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This post is part of an extended Open Letter to the Iowa State Auditor.
While naming physical structures after human beings is a time-honored tradition in many cultures around the world, in no context is that tradition more lampooned and maligned than in higher education in the United States. For every alumnus whose life work materially changed society for the better — and was thus deserving of genuine recognition — there are a hundred who merely lined their pockets with the fruits of their degrees, if not also contributed to society’s ills in the process. Because colleges and universities are always looking for ready sources of revenue, however, any alumnus with a bulging bank account can, with the right crony connections and the right number of zeroes, buy the naming rights to a prominent edifice on campus, thus purchasing outright the reverence that others earned with their good works.
Set aside the cliche of the toxic, ego-mad alum, however, and there is nothing inherently wrong with alumni giving back to their alma maters. Because human beings are necessarily involved in that process it can go off the rails in different ways, but with the right policies in place donations can be made, and — if warranted by the sheer magnitude of a contribution — naming rights can be judiciously granted. In that context, it is reassuring that the Iowa Board of Regents has a dedicated section on ‘naming’ in its policy manual (p. 122 here; click ‘Naming’ here). Unfortunately, while a number of relevant concerns are addressed, one critical factor is omitted entirely, leaving the door wide open not only to crony abuse, but to the transfer of valuable assets at a net loss to the state.
The section on naming runs about 700 words over two pages, and is comprised of six main subsections, several of which have multiple clauses and sub-clauses. What is utterly absent, however, is any obligation on the part of the board or the regent institutions to determine the market value of a proposed naming before it is granted. In fact, the only reference to the prospective value of a given naming comes in section 2.3(16)(E)(ii)(c):
Develop guidelines/rationale to determine the appropriate recognition of a donor, including the contribution threshold for the naming of a Major Unit.
Here the transactional nature of college and university namings is laid bare, but the critical question of pricing is left to the institutions themselves. Not only does that pose a risk in terms of maximizing the exploitation of named assets, but it is particularly odd in an industry which constantly justifies financial decisions by pointing to peer institutions that may be halfway across the country. For example, not only do colleges and universities routinely justify increased tuition and fees because of what their self-selected peers are charging, but administrators are often paid not according to their individual qualifications, but relative to the national market for academic administrators
This tendency to extol comparables in order to raise prices has been a constant at the Iowa Board of Regents over the past three years or so, and particularly so at the University of Iowa. Not only has the board raised tuition at the state schools five times in just over three years — totaling more than 20% — but at UI the justification for doing so often involves comparisons to schools like the University of North Carolina. Likewise, when J. Bruce Harreld was hired as president, despite the fact that he had no prior experience in academic administration, and admitted that he would need mentoring and coaching, he was given a five-year deal paying $800K per year ($200K deferred), which was significantly greater than his predecessor’s contract, or the compensation of the majority of presidents at Iowa’s self-selected peers.
All of which leads to an obvious question regard naming rights:
Why is there no Board of Regents policy requiring an objective assessment of the market value of any proposed naming?
When the state or anyone else sells a parcel of land, the first step is determining the market value of similar properties — often called ‘comps’. As with a vehicle or an old baseball card, you can’t know what to ask for until you know the value an asset has in the marketplace. So why is the value of the naming rights to a facility or feature on a regent campus left to the administrators at that school? Or worse, farmed out to the self-interested executives at a third-party foundation, who may be partly compensated on commission?
One plausible answer is that for most namings the market value is minimal if not negligible, so any money is probably the most money that can be generated from that transaction. Per current board policy, the schools themselves have discretion over what are called “Minor Units” — “campus areas or sections of facilities (e.g., rooms, labs, open spaces, streets, structures, physical features…)” — but there would still be similar transactions at peer institutions which could be compared. So why isn’t that basic pricing/market research mandated by the board?
For what are called “Major Units” — meaning “entire buildings, wings of buildings, colleges, programs and large sections of campus” — and particularly the most prominent assets, there is no question that a market price exists, and all we have to do to see that is look at Iowa State University, which recently sold the naming rights to its football field for $15M over the next ten years. Is $1.5M per year fair value for advertising on a football field? Maybe, maybe not — but at some point one or both parties looked at other schools to determine the fair market value of that transaction as best they could.
Even in the case of Major Units, however — which may be worth millions of dollars — there is no mandatory due diligence required by the Iowa Board of Regents. At most the board reserves the right to approve the naming of Major Units, but even then the individual schools do not have to provide any market justification. This discretion at every level also opens the door to crony deals being cut behind the scenes, which may not be in the best financial interests of the institution or the state. (As in the previous post, here again we will assume that the board and university presidents are bound by a fiduciary duty to the state, but without requiring an objective analysis of an asset’s value, no one would know if that duty was breached.)
The only mentions of due diligence in the naming section of the policy manual have to do with the vetting of counterparites, not with pricing an asset in play. From 2.3(16)(D):
Corporate namings require a thorough degree of due diligence to avoid commercial influence or conflict of interest.
