Universities' Auxiliary Enterprises

This report addresses issues related to auxiliary enterprises at the three state universities. Auxiliary enterprises represent a very wide variety of activities and services, including bookstores, student housing, intercollegiate athletics, and parking services. The report presents two findings. First, it notes that changes may be needed if the universities are to successfully review services for possible privatization, as they have been required to do by a 1996 legislative mandate. Studies performed to date, as well as best practices cited in literature, suggest that the universities may need to collect more performance, service, and financial information to enable them to conduct systematic privatization reviews. Second, the report recommends several ways that the universities could improve the way they operate their auxiliary enterprises. We recommend that universities: 1) actively encourage and pursue partnership opportunities to operate their auxiliary enterprise on campus; and 2) develop and implement standardization policies for purchasing commonly used supplies and equipment, as ASU currently does. We also recommend that the Board of Regents develop guidelines for each auxiliary and internal service regarding the planning and accumulation of adequate financial reserves so that long-term capital needs are addressed as much as possible.

In addition to the two findings, other pertinent information is also presented in this report regarding the benefits, risks, and other considerations concerning possible privatization of the bookstores at the three universities and dining services at the University of Arizona. Our preliminary analysis suggests that if the universities privatized their bookstores, more sales may result, which could mean more money being returned to the universities. Similarly, privatizing UA’s dining services would likely reduce its high labor costs and potentially increase the financial return to UA. However, these greater potential returns can only be confirmed after an RFP is issued and proposals are received and evaluated. Further, even if greater returns are possible, other factors that might affect the decision to privatize need to be considered. These factors include lower-quality or more costly services to students, the potential for local community resistance, and the impact on employees.