Deferred Maintenance Strategies You Must Try
- By Julie Sturgeon
- July 1st, 2000
In the late ’80s, a large university system trotted a request before its legislature: $60 million, please, to address deferred maintenance. The sympathetic politicians doled out $6 million each year for 10 years. At the end of the term, the university commissioned another audit, only to discover it now faced $80 million in deferred maintenance. The legislature’s conclusion: University officials obviously rank as incompetents.
Rick Biedenweg, Ph.D., president of the Pacific Partners Consulting Group, begs to differ. In his book, university administrators merely confuse the four concepts that make up any maintenance strategy -- and the fact that these categories interlink.
1. O&M (operations and maintenance): These are day-to-day activities such as changing light bulbs, lubricating moving parts and fixing broken light switches. They tend to be relatively inexpensive but add up quickly.
2. Renewal: In this example, a roof with an approximate 25-year lifespan needs rejuvenating attention near the 20-year mark -- ignore this shot of new life, and the roof eventually succumbs to the deferred maintenance list.
3. Deferred maintenance: These are projects that don’t receive renewal funding in time to stop deterioration, and the problems they spawn spread across the budget sheet.
4. Modernization: Bringing buildings up to modern codes and standards.
“Many campuses realize they’ve never received renewal funding, which caused the pile up,” says Biedenweg. Indeed, according to the Chronicle of Higher Education, American higher education institutions weigh in with a total $26-billion backlog of deferred maintenance. Biedenweg’s research reveals that the 50-year cycle, which begins from 2010 to 2015 for most campuses, looks even more daunting as HVAC distribution systems (read duct work) fail.
The Association of Higher Education Facility Officers (APPA) officials recommend that O&M budgets equal at least half a percent of the total current replacement value of the campus’s buildings -- allot 1.5 to 2 percent of that figure toward renewal funds. Darryl Zehner, director of auxiliary and physical plant services at Western Oregon University in Monmouth, buys into the theory wholeheartedly. “Unfortunately, as with most schools, it’s a target we’re still trying to obtain,” he sighs. “At least our administration understands that investing $1 now avoids spending $4 tomorrow.”
Biedenweg dangles good news for those financially depressed. “Many states are in excellent economic shape right now. But surplus is likely to be one-time in nature, so legislators should not start to base programs on it,” he points out. Deferred maintenance’s one-shot nature makes the perfect mate. “If you get adequate renewal funding, then you need only catch up on deferred, and the future is secure,” he adds.
Case closed? Not until you consider these creative catch-up approaches.
Make a New Plan, Stan
Whisper “deferred maintenance” around Worcester Polytechnic Institute’s (WPI) director of physical plant, John Miller. “I get sick of hearing that word,” he says immediately. “Where do people want to draw that line? Reinvesting is a better term.” This Massachusetts school ripped a page from Pacific Partners almost verbatim: It listed campuswide problems in 23 categories, then prioritized them on a five-year rolling plan. Miller then campaigned for -- and won -- a bond issue to borrow renovation money. WPI this summer completes the first five-year phase, boasting six academic and residential buildings polished to a gleam, thanks to $15 million. “It may be chump change for a University of Michigan, but for a campus with only 1,500 beds, it’s a significant investment,” he says.
Palm Beach Atlantic College in Florida, too, estimates at least 75 percent of its deferred maintenance list constitutes simple steps that Director of Physical Plant Services Michael Steger is confident they can handle. “As soon as it hits the list and we begin to budget for it, it’s no longer a deferred item,” he points out. But this surface ease comes with a price. “It’s not without my sitting in my office and saying, ‘Look, pal. I can’t wait another year to reroof. Last year you said it would be funded, and it wasn’t, so now you have to cough up the cash.’ The minute you turn your back it will eat you alive.” Steger’s aggressive stance encourages biting back.
Put a Spring in Your Step
Gettysburg College in Pennsylvania refused to quit at the traditional deferred maintenance study. Assistant Director of Facilities Robert Butch next led a utility master plan to identify the big ticket items, and lock them hand-in-glove to the renovation budget. “Everybody sees when your walls don’t quite look right, so those things tend to get patched up,” he says. “But nobody sees mechanical systems in the walls until 35 years later when we say, ‘Oops!’” To date, he’s crossed off $13 million of the $34-million deferred maintenance list in this fashion.
Next, Butch steadily strives to corral energy components as they come due for replacement to a central location to buy diversity and save capital dollars. “We won’t replace 15 chillers 20 years from now -- just four larger ones,” he says. He expects ongoing maintenance to drop and higher unit costs to slow down. “Most institutions look no more than 15 years down the road. We’re looking 50 to 200 years into the future,” he claims.
