UNR Budget: Misplaced Priorities and Diverted Resources
Student Fees and Unrestricted University Assets Diverted to Business Building PPP
Part 5 in our series on the budget situation at the University of Nevada, Reno. Here we examine the funding of the new Business Building.
The new UNR College of Business Building at University Way & East Ninth Street is being funded under a complex Public–Private Partnership (PPP) in a lease-back arrangement. Since no state funds are being provided for the $164 million Mathewson Gateway project [1], a private corporate entity is financing and constructing the 128,000 sq. ft. building, which will be owned by UNR after thirty years.
According to the PPP agreement submitted to the Board of Regents, UNR is committed to payments of $10.25 million/year in lease payments for thirty years ($308 million total) for the business building. That annual amount will be sourced by a quasi-endowment, anticipated hotel/convention center revenue, and the Capital Improvement portion of student registration fees:
- An estimated $4.1 million per year is projected to be generated from a $100 million quasi-endowment to be raised by the UNR Foundation. Of that, $50 million is a transfer from the University to the Foundation of existing unrestricted proceeds from the University’s ownership stake in the Marigold gold mine in Valmy, Nevada–royalties from a mining claim donated to UNR in the 1970s (video).
- An estimated $500,000 per year is anticipated revenue from a proposed hotel/convention center project to be built on the property, which is near the existing hotels and convention center in downtown Reno. It is difficult to estimate how competitive a new non-gaming property will be in this location, and the hotel/convention center phase of the PPP has not yet been brought forward to the Board of Regents for approval.
- As the “last dollar” source, the remainder of the annual lease payments come from the Capital Improvement portion of per-credit student registration fees. (See Part 4 for an explanation of student registration-fee distribution). UNR estimated to the Regents that “approximately one-half” of the lease payment, or $5.1 million/year, will come from the student Capital Improvement fee. However, that could be more or less depending on the quasi-endowment fundraising and potential hotel/convention revenue.
When the UNR College of Business proposed in December 2019 and March 2020 to raise differential student fees for business courses to help fund a new building, the Board of Regents refused twice. But then a 34% increase of the UNR Capital Improvement registration fees for all undergraduate UNR students (20% increase for graduate students) was approved in May 2022 without any discussion by the Regents (details in Part 4). When the PPP was approved a year later by the Board of Regents, in June 2023, the UNR Chief Financial Officer told Regents there were no new student or differential fees for the project, only the “existing capital improvement fee” (video). That was technically true because the increases in Capital Improvement student registration fees for FY2024 and FY2025 had been approved in May 2022.
As described in Part 4, the large increase in the Capital Improvement portion of undergraduate per-credit registration fees to help fund the Business Building came with a negative trade-off. Namely, there will be zero inflationary increases for FY2024 and FY2025 in the registration fees supporting the State Operating Budget, which funds instructional and support personnel who serve students and basic operations. That represents an ongoing diversion of student fees of $3.65 million per year from UNR’s core instruction and support operating funds and is a large part of the $5.1 million or more in student Capital Improvement fees obligated to the PPP. All UNR students, regardless of whether they benefit from the new building, will now pay for it through reduced services and course options across the university. Each $1 million diverted from the state-supported Operating Budget represents about 10 new faculty positions that cannot be filled [2].
The new Business Building—still lacking a $25 million naming gift—has been under construction since October 2023. That month, the UNR administration told the Faculty Senate the University had raised 65% of the $100 million quasi-endowment goal. Of that, $50 million is from the transfer of the existing Marigold Mine funds from the University to the UNR Foundation (video), so only $15 million of the remaining $50 million goal had been raised at that juncture as new donations for the Business Building. Fundraising of $15 million pales in comparison to the cumulative thirty-year cost of $308 million, not including maintenance and utility costs. [Update: On 1/18/2024, Vice President Richard told the Faculty Senate that "over $10 million" in private philanthropy had been raised for the business building.]
[Update 2/6/2024: According to the minutes of the May 22, 2023, meeting of the Executive Committee of the UNR Foundation, the Foundation approved up to $1.9 million for four years for the purpose of paying the Business Building sublease, as a backstop pending fundraising for the quasi endowment. The Foundation liquidated the $1.8 million unrestricted Stevenson family trust endowment to provide for the backstop funding. The Foundation also waived its 0.5% management fee for the $50 million quasi endowment for a four-year period.]
The $50 million of the windfall from the Marigold Mine represents unrestricted university assets that could be used to support academic programs but are now committed to the Business Building project for thirty years. Since gold mine royalties are a fluctuating and finite revenue stream, it is a smart move to convert the accumulated royalties into a quasi-endowment for long-term stable income [3].
Along with the risk of the financial viability of the proposed hotel/convention facility, the PPP funding model carries potential risks. Edgemoor, the development firm engaged by UNR, uses a “progressive PPP” model with a shorter track record than traditional PPPs and potential pitfalls. As with the ill-fated Fire Science Academy in Carlin, the UNR and NSHE officials who approved the PPP will be long gone by the time we know whether the funding plan for the business building is sound.
The thirty years of $10.25 million/year in commitments will tie up $5 million/year in student registration fees (or more, depending on the success of fundraising for naming opportunities and hotel/convention center revenue) as well as the income from the Marigold Mine quasi-endowment (estimated at $2 million/year). Since construction is moving forward, the thirty-year PPP commitment is not reversible.
In the worst-case scenario of no additional fundraising and a hotel/convention center that does not materialize or run a profit, students will be paying $7.6 million/year in Capital Improvement fees while receiving fewer services, fewer classes, and greater frustrations.
###
The information in this series of analyses of the UNR budget is based on public reports and records, interpreted as accurately as possible given uncertainties in the assumptions used for various reports. Corrections from authoritative sources are welcome. Contact: kent.ervin@nevadafacultyalliance.org.
_______
[1] Acharya, Tanvi. "FC details for Nevada uni P3", IJGlobal Project Finance and Infrastructure Journal, 7/24/2023. [Available via EBSCO at library.unr.edu]
[2] A UNR Assistant Professor hired at Q1 on the current salary schedule would earn $69,383. Adding the 33.8% fringe rate gives $92,834, or 10.8 positions per million dollars. By the Board of Regents action on December 1, 2023, the salary schedules will be augmented by 10% as of July 1, 2024, giving 9.8 positions per million dollars for future new hires.
[3] NFA submitted a public records request in December to determine the continuing royalty income amounts and their distribution. [Update 2/6/2024: In FY2023, the $50 million in Marigold Mines royalties were transferred to the UNR Foundation for the quasi-endowment. An additional $5.6 million was transferred to "Institutional Support" (program destination to be determined), leaving $491,452 in the royalty account as of 6/30/2023.]
Articles in this series:
