To board and staff leaders, deferred maintenance may be dull, daunting, or discouraging. The repairs that aging facilities require can be seemingly endless. And the costs can add up to the entire annual operating budget — or more.
Not only that, but decisions about which projects must take priority, and which can wait another year, may require wading through mountains of technical data. Roof repairs or new boiler this year? The wrong decision could mean more expense and more regret. It’s enough to make anyone want to run and hide.
But you cannot hide forever — deferred maintenance only gets worse over time — and some seminary leaders are trying to make a dent in their backlog of deferred maintenance now, before it becomes a crisis. In Trust recently talked to leaders of three institutions — St. Vladimir’s Orthodox Theological Seminary, Southwestern Baptist Theological Seminary, and Claremont School of Theology — to find out are how they’re addressing this challenge that affects virtually all schools.
|At Southwestern Baptist Theological Seminary, facilities improvements are generally funded from budget surpluses. Raising funds for deferred maintenance is almost impossible.
Decisions, not details
The most important lesson for interpreting the case studies that follow is this: Avoid getting bogged down! It’s appropriate for a board to request more information, but “more information” can be a tactic to delay taking the necessary action steps.
How do you avoid this delay? Before any information is gathered or presented, board and staff should collaborate to determine what information is needed in order to make strategic decisions. They must consider what questions must be asked—and answered—to be confident that time, effort, and funds won’t be wasted. Identifying exactly what data the board needs to make a decision means that the most appropriate experts are consulted and reports don’t gather dust while buildings continue to deteriorate. Understanding the short- and long-term benefits translates into decisions based on a solid strategic foundation.
First priority: set your priorities
Safety and health issues are the first issues, according to Father Chad Hatfield, chancellor of St. Vladimir’s. Located in Yonkers, New York, the Orthodox seminary offers a mix of residential and distance education on its 12-acre campus. Its 18 buildings span 100 years of construction, and they regularly weather near-hurricane-strength storms.
Fifteen years ago, a proactive board member set the institution on its current path of prioritizing maintenance needs. A professional architect, he provided an analysis of each building and its essential systems:
Structure. The most costly of all the physical systems, the structure is also the highest priority because it’s the critical protection for all other systems. The structure includes all exterior features, such as roofs, gutters, and windows, that provide a secure envelope and protection from water damage.
Mechanical systems. Second in priority are electric, water, heating, ventilation, and air conditioning systems, which provide necessary functionality and quality of life.
Space dividers. Less critical and therefore more easily neglected, floors, ceilings, and walls suffer damage in everyday use and require regular maintenance.
The analysis also included the campus itself, the trees, stream, bushes, pavement, sidewalks, and handicapped entrances. “From that work, we developed a spreadsheet with the amount of required maintenance, sorted by building and by system,” explains Hatfield.
|St. Vladimir’s insurance agent sends a professional to point out potential dangers, and the school also benefits from architects and building experts on the board.
For a school with a $4.2 million operational budget, the $1.8 million in needed repairs constituted a hefty liability. “We should be spending $120,000 to $180,000 each year to keep up,” explains Ted Bazil, senior advisor for systems and operations. With only $60,000 for maintenance in the annual budget, St. Vladimir’s has to set priorities.
The buildings and grounds committee analyzes the needs twice a year. Health and safety concerns take priority over quality of life issues. Next, the size, scope, and cost of each potential project are weighed against the urgency and importance of the problem that it’s supposed to address. Bazil adds, “We make up the difference between what we have budgeted and what we need to spend through our reserve fund, but that is decreasing rapidly.”
Donors rarely give to deferred maintenance
In recent years, Southwestern Baptist Theological Seminary has been able to dedicate as much as 8.7 percent of its $35 million annual operating budget to maintenance, thanks to budget overages. At the 200-acre residential campus in Fort Worth, the extreme Texas heat puts great stress on its buildings, which range in age from the hundred-year-old Fort Worth Hall to the new MacGorman Chapel. Tornado warnings are common in the spring months.