Fellow Pennsylvanian Joe Grasso, vice president of finance and administration at Allegheny College, also expects energy to catapult the campus from its deferred debt. He turned to an energy service company (a.k.a. ESCO) to address deferred maintenance stemming from HVAC issues while reaping an annual 15 to 20 percent savings in this budget. Because Allegheny College currently uses $1.3 million in energy, water and sewer costs, that gives him in the neighborhood of $180,000 to $200,000 a year to plow into upfront deferred maintenance financing.
Honor the Buddy System
But Grasso refused to rest on his cash register. He teamed with the town’s second largest nonprofit entity, Meadville Medical Center, to negotiate jointly with the energy management firm. “We hope to have some buying power leverage in terms of equipment and construction bids,” he notes. Ditto shared legal expenses and consultant fees. (Private companies in the area, like Dad’s Dog Food, have begun eyeing the arrangement, hoping to connect up their clout as well.) Meanwhile, Meadville Medical and Allegheny are exploring cross-contract situations that would allow the college ground crew to become a profit-generating department.
As a final stroke, this veep prioritizes deferred maintenance bids by companies that offer design, develop and finance in one package. “We want to avoid additional debt on our balance sheets so, although vendor finance options need to be carefully crafted, they can really serve our financial purposes and capital needs,” Grasso says.
On the other coast, officials at the University of California-Berkeley consider their eight sister schools best allies in the deferred maintenance war. Before 1997, each campus used whatever means it deemed best to beg for legislature funds. Berkeley, for instance, usually racked up a $158-million plea based on annual audits that essentially estimated what it would cost to overhaul the worst systems or buildings. It walked away with $5 million to $6 million in its pocket in a good year. Other campuses labeled it pointless to spend time and effort on audits for a paltry amount. Instead, they scrambled around to identify the worst needs and generally walked off with $3 million. A few members nurtured the notion that their allocation was directly tied to the backlog, so they significantly inflated their lists.
“Our credibility was very low with our regents and the state,” admits Johnny Torrez, director of physical plant - campus services at UC-Berkeley. “Our inefficiency fed the lack of funding.” Hiring one consulting service to unify the criteria and pool requests resulted in believable reports (as opposed to facilities guys crying wolf) as well as a new categorizing system of 10 major systems in a building, which shot Berkeley’s deferred maintenance total to $560 million.
However, the trustees created a way to commit out-of-state tuition fees toward the cause as well as a floated bond instrument. When the dust cleared, Torrez received more than $17 million the first year, more than a quarter of the entire school system’s allocation. The state, convinced by this mature accounting, kicked in additional funds to bring the total to $23 million. Torrez counts on averaging at least $15 million each year during this five-year commitment.
Still, the dollars barely dent a bill that ballooned to triple proportions by this strategy. The director merely shrugs. “Reality is that it’s still the same campus and we’re now getting three to four times more than we did before,” he says. “And when the worst set of elevators stops giving you trouble every day, that impacts your overall budget.”
Erect Privacy Fences
The University of Mississippi in Oxford cast its plea for the wherewithal to spruce up its aging facilities at the alumni’s expense -- particularly the rich and famous. “Fortunately, the state’s economy has turned around some in the last few years -- folks like MCI Worldcom being headquartered here changes that complexion,” says Paul Hale, Jr., director of the university’s physical plant department. But even political generosity didn’t raise the $100 million he’s spent in the past five years to remove deferred maintenance projects.
That moolah came from the likes of James Barkdale (Netscape’s former CEO), Larry Martindale (the father of Ritz Carlton hotels) and Richard Scruggs (who headed the tobacco lawsuit) -- all proud Ole Miss Rebels willing to sponsor building do-overs boasting their names for future generations to thank.
News at 5
Western Oregon University opted to shine a spotlight on its deferred maintenance list. Darryl Zehner rallied the school’s state system to videotape examples of each campus’s deferred maintenance projects, then edited the raw data into a show to pop into a VCR for the financial powers-that-be to view. The follow-up revealed he scored a hit -- to the tune of $1.5 million every other year to apply to the college’s $13-million logjam. “It’s a good way to educate folks who don’t typically climb on a roof,” he says.
Host a Dinner Party
UC-Berkeley began courting favor among those who count as early as 1992. Today, its manager of deferred maintenance and facilities renewal program, Eric Ellisen, oversees the 15-member quarterly policy board of vice chancellors, capital projects leaders, director of environmental health and professors who offer input on project priorities. “The idea was to get more buy-in understanding of the facility issues so that this broader sector of the campus would see that it’s important to maintain, if not try to grow, this funding,” he explains.