MayCover2009
THE
BULLETIN
Volume 77 | Issue 3
May 2009

Weathering the Storm: Facilities strategies for a down economy

Jeff Ziebarth & Jeff Stebar

 The current state of the economy has placed colleges and universities in a difficult position—attempting to balance capital needs with tighter budgets, losses in endowments, decreasing state support, increasing enrollment, and continuing competition for faculty and students. No institution is immune, from large, private universities with huge endowments to small community colleges dependent on public funding. From California to the Carolinas, many state governments have extreme budget shortfalls that are powerfully affecting the capital projects of their university systems.
 
Many institutions have placed major building projects on hold until economic conditions improve, and for some, until the value of their depleted endowments stabilizes. In some cases, colleges have decided to phase or delay projects to be more cautious in their projected capital expenditures.
 
Still others, with the dollars already in place for the current fiscal year, continue to move forward with their building plans. While each institution must proceed cautiously, with an approach appropriate to its short- and long-term strategic goals, the current economic situation does not necessarily need to halt all progress on capital projects. A few ideas can help facilities professionals make the most of the current economic situation both in the short term and long term.

Short-Term View

Invest in strategic planning

Strategic, campus, and academic planning are short-term investments with long-term benefits. These “30,000-foot views” can provide a valuable framework for institutions—during periods of reduced spending—to assess facility needs and priorities, financial and economic realities, alternative funding options, short- and long-term imperatives, and future expansion/renovation plans.

Many campuses are rethinking their priorities, their ways of doing business and creating partnerships, and the implications of potentially transformative changes in technology and education. They are also taking a hard look at cost containment. In April 2008, the American Association of State Colleges and Universities conducted a survey analyzing the degree to which academic institutions rely on individual components for cost containment. Three of the top five components are areas in which strategic design and planning can have a significant impact: energy management, facilities and infrastructure, and dining food service/residence hall operations.


Institutional strategic plans, campus facility master plans, and feasibility studies can be carried forward with a relatively modest investment of capital expense. They can provide a flexible, consensus-driven pathway for moving forward with capital projects that, taken as a whole, meet the institutional mission and result in both short- and long-term cost savings.

One campus is taking this to heart: Based on student response once a draft of Northwestern University’s strategic plan was unveiled a few months ago, the institution recently updated that plan to include a new college union. The administration does not anticipate any other serious changes to the plan, despite the university’s shrinking endowment in the economic downturn, said Ron Nayler, associate vice president for facilities management, in the Daily Northwestern.

Invest in sustainable retrofits or energy master plans

The American Recovery and Reinvestment Act signed into law in February, the $410 billion spending bill for the current fiscal year, and the proposed 2010 budget commit significant funds to green energy and environmental initiatives, including $39 billion in the “State Stabilization Fund,” of which $8 billion can be used for modernizing school and college facilities.

As education industry analyst Paul Abramson stated in the College Planning & Management 2009 College Construction Report, “It would appear that most of that stimulus money that does come will be aimed at renovation projects rather than new buildings.” When campuses renovate buildings, the report shared that they most often overhaul the electrical system followed by the heating, ventilation, and air conditioning (HVAC); plumbing; lighting; and flooring/carpeting. One such institution is Bryant University in Smithfield, R.I., which recently applied to the federal Office of Economic Recovery and Reinvestment for funds to modernize its college union’s 1980s-vintage HVAC system to be more energy efficient.

Campuses often look to green their facilities at the same time they conduct such renovations. A strategy for the implementation of sustainability—whether a comprehensive overhaul or minimal, staged interventions—can make a significant impact on operating costs. Whether planning or executing sustainable retrofits, crafting a master plan for energy efficiency, or drafting green guidelines for future development, colleges can reap efficiencies that will pay back in future savings, in a range of investment values.

A grassroots sustainable effort can make a significant impact on the campus as a whole. At Appalachian State University, 10 students, eight faculty/staff, and union director Dave Robertson began the Plemmons Greening Committee. This student-funded initiative began with small efforts like installing water bottle “refueling” stations and adding $4 aerators to each sink. For each element, the committee posted signage describing the results of each measure. Over time, the facilities staff noticed the building’s shrinking utilities bills and the movement grew until it encouraged the university chancellor to initiate a campus-wide sustainable design initiative.

Rethink space use

Facilities professionals can take new approaches to develop space economies based on collaboration and interaction between students and faculty, graduates and undergraduates, and among departments.

