OSU Issues 100-year Interest-Only Bonds

Dayton Daily News:

OSU advertised that it became the first public university to issue “century bonds” — a financing deal where $500 million in bonds that mature in 100 years were issued at 4.8 percent annual interest. The proceeds will be used to pay for part of capital projects already under way, including a $1.1 billion expansion of the OSU Medical Center.

“The bonds are part of a forward-thinking strategy to ensure Ohio State remains both an economic powerhouse and the University of the American Dream,” the ad read.

OSU President E. Gordon Gee followed up the ad with an opinion column in The Chronicle of Higher Education in which he said it’s no longer enough to advocate for financial support with legislators, alumni and supporters.

“I must look further for the resources required to fuel the work of our faculty, staff and students,” Gee wrote.th

The century bond deal, orchestrated by OSU Chief Financial Officer Geoff Chatas, calls on OSU to make interest-only payments for 100 years and then pay off the principal in 2111.

Who would want to invest in these?  If you invested $1 million dollars today, you would get $48,000 a year in (presumably tax-free) income this year and you and your heirs would get the same $48,000 each of the next 99 years.  But with even mild inflation, that $48,000 will be worth much, much less in 100 years, and the value of the principal would likewise decrease dramatically.  And if inflation becomes a problem, the bonds will be essentially worthless.  Plus, 100 years?