Wednesday, July 16, 2014

Two reminders of UAA's potential, and failure ...

The random juxtaposition of the upcoming opening of UAA's Alaska Airlines Center, combined with today's announcement of the results of the University of Virginia (UVA) Law School's (my alma mater) recently completed annual giving campaign have caused me to reflect again both on UAA's potential -- and its failure.

The Alaska Airlines Center, which before a naming agreement, started out as the Seawolf Sports Arena, has been built entirely with state funds.  A history of the funding, and those politicians involved, who no doubt will feature prominently and take great credit at its opening, is documented here.  

The Center is an anomaly in the recent history of the construction of such arenas throughout the country. Even among smaller schools, construction of similar arenas elsewhere largely have been funded with at least 50% private giving, if not more.  The University of Virginia's John Paul Jones Arena, for example, was built almost entirely with private funds.

The reason for such a use of private funding is largely three fold.

The first is financial.  Most states have competing demands on public funds.  Because private donors have demonstrated a willingness to contribute to such projects, states have used them as a funding source in order to free up state funds for other uses.  Those in Alaska focused on increased spending for education, for example, may want to keep that in mind in the months and years ahead, and calculate as they drive by the Center how many teachers could have been retained if 50% of the Center's cost -- roughly $54 million -- had been put into education instead of going into the Center.

The second is to serve as a market test.  A number of states have realized that state spending of this nature is susceptible to a market test.  By requiring that a significant portion of the cost be raised from private sources, states have been able to determine whether there is, in fact, a market demand to support such a facility.  Private support for such efforts usually comes largely from those who have something to gain from the construction (hotels, airlines and others such support services), or are proud of the education they received at the institution and want to "give something back."

If there isn't sufficient market support to support at least 50% of the costs, states have either retrenched their plans back to those which the market will support, or scrapped them entirely and concentrated on other (and more supported) uses of the state's funds, such as improving the quality of education provided at the institution in order to increase pride among alumni.  By funding the Center entirely with public funds, Alaska skipped over the market test and, essentially, has imposed the Center on the state whether the market values it or not.  While the community certainly will accept what appears at the outset to be a "free good," in doing so the state has missed the opportunity to ask the important question of whether the market would have valued another use of state funds -- such as retaining teachers, or avoiding the layoffs that both UAF and UAA are now facing -- more.

The third reason to seek private funding for at least a portion of the cost of such projects is to serve as a long-term fundraising tool.  That is where the second event -- the recent announcement of the continued success of my alma mater's annual fundraising effort -- comes in to play.  In the early-1990's, when UVA was outgrowing the then confines of the Law School building, then Dean Robert Scott began a project among alumni and other private donors to raise the necessary funds to undertake a major renovation and expansion.

The Law School had never undertaken anything like that before and more than a few doubted that it could be done.  By the time the effort ended in 2000, however, the Law School had raised over $200 million (at the time the most successful capital campaign in the history of American legal education), fully funding the construction.

How did UVA turn that into a long-term fundraising tool?  Using the enthusiasm, techniques and donor list generated by the initial effort the Law School continued to build on its initial success.  Annual giving continued to grow after the success of the capital campaign and by 2005 reached the level where more than 50% of all living alumni contributed annually to the School.

That has continued since; this year the Law School achieved the ninth year in a row of greater than 50% giving, setting records for both the number (9,172) and percentage (54.4%) of those participating in the annual giving campaign.  The success has spilled over in other ways as well.  In 2012, the Law School completed a second capital campaign that raised more than $170 million, this time largely funding academic, scholarship and other program needs.

UAA's comparable giving percentage to UVA's 50+%?  According to the 2011 Fisher Report commissioned by UA President Patrick Gamble, the comparable alumni giving rate for UAA is 5.9%, not that far distant from where UVA began, before it supercharged its effort with the annual campaign.

So, as UAA opens its new Center this coming month keep these lessons in mind as various politicians and others tell you how great their efforts have been.  UAA had a great potential when it started down the road of engaging in a new capital effort -- if done the right way it could have been done at half the cost to the state and helped provide the platform for efforts to make UAA much more self reliant going forward.

But the politicians and others didn't want to wait and go through the effort.  The state was "awash in money" (to quote then UAA Athletic Director Steve Cobb) and didn't need to subject -- or maybe want to run the risk of subjecting is a better explanation -- the Center to a market test.  It was easier to use "other people's money" (the state's), than raise and give their own.

And so, here we are six years later, with the state in the last two years having run back-to-back the two largest deficits in Alaska's history and drained $6 billion (35%) out of the state's savings accounts -- and with UAA about to open an arena that has been fully (instead of half) funded by the state and with a fundraising program that is still back at the starting gate.

The Center provided UAA with a large opportunity, but instead, measured from what could (and should) have been, is its largest financial failure.  Keep that in mind as Bill Stoltze and Kevin Meyer -- the two legislators receiving the largest share of the credit for securing state funding for the Center -- take the stage.  By not asking the tough questions and relying on state funds to cover all of the costs, maybe it isn't credit they deserve.