For the past decade, Hawaii’s largest private university has been on a steep downward slide.

Enrollment at Hawaii Pacific University has plummeted more than 50% over the past decade. And as revenue from tuition and fees has dropped so have the number of faculty, with those that remain facing salary freezes for the better part of a decade.

Meanwhile, the university has accumulated a mountain of debt, some $75 million in bonds to service. In the past few years, its operating losses have swelled from less than $2 million to $13 million in the fiscal year ended June 30, 2019.

Some of this is the result of trends of declining enrollment that colleges across the country are facing.

But it’s also in part the result of HPU’s own doing: a build-it-and-they-will-come strategy to attract more students and enhance student life by consolidating classrooms that were previously split between HPU’s Hawaii Loa campus on Windward Oahu and office buildings at the edge of Chinatown.

 

Hawaii Pacific University Aloha Tower Marketplace front entrance.

Hawaii Pacific University took over Aloha Tower Marketplace on Honolulu’s waterfront in an effort to create a more campus-like setting and attract more students.

Cory Lum/Civil Beat

Now, as the physical move is nearly finished, the university is taking big steps to reinvent itself.

“Hawaii Pacific University is at a time of real transformation,” John Gotanda, HPU’s president, said in an interview. “We’re transforming the student body. We’re transforming our academic programs. And we’re transforming our student experience and particularly our facilities. And we’re doing it in big ways. We’re not just picking small sorts of pieces.

“You know, a lot of times you see universities do one of them,” said Gotanda, a former Washington, D.C., lawyer, who also served as dean of Villanova Law School before stepping in to run HPU in July 2016. “It’s rare that you see a university doing all three at one time.”

HPU’s real estate plays are the most visible changes. It is consolidating dorms, classrooms and administrative offices into spaces near the makai end of downtown Honolulu along Ala Moana Boulevard. Perhaps most notably, the university took over the lease for the Aloha Tower Marketplace, a state-owned, mixed-use property that includes its namesake tower on the waterfront.

HPU also has rented 100,000 square feet of space in Waterfront Plaza, the sprawling complex of office buildings and shops and eateries also known as Restaurant Row. And it has more classrooms at Pioneer Plaza, an office building near the Ala Moana end of Fort Street Mall.

It’s a bold — and, administrators concede, expensive — bet: the culmination of steps put in motion by HPU’s former president, Geoffrey Bannister.

Hawaii Pacific University library located in the Waterfront Plaza.

As part of its consolidation along Ala Moana Boulevard, Hawaii Pacific University has built a college library, complete with semi-private study rooms, at the Diamond Head end of Restaurant Row.

Cory Lum/Civil Beat

A Demoralizing Situation

HPU’s struggles come at a particularly tough time for small colleges across the nation. Declining enrollment has been widely chronicled under headlines like “The Liberal Arts May Not Survive the 21st Century” and “Will Half Of All Colleges Really Close In The Next Decade?

It’s not just hype. The sky might not be falling, but the population of would-be students is.

“The demographics show a decline in college-age students,” Gotanda said. “That’s going to happen. It’s been happening for a number of years already. It’s going to continue, let’s say, for the next 10 years or longer.”

The effect at HPU has been stark. As a nonprofit, HPU’s tax returns are public records, and several recent financial audit reports have been posted online. Upon request, Gotanda provided additional data on enrollment and faculty numbers.

 

HPU isn’t nearly as big as the sprawling University of Hawaii system. But it still has big bills to pay. Operating expenses for the year ended June 2018 totaled $85.2 million, according to the latest audit posted online. The challenge has been coming up with the operating revenue to cover such expenses.

The most important source of cash to pay for all of this is tuition and fees. Although HPU gets some income from activities like renting out commercial space at Aloha Tower as well as renting dorms to students, tuition and fees make up the biggest single source of revenue, about 70% to 75%, said David Kostecki, HPU’s senior vice president and chief financial officer.

The implication of the demographic shift Gotanda describes thus is stark. There are simply fewer people to pay the bills. HPU’s enrollment has declined by more than half in recent years, from a high of 10,331 in 2010-11 to a low of 4,884 in 2017-18. And as the number of students has decreased, so has this big source of revenue.

Between 2015 and 2018 alone, the last years for which audits were available, revenue from tuition and fees dropped from more than $95 million to about $80.7 million. During the same period, HPU continued to provide scholarships and grants of about $23 million to $25 million annually. The result was a steady decline in net tuition and fees.

HPU has thinned its faculty ranks as a result. And those that have stayed have seen salaries frozen for the past six years, Gotanda said.

