Ohio University has turned to an internal bank loan to help fund the Heritage College of Osteopathic Medicine’s, or HCOM, new medical education building.
According to the fiscal year 2019 university budget report, OU will be paying off an internal bank loan until March 2049, or 30 years, for a grand total of $130,950,000. By the time OU is finished paying on the internal loan, the new building will have been used for more than 20 years.
Though the loan is internal, the university will still pay a principal payment, interest rates and monthly payments. The internal loan does not affect credit because it’s not from a bank; instead, it’s taken out through the Office of Financial Services. The new building will be the first of its kind and is projected to cost $65 million.
Overall funding will be taken from two other areas of the university budget. Chad Mitchell, chief of staff for the Division of Finance and Administration, said OU will reach into departmental funding by using $5 million from the HCOM reserves account. The university will also use $6 million from the donation given by the Osteopathic Heritage Foundation in 2011. The university is also taking a $54 million internal bank loan at a 4.75 percent interest rate.
Rob Dickerson, a business finance instructor and small business owner, said sometimes it is inevitable for a business — especially a university — to take out loans and create debt.
“Debt is acceptable as long as it is manageable and it is for operating capital,” Dickerson said. “You don’t want to get so deep into debt that it will strangle you.”
Despite the excitement surrounding the new building, university loan debt has skyrocketed to a total of nearly $443 million.
According to the fiscal 2019 budget report, the debt will also have significant effects on other areas of the university budget. Student tuition will continue to rise for the second consecutive year, now costing incoming in-state students $12,618 per academic year. This is about a $400 increase per student. According to the 2019 university budget report, the university total revenue by student tuition is projected to be 12.8 percent, a 1.3 percent increase from last year.
There has also been a substantial cut toward academic funding. In 2018, the university funded a cumulative $11 million to all students, academics and research. According to the 2019 university budget report, scholarship money awarded to students has decreased by $3 million, and academic research funding has decreased by $1.6 million.
This means while programs may be getting new facilities to work in, they will have less money to practice research in them.
The 2019 university budget report also shows an increase in salaries and wages for university staff. There will be a $10.8 million cumulative pay increase in salaries and wages of OU staff members for the 2019 fiscal year.
In addition to the overall increase in wages, benefits also increased. The total amount paid for staff benefits this year was $121.9 million, which is $5.8 million more than last year. Overall, the university is paying $16.6 million more to its staff than the previous year.
Dickerson said an increase in wages can largely affect how well a business can run. In terms of a university, increased wages and benefits are often times used to attract qualified employees.
The university’s total revenue of 2019 is the same as it was in 2018. This means that while university costs have increased by $24 million, it is bringing in the same amount of money.
While OU is taking out loans and increasing staff pay, they are not intaking more money to account for other payments. According to the 2019 university budget report, the university will not be profitable at the beginning of the next budget report.
The new HCOM building will be put in a 114,000 square feet space on West Union Street. The location is strategically placed in the same area as OhioHealth O'Bleness Hospital. Construction is scheduled to begin in May and end in November 2020, said Noel Davis, the project manager for campus development in HCOM.