That is also the entirety of the subsection on corporate naming. In the subsection on “Institutional Responsibilities” we find this, in 2.3(16)(E)(ii)(d)(1):
d. Conduct a thorough “due diligence” review of each donor and the person/entity (if different than the donor) in whose honor the naming is to be made and the implications of the naming for the institution. A thorough due diligence would include, at a minimum:
1) Review of any potential conflict of interest issues affecting any Regent institution;
The potential for abuse without such a conflict-of-interest clause should be obvious. If Donor X gives $10M to a project, and Donor Y gives $5M to the same project, but Donor Y is a good friend of the university president, then Donor Y may be ‘honored’ with the naming even though Donor X gave more. While that would obviously be a conflict of interest — meaning the university president should have been recused in that case — note that there is still no determination being made as to that actual value of the asset in question. In such a situation, even if Donor Y was the only donor, and the naming was granted on that basis, that might still result in the transfer of an institutional asset at below-market value, which would also be a conflict of interest.
To ground all of this in reality, we turn now to an important question that we did not contemplate in the previous post. While it was noted that the Board of Regents authorized a sham presidential search at UI in 2015, to cover for the done-deal hire of J. Bruce Harreld — who was in turn promoted by mega-donor and former Harreld mentor Jerre Stead — what we did not contemplate is why Stead was so eager to install a crony in the president’s office at his alma mater. Did Stead hope to personally profit, or was his complicity in that administrative betrayal merely that of a loyal Hawkeye trying to do the right thing in the wrong way?
Harreld officially took office on November 2nd, 2015. In late November, when the Board of Regents posted the agenda for its upcoming meetings in early December — as required by Iowa’s Open Meetings law — a new naming at the University of Iowa was listed among the agenda items, but the details were omitted. Only on the day of the meeting in question was the agenda item updated, revealing that the new, state-of-the-art UI children’s hospital would be named in honor of the Stead Family. In mere moments the previously secreted naming was fast-tracked by the board, without question or comment, and immediately approved.
Even at the time there were serious concerns that the naming was motivated by crony ties between Stead and Harreld, and in-depth reporting showed a number of obvious conflicts of interest. To put the best possible light on that covert bureaucratic act, however, here is how the UI Foundation announced the naming on the UI website, in a press release on 12/02/15 — meaning the same day the naming was approved, and exactly one month after Harreld took office:
Naming honors Steads’ $25 million commitment to further children’s medicine at the UI
In honor of Jerre and Mary Joy Stead, and their extraordinary commitment to children’s medicine at the University of Iowa, the University of Iowa requested that the Board of Regents, State of Iowa, approve the university’s proposal to rename UI Children’s Hospital the Stead Family University of Iowa Children’s Hospital. The Board of Regents unanimously approved the naming in its meeting Dec. 2.
Momentarily setting aside the fact that no market value was ever established for the naming rights to the new children’s hospital, at first blush this transaction may seem amenable. $25M is a lot of money by any measure, the children’s hospital went $100M over its original budget, and of course the sick children deserved every possible advantage. And yet, if we barely scratch the surface on that heart-warming narrative, we find that the UI Foundation and the university itself were at best misleading and at worst willfully deceptive.
As of December 2015, the Steads had indeed given $25M to UIHC. What the UI/Foundation press release omitted, however, was that the vast majority of that money had been given years earlier, in two $10M installments. While the press release did note that the university named the UI Department of Pediatrics after the Steads in 2013 take note of the deft way in which that $20M linkage was rhetorically obscured:
Jerre and Mary Joy Stead began giving to the University of Iowa more than 30 years ago, and their cumulative support totals $53.9 million. In 2013, the UI named the Stead Family Department of Pediatrics in honor of the couple’s generous gifts to children’s medicine. The Steads have supported other areas of the university as well. In 2003, the Steads committed $25 million to the UI Henry B. Tippie College of Business—of which Jerre is a 1965 graduate—to support a variety of initiatives, including the Stead Technology Services Group, a full-service computer lab and technology consulting group.
The first $10M donation to the medical complex on the west side of campus came in 2011, followed by another $10M in 2013 — after which the board approved renaming the pediatric department at its October 2013 meeting (full agenda here; agenda item here). While the Steads reportedly did give another $5M in 2015, which was specifically targeted at construction of the new children’s hospital, the obvious question is why that $5M warranted naming the entire hospital in their honor, when it took $20M to ‘secure’ the naming of the UI Department of Pediatrics.
One plausible answer would be that the Steads effectively traded up, kicking in a few million more and giving up their naming of the Department of Pediatrics, but that isn’t the case. Not only is the Stead Family Department of Pediatrics still on the UI Healthcare/College of Medicine website, but as of a few months ago both namings are still being referenced in reporting:
….in the UI Stead Family Department of Pediatrics, inside its new Stead Family Children’s Hospital.
While this incongruity was also noted by the press at the time, important new information was added to the puzzle only ten days after the renaming of the new children’s hospital. As it turns out, the additional $5M gift from the Steads was brokered by UI VP for Medicine Jean Robillard, who, at the time, had been serving as chair of the 2015 search committee, and was interim president at UI. From the Gazette, on 12/11/15:
A week before Bruce Harreld was named University of Iowa president, interim UI President Jean Robillard took a $10,747 chartered plane to Colorado to meet with longtime donor Jerre Stead about a $5 million donation and the possibility of naming the new UI Children’s Hospital in his honor.
