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Campus to reexamine financial details of residential conference center plan

Responding to concerns expressed by the Academic Senate’s Council on Planning and Budget (CPB), senior campus leaders said they will conduct a comprehensive reexamination of plans for a residential conference center and faculty club.
Until the reexamination is completed, officials said, UCLA will delay work on an environmental review and on plans to seek project approval from the UC Board of Regents.
"We understand our obligation to address these concerns thoroughly, and to ensure that the project proceed on the basis of a sound business plan," said Steve Olsen, vice chancellor of finance, budget and capital programs, in an April 4 letter to Ann Karagozian, chair of the Academic Senate.
Part of Bruin Bear"In my role in overseeing all campus capital projects, I will be directing my staff over the next several weeks to begin a thorough review of the demand analysis, scope and site alternatives, and financial strategy," Olsen said. He said his staff will make sure the conference center project "is properly scaled to realistic estimates of demand for conferences and residential occupancy."
For more than a month, the CPB has been weighing information it has received from the administration and its industry consultant, PKF Consulting, including an analysis of demand and market conditions. The CPB also examined reports submitted by the Faculty Center Association regarding its financial condition.
In a three-page letter released April 1, the chair of the CPB, Sociology Professor Emeritus David Lopez, said the council has concluded that demand for a 275,000-square-foot facility with 282 guest rooms would be too low and that a projected room rate of $270 a night would be too expensive.
"Our analysis of the data leads to the conclusion that demand from the UCLA academic community is and will remain far too low to support a facility of this size and at these high price levels, even taking into account the generous gifts for construction and operating subsidy," Lopez said.
The council, comprised of 15 faculty members and four undergraduate and graduate student representatives, remains divided about whether the incorporation of a new faculty club into project is the best way to address the Faculty Center’s financial problems. Lopez said that while half of the council believes a scaled-down and "less pricey" project would help the Faculty Center deal with these financial challenges, the other half believes that the Faculty Center should be maintained in its current form and its financial problems directly addressed.
In his letter, Lopez said the CPB took issue with the methodology used by the industry consultant on which the administration’s demand analysis was based. However, Olsen pointed out several facts that were not considered, such as a broader accounting of potential uses.
The CPB was also concerned about how the project would affect UCLA’s debt capacity and the university’s financial risk. Based on data from the UCLA Annual Financial Report for 2009-10, the CPB projected that the conference center project would add 14 percent to UCLA’s total long-term debt and more than 50 percent to the general campus long-term debt (excluding the Ronald Reagan UCLA Medical Center).
Olsen, however, pointed out that the annual financial report provides an incomplete picture because it excludes all debt issued as General Revenue Bonds and Limited Purpose Revenue Bonds. A better picture of UCLA’s debt capacity is available in the UC Systemwide Annual Financial Report, Olsen said.
By taking all existing debt into account, the conference center project would result in "only a minor increase in UCLA’s total long-term debt. In fact, the project would use significantly less debt than other housing projects currently under construction," he said.
Olsen assured CPB members that a new analysis will provide a more comprehensive look at potential demand as well as examine current trends in the local hotel market.
A reexamination of the project would also assess how the inclusion of the faculty club in the project would affect its financial feasibility. While the Faculty Center site represents the best location, he said, alternative sites will be studied.
Olsen said the use of long-term, tax-exempt bonds to finance revenue-generating facilities has a long-established, financially successful history at UCLA. The university has used this same method to finance housing, the medical center and academic research buildings.
"The campus would not allow a conference facility to become a financial drain on general campus resources," Olsen said. "If there are concerns about the financial feasibility of the project, then these will be addressed up front as the business model and scope of the project are being developed."
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