This post was originally sent to the GUARDIAN as a comment from a reader. We felt it worthy of a full blown post.
By DEAN GUNDERSON
BSU has held an A1 Bond rating by Moody’s for its last few issuances. This puts it on a relative investment risk on par with the countries of South Korea, the Czech Republic and Estonia (not great, but not bad either).
What Moody’s is concerned about is the increased amount of pressure university’s will experience to commit their financial reserves to service long-term leases in these types of public/private ventures. And, this is a much bigger issue than just little ol’ BSU.
In 2002 bonds issued by Greece, and in 1996 bonds issued by Iceland, also had A1 ratings — and look where these two countries have ended up.
If BSU continues to play with the public/private venture “fire” it’s going to get its fingers burned by having its bond ratings dropped to A2 — identical to Botswana’s ratings. This will adversely effect its ability to sell bonds at favorable rates and leave it unable to fund much-needed capital projects.
I’m not opposed to BSU providing much needed on-campus student housing, but it should be on-campus and state-owned. Further, on-campus student housing should also automatically generate a higher land-use efficiency — freeing up poorly utilized land, “land banked” as surface parking lots and an overabundance of one- and two-storey structures.
The last time I checked, students who live in on-campus dormatories also have a car parking space set aside for their use. Whether such spaces are for lease (rolled into the dorm room’s rent, or acquired through a parking permit purchase) or made available for “free” — is a terrible waste of precious land resources. If a student lives on campus, they shouldn’t also have a parking space available for their use.
If BSU were really interested in improving their financial rankings, it needs to run a tighter ship by improving how they use their existing resources (all resources: financial, human, and land).
A consistant theme of Kustra’s tenure has been: “Private good, Public bad”. Few have questioned this approach, as long as they stood to gain. But, public education is not a private corporation — and it cannot be operated like one. It has to be held to a higher ethical standard and it must be absolutely transparent in its business dealings. Kustra, unfortunately, runs a very opaque administration — and I, for one, am very appeciative that Moody’s stance brings to light the inherent risk associated with public/private ventures.
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May 17, 2010, 6:56 pm
Why should student housing be on campus and state owned? Whatever happened to the private sector?
EDITOR NOTE–It appears the PLAN was to have it privately owned, AND on campus.
May 17, 2010, 7:55 pm
You miss, or at least deflect, my point. There is no reason the private sector cannot build housing, on private land, for profit, and pay taxes. At most of the universities I am aware of, most of the housing is private, off campus.
On campus housing is typically, but not exclusively, for younger students, or for those who need/prefer more security.
Boise may like to think it is too big, or too special, and that the private sector is incapable of filling the need. However, if the private sector can make it work in Portland, Seattle, and on and on, there is no reason it cannot work here.
May 17, 2010, 10:44 pm
Dear Mr. Gunderson,
While I don’t necessarily mean to question your opinion, could you be more specific about what policies or actions you are referring to when you say that one of Kustra’s themes has been “Private good, Public bad”? Is that a reference to some aspect of the Sky Box or the Bronco stock thing?
May 18, 2010, 1:14 am
For forty years, give or take, BSU has purchased bonds through “revenue anticipation” means, These have build the additions to the Student Union and at least two of the newer student residence halls. Bonds secured by the anticipated revenue to be generated by fees paid by the students.
That was part of how the Horse House was built (now called the Pavilion). A part of the “deal” was that there would be a day-care center for the children of students in that structure, in order to use student funds to pay for the building (one of Barnes’ last deals). As soon as the students who were there at the time were gone, that child-care facility was deemed “inappropriate” and the newer, larger facility was built, and later added on to. It is also no longer restricted to the children of students, but also faculty and staff, space available.
Nearly every campus, public or private provides either housing or “approved housing” for students. BSU is certainly not unique in that. It used to be that the schools were located too far away from home to commute and the crunch of housing was too great not to provide assistance. The only difference between BSU and many other colleges/universities is the relative lack of “Greek Letter” housing facilities – the Sororities and Fraternities. The Greek system being week at BSU as it is at most commuter campuses.
