Washington State University has received a cash benefit of $11.2 million by refunding a portion of its existing bond debt and plans to set that money aside to deal with operational and financial impacts of the ongoing COVID-19 pandemic.

“Part of being fiscally responsible is making sure we’re exploring every potential option,” said Stacy Pearson, vice president of finance and administration. “We determined that we could do a refunding, which is basically a refinance of our debt, without increasing our overall debt payment or extending the duration of payments.”

The savings is due to lower rates from refinancing outstanding debt as well as issuing new debt at lower rates.

Each year, WSU and its consultants look at existing bond debt to determine if they can be refunded and if doing so would yield significant net savings. That was the case this year, at a time when having cash on hand is vital for universities like WSU working to ensure budgets are maintained in the midst of declining revenues and anticipated cuts in state funding.

“This money is going to be parked in central reserves to deal with future surprises stemming from the pandemic,” Pearson said.

The university sold general revenue bonds worth a combined $110 million, and is expected to pay off the new debt incurred within two years. WSU took action prior to Election Day to mitigate any potential impacts on the market.

Despite the economic challenges of the pandemic, WSU’s bond ratings from Moody’s as well as Standard and Poor’s have remained constant with their pre-pandemic marks, primarily due to the success of the three-year fiscal recovery effort. Demand for the bonds was strong among investors even as numerous other universities test the market with their own offerings.

WSU opted not to sell its General Revenue Bonds from 2013 as previously planned because the savings didn’t meet the university’s debt savings threshold of 5%.

The WSU Board of Regents approved these actions at its last meeting in September. Pearson will present the results of the refunding and bond sale to the Board of Regents at its meeting next week.

“This is one of the tools we are using to protect our financial balances during the current fiscal year when we are losing revenue,” Pearson said.

The university has also taken steps to control costs by requesting department’s budget for a 10% reduction this fiscal year. Several WSU leaders have also taken pay cuts to help offset declining revenues.

The university was commended by its consultants for returning its operating budget to the black for the 2019 fiscal year. It was the first time since 2013 the university wasn’t spending more out of its operating budget than it was taking in. Advisors recommend WSU continue to grow its cash reserves and look to recover revenues in the upcoming fiscal year.