Penn goes broke, students go west

The Health System was already bleeding green back in the fall of 1998, when administrators first announced a 10-year, $300 million plan to overhaul every dormitory and dining hall on campus. Not that administrators were paying much attention back then to the $2 billion behemoth on the other side of Spruce Street. They had other things on their mind. Big things. Things like rebuilding Penn's campus and revitalizing the neighborhood around it. The next summer, when the Health System posted a $198 million loss, administrators remained unfazed. This won't change a thing, they said. And when it did change the University's bond rating, they pasted on their Sunday-best smiles and declared that a solution was in progress. Last week, a bad case of reality set in. Penn indefinitely postponed plans to add 1,000 beds -- and at least one new dormitory -- to Hamilton Village, pushed back the renovation schedule for existing dormitories and bumped up the total price tag to $380 million. The consequences are substantial. For one, the recent housing shortages are likely to continue, forcing undergraduates into the Grad Towers and the Sheraton hotel. Second, the neighborhood revitalization plan is in trouble. Increasing the number of homes occupied by owners has always been a linchpin of the effort. To create openings for people looking to buy homes, Penn had hoped to move students out of off-campus apartments and into the new dormitories. Of course, that may still happen someday. But Penn doesn't necessarily have until someday. Neighborhood revitalization is a little like Who Wants to Be a Millionaire -- you keep on growing until a recession hits, and then you retreat to a base level. Penn is not yet at or above the $32,000 mark, and it just became a little more difficult to get there. Administrators know this. Which is why Penn has announced countermeasures: The University is going to buy the neighborhood. Penn and Fannie Mae, equal partners at $5 million per, plan to buy up apartment buildings throughout University City and institute rent controls. When the inevitable recession hits, the consortium can ensure that the housing market and the houses in it don't fall apart. This way, Penn doesn't need to build new dormitories because students can stay right where they are because homeowners are no longer needed to stabilize the neighborhood. Penn, the biggest homeowner of them all, is going to do the job instead. Of course, if you ask a University administrator, he'll tell you that the consortium's goal is to keep prices from rising as the Philadelphia housing market continues to heat up. But the Philadelphia housing market could continue to heat up for the next half century and there would still be cheap housing for everyone, their sister and their extended families. Administrators also like to point out that the new dormitory construction has been postponed, not canceled. They are correct. And construction will begin as soon as America's system for financing health care changes completely and/or the University receives hundreds of millions of dollars in unexpected donations. But don't hold your breath, because the Health System's problems stand to get much, much worse. The system's difficulties -- and those of hospitals nationwide -- stem in large part from the federal Balanced Budget Act of 1997, which slashed reimbursements for Medicare below the actual cost of service. Those reimbursement levels are scheduled to decline even further when the next phase of the act goes into effect. Penn and many other academic health systems are frantically lobbying Congress to prevent that from happening. But if it does, then baby, you ain't seen nothing yet. The Health System will dive right back into the red. And if the Health System starts hemorrhaging money all over again, unbuilt dormitories will be the least of Penn's worries.

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