A Chimes Special Report

Calvin's use of the Plant Fund

Graphics by John Muyskens         Text by John Kloosterman
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.
Suppose Calvin is planning to build the D.H. Muyskens Chimes building, which will cost $20 million to construct.
Calvin borrows $20 million to build the building.
Calvin fundraises $20 million for the building. This money goes into an account called the Plant Fund.
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 debt.
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.