THE NEW EDWARD M. KENNEDY INSTITUTE is a marvel of a museum, an architecturally breathtaking building that attempts to educate visitors about the role and operations of the US Senate. It is run by a nonprofit foundation whose funding comes from private donors, the federal government, the state of Massachusetts, and the University of Massachusetts, with the Institute located on the Boston campus.
Most of the public funding for the Institute is fairly straightforward. The federal government chipped in $32 million for a museum endowment and added a $5.8 million education grant. The state of Massachusetts contributed a $5 million technology grant last summer to pay for proprietary software and programming for the interactive chamber. The museum itself, complete with a full, interactive re-creation of the Senate chamber, was built with $79 million in bonds floated by the University of Massachusetts Building Authority.
The cost of the annual debt service on the bonds is where the public funding picture becomes murky. Institute officials say the museum will eventually cover the entire debt service cost with private funds, but a memorandum of agreement between the Institute and UMass suggests those two institutions will split the cost over the next 30 years.
The UMass Building Authority issued $50 million in tax-free bonds in 2009 for the Institute. As the cost of the project grew higher than anticipated and interest rates declined, the building authority in 2013 replaced the original bond issue with another for a total of $79 million. The debt service on the 30-year bonds is roughly $3.6 million annually.
Most of the debt service cost will be paid by the Institute. Indeed, the Institute’s federally funded endowment may cover most of its cost. The $32 million Congress appropriated came with a proviso that only interest on the money could be used to cover the Institute’s operating expenses. But, assuming an annual return of 8 percent on the $32 million, the federal funds would yield roughly $2.4 million, enough to cover the Institute’s share of the debt service cost.
The memorandum of agreement between UMass and the Institute says the university is obligated to pay $1.25 million a year for debt service as long as the Institute invests a minimum of $10 million with the UMass endowment fund. If the Institute fails to maintain at least a $10 million balance with the UMass endowment, the agreement calls for UMass’s share of the debt service cost to drop but to no less than $750,000 a year.
Jean MacCormack, a former UMass Dartmouth chancellor who was at UMass Boston for 20 years and is now the president and CEO of the Kennedy museum, said the nonprofit eventually will cover the entire cost of the debt service. She points out that the UMass endowment, called the UMass Foundation, charges a 1 percent management fee for investing the Institute’s funds and then passes that fee along to UMass to help offset the debt service costs.
Currently, the Institute has $28 million invested in the UMass endowment, which means the 1 percent fee generates about $280,000 to offset the UMass obligation, leaving more than $1 million for the school to pick up out of its state funding.
MacCormack says the Institute plans to invest $100 million – raised from private donors, partnerships, and admission fees – into the fund with the management fee covering all of the debt service for the school. The most recent IRS filing for fiscal year 2013 shows the Institute has $96.9 million in net assets, of which more than $60 million is in investments.
“Over the life of the loan, the EMK Institute will pay 100 percent of the debt service,” said MacCormack. “Over time, the university will receive more [money] when the Institute increases its investment with the endowment. This is a bridging experience.”
But it’s unclear how the fee income from the Institute’s endowment investments will ever offset UMass’s debt service costs. Even with $100 million invested in the endowment the 1 percent fee would yield only $1 million a year, which is not enough to offset all of UMass’s costs.
UMass has also granted the Institute a 99-year lease on the land on which the museum sits at the Boston campus. The lease cost is roughly $100,000 a year, after debt service obligations are factored in, with two options for 99-year extensions at the same price. The agreement allows the Institute to buy the building for $1 once 51 percent of the bonds have been paid off or if the organization makes a deposit into the endowment fund equal to at least 51 percent of the bonds, or about $40 million. So if the Institute’s endowment investments keep rising, as MacCormack predicts, the museum will have the option to purchase the facility long before the bonds are paid off.
The memorandum of agreement doesn’t prohibit the Institute from reducing the amount of money it keeps with the UMass endowment, but MacCormack insists the museum will park funds in the endowment until the bonds are paid off in nearly 30 years.
Patricia Filappone, executive director of the UMass Building Authority, said the Institute and UMass Boston are on the hook for the debt service. “As long as [the money] stays in the foundation, we have the agreement,” she said.
UMass officials were not available to discuss what the university is gaining in return for its investment in the Institute, but MacCormack said the partnership is a natural extension of both the school’s and the Institute’s mission. She says UMass faculty and students are granted free admission and the Institute is working with UMass Boston to create courses that can be taught using the Institute’s facilities.
“UMass has clearly contributed a lot of intellectual capital,” she says. “I think there’s a clear connection of the missions, to understand how government works. I don’t think it was a leap at all to say this would be a great partnership. There’s a certain prestige to hosting this. This is the only place outside of Washington where there’s full replica of the Senate chamber. This was a special circumstance to add value to the campus.”
The original story incorrectly stated the Kennedy Institute’s agreement was with UMass Boston. It is with UMass. Also, Jean MacCormack was chancellor of UMass Dartmouth.