After slight drop, debt expected to rise

The University has reduced its debt by $10 million over the course of the past 10 months, Executive Vice President and Treasurer Lou Katz said this week.

Katz said that as of Dec. 31, GW’s outside debt currently stands at $962 million – down from $973 million last March, which is a 1 percent decrease. But Katz said the amount of debt is slated to rise in the near future, as the University will have to take on more debt to fund the Science and Engineering Complex – estimated to cost $300 million, according to a Faculty Senate report.

Katz said he is not worried about financing part of the SEC with additional borrowed funds.

“You have to look at it compared to our overall financial statistics, which continue to improve,” Katz said. “As long as we [take out debt] relative to that… I’m not concerned.”

Anthony Yezer, an economics professor, said taking on additional debt is not likely to put the University into financial turmoil.

Instead, Yezer said taking out more debt will put more of a burden on keeping enrollment steady, as the University is dependent on that tuition revenue to service the debt.

“If we are going to carry all of this debt, and in the future take on more, we have to ensure that students are going to continue to want to come here,” Yezer said. GW funds more than 70 percent of its daily operations with tuition and enrollment-dependent revenue.

Moody’s Investors Service, a credit rating agency, gave GW an A1 credit rating – the fifth highest – in its most recent report, from last March. The rating was due to strong enrollment figures, growing philanthropic support and consistent cash flow, according to the report. Moody’s rating helps ensure that GW will be able to take out more debt when necessary.

According to the Moody’s rating, the consistently strong demand for residential undergraduate programs is one of GW’s largest financial strengths.

As of fiscal year 2008, GW’s total debt level stood at 45 percent of its net assets, according to the fiscal year 2010 budget. That number was about 14 percent higher than the average of a comparison group composed of similar schools like New York University and Boston University.

Overall, Katz said the University’s debt level does not alarm him.

“If we were to double our debt today, would that be a problem? Yes,” Katz said. “If we needed to borrow an amount of money that grew in proportion to what our revenue stream is and what the asset base is, I would not be alarmed.”

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