Scrutinize UO arena plan.

Byline: The Register-Guard

As construction zone signs routinely warn, the University of Oregon should proceed with caution with its plan for financing a new basketball arena.

Thanks to Nike co-founder Phil Knight's $100 million donation earlier this year, the UO has thoroughly revamped its earlier financing plan. Instead of funding all or most of the cost of arena construction with private donations, university officials now plan to borrow the entire projected $200 million cost using state bonds and paying back the money with arena revenues and, if necessary, annual donations from fans.

That's the sort of creative financing that Knight's extraordinary donation makes possible. Without that $100 million, UO officials would never even dream about asking the state Board of Higher Education and Oregon Legislature to approve such an unprecedented borrowing by a public university.

But UO officials should proceed carefully as the university moves forward with a new arena financing plan. Among other things, UO President Dave Frohnmayer should make certain that Athletic Director Pat Kilkenny's assumptions about arena revenues are in the ballpark - and that the UO doesn't burden itself with an excessive debt load that could limit the university's ability to pursue other major projects, including a planned overhaul of its dormitories.

Under the preliminary financing plan, Oregon officials would take out $200 million in 30- or 40-year bonds and use arena revenues to make the payments on those bonds. If revenues fell short of the needed amount, the UO would tap the Duck Athletic Fund, which consists of donations by fans of Duck sports, to make up the difference. Any resulting shortfall in the athletic department's annual budget would be covered by the Oregon Athletics Legacy Fund, which includes Knight's gift and, through additional donations, is expected to grow to $150 million over the next five years.

If there's a potential weak spot in this plan, it's the athletic director's bullish revenue projections for the new arena. Kilkenny estimates the new arena could generate $16 million annually - nearly $5 million more than the university's projected bond payments.

Kilkenny's estimate sharply contrasts with a projection done in 2003 by an outside consulting firm hired by the university to research the arena project. Adjusted to reflect 2006 dollars, CSL International projected that a 13,000- to 15,000-seat UO arena - larger than the 12,500-seat arena currently on the drawing board - would generate between $6 million and $8.6 million in annual revenues.

Kilkenny dismisses the CSL estimate as excessively conservative. "I'd like to trade in a world of reality, not in conservatism," he told The Oregonian newspaper.

In his former life as the CEO of a billion-dollar insurance company, Kilkenny understood better than most that a willingness to take risks, often significant ones, is prerequisite for success in the private sector. But that dynamic shifts significantly in the public sector, where public, not investor, dollars are at stake and risks, while unavoidable, must be minimized at every step.

Before proceeding with the arena plan, Frohnmayer should insist on a thorough updated and independent analysis of arena revenue projections. Given CSL's previous experience, the firm might be able to produce an updated estimate in short order and at a reasonable cost.

Frohnmayer, along with the state Board of Higher Education and the state Legislature, should also make certain that the arena financing plan would not endanger the university's plans to borrow the money needed to complete its ambitious 10-year plan to replace and renovate its woefully inadequate housing stock, as well as any other construction projects that may be in the pipeline.

UO officials emphasize the importance of moving full speed ahead on the arena project, citing rapidly increasing construction costs and the need to get the Legislature's approval during its scheduled session in February.

Speed is fine, but caution is also essential.

That's especially true in construction zones.