Each year, if the board determines there is a surplus, the funds are left to the president to allocate, and he regularly chooses facilities projects to receive that windfall. “We are able to keep a physical plant fund,” says Craig Blaising, executive vice president and provost. “It could be several million dollars one year, less than that another, but the overages add up.”
Fundraising potential for deferred maintenance is very limited. “If a renovation makes a difference, or if it’s creating a new center, then a donor wants to be a part of that,” says Blaising. “But those projects are isolated spots on campus, not whole buildings. That’s why the end-of-year excess revenue is so important to us.”
For now, the seminary relies on internal staff to manage how those funds are deployed. Facilities staff members identify issues and estimate costs, based on staff labor or contractors, and senior leaders prioritize the projects. However, Blaising notes that the seminary is considering hiring a consultant for long-term facilities planning.
To address deferred maintenance, you need a plan
At Claremont School of Theology, an internal study of the deferred maintenance backlog resulted in a price tag in the millions, shocking board and staff alike. Located in Claremont, California, the original campus was based on a design by noted architect Edward Durell Stone. Southern California’s frequent minor earthquakes make structural integrity a persistent concern for the cinderblock construction, pictured at left, that was favored in the 1950s.
|Edward Durell Stone’s buildings at Claremont School of Theology are now more than 50 years old, and like all aging structures, they require constant attention.
When chief financial officer Gamward Quan came to Claremont in 2008, he recognized that significant repairs were needed. Initiating an informal survey, he asked staff to rate the condition of each building’s spaces and elements — exteriors, systems, interiors, grounds — then estimate the costs to update or repair. Developing a spreadsheet to aggregate the repair costs, he was able to get a sense of the total maintenance needs.
Five years later, a new president took the helm, laying the groundwork necessary to address the school’s facilities needs holistically. An institutional strategic plan was approved by the board in May 2015, and a task force has been created to develop a campus master plan. Quan is clear on this point:
We couldn’t address deferred maintenance without a plan. You want a building to last for decades,but what will your institution be doing in 30 years? Are you going to use chalkboards or whiteboards? The answers to questions like those require planning.
Led by a trustee, the task force includes faculty, staff, students, and alumni. Because real estate in California is so valuable, the committee hired a real estate consulting firm to study the current state of the campus and offer recommendations for the most efficient and sustainable use of the physical plant.
Real estate prices have gone through the roof, so the institution is sitting on a valuable asset,” says Quan. “We have to ask ourselves if we need all of the footprint that we own — now and in the future. Given the restrictions on what we can do with our real estate, how can we make the most of our campus?
While it can be difficult to bring deferred maintenance into board and staff discussions, the effort can prove worthwhile. When approached thoughtfully, deferred maintenance can be the catalyst for shifting focus from short-term obstacles to strategic goals. If you are raising the issue at your school, consider some of these practices:
■ Know the state of your school. Father Chad Hatfield of St. Vladimir’s recommends taking the full board of trustees on a behind-the-scenes campus tour, so they can gain practical understanding of the campus capital needs. “Our trustees had no real sense of what it is like in the dorms,” says Hatfield. “They fly in and stay in nice hotels. But when we took them to the laundry areas,basements, and attics, it was eye-opening.”
■ Get help from unexpected places. St. Vladimir’s maintains an internal inventory of the campus, including extensive photos of all of the buildings and their contents, but it also relies on the expertise of its insurance carrier. Every year, the school’s insurance agent redefines the value of its assets, and every few years the insurance carrier conducts a conditions assessment of the campus. “If you have a good insurance carrier, they will send a professional who can point out issues and alert you to potential danger,” advises Hatfield. In addition, he says that St. Vladimir’s benefits greatly from recruiting trustees and advisors who are architects, contractors, and other building professionals.
