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Arena may be paid for completely in bonds

The Oregon Athletic Department has thrown a curveball to the slowly-revealed plans of the new Basketball arena. The administration and AD are seeking to pay the arena by taking out $200 million in 30- or 40-year bonds, according to an article in today’s Oregonian. If this is the case, tax payers would not pay for any of the arena. They would, however, bear the loss if the department is unable to pay off the bonds.

Oregon’s current load of XI-F(1) bonds is $178 million, with 3.3 percent of the university’s total annual operating budget being used to pay back those bonds. State guidelines recommend a cap of 7 percent, which Oregon would nearly reach if the current arena financing plan went forward.

That’s before the university launches a planned overhaul of its dormitories, which could require as much as $450 million in debt,” UO senate president Gordon Sayre said.

Kilkenny said the bonds would be paid by arena revenues, and any shortfall would be paid with money from the Duck Athletic Fund. The Legacy Fund, which was just kicked off by Phil and Penny Knight’s $100 million donation, then, would cover the department’s annual operating costs.

Kilkenny estimates the department would need $11.2 million a year to cover 40-year bonds. A 2003 report estimated a new arena would generate revenues of $6 to $8.6 million, but Kilkenny said those numbers are conservative and thinks the new arena could bring in up to $16 million annually.

  1. michael_grey says:

    Ms. Stiff~
    Please sign my breasts.

  2. A says:

    Ms. Stiff, I like the way you think.

    But what I’m worried about, if I read this correctly, is that the athletic dept. is potentially runing a much-needed overhaul of cellblocks Hamilton, Debusk, and Carson.

  3. Niedermeyer says:

    Dear Linda,

    You crack me up. Now the only question I have is, whether or not to check the box “do you consider the taxpayer dangerous?” That one needs some thought… but then I don’t need to tell you that, do I?

    Regards,

    Ted

  4. Linda E. Stiff says:

    Dear Commentators:

    Here’s the deal. UO uses its status as a gov’t institution to sell $200 million in tax exempt bonds. Since the income on these is tax free to the buyers, we only need to pay, say, 4%. To high income buyers, that’s like 6% after tax. Meanwhile, we invest Phil’s $100 million in stocks. Stocks are riskier than bonds, so they pay 8%. So we can cover the $200 million in debt with a $100 million donation. Probably. If not, we just raise tuition.

    What’s not to love? The alumni get to liquor up in their skyboxes, and the Feds were just going to blow that tax money on ethanol subsidies anyway, so it’s a wash, in terms of dollars and alcohol!

    You got to love Phil on this one. He’s a charitable dude for sure – and he’s working every angle at the same time.

    As for Dave, he’s just hoping nobody goes to

    http://www.irs.gov/pub/irs-pdf/f3949a.pdf

    and fills out the form, until he’s safely retired.

    Sincerely,

    Ms. Linda E. Stiff, IRS Commissioner

  5. JB says:

    This strikes me as unnecessarily risky. The basketball arena will only be able to meet Kilkenny’s projections if the basketball team is consistently successful. If Kent leaves, the team slips, or some scandal hits the program, fans will not pay top dollar to fill the seats. In this scenario, the Duck Athletic Fund (DAF) will have to cover the bill. Here again, too much risk. The foundation of DAF money is football boosters. If the football team slips (again, as a result of scandal or coaching changes), then the DAF money dries up . . . and the University is left holding the bill.

    I recognize that this scenario requires several negative hypotheticals, so it is in no way probable. Also, I recognize that the Knight-backed Legacy Fund provides a large cushion. But there is still an element of risk. Too much risk for my liking. The Athletic Department is willing to take risks, because it believes that only through bold and aggressive moves will it reach its goal of assembling national championship-caliber teams in every sport. I am glad that the folks at the Athletic Department operate this way, it’s their job. But I do not think the University should put its own welfare as an educational institution at risk by co-signing for the Athletic Department.

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