Do State Debt Policies and Oversight Affect How Much Public Universities Borrow?

Most states have established a system of mechanisms to manage their outstanding debt; these constraints include debt limits as well as political processes. How widely these constraints are applied has major implications for public universities, which may be forced to compete with other state units for scarce debt dollars because they are subject to the same debt limit and need approval from the same legislative committees. An additional factor influencing university autonomy in this area is the type of governing board that oversees public university operations. Governing boards vary in their level of involvement in university financial decisions. This paper provides evidence that governing boards heavily involved in university’s financial decisions have a significant impact on the level of university bond issuance. Furthermore, results suggest that universities subject to state constraints have less debt outstanding than have their unfettered peers.