UK Athletics will pay for two-thirds of new $100 million science building

The University of Kentucky's Donovan Hall.  Photo by Pablo Alcala | Staff
The University of Kentucky's Donovan Hall. Photo by Pablo Alcala | Staff Lexington Herald-Leader

FRANKFORT — The University of Kentucky will move forward with a new science building, an expanded business college and a $110 million upgrade to Commonwealth Stadium under a plan supported by Gov. Steve Beshear and top legislative leaders.

University presidents and Beshear are pushing the General Assembly to approve $363 million in bonds for construction projects at several public universities, paid for with the universities' money rather than out of the state General Fund.

Beshear called the plan a "great deal" for the state. "They don't want a dime from the General Fund, which is music to our ears," he said during a Capitol news conference Thursday morning. "It's important our campuses have adequate classrooms and facilities."

About $250 million of the bond money would be spent at UK.

To finance the projects, UK and other universities would rely on agency bonds, which typically are approved for projects that generate their own revenue streams, such as dorms or dining halls. The new twist is that universities have found ways to use agency bonds to pay for some academic buildings, which typically have been paid for out of the state General Fund.

In the case of UK's new $100 million science building, UK Athletics would spend $3 million to $5 million a year to pay down $65 million in debt service for the project. It marks the first time an athletics program has paid for an academic building at a public university in Kentucky, and it displays a degree of support for academics by an athletics department that's rarely seen in the country.

At Louisiana State University, athletics officials recently agreed to transfer $36 million to academic programs during the next five years. The University of Tennessee Athletics Department was giving $6 million a year to academics, but in November officials announced that would stop because of financial problems. UT had to pay $5 million to football coach Derek Dooley after his firing.

"This is a first, and that's a good thing," UK Athletics Director Mitch Barnhart said. "We've always been supportive of academics."

This year, UK Athletics agreed to give $3 million to non-athletic scholarships, up from $1.7 million in previous years. Officials expect that donation to continue.

The research and classroom building, judged to be one of UK's top priorities, would replace Donovan Hall, a dorm on Rose Street. Construction of the 263,000-square-foot building is expected to begin this year and be completed in 2015.

UK's plan also calls for a $65 million renovation and expansion of the Gatton College of Business and Economics. The project would be financed with $40 million in bonds, supported by donor pledges and commitments of at least $25 million from private sources. About 64,000 square feet, including a 500-seat auditorium, would be added to the Gatton building at South Limestone and Administration Drive. Construction is expected to be completed in 2015.

The $110 million renovation of Commonwealth Stadium would add luxury suites, recruiting space and improvements to other areas. Upgrades include 16 to 20 new suites, about 2,000 new club seats, a multipurpose recruiting room and improved concession areas, restrooms and security. The project is expected to start this year, with an estimated completion date of July 2015. It would be paid for by UK Athletics, which is self-supporting and separate from UK's general fund.

Capilouto said it was important to support football because it pays for 20 other sports at UK. "It's key to the financial success of athletics," he said.

For this fiscal year, Capilouto set aside $7 million in UK's budget to help pay the debt on new building projects. However, that same budget was filled with cuts across campus, including the firing of 140 people, the biggest set of layoffs in UK history.

After intensive lobbying by faculty and staff to change priorities, and with the help of increased tuition revenue, Capilouto agreed to decrease the $7 million transfer of funds for capital projects to $2 million. The capital-needs fund now has a total of $7 million, which will be used to begin paying debt on the planned construction projects a year or two after they get started.

During the past decade, tuition at UK has increased almost 150 percent. Capilouto has pledged not to raise tuition more than 3 percent next year but would not predict Thursday what might happen after that.

Most of the projects at other Kentucky universities involve dorm construction and renovations, including residence hall projects at Morehead State, Murray State and Northern Kentucky universities. The University of Louisville will renovate its student activities center for $9.6 million.

Western Kentucky University will issue $22 million for a new honors college and international center. President Gary Ransdell said that debt would be paid off with higher tuition paid by international students.

No projects were proposed for Eastern Kentucky University or the Kentucky Community and Technical College System.

At the news conference, Beshear was flanked by university presidents; House Speaker Greg Stumbo, D-Prestonsburg; Senate President Robert Stivers, R-Manchester; and about 30 other lawmakers who support the projects.

Afterward, Stivers said his Republican caucus had a "high comfort level" with the plan.

"With the dynamics that are out there, this was an appropriate way to deal with this set of projects," he said.

In the past, some legislators have worried that university construction debt would affect the state's credit rating, which is why they have maintained strict oversight of which projects get approved. Stivers downplayed that concern Thursday: "What impacts the debt rating is the unfunded pension system," he said.

Stumbo said that when universities proposed similar funding for projects last year, the list they provided the legislature was too long. This year's list includes only projects that are "shovel ready."

UK Board of Trustees chairman Britt Brockman said he was thrilled about the plan, calling it part of a new vision that Capilouto and the board brought to UK, helped by the governor and the General Assembly.

Brockman helped orchestrate the dissolution of the UK Athletics Association, bringing the athletics department under the direct purview of a board of trustees committee. He said the closer relationship helped cement plans for a bigger financial contribution from athletics to academics.

"We felt like we were arm's length at best, and we needed to be closer," he said. "This was like a perfect storm: You have a willing board eager to work with athletics, athletics eager to work with academics, and then Capilouto with his vision."

Part of that vision, Brockman said, was the decision last year to move forward with a plan that is expected to spend $1 billion on student housing built by a private developer.

Brockman also said the new building plan could help ease the traditional tensions between athletics and the faculty, many of whom "have felt that athletics should make a bigger contribution to the betterment of the university."

Robert Grossman, vice chairman of the University Senate and a chemistry professor, said he was acutely aware how urgently the chemistry/physics building needs to be replaced.

"I'm very pleased the governor and legislature are supportive of letting UK issue its own bonds," he said. "And I'm pleased athletics will be making greater contributions to the academic mission of the university."

Related stories from Lexington Herald Leader