Editor’s note: Republished from the archives, the article was originally published on December 3, 2010. The editorial precedes the January 25, 2011 editorial “UC Berkeley’s endowment seat program does not match absolutely” by the same author.
On November 27, 2010, the San Jose Mercury News reported on the last football game before the renovation of California Memorial Stadium, or CMS, began in earnest: “Cal’s football program lost a game in the final seconds, saw his season end in the blink of an eye. , closed his stadium and punctuated the day’s activity by conceding he had resorted to trickery in a match he had lost two weeks earlier. The article could have extended the “deception” to Cal’s “closing his stadium” since Cal’s next play is to go deep into debt to renovate the stadium without a viable repayment plan. Although Intercollegiate Athletics, or IA, has no demonstrated means to repay, UC regents have approved a financial plan as fragile as the ground under the stadium.
The cost of building the stadium is enormous: almost half a billion dollars, including $321 million for the renovation of the CMS itself, and $136 – 153 million for the construction of the Student Athlete High Performance Center , or SAHPC, which will revolve around the west wall of the stadium. stadium and be banned for 99% of students whose physical education budget has been cut in half.
On September 16, 2009, the Regents approved a large debt for this project. According to attachments 3 and 4 of the GB2 document, IA will pay interest ($28 million per year) for the first 20 years, then interest and principal repayment ($62.5 million per year) for the next 10 years. following years. This is a commitment of $1.185 billion over 30 years. The Regents stipulated that the debt is to be repaid from the “gross proceeds of the athletics program” and “the general credit of the Regents will not be pledged”.
While these stipulations may seem reassuring, one key fact has been overlooked: From IA’s reports to the NCAA through fiscal year 2003-04, IA never generated enough revenue to cover its expenses. ; rather, it recorded an average annual shortfall of $11 million during the 2003-2009 period. This situation has been allowed to continue unabated even though IA at Berkeley is classified as auxiliary – per UC Accounting Handbook, Chapter A-783-1, Sections II.A, II.C.5, III.A, III . B — and as such should be self-sufficient. Even after receiving grants from the Chancellor’s Discretionary Funds and student registration fees (now called student service fees), the IA continues to spend beyond its grants with impunity and has never reimbursed its debt to the campus resulting from its annual deficit expenditures.
At our partner campus, UCLA Athletics operates without a penny of deficit year after year. For the most recent year for which NCAA information is publicly available, 2008-09: the amount of direct institutional support, not including funds from tuition, was more than 42 times greater at the UC Berkeley ($8.89 million) than UCLA ($0.21 million). Athletics cost Berkeley more than five times what it cost UCLA ($13.67 million vs. $2.71 million) and it cost each Berkeley student about 30% more in tuition than at UCLA.
According to what Berkeley reported to the NCAA, the cumulative cost to the campus of grants and deficit expenditures that were never repaid is approximately $80 million over the 2003-2010 period. Combining that with past numbers from Berkeley’s division of the Academic Senate, the cumulative cost to campus amounts to $173 million since 1991, when the Smelser “Intercollegiate Athletics at Berkeley” report sparked increased campus engagement. towards AI.
According to Bob Meister, professor of political and social thought at UC Santa Cruz and chairman of the Council of Faculty Associations at UC, the debt incurred for Berkeley Stadium comes in the form of general tax bonds issued by the ‘university. Therefore, notwithstanding the proclamations of the regents, the debt is the obligation of the university.
Let’s examine the financial magic described in the GB2 document: starting in 2014-2015, the first 44% of IA’s estimated gross income will be spent on paying annual interest on debt. But that will only leave 56% of AI’s income available to pay for its expenses, even though all of its generated income currently only covers about 80% of its total expenses. That 44% figure provided in the document is the ratio of debt service coverage of $28 million to estimated gross Athletics revenue of $64 million. The difference between these two amounts, $36 million, will be the amount of revenue available to pay expenses. But the expenses are estimated at $74 million according to a September 28, 2010 press release from the Berkeley Office of Public Affairs. So the plan is for IA to spend more than double what it will generate, not covering its $38 million expense. Where will IA get the $38 million for the remaining expenses? Will we then see an annual cost to the campus jump to $38 million for what is supposed to be a self-contained auxiliary?
As disconcerting as this may seem, it pales in comparison to what awaits AI in the longer term. For ten years from fiscal year 2032-33, the annual principal repayment will be added to the annual interest. The document shows that debt service coverage amounts to $62.5 million, consuming 79% of the Athletics’ estimated gross revenue of $79 million. Incredibly, the Regents approved a plan under which IA will allocate the first 79 percent of its annual gross revenue to servicing debt, leaving only 21 percent of IA’s revenue ($19 million) to pay its expenses. How can this be? Granted, Regents can’t expect AI to spend $19 million and generate $79 million. Again, the critical question is with so little money available from the revenue generated, where will IA get the funds for all of its expenses?
Lest the answer be thought to be in the Seating Program, or ESP, there is a critical footnote (b) in Appendix 4 of the GB2 document stating that the revenue of the ‘ESP have already been included in the “estimated athletics gross income” line.
Although ESP is expected to raise $400 million by 2014, my analysis, published in a supplemental editorial in the Daily Californian, concludes that ESP has only raised approximately $20 million, which corresponds to only 5% of the target amount. If indeed the actual amount is higher, then I’d be happy to hear it from campus.
The financial plan outlined in the regents document would be considered precarious even at the best of times, but is nothing short of irresponsible to the mission of the university when undertaken at the threshold of a new era of lower sustained funding of the university program.
Brian Barsky is a professor at the Graduate School and professor emeritus of computer science and vision science.