The University of Connecticut burdened the state with an estimated $77 million in “unnecessary interest costs” when it secured financing 19 months ago for a new ambulatory services center in Farmington, the state auditors of public accounts reported Wednesday.
Auditors John C. Geragosian and Robert M. Ward also questioned whether UConn had proper authority to finance the project as it did. They recommended that UConn seek legislative approval to refinance the project, but the university responded that this recommendation is better directed to the General Assembly.
“This transaction will burden the state with significant unnecessary interest costs,” the auditors wrote, referring to financing secured in December 2012 for an ambulatory services center on the UConn Health Center campus.
The legislature enacted, and Gov. Dannel P. Malloy signed, a measure in 2011 that directed UConn to develop a new ambulatory center in partnership with private developers.
But according to the auditors, the university “determined it was not feasible” to finance the project with private developers.
Instead it used financing authority granted by the legislature in 1987 to help the university health center finance capital projects with greater efficiency.
The University of Connecticut Health Center Finance Corporation secured a $203 million loan – with an annual interest rate of 4.81 percent – from the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF), a financial services organization that manages retirement benefits for almost 4 million academic, research and medical professionals.
Had UConn – once it determined a public-private partnership wasn’t feasible – gone back to the legislature to authorize a more traditional financing approach, the auditors say, the state would have saved a huge sum.
For example, the auditors noted that in December 2012, the university issued special revenue refundable bonds for a different project at an interest rate of 2.48 percent. “If the TIAA-CREF loan bore the same interest rate,” Geragosian and Ward wrote, “interest payments over the life of the loan would total … $76,808,018 less.”
The regular 2013 General Assembly session began in January 2013, about one month after UConn secured financing at the 4.81 percent interest rate.
University spokeswoman Stephanie Reitz did not comment on the audit, but referred The Mirror to UConn’s written responses to the auditors included in the report.
UConn wrote that “whether state bonds should be issued to refinance the university’s loan is not a university decision to make. The university respectfully offers that the auditors of public accounts should provide its recommendations to the legislature and executive branch offices.”
Citing an opinion from the attorney general’s office, the auditors added that the borrowing approach UConn took for the ambulatory center project “exposes the state to the same level of risk as would a standard bond issuance, but at a far higher costs.”
State Office of Policy and Management Secretary Benjamin Barnes, Malloy’s budget chief, said the university’s decision “was proper.”
Barnes added that “the borrowing done by the Health Center was done for its physician practices and was backed by revenue from those practices. It was a private action by the health center as a hospital with physician practices, not as a function of the university’s (or state’s) academic or research charges.”
This borrowing “may fall within the broad powers granted the University of Connecticut Health Center Finance Corporation,” the auditors added. “However, in addition to the excessive interest costs involved, the propriety of issuing this promissory note without obtaining specific legislative approval seems questionable, given the existing legislative directive to proceed” with a public-private partnership.
“The inclusion of private financing was very important to the legislature for a reason,” said Senate Minority Leader Len Fasano, R-North Haven. “But instead a loan was pursued that we cannot afford and that now falls on the backs of Connecticut taxpayers. Connecticut needs to make smarter decisions about how the state spends. We have to live within our means. Ignoring future obligations, and ignoring the legislature, is not the way to finance for our future.”
According to the legislature’s nonpartisan Office of Legislative Research, the UConn Health Center finance corporation “is exempt from many statutory requirements that apply to state agencies, including competitive bidding procedures, certain freedom of information and travel reimbursement requirements, and procedures for declaring accounts uncollectible.”