Printing department gets last opportunity to profit
UA administrators may partially privatize the university's printing and graphics department next year if it fails to reduce a $330,000 deficit before July.
The auxiliary department has gone farther in the hole each of the past six years, prompting University of Arizona officials to consider privatizing a portion of the services that are not generating enough revenue to offset expenses.
"The printing portion was not profitable - we will look to see how it is going into May and June," said Julius Parker, UA associate vice president for business affairs. "If they haven't shown us they can be competitive, we will bite the bullet at that time."
The administration is giving the program one year - from July 1998 through June 1999 - to begin making money, Parker said.
The department, which prints stationary, business cards and envelopes for UA faculty and staff, has lost money primarily because of a $406,000 investment it made in high-tech digital printing equipment between 1989 and 1992.
The Docutech copier creates high-speed, high-quality black and white copies from a digital source such as a computer chip or disk. UA faculty and staff members can electronically transmit original documents to the machine.
"We bought it to take advantage of some of the efficiencies of electronic printing," said Richard Lewalski, printing and graphics department manager.
But demand for the printing service's new technology diminished after a series of budget cuts in the early 1990s put individual departments on tight budgets, Lewalski said.
While the printing department's business card and stationary production and bulk-mailing division are profitable, the high-tech equipment's labor and maintenance costs exceed revenues, said Dick Roberts, UA's chief budget officer.
"We have to do what any business man would do," Roberts said. "Strengthen your core business and get out of what doesn't make a profit."
Auxiliary departments, which are not funded by the state, must mark up the cost of goods and services to cover equipment expenses, materials and employee costs.
Roberts said he suggests auxiliary departments also build a reserve to cover nine-months worth of expenses in case of slow revenue periods.
The UA privatization committee, which drafted a report 18 months ago on the possibility of privatizing the printing department, did not reach a conclusion.
That's when Parker and Joel Valdez, UA senior vice president for business affairs, created the plan to give the department one more chance to profit.
"We wanted to give them an opportunity," Parker said. "We are trying to put them in an environment where they can be competitive."
In June, Parker gave Corrine Splitt, director of procurement and contracting services, the job of overseeing the department.
"I purposefully assigned them (printing and graphics) to this organization primarily due to the management of the organization," Parker said. "It has been quite profitable. They know how to make money and are very good at it."
Lewalski said being a part of the procurement and contracting department has helped the division drum up additional business and cut costs.
"They can go out and buy a truckload of paper for us," Lewalski said. "We didn't have the room."
Another step UA printing took to cut costs was to lay off two of the 28 employees and give up two vehicles, Lewalski said.
Privatization of the department could take several forms: complete privatization, where the entire department is disbanded and farmed out to other companies, or partial privatization, where only a portion is farmed out, he said. Both options would mean a loss of jobs for UA staff - anywhere from one to 28.
Lewalski said the UA administration also could bring in another company to manage the employees.
One thing that could turn the department around is creating demand for the expensive printing equipment - something Roberts said will be difficult.
"The community has already said, 'We aren't using your services,'" Roberts said, referring to the amount of business the printing department does. "It must mean something."
Roberts said yearly profits that would eliminate the negative balance in five years - $60,000 to $70,000 - would be sufficient to keep the printing and graphics department together.
"That would make Dick a little more comfortable," Roberts said.
Although Lewalski said he did not know how much his department will have to profit this fiscal year to stay together, he did anticipate a profit.
The Docutech has a break-even point of 6 million copies, and he projected it would print 7 million to 8 million copies by June.
"I am hoping to make a profit between $25,000 and $50,000," he said. "That is attainable."
Parker said the UA will have to make a decision after observing the printing department for the remainder of the fiscal year.
"If it isn't making money and doesn't benefit students, faculty or staff, we shouldn't have it," he said.
Anthony C. Braza can be reached via e-mail at Anthony.C.Braza@wildcat.arizona.edu.