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BoG Forces Sauder to Repay $2M to Students

Posted By Neal Yonson On February 7, 2011 @ 10:23 pm In Featured,Features,News | Comments Disabled

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Last year, a controversial referendum to institute a $500 student fee [2] on commerce undergraduates in order to fund Phase 2 renovations to the Sauder building was a major topic of discussion on this blog due to the fact that we viewed it as a backdoor tuition increase. Amidst ample debate, the referendum passed easily and the board of governors held an extraordinary meeting [3] to put the fee in place. Student fees would fund the entirety of Phase 2, and it was understood by everyone that the completion of Phase 2 represented the end of the Sauder renovation project. Although we were disappointed with the outcome, it appeared that a definitive conclusion had been reached.

Earlier today, the board of governors approved a Phase 3 of Sauder Renovations [4].

Two weeks ago, no one knew Phase 3 existed. Construction will be starting in April. However, it was discovered that Sauder has cash reserves of $24M, which would have been enough to pay for all of Phase 2, making the entire $500 fee unnecessary. As part of the conditions for Phase 3 to go ahead, Sauder will have to pay $2M back to UBC and $2M towards the mortgage backed by student fees.

Manufacturing Crisis

Phase 3 consists largely of cosmetic improvements to staff and faculty areas of the building.

This additional renovation work includes: academic and administrative office layout and finishes, elevator lobby finishes, washroom upgrades, electrical upgrades, exterior envelope repairs, and window replacement.

Despite the fact that the upgrades proposed in Phase 3 have never previously been considered part of the overall Sauder renovation project, calling it Phase 3 allows Sauder to piggyback these new upgrades onto the project structure of the overall Sauder renovation project. While this approach does make a sense from the perspective of having the same project management and contractors working on everything as a unified whole, it’s also a way of going around the regular approval process for capital projects at UBC.

Normally, building projects go through a multi-step approval process at the Board of Governors. “Board 1″ and “Board 2″ approval levels are concerned with project conception, planning, and design. “Board 3″ approval is a green light to go ahead an execute the project. It took Phase 1 of Sauder almost two years to progress from Board 1 to Board 3.

For Phase 3, the board simply revised the previously granted Board 3 approval for phases 1&2 to now include a Phase 3. This effectively skips the Board 1&2 approval levels altogether. In the documentation, it states: “Executive approval for Phase 3 was granted in November 2010.” The project will go from conception to full approval in the span of a few short months, while avoiding almost all of the checks built into the system.

In the lead up to the fee referendum, Phase 2 was portrayed as extremely urgent. In fact its urgency was due only to the fact that it was already underway; Sauder had started construction without securing the necessary funding. Phase 3 was once again being portrayed as urgent for a similar reason: that it’s necessary to take advantage of the fact that construction crews are already swarming around the building completing Phase 2. It’s urgent because it’s already underway. It’s another manufactured crisis.

What disaster could result from not redecorating office and elevator lobbies? The washrooms still serve their purpose in their current state. The building won’t collapse without immediate exterior and electrical upgrades. It could all be done at a later date. The board was backed into a corner and forced to decide on an “urgent” project in a very short time frame with little or no advance notice.

Sadly, it worked, just like it worked with commerce students. Phases 1, 2 and 3 are all going forward. At the same time, it has significantly eroded the Board’s trust in Dan Muzyka. But it’s commerce students who should feel most betrayed. They were swindled out of millions.

Fool me once, shame on you; fool me twice, shame on me

Phase 3 is projected to cost $5.7M. (Phase 1 was $46.4M; Phase 2 was $17.9M) Where is the money coming from?

The Phase 3 renovation has an estimated capital cost of $5.684 million. Funding for the project will come entirely from Sauder School of Business reserves. No UBC Central Administration funds will be required. No debt financing will be required.

Translation: Sauder has $5.7M sitting in their piggy bank. The original board documentation contained no other details about financing, which simply raised more questions than it answered.

Scenario A:If Sauder had millions in the bank at the time, why didn’t they volunteer any of it to contribute to Phase 2 renovations in order to cut the student fee by hundreds of dollars? Last year’s student fee referendum amounted to a bailout of the project; why was the fee portrayed as the only available option?

Scenario B: If these funds were generated in the past year, how was such a large surplus accumulated? Why does renovating their own offices instead take precedence over paying back some of the $23M of debt backed by student fees, or any other projects that would improve the student experience?

