This spring, workers poured the concrete floors for a 142,000-square-foot, four-story Student Athlete High Performance Center that will house lockers for the UC football team and meeting rooms adjacent to seismically unstable Memorial Stadium.It turns out our friend from JP Morgan, Nathan Brostrom, is the one who came up with the plan for this building.
The project is being paid for with $135 million in bonds. Campus financial officials planned to pay off those bonds with donations, but the gifts never came in and the stock market has tanked.
Now, UC Berkeley's department of intercollegiate athletics is responsible for paying off the center's bonds. There's a problem, though. The department has no money and last year it had to be loaned millions of dollars from campus general funds.
Athletics is supposed to be self-supporting, and these loans effectively take millions of dollars away from other parts of the school, said Brian Barsky, UC Berkeley computer science professor and a critic of university spending decisions. With the athletics department already heavily subsidized, Barsky doesn't see how it can pay off its staggering future debts.
Students and their parents will have to bail out the department in the form of registration fees, Barsky said.
Nathan Brostrom, now UC's executive vice president for Business Operations, created the financing plan during his time with UC Berkeley.Heckofajob, Brostrom.
Simply put, it was designed to get the campus a building for free. First the school would borrow money to build the center. The same amount of money would be raised in donations simultaneously. Next, the donated money would be put to work in the stock market where it would make enough in returns to pay off what was borrowed.
Financing buildings using the stock market is a practice usually done in the private sector and at private universities, but UC has recently adopted the tactic and planned to fund additional buildings this way. Brostrom said when the plan works, a building gets built for free and the gift fund functions as an endowment, creating even more cash for operations.
"There is a certain amount of market performance risk, but over the last 60 years our analysis has shown this model works out, even with declines like last year," he said, adding, "obviously, I'm not going to guarantee performance."