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Failure to recognize risk still alive and well

The adage, “Time heals all wounds” apparently doesn’t apply to financial wounds. Or the inability of public-sector administrators to recognize risk. I recently ran across an updated story about the Rose Bowl (the facility, not the game). I also ran across an item about inflationary trouble with construction financing at Alamance Community College. In 2021, I wrote about the Rose Bowl and Alamance Community College. Spoiler alert: nothing has changed.

Briefly, the Rose Bowl is a 100- year old venue in Pasadena whose best days are likely behind it. The Rose Bowl and neighboring Brookside Golf Course are struggling to make ends meet. The pandemic is simply a complication of a much larger problem: the number of more attractive venues in the area.

The Rose Bowl competes against SoFi Stadium, the Los Angeles Memorial Coliseum, Dignity Health Sports Complex and Dodger Stadium. The Rose Bowl is bigger than each of these facilities, but as the Pontiac Silverdome demonstrated, bigger isn’t always better. SoFi, which opened in 2020, will host high-profile events like the College Football Playoffs, World Cup Soccer and the opening ceremonies for the 2028 Olympics. The Rose Bowl will sit out all of them.

To revive the attraction of the iconic venue, the City of Pasadena paid for a $185M renovation of the Rose Bowl with revenue-backed bonds. The renovation was completed in 2016, but the debt marches on. The renovation was supposed to pay for itself because adoring crowds would gladly return to Pasadena’s newly refurbished Rose Bowl. Their failure to recognize risk means the City of Pasadena is making $10M-$12M annual debt service payments out of its general fund. (Just until things get better, though…)

Recognize risk in construction projects

On the other coast, Alamance Community College in Graham, NC has a slightly different take on recognizing risk. ACC proposed several new construction projects on campus in 2018. The voters agreed and ACC immediately sold nearly $40M in revenue-backed bonds to pay for the construction. The plans included a student services center, a biotechnology center, a daycare expansion, an emergency services training center, nursing program upgrades, an expansion to the main building on campus, a library and satellite campuses to the east and west of ACC.

So, realistically, those add up to a lot more than $40M. Last year, ACC asked the Alamance County Commissioners to pony up $2.4M to cover inflation and unanticipated increases in construction costs. The commissioners asked ACC to scale back its plan to match the available funds. (Which is a diplomatic way of saying no.) Recently, ACC returned to the Alamance County Commissioners to ask for $5M to cover changes to the projects’ costs. This time, the commissioners partially relented, agreeing to kick in another $3.4M to cover inflationary losses.

Failing to recognize risk, ACC sold the bonds to take advantage of what looked like a good bond market. But with the cash already in hand, ACC significantly underestimated the cost of their proposed projects. Instead of capital improvements, they got a bunch of debt, inflation, supply chain problems and expensive changes to their construction plans. Four years after the voters authorized the bond sale, ACC still has no new buildings.

Public sector administrators don’t know how to manage financial risks

Just as things aren’t different for the Rose Bowl and ACC, things are also not different for WCC. The WCC administration has no better ability to recognize risk than any other public sector administrator. That’s why WCC’s administration used $4.5M in federal funding to cover up the Health and Fitness Center losses.

And just as with WCC’s Health and Fitness Center, there’s no exit strategy and no business plan. These projects soldier on, bleeding taxpayer dollars ad nauseam.

Photo Credit: Michael Li, via Flickr