University of Kentucky's plan to privatize housing raises some questions

Feasibility, accountability are key issues as UK considers privatization

lblackford@herald-leader.comFebruary 5, 2012 

  • Housing costs

    (per semester)

    University of Louisville

    $2,921 for two-bedroom apartment at Bettie Johnson Hall (built and managed by EdR)

    $2,340 for double room at Community Park (built and managed by EdR)

    $2,260 for double room at Unitas Tower (built and managed by U of L)

    University of Kentucky

    $2,255 for double room at "Traditional" residence hall, such as Blanding Tower

    $3,015 for double room at a "Premium" residence hall, such as Baldwin Hall or Ingels Hall

LOUISVILLE — The University of Kentucky is about to embark on a big, new experiment, hiring a private developer to replace and manage all of its on-campus student housing.

Lots of questions about the plan remain unanswered as UK negotiates with Education Realty Trust of Memphis, Tenn., ironing out details of the expected massive project. But just down the road at the University of Louisville, and at other campuses across the nation, smaller versions of the same experiment have already played out.

U of L officials, along with those at other schools that have used EdR, call the process largely positive. But UK's proposed deal is so much bigger and more sweeping — managing all student housing and spending as much as $500 million to replace most of the school's 6,000 existing beds and add 3,000 more — that it largely covers uncharted territory.

Privatization of student housing "is a topic we hear discussed a lot," said James Baumann, spokesman for the Association of College and University Housing Officers. "There are many different arrangements that take on a whole variety of shapes and sizes. But this one does seem so sweeping that people have really taken notice. There are a lot of questions, and people want more details."

Although the EdR Web site now features a picture of all its employees in blue UK T-shirts holding Wildcat banners, a contract between the company and UK is not supposed to be approved by the UK Board of Trustees until Feb. 21.

UK officials say going this route gets them out of the costly and complicated business of construction, allowing them more time and money to focus on instruction. Modern and expanded student housing will help recruitment and allow more students to live on campus, which usually helps retention and graduation rates. In addition, UK says, it won't have to put up any capital in the deal.

But until the details are made public, it's hard to judge how good a deal it will be for UK and its constituents, said Lou Marcoccia, a vice-president at Syracuse University, who has worked successfully with EdR on much smaller projects.

"The question is, how can EdR put up the capital and operate it and make a profit, and why couldn't UK do the same thing?" Marcoccia said, referring to UK's proposal to turn over all its housing stock to EdR. "If it's such a good idea, why isn't everyone doing it?"

The U of L deal

One reason that colleges turn to private developers for housing is that they need new beds quickly, and private developers often can deliver a faster process than one governed by state rules.

That was the case for U of L in 1997, when it hired EdR to build new dorms as part of an effort to turn Louisville's commuter school into a more residential university.

EdR built three new residence halls at U of L, and it currently manages four, including Minardi Hall, the athletics dorm. That means EdR does all the maintenance and manages student life issues, such as helping freshman adjust to college life and creating living student communities.

"There has been a lot of negotiation, but they (EdR) have never declined to do something we asked them to do," said Shannon Staten, director of housing and residence life at U of L.

U of L signed a land lease for the new dorms with the U of L Foundation, which then backed 40-year revenue bonds issued by the Louisville city government.

EdR started with the Bettie Johnson Hall, which featured apartment-style housing for upperclassmen. The experiment appeared to work, so U of L and EdR agreed to build two more: Kurz Hall and Community Park. A total of $56.3 million was spent on 1,288 beds.

"We all became very comfortable that this process was good for us," said Larry Owsley, U of L's vice-president for business affairs. "That was because of all the due diligence we did."

EdR then took over management of the new dorms and Minardi Hall. They cost more to live in, but they feature better amenities than traditional dorms.

Bettie Johnson, for example, had full apartments, with private bedrooms and baths, kitchens and living rooms, and a pool and exercise room. A two bedroom apartment at Bettie Johnson costs $2,921 a semester. A double room at Community Park costs $2,340, and a double room at the Unitas Tower, an older dorm managed by U of L Housing, costs $2,260 a semester.