■ Consider establishing a building and grounds committee. If a school is small, the finance committee may be able to handle deferred maintenance issues, but larger schools should consider a committee dedicated to facilities only. Whatever approach is selected, ensure that board and staff leaders regularly address concerns about the physical plant. If your school is accredited by the Association of Theological Schools, the committee should familiarize itself with General Institutional Standard 8.3 and other standards related to facilities.
■ Involve your people. If you have excellent facilities staff, dedicated students, and knowledgeable trustees, tap into their wisdom. Claremont names a staff member and a faculty representative to every standing committee of the board. Quan says, “We provide the day-to-day reality of the campus to the board so they can govern realistically.”
■ Choose outside help wisely. When soliciting proposals, Steffani Kizziar, president of faith-based services at DCG Real Estate in California, emphasizes the importance of ensuring that consultants are offering comparable services and providing the information needed to be evaluated as partners. “Always ask for sample reports, of the kind you are seeking, that firms have produced for other clients,” she said.
■ Prioritize needs. Trustees need to understand the difference between maintenance and deferred maintenance. At Southwestern, Blaising believes that information on maintenance, repair, and replacement can be a valuable component of new trustee orientation. He recommends that new board members request copies of the surveys of the facilities and reports on the physical plant.
■ Prepare for the unexpected. Whether natural disaster or mechanical failure, emergencies happen. “Capital repairs aren’t smooth —— they spike,” says Anthony Ruger, a financial consultant to seminaries. “You smooth out the spikes by setting aside the funding annually.” The 1991 report from the APPA recommends calculating 1.5 to 3.5 percent of the replacement value of campus, and then earmarking that within the annual operating budget as a repair and replacement reserve fund.
■ Budget realistically. Many institutions unknowingly create deferred maintenance problems by not funding depreciation of buildings and equipment in the budget. Simply writing off depreciation of the original value doesn’t take inflation into account. “In the 1950s, a building may have cost $500,000 to build, but now it would cost $20 million to replace,” says Ruger. “If you’re only funding depreciation, you’re increasing your reserves, but you’re not funding enough for your repair and replacement.” He recommends the alternative of a formal engineering study that identifies replacement costs and timelines.
■ Fundraise for true costs. Ruger observes that capital campaigns are increasingly raising funds not only for the initial costs of construction, but also endowments for operational expenses, like heat, cooling, water, and light, as well as for maintenance and repairs. “If they don’t do this, schools are raising money for new buildings that will cost them money in the end,” he warns.
Investing in the future
Two millennia ago, Cicero wrote that “the diligent farmer plants trees, of which he himself will never see the fruit.” Although deferred maintenance can sometimes seem daunting, maintaining campus resources is an investment in an institution’s future and sets the stage for strategic growth and improvement. Current leaders may never see the fruit of their decisions, but they nevertheless plant trees — and update classrooms, replace roofs, and repair boilers regularly — as an expression of their commitment to the mission and vision of their institutions.
Never put off till tomorrow…
APPA: Leadership in Educational Facilities defines deferred maintenance as work that is postponed until funds are available. Major projects like replacing roofs and mechanical equipment, repairing building components, or updating underground utilities are often deferred to later annual funding cycles. Deferred maintenance is the result of a failure to plan for, fund, and perform regular repair, maintenance, and renewal.
In 1991, APPA and The Lilly Endowment published a report, “Today’s Challenge to Tomorrow’s Vision: A Study of Facilities Conditions at Schools of Theology.” Its summary still rings true today:
Schools of theology are to be commended for doing so much with what, in many instances, is very modest in terms of human resources and funding. . . . There is evidence of a strong sense of commitment and dedication, from maintenance workers to senior administrators. More than one evaluator expressed that, ‘I wish I had that dedication in my shop.’ . . . Given the level of funding, observers often expressed surprise that more critical problems did not exist.
In his work as a consultant, Anthony Ruger travels regularly to seminaries, and he reports problems that, though minor, point to larger maintenance issues. “I went to a school once and stayed in guest housing,” he says. “It was a vintage dorm, and all of the electrical outlets only had two plugs.”
