Construction budget to likely shrink as officials check off major projects

Media Credit: Hatchet File Photo by Dan Rich | Hatchet Photographer

Provost Steven Lerman said he anticpates a smaller budget for construction and renovation costs next fiscal year, as the University's construction boom slows. The Board of Trustees will vote on the capital budget at its May meeting.

GW’s massive construction boom is officially winding down.

Students are taking classes in new public health and engineering buildings, the GW Museum and Textile Museum will open Saturday, and Student Health Service and the University Counseling Center moved to campus at the start of the semester.

Now that those major projects have been checked off GW’s construction schedule, Provost Steven Lerman said the Board of Trustees will likely sign off on a smaller construction and renovation budget for next fiscal year. That smaller capital budget would come during a University-wide budget crunch and marks the end of a years-long construction blitz.

Lerman said during an interview that wrapping up those projects most needed in the short term will likely allow the Board of Trustees to be “less aggressive on the construction side” when it votes on a budget this May.

“It seems to me that having now reached the completion of a large number of capital projects, I would say we’re reaching a time where we’re not going to have an appetite,” Lerman said. “But I try not to channel the Board – it’s dangerous.”

The fiscal year 2015 capital budget totaled $673.5 million. Included in that plan, which allocates money for major construction and renovation projects, was $16 million in new projects. The University also planned to invest about $17 million in repairs and replacement this fiscal year, according to budget documents.

Between 2007 and 2013, the University spent more than half a billion dollars on campus construction projects approved in the strategic plan. Officials took out an additional $300 million in debt last summer and put about half of that amount toward construction projects, like moving the health centers to campus.

Another major on-campus construction project, District House, will open in fall 2016 and house about 850 sophomores and juniors. That $130 million project is GW’s most expensive residence hall to date. The University also released renovation plans for the Corcoran school’s 17th Street building earlier this month. Those upgrades will cost about $80 million overall.

Charles Garris, the chair of the Faculty Senate’s executive committee, said it is “probably appropriate to slow down a little bit” on putting money toward buildings and construction.

“We’ve had some really major projects,” Garris said. “When you walk around campus and don’t see construction, it’s not a good sign, so there will always be something going on. But I think it’s appropriate that they’ve slowed down a little.”

Former University President Stephen Joel Trachtenberg is known for starting GW’s construction boom, adding larger, more luxurious residence halls and buildings to lure students. Garris, who has worked at GW for more than three decades, said he remembers Trachtenberg used to say, “The sign of a growing university is construction.”

“Trachtenberg would say if you stop investing, that’s a very bad sign,” Garris said. “New things could come up that could be essential for the growth of the University.”

Board of Trustees Chair Nelson Carbonell declined to comment on the capital budget until the group approves it at its May meeting.

Executive Vice President and Treasurer Lou Katz said in an email that it was “premature to provide information” about the upcoming capital budget until it is reviewed and voted on by the Board of Trustees.

“As the University adjusts expenditures to align with revenues, we will continue to leverage opportunities for long-term investment in our capital assets which puts the University in the best position year over year to attract students, faculty and researchers,” Katz said.

A smaller capital budget for next fiscal year also follows the University’s announcement in November that its original funding plan for the $275 million Science and Engineering Hall will not work. Officials had hoped to use three funding streams – rent revenue, fundraising and government subsidies for research – to cover construction costs. Instead, GW will have to rely almost entirely on rent revenue from its high-end commercial property The Avenue after failing to fundraise enough for those costs.

Media Credit: Hatchet File Photo by Katie Causey | Hatchet Staff Photographer
The $275 million Science and Engineering Hall, which opened in January, is one of several major construction projects completed in the last year.

Professors have for years questioned GW’s high rate of capital spending, which credit rating agencies have warned outpaces the University’s cash flow. And this year’s budget crunch – which resulted from less revenue than expected and larger expenses in travel, training and online programs – has led to cuts of about 5 percent across all divisions.

Economics professor Donald Parsons, who is a member of the Faculty Senate’s finance committee, said the shortfall is because of GW’s high spending on construction projects. Parsons has been a longtime critic of the University’s financial strategies and wrote a report this winter concluding that its large debt load will hamper future growth.

“It has really induced the budget crunch rather than a reaction to it,” Parsons said.

And even though projects are wrapping up, Parsons said GW will still be stretched as it pays off debt on those projects. Officials plan to pay off the Science and Engineering Hall over about the next 30 years, for example.

GW will pay $66 million this fiscal year to cover the interest on its debt – the largest total yet and about equal to the amount it can use from its endowment each year. That interest payment grew 16 percent from the previous year.

“So the impact of all this on the operating budget? Well, they don’t have it projected to ever end,” Parsons said. “In terms of the impact on your wellbeing or other students, it’s not clear.”

Lerman said if officials stopped capital projects altogether, over time “that money would be available” to spend in other areas, but he said putting money into buildings – even during a budget crunch – is part of the University’s long-term strategy to attract students to campus.

“The problem, of course, is who would want to actually come here, to a place that sort of went into stasis?” Lerman said. “My view on this is it is precisely during downturns that wise universities invest in their facilities.”

Joseph Cordes, the chair of the Faculty Senate’s finance committee, said schools “begin to pay the price” if they put off making upgrades to buildings that need occasional repairs.

“Immediately it does give you some relief,” Cordes said. “But campus capital stock depreciates over time and down the road you may have to spend more to keep up what you have.”

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