One of the big issues for faculty isn’t simply compensation and job security, but also the ability to govern themselves according to academic standards, said Tony Gill, a Honolulu lawyer whose clients include the professors’ union at the University of Hawaii. The concept of peer governance dates back to the Middle Ages, Gill said, a time when scholars and universities maintained knowledge and culture.

“Its fair to say that a lot of faculty believe that their inputs are formal only,” Gill said.

In response, HPU faculty have considered attempting to unionize, Gill said. But such a union would be governed by federal labor law which would classify many faculty as management. As a result, Gill said, the HPU faculty face a tougher task than professors at UH, who are state employees governed by state labor laws that allow more faculty to be part of the bargaining unit.

“The federal law drops the bar way down and compresses the cadre that can be organized,” Gill said.

For professors, the whole situation is demoralizing, said Howard Karger, a former professor of social work who retired in August.

Karger has written an authoritative paper on HPU’s recent history and finances containing much of the data from the audits. In it, Karger critiques HPU’s decision to sell the Hawaii Loa campus near Kailua in 2016 and lease space in Honolulu rather than consolidating on the Windward side as Bannister’s predecessor, long-time HPU president Chatt Wright, envisioned.

Faculty and staff have largely borne the consequences of Bannister’s decisions, Karger says.

“There’s a lot of demoralization. I don’t know how else to put it,” he said. “A lot of people are angry.”

When it comes to fixing HPU’s finances, faculty reductions have only gone so far, especially in light of costly moves into new digs.

The result is a gap between operating revenues and expenses. For the year ended June 30, 2018, HPU’s operating expenses exceeded operating revenues by $7.7 million, up from a $1.1 million shortfall the year before.

That shortfall will look even worse in the 2019 audit, which HPU has not yet made public, Kostecki said. For 2019, the operating loss swelled to $13 million, he said.

Recovery On The Horizon?

But there are increasing signs of a potential turnaround.

Gotanda says applications and deposits for next year have risen by more than 70%. In addition, the consolidation into the new spaces is nearly finished. And when HPU closes its Hawaii Loa campus on Oahu’s Windward side this year, HPU won’t have to lease space there any more, which will reduce operating expenses.

The result is that HPU’s budget for 2020 envisions a shortfall of only $4 million, Kostecki said. That’s a big improvement over 2019 and there are indications that the shortfall may shrink closer to $1 million, he said.

Hawaii Pacific University Aloha Tower Marketplace 2nd floor dorm floor. HPU has the capacity for about 400 students.

Hawaii Pacific University has made a big bet on Aloha Tower Marketplace, spending $60 million to take over and upgrade the mixed-use property as a focal point for student life. The center of the turnaround effort is a change in what HPU calls “the student experience.”

Cory Lum/Civil Beat

By several accounts, the atmosphere is getting better.

On a recent evening at the end of a long holiday weekend, Aloha Tower Marketplace was quiet, with the vibe of a downtown outdoor shopping mall on a Sunday afternoon. About two dozen college-age men and women milled about outside. Some pecked at laptops at cafe-style tables. Others watched the sunset on an expansive lanai overlooking Honolulu Harbor. Pier 9, the student dining hall run by the celebrity chef Sam Choy, was buzzing.

Among those sitting outside was Jazmyne Robinson, a freshman from Newark, Ohio. As Robinson describes it, HPU is already letting her explore options she never knew existed. Although she initially planned to major in psychology, Robinson is now pursuing a degree in a program called Arts and Markets, which allows her to combine her interest in performing arts with a practical desire to learn business skills.

She’s already got a part-time job working as a social media specialist for HPU’s College of Liberal Arts, running Facebook and Instagram accounts. It’s inspiring, she says, to know she can make money by creating positive messages.

“There are so many things in the world that are really bland and really tragic,” she said. “It’s such an important thing to remind people that life can be really beautiful.”

Robinson said she loves her loft-style dorm room and says it takes less than 10 minutes to walk to her classes at Restaurant Row.

Jazmyne Robinson, an 18-year-old freshman from Newark, Ohio, is pursuing a degree in a new program that combines business and the arts.

Victoria Duong, a senior nursing student from Vancouver, Washington, agrees. Duong, 22, who lives in the Aloha Tower dorms where she serves as a resident advisor for other students, used to have to walk all the way up Fort Street Mall to classrooms near Beretania Street at the edge of Chinatown. Restaurant Row is much more convenient, she says.

“The fact that we’re not on Fort Street has been a game changer,” she says.

Duong’s friend Nicholas Christianson, a 21-year-old biochemistry major from Albert Lea, Minnesota, hasn’t been able to benefit as much from the changes. He still has to cross the island to attend classes. Still, he said, HPU has been a great experience because the classes are small enough that he knows his professors and was even able to collaborate with one on a paper they published together.

