Is KU poised to start tearing down buildings? Understanding the empty desks, the decay and the debt pressuring KU’s finances

photo by: Sylas May/Journal-World Illustration

For decades, the best thing that has been said about Wescoe Hall on the University of Kansas campus is that at least KU didn’t ever finish building it.

The concrete, 1960s-style classroom complex with a much-maligned design was planned to be 25 stories tall — the tallest building in the state at that time — before someone thought better of it.

Here’s a new thought: Tear Wescoe down.

photo by: Mike Yoder

Wescoe Hall on the University of Kansas campus, as seen from across Jayhawk Boulevard, is pictured in 2014.

No, that is not likely to happen anytime soon, but the thought of tearing down buildings at KU and other university campuses in the state may be gaining some real momentum.

If you were listening closely to a recent Kansas Board of Regents meeting, you would have picked up on that clue.

“We just have too much square footage on our campuses,” Regent Mark Hutton said at a meeting last month.

Hutton has made his living as the founder of one of the largest commercial construction companies in the state. When the guy who builds big buildings says you have too many of them, you know you’ve reached an inflection point.

A little-noticed report produced for the Board of Regents last year gives proponents of fewer university buildings plenty of numbers to press their case. Outside architects conducted a space utilization study by examining more than 200 classroom and office buildings at universities across the state.

What they found is that not a single university is meeting the Board of Regents’ goal that classrooms be scheduled for use at least two-thirds of the time during a normal school day. In the case of KU, the architects found “a potential surplus” of more than 100 classrooms totaling more than a half-million square feet, plus an additional 350,000 square feet of office space that may not be needed.

But you don’t need to get into the weeds that deep to understand this issue. There’s an easily digestible set of numbers that can tell the story pretty well: enrollment figures. In 2002, KU had 26,458 students enrolled on its Lawrence campus. By fall of 2020, that number had fallen to 22,578. That’s a drop of nearly 4,000 students. Combine that with a future that surely includes more distance learning, and it is not hard to see the argument for fewer buildings.

Even new Regents who are just now starting to get their arms around higher education issues in the state are highlighting the issue.

“Those 4,000 students,” said new Regent Wint Winter Jr., of Lawrence, referring to the approximate drop in KU enrollment, “doesn’t that say, ‘Gee whiz, we need to prioritize what buildings we are using?’ The graphs speak for themselves. We have a line of people going down, and a line of buildings going up.”

There are other charts and figures that also tell the story. I’d argue you can place them in three distinct buckets: The desks, the decay and the debt. Together, they do a pretty good job of highlighting the financial crisis that has reached the tip of the Jayhawk’s beak. Here’s a look at each.

The desks

When I say desks, I’m talking largely about empty desks, because that is what is catching the eye of the Regents. When you look at the 2020 report compiled by the architecture firm Gould Evans and Rickes Associates, you can see why.

The Regents have set a goal, based on an established industry standard, that general classrooms — think of lecture halls — be used 67% of the time during a normal school day. At KU, the report found the average usage rate was 46% of the time.

The Regents also have a goal that dedicated classrooms — think of smaller classrooms that maybe have some specific equipment, like a piano for music class or a cabinet of minerals for geology — should be used 67% of the time. At KU, the report found the average was 35%.

For specialized classrooms — think of high-tech spaces that have a lot of equipment for a certain class — the goal is 50%. At KU, the average is 32%.

It is numbers like those that play into a certain narrative that can make lobbying for additional state funding for higher education difficult, especially in politically conservative states.

“To put it in the bluntest terms, if there are few, if any, Friday classes, the parties will start on Thursday,” Michael Poliakoff, president of the American Council of Trustees and Alumni, said. “What message are we sending to students when we suggest to them that their working day can begin at 10 and knock off at 4 and Fridays are a weekend day? It is happening too much, and it is corrosive.”