Interdisciplinary thinking and agility are becoming guiding principles for many academic programs and institutional organizations. When space is shared among disciplines, departments, or programs not only is efficiency increased, but also exciting new synergies, ideas, and research can emerge. With careful programming and planning analysis, this approach also can be applied to existing facilities that sometimes require minimal or no construction intervention and expenditure.

At South Dakota State University, the union dining space is flexible according to student demand. The core dining area is surrounded by informal lounge space, which accommodates student overflow during peak demand—from 11:30 a.m. to 2 p.m. Not only did this reduce the dining area by 25 percent compared to the previous arrangement, but over time, the lounge and adjacent dining areas have become the preferred space for informal, socializing, and group study.

At Texas State University San Marcos’s Lyndon B. Johnson Student Center, a large classroom was included in the center’s design plans to encourage broader student use, and to help finance construction. The classroom was funded—not by student fees, as is typical of college unions—but through education and general tuition dollars. It brings students into the building during the day and in the evening provides much-needed meeting space for student organizations.

Build it if you can

The recession has had a significant impact on the construction industry. Wilfred Laurier University–Brantford’s proposed new college union also is currently on hold after steel and concrete issues took the project $4 million over budget. According to the Queen’s Journal, the union “was originally conceived in 2006 as a $6-million building. As the campus grew, the size of the project increased to $16 million.” The campus has about 2,000 students and is growing by around 10 percent every year. Now, the building plans have been modified to remove the planned residence space and self-operated food services and add classroom and office space. The revised plans show construction to be complete for a September 2010 opening.

Elsewhere, the news is better. Ed Denton, vice chancellor of facility services at the University of California–Berkeley, told the Daily Californian in November: “I’ve only seen a couple projects … be postponed. They were very small projects, but that could only be the beginning.”

Higher education typically has a more resilient business model than other sectors, with long lead times for planning and multiple sources of revenue and capital. In a March news release, Karl F. Almstead, vice president responsible for the Turner Building Cost Index, said, “Construction activity in the education, health care, and public sectors continue to show strength, and increased investment in green buildings across all segments are sources of optimism as potential beneficiaries of the economic stimulus legislation.” In addition, the cost of construction has come down as prices for key construction commodities have fallen and competition in the industry has increased.

The impact of the American Recovery and Reinvestment Act is not yet known, and at press time, Congress had not approved the 2010 U.S. federal budget. Until credit is made more readily available, it will be hard to determine when projects that have been put on hold can get back on line.

Gonzaga University is one such institution. According to the Spokane Journal, the university has “decided to postpone construction of a greatly enlarged student center and a 630-space parking garage and retail center until the economy improves, and probably will reevaluate the scope of those projects before proceeding with them. It previously had estimated the combined cost of those projects at $49 million to $54 million.”

If an institution has capital construction dollars already set aside and still available, this may be an excellent time to break ground. “Citing prudent fiscal policies and strong credit ratings,” Rutgers University’s media relations office announced the institution is embarking on a $500 million capital construction program that will create 5,000 jobs through 2011. Included in the program is $18.2 million to expand the Livingston Campus Student Center in Piscataway, N.J.

Build smaller and smarter

There are several approaches that can be taken to phase or defer building costs over time.

Phased construction, if strategically coordinated with program priorities and a long-range funding plan, can spread costs over time. However, this is often not the most cost-effective approach since total project costs will always be higher in the end and usually opportunities to incorporate operational savings are diminished or lost when projects are phased. Also, many of the general overhead efficiencies gained in a larger, continuous construction effort are lost. Costs will be less up front but will always be more expensive over the life of the project.
 
In a February letter “to the Aggie family” about the current Texas A&M University Memorial Student Center project, President Elsa Murano said: “I would be remiss if we did not also carefully weigh the financial implications of delaying the $100 million project if we had to renovate the facility in a phased construction approach. … In addition to the increased safety risk, phasing construction to allow partial occupancy during the entire construction of the MSC could cost an additional 10 to 15 percent, or $10 million to $15 million. Furthermore, … phased construction could take up to a year and a half longer to complete the project, for a total of four and a half years. Given the economic uncertainty nationwide, it would be irresponsible to pay these escalated costs just to keep the building partially open. By shortening the construction time and proceeding with a phased opening beginning in about two years, this money can be used for actual building improvements.”

As an alternative to completing construction of a building in two or more phases, some institutions elect to complete the entire “core and shell” of the new building, along with a portion of its interior program space, in a single phase. The remaining incomplete areas are left as “shell space” until additional funding is available or until programs intended to occupy the space are confirmed. This enables an efficient building process and avoids the need to mobilize exterior construction and its accompanying disruption at a later date. It also provides the advantages of flexibility when programs for the building have not been fully determined.

