Between new construction, facility upgrades, and increased employee salaries, Emerson—which has historically been heavily reliant on tuition for revenue—must find ways to finance the expensive initiatives that it has announced this year.
In the past decade, the college has issued bonds worth over $300 million to finance major construction projects. But recently, Moody’s Investors Service, a credit rating business, revised the college’s outlook to negative, meaning it is deciding whether to lower Emerson’s credit rating.
This is because Emerson is preparing to issue a bond through the Massachusetts Development Finance Agency on May 5 for about $130 million to fund Emerson’s upcoming construction projects and refinance older projects on the Paramount Center and Colonial Building, according to Maureen Murphy, vice president for administration and finance. This bond is scheduled to be paid off by 2045.
Moody’s assigned this bond a Baa1 rating, which means Moody’s believes it is subject to moderate credit risk.
Emerson also received a Baa1 rating from Moody’s for three outstanding previous bonds the college has issued.
In 2006, Emerson issued an $8.9 million bond for construction on the Paramount Center and the upper floors of the Colonial Building, which is due to be paid off by 2023. A bond for $134 million to refinance the Paramount and Colonial projects and fund other initiatives was issued in 2010 and is due in 2040. Both were also through the MDFA.
In 2011, Emerson issued a bond through the California Municipal Finance Authority, due in 2042, for $55 million to fund part of Emerson Los Angeles. The LA campus cost the school a total of $110 million, according to Murphy.
Murphy said that the consistency of the rating with each bond is something she looks for, as it means administrators are on the right track with their financial plan.
“We think that this is a great rate for the college,” said Murphy.
The majority of this new bond is going to be invested in the new residence hall being built at 1-3 Boylston Place. Murphy said that the college estimates this project will cost about $70 million, and will be completely funded by this bond.
Some of the money could also go to the planned renovation of the Little Building, although Murphy said that the college may borrow more in the future for that project. She said she anticipates the Little Building project will cost more than the college’s original $100 million estimate, although she said she couldn’t yet confirm a precise cost.
Andrew Tiedemann, vice president for communications and marketing, said that because of the nature of the financial market, the college hasn’t made a decision on funding for the Little Building yet.
“You don’t want to borrow money that you don’t need today,” said Tiedemann.
The college plans to use what’s left of the new bond money to finance updates for student resources on campus, but these projects are usually financed by each department’s own budget, said Murphy. These projects may include renovations to the journalism broadcast studio, and a transition from standard to high definition in broadcasts for visual and media arts organizations, according to Murphy.
This year, Emerson has also performed several maintenance updates, including the new fire alarm system in the Little Building, and an update to elevator accessibility.
Murphy said that the budget for maintenance updates increases yearly because the buildings require more work as they age.
However, projects that aren’t considered “capital,” or tangible assets that the college can invest in, aren’t paid for in bond money. Murphy said the college’s need to pay for non-capital projects, like the rebranding initiative, is one reason why there has been a gradual increase in tuition each year over the last 20 years.
The college plans to continue raising tuition, according to Murphy, to fund non-capital expenses like increased salaries for food workers and professors, due to contract negotiations held this year, and facility maintenance. She said a small percentage of tuition revenue might go toward funding the construction projects.
The food workers are negotiating their salaries with the outside food service company Sodexo, and not Emerson, but increased salaries would mean Emerson needs to pay Sodexo more.
One of Emerson’s weaknesses, according to the Moody’s report, is a lack of fundraising.
Tiedemann said that Emerson has increased its fundraising capacity is recent years –– especially with this year’s $2.5 million donation to the LA campus from alumnus Bill Bordy–– but said the college has progress to make.
“To build a significant revenue from fundraising, it takes a very long time,” said Tiedemann.
Tiedemann said that building a fundraising tradition is a lengthy investment that is made gradually, and that the college is working now to improve its efforts in the future.
Murphy said an increase in fundraising might lead to more financial aid being available for students.
“As we go forward,” Murphy said, “those are the types of things that we’ll talk about.”