THE BLOG

Solving the College Capital Budget Crisis

06/03/2014 08:02 am ET | Updated Aug 03, 2014

American colleges and universities face a growing crisis in how to fund and even prioritize their capital construction needs. While most recognize that higher education institutions on some level can be reduced to the outcome produced by the intersection of people, programs and facilities, they typically mismanage how they approach facilities design and development.

It's surprising that so little innovation is occurring in facilities construction, despite pockets of innovation, differences in entrepreneurial approaches dependent by type and scale of institution and resource level, and the creativity of some senior leadership.

For the most part, American colleges and universities treat facilities as an independent fiefdom within the kingdom masked by "Mom and Pop" financial practices that are fueled - somewhat dangerously over the long term --by increasing debt.

Each institution is different, of course, and faces a unique set of circumstances. But the problem is that while the circumstances are unique the solution is often the same. Absent the ability to fundraise at a level that permits higher education to do anything but "run in place," presidents typically turn to board-approved debt as the way to improve deteriorating infrastructure, meet pent up consumer demands, strengthen academic programs, and remain competitive.

It's no wonder that the bond rating agencies have reacted negatively for two years to disturbing trends in how colleges and universities meet their operating and capital costs.

Facilities leadership at some institutions can also significantly worsen the problem. They speak to presidents, boards, and faculty about the "university standard" in construction often without being able to identify the standard beyond suggesting that it represents "quality" that others somehow cannot match. In the worst examples, they also control who gets to do construction and maintenance, using their relationship with inexperienced CFO's, the bid process, and trustee connections to maintain tight control over their fiefdom.

It's about power when exercised that produces a cultural inertia for which the institution can pay dearly in increasing long-term debt. Further, as projects become more technically and technologically complex, the "in house" facilities leadership can be poorly educated and positioned about how best to respond thoughtfully and creatively to institutional needs.

To improve the situation, colleges and universities must take a number of steps.

First, the institution's strategic plan should determine how buildings are built, maintained and endowed by linking institutional outcomes to a multi-year facilities and community master plan. Colleges must abandon projects that promise to "game change," overbuild, and emerge without relationship to a good space utilization plan. The alternative - unnecessary debt - has a direct and debilitating impact on the long-term stability of the institution.

Second, higher education leadership must evaluate the quality of facilities managers and their counterparts in the business office if only to limit the pressure on rising debt largely financed by the tuition and fees paid by students. In a new world that relates strategic to campus and community master planning, is the existing leadership ahead of the curve? What assistance and additional training and support do they need?

Third, has the institution provided sufficiently for an annual capital budget that incorporates depreciation and provides for maintenance of high quality for existing facilities, including new and recurring technology needs?

Fourth, is there an effort to look innovatively at which facilities need to be owned and which could be logically developed in partnership with the local community, other colleges, and by private development? If the university has a well established "social contract" with its students to further a common residential experience, is it necessary to own the building in which the contract is executed? Is a sale/lease back arrangement with private developers that permits the institution to retain control of the land a more logical approach?

By extension, should athletic, theatre, and art facilities be developed as community assets rather than stand alone complexes, designed for higher utilization throughout the year in partnership with the community? Can campus edge construction solve internal space pressure by moving business operations near the campus to free up existing campus space to be reconfigured for educational use?

In short, how can the facilities pieces be moved in different configurations, using different approaches, new partnerships, and linkage strategies that meet campus needs, hold down costs, and strengthen the management and operation of the institution?

Would ratings agencies like Moody's and the regional, state and discipline-based accreditors see these efforts to break through campus cultural inertia and outdated financial practices as a "net positive" answer to a deepening crisis?

It will be impossible to solve the college capital budget crisis without thinking more creatively about how the parts - people, programs and facilities - relate to the institution as a whole. Boards of trustees must be prepared to lead and imagine not where the college or university is but where it must be in twenty-five years.

It's time to adjust our thinking on why, how, where, and with whom we build our facilities. The health, vitality and relevance of American higher education will largely depend on it.