This week marks a significant milestone for the University of Arizona (U of A) as it ventures into the municipal bond market for the first time after experiencing considerable financial strains that have had repercussions on its credit ratings. The issuance of $115.645 million in revenue bonds, aptly named the Stimulus Plan for Economic and Educational Development (SPEED), is aimed at refinancing older debt acquired in 2013 and 2014. The backdrop of this bond issue is troubling; both Moody’s and S&P Global Ratings have downgraded their outlook on the university’s bonds to a negative status, citing ongoing monetary challenges that need immediate attention.
Facing the Financial Music
The negative outlook from the ratings agencies stems from various financial indicators that have raised alarms. Notably, the cash reserves of the university experienced a plummet from $844.5 million at the close of fiscal year 2022 to $704.5 million in fiscal 2023. This drastic reduction means the institution now finds itself with only 110 days of cash reserves, which disappointingly falls short of the Arizona Board of Regents’ stipulated requirements. The previous chair of the regents, Fred DuVal, characterized the situation as symptomatic of deeper systemic issues in the university’s financial management and reporting frameworks, which failed to alert the administration promptly.
Nevertheless, U of A has shown some progress in addressing its budgetary issues. Spokesperson Mitch Zak highlights that through rigorous measures—including hiring freezes and restricted spending—the deficit for fiscal year 2024 was substantially cut from over $177 million to about $63 million in just six months. While this turnaround is commendable, a looming projected deficit of $65 million for fiscal 2025 indicates that ongoing financial vigilance is critical.
In light of these financial challenges, the governance of the university has been in a state of flux. Recently, a significant upheaval occurred when the university’s chief financial officer resigned, leading to the appointment of John Arnold, previously in a leadership role at the Arizona Board of Regents. Additionally, the presidency of U of A transitioned to Suresh Garimella, following Robert Robbins, who had his own challenges with the board, including a salary cut earlier this year.
These leadership changes, as noted in Moody’s recent report, compound the financial complexities facing the university. The ratings agency pointed to a “prolonged period of governance instability” as a risk factor that could weigh heavily on future ratings assessments. The pressure to stabilize governance and financial operations is echoed by Arizona’s Governor Katie Hobbs, who has urged for increased accountability from the regents regarding the university’s financial path.
Concerns Over Recent Acquisitions
Amid these transformations, the university’s decision to acquire the for-profit, online Ashford University—now rebranded as the University of Arizona Global Campus—has sparked controversy. Governor Hobbs has raised questions about this acquisition due to Ashford’s previous legal troubles concerning misleading practices related to student loans. This decision could further detract from the university’s already stretched liquidity, as highlighted by Moody’s.
The ramifications of these acquisitions are significant, especially considering the mountain of debts the university already holds, with over $935 million in outstanding liabilities. Coupled with the financial strain of operating losses primarily for athletics and controversies surrounding other ventures, the university faces a delicate balancing act when it comes to financial sustainability.
Despite the obstacles in the path, U of A has plans for capital improvements totaling $60 million, funded primarily through bonds. This ambitious initiative comes with the hope of reinvigorating its financial outlook while enhancing its competitive edge in higher education. Importantly, the university has witnessed a 55% increase in revenue over the past five years, primarily driven by rising non-resident tuition, signifying potential growth opportunities.
Ultimately, the impending bond issuance, structured to address financial exigencies while enhancing functional capabilities, offers a glimpse into U of A’s future ambitions. As the university prepares to price its refunding on Wednesday, it will be crucial for stakeholders—including state government and university governance— to maintain awareness of emerging financial trends to foster resilience and long-term viability.
In a time when many public universities are experiencing an overall stable outlook, leveraging its established brand, robust student growth, and research contributions will be pivotal for the University of Arizona to rectify its course and forge a path toward financial stability.