By profession, Robillard was also a pediatric nephrologist in the Stead Family Department of Pediatrics (out-of-date web page here), and as such would have been well aware of, if not a key player in, the prior naming of that department after the Steads. Precisely because Robillard knew that the Steads had already given $20M for the naming rights to that department, it makes absolutely no sense that Robillard would then sell the naming rights to the new children’s hospital for $5M, let alone make a sudden trip in order to do so. (Everything about that transaction could have been handled in a phone call.)
So what else was negotiated at that meeting between Robillard and Stead? Was Harreld’s presidency hanging in the balance? Because if that’s the case, one might imagine that Robillard could have milked Stead for a great deal more — on behalf of the children, of course. (One person to ask about that meeting would be Dana Larson, executive director of communications for the UI Foundation — now called the UI Center for Advancement — who accompanied Robillard on the trip. Also worth noting: Jerre Stead’s wife sits on the board at the center, which paid for Robillard’s chartered jet, and J. Bruce Harreld is an ex-officio member.)
Even if we omit questions of motive, the facts are damning. For $25M total the Steads walked away with the naming rights to the Department of Pediatrics and the brand-new, $360M children’s hospital. If we map that money to the UI presidents presiding at the time, however, it cost the Steads $20M to secure the pediatrics department under former UI President Sally Mason — which was also the lesser of the two ‘honors’ bestowed by UI — and only $5M to secure the naming rights to the prestigious new children’s hospital under J. Bruce Harreld, who also happens to have been Stead’s long-time mentee in the business world.
To those concerns we can also add gross hypocrisy relative to the entire premise of Harreld’s non-traditional appointment. Business types have been making inroads in higher education by calling out traditional academic administrators for failing to aggressively monetize school assets. That is in fact what binds Stead, Rastetter, Robillard and Harreld together, and why the first three blew $350K in state revenue on a fake presidential search to install Harreld in office.
By profession, Stead spent his working life as a mergers and acquisitions guy specializing in turnarounds, and in late 2015 was the CEO of IHS, which subsequently merged with Markit. Regents president Rastetter was not only the godfather of the modern hog lot, but was and is the owner of a farm services company which includes multiple funds for investors. As for Iowa’s VP for Medical Affairs, as part of that job Robillard was charged with building out UIHC and its system of clinics, specifically to increase profits. Given Harreld’s business background it was also clear that he had been brought in to do exactly what those entrepreneurial sharks thought was lacking under President Mason, which was use the university itself to generate more revenue.
So how do we explain Harreld all but giving away a valuable state asset to his old friend, Jerre Stead, only weeks after taking office — under the watchful eyes of Rastetter and Robillard no less? However important Stead’s $5M was to completing the new children’s hospital, it’s also important to note that other donors gave considerably more, and all of it specifically targeted at construction. For example, the Gerdin family — which has also made extensive donations to UI — donated $12M toward construction, and did so very early, in 2012 — right between the $10M donations that the Steads gave to the Department of Pediatrics. So what did the Gerdins get from Harreld, Robillard and Rastetter, when the time came for honors to be bestowed on the donors who made the children’s hospital possible? While the Steads were given the naming rights to the entire building for an extra $5M, the Gerdins got the first-floor lobby for donating more than twice as much.
As a matter of board policy, does anyone think that’s how things would have turned out if Stead had not installed his own crony pal in the president’s office? Relative to both the under-valuation of the naming rights and the crony connections which greased the transfer of those rights to the Steads, the covert, secretive process that led to the naming of the new children’s hospital was objectively improper, even by the thin standards of proscribed regent policy. The question we have yet to answer is whether that was a de facto heist of a valuable state asset.
Consider the following 2015 timeline from this and the previous post:
* August 25th — Robillard flies to Colorado to collect $5M from Stead, reportedly in exchange for the naming rights to the new children’s hospital.
* September 1st — During his candidate forum before the UI community, Harreld is asked point-blank if he has any prior connections to members of the search committee. Harreld says no, even though he knows that Jerre Stead is a member of the search committee.
* September 3rd — Only moments after Harreld is appointed to the presidency at Iowa, he states that his candidacy was initiated by a fellow university president, later identified as Mitch Daniels at Purdue. In reality, Stead introduced Harreld to Rastetter, and Harreld knows that.
* September 4th — In a press report, Jerre Stead states that the first time he new Harreld was a candidate for the UI presidency was when he saw Harreld’s name on a committee list. In reality, Stead introduced Harreld to Rastetter before any committee lists were generated.
* November 1st — In separate interviews with the local press, Harreld claims that his candidacy was initiated by someone at Boston Consulting, or by some anonymous individual who contacted Rastetter. In reality, Harreld knows that Stead conveyed his name to Rastetter.
