An external consultant is recommending the University of Hawaii strongly consider transitioning the struggling UH Cancer Center to a semi-autonomous business entity, co-owned and run with community hospital partners, in order to keep the research facility viable.

The recommendation is one of 10 key findings in a report prepared for UH by Warbird Consulting Partners, with headquarters in Atlanta, and Navigant Consulting Inc., based out of Chicago.

“Establishing the UHCC as set aside from but not outside of UH, for instance as an Enterprise Fund, may be the best structural approach to enable the UHCC to achieve its potential,” the consultants wrote in their report, which will be presented next week to the Board of Regents. “We believe the potential of the UHCC can only be unlocked by enabling quasi-independent functioning.”

The report says, in general, colleges and universities typically use so-called enterprise funds to run bookstores, cafeterias, student housing and parking operations as separate business entities.

“For UH to establish an enterprise model for the Center, several years — minimum — will be required for planning to modify legislative policy, securing joint venture partnerships with the Center’s community medical centers, exploring new relationships for current employees of the Center under the proposed enterprise model, and developing a functioning comprehensive business plan for such a novel proposal will be needed,” UH wrote in a proposed plan based off of the consultant’s report.

University and state officials have been grappling for some time with how to deal with the center, which has been running in the red and draining its reserves to stay afloat. The latest report is the third in recent years — two others were produced in-house — to try to come up with a proposed way forward.

The consultants advise against some of the more extreme suggestions, including closing the center, selling it to an outside entity, merging with a mainland cancer center, or abandoning its federal National Cancer Institute designation.

To cut costs in the short term, the university a year ago initiated plans under the center’s interim director, Dr. Jerris Hedges, dean of the John A. Burns School of Medicine, to begin consolidating duplicated functions of the cancer center and the medical school, which sits adjacent to the center.

As a result of the consolidation efforts and a hiring freeze, the cancer center ended fiscal 2015 with a $6.4 million operating deficit, compared with deficits of more than $10 million in fiscal years 2013 and 2014, the report shows.

But, “it is clear that the UHCC will run out of financial resources in less than three years without action being taken,” the consultants said. “Since many factors influence the financial performance of the UHCC, there is no certain, calculable amount of annual financial support needed to ‘close the gap.’”

UH is seeking $5 million in general funds from the Legislature to subsidize operations next fiscal year. The budget request is the topic of a legislative hearing this afternoon, called by House Higher Education Chairman Isaac Choy, who has been critical of the center’s money woes.

The center’s financial troubles stem from a faulty business plan that had assumed the university’s share of the state’s cigarette tax would remain constant at $19 million to $20 million a year. But, as fewer people smoke, the tax revenues have dropped off.

Adding to the problem, UH in 2010 pursued building a $100 million state-of-the-art facility in Kakaako using that outdated business plan. To pay for the building, UH issued bonds, which have saddled the center with a nearly $8 million annual mortgage payment that it can’t afford.

Its researchers also have pulled in fewer research grants to fund their work. The center held 180 grants last fiscal year, compared with 250 grants two years ago.

“UHCC has the opportunity to conduct significant and impactful cancer research that can make a difference for the people of Hawaii and elsewhere,” the report says. “Operational and financial improvements are possible but as UHCC expands its research, it will always need financial support from a combination of sources.”