Forum raises questions, eyebrows

At the Finance Forum, President Linda Hanson and Vice President for Finance Doug Anderson answered several questions, but The Oracle had more. We researched the data provided by the administration and found the university is paying more than average to build the University Center and may still be able to take advantage of low interest rates if it waited to build. We also found the administration’s enrollment projections may be more ambitious than they reported.

PRICE PER SQUARE FOOT

At the Finance Forum, Anderson reported the cost of constructing the University Center is comparable to other universities. The Oracle researched these statistics and found Hamline is paying much more than reported and more per square foot than all other comparable and competitor schools listed in Anderson’s presentation. According to RS Means Construction Data, Hamline is even paying more in comparison to student centers built in New York City.

According to figures reported at the Finance Forum, constructing the University Center will cost $235 per square foot. Two-hundred thirty five dollars per square foot multiplied by the 70,850 square-foot University Center equals $16.6 million. The short fall in spending is accounted for by the 50,000 square-foot, 111 space underground parking garage. Two-hundred thirty five dollars per square foot times 120,850 square-feet equals $28 million. The figures present by Anderson and Hanson do not account for furnishing and technology charges. This number is not comparable because the figures for other universities do include furnishing as well as technology costs and only count livable square footage. Reconfiguring those numbers, Hamline is paying $480 per square foot.

According to Anderson, the parking garage will include handicap spots and spots which may be used for Hamline visitors. According to Vice President for Facilities Services Lowell Bromander, constructing the parking garage will cost approximately $20,000 per spot. This means the university can expect to spend $2.2 million of the total $30 million of construction costs on parking.

Valparaiso University in Valparaiso, Ind. was listed at the top (listed by perceived value) of the Finance Forum chart at $370 per square foot for its 202,000 square-foot Harre Union built in 2009. According to Fred Plant, Valparaiso’s executive director of Facilities Management, this figure includes furnishings and technology. Plant said, without furnishings, the building cost $250 per square foot which includes the money Valparaiso spent to refurbish the adjacent parking lot but does not include the square footage of the parking lot.

To accurately compare Valparaiso’s spending and Hamline’s projected spending on a university center, The Oracle removed the square footage and cost of the parking garage from the equation. Without including cost of furnishings or the cost of the parking garage, Hamline University can project to spend $392 per square foot for 70,850 square feet of non-parking community space. This is in comparison to Valparaiso’s $250 per square foot for 202,000 square feet of non-parking community space. Using the U.S. Government’s inflation calculator, Valparaiso would have spent $254 per square foot in today’s current economy.

According to RS Means Reed Construction Data, in April 2010, the Minneapolis average cost for student unions is $175.74 per square foot. The national median cost as of April 2010 is approximately $160 per square foot.

According to Valparaiso’s website, Harre Union is not reported as being Leadership in Energy and Environmental Design (LEED) certified or built to LEED standards. Hamline plans to build its university center to LEED Silver, the lowest LEED rating. According to a study done by the City of Seattle, it costs 1.7 percent more to construct a building to LEED Silver standards over traditional building practices.

LEED is an internationally recognized green building certification organization.

As of press time, the administration has not responded to questions from The Oracle regarding why Hamline’s University Center is more expensive than comparator sets as well as regional and national averages.

MCGOUGH CONSTRUCTION

According to Hamline’s last bond issue, the university only contracts with McGough Construction, the firm owned by Hamline Life Trustee Timothy McGough Sr.

Hamline’s last bond issue states the university ensures McGough’s prices are fair by hiring a third-party to evaluate their contracts.

According to Faculty Council President Beth Gunderson, Cost, Planning & Management International Inc. (CMPI) did a third party evaluation of McGough’s bid. Gunderson said although the university did not accept bids from other construction firms, it did bid out subcontractors.

As reported in the last issue of The Oracle, the university has already entered into a Guaranteed Maximum Price, meaning the price of the building will not change except under special circumstance outlined in Hamline’s contract with McGough. The university has not released the contract.

ENROLLMENT PROJECTS

Since Hamline’s expenses are about balanced with its revenue, according to Hamline’s 2010 financial statements, the university plans to increase revenue through enrollment and new academic programs. Administration said funding the construction of the University Center depends heavily on increasing enrollment.

“Our long term performance is based on 2,200 undergraduate [students] and a reasonable growth of three to four percent in our other programs,” Hanson said in an interview with The Oracle.

In their financial analysis of Hamline’s last bond issue, Moody’s wrote the university will struggle to increase enrollment.

“For undergraduate students, approximately 77 percent are from Minnesota. With the expected decline in high school graduates in the State and the number of competing higher education institutions, Hamline will be challenged to grow undergraduate enrollment and corresponding tuition revenues, an important factor due to the … portion of revenues they represent,” the Moody’s report read.

When asked about Moody’s report, Hanson said the firm’s projection is just an opinion.

“I’d like to know what crystal ball they’re looking at,” Hanson said.

In a frequently asked questions document handed out at the Finance Forum, the administration said the university can expect enrollment to increase after the University Center is complete. According to the hand out (available to readers at www.hamlineoracle.com) comparator schools saw an average increase of 2.25 percent one to two years after their student unions were complete.

“Not all of the increase can be attributed to a new facility, of course, but it no doubt made an impact. For Hamline, a 2.25 percent increase in undergraduate enrollment would be approximately 45 students,” the administration wrote.

According to Hamline’s Fall 2010 census, there are currently 1,982 undergraduate students, meaning Hamline will need to increase its enrollment by ten percent to reach its goal of 2,200 students.

“Moody’s believes Hamline University should be able to maintain generally stable enrollment as it continues to experience good graduate and professional enrollment to offset soft undergraduate enrollment trends,” Moody’s wrote.

In the Finance Forum, administration said they can increase enrollment beyond the goal of 2,200 students to raise revenue if needed.

OTHER LEVERS

In the event that Hamline does not reach its enrollment goals, Hanson said the university has other plans to increase revenue and decrease expenses.

“We have to look at how do we pull in and tighten our belts or raise revenue,” Hanson said.

Hanson mentioned new academic programs but said she couldn’t go into detail. In the Finance Forum, administration said the university can also rent out the University Center for community use.

According to Hanson, the university determines tuition on a year to year basis. Raising tuition is one option the university has if it doesn’t reach enrollment projections and cannot cut expenses. Hanson said overall the projections university expects increased revenue from the University Center.

“I think that the whole second floor is going to draw more students in to eat more frequently there than Sorin right now just because it’s going to be a wonderful new place,” Hanson said.

In an interview with The Oracle, Anderson said the university will probably enter into a contract with Starbucks which will also draw in possibly $100,000.

“If we’re able to finalize this whole thing with Starbucks, that could be more significant. That’s going to be a six figure number,” Anderson said.

The university will also earn new revenue on the 111 parking spaces in the University Center’s planned underground parking garage. Administration said they have yet to work out how much revenue can be earned from the parking garage.

Anderson said the university will not use either of its lines of credit — $5 million from Harris Bank and $10 million from US Bank — to fund the construction of the University Center.

“If we have a university financial issue, the answer would be yes, so those credit lines are available on a short term basis to fund a cash need if we have it,” Anderson said. “Two years ago we tapped our line of credit with US Bank when our funds were locked up during the economic crisis, and we needed to make payroll. I’ll do the same thing [if necessary].”

At press time, the university has not provided enough information to complete a balanced financial Sources & Uses report for the University Center.