Within the span of two weeks, after Robillard offered to grant the children’s hospital naming rights to Jerre Stead in exchange for a relatively small donation — which was then treated as a state secret until the last possible minute in early December — both Harreld and Stead told three separate but concerted lies which were designed to distance themselves from each other. Two months later, on the even of taking office, Harreld then tells two more mutually contradictory lies to achieve the same end — one month before transferring the naming rights to Stead.
As to why Harreld and Stead perpetrated that now-obvious charade, we find the equally obvious answer in the regents policy manual, as previously quoted:
d. Conduct a thorough “due diligence” review of each donor and the person/entity (if different than the donor) in whose honor the naming is to be made and the implications of the naming for the institution. A thorough due diligence would include, at a minimum:
1) Review of any potential conflict of interest issues affecting any Regent institution;
Even as the press was exposing the corrupt 2015 UI presidential search between September and November, Harreld persevered in lying — overtly, repeatedly — about his prior relationship with Jerre Stead, and particularly about the fact that Stead initiated his candidacy. A very good reason for doing so, however, even to the point of blithering self-contradiction, is that if Harreld had acknowledged that Stead was behind his candidacy, that would have violated the policy provision above, and made it impossible to ram through the transfer of the children’s hospital naming rights to Stead. Instead, having put his hand-picked functionary in the president’s office, and with that loyal functionary lying through his teeth, that obstacle was removed, and Jerre Stead walked off with a state asset that is worth considerably more than he paid for it.
How do we know? Well, not only was the UI children’s hospital built in a prominent location, but that location is directly across from — and the upper floors are clearly visible from — the entirety of 70,000-seat Kinnick Stadium. While no one could have predicted the symbiotic marketing magic that came to be called ‘the Iowa wave‘ — which garnered sustained national attention and goodwill for the university, the football team and the children’s hospital — the sheer scale and laudable mission of that project would have made it as valuable as any other naming opportunity across the regents enterprise. Fortunately, all of the things that make a naming opportunity like the new children’s hospital attractive to potential donors also make the opportunity attractive to other monied interests, and that in turn makes it easier for us to determine the market value of that asset.
The fact that a company was willing to pay $1.5M per year, for ten years, to Iowa State in 2018, in exchange for the naming rights to a patch of grass, suggests that in late 2015, the corporate naming rights to the new UI children’s hospital would have been worth at least $1M on an annual basis, if not more. Note also that the corporate naming at ISU came with a limited term, after which the rights reverted — either to be renegotiated or resold at the current market rate. By contrast, honorary namings are perpetual, which is often the whole point either for a genuine expression of cultural thanks, and for donors who hope to purchase immortality with cold hard cash. That does not mean, however, that the assets in question are worth less if they are being transferred in perpetuity, or that the state should collect less in the bargain.
No matter who secures the naming rights for a given state asset — whether from donations or corporate sponsors — the first determination should be how much the asset itself is worth. Ideally, in striking a naming bargain, there should be no conceivable scenario in which the state loses money over the life of the transaction, in constant, inflation-adjusted dollars. For example, if an asset is worth $50K on an annual basis, and the structure in question has a life expectancy of 50 years, that’s $2.5M that the board should demand before making a naming deal.
Underscoring the need to standardize naming policy across the regents enterprise, several months before ISU sold the naming rights to its football field it also sold the naming rights of two research facilities to private-sector businesses. Until that point it had been longstanding practice, if not actual policy, that the regent institutions did not sell the naming rights of facilities to businesses or corporations. As if that radical departure from tradition wasn’t questionable enough, however, consider the terms of those deals:
The university wants to name the new farm’s layer building the “Iowa Egg Council Layer Research Facility,” in honor of the Iowa Egg Council’s $1.5 million contribution to the project, and its new genetics building the “Hy-Line Genetics Research Building,” in honor of a $500,000 gift from Hy-Line International and its United States division, Hy-Line North America.
Selling off pieces of a public university to corporate sponsors is inherently problematic, but unlike the stadium deal several months later, the leadership at ISU didn’t even insist on a duration for what is, effectively, advertising in another guise. Instead of selling the naming rights for five or ten years, the corporate sponsors in question are being treated no differently than private donors, and being granted naming rights in perpetuity. While that may spur other companies and corporations to make a flood of offers to ISU, it should be self-evident not only that such transactions are ripe for crony abuse, but it is almost inevitable that the state will not end up getting fair market value in those deals.
To see why, consider that we are now coming up on the middle of 2019. If the naming rights to the new children’s hospital were worth $1M per year at the end of 2015, then we are only a year and a half from earning out the $5M donation that Robillard secured from Stead. Because Harreld, Robillard and Rastetter granted the naming rights in perpetuity, however, there will never be a chance for the university to renegotiate or sell those rights again, resulting in an inevitable loss of revenue to the school — and yet that’s only half of the problem. Precisely because the clock will keep ticking, every year after that $5M donation is earned out will effectively count not only as a loss to the state but as a profit to the Steads, meaning in another twenty years the entire $25M commitment that the Steads made to the UI medical campus will be refunded.