In comparison, a double room at UK's Blanding Tower costs $2,255 a semester. UK officials are negotiating the costs for new dorms as part of the contract with EdR.

Each year, EdR gets a 4 percent management fee from U of L — $264,000 this fiscal year. If there is money left over, EdR returns it to the university. In years past, that's been about $500,000 a year, Owsley said.

However, Staten said students and parents were sometimes confused by two sets of applications and payment plans required by EdR and U of L. About four years ago, the two groups agreed to create one system for applications, billing and training for residence hall employees.

"Students now have one application process and one bill," Staten said. "The more you can have it be seamless to students, the better.

In addition, Staten said, they work jointly on student life issues, such as qualifications for hiring resident assistants. This will become more crucial next year, when all freshman are required to live on campus.

Although the new housing is somewhat more expensive, it's also more attractive.

"It's a lot nicer here than the older dorms," said freshman Austin Turk, who chose to live in Community Village, one of EdR's dorms. "You can have your own bathroom, and the rooms are bigger."

A typical dorm room still has two people sharing one room, but it's bigger. They might have their own bathroom or share another one with the room next door, rather than walking down the hall.

Lamont Johnson is the resident life assistant manager at Community Village. He is paid by EdR, not U of L.

"It works beautifully," he said of the arrangement. "We have that sense of autonomy, but we also have the support of the school."

Partnerships common

Public and private partnerships are becoming more common on campuses across the country, and companies such as EdR can shape deals in many ways.

At Indiana University of Pennsylvania, EdR helped the school replace all of its aging housing, about 3,500 beds, said Tom Borellis, who oversaw the project for the university. The entire project started in 2005, happened in less than five years and came in about $20 million cheaper than projected.

Borellis said the university considered having EdR do management, but it would have meant breaking contracts with several unions, so the university oversees the properties.

Boise State University recently dropped a plan to bring in a private developer for dorms. President Bob Kustra, who used to be at Eastern Kentucky University, said the trustees were worried about an 80-year lease. They also were spooked by a memo from Moody's Investor Services, a rating agency, that said privately financed development could be counted as part of a school's debt load, even if the school put up no money.

Instead, Boise State financed a smaller dorm with bonds that can be paid back using housing payments.

"We were trying to create something that would not count against us," Kustra said, so that any debt could be used to build academic buildings, which don't pay for themselves. "We could afford to go in our direction because we're a commuter school and have not had the housing demand that UK faces."

UK officials said they've taken the Moody's memo into consideration, but that Moody's also has indicated that new dorms will help UK with stronger recruitment.

Only about 600 of UK's 6,000 beds could be considered modern, UK spokesman Jay Blanton said.

"They simply do not have the high-tech or collaborative space that students expect and that they will need," Blanton said.

If the deal goes ahead, EdR would start building a new 600-bed dorm on campus in the spring. Gov. Steve Beshear has recommended that lawmakers authorize the housing project.

Transparency urged

In the end, the General Assembly and the Board of Trustees will have to see whether the multitude of questions about the deal are answered to their satisfaction.

At a meeting Thursday, Rep. Arnold Simpson, chairman of the House budget subcommittee on postsecondary education, said legislators like the innovation of the housing project.

"It's the efficiencies that we need to encourage," he said. "There is certain expertise to be garnered from the private sector."

Former State Auditor Crit Luallen said it's important that UK establish plenty of transparency and accountability with any public-private partnerships.

"I think the risk we run in these privatization trends is that it's easy for government agencies to take a challenging financial problem and find someone who's going to fix the problem and make money," Luallen said. "The company's responsibility is to make money; the public agency's responsibility is to protect taxpayer assets, and build in that accountability on the front end."

Blanton said that's why negotiations are taking some time.

"We are taking great care to ensure that the university's interests are protected," he said. "Our goal is to make sure that students get better housing and, long-term, better pricing and stability. And we want to ensure that the university gets the best deal possible."

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