Kansas University Chancellor Bernadette Gray-Little, foreground, other KU officials and members of the state board of regents, attend a house appropriations committee hearing in Topeka, Kan., on Tuesday, Feb. 9, 2016. KU turned to a Wisconsin agency to secure financing for new student housing and new science labs because it needed to move quickly, university officials said, as the school sought to answer Republican lawmakers' allegations that it went rogue. (Thad Allton/Topeka Capital-Journal via AP)

Topeka ? Kansas University Chancellor Bernadette Gray-Little told state lawmakers Tuesday that the university’s $350 million Central District development project is critical to KU’s future as a major university, while she and other KU officials gave assurances that the bond-funded projects will save students and taxpayers millions of dollars in the future and will not put the state at financial risk.

“Our science facilities, which were built before we put a man on the moon, are out of date, at best,” Gray-Little said in prepared remarks before the House and Senate budget committees. “At worst, they are obsolete, and the truth is that many high schools have better basic science facilities than we have at the University of Kansas.”

Kansas University Chancellor Bernadette Gray-Little testifies Feb. 9, 2016, before the House Appropriations Committee about KU's 50 million Central District development project.

Kansas University Chancellor Bernadette Gray-Little and Rep. Barbara Ballard, D-Lawrence, chat before a House Appropriations Committee hearing into KU's 50 million Central District project.

A new science building is only one part of the Central District project, which KU plans to build in an area southeast of Daisy Hill. The plan also calls for more apartments and residence halls, parking facilities, a new student union building and a utility plant. KU says the projects can be paid for with revenues generated by those facilities as well as tuition from anticipated growth in out-of-state and international student enrollment.

Legislature’s role

But several lawmakers said they remain concerned about the way KU is financing the project, and they said the university should have waited to get legislative approval before embarking on a complex funding strategy that involved using a Wisconsin public finance agency to issue $327 million in bonds for the project.

“You had the authority and the legal right, I think that’s granted,” said Senate Ways and Means Committee Chairman Ty Masterson, R-Andover. “But was it the best and right thing to do, is what I’m sensing is the consternation of how this came to be.”

KU officials, however, said they have been in constant communication with legislative committees and the Board of Regents since May 2014 when they made their first presentation to the regents.

Bill Feuerborn, a former legislator who now serves on the Board of Regents, said that board was fully briefed on the details of the financing late last year, including the plan to use the Wisconsin agency as the bond issuer, before the regents gave their approval.

Still, Sen. Steve Fitzgerald, R-Leavenworth, asked whether KU ever sought specific legislative approval, or if it believed it needed legislative approval.

“From a legal and technical standpoint, not required,” said Jeff Gans, an attorney representing KU in the project. “Now, should we have gone further and made sure you were comfortable with it and made sure you felt the process was appropriate? Maybe we should have done a lot better. Obviously we wouldn’t be having these hearings if we had done a better job of that.”

Budget fallout

The tension between KU and the Legislature over the Central District bond deal has reached critical mass in recent days as both legislative chambers prepare to vote on budget bills later this week. Both committees have inserted language into their respective bills, directly in response to the bond deal, that would severely restrict KU’s spending authority in the fiscal year that begins July 1.

The House bill would restrict how much KU could spend out of “unrestricted” funds, such as tuition and fees, student housing and parking funds, requiring the university to get legislative approval to spend beyond preset limits. The Senate bill, however, would virtually stop the Central District project in its tracks by prohibiting KU from making any payments on the project for the next two years.

Theresa Gordzica, KU’s chief financial officer, said either amendment would seriously harm the university.

Theresa Gordzica, KU's current chief financial officer, answers questions from the Kansas Senate Committee on Ways and Means, Tuesday, Feb. 9, 2016, at the Statehouse in Topeka.

The House bill, she said, would take away KU’s flexibility to respond to changing conditions that occur throughout the year.

“If we are to have, for example, growth in student enrollments and we have to offer additional classes, it would be very difficult to do that with that limit in place,” she said.

But she said the Senate bill could be devastating to KU and would threaten the entire Central District project.

“The amendment from the Senate would prohibit us from making a lease payment,” Gordzica said. “It would be very serious.”

Repayment plans

Lawmakers, however, said they had equally serious concerns about KU’s financial projections for paying off the project, which requires nearly $22 million in annual lease payments.

According to Gordzica, more than a quarter of that amount, or $6.4 million a year, will come from tuition paid by roughly 300 new out-of-state and international students that KU expects to admit into its freshman class next year. She said the university expects at a minimum to maintain that number, but will probably increase it.

“They’re not enrolled as freshmen yet, but they’re in the pipeline,” she said. “We have an academic accelerator program for international students where they spend their first year (in the program), and then they enroll.”

“So what happens if 150 decide not to do it?” asked Sen. Jim Denning, R-Overland Park.

“Those would hopefully be replaced with another 150,” Gordzica said. “Those are metrics we watch very carefully. We monitor very carefully our applications and interest not only from resident students but the out-of-state students.”

Lawmakers had similar questions about KU’s projections that the new apartments and residence halls will be at least 90-95 percent filled when they’re completed. But Gordzica said if revenues from any of the facilities fail to come in as expected, KU will find savings and efficiencies elsewhere on campus to make up the shortfall.

After the hearings, the chairmen of the two committees said they felt somewhat more comfortable about the project than they had before.

“I think we got about three-fourths of our questions answered,” said Rep. Ron Ryckman Jr., R-Olathe, who chairs the House committee. “But a lot of those answers prompted other questions. Any time we have over $350 million of expenditures that the state and the university are ultimately responsible for, it does prompt questions.”

Masterson said he believes the concern is not about whether the projects are worthy, but rather the process that was used to launch them.

He also said he couldn’t predict whether the Senate’s amendment blocking payment for the projects would stay when the Senate debates its budget bill Thursday.

The House is scheduled to debate its budget bill Wednesday.