Ruger went to the housing office to borrow an adapter. “But before they would give me one, the maintenance worker brought me a waiver to sign,” he says. “They were worried that the electrical system could damage my computer.”
Creative solutions that reflect an organization’s values
Steffani Kizziar, president of faithbased services at DCG Real Estate, helps not-for-profits think strategically about real estate decisions. Her firm has been consulting with Claremont School of Theology as they have been planning for the future.
Kizziar (left) knows that hiring a consultant isn’t the first thing on a struggling school’s checklist. “As organizations struggle financially, they make short-term decisions,” she says. “When they can’t keep the lights on, it’s hard to imagine they can pay a consultant.” DCG may be unique in its willingness to defer its fees until a property earns income through their brokerage or leasing services, but it is worth asking consultants if they can offer alternative financing.
In her work with schools and churches, Kizziar finds that clients often overlook insurance coverage for deferred maintenance issues. Water damage, for example, may be covered if it is the result of a specific event. Bond financing may be a viable way to raise capital for some institutions. Leasing an unused portion of campus may solve strategic and financial issues simultaneously. A student housing provider may be willing to construct a building on the school’s land, with the revenue stream split appropriately. If a school is moving toward online education, it may consider a partnership with a hotel, where cohorts can stay during short-term campus residencies.
Sale of property does not have to be a last resort. “We worked with a community college to sell a part of its land,” recalls Kizziar. “It was in the back of the property and difficult to access. By reconfiguring the access then selling it, the school was revitalized and had dynamic new partners.” She has other examples of creative land sharing too—partnering with a housing developer that is committed to the environment or working with a developer of retirement communities to build a facility that might offer preferential admissions to retired faculty and alumni.
When it comes to joint partnerships, Kizziar emphasizes that the process, as well as the final product, has to reflect the values of the organization. Rather than selecting the highest bidder, a theological school can use the request-for-proposals process to ensure that potential buyers are also good neighbors. “We ask companies to tell our clients about their purposes and values,” details Kizziar. “You don’t have to sell to a big-box retailer. The highest return has to be about optimizing the value of land in the context of values.”
How significant is deferred maintenance?
Responding to surveys conducted by the Association of Theological Schools over the last three years, 118 schools have reported at least some deferred maintenance. In some cases, the reported amount of deferred maintenance was based on an actual facility study completed by the institution, while in other cases, the reported amount was an estimate. Schools providing estimates were not told what to include in the calculation.
The highest amount reported by any seminary was $52 million, and the lowest amount reported was less than $2,000, with a median amount of $437,500. One quarter of schools reported more than $2.2 million in deferred maintenance, while another quarter of schools placed the amount at less than $105,000. Nineteen schools estimated their deferred maintenance at less than $50,000—a low figure that might not be comprehensive.
Taken on their own, deferred maintenance estimates don’t tell the whole story. One seminary reported $2 million, but this school’s overall expenditures totaled more than $27 million, so deferred maintenance represented only 7 percent of the school’s expenditure budget. Another school reported $4.3 million, but its overall expenditures were just $1.5 million. At that institution, deferred maintenance represented 276 percent of annual expenditures.
Stewardship inside the classroom and out
St. Vladimir’s Orthodox Theological Seminary has a long tradition of requiring weekly community service of full-time, oncampus students. “Everybody has to pitch in, whether sweeping floors, cleaning toilets, or helping in the advancement department,” says Father Chad Hatfield. “It’s a stewardship issue, but it’s also a part of priestly formation. In a parish, they may be cleaning the church themselves.”
When Father Hatfield took over teaching the Parish Administration course, he revamped the syllabus to include finance, administration, and facilities training. He even covers how to manage buildings on the historic register and how to make decisions about relocating a parish. “It’s been very well received,” he says. “It answers our alumni who come back and say they weren’t prepared for these issues.”