Imagine how happy — if not ecstatic — any corporate sponsor would be to cut a similar deal. But of course that probably wouldn’t happen, because then everyone would be investigated to make sure no bribes were involved. Which brings us back to how four business-savvy sharks, who were are all publicly committed to maximizing profits at the University of Iowa, nonetheless banded together to grant the naming rights to the new UI children’s hospital to one of their own, at a guaranteed multi-million dollar loss to the state.
Given that Stead ‘secured’ the naming of the Department of Pediatrics for $20M — which, by the board’s own policy definition constituted a Major Unit — how was the naming of a second Major Unit, let alone one of considerably greater prominence, worth one quarter of that amount? Again, as to valuation, even if we don’t know the market value outside of UI, relative to the pricing already established internally, that would seem to be a fire-sale price for a valuable state asset, calling into question how that administrative decision was reached.
The relevant policy question is not simply how much money a person or group may have donated in exchange for the naming rights, but how much a private company might have paid for that ‘honor’, whether UI would have put such an asset up for auction or not. What would John Deere or Wellmark have paid, or any other corporation in Iowa have paid, to have their name associated with caring for and healing sick children at UI? What was the asset itself worth to the state at the time that Jerre Stead bought it for $5M?
Selling off state assets without first determining their market value will inevitably lead to additional crony abuses of power and diminished return on those assets. From the examples cited above it should also be clear that the risk is already accelerating, and that the board’s policies — including the negligible attention paid to corporate namings — are woefully insufficient. Not only should the Iowa State Auditor review all recent namings to determine their fair market value, but policies should be put in place to limit corporate namings in duration, and to ensure that donor namings do not earn out over the expected lifetime of the unit in question. If businesses and corporations want to sponsor facilitates on any regents campus, those transactions should be time limited and treated as the advertisements they clearly are. If donors want to buy perpetual respect, they should pay the aggregated annual market rate for that privilege.
— Mark Barrett
This post is part of an extended Open Letter to the Iowa State Auditor.
Rank and file state employees in Iowa are constrained in their financial decision making by their job descriptions and limited budgetary authority, and that includes the seventeen staffers at the Iowa Board of Regents, and thousands of similar employees at the regent schools. If those government workers spend state funds without a valid justification, they may end up being terminated, if not also having a criminal referral filed by the Iowa State Auditor. (Recent examples from the University of Northern Iowa here and here, and from the University of Iowa and UI Athletics here and here.)
High-ranking state employees in the regents enterprise necessarily have greater financial authority and discretion, but are still bound by school policy, board policy and state law. For example, several years ago it was discovered that former Iowa State President Steven Leath routinely used the university’s two aircraft for personal trips, among other legitimate flights related to his official duties. While the incumbent state auditor refused to conduct an independent inquiry, even the board’s own audit showed that Leath misused the state-owned planes on dozens of occasions, and that compelled him to reimburse tens of thousands of dollars to the state. (Although Leath’s trips violated school policy, board policy and state law, Leath was neither terminated nor reprimanded by the board. Criticism of the board’s audit here and here, and of the former state auditor here.)
As to the financial decision making of the nine members of the Board of Regents, who are the arbiters of the multi-billion-dollar regents enterprise, one peculiarity of their status is that they neither state employees nor elected officials. Instead, they are citizen volunteers, appointed by the governor, and seem to exist in a gray area relative to how their financial decisions are judged. On an individual basis the regents have no apparent authority to spend any money themselves, and are at most reimbursed for reasonable travel expenses related to their official duties. (Because those duties are almost always collective, it would even be difficult for one regent to falsify expenses to their financial advantage, because they would stand out from the receipts submitted by others.)
At the same time, the members of the Board of Regents wield extraordinary power, including the legal authority to generate and spend staggering amounts of state revenue with a simple majority vote. With an enterprise-wide $6B budget, and individual agenda items involving tens if not hundreds of millions of dollars, expenditures that would be monumental in any other state context can seem almost trivial, but a million dollars in government revenue or assets is still a million dollars. Indeed, even when compared to the state legislature, with its power to levy taxes and appropriate billions of dollars in revenue, there may be no greater concentration of fiscal power in the state than rests with the nine members of the Iowa Board of Regents, who are neither vested with the liberty and immunity of elected office, or beholden to the usual constraints and obligations of government employees.
In that context, then, how would the Iowa State Auditor determine whether a given expense by the Board of Regents was valid or invalid? And if an expense was ruled invalid, by whatever criteria, from whom would the auditor seek reimbursement, or name in a criminal referral? For example, if the regents voted to buy a yacht for regent meetings on the Mississippi River, that extravagance would seem disallowable as a valid expense, but under what authority? If the regents conducted the vote in compliance with board policy and Iowa’s Open Meetings Law, how could the auditor’s office argue that what was a legal act was still in violation of the board’s statutory mission — and thus disallowable as an expense?
The legally binding obligation of one party to do what is in the best financial interest of another party is called a fiduciary duty or responsibility. For example, because of the power that attorneys wield over financial matters, they are commonly held to be fiduciaries by the courts, and can be fined or even disbarred if they put their own interests ahead of their clients. Unfortunately, even in situations where such an obligation would seem self-evident there may be no legally binding fiduciary requirement — as is often the case in the financial services industry, where financial planners can legally exploit or ‘churn’ client assets for their own benefit.