I suspect that most public colleges and universities use some ‘creative financing’ to secure funds for campus purposes.
May 18, 2010, 10:11 am
Education is the “business model” taking root in this valley with no promise of employment after the fact.
Loans are now called “student financial aid”.
Last I looked there is no shortage of rental housing in Boise. BSU is a commuter campus and the need for on campus housing is suspect. Even the article in the Statesman indicated current student housing was not full.
A college degree is not a guarantee of anything in the real world. Jobs are what we need. This project is a scam.
May 18, 2010, 10:53 am
It is my understanding that BSU was proposing to lease BSU owned land to a private developer to build student housing. Under the land lease, BSU would receive ground lease rent and, presumably, BSU’s fee ownership interest would be superior to that of the ground lessee and its lender.
The label “public university” is somewhat of a misnomer. Only 27% of BSU’s budget is funded by the state legislature. The reality is that “public” universities need a diversity of financing resources to survive, much less to thrive.
E.g., UC Irvine has leased a lot of its land to bio-tech firms. They reap (i) land rent and (ii) fairly intimate interface with private firms and the UCI schools of science and engineering.
The Moody’s position about bond rating downgrade is still unclear to me. An unsubordinated ground lease (a lease which is superior to the interests of private lenders and tenants) involves no material fiscal threat to BSU. In fact, were the ground lessee to default, BSU could cut off his interest as well as the interest of his lenders. In the end, BSU would own the building.
The only residual cost to BSU would be the cost of operating the building which it inherited, but that will be partially or wholly offset by student rental income.
The BSU campus is relatively high density. Therefore building student housing off-campus on BSU owned land represents good land planning.
May 18, 2010, 12:32 pm
If student housing is to be built on BSU-owned land it should be built, owned, and managed by BSU.
If student housing is to be built on private land it should be built, owned and managed privately.
BSU is both a commuter and residential university. BSU should decide how much and what kind of student housing is on campus, and not commenters on the Boise Guardian website.
Full disclosure: I am a BSU Alumni, and, fyi, that fact has had a MAJOR effect on the quality of my life.
EDITOR NOTE–Rod, I don’t think you will find anyone here that disagrees. Dr. Bob seems to be the only one who seeks private buildings on public land.
May 18, 2010, 5:01 pm
Perhaps Mr. Gunderson is a disgruntled former Boise State employee?
May 18, 2010, 7:57 pm
I agree dorms on campus should be built,owned and maintained by BSU, if the facilities are to be tax exempt. But Grumpy brings up and interesting point about Greek systems. If you look to the north, University of Idaho has a great Greek system. Lots of established houses with living quarters within the boundaries of campus. My fraternity and a few others are built with private funds on University owned land. Rent and maintenance are collected by the Alumni Corporation and the lease is paid to U of I for the land. I believe U of I has tried to purchase the land under most of the Greek houses.
EDITOR NOTE–The U of I scenario probably has NON-PROFITS owning the housing, instead of “for PROFIT” corps. Most of those commenting are in agreement: private or public is OK, but to mix and match only creates inequities, opens the door to inappropriate schemes aimed at getting around the system.
May 19, 2010, 3:30 pm
Amused, I am a former BSU employee — but not disgruntled as you state. I worked at BSU for over eight years and my son now attends BSU, as does my wife — so did my sister, my brother, and my dad.
But, it isn’t a secret that Dr. Kustra has taken actions in the past that I have found untenable in a public university setting (the selling of naming opportunities without adhering to State Board of Education policies being just one). BSU is a Public University, it exists by virtue of State Statute (Title 33, Chapter 40) and the Idaho Constitution (Article X) — regardless of who pays for campus operations. These laws stipulate very proscribed behavior for university operations, which do not allow an administration to run the campus as a private enterprise.
The proposed project is not unlike the scenario used in the California university system mentioned by Jack Harty — it’s referred to as a lease/lease-back. Where a land rich (but cash poor) public agency will lease its bare ground to a private contractor, who will in turn build a new facility and lease that facility back to the public agency. The contractor uses its own borrowed capital to finance the facility, and the terms of the lease in the “lease-back”, obligate the agency to pay the contractor its costs, profit, overhead, and interest on its construction loan.
