Construction projects increase GW debt to $725 million

The construction of a new business school building and plans for a residence hall on F Street caused GW’s total debt to jump to $725 million this year.

The number represents a $45 million dollar increase from last year’s debt figure. Louis Katz, GW’s executive vice president and treasurer, said that although the University has accumulated more debt, it has a strong financial outlook. He noted that 70 percent of GW’s debt-funded projects, such as residence halls, are financially self-sustaining.

“They have revenue streams that will pay off the debt themselves over time,” Katz said.

In addition to the new business school and a new residence hall, the debt is used to pay for general operating expenses, Katz said.

GW’s $725 million debt is a manageable amount for an institution of its size, Katz said, and the University also stays financially healthy by operating with a balanced budget each year.

“We have a very strict discipline of not operating deficits and we have a balanced budget year over year,” Katz said. He also said GW paid down $50 million of debt with internal cash over the past year.

In a financial report on GW’s credit rating released last month, Moody’s Investors Services cited a balanced budget and stable outlook when it gave GW an upper-medium grade long-term debt rating and a stable outlook. Banks and other lenders use Moody’s ratings to gauge an institution’s financial stability.

“GWU’s rating reflects a strong student market position as an urban competitive university located in the nation’s capital, with increased demand resulting in growing enrollment, enhanced selectivity and growing net tuition per student,” the Moody’s report said.

Lisa Tibbitts, a communications strategist for Moody’s, said her organization rated GW as it would any major corporation by looking at losses, debt and economic factors, among others. “We don’t make any qualitative judgments,” she said.

The University is heavily reliant on debt to finance new projects because its endowment is small compared to that of similar to increase endowment and reduce its dependence on the debt, it will not be able to significantly reduce its debt in the near future.

“These things take decades, and in the meantime we improve the quality of the University year by year,” Katz said. He added that GW will continue to develop new academic facilities and that new projects that may affect the debt in the future are the refurbishment of several older residence halls, the improvement of Monroe Hall and the construction of a new science center, among others.

He added that a mixed-use facility on the former hospital site, which will not rely on the debt, will bring in profits in about a decade that will improve GW’s financial position. For the former hospital site, the University is courting private developers that will construct a 2000 Penn-like retail complex in addition to possible academic facilities.

Damon Manetta, director of media relations for the National Association of College and University Business Officers, said GW’s debt will not lead to negative financial consequences.

“It’s not an unusual or unreasonable number considering the type and size of the institution GW is,” he said.

Manetta added that most universities take out debt for new construction or the improvement of existing facilities.

Last year, Boston and Emory universities, two institutions comparable in size to GW, accumulated $822 million and $1.2 billion in debt, respectively, according to the universities’ Web sites.

Manetta said a strengthening economy over the past year has encouraged growth at many colleges and allowed institutions to pay down their debts.

“The economy is always going to be a factor,” he said. “It’s certainly been improving, so most institutions are in a fairly good situation.”

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