Certainly there are Friday classes at KU, and there are classes that begin before 10 a.m. and last past 4 p.m. Also, Poliakoff’s organization, which is billed as independent and nonpartisan, has been criticized for being too tied to the right wing of the political spectrum and too focused on making universities function like businesses. But if you don’t think organizations like Poliakoff’s have the ear of the Kansas Legislature, you don’t understand the Kansas Legislature very well.

Perhaps KU’s best argument on this issue is that it is not alone. In fact, KU’s numbers are a bit better than several of the other state universities. For example, while KU’s general classroom usage rate was 46% — compared to the goal of 67% — K-State’s was 44%. Wichita State’s was 38%, Pittsburg State’s was 37%, and Emporia State’s was 39%. Of the main campuses in Kansas, only Fort Hays State at 49% had a higher rate than KU.

When looking at secondary campuses, KU’s medical school in Kansas City had the highest usage rate for general classroom usage at 56%, but its dedicated and specialized classroom usage rates were among the lowest at 22% and 17%, respectively.

KU’s Edwards Campus in Johnson County also had the lowest general classroom utilization rate of any campus measured, at 31%. Since Edwards offers night classes in addition to daytime classes, the Regents’ goal for that type of classroom is 80% usage.

For folks who watch KU through a Lawrence-colored lens, it will be interesting to see whether KU adopts a strategy of filling that Johnson County campus with some classes that normally would be happening in Lawrence.

Thus far, KU hasn’t announced any such strategy. Instead, last week it quietly announced it has launched a new space utilization study that will focus on whether KU needs all the leased space it currently has, which often is used for research or administrative offices.

“We are currently conducting a space utilization study, with our goals being to reduce the need for off-campus leased space and to improve the efficiency of space utilization for our on-campus facilities,” a message from the provost’s office to the university community said last week.

The decay

A study that only focuses on getting rid of leased space likely won’t be enough to allay Regents’ concerns. That’s because leased space doesn’t create the same type of problem as owned space: maintenance costs.

Maintenance costs may become the new driving force behind budget cuts at KU. As we reported in June, the Board of Regents approved a new policy that easily could require KU to spend an additional $50 million a year over and above what it already spends on building maintenance.

The amount was so high that it caused KU Chancellor Douglas Girod to be unusually blunt with his bosses, telling the Regents their policy was “irrational.” Other university CEOs chimed in with their objections. A majority of the Regents, though, approved the policy anyway.

The saving grace is that KU won’t have to come up with $50-plus million all at once. The Regents agreed to give KU and the other universities six years to accumulate the money. But then, from that point forward, KU would have to come up with the $50-plus million year after year.

It caused KU’s chief financial officer to tell the board he “had no idea” how KU was going to fund a multi-year deferred maintenance plan, although he did mention cutting programs, and “I really mean cutting programs.”

As an observer, I couldn’t tell how realistic Regents thought it would be for KU to come up with the money. Clearly, Regents would love for the Kansas Legislature to provide the additional money, but that hasn’t been the trend lately. I know several observers wondered if what the Regents actually were doing was sending a message that universities need to get rid of some of their buildings.

It is unlikely that the Regents ever will start directing schools to tear down specific structures. But a policy like this may cause a chancellor or a president to come to the conclusion that it is easier to tear down a building than it is to come up with the cash to maintain it.

The policy is set up to reward that type of thinking. The $50 million amount facing KU, for instance, isn’t calculated off of some list of roofs that need to be replaced or boilers that need to be repaired. Instead, the policy calculates the total replacement value of all KU buildings and then requires the university each year to set aside 2% of the replacement costs for those buildings.

If you tear down a building, that replacement value disappears, and thus the amount of cash you have to come up with drops too.

The policy, seemingly, will cause university CEOs to think hard about whether they want to add new buildings in the future. Every new building that is added increases the university’s total replacement cost, which in turn increases the amount of maintenance cash the university must come up with each year.

The policy suggests that some Regents agree with the thinking of Poliakoff, the president of the American Council of Trustees and Alumni.

