UT's $175M stadium remodel to include revenue bonds
DALLAS – The University of Texas at Austin plans to issue $50 million of revenue bonds to remodel the south end zone of Darrel K. Royal-Memorial football stadium, advancing UT’s position in the college stadium “arms race.”
With a total cost of $175 million, the project is designed to be financed mostly with gifts and is expected to be completed in 2021.
UT Regents authorized the plan at last week’s board meeting, where they also approved $1.5 billion of bonds for the next fiscal year, a $19.5 billion system budget and a record distribution of more than $1 billion from the Permanent University Fund that backs bonds from the UT and Texas A&M University systems.
The $50 million in revenue finance system debt will be repaid from premium seating and ticket sales at the stadium. Annual debt service is expected to be $2.98 million. The institution's debt service coverage is expected to be at least 2.3 times and average 2.7 times over fiscal years 2019-2024, according to documents prepared for the board.
“Should gift funding not be in hand or committed at the time of design development approval, UT Austin has sufficient RFS debt capacity to provide bridge financing, if necessary, to allow the project to proceed on schedule,” the document said.
Of the project's total planned cost, $85 million is budgeted for the south end zone addition, with $15 million for architectural and design services. The remaining $20 million will go toward renovating an athletic center with "the latest technology in sports medicine and rehabilitation services," the documents say.
"The addition at the south end zone will provide an enhanced game day experience for fans and create additional revenue for Texas Athletics," the system documents say. "This project will further support student athlete recruitment and retention and help keep football revenues at a high level."
A $150 million expansion of the north end zone of the stadium was completed in 2008, and a $27 million project in 2009 replaced 4,000 south end temporary bleachers with 4,525 permanent bleacher seats bringing capacity to 100,119.
The new project will enclose the south end zone with two levels of seating and add luxury suites and other amenities.
The stadium is the largest in the Big 12 conference and the eighth largest in the nation. However, it is smaller than Texas A&M’s Kyle Field which has a capacity of 102,512 after a $500 million expansion completed in 2015.
Outside of the Lone Star State, Texas A&M’s Southeast Conference rival the University of Tennessee is launching a $340 million remodeling project of Neyland Stadium, which was the largest in the SEC before the Kyle Field expansion.
University of Texas officials said their goal was not to surpass Kyle Field but to improve the stadium experience and quality of the seating.
Regents also approved $12 million of revenue bonds for improvements to the Sun Bowl, which serves as home field for UT El Paso’s football team. Another $4.5 million of gifts is anticipated to compete the project by 2024.
The board also approved the issuance of up to $600 million of bonds backed by the Permanent University Fund and $975 million of revenue finance system debt over the 2019 fiscal year. The authorization matches the amount approved in 2017.
Adoption of the regents’ 33rd Supplemental Resolution allows system finance officers to sell bonds for projects under the same provisions as the prior resolution. The threshold for savings on refunding bonds remains at 3% or greater.
The $19.5 billion budget covering 14 academic and health institutions is about 6.6% or $1.2 billion, larger than the previous fiscal year’s spending plan. The increase is attributed in large part to $505 million growth in patient care costs, campus enrollment growth and academic and instructional initiatives, and research expenditures.
“This is a fiscally-sound budget that reflects the size, scope and impact of the 14 UT institutions in their service to Texas,” Chairman Sara Martinez Tucker said.
While the UT System’s overall budget has increased, the budget for System Administration actually has decreased, said interim Chancellor Larry Faulkner. The 2019 budget for System Administration is $220 million – about 16% less than last year – and will fund 696 positions, which is 41 positions fewer than last year. System administration will have trimmed 228 positions or 25% of the total employee count over the last two years.
From the $17.8 billion PUF, UT Regents distribute a percentage each year through what is called the Available University Fund. At UT, the AUF is first used to pay debt service on PUF debt issued to finance capital projects at all 14 UT institutions. The funding then goes to the flagship UT Austin, where it can be used for operational expenses. Any available funds after that go to system administration expenses and system-wide initiatives.
The PUF, whose original value derived from oil, gas and other resource-producing lands in West Texas, backs system PUF bonds, providing triple-A ratings.
The average annual increase in the growth rate of PUF investments for the trailing 10-year period ended Feb. 28 was 4.35%.
Both the systems PUF and RFS bonds carry triple-A ratings from Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.
The system issued $300 million of RFS refunding bonds in November and $300 million of taxable PUF bonds in October. The system has about $10 billion of outstanding PUF and RFS bonds, according to Moody’s.
“UT is one of the nation’s largest systems of higher education, serving more than 234,000 headcount students and more than 2.9 million patients across eight universities and six health institutions,” Moody’s noted in last fall’s ratings report.
“Demand for UT's educational services remains strong, supported by vibrant regional demographics and a relatively low-cost of attendance,” Moody’s analyst Susan Shaffer said. “UT Austin remains at capacity, and all other academic institutions estimate enrollment increases generally in the 2%-5% range.”
As some state universities have seen state financial support diminish in the wake of the 2008 recession, UT still benefits from “a very strong and supportive relationship with the State of Texas,” Shaffer noted.
“While a relatively modest share of total revenue, 13%, healthy state funding is a distinct advantage for public universities in Texas,” she noted. “For the fiscal 2018-2019 biennium, state appropriations (excluding support for debt service) are down a manageable 1.6%, though still healthy overall, at $3.7 billion.”