From a gleaming science center in Boston to an honors college in Amherst, the University of Massachusetts has enjoyed an unprecedented building boom over the past decade, with new classrooms and dorms and long-delayed infrastructure improvements across its five campuses.
But all that spending has also left UMass with $3 billion of debt.
And that cloud could present a challenge as it seeks to continue the growth that in recent years helped bolster enrollment and raise the university's profile from an affordable "safety" school for many students to a more expensive, desirable, and highly competitive one.
While the university's financial health remains sound overall, it has nearly maxed out its ability to borrow, and its debt is far outpacing revenues. Financial documents also show that the university is so highly leveraged that as it continues to borrow, it is pushing big payments farther into the future to be able to afford current ones.
UMass, with revenue totaling around $2.9 billion, this year owes $203 million in debt and interest, up from $137 million five years ago. In 2020, the annual debt service payment will be $222 million, the university projects. The borrowing comes as part of a capital plan that extends through fiscal year 2019.
"The pace of debt increase has far surpassed the pace of asset growth," said Kimberly Tuby, an analyst at Moody's Investors Service who specializes in higher education in Massachusetts.
Instead of borrowing more, UMass officials say they are looking for creative ways to continue to expand, including by entering into public-private partnerships for new buildings without using taxpayer dollars.
"We all understood that we were taking on a considerable amount of debt in order to build new buildings, repair old buildings, and essentially modernize," said UMass trustees chairman Victor Woolridge. "It's a balance, there's no question about it."
Neglected maintenance is perhaps a bigger priority for the system than new buildings. More than half of UMass buildings were built between 1960 and 1985, and as they turn 50, repairs can't be ignored much longer.
Trustees say they do not want to jeopardize the healthy credit rating enjoyed by the UMass Building Authority, which oversees projects and issues bonds on the university's behalf. But now is not the time to stop investing, they say.
Moody's and other credit rating agencies last month gave UMass solid ratings, but it pointed out several red flags that suggest the school could be in trouble down the road if it does not successfully raise enough money to pay off the new debt.
In January 2014, Moody's shifted its outlook for the Building Authority from stable to negative, and reaffirmed that outlook last month. However, the university maintains a solid Aa2 rating from Moody's, which is more important than the outlook.
Other rating agencies cite concerns about enrollment that did not grow at the rate the university expected, and fund-raising that lags compared with similar schools across the country.
The school plans to close next week on $300 million in bonds to pay for new projects and $192 million to refinance old debt. UMass will not begin to make principal payments on the $300 million until 2025, and until then will pay about $150 million in interest.
It will also use $50 million of that borrowing to refund short-term borrowing, financial statements show.
The rest of that money will pay for projects including a new pool at UMass Boston and a new sports training facility at UMass Amherst, as well as maintenance at academic buildings and utilities at Lowell, Amherst, and Boston, according to bond documents.
The recent construction boom has transformed the system.
Neon lights twinkle atop a science center at the water's edge at UMass Boston that opened in January. Sunlight pours into the airy new student center at UMass Lowell. In Amherst, a new honors college is nestled at the heart of the campus. Perhaps more important, the system has made less visible but vital improvements to existing facilities that have long been neglected.
Much of the borrowing is necessary because the state has not helped maintain UMass, university officials said, adding that in the future, the state should do more.
"A large part of the debt that the university has assumed is really what the Commonwealth should have been investing," said Christine Wilda, senior vice president for administration and finance and treasurer at UMass.
UMass Boston has long wanted dormitories, to catapult the Dorchester campus from a commuter school to a destination that can compete with nearby private institutions. But with debt ratios nearing trustees' self-imposed 8 percent cap, the Building Authority is turning to new approaches.
It has requested proposals from developers to build a 1,000-bed dorm on the Boston campus in a public-private partnership that would not add debt to the university's books. The private company would operate the dorm and rent rooms directly to students, according to the Building Authority.
"This is . . . aligned with trying to make sure we are fiscally prudent and don't get to a level of debt we're not comfortable with," Wilda said.
UMass Lowell has navigated a similar project, but it required special legislation amid questions of whether state competitive-bid laws applied to the project, since it was being built for a public entity.
Lowell pays annual lease payments to private developer Soho Development that this year totaled $3.4 million for the 510-bed dorm and will increase when 302 more beds open next fall, according to officials at that campus. Annual lease payments break down to about $6,798 per student, UMass Lowell officials said.
University officials say they expected this phase of growing pains and planned for it.
From 2004 to 2010 alone, the system spent $636 million completing 26 building projects, according to the Building Authority, from $1.9 million in elevator upgrades to a $133 million central-heating plant at the Amherst campus.
Fund-raising is improving, officials said, and the university has kicked off its first-ever system-wide giving campaign, with a goal of raising $1 billion over 10 years. The Amherst campus in the past two years raised $289 million toward that goal.
The university system's endowment increased to $743 million last year, up from $652 million the year before and $450 million five years ago, financial documents show. Enrollment grew 6.4 percent over the past five years, now totaling 62,308 — of which 82 percent of undergraduates are Massachusetts residents.
Phil Johnston, chairman of the Building Authority and also a university trustee, said the statistics show why UMass must continue to invest in its campuses.
"I think it's a way to recruit students and interest parents at taking a second look at UMass," he said.