State bill may save money

By: Kyle Hansen

Posted: 3/14/07

If a bill currently in the state legislature passes, students could save money when the California State University uses bonds to finance construction projects.

Senate Bill 855 would give the CSU more flexibility obtaining better interest rates for bonds, according to Kathryn Gaither, associate director of CSU advocacy and institutional relations.

"What we are trying to do is take advantage of better interest rates," Gaither said.

Better interest rates could mean that students would not have to pay as much for construction projects, Gaither said.

The CSU issues bonds to raise money for construction projects. Gaither said the current law restricts those bonds to fixed interest rates. This bill would allow the system to obtain variable interest rates for the bonds.

Gaither said that having variable interest rates would help to keep costs down on projects that raise revenue, such as student and faculty housing, student unions and parking structures.

These types of structures raise money through usage fees, so students help to pay for them after they are built, Gaither said.

"This bill will allow us to take advantage of better interest rates so our total debt would be less," Gaither said. "So student housing fees could be lower."

State Senator Mark Ridley-Thomas, D-Los Angeles, the author of the bill, said that it would give the CSU more flexibility when funding projects.

"The existing law allows the CSU to issue revenue bonds, but does not allow maximum flexibility in today's market," Ridley-Thomas said. "This opens up options that do not currently exist."

Variable interest rates do not necessarily mean lower costs, said economics lecturer Mark Brady.

"It depends on your perspective of interest rates," Brady said. "If you think that interest rates are going to go down you want a variable interest rate, if you think interest rates are going to go up you want a fixed rate."

Gaither said that if passed, the bill would give the CSU more flexibility to get the rates that will best benefit the CSU and students by using variable or fixed interest rates.

The changes to bonds would only apply to revenue-generating facilities, Gaither said. For projects that generate revenue, such as housing, the CSU is allowed to issue bonds when authorized by the board of trustees. Funding for classrooms and other structures comes from the state government, which much have bonds authorized by voters.

San Jose State University does not have any planned projects that could benefit from the change, Gaither said. But the new law would allow the CSU to refinance already completed projects, such as the Spartan Village.

"It is possible that a project at San Jose could be refinanced in the future if we can get a better interest rate," Gaither said by e-mail. "For now, the interest rates are very low, so we don't need to use variable rates, but once the bill is enacted, we have that flexibility for the future when interest rates go back up as they did a few years ago."

Ridley-Thomas also said that the bill would help to keep costs down by simplifying the bond process.

"SB855 will essentially streamline the external revenue bond financing and treasury process," Ridley-Thomas said. "That will, in effect, lead to greater efficiency and could eventually lead to lower costs for students."