As NIU undergoes more constructive surgery than Michael Jackson, many students and faculty are left wondering how the bills for all this work will be paid.

The construction projects here at NIU have spent years in the planning stages and are only now seeing daylight, thanks in large part to extremely low market interest rates.

According to Eddie Williams, vice president for Finance and Planning, NIU is partially funded by bonds it has issued. These bonds are placed on the market for investment, much like a share of stock in a company.

Bonds are rated by a number of institutions. The ratings reflect the solvency of the bond as well as of the issuing organization. NIU pays the investors for the principal amount of debt as well as interest.

Williams said the type of bond issued by NIU is capable of being refinanced. As interest rates dropped considerably over the past few years, the option of refinancing seemed more and more appealing.

By choosing to refinance its own debt, NIU had freed up a considerable amount of money. The university now is making payments in smaller amounts over a longer period of time than it was under the auspices of the original bond agreements. In addition, the school is paying the lower rate of interest.

NIU then is able to use the surplus money it had allocated for the original bond payment to invest in campus projects. Also, the university is not paying a substantially bigger return to investors than it would have under the initial agreement.

Get it? No? Well then, think about it like this:

Imagine that one day you borrow $2,000 from a bank at 10 percent interest annually, with payments to be completed within three years. That figures to be $200 in interest payments alone per year, ultimately costing you $600 when the loan comes to term.

The next day you are going through the paper and see that the going interest rates on car loans have plummeted, with your own bank offering loans at five percent interest annually. You go in and convince the loan officer to allow you to refinance. The initial $2,000 loan is now to be paid back over a span of five years at the new five percent rate.

All told, you will be paying only $100 a year in interest payments, giving you extra revenue to pay for, say, car insurance. Also, you will have paid $500 total in interest, compared to $600 in the initial agreement.

While this example is an oversimplified analogy of NIU’s bond refinancing, it basically covers what has happened to create revenue for the university. To be sure, nothing about this refinancing process is simple.

“There are a number of covenants … and legal stipulations that govern how the refinancing can be done and how the money can be spent,” Williams said as he took from his shelf the refinancing “rule book,” which is several inches thick.

“You have to know what you are doing,” Williams emphasized.

Williams noted that there are several groups involved in the process, from bond underwriters to legal assistants. The refinancing actions and the subsequent construction are definitely not the whims of two or three administrators with a checkbook.

“There are Internal Revenue Service (IRS) rules, state statutes, rating company requirements. There are a number of covenants we adhere to get a positive rating on our bonds,” Williams said.

All of these rules, combined with the extremely low construction costs of recent times, helped to get the campus facilities projects from the planning stage to the building stage.

“This is the best opportunity I’ve seen in my time at NIU,” Williams said. “This was the time to get things done with minimal impact,” on monetary resources.

“The construction market prices are at an all-time low,” Williams added. “As a result of this, we were able to save enough on the parking structure and Campus Life Center projects to consider making the addition to the Office of Campus Recreation.”

Williams said NIU’s tax-exempt status precludes the university from saving the surplus money from the projects.

“There is no luxury of putting the money into an interest-bearing account,” Williams said. “There are very specific rules concerning how and when we expend revenue gained from the bond refinancing.”