 

Long-Term View

 

The next few years will be a time of financial uncertainty and retrenchment. However, many academic institutions will use this time to examine their strategic goals, assess their external environments, explore new approaches to financing, operations, student life and teaching/learning modalities, and redefine project priorities.

The American Recovery and Reinvestment Act of 2009 contains a provision for $3.9 billion for adult education and job training to be made available to higher education through the provisions of the Workforce Investment Act and competitive grants. The 2010 budget is proposed to build on the Recovery Act and is clearly focused on greater, more consistent access to higher education, renewed support for community colleges and for-profit academic institutions, education of a new generation of teachers and health care providers, and training programs to support sustainable and high-tech industries.

The pressure on academic institutions to educate, retrain and provide lifelong learning to an evolving workforce will continue to increase as the economy tightens, as global competition steps up, as the labor market shifts to new industries, and as baby boomers look for “encore careers.” Higher education will play a vital role in building a strong, stable, and innovative economy.

Plan for increased attendance

The higher education community has been presented an enormous challenge by the American Recovery and Reinvestment Act: that of achieving the highest proportion of college graduates in the world by 2020. The Lumina Foundation for Education estimates that to have 60 percent of Americans hold high-quality, two- or four-year college degrees and credentials by 2025, the U.S. would have to produce 16 million more graduates than we do at current rates.

This initiative will greatly affect public four-year institutions and community colleges. Already, two-year colleges are “the fastest growing segment of higher education,” according to a January New York Times article. The increased demand, and funding, for applied programs and specialized workforce training, (particularly in the allied health and energy-related fields) is driving some of this growth, as well as “reverse transfers”—students who leave four-year colleges to attend more affordable community colleges. It’s estimated that an extra 800,000 students, or about 7 million total, will be eligible for Recovery Act funding, adding to the increasing number of students looking to attend college. This added pressure comes at a time when deferred maintenance and lack of capacity is already a long-standing problem at many public institutions.

Facility master planning and strategic analysis of academic programs can help institutions make the highest and best use of existing facilities and also clarify pressure points and expansion needs. A comprehensive academic plan identifies underperforming programs and areas that can be shared among disciplines. This kind of planning (when balanced with the institution’s mission and with external drivers and trends) can be an effective decision-making tool, particularly for institutions with limited resources in times of great change.

While many might expect academic facility projects to “win” when prioritized against student life buildings, such was not the case at the University of Western Ontario. Upon opening the campus’s new recreation center, Vice President Gitta Kulczycki told the Queen’s Journal: “We know we have to scale back our capital projects, which we did. The ones we must absolutely go forward with were related to academic imperative. We have put our physics and astronomy building officially on hold. It’s important to us, but we just can’t afford it.” The University Community Centre also is under construction and scheduled to open in a matter of months.

In the United States, an explanation for this trend was shared in an April Chronicle of Higher Education article: “[As] state-funding capital has diminished … the things that you can fund are things that can be supported by student-fee-financed bonds.” Not only does student fee funding grow with enrollment, but also student life facilities serve all members of the campus community instead of just those studying/teaching a certain discipline.

Consider new partnerships

Many land-rich universities are taking advantage of new ways to develop their holdings through public-private partnerships, according to a June 2008 Moody’s Investors Service Report. The projects can include development of mixed-use facilities that enhance local communities. They provide new revenue sources, can help build alumni connections, and in the case of Furman University, reach a new type of student. The Woodlands at Furman in Greenville, S.C., is a continuing-care retirement community set on 22 acres adjacent to the University. When complete, in mid-2009, it will offer access to community cultural and sporting events as well as Osher Lifelong Learning Institute at Furman University, offering more than 90 courses per term taught by Furman faculty. In 2008, this program enrolled 634 “senior college” students. Furman leased the property to the non-profit company, Upstate Senior Living; and Greystone Communities is overseeing construction and managing the facility.
 
Public-private partnerships also are becoming more common as alternative financing models for capital projects. In most cases, these involve privatized student housing, research, retail, and parking—projects that generate their own revenue streams, funded by student fees or tuition increases, “rent,” and research grant money. The success of this approach requires parallel goals, as well as nimble and aggressive finance and operations. It also relies on continued access to capital and a reasonable return on investment.

