BRADENTON, Fla. — The University System of Georgia is consolidating eight of the state’s 35 colleges and universities in a move that may be replicated around the country as higher education institutions continue to deal with state budget cuts.
Though consolidations are somewhat rare and difficult to achieve due to opposition from stakeholders, mergers are also being considered in Louisiana and New York, according to Moody’s Investors Service.
The University System of Georgia was given the green light last month to forge ahead with its consolidation plans, in which eight institutions will combine into four.
It is designed to increase access to educational opportunities for students, develop administrative efficiencies and improve effectiveness of the overall system, said USG spokesman John Millsaps.
Though it is not envisioned that any campuses will close, six of the eight merging institutions have a combined total of $305.4 million of outstanding debt, according to USG’s office of real estate and facilities.
The debt was sold by the Georgia Higher Education Facilities Authority and various local development authorities.
Once consolidation is complete the surviving entity will be responsible for the combined debt, according to Millsaps. “All outstanding obligations will continue to be paid in full and on time as is currently being done,” he said.
Presentations will be made to rating agencies as requested or needed, though no change in ratings is anticipated, Millsaps said. A recent release by Moody’s suggested the consolidations would “provide for a stronger, more efficient system,” he noted.
Moody’s assigns its Aa3 rating to USG’s lease-revenue bonds.
The consolidation effort is a credit positive for the University System of Georgia “because it fosters operating efficiencies and reduces overhead costs amid declining state support,” said Moody’s analyst Dennis Gephardt.
“If effectively managed, the mergers will reduce administrative costs, enable lower tuition increases and reinforce the value the system provides to Georgia taxpayers,” he said.
Like other public university governing boards across the country, Georgia’s is being pressured as state funding declines as a share of revenue and student charges climb to compensate, according to Gephardt.
“To maintain affordability, these universities must find new operating efficiencies to limit tuition increases,” he said. “Consolidations typically face intense opposition from entrenched stakeholders, especially loyal alumni, who are often successful in blocking mergers.”
Historically, public university mergers and system consolidations have been limited.
“The University System of Georgia consolidation points to an increased likelihood of public university mergers in other states that are confronting intense revenue and cost pressures and ongoing concerns about affordability,” Gephardt said.
USG chancellor Hank Huckaby launched a number of initiatives last October that he said were designed to strengthen the university system’s ability to serve students and meet state needs, now and in the future.
“We must ensure that our system has the appropriate number of campuses around the state,” he said. “We need to be organized in ways that truly foster service to our students in the most effective way, and that ensure our faculty are properly deployed and supported.”
A study group was appointed to determine if campus consolidations would enhance USG’s ability to serve the people of Georgia at less cost, Huckaby said.
The study group was guided by a series of principles while reviewing campuses.
The aim was to increase educational opportunities, improve accessibility and compatibility, avoid duplication of academic programs, create potential for economies of scale, enhance regional economic development and streamline administrative services.
The USG Board of Regents in January approved the study group’s recommendation to consolidate North Georgia College and State University with Gainesville State College, Macon State College with Middle Georgia College, South Georgia College with Waycross College, and Georgia Health Sciences University with Augusta State University.
The two facilities with the largest amount of outstanding debt are North Georgia College and State University, with $154 million, and Gainesville State, with $11.4 million.
Both institutions, located about 30 miles apart, serve an overlapping number of students from the same three counties: Hall, Gwinnett and Forsyth.
North Georgia College has a fiscal 2012 budget of $65 million, while Gainesville’s budget is $56.5 million.
A USG paper recommending the consolidation said that combining North Georgia and Gainesville would present a number of opportunities, including the creation of an institution with nearly 15,000 students that can provide a strategic approach to meeting higher education needs in northeast Georgia.
The merger is expected to increase access to educational opportunities in an area of the state that has significant growth and population, the paper said.
The merger will face challenges, including student populations with differing levels of college readiness.
Consolidation working groups are now implementing the merger process at all eight institutions.
They will combine academic and athletic programs as well as staffing; address the names of surviving institutions, foundations and alumni groups as well as endowment restrictions; coordinate financial systems; analyze the impact on bonds and work on legal, compliance and reporting agreements.
The consolidation effort is expected to be complete in 12 to 18 months.
Standard & Poor’s said in a release last month that it is monitoring the implementation of the consolidation effort and currently plans no rating or outlook changes.
S&P has A-plus ratings on the North Georgia College and State University Real Estate Foundation and North Georgia PHD LLC, Macon State College Foundation Real Estate LLC and South Georgia College Real Estate Foundation III LLC.
“From a credit perspective, we will focus on the effect that the possible consolidation of campuses could have on demand for the … rated projects, any changes in the current assets and liabilities of the respective affected institutions, and whether the system will continue its agreement to pay annual rentals,” said Standard & Poor’s analyst Bianca Gaytan-Burrell.
Moody’s assigns ratings of A1 to Georgia Health Sciences, A2 to Augusta State and A3 to South Georgia College.
According to Millsaps, there are no additional plans to combine other institutions. The system includes the Georgia Institute of Technology and the University of Georgia.
“At this point we are focused on assuring that these consolidations are successful,” he said. “There are no current plans for additional consolidations.”
The consolidation plan is part of a series of efforts designed to focus on increasing college completion rates, broaden access to public higher education and maintain affordability, according to USG.
In addition, Gov. Nathan Deal has launched what he calls the “Complete College Georgia” initiative.
Complete College includes a study of how the USG uses its current facilities, the future design and construction of facilities, a new model of academic program review, distance learning and the integration of academic, facilities and fiscal activities.
A special website to obtain consolidation information can be found at www.usg.edu/consolidation.