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University capital projects include new
construction, renovation, or improvement of new buildings, facilities, or
infrastructure, and major capital projects are those that cost $2 million or
more. State support for Arizona State University’s (ASU), the University of
Arizona’s (UA), and Northern Arizona University’s (NAU) research goals,
enrollment growth, and other factors has fostered capital development.
Between fiscal years 2005 and 2007, Arizona’s universities spent
approximately $754 million for new academic and research facilities, and
another $253 million for renovating and improving existing facilities.
Arizona’s universities primarily rely on issuing their own public
debt—usually revenue bonds and certificates of participation (COPs)—to
finance capital projects. As of June 30, 2007, they had approximately $869
million in revenue bonds and $935 million in COPs outstanding. The
universities have also partnered with third parties to pay for major capital
projects, entering into 18 such arrangements between 2002 and 2007. Thirteen
of the projects involve nonprofit corporations that can issue tax-exempt
revenue bonds, while the other projects involve local government and/or
for-profit business entities.
ASU, UA, and NAU have good credit
ratings, and generally follow good practices for issuing and managing debt,
although UA needs to finalize and implement its draft debt management
policy, and NAU needs to develop a debt management policy or formal
guidelines. The universities also follow best practices for mitigating
potential risks associated with third-party financing. Limited funding has
resulted in the universities’ using some debt to address building renewal
needs.
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