“A building, even if it is philanthropically funded, is the gift that keeps on taking,” Poliakoff said.

The debt

However, surely it is unrealistic to think KU is never going to construct new buildings again. Sometimes you need newer, better, more advanced facilities to compete for students and faculty.

KU leaders said that was the case with the Central District project that was completed in 2018 and included a new science building, a renovated student union, apartments, a parking garage and other improvements.

The project really was driven by former Chancellor Bernadette Gray-Little. It has not been universally praised, with some faculty saying the project’s costs have added to KU’s budget woes.

Current KU administrators, though, continue to back the soundness of the project.

“This is an incredible asset, in my opinion as a CFO, of resident housing, research facilities and a physical plant that will give you the ability to grow,” said Jeff DeWitt, the university’s chief financial officer, who joined KU in February. “It is not an albatross, in my opinion, that I hear many people talk about it.”

But the project unmistakably did add debt to KU’s books in ways that few other projects ever have. In 2016, a “development corporation” of KU took on $326.9 million of debt for the project. By the end of the 2020 fiscal year, KU still owed about $315 million on the debt. The debt is not scheduled to be paid off until 2046.

Those numbers are so large and the time periods so long that they can almost become meaningless. Another way to look at debt is by examining how much cash KU must come up with each to year make its debt payment. In other words, cash that theoretically could be used for something else, if it wasn’t paying for debt.

In fiscal year 2020, KU paid just more than $46 million in debt and lease payments. In 2002, KU was paying just more than $6 million.

DeWitt, however, stresses that not all debt is created equal. For instance, some debt really does pay for itself. Debt to build a parking garage, for instance, is often paid for by the fees generated from the new parking garage. If you didn’t build the garage, you wouldn’t have the additional revenue.

True enough, but others argue that debt almost always decreases the flexibility that universities have in the future. When you have to start making budget cuts — KU’s current budget included more than $20 million in cuts — a university can’t simply decide to reduce the amount of debt payments it makes each year.

“Any entity, whether it’s an individual or an institution, that is piling up debt is exposing itself to risks that may become really, really threatening for its future,” Poliakoff said.

When it comes to threats, KU has several that are common red flags in the world of business. It has a declining customer base (students); rising cash flow demands (debt payments); underutilized assets (classroom spaces); and a large, unfunded liability (maintenance costs).

That’s why Poliakoff and other like him argue that universities need to make changes that embrace some business efficiencies. For instance, recognize that there is no need to have a school schedule based on a farming economy, Poliakoff said. That would mean many more classes in the summer, along with nights and weekends, to better utilize existing buildings. Doing online learning really well also will be imperative, he said.

Poliakoff said it is important to note that KU certainly isn’t alone in its challenges. Many universities across the country are facing similar or worse financial pictures. But the commonness doesn’t make the issue any less serious.

“KU is not alone, but KU needs to address KU’s problems,” he said.

DeWitt doesn’t disagree. And he’s seen problems before. He came to KU after serving as the CFO for the City of Phoenix, and most recently as the CFO for the District of Columbia, where he oversaw a $16.9 billion annual budget. (KU’s is closer to $1.5 billion.)

In Phoenix, DeWitt was the chief budget officer when city revenues fell by 50% in 2010 as result of the Great Recession. It was three years from insolvency, DeWitt said, but now the city is in a fine financial position.

In Washington, D.C., the district lost nearly $1.5 billion in revenue but worked through it with no layoffs, he said.

“So, there are ways out of challenges,” DeWitt said via email. “I would argue all, or nearly all, universities or governments with slow or no growth face the same challenges. How they address them in the next five years or so will determine how they end up.”

DeWitt is confident KU will figure out how to address its challenges. He said the university will “look at space utilization, capital and infrastructure planning, enrollment strategies, operational efficiencies, student retention,” and other initiatives.

“Yes, we will be busy,” DeWitt said via email, “but nothing you point out cannot be addressed and will be.”

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