This past July, Swarthmore College issued a $47 million bond through the Swarthmore Borough Authority to refinance previous bond issues and to fund the construction of additional dorm rooms connecting residence halls Dana Hall and Hallowell Hall.
By law, if the college is constructing a building for educational purposes, for instance academic buildings or residence halls, the college is able to borrow tax exempt loans, meaning the college pays a lower interest rate. Indeed, without debt, most of the academic or residential buildings on campus wouldn’t exist.
The college issued its first bond in 1982. Not including the latest bond, the school has borrowed over $206 million for eligible projects over the last thirty-one years.
If Swarthmore College currently has an endowment over 1.6 billion, why doesn’t the college use this endowment fund or gifts to construct these campus buildings? Suzanne Welsh, vice president for finance and treasurer, said, “It is to the economic advantage of Swarthmore College, within a reasonable amount of debt, to use debt because it places the college in a better off long term position by raising unrestricted gifts that the college can put into the endowment and using this low cost source of money to construct buildings.” With this strategy, unrestricted gifts placed in the endowment fund usually earn a higher return. Thus, the college and most colleges utilize a strategy of borrowing tax exempt versus utilizing endowment funds or unrestricted gifts to finance campus buildings.
Even though the college chooses a strategy that revolves around the utilization of debt, Moody’s and Standard & Poor’s, two main credit rating agencies, rate Swarthmore respectively Aaa and AAA, the highest rating indicating the college has a reasonable level of debt. As the college is unable to issue bonds directly, it must issue the bonds to be able to borrow money through the Swarthmore Borough Authority. Although the college uses the Borough to be able to borrow money, Susan Smythe, borough government president, said that Swarthmore College’s borrowing strategy plays no role in the Borough’s finances, since the Borough is merely a vehicle for the bond issue.
The current bond issue, which settled in July for $47 million encompasses the refinancing of the college’s 2008 and 2009 bonds and roughly $18 million of new money for a project designed to add more residence hall space in the form of 75 beds, in the area between and connecting Dana and Hallowell Halls. C. Stuart Hain, vice president for facilities and services, said, “The driving idea behind the construction of this project is to be able to put elevators into the new dorm, making both Dana and Hallowell Halls accessible for students with disabilities.” This project is currently in the stages of design, but it aims to turn the newly connected dorm into five stories instead of four, improve the lower level rooms, and leave the bottom floor as mostly public space, which will serve a similar function as the trailer that will be lost in the construction process.
Furthermore, a new lounge will be created as another facet of the project, with the intention of the lounge being similar to the Mephisto lounge in Willets but with a terrace. A committee has been formed to oversee the construction of this project and is currently in the process of getting land use permission from the Swarthmore Borough. As for when the community will be formally introduced to this project, Hain said, “By late fall and before winter break the committee will be in the position to show the whole community the drawings and plans for this project.” Although the college currently has already borrowed the funds for this project, look forward to seeing construction start the summer of 2014 and the newly connected dorm to open the summer of 2015.
