The University's debt has risen by more than 35 percent since the 2009 financial crisis. Total debt stands at $609 million, up from $450 million in February 2009, according to Beppie Huidekoper, executive vice president for finance and administration.
Most of that increase comes from a $100 million short-term loan taken out in August 2009 as a safeguard against future economic downturns, Huidekoper said. The rest comes from $59 million borrowed to fund infrastructure-related projects such as renovations to the Metcalf Chemistry and Research Laboratory and dormitories.
The $100 million loan differs from typical University loans in that it is short-term — 10 years — and does not serve any immediate need, Huidekoper said. The University "hopes to never touch it," she said, because the funds are only meant to provide security against future economic downturns.
The Metcalf renovation is the only project currently accumulating debt, said Susan Howitt, associate vice president for budget and planning. In 2009, when responding to recent economic shocks, administrators said they hoped not to borrow more toward what should be donor-funded projects, such as Metcalf's renovation. But current debt on the project is considered short-term, Howitt said. The University hopes to recoup the costs through donations in the near future, she said.
Other projects, such as steam pipe replacement and dormitory renovations, do not garner the level of enthusiasm from donors needed to drive funding. These projects are often too large to be accounted for in the operating budget but not monumental enough to receive donor sponsorship, Howitt said.
"Rather than Brown having to put out the money to pay for things like fixing pipes, we can borrow the money and pay for it over time," Howitt said. "Some things like utility infrastructure are going to last 40 to 50 years, so financing it makes sense."
The University uses a combination of donations and borrowed money to pay for long-term investments, particularly in infrastructure, said Dick Spies, executive vice president for planning and senior adviser to the president.
"The strategy is that in order to make those investments, we believe we have to use a mixture of debt and donor-raised capital," he said. "There is no magic ratio, but you need both in pretty significant amounts."
"Debt is an important financial tool for an institution like Brown," he added. The University accumulated $450 million in debt over the 20 years leading up to the financial crisis, Huidekoper told The Herald in 2009.
The $100 million loan, which accounts for much of the University's recent debt accumulation, has still not been touched, and there are currently no plans dip into the money, Howitt said. "If there had been a second shock to the financial markets, having that money available for any purpose was cheap insurance," she said.
The loan would have provided the University with "sufficient liquidity to ensure we could get through whatever might happen during the financial crisis," she said. "Lots of our peers did it as well."
Aside from taking out the $100 million loan as a safeguard, the University did not use debt as a means of getting through the economic crisis, Howitt said. The Corporation decided at that time to renovate rather than construct new homes for the medical school and the Cognitive, Linguistic and Psychological Sciences department.
"We didn't want to borrow money as part of the financial crisis," Howitt said. "We made changes to our capital plan instead."