This post was held back upon request in order to give the board an opportunity to react to the proposal without the administration going on the defensive as a result of public scrutiny. We’re happy to report that in the version ultimately passed by the board more information was provided regarding Sauder’s reserve funds:

“Sauder, which benefitted from better than expected market conditions and from the very strong performance of its programs (…) is expected to end the 2010/11 fiscal year with $24 million in unrestricted reserves.”

Scenario A was true. No hard numbers have been made available but it seems safe to say that at the time of the referendum Sauder likely had enough cash on hand to pay all of Phase 2′s $17.9M cost outright! Sauder told students the project was vital to the future of the school. But it wasn’t vital enough for the faculty to put any of their own money towards it. The faculty dishonestly cried poverty while sitting on substantial cash reserves. At a bare minimum, the student fee should have been hundreds of dollars lower.

Scenario B was also true. Sauder earned a large surplus in the last year although again, hard numbers were not made available. Rather than paying back students who funded an unnecessary bailout, they hatched yet another renovation project. The most detailed FAQ [5] from last year’s referendum asks “Will the Dean continue to seek funding from UBC and the provincial government if the student fee is passed?” The answer starts “Yes, the Dean will continue to raise money from every possible source.” Commerce students should be absolutely furious that Sauder does not consider themselves to be a possible source of funding for the project, then or now. Through the building fee, students were cheated out of millions that the faculty could have paid for, but simply didn’t want to.

To give an indication of how substantial Sauder’s reserves are, the board didn’t ask them to divert any of the funds going towards Phase 3. Instead, they modified Sauder’s proposal to include what amounts to a $4M tax on the project. From its reserves, Sauder must pay back $2M to UBC for their contribution towards Phase 1. Sauder must also pay $2M towards the debt backed by student fees: $440k towards the MBA/ECM/MMOR mortgage on Phase 1 and $1,560M towards the CUS mortgage on Phase 2. This is expected to reduce amortization by 7 years. However, the student fees are still in place and have not been reduced. It’s simply that fewer students will have to pay them. The only beneficiaries are students in years 29 through 35 of the mortgage, who will now pay nothing.

In approving the student fee last year, it seemed that most people knew the rules were being bent, but that the events around the Sauder renovation project were an exception, never to be repeated again. People would have to do better in the future. Less than a year later, Sauder managed to conjure another project out of thin air with questionable funding, presented in a way designed to exploit the system and avoid scrutiny.

Because the project was relatively minor, the board let it go ahead. But they made it clear that what was originally proposed was unacceptable, and caused $2M to be given back to students. The board should be cautiously applauded for this turn of events. The immediate Board 3 approval still gives pause for concern and we wish the funds could benefit students much sooner than 30 years from now. As well, if Sauder continues to run multi-million dollar surpluses, they should pledge to devote a fixed portion of those surpluses to further paying down student debt.

However, it’s a step in the right direction. A few years ago, a proposal like this would have simply been approved as-is and the CUS certainly cannot be counted on to pressure the Sauder administration to repay even a penny. Not only that, the board found a creative solution and was not afraid to use their authority to ensure student interests were taken into account.

On the other hand, Sauder’s administration has been a model of unscrupulous behaviour throughout the entire renovations process. The project’s scope was expanded from $41M to $69M and was pushed ahead even when proper funding wasn’t accounted for, manufacturing a crisis that others were expected to clean up. They attempted to institute their own student fee, and then when that failed, bent the rules by going through the CUS, while misleading students about the urgency of the project and withholding their own substantial cash reserves. Unfortunately, most commerce students are unlikely to be upset by all of this, publicly at least. They should be thankful that the board stood up for them, and perhaps they should try it themselves.

Article printed from UBC Insiders: http://ubcinsiders.ca

URL to article: http://ubcinsiders.ca/2011/02/bog-forces-sauder-to-repay-2m-to-students/

URLs in this post:

[1] Continuous VoterMedia: http://votermedia.org/ubc

[2] controversial referendum to institute a $500 student fee: http://ubcinsiders.ca/2010/03/the-henry-angus-tuition-fee/

[3] held an extraordinary meeting: http://ubcinsiders.ca/2010/04/bog-holds-extraordinary-meeting-to-pass-cus-fee/

[4] Phase 3 of Sauder Renovations: http://ubcinsiders.ca/wp/wp-content/uploads/2011/02/Sauder-Submission.pdf

[5] most detailed FAQ: http://ubcinsiders.ca/wp/wp-content/uploads/2011/02/studentfaq.pdf

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