In California this is often used to circumvent the public bid process since leases are not subject to award to the lowest qualified contractor (even when a public agency may have the assets to fund construction itself). It can also be used to circumvent the Federal Brooks Act, since the contractor can select anyone it wants to design the facility — it is not obligated to follow a qualifications-based selection process.
There are numerous studies that show how much public funds are lost when these schemes are followed by public agencies. The State of New Jersey, which now bans such development schemes, found that on average such projects cost the public 97% more than standard public-sector projects. Why do they cost more, when they appear to be crafted to help cash poor public agencies? More often than not, when a public agency extends the protective public umbrella over a private corporation it is repaid by shoddy construction and poor design — issues which begin to reveal themselves even before the construction projects are complete. These lead to project delays and inordinately high operation & maintenance costs.
In Idaho, such a “project” would allow the university administration to circumvent the normal public oversight of capital expenditures by both the Division of Public Works and the State’s Permanent Building Fund Advisory Council, since neither entity would have jurisdiction over the design and construction of the facility.
But, the reason why Moody’s feels this lease-debt obligation will impact the university’s bond rating has nothing to do with the university’s ownership of the land, or the probable poor workmanship of the end result — it has to do with the lease payments the university must make to the private developer for the new facility. These payments have to be made whether or not the university can fill the housing units. These required payments can adversely effect the university’s liquidity, its ability to make payments on other bonds (current and future).
BSU has several project-delivery options available to it to build student housing — if it had the money to do so. It could use a Design/Bid/Build with a Construction Manager (like it did for the last underclassman housing project on campus in 2004), or it could use a Design/Build process (like it did for the last Student Family Housing project at Chrisway & University, also in 2004).
BSU acquired the land for this housing tract under threat of Eminent Domain — and the State Board of Education granted the exercise of E.D. due to the driving need to meet a higher public good (the provision of student housing). The Board did not grant this authority to enrich a private entity by subsidizing its construction loan, or by removing its private competitors through a lucrative sole-source, long-term lease. Neither did it envision that the (oversight and qualifications-based selection) sideboards that normally protect the public’s interest would be removed by an ill-conceived development scheme.
May 19, 2010, 8:17 pm
Dean, very good analysis!
May 19, 2010, 11:57 pm
BSU does charge students for their parking spots.. When I went to college it was $45/year for a residence halls permit.. a normal student general permit was more. (think double or more) Also worth pointing out is BSU throws all the dorm students out of the parking lots for the football games causing them to have to park where red lobster was on capital boulevard. This is soooo unsafe and walking from capital boulevard to chaffee/morrison/driscoll hall etc is a very long walk.
The school charges somewhere over $100 per game for tailgater parking spaces. When BSU won the fiesta bowl the first time the school got multiple millions of dollars… the football program got around 97% and the school got the other 3%…. wonder where all this money is going? I sure am.
May 20, 2010, 12:11 pm
Gunderson = Pedant
May 20, 2010, 7:51 pm
May 24, 2010, 1:07 pm
Very late to the part but felt this needed to be corrected.
“…That was part of how the Horse House was built (now called the Pavilion). A part of the “deal” was that there would be a day-care center for the children of students in that structure, in order to use student funds to pay for the building (one of Barnes’ last deals). As soon as the students who were there at the time were gone, that child-care facility was deemed “inappropriate” and the newer, larger facility was built, and later added on to. It is also no longer restricted to the children of students, but also faculty and staff, space available.”
Grumpy, your facts ain’t facts. The Pavilion opened up in 1982, my son attended the daycare there until 1993 when he was ready for kindergarten. The facility operated for several more years out of the Pavilion before it moved to it’s much larger facility at the corner of Oakland Ave & Beacon St. That’s a far cry from it being shut down as soon as the early 80’s students were gone. It simply was not large enough to handle the needs of a student population that had increased by 50% in the time it was open.