At the center of Calvin's financial problems coming to light this
year is the gap between the amount of debt Calvin has to service
and the amount Calvin has set aside for this purpose. Calvin
currently has $115 million in debt and $42 million in the Plant
Fund, an account designated for paying off debt and interest.
In this visualization, we will go through the process by which Calvin has
funded building projects since 1997 and how that led to the
$69.4 million difference between the value of the Plant Fund and
the amount of debt Calvin carries.
In this strategy, the plan is that investing the money in the Plant
Fund will yield a return that is at least as much as the cost of
borrowing the money for the building.
If everything worked according to plan, money from Calvin's
operating budget (the budget that Calvin can spend how it
wishes) would not need to be used to pay for the debt. There
would be investment returns left over, which could be spent on
other projects. Many colleges use this strategy, which would be
sound as long as the Plant Fund was about the same size as the
However, as Calvin was building the buildings, it would add
more features, leading to cost overruns. In order to pay for these
overruns, Calvin diverted some money that would have gone into
the Plant Fund to pay for the extra cost of the improved building.
This, however, meant there was less money in the Plant Fund
to invest, so the returns were smaller. This meant that the return
from the Plant Fund was no longer adequate to service the debt
for the building.
The difference between the cost of interest and the amount the
Plant Fund generates in investment returns needs to come out
of Calvin's operating budget. However, because Calvin counted
on the strategy to work, there is currently little provision in the
budget to make these debt service payments.
Calvin now has to find the money in the operating budget for
these payments, which is going to require substantial spending
cuts and revenue increases.
Since Calvin began this strategy in 1997, the Plant Fund has
become underfunded by $69.4 million.
By 2014-15, the liquid funds in the Plant Fund will be
depleted, and the debt service will
need to be worked into Calvin's operating budget.