new wireless access points, routers and switches, firewalls, servers, etc., will all transform into technotrash long before their 8-year bond is repaid.
But fortunately, as the HCC President dutifully noted, the bond issue would not raise property owners’ taxes. (Because the payments will be coming out of the General Fund instead.) Trading General Fund dollars meant to fund education and campus operations for high-interest maintenance debt isn’t a good trade. That approach short-changes the students and the district residents, who ultimately pay more and get less for their money.
Maintenance debt isn’t sustainable
Another planned purchase from the bond proceeds includes a boiler replacement project. The lifespan of a commercial boiler varies depending upon the type of boiler and the application. Some commercial units can last as few as 8-10 years. Other designs can provide 10-15 years of reliable service. When it comes to boilers however, “reliable service” does come with some tradeoffs.
Over time, the efficiency of new HVAC units typically increases. A boiler that’s “highly reliable” may continue working for years after its efficiency rating dictates replacement. Avoiding the expense of upgrading a unit may commit the owner to much higher lifetime operating costs for an older, less efficient unit.
Borrowing to replace a boiler runs into the same potential problem that borrowing to replace IT equipment does. By the time you pay off the maintenance debt, it’s time to replace the equipment again. By borrowing against the General Fund, the institution commits itself to permanent yet avoidable debt-cycling.
No one I know of expects to avoid repair and replacement expenses. They are simply part of the cost of supporting a capital purchase. In the same way a homeowner can’t eternally avoid replacing a roof or a furnace, a community college cannot avoid performing capital maintenance on its buildings, or technology refreshes to support its programs.
Voter-approved tax-backed bonds would allow the institution to pay for capital projects without dumping the cost of these repairs on the unlucky students who happen to be enrolled at the time of the repairs. Such shortsighted financial management is unsustainable. It can only serve to discourage future students from enrolling in classes and jeopardize the future of the institution.
If you favor revenue-backed bond issues, don’t wonder why your enrollment is dropping.
Photo Credit: Steve Guttman , via Flickr