At Imperial Valley College in Imperial, Calif., April 23, 2008 Planning and Budget Committee meeting minutes indicate the college was exploring the feasibility of a college union built through a public-private partnership. The committee recognized that such partnerships are rare in California and wanted to be certain the funding strategy made good business sense.

In Dallas, Southern Methodist University announced a partnership with video game retailer GameStop to create a gaming lounge in the college union. In return for serving as a “consumer testing site,” the lounge will feature late-night hours and allow testing of student-produced games, dBusiness News reported in April.

Embrace globalization

There are some predictions that declining world economy, combined with increasing demand for higher education, may lead to international enrollment increases at U.S. colleges—at least in the short term. In the long term, the view is less clear. In a 2008 presentation at NAFSA Association of International Educators Region III Conference, NAFSA President Everett Egginton reviewed the following global trends shaping higher education. By 2025, global higher education demand for admission will double to 200 million students annually, with developing nations accounting for a majority of global capacity. There will be a substantial global increase in the number and size of higher education institutions and increased competition for students, as higher education becomes a globally traded commodity. Fundamental changes in the dynamics of higher education will challenge traditional models, with initiatives like Europe’s Bologna Process, which is reconstructing higher education systems in a move toward common reference points and operating procedures, to create a European Higher Education Area of 4,000 institutions and 16 million students. This will lay the groundwork for unprecedented mobility in Europe. All of this will challenge institutions to innovate structurally as well as in subject matter and pedagogy.

Educating a skilled and globally focused workforce will be (and is) critically important as global economies become increasingly interdependent—a fact all institution types are beginning to recognize. On March 20, Columbia University announced the establishment of Columbia Global Centers in Beijing, China, and Amman, Jordan. They are the first of a planned network of centers around the world to promote international collaboration. Kenneth Prewitt, director of Columbia’s Office of Global Centers, said in the news release: “Many of the most pressing issues of the day are best approached … by groups of scholars and researchers from diverse backgrounds bringing their expertise to bear in novel ways.”

Craft a sustainable future

A large portion of the funds allocated in the American Recovery and Reinvestment Act are directed to the development, manufacturing, and installation of new renewable energy systems. The package includes more than $42 billion in energy-related investments, including loan guarantees for renewable energy projects and direct government grants for makers of wind turbines and next-generation batteries. It also will cover 30 percent of wind and solar energy investments; and contains $20 billion aimed at “green” jobs to make wind turbines and solar panels, as well as improve energy efficiency in schools and federal buildings. These federal initiatives represent a major shift in making sustainable technologies more universal and affordable.

In the meantime, there is a continuing movement among academic institutions to improve their environmental stewardship and focus on sustainability. More than 600 campuses have signed on to the American College and University Presidents Climate Commitment, agreeing to take specific steps in the pursuit of climate neutrality for their institutions. The University of Washington is one of these signatories and for the expansion of its Husky Union Building, university leaders were committed to achieving a high level of sustainable design. Students were involved from the beginning—in town-style meetings—and saw this as an opportunity to pass on a legacy of environmental stewardship to future generations of students. The selected scheme targets LEED-Platinum certification. Sustainable goals include: 60 percent energy reduction, 15 percent renewable energy, net zero water, sustainable food service, and 50 percent waste reduction, among others.

 

Conclusion

 

The impact of the ongoing recession on universities and their capital plans will continue to unfold as economic conditions evolve. Institutions may adjust and redistribute dollars intended for capital projects to operations, maintenance, or smaller projects in the upcoming fiscal year, but the longer-term impact will not become clear until the economy begins to stabilize.

According to an April Chronicle of Higher Education article by Scott Carlson, “Facilities are second only to personnel in campus expenditures. One gross square foot of construction can cost $300. Some experts say that on a 5-million-square-foot campus, 1 percent of underutilized lab and office space equals about $3.7-million in wasted construction costs. And that’s just the beginning. Maintenance, utilities, and renewal costs can compose about 70 percent of the lifetime costs of a building.”

A sample of 44 college union projects currently underway or completed in 2008 revealed the median size is 60,000 square feet at a median cost per square foot of $236.88, according to College Planning & Management’s 2009 College Construction Report. This is less than the $300 Chronicle figure, but still expensive enough that campuses must be smart when constructing college unions. Ever-expanding fields of study, new frontiers in research and development, increased global competition, and continuing demands for facilities that will support a growing need for workforce training, will make this a challenging era for academic institutions. It is a time for college union facility planners to act with discipline and caution, balanced by optimism and innovation.