Daily Independent (Ashland, KY)

October 18, 2012

Private funding

UK comes up with another way to build needed dorms

The Independent

ASHLAND — The University of Kentucky has come up with a way to build some much-needed new dormitories on campus without putting the university deeper into debt or needing the approval of state government. How? By allowing private developers to build and operate residence halls on property owned by UK.

If UK can do it, so can other state universities, particularly the larger ones like the University of Louisville and Western Kentucky University.

UK’s board of trustees has approved plans by a private developer to build and operate five new residence halls on campus. The five new buildings on four sites would go up after several older housing structures are demolished.

On Sunday the board unanimously approved the deal with Memphis-based Education Realty Trust. UK already has a new $25 million dorm already under construction near the William T. Young Library. The privately built dorms along with the one already being built would add 2,300 beds on campus.

Dormitories on the campuses of state universities have never been financed with tax dollars. Instead, the state has issued revenue bonds for the construction of each dorm with revenue each dorm produces by renting its rooms to students going to pay off the bonds over a period of years.

In recent years, bills have been filed in the Kentucky General Assembly that would allow state universities to issue revenue bonds on their own with the bonds being paid off by income produced by the dorms. While this newspaper has supported those bills as a way to make it easier for the universities to build dorms and possibly other buildings that produce revenue  (day care centers, spas and gyms and perhaps even athletic fields), but those bills have never come close to being approved by legislators, who apparently are reluctant to surrender the power to decide in advance which facilities are built.  

The new contract with Education Realty Trust essentially accomplishes the same thing the failed bills would have done by bypassing the state’s role in the construction.

“It’s a historic moment in the history of the University of Kentucky,” UK board chairman Britt Brockman said of the new agreement. “This will give the opportunity for living and learning for our students, which is a proven way to retain them.”

Angie Martin, vice president of finance, says EDR can build a dorm faster and more cheaply than UK, which desperately needs student housing. Will the new dorms require EDR to pay the “prevailing wage,” a requirement for most publicly funded projects that developers claim artificially increases the cost by 10-to-20 percent? We’re not certain, but it is a question that is sure to be raised and answered before construction begins.

The leases for all the planned buildings would be 75 years. According to the lease agreement, UK would receive 16 percent of gross revenue from rent until EDR realizes a 9 percent rate of return — which is estimated after about 30 years. UK then would receive 25 percent of net income. Of course, UK deserves a fair share of the revenue, because the dorms are on its land.

UK also would lose most of its control over the day-to-day management of the dorms, but the days when dorms set curfews and limited access to dorms by gender disappeared long ago. Today, renting a dorm room is not a great deal different than renting an apartment off campus. The dorms are closer to classrooms and a bit more affordable than off-campus apartments, advantages many students consider well worth living in the more cramped dorm rooms.

We suspect other state universities soon will follow the lead of UK by having private companies build their new dorms. Legislators who dislike the new agreement should have approved the sensible bills to give universities the power to issue their own revenue bonds. If they had, this deal would not have been necessary.