“To be able to know everybody by name is the best thing,” he said.

“I always ask my colleagues, and I even ask the faculty and staff this, ‘Always ask yourself, if we ceased to exist, would anyone care? What makes HPU unique? What do we do and that we do well?’” — John Gotanda, HPU President

Still, it remains to be seen how much the small classes and new facilities will succeed in attracting and retaining new students. It’s not uncommon for students to leave after their first year, once they see how much it costs to live in Hawaii, Duong said.

Published statistics back up Duong’s observation.

According to “The Princeton Review’s Complete Book of Colleges,” 2018 Edition, just 65% of freshmen returned to HPU for their sophomore year. That compared to 77% for UH Manoa and 74% for Chaminade University. At selective universities like Harvard and the University of California Berkeley, the number is more like 97%.

Gotanda said there’s reason to believe HPU will be able to retain more students. Some 85% of students enrolled in the fall stayed for the spring semester. And he said he hopes that will carry over until next year.

“I think students actually really like the campus,” he said.

Still, all of this has come at a cost. To take over and renovate Aloha Tower, for example, HPU had to take on about $75 million in debt by issuing bonds.

“We took out more of them than probably I would have liked,” Gotanda said.  “It would have been nicer if it had been 30.”

So HPU’s operating expenses included not only $9.5 million in plant operation and maintenance in 2018, but another $5.3 million in interest payments.

Can HPU Make Aloha Tower A Success?

The flip side is that HPU makes money from things like its dorms and its dining hall, as well as renting space at Aloha Tower to restaurants. Accordingly, perhaps the biggest question for HPU aside from whether it can build up enrollment is whether it can make the best use of Aloha Tower. That’s something that no one has been able to do despite nearly four decades of trying.

In 1981, when the Hawaii Legislature established the Aloha Tower Development Corp. to manage the Aloha Tower complex, the vision was to create “a stimulant to the commercial activities of the downtown business community and help transform the waterfront into a ‘people place.'”

Instead, the property was marked by a series of legal problems and failed development efforts, many of which were outlined in a 2010 report by the Hawaii State Auditor. The attempts to redevelop Aloha Tower failed so consistently over the decades that the auditor recommended the property be turned over to the Hawaii Community Development Authority, which has overseen the growth of adjacent Kakaako into a vibrant mixed-use community.

HPU has brought stability to the marketplace, along with hundreds of students living in the lofts there. Although the marketplace landed three new tenants in late 2019 — Teapresso Bar, HItalian Ice and the apparel company, Hina Hawaii — it also recently lost two big ones: Gordon Biersch and Hooters. Gotanda said he’s confident the college can replace them quickly, and on Monday, HPU said a major tenant has signed a letter of intent for the Gordon Biersch space.

Such revenue is important. In 2018, HPU generated about $1.9 million in rental revenue from Aloha Tower and property in Waimanalo owned by its Oceanic Institute, which leases property to Sea Life Park. HPU reported another $5.7 million from auxiliary operations, such as dorm rentals.

John Gotanda, president of Hawaii Pacific University, shows off a simulated hospital room that is part of HPU’s new nursing school operation at Restaurant Row.

Stewart Yerton/Civil Beat

HPU also has taken numerous steps to attract more students. Among other things, it has started an undergraduate residential honors program and three new engineering programs, in biomedical, electrical and biotech engineering. It also has new doctoral programs in nursing and psychology. The psychology program has more than 175 applications for 25 spots in the fall, Gotanda said.

To attract more students from Hawaii, HPU has programs that let students earn a significant number of credits while attending high school. A program with Maryknoll School, for example, lets students earn an associate’s degree along with their high school diploma, something that significantly reduces the amount of time they spend in college. For California residents, HPU offers to let students who qualify for in-state tuition in California attend HPU for the same price.

As a perk to all undergraduates, all students not majoring in business can get a business minor for free, Gotanda said.

The university has also gotten some recent major gifts, including $1.25 million for its Center for Entrepreneurship and Economic Education, $1 million for its engineering programs and $500,000 for its new science labs.

In the end, whether HPU succeeds may come down to convincing prospective students and their parents that the university can offer something unique.

“I always ask my colleagues, and I even ask the faculty and staff this, ‘Always ask yourself, if we ceased to exist, would anyone care? What makes HPU unique? What do we do and that we do well?’” he said. We’re training students to succeed not only on day one, but really no matter what the future may hold.”

Hawaii’s Changing Economy”  series is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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