Lawmakers pepper UI with questions about University of Phoenix purchase

BOISE — State budget writers asked questions about transparency, legality and risk during a meeting with University of Idaho leaders about its proposal to acquire the University of Phoenix on Friday at the state Capitol.

Joint Finance and Appropriations Committee Co-Chairpersons Rep. Wendy Horman, R-Idaho Falls, and Sen. Scott Grow, R-Eagle, said they felt it was appropriate to have a public discussion and get some questions answered about the deal because their committee is responsible for allocating funds.

Committee members, like the broader public, were largely in the dark about negotiations because of strict non-disclosure agreements (NDAs) put on those involved, which weren’t loosened until May 17 — the day before the State Board of Education voted to allow UI to take a step forward in the transaction.

Horman said she understands reasons UI is pursuing the deal, including an expected enrollment cliff of traditional students because of declining national population growth, but said the financial risks aren’t known to her without access to financial information.

“I can appreciate that certain aspects of a contract are legal to discuss in executive session,” Horman said. “What I have yet to appreciate is these strict non-disclosure agreements with anyone who seems to have this knowledge but is forbidden from disclosing, and so that raises some red flags for me, frankly.”

She questioned the legality of a public entity doing business under such strict NDAs that “limits the public’s ability to explicitly see those proprietary fiscal details of this transaction.” Grow also asked if it was “good public policy” without public hearings or legislator input.

UI President C. Scott Green said in his business experience, NDAs are a useful tool and needed to protect the sellers and, in this case, it provided UI more access to the University of Phoenix’s financial information.

He said the work and financial information was reported to the State Board of Education, which also serves as the university’s board of regents, which is the constitutional oversight entity for UI.

“I fully recognize the way this deal transaction was conducted was not ideal and it probably was not my preference,” Green responded, but added it was necessary for the transaction.

He said legal counsel ensured things were done properly, and the state board held executive sessions to discuss negotiations under the exemption provided for in Idaho’s public meeting laws for preliminary contract negotiations.

“We’ve been through all the legal hurdles on this,” Green said.

State Board of Education member David Hill told the committee that as one of the three education board members who were privy to negotiations and part of the NDA, he felt they had done their due diligence in asking about the constitutionality of the proposal and dealings as well as what the risks involved were.

Several lawmakers asked questions regarding how the university and state might be put at financial risk, especially in regard to paying off the debt assumed to pay for the acquisition.

UI’s proposal involves creating a new not-for-profit entity that would use bonds to finance the net price of purchase of $350 million. The for-profit university would become a 501(c)(3) not-for-profit organization after the acquisition was made. Revenues from the University of Phoenix would be used to pay off the debt.

Green has said no state-allocated funds would be used for either the transaction or paying off the bonds.

He added that the online university has been in business for more than 50 years, it’s an $800-million-a-year business and is clearing $150 million in earnings before interest, taxes, depreciation and amortization.

In response to a question about the nonprofit and University of Phoenix’s employees, Green said they would not be considered state employees; the institutions would continue to operate separately.

Horman also asked if Green could provide a complete timeline of negotiations after the meeting, which the president agreed to do.

“The transparency piece of this is very important to me,” Horman said.

The transaction can’t move forward until it is approved by the accreditors of both institutions. The University of Phoenix’s accreditor is expected to take it up at its November meeting.

Guido covers Idaho politics for the Lewiston Tribune, Moscow-Pullman Daily News and Idaho Press of Nampa. She may be contacted at lguido@idahopress.com and can be found on Twitter @EyeOnBoiseGuido.