Universities as Rip-Offs: The Costly and Inefficient Edifice Complex

For years, my Ohio University office was in a lovely century old home of, I would guess, about 3,200 square feet (the university outlandishly claims 7,800 square feet, including unfinished basement and attic space). It was on the edge of our beautiful College Green, the most historic part of the oldest campus in the Midwest. Students and faculty alike loved the place. The other day, the university trustees approved $711,000 to demolish it. Had the building been properly maintained, it would still be in highly productive use. Moreover, the school is spending about $220 a square foot, not to build something, but to destroy it. I suspect I could quickly find a competent destroyer of old homes who would do the job for at most 20 % of what my university plans on paying. I almost certainly could even find many reputable builders who could essentially built a very nice 3,200 square foot house from scratch for $711,000—including tearing the old house down and using that lot for rebuilding.

In fairness to Ohio University, outrageous expenditures are commonplace for campus buildings. The University of Massachusetts at Boston spent $130 million on a 190,000 square foot academic building recently—$684 per square foot. Princeton built Whitman College (a housing facility named after eBay tycoon Meg Whitman) in 2007, complete with a dining room with a 35 foot oak ceiling that would have awed Harry Potter, and tripled-glazed leaded glass windows, costing over $300,000 per bed or $650 per square foot in today’s dollars. If the money had been borrowed at four percent interest, it would take at least $1,300 monthly per bed just to pay the interest costs of the facility for the nine months used annually. No private developer would rent beds in the complex for much less than $2,500 monthly after accounting for depreciation, taxes, etc. Bloomberg Businessweek termed it “a billionaire’s mansion in the form of a dorm…” Yet presumably Whitman and other donors received tax benefits from the U.S. government for this exercise in conspicuous plutocracy.

In the Bay region, where environmental and regulatory insanity routinely prevent needed new construction, pushing housing costs extremely high, the University of California at Berkeley cannot even rebuild a badly depreciated parking garage without years of delays, wrangling about an environmental impact statement, etc. A fairly reasonable garage was proposed that cost a moderately pricey $30,000 per parking stall, but the inefficiency endemic to modern universities took hold, leading to a facility with per stall costs in the $100,000 range. A private garage operator would need probably $30 daily parking fees per car to make the investment minimally profitable. Adding university bureaucracies and “shared governance” decision-making onto environmental extremism, you get chaos. According to news reports, the AFSCME labor union will not even let Berkeley use modern technology to replace humans in collecting parking fees.

I have said it before but it bears repeating: university buildings are disenfranchised in discussions over university resource allocation—they cannot talk. Students complain they need more recreational space, and faculty say their laboratories need modernized, administrators want new spiffy teleconferencing facilities and alumni want country club-like areas in the stadium where they can drink while watching ball throwing contests. But the existing buildings are silent. We will let a somewhat decrepit classroom building deteriorate a bit more so we can fund the academic fad de jour: maybe more sustainability administrators. In a few years, we will declare the building beyond repair and replace it with an opulent new facility that lies empty much of the year.

Universities sometimes seem to handle their accounting the same way kids measure the financial success of a lemonade stand: do revenues during the recent time period exceed expenses? Depreciation of assets is largely downplayed—something a CEO of a modern corporation could go to jail for if tried. Sometimes unfunded liabilities are mostly ignored (e.g., employee pensions). Moreover, building proceeds apace, aided by tax deductions for private donors and often municipal bond (low interest) financing of debt. Schools often seem blithely unconcerned or myopic about falling enrollments and the impact of declining birth rates on facility need, at a time when some observers predict thousands of schools will close (I think it may “merely” be hundreds) or merge with other institutions.