With specific regard to the Iowa Board of Regents, the closest thing to a legally binding fiduciary responsibility seems to be a statutory ‘duty of loyalty‘, which is described in the board’s policy manual, in a section primarily concerned with conflicts of interest:
To further enhance the credibility and accountability of the Board, the Board requires that all Regents and institutional officials promote at all times the best interests of the Board and its institutions consistent with policies, rules, regulations, and laws governing the Board, academic institutions, and academic freedom. The duty of loyalty requires Regents to exercise their powers and duties in the interests of the Board and its institutions and not in the Regent’s own interest or in the interest of another person or organization.
Assuming that this ‘duty of loyalty’ would be sufficient to disallow the purchase of a party boat, the next question is who would be held responsible for improperly acquiring the yacht. The quote above covers members of the board and executives and professionals at the board office, so it’s worth asking whether one group could credibly blame the other for such an expense. If the regents approved the purchase of a yacht, but the board’s executive director signed the purchase contract, who bought the boat?
As interesting as such questions may be in the abstract, they are central to a decision that the Iowa Board of Regents made in 2015, which was to conduct a national search for a new president at the University of Iowa. Although irregularities in that search received a great deal of public notice after the fact, the question of whether the board should have embarked on and continued that expensive search has largely been overlooked. In fact, the case can be made — beyond a preponderance of the evidence, beyond clear and convincing evidence, and beyond a reasonable doubt — that the official, board-sanctioned 2015 UI Presidential Search was used as a smokescreen for a crony hire that could have been concluded at minimal cost to the state.
Importantly, as the Des Moines Register noted following the appointment of J. Bruce Harreld as president of the University of Iowa, the regents are not obligated to conduct any kind of search in order to fill a presidential vacancy at the state’s institutions of higher learning:
The fact is, the nine members of the Board of Regents, not the professors, are charged under state law with governing the three state universities. In replacing outgoing President Sally Mason, the board could have dispensed with a formal search process, cut to the chase and simply hired Harreld, just like the athletic director hires a new football coach.
Traditionally, the Iowa Board of Regents conducts what are called ‘open’ searches. In an open search several finalists are chosen and announced by a dedicated search committee, those finalists participate in campus forums, then the collective response to those forums ostensibly factors into the final decision by the board. In other states, some governing boards prefer ‘closed’ searches, which are also usually conducted by a dedicated search committee, but remain secret until a single finalist is announced, thus rendering the actual appointment a foregone conclusion.
In both open and closed searches it is also increasingly common if not the norm for colleges and universities to hire an executive search firm to aid in recruitment and vetting, often at considerable expense. As a matter of Iowa law, however, the regents are not obligated to do any of that, and can appoint anyone to preside over a state university with a simple majority vote. In that context, here are the key moments in 2015 which led to the appointment of J. Bruce Harreld at the University of Iowa:
* March: UI alumnus and megadonor Jerre Stead calls regent president Bruce Rastetter and recommends J. Bruce Harreld for the job.
* March: Rastetter calls Harreld to gauge his interest.
* April: Although still unconfirmed, it is believed that Rastetter and UI Vice President for Medicine Jean Robillard travel to Stead’s home in Scottsdale, Arizona, where they discuss, among other topics, the presidential vacancy at UI.
* June: Harreld meets in secret, for several hours, with Rastetter, Robillard, and then-UI Chief of Staff Peter Matthes, in a conference room at Kirkwood Community College in Cedar Rapids, in a gathering arranged by Jerre Stead. (Stead is originally slated to attend, but cancels at the last minute.)
* July: On the 8th, at the invitation of Robillard, Harreld gives a presentation to forty or so administrators at the University of Iowa Hospitals and Clinics. Robillard chauffeurs Harreld and his wife to the UI campus from the airport, and Rastetter is in attendance.
* July: On the 30th, Harreld meets with four members of the Board of Regents at Bruce Rastetter’s private place of business in Ames. The meetings are arranged by Rastetter in two sequential meetings of two regents each, to avoid violating Iowa’s Open Meetings Law. Rastetter chauffeurs Harreld to the meetings from the airport.
* August: Rastetter requests that governor Terry Branstad initiate a call to Harreld to encourage him to take the Iowa job. Branstad complies. (By chance, this request is actually captured on video.)
* September: On the 3rd, Rastetter and the four regents who met with Harreld in August appoint him to the presidency at Iowa. This despite the fact that Harreld has no prior experience in academic administration, and despite strong reservations and objections by the overwhelming majority of respondents on the UI campus. (By convention, the final vote by the board is recorded as unanimous.)
There are three things to note about the sequence of events that led to the appointment of Harreld at Iowa. First, in every instance the president of the Iowa Board of Regents, Bruce Rastetter, is present, and in some cases coordinated those events. Second, while all of the interactions above were directly related to hiring Harreld, none were a function of, driven by, or related to the formal search process that was underway at the same time. Third, all of the people involved either lied about the above events by omission, at the time, or by commission after the fact. (More on those premeditated and concerted lies in a moment.)
