State investments might take a hit

University of Wyoming College of Education Dean Ray Reutzel explains the history of the school’s dormitories during a tour of McWhinnie Hall, the university’s first residence hall, which was built in 1928. Reutzel’s walking tour took place during a Monday meeting of the Legislature’s task force on UW housing.

While Wyoming’s Legislative Service Office has advised that state dollars are the best means to fund a complete overhaul of the University of Wyoming’s dormitories, the method of providing those funds isn’t glaringly obvious.

Members of a state task force charged with leading the new dorm plan voted at a Monday meeting to support the construction of new dorms that will house 2,000 new beds. Using “very round, rough” estimates, LSO director Matt Obrecht said that’s likely to cost $250 million-$400 million.

The task force on UW housing was created by the Legislature this winter and includes state legislators, UW officials and other state staff.

LSO staff said state funding is the best option for the new buildings, even though construction via a public-private partnership would mean the dorms could be erected quicker.

University administrators see new housing as pivotal to their goal of increasing enrollment.

Mary Kay Hill, Gov. Matt Mead’s policy director, said the task force’s priority should be completing the new dorms as quickly as possible.

“We’re losing kids every day because they’re looking at substandard housing and they decide to go somewhere else,” she said.

Vice President for Student Affairs Sean Blackburn said administrators are interested in constructing “pod design” dormitories, in which students have small bedrooms and share common spaces with other students in their hall.

Blackburn said it’s important for the new dorms to deter the social isolation that can exacerbate academic failure.

“This generation needs to be forced into social opportunities,” he said.

If the Legislature were to use state funds for the new dormitories, the most straightforward option would be to approve a direct appropriation.

Obrecht said money would likely need to be drawn from the Legislative Stabilization Reserve Account — commonly referred to as the state’s rainy day fund — if legislators opt for a one-time appropriation. Legislators could instead create an account earmarked for the new dorms and fill it over a few years using other revenue streams like federal mineral royalties, the 1 percent severance tax and earnings from the Permanent Mineral Trust Fund.

“This would take a while for that fund to fill up for a $300 million project,” Obrecht said.

In a memo to the task force, the subcommittee on financing also suggested construction of new dormitories could be completed in “phases” as funding becomes available.

“The phases of construction could be spread over several years, with funding from revenue streams becoming available when each ‘phase’ is ready for construction to commence or contracts to be let,” the subcommittee noted in its memo.

While UW administrators want more beds for future enrollment growth, Blackburn said not all new dormitories should be built simultaneously.

“If we built 2,000 beds right away, I wouldn’t have the customers to fill them, and if I don’t fill them, I’d be running a very inefficient operation,” he said.

The university currently has 1,953 dorm beds available. Less than 1,600 freshmen for the upcoming fall semester have committed to living in dorms this fall.

If the Legislature isn’t willing to commit a nine-figure direct appropriation to the housing project, it could also authorize the Wyoming State Treasurer to invest money from the PMTF to construct the new dorms. That also could create some legal challenges, since the Treasurer’s Office has fiduciary responsibilities requiring it to “get the highest rate of return on public funds it can” under the Uniform Prudent Investor Act, Obrecht said.

Currently, the PMTF is seeing returns of 6 percent, while “public purpose investments” in Wyoming projects — like a renovation of Laramie’s Wyoming Territorial Prison — have seen return rates as low as 1.5 percent.

Using PMTF money, the Legislature approved a controversial low-interest loan program this winter for infrastructure projects led by counties and municipalities.

The state is likely to see returns of only 1-2.5 percent for those projects, Wyoming Chief Investment Officer Patrick Fleming said.

He warned current members of the State Lands and Investments Board are wary of approving more lending that’s only likely to suppress the return rates the Treasurer’s Office is seeing.

“It’s not only debatable within the Legislature, but Treasurer (Mark) Gordon or the next treasurer could argue it violates his fiduciary obligation,” Obrecht said.

He said the Legislature could try getting around those “potential Constitutional implications” by arguing the “benefit to the community” generated by investing in UW housing outweighs the return on investments seen in the securities market.

The argument finds “support in Wyoming caselaw concerning school trust lands,” according to the task force’s financing subcommittee.

House Speaker Steve Harshman, R-Casper, co-chairs the task force and said the legality of such an investment would boil down to a “judgment call” made by the Legislature.

Other lending options by the state could include a direct appropriation to UW that’s structured as a loan. That would not have the same legal concerns of a public purpose investment.

The state could also issue bonds by pledging future taxes or non-tax revenues.

A bond that pledges future tax revenues — known as a general obligation bond — has constitutional controls presenting “legal potential that the issuing governmental entity will have to exercise its power to tax, to pay such bonds.”

Any bond would require “a substantial dedication” of future revenue by the state. The greater concern, Fleming said, is the “illiquidity premium” paid by buying bonds or issuing low-cost loans since the state would be committing funds to the project it could be using to earn more in the securities market.

“I would not want to own a 30-year piece of paper at 3 percent,” he said.

While the task force’s subcommittee suggested the “state is likely the better option” than using a public-private partnership, some task force members weren’t willing to rule out private funding at their Monday meeting.

The LSO noted private funding would likely ultimately cost more than issuing bonds or securing a state loan.

While bonds currently carry an interest rate of little more than 3 percent, most private developers demand an additional 5 percent financing cost to offset the additional risk they’re taking on.

Under a public-private partnership, a private developer provides financing while taking on the bulk of a project’s financial risk. By streamlining design, construction and maintenance, developers expect their efficiencies to bring in profits by the end life of a project.

If a private developer was tasked with helming the construction of UW dorms, Obrecht said construction costs would be comparable to public development. The reduced costs would likely come instead from the company’s maintenance scheme.

However, the task force’s subcommittee noted private maintenance could also “negatively impact current employees of UW who would lose their jobs and may or may not be offered private positions, likely at different terms of employment.”

“Utilizing the (public-private partnership) structure would create a profit center for a private company on the core grounds of the only university in the state. This would put many local residential developers and managers at a substantial disadvantage,” the subcommittee members wrote in their memo.

Brett Glass, who rents out apartments in Laramie, said he felt the ability for a private company to have tax-free rental space on campus is “an unfair advantage over those of us who have to pay taxes.”

Some on the task force took offense to the suggestion that a private developer creates a “substantial disadvantage” to local business owners. Any service the university offers, they argued, inherently competes with local businesses.

The anti-business characterization of a public-private partnership unfairly “serves to strike fear in those (on the task force) that are elected,” said Sen. Tara Nethercott, R-Cheyenne.

(1) comment

Brett Glass

Isn't it wonderful the way UW uses our own tax dollars to compete against local providers of housing - and then pays no taxes itself? Wouldn't it be nice if local rental property owners could get the low interest loans that UW is asking for? This project is a taxpayer-funded "solution" to a nonexistent problem.

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