Flagstaffsooner
6/3/2007, 05:05 AM
From Newsok.com
By Tony Thornton and Randy Ellis
Staff Writers
Students at several Oklahoma colleges and universities are paying higher housing costs because their schools paid millions of dollars in extra fees to finance rapid construction of dorms and apartments, an investigation by The Oklahoman found.
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The extra payments included several hundred thousand dollars to state Sen. Mike Morgan, an attorney, and to a title company co-owned by former state Sen. Gene Stipe, records show.
Neither Morgan's services nor Stipe's companies would have been involved in the traditional financing method. In addition, the politicians would have been ineligible to profit through the normal arrangement, according to the state Constitution.
Other payments went to school foundations, to numerous attorneys and to nonprofit entities that issued bonds on the schools' behalf. Several schools also paid consulting fees to companies owned by Bryan Kinney, a former Langston University administrator.
The funding method, called off-balance-sheet or no-recourse financing, also resulted in higher interest rates and higher fees paid to underwriters, banks and various attorneys, because the schools bypassed competitive-bidding procedures, said Jim Joseph, the state bond adviser.
Schools that participated were Oklahoma State University, Langston University, the University of Central Oklahoma, Panhandle State University, Northeastern State University, Southeastern State University, Seminole State College, Rogers State University, Connors State College, the University of Science and Arts of Oklahoma and, Oklahoma State University-Okmulgee. The University of Oklahoma did not participate.
It works this way:
A foundation, usually one connected to the university, leases property where the housing is to be built. That foundation then owns the housing complex and is considered to be the borrower. Another entity such as an economic development authority issues bonds at the school's request.
The schools' financing method is drawing FBI scrutiny, The Oklahoman confirmed.
It has become part of an FBI investigation that originally focused on alleged self-dealing by Stipe but has since expanded to include other current and former elected Democrats.
University officials said they chose the more expensive method to speed construction of apartment-style housing to meet students' demands.
The Oklahoman couldn't calculate precisely how much extra this financing method cost each school.
However, in 2004 the University of Oklahoma analyzed costs associated with both forms of financing for a $49.76 million construction project. OU officials chose the traditional method of issuing bonds through the Regents for Higher Education after finding it would save $6.3 million.
Oklahoma State University chose the more expensive method several times between 1999 and 2005.
An OSU spokesman said school officials weren't involved in the decision to use Morgan's legal services and Stipe's title company.
In 2002, OSU's bond issue for $161 million included more than $13 million in fees, according to an audit of the Payne County Economic Development Authority, which issued the bonds. OSU officials disputed some of the audit findings and said the actual cost was about $8.9 million. Bond industry experts said the normal amount of fees for a typical governmental bond issue of that size is $3 million to $6 million.
Norman attorney Glenn Floyd, whose law firm often served as bond counsel on the college projects, said the financing system's complexity drove up the costs.
Financing system benefited Stipe, Morgan
Schools found non-profit entities to accept the financial responsibility of issuing the bonds for construction. In return, those entities typically received payments ranging from $5,000 to nearly $100,000.
Morgan, D-Stillwater, benefited as an attorney who represented the Langston Economic Development Authority and the Payne County Economic Development Authority. Those entities issued bonds for Langston University and Oklahoma State University, respectively.
Both schools are in his Senate district.
Morgan received a total of $230,000 for his work on four bond issues, records show.
The payments to Morgan included $60,000 for his role in an OSU project in 2005, when he was chairman of the Senate appropriations committee.
Morgan, currently the Democratic leader of the state Senate, has repeatedly pushed to increase state funding for higher education.
"Senator Morgan obviously was involved in these complex financial projects,” said his attorney, David Ogle. "His services were not in conflict or adversarial with other work or services he provided or his service as a state senator.”
The Oklahoma Constitution prohibits legislators from entering contracts, either directly or indirectly, with the state or any county or subdivision.
Stipe is a one-third owner of two title companies that provided title insurance for some of the construction projects.
Those companies, Guaranty Title Co. and American Land and Aircraft Title Co., received more than $700,000 through various bond issues, records show. The precise total paid to those companies couldn't be determined because of missing or conflicting payment records.
In one case involving an Oklahoma State University project, Guaranty Title received $432,939, according to an audit of the Payne County Economic Development Authority, which issued the bonds. OSU officials initially said they found no record of that payment but later confirmed a payment of $420,310. An attorney for Guaranty Title said Guaranty Title received slightly more than $200,000.
By comparison, Seminole State College opted for a title examination instead of buying title insurance for its $1.94 million project in 1998. The title exam, performed by a different company, cost $385.
Two schools reduced costs significantly by obtaining loans instead of having bonds issued.
Southeastern Oklahoma State University paid a 1 percent origination fee on its $9.8 million loan. Costs totaled $184,681, or 1.9 percent of the entire project.
Carl Albert State College's only cost for a $450,000 project was $5,000 to the Floyd Law Firm, which put the project together, said Garry Ivey, head of the Carl Albert Development Foundation.
Records missing
The no-recourse financing method is so named because in theory, colleges and universities have no obligation if revenue from students isn't sufficient to pay the debt.
However, several industry experts said the bond market would consider the college a responsible party. OSU officials said they list this bond debt in footnotes to the university's financial statements.
In a few cases, neither the school nor the entity that issued the bonds could provide records showing which fees were paid. In other cases, the records provided were incomplete.
The state open records law requires state and local government offices, including universities, to maintain those records.
Records were missing at Langston University and for OSU's bond issues in 1998 and 1999, said Steve Whitworth, the school's accounting director and associate controller. The Oklahoman obtained some records from bond attorneys.
At the University of Central Oklahoma, 8-inch thick bond books record details of the school's three projects, but are missing financing-related fees. Contributing: Staff Writer Nolan Clay
By Tony Thornton and Randy Ellis
Staff Writers
Students at several Oklahoma colleges and universities are paying higher housing costs because their schools paid millions of dollars in extra fees to finance rapid construction of dorms and apartments, an investigation by The Oklahoman found.
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The extra payments included several hundred thousand dollars to state Sen. Mike Morgan, an attorney, and to a title company co-owned by former state Sen. Gene Stipe, records show.
Neither Morgan's services nor Stipe's companies would have been involved in the traditional financing method. In addition, the politicians would have been ineligible to profit through the normal arrangement, according to the state Constitution.
Other payments went to school foundations, to numerous attorneys and to nonprofit entities that issued bonds on the schools' behalf. Several schools also paid consulting fees to companies owned by Bryan Kinney, a former Langston University administrator.
The funding method, called off-balance-sheet or no-recourse financing, also resulted in higher interest rates and higher fees paid to underwriters, banks and various attorneys, because the schools bypassed competitive-bidding procedures, said Jim Joseph, the state bond adviser.
Schools that participated were Oklahoma State University, Langston University, the University of Central Oklahoma, Panhandle State University, Northeastern State University, Southeastern State University, Seminole State College, Rogers State University, Connors State College, the University of Science and Arts of Oklahoma and, Oklahoma State University-Okmulgee. The University of Oklahoma did not participate.
It works this way:
A foundation, usually one connected to the university, leases property where the housing is to be built. That foundation then owns the housing complex and is considered to be the borrower. Another entity such as an economic development authority issues bonds at the school's request.
The schools' financing method is drawing FBI scrutiny, The Oklahoman confirmed.
It has become part of an FBI investigation that originally focused on alleged self-dealing by Stipe but has since expanded to include other current and former elected Democrats.
University officials said they chose the more expensive method to speed construction of apartment-style housing to meet students' demands.
The Oklahoman couldn't calculate precisely how much extra this financing method cost each school.
However, in 2004 the University of Oklahoma analyzed costs associated with both forms of financing for a $49.76 million construction project. OU officials chose the traditional method of issuing bonds through the Regents for Higher Education after finding it would save $6.3 million.
Oklahoma State University chose the more expensive method several times between 1999 and 2005.
An OSU spokesman said school officials weren't involved in the decision to use Morgan's legal services and Stipe's title company.
In 2002, OSU's bond issue for $161 million included more than $13 million in fees, according to an audit of the Payne County Economic Development Authority, which issued the bonds. OSU officials disputed some of the audit findings and said the actual cost was about $8.9 million. Bond industry experts said the normal amount of fees for a typical governmental bond issue of that size is $3 million to $6 million.
Norman attorney Glenn Floyd, whose law firm often served as bond counsel on the college projects, said the financing system's complexity drove up the costs.
Financing system benefited Stipe, Morgan
Schools found non-profit entities to accept the financial responsibility of issuing the bonds for construction. In return, those entities typically received payments ranging from $5,000 to nearly $100,000.
Morgan, D-Stillwater, benefited as an attorney who represented the Langston Economic Development Authority and the Payne County Economic Development Authority. Those entities issued bonds for Langston University and Oklahoma State University, respectively.
Both schools are in his Senate district.
Morgan received a total of $230,000 for his work on four bond issues, records show.
The payments to Morgan included $60,000 for his role in an OSU project in 2005, when he was chairman of the Senate appropriations committee.
Morgan, currently the Democratic leader of the state Senate, has repeatedly pushed to increase state funding for higher education.
"Senator Morgan obviously was involved in these complex financial projects,” said his attorney, David Ogle. "His services were not in conflict or adversarial with other work or services he provided or his service as a state senator.”
The Oklahoma Constitution prohibits legislators from entering contracts, either directly or indirectly, with the state or any county or subdivision.
Stipe is a one-third owner of two title companies that provided title insurance for some of the construction projects.
Those companies, Guaranty Title Co. and American Land and Aircraft Title Co., received more than $700,000 through various bond issues, records show. The precise total paid to those companies couldn't be determined because of missing or conflicting payment records.
In one case involving an Oklahoma State University project, Guaranty Title received $432,939, according to an audit of the Payne County Economic Development Authority, which issued the bonds. OSU officials initially said they found no record of that payment but later confirmed a payment of $420,310. An attorney for Guaranty Title said Guaranty Title received slightly more than $200,000.
By comparison, Seminole State College opted for a title examination instead of buying title insurance for its $1.94 million project in 1998. The title exam, performed by a different company, cost $385.
Two schools reduced costs significantly by obtaining loans instead of having bonds issued.
Southeastern Oklahoma State University paid a 1 percent origination fee on its $9.8 million loan. Costs totaled $184,681, or 1.9 percent of the entire project.
Carl Albert State College's only cost for a $450,000 project was $5,000 to the Floyd Law Firm, which put the project together, said Garry Ivey, head of the Carl Albert Development Foundation.
Records missing
The no-recourse financing method is so named because in theory, colleges and universities have no obligation if revenue from students isn't sufficient to pay the debt.
However, several industry experts said the bond market would consider the college a responsible party. OSU officials said they list this bond debt in footnotes to the university's financial statements.
In a few cases, neither the school nor the entity that issued the bonds could provide records showing which fees were paid. In other cases, the records provided were incomplete.
The state open records law requires state and local government offices, including universities, to maintain those records.
Records were missing at Langston University and for OSU's bond issues in 1998 and 1999, said Steve Whitworth, the school's accounting director and associate controller. The Oklahoman obtained some records from bond attorneys.
At the University of Central Oklahoma, 8-inch thick bond books record details of the school's three projects, but are missing financing-related fees. Contributing: Staff Writer Nolan Clay