As for the formal, board-authorized search process, former UI president Sally Mason announced her August 2015 retirement on January 15th of that year. At its January 20th meeting, the Board of Regents initiated the hiring of a search firm and the formation of a search committee. At the meeting on February 5th the executive director gave the board a progress update (audio 51:00). On February 25th the search committee was announced, with Robillard as chair, and Rastetter, two other regents, and Jerre Stead among the twenty-one-person panel. At the board’s March 11th meeting, in his capacity as chair, Robillard provided a search update to the board (audio 00:00).
While the official administrative search process was well underway by mid-March, it was only on March 13th that the board hired a search firm to help conduct the search, thus obligating the regents to pay for those professional services. In the contract signed on that date by then-executive director Bob Donley, the board agreed to pay a set fee of $200K, payable in three monthly installments, plus expenses capped at 10% of the set fee, plus “advertising, committee interview and travel expenses, and candidate travel expenses” (p. 68-72 here). The contract also included the following termination clause:
You may terminate the searches for any reason upon notice. If this occurs within the first three months after we commence our agreement, the fee for our services up to that point shall be equal to the set free, prorated on a per diem basis over the initial 90-day period. If the termination occurs after this 90-day period, the fee for our services shall be the set fee, which is equal to $200,000 plus administrative expenses (capped at 10%) and reimbursable expenses.
In March of 2015, the Iowa Board of Regents committed to pay for a service that was not needed in order to satisfy its statutory obligation to appoint a president at Iowa. While a nationwide search — whether managed by a search firm or not — would indeed help locate and screen other candidates, it is clear from the timeline above that no candidate other than Harreld was ever in serious consideration, despite the substantial time and expense devoted to the formal search process. What the board should have done in March was void or suspend the search until it could be determined whether Harreld would take the job, but instead the regents committed state revenue to a search that effectively provided cover for the singular pursuit of Harreld.
For example, in early May — which was still well inside the ninety-day termination clause — Robillard was taking openly about hiring a business executive, instead of a traditional academic administrator:
During the May 8 meeting of the 21-member UI Presidential Search and Screen Committee, Chairman Jean Robillard said when members of the UI community are dismissive about even the idea of a candidate from outside academia, he often brings up Microsoft founder and former CEO Bill Gates as a test case.
After the board hired business executive J. Bruce Harreld — who was never the CEO of anything — press reports soon revealed a web of lies by the co-conspirators who orchestrated his appointment. For example, the day after Harreld was announced as the next president of Iowa, Jerre Stead lied to the Gazette’s Vanessa Miller, in a story which was cross-posted on the KCRG site:
So when Stead — as a member of the search committee charged with identifying finalists for the UI presidency — saw Harreld’s name among the candidates, he wanted to give him a look. Stead said he wanted to vet him and make sure he was prepared and qualified for the job.
In reality, Stead introduced Harreld to Rastetter long before any list of prospective candidates was compiled by the search committee. How do we know? Because Rastetter himself said so, in a deposition under oath in a related case (p. 9):
Q. Had somebody recommended Mr. Harreld to you?
A. Jerry Stead had recommended him.
As for Jean Robillard, when it was reported that he had invited Harreld to speak at UIHC, Robillard told not one but two lies to the press. From the Chronicle for Higher Education, in mid-September (p. 2):
Jean E. Robillard, Iowa’s interim president, its vice president for medical affairs, and the head of the 21-member search committee, was also familiar with Mr. Harreld. Earlier in the summer he invited the businessman to speak with some senior staff members at University of Iowa Health Care. Dr. Robillard did not recall how he had first heard of Mr. Harreld, but he brought him to the campus early in July to offer perspectives on improving health-service operations.
Dr. Robillard stressed that Mr. Harreld was not a candidate to be Iowa’s president at that time.
The first lie was Robillard’s assertion that Harreld was not a candidate at the time, and had simply been invited to speak as a consultant — who, curiously, was not only not paid for his appearance, but not reimbursed for his expenses. Only days later, however, the university acknowledged not only that Harreld had an interest in the open presidency, but that Robillard himself — through UI Chief of Staff Matthes — had sent separate itineraries to Harreld and his wife, the latter of whom was given a guided tour of the campus her husband would begin presiding over a few months later. (During the formal search, no declared or undeclared candidate and/or spouse received similar invitations or considerations.)
The second lie in Robillard’s statement to the Chronicle was exposed by Harreld himself, in a press report the day before Harreld took office in early November. In that report, Harreld revealed his secret Kirkwood meeting with Rastetter, Robillard and Matthes, which Stead had arranged. And of course it was at that meeting that Robillard not only “heard of Mr. Harreld”, and indeed met Harreld face to face, but spoke with Harreld for several hours.
As for Bruce Rastetter, the secret regent meetings that he arranged for Harreld in late July were a clandestine tour de force. Not only did Rastetter host those meetings at his own private place of business, instead of at the board offices or on one of the regent campuses, but he arranged those meetings using non-regent email addresses. When the meetings were subsequently revealed in the weeks after Harreld’s appointment, that was also the first time that the four uninvited regents knew anything about those meetings. (Meaning the five regents who met with Harreld on that day also kept quiet through the final interviews and vote by the full board.)
Shortly after those secret meetings were revealed in the press, Rastetter released a statement on regent letterhead — a copy of which can only be found on the Inside Higher Ed website, and does not seem to have ever been posted on the regents site.
The entire nine-member Board of Regents had the opportunity to interview each finalist, and on September 3 unanimously voted Bruce Harreld to be the next president at the University of Iowa.
In truth, the four regents who met with Harreld in late July were able to speak with him in two hour-long meetings of two regents each. By contrast, during the final interviews in early September, each regent had only about twenty minutes with each candidate — meaning Harreld had four times the face time with a majority of the board than any of the other finalists. (As for the “unanimous” vote, again, that was reported by convention, and did not reflect the actual sentiments of the full board.)
There is no indication that the formal search committee approved of the secret regent meetings with Harreld in advance, or that other candidates were notified that such face-to-face regent meetings were available. One way to make that determination, however, would be to request — or subpoena if necessary — all records from the search, which should still exist either at the board offices or at Parker Executive Search. (See also: 1.5 Record Retention Policy, p. 11-13.)
The deception at the heart of the 2015 UI presidential search was not only pervasive, but the key players involved in that deception were only ever interested in one candidate, who could have been hired with little or no cost to the state. Specifically, if Rastetter, Robillard and Stead wanted to hire Harreld, all they had to do was convince four other regents to vote yes, and as we now know that only took a couple of hours of face-to-face meetings in late July. In that context, and assuming again that the members of the Board of Regents do have a fiduciary duty to the state, we are left with an obvious question:
Who owes the state of Iowa $350K for the fake 2015 presidential search at the University of Iowa?
The obvious answer would be former regents president Rastetter, who not only participated every step of the way in the covert hire of Harreld, but made sure that Harreld passed through the formal search process at critical junctures. But what about the other four regents who met with Harreld in secret in July — do they share some responsibility? Or how about every regent who authorized the search, even if they were ended up being victims of the scam themselves? Or perhaps the only person legally responsible is former board executive director Bob Donley, who signed the actual contract with the search firm.
As a practical matter, compelling Rastetter, or Rastetter and four other regents, or a long-gone former board executive, to cough up $350K would be time consuming and costly, and could even result in a net loss. As a factual matter it could be proven that the 2015 search at UI was extraneous to Harreld’s hire, but even if a judgment was rendered there would be the problem of collecting on that judgment, which is never a given. Fortuitously, however, there is a more direct option, which would not consume any state resource.
Despite the fact that J. Bruce Harreld openly acknowledged that he would have to serve an apprenticeship just to know how to do the job he had been hired to do, the Iowa Board of Regents gave Harreld an unprecedented five-year contract guaranteeing him almost $600K a year in salary, plus another $200K deferred. Precisely because Harreld will be owed $1M at the end of his contract, however, it would be administratively trivial to reduce that amount by $350K, thus reimbursing the state for the sham 2015 UI search that led to his hire.
Why should Harreld have to pay back that money? Because despite relentlessly positioning himself as an innocent in the corrupted 2015 search, not only did Harreld lie to the people of Iowa to get his job, but he told another lie immediately after he was hired, and two more lies just before taking office — all of them designed to obscure his prior relationship with Jerre Stead. Meaning not only was Harreld no innocent, but he clearly and repeatedly abetted his crony hire with lies of commission and omission, which he is now profiting by to the tune of $4M over five years. (And that’s not counting Harreld’s silence about the lies that others told, which he new to be lies at the time — like Stead’s false claim that Stead only learned about Harreld’s interest from a list of candidates.)
For example, in a video clip from his candidate forum, only two days before his done-deal appointment, you can see Harreld forcefully responding in the negative to a question about possible conflicts of interest with members of the search committee. Three days later, in the Gazette/KCRG article quoted above, Jerre Stead exposed Harreld’s lie by acknowledging that they had worked together in the past.
Stead said he first encountered Harreld earlier in his career, in 1993, while he was working for National Cash Register and Harreld was with Boston Market Company. Stead said he recalls being impressed with Harreld, the team he was on, and its vision for the then-small business.
Harreld’s company ended up using NCR equipment in its 1,300 Boston Market restaurants, according to Stead and media reports.
Two months later, on the day before he took office, Harreld acknowledged his lie, albeit in mealy-mouthed fashion:
Other critics among the UI faculty have expressed concerns about potential conflicts of interest arising from Harreld’s longstanding relationship with Stead, who represented the UI Foundation on the search committee.
“I would say he was more of a coach,” Harreld said to a question about whether he and Stead had ever been in business together. “Yes, I think if you actually go back through, technically, he was working for an organization that was trying to sell something to us. Or I was working with an organization (trying to sell something to him). Both of us have had multiple moves. … I view him as very much a mentor of mine at various stages of my career.”
In early September, only moments after he was appointed — and only one day before Stead’s symbiotic lie was published on the KCRG site — Harreld asserted that his candidacy has been prