UI Housing concerns are about more than rent
The recent uproar about graduate student housing isn’t just about next year’s rent. To be sure, the increased rent at the university-sponsored, contractor-managed Aspire housing project will now be unaffordable for graduate students at the University of Iowa on a half-time teaching assistant’s income. Also at stake, though, are long-term interests of the university, in terms of both its (taxpayer-subsidized) resources and its core mission (teaching and research). Plus, hundreds of millions of dollars will leave Johnson County, Iowa, and the United States. In short, it’s about who, if anyone, is representing the long-term interests of Iowans and this great institution.
The UI, by definition, is a university (rather than a college) because it has graduate and professional students. While pursuing advanced degrees, graduate students also provide an inexpensive source of labor for the university; to balance the demands on graduate students’ time, the university typically (though not always) supports their tuition and pays them a borderline-poverty-level salary for teaching 20 hours per week. It’s a good deal for the university.
It’s also a reasonably good deal for graduate students. Most graduate students don’t mind living frugally. This is why the recent rent increases surprised us so much. When I returned from Thanksgiving to find the flyer in my door, announcing a $90 per month (7.8 percent) increase in rent next year, it didn’t make sense. Why would the university choose to increase our costs so rapidly? Wouldn’t this increase their bottom line too, especially in the long run? I sought to find out.
I first learned about Aspire from the university of Iowa website, which advertises the housing for graduate students. Nowhere except in the “terms and conditions” tab at the very bottom does the website even mention that the site is managed by the UK-based, for-profit multinational construction firm Balfour Beatty.
The UI website does not mention that the Iowa Board of Regents entered into a 41-year, 41-dollar land lease with Balfour to construct the apartments and manage them without any restrictions on rental pricing. In this contract, the university guarantees free Cambus service between the site and the main campus, free advertising and branding on the university website, and a guaranteed option for Balfour to extend the contract 10 years beyond the first 41. It’s hard to see what the university gets in return for its generosity. Meanwhile, Balfour projects profits of $132 million through the 41-year lease and the 10-year extension period; and Balfour’s pricing schedule has already outpaced their projections, so that they stand to profit far more than originally projected. Moreover, these numbers cover just the first half of the housing project; the second half comes to market next year and stands roughly to double them.
The graduate student housing deal isn’t just bad for today’s graduate students. If my future children attend the university of Iowa, this will be their university-sponsored housing option as well; by then, Balfour projects profits over $8 million every year at Aspire.
It’s also a bad deal for Iowa taxpayers, who subsidize university land and resources through their tax-exempt status, and deserve better than this giveaway. If nothing else, if the university intends to invite Balfour to profit from renting to students at “market rates,” then the university should lease the land to Balfour at market rates as well.
It’s also bad for the economy. Over the next 40-50 years, through Aspire alone, hundreds of millions of dollars will leave Johnson County, Iowa, and the United States; these dollars will end up in the accounts of corporate executives in the UK, and in the portfolios of the international financiers who invest in Balfour on the London Stock Exchange.
Sometimes public-private partnerships make sense. But this one is a giveaway.
The planning which led to the project is a saga of its own, and frankly a tragedy. (Google “Brian Prugh Housing Project” for a moving and thorough account.) Initially, the university set out to replace the affordable graduate student housing which then occupied the land on which Aspire now sits. But they outsourced the responsibility for this search, hiring instead the Scion Consulting Group, which specializes in recommending the exact type “solutions” which Aspire now provides. Scion, as is their pattern, recommended a lopsided and lucrative partnership with Balfour Beatty. Balfour paid for the report.
The most plausible rationale for the project was never that it was a good deal. The rationale was that it was the best deal available. In particular, it was better than razing the previous apartments and planting trees on the land. True. Scion Consultants said (and no one seemed to seriously question) it was a better option than having the university construct and manage the new apartments itself. Here is their reasoning.
Iowa law requires that any university-constructed apartments must be built to last 100 years. In contrast, Balfour is allowed to construct 40- or 50-year quality buildings. According to Scion, the university could not afford to build a 100-year quality building for affordable graduate student housing: the university lacked access to the necessary capital.
Initially this might make sense. Public funding of the university is down. Funds are scarce. The university cannot afford to fund a 100-year quality building, not now. Not in this fiscal situation. Household economics says, “tough.”
But the university is not a household. It has a $1.3 billion endowment, and plenty of further tangible resources. This means that unlike a typical household, the university ought to be able to take out large, long-term loans at very low interest rates (and in this case at no direct cost to taxpayers). Often, major spending projects make sense in the long-term interests of the university, but require a significant upfront investment; the low-interest loan spreads out the cost over a more appropriate time frame (closer to the lifetime of the project).
In the case of graduate student housing, rent would eventually pay for the entire project. In short, such a deal would have served the long-term interests of the university, while presenting very little risk or cost to Iowa taxpayers.
It’s not exactly clear why this didn’t happen, or how seriously anyone considered this option at the time. An executive summary of the Scion market analysis argued, “construction by the university would require rental rates above current market rates.” According to the public record, this seems to be the end of the matter — Scion said the university couldn’t afford it. Administration then accepted this analysis as fact.
I have requested access to the relevant public records. Apparently, there are none. Scion’s report now belongs to Balfour.
Iowa’s university governance is broken. It makes no sense for political appointees (the Board of Regents) to be making long-term capital decisions for the university without meaningful checks or balances from other stakeholders. It makes even less sense that, rather than reviewing the viability of all the options themselves, or having the university’s well-funded Office of Finance and Operations conduct their own review, the regents instead outsourced responsibility to the Scion Consulting Group, whose business model seems to be letting Balfour — the consulting group’s preferred contractor — foot the bill for the review, win the contract, and then retain the records as proprietary information.
This story isn’t just about graduate students at the university of Iowa. It’s about long-term planning and systems thinking in our institutions of governance. Graduate students care about the future of this university, and about making ends meet now. We want to understand this better. We want to help solve the problem.
• Thomas Kindred is a resident at Aspire and Ph.D. Candidate in mathematics at the UI.