UC Santa Cruz hired a company for the construction of Student Housing West (SHW) that is so incompetent it’s been accused of building units with faulty ventilation leaking carbon monoxide and faced lawsuits for safety violations and for cheating its subcontractors. The university is handing over money that could be put to better use, ignoring student concerns and pursuing a funding model that hides its true costs and has been shown, over and over, not to work.
Chancellor George Blumenthal and the rest of his administration have already made up their minds that the university will pursue a public-private partnership (P3), with the construction company, Capstone Development Partners. This was presented as a done deal, with little regard for student opinion and the hazards of these partnerships or consideration of the reputation of the private firm contracted to do the construction.
The administration seems committed to keeping student comments and complaints to a minimum, scheduling meetings with little to no notice, during exams and, once, holding a meeting at the Santa Cruz Police Department.
Students who turned out at recent meetings had legitimate concerns, but got few answers to their questions — such as where these 3,000 students brought in by SHW are going to eat, since the dining halls are already overcrowded, and the impact they will have on traffic, buses and at McHenry Library. They want to know how they can be expected to learn in classrooms that are already overflowing, where class times have already been shortened to accommodate more students. They’re concerned about the families who currently live in Family Student Housing, the land slated for SHW.
They’re right to be concerned. Neither university officials nor the Alabama-based private company hired to do the construction, had concrete answers to those worries. And there’s still more to worry about.
Out of the deal with Capstone Development, UCSC will get buildings for free, plus a nominal rent for the land the buildings are on. But Capstone will make millions. Every year, for 30 years. The corporation will make at least $500 million from its side of the “partnership.” And that’s at today’s rates.
It doesn’t take an economist to see some of the hazards in this model, such as what happens if the company goes broke. Or how much debt the company has. With a private company like Capstone, there’s no transparency — no one can look at the books or see how the money is being spent.
Capstone could sell its stake to a third party (which it’s done in the past, selling to a Singapore-based company and making at least $14 million on the deal), leaving an unknown company to fulfill Capstone’s contract.
The administration has ignored the multitude of problems that have come from using P3 models in the past. These partnerships were popular in the 1980s and 1990s, when they were primarily used for hospitals. Because of various issues, including higher costs and poor quality, P3s fell out of favor for nearly 50 years.
They. Don’t. Work.
They didn’t work in Great Britain or Canada in the 1990s and 2000s. They didn’t work in California in the 1990s or the 2000s or the 2010s. A 2014 report from Public Services International says P3s “conceal public borrowing” while guaranteeing profits to private companies, and they’ve been linked to corrupt business practices.
Rather than pursue a decades-old failed concept, UCSC could issue bonds to pay for construction, paying off the bonds with student fees from housing. This is the way things have been done by colleges and universities since before the P3 model became popular. If the university chose bonds, those bonds would pay the construction costs and would save hundreds of millions of dollars that could be used to offset other costs instead of lining the pockets of its “partner.”
Chancellor Blumenthal said in a December 2016 letter that UCSC is looking toward a P3 model because of “financial constraints” and the university’s debt ceiling.
But there are alternatives. The UC regents have two separate mechanisms for increasing the debt ceiling specifically for on-campus housing. There are Limited Project Revenue Bonds, which would allow UCSC to fund the construction. There are also exceptions by the regents’ chief financial officer on a case-by-case basis that could allow UCSC to borrow more for projects that will pay for themselves over time.
The question of whether UCSC sought funding through either of those methods went unanswered by Dianne Klein, the UC Office of the President (UCOP) press secretary, and director of news and media relations at UCSC Scott Hernandez-Jason did not respond to inquiries about funding at the time of press. UCSC Capital Planning Director Steve Houser, who is in charge of the expansion, was only able to say that he was told the university couldn’t borrow more money.
Aside from funding, Capstone Development has been sued more than a half dozen times, with lawsuits from the University of South Carolina for poor design and construction. Southeastern Louisiana University and the University of Connecticut both sued Capstone for poor workmanship and quality control, including faulty venting that led to high carbon monoxide levels in student housing.
On multiple occasions, the firm has been sued for not paying its subcontractors and for violating safety regulations. Capstone was fined more than $12,000 in Oregon for violating safety regulations in another student housing construction project. Tenants at a student housing apartment complex run by Capstone’s sister company, Capstone Collegiate Communities, found unfinished and faulty units, broken pipes and malfunctioning appliances.
Regardless of this long list of problems, the administration knows that it can do whatever it wants. It can wait students out for the four or five years we’ll be here.
