Revenue bonds are being issued to finance the $24.6 million needed for the Memorial Union to complete renovations and additions and to retire accumulated debt.

The bond process began with the Board of Regents granting permission to Iowa State in the spring of 2003 to issue revenue bonds to finance the amount needed by the Memorial Union. These revenue bonds received a good rating based on Iowa State’s ability to repay them. The bonds were auctioned, and bid upon, by underwriters in November. Brokers then sell the bonds to individual buyers.

The bonds are being sold in sums of $5,000. They will have interest rates varying from 2.5 percent to 4.625 percent, depending on maturity.

“Bond funding is very common for revenue-generating enterprises,” said Johnny Pickett, associate vice president for business and finance and controller. Several buildings on campus, like the recreation and student health centers, are bond-funded, Pickett said.

Iowa State’s bond contract states that, because the Memorial Union is a revenue-generating enterprise, all of its revenue is pledged to paying back the bonds. Revenue is generated by things like student fees, parking ramp fees and rent from university offices and the University Book Store, Pickett said.

The University Book Store will pay rent to the Memorial Union that will be equal to the $5 million in bonds being sold to provide additional room for the book store.

Office space expansion will also generate rent revenue, an estimated $20,000 per square foot in the first year of occupancy. The expansion is projected to create 5,560 square feet.

“Tenants have been slated, but not publicly announced for the new office spaces,” said Richard Reynolds, director of the Memorial Union. There is also the possibility of tenants relocating to the new office spaces, Reynolds said.

If, for some reason, the Memorial Union still has outstanding debt for the bonds after 25 years, student fees would be raised to cover the remaining debt.

Pickett said the clause exists to allow the bonds to be completely secure. It’s extremely unlikely that fees will be increased at the end of the 25-year period, she said.

Buyers of the revenue bonds will include many Iowans, institutional investors and many supporters of Iowa State.

The interest on the bonds is exempt from federal and state taxes for individuals who are Iowa residents.

In November 2002, the Board of Regents approved the transfer of the Memorial Union from the Memorial Union corporation to Iowa State.