Cal U to purchase campus dorms
California University of Pennsylvania will use state bonds to purchase its on-campus housing in an effort to save money and reduce room costs.
The Pennsylvania State System of Higher Education (PASSHE) board of governors approved the university’s request at its June 30 meeting to issue $76 million in bonds to the university to cover outstanding debt against six residence halls.
The halls, consisting of 726 rooms that can house 1,497 students, were constructed between 2004 and 2008 by university-affiliated organization Student Association Inc. (SAI), which paid the university to manage them.
Cal U has agreed to assume ownership of the halls and SAI’s outstanding debt on the buildings, and will pay that debt off with the bonds issued by PASSHE.
University officials said they believe purchasing the halls will benefit the university and its students by cutting operational costs and giving it the flexibility to lower room rates. The move would enhance pricing strategy to competitively compete in the local housing marking and enhance student recruitment and retention.
“The bonds will be paid off from student housing fees only,” said PASSHE spokesperson Kenn Marshall. “No university operating funds will be involved, so the deal will have no impact on the university’s budget.”
Construction for the halls was funded through a variable-rate financing model that included bond covenant restrictions regarding occupancy. SAI incurred $84.4 million in debt issued through the Pennsylvania Higher Educational Facilities Authority to pay costs associated with the project. About $78 million of the debt is outstanding.
The switch to a low fixed-rate financing model will eliminate more than $500,000 per year in expenses, and while the purchase will add to the university’s overall debt, it will reduce annual debt service payments by $34 million and overall housing operational costs by $18.3 million over 25 years.
“That will produce a real win-win for the university, the student association and the students who live in the residence halls. It is a great deal for everyone involved,” said Marshall.
University officials said that the expiration of a financing agreement between the university and SAI — under which the two entities would split the housing profits, with SAI retaining 30 percent and the university receiving the other 70 percent — marked the right time for the university to assume ownership of the halls.
The halls purchased by the university are Carter, Guesman, Johnson and Smith and residence halls B and E.