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Sunday, September 9, 2012

Maybe the Regents Need to Consult With This Former Regent


Former speaker of the state assembly (and thus former Regent) and former mayor of San Francisco Willie Brown writes a weekly column for the San Francisco Chronicle.  The column is never on a single issue but jumps around from topic to topic.  Today’s column has a paragraph related to a grand construction project at UC-Berkeley:

Cal's newly redone Memorial Stadium makes no sense to me.

Why spend all those millions fixing up a stadium that is in one of the least-accessible spots in the Bay Area? Don't get me wrong - the stadium is beautiful. But now, Cal is trying to piece together a complicated combination of seat sales, media broadcast rights, marketing, concessions and non-football events to pay for the $321 million rebuild. Some of that is made more challenging by having a stadium with zero parking that out-of-towners can approach in their cars only by negotiating Berkeley's surface streets. Tradition is great, but it doesn't pay the bills…


Now I’m sure that the Berkeley administration has “answers” to all of the questions raised by Brown about its stadium plan, just as UCLA has “answers” about its Grand Hotel project.  But there is one big problem; big projects can lose big money.  Universities are not all that clever about commercial-type endeavors.  But in a period of budget squeeze, they look at risky projects as potential money makers and tend not to think about the fact that there is a big downside.  If a proposed project can be made to look good on an Excel sheet – and what can’t? – it becomes a Sure Thing. And when there is a build-and-bond bureaucracy on campus that lives off such projects, there are always grand proposals for grand projects that are, of course, Sure Things and absolute necessities to boot.

There are numerous examples in the world of finance of using leverage to undertake risky projects.  If you win, since you are not using much of your own money, you can obtain a big return.  But the same is true in reverse; you can lose a lot if the plan doesn’t work out.  Now think of taking a $50 million gift for a conference center and turning it into a Grand Hotel proposal costing $160+ million.  What would Willie Brown say?  UCLA's powers-that-be are lucky he writes for the San Francisco Chronicle rather than the LA Times and that he lives in the Bay Area rather than in Southern California.  Otherwise, he might just be commenting on the UCLA Grand Hotel rather than the Berkeley stadium

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