Cal Needs A Bailout

 

 

 

At some point, the University of California-Berkeley is going to need a bailout.

Writing at Deadspin, and using a vulgarism for the condition California’s flagship university finds itself in, Patrick Redford outlines the albatross that has become the California Golden Bears’ football stadium. 

At a cost of $474 million and financed with $445 million in bonds in 2006, Cal planned to make the dollars and cents work by selling special “seat licenses,” 50-year rights to the best seats for prices ranging between $40,000 and $225,000. If the plan worked, not only would the stadium be paid for, additional money would be left over to establish an endowment for all athletics programs.

Perhaps there are some schools (Michigan, Alabama, Notre Dame) that could pull off such a deal, but by June 2011, only 49 of the 3000 available licenses had been sold.

As Redford reports, current annual debt service on the construction stands at $18 million. That increases to $26 million in 2023 when the principal starts getting paid down. In theory, Cal could be paying the debt until the year 2113, long after the lifespan of the actual structure.

It was a bad plan; a foreseeable bad plan. For the time being, the athletics department is responsible for the debt, though like the vast majority of schools, Cal athletics gets millions of dollars in subsidies already.

For an institution and system that has already been subjected to budget cuts and tuition increases, they are every bit as “effed” as Patrick Redford maintains.

So they need a bailout. It may seem wrong, an undeserved reward for bad planning and decision making, but the collateral damage to the academic institution is inevitable. Without a bailout students for generations into the future will pay higher tuition. The sooner a bailout comes, the better, since it will mitigate the additional debt from accrued interest.

Where should the money come from? I vote for “rich” people. You can pick your preferred mechanism. 

Something similar on a smaller scale is happening at just about every public institution in every state. Infrastructure that was once covered by state appropriations or state-level bonds has fallen to individual institutions, which in some cases have seen their debt and debt service payments skyrocket.

Last  weekend, David Slade at The Post and Courier in Charleston outlined how this has played out at South Carolina’s public institutions where, for example, Coastal Carolina’s debt has increased from $43.6 million to $239.5 million over the last ten years.

The construction was made necessary by a growing student body over the same period of time, with enrollment increasing from 8000 to 10,000 students.

The result is that about $890 out of every Coastal Carolina student’s annual tuition goes to servicing that construction debt.

The numbers are similar at other South Carolina public higher ed institutions. Clemson’s current debt of $581 million results in $1414 per student per year going towards debt.

College of Charleston, where I am now a faculty affiliate added almost $200 million in debt between 2000 and 2010, a necessity to catch up with what had been enrollment increases from 500 to 5000 students between 1970 and 1979, and then a doubling in size to its current 10,000 (or so) students between 1979 and 2000. A 10,000 student strong campus needs a real academic library with 21^st century infrastructure. College of Charleston’s Addlestone library wasn’t completed until 2005.

A new science center currently under construction and hopefully completed before the end of the year was necessary because the old one was literally crumbling.

Some of the legacy campus buildings date to the 1770’s. The iconic Randolph Hall was completed in 1829. Maintenance of these spaces is expensive. A tour of the campus will show plenty of buildings that could still use more than a little TLC.

But the governing philosophy of the South Carolina legislature is pennywise and pound foolish in just about every area of public infrastructure. After years of wrangling, the legislature managed to pass an infrastructure bill targeting the state’s roads, enacting a 2-cent increase of the gas tax that will climb by 2 cents per year for the next six years. Even with the increase, South Carolina has the second lowest state gas tax in the country. 

We also have what are considered the most dangerous roads in the country. It is not an exaggeration to say some additional number of people have died because the legislature couldn’t figure out sooner how to add pennies to the gas tax. 

The bill almost didn’t pass. It took an override of Republican governor Henry McMaster’s veto by the Republican-dominated legislature to enact even this modest tax.

Failing to support necessary improvement and maintenance has left the bill for future generations of South Carolinians. Requiring institutions to pick up the full freight of their infrastructure costs has the same effect on successive years of students. These problems have been a decade or more in the making and the longer we wait to tackle them, the more expensive they get for everyone.

As I say, look at just about any state you’ll see a similar story, and part of that story is too little attention to figuring out structures that are sustainable and enduring.

South Carolina seems to have learned few lessons at the state level. After approving every project in its 50-year history, last year the state Commission on Higher Education “decided to give more scrutiny to debt-financed college building projects that are not central to academics.” They denied proposals by Coastal Carolina for a football team and a $12.5 million tennis center for Clemson.

In response, the state legislature stripped the commission of its oversight authority.

Governor McMaster vetoed that proviso. The legislature will have a chance to override in January.