The $40 Million Question: Two More Emails on the Faculty Center Issue

A blog post yesterday featured an email exchange on the proposed demolition of the Faculty Center between Prof. Dora Costa (Dept. of Economics) and Prof. Ann Karagozian (Chair of the Academic Senate). Here are two more emails, these related to the use of $40 million in gift funding, in the interest of our fair and balanced reporting.

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From: Daniel J.B. Mitchell

Sent: Thursday, March 03, 2011 9:05 PM

To: Ann Karagozian

Subject: Re: petition to CPB and FW on proposed RCC/hotel

Ann: This project surfaced last spring before the Luskin gift was known.

The proposal of 2/28/11 on the Senate website puts the project cost at $143 million of which $40 million is Luskin gift money.

That means only $103 million now has to be borrowed instead of the whole $143 million. (I am referring to http://www.senate.ucla.edu/documents/RCC-FCPresentation_Morabito_02-28-11_000.pdf

If I multiply the debt service on the chart of 2/28/11 (line 21) by $143/$103 to simulate what the debt service would have looked like last spring, the project appears to be a net loss.

Yet it was proposed last spring as a feasible project, presumably not as a loss-maker. How was that possible, absent the $40 million? Indeed, it continued to be put forward as feasible through last fall, still before the Luskin gift.

It might be noted, based on comments made by Luskin at the time of his gift, that he was guided towards this project. That is, his $40 million could have gone elsewhere, offsetting debt service on some other worthy project. Unless he has his heart set only on this particular project, it is not clear that its cost to the university is not debt service on the whole $143 million, explicit ($103 million) and implicit ($40 million). Another way to put this is that unless Mr. Luskin had his heart set on this project, and only this project, it has already cost the campus $40 million in funds that could have been used for something else.

These are the kinds of questions Prof. Costa was raising in her email and, as you can see, they are not answered by web links. Prof. Costa's concerns can only be answered by an independent review by someone expert in the economics of the hospitality industry. Is the Senate proposing to hire an independent expert to make such an evaluation? Otherwise, all we have is a spreadsheet whose underlying assumptions are not apparent.

--Dan Mitchell

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From: Ann Karagozian Thu, Mar 3, 2011 at 9:28 PM

To: Daniel J.B. Mitchell

Dear Dan (and I apologize to others for flooding your inboxes on this topic!),

Your first two questions regarding (a) when the administration knew about the Luskin gift and when they applied it in their financial estimates, and (b) why Mr. Luskin is putting part of his gift into the RCC/FC project vs. something else, are best answered by the administration. I suggest that you be in touch with them directly and personally. I have no personal knowledge of the answers to either of these questions.

Regarding your third question on the “independent review by someone expert in the economics of the hospitality industry”, I believe this is in fact the report that has been completed by the outside consulting firm that is currently being redacted. As I mentioned in my email below, that report provides the underlying assumptions for the occupancy rates, cost estimates, etc. that went into the spreadsheet on chart 23. The redacted report will be available to CPB, as I’ve noted, and will be posted on our Senate website as soon as we receive it, which should be in a week or so.

Regards,

Ann

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So what is the answer to our $40 million quiz? We breathlessly await the answer. In the meantime, for fewer dollars: