The University of Connecticut may have cost the state just under $77 million in unnecessary interest payments by entering into a loan deal to pay for the new ambulatory care center at the UConn Health Center in Farmington, according to state auditors.
An audit of the state’s flagship university released Wednesday took issue with the $200 million TIAA-CREF loan, which it said the school took out in December 2012, despite being directed by the state legislature to enter a public-private partnership to pay for the project.
The auditors said UConn decided the public-private partnership option would not work. Instead of going back to lawmakers, the school entered into the loan agreement at an interest rate of 4.809 percent. But Auditor John C. Geragosian said the school could have used state bonding, which would have cut the interest rate by about half.
The audit showed the school issued some special revenue refunding bonds the same month it took out the loan that had a total interest cost of 2.48 percent.
"If the TIAA-CREF loan bore the same interest rate, interest payments over the life of the loan would total $81,787,842, or $76,808,018 less," the report said.
"That’s a concern for us with potential interest costs of more than $76 million," Geragosian said.
UConn spokeswoman Stephanie Reitz said the audit report makes an unrealistic assumption that the state would have been willing or able to use an additional $203 million in state bond funds to build the Outpatient Pavilion, on top of $600 million already committed for a bioscience initiative. Had the state intended to use state bond funds, it would have done so, she said.
"It was clear that the state intended for the university to fund this project by other means, on its own," Reitz said. "UConn Health conducted a competitive bid process to secure a loan to fund the project."
The university had responded in the audit by saying that lawmakers can refinance the loan with state bond money if they choose.
The 300,000-square-foot outpatient center was completed in 2014.
"This is yet another example of the administration doing what they want to do without any regard for legislative input. The result is another heavy financial burden that the state cannot afford," said Senate Republican leader Len Fasano of North Haven.
The audit, which covers the 2012 and 2013 fiscal years, also found other problems with how the school handles its finances, including the way in which it approves charges made to school-issued purchasing credit cards. The charges are entered into a log, which is often signed off on by a subordinate of the cardholders, or even the cardholders themselves, the audit found.
Auditors said the purchases should be reviewed by someone who supervises the cardholder.
In its audit response, the school said it has robust controls in place to ensure the cards are not misused.
The audit found the school failed to use required competitive bidding in choosing a firm to provide design services for a new water system, relying instead on the company that did some initial design work.
The school said going with any other firm could have questions about liability and insurance coverage in the event of a design defect. But auditors said initial work by one engineer on a project does not preclude additional work by someone else.
"These are all significant issues," Geragosian said. "A lot of things show a lack of policies and procedures, documenting properly and ensuring oversight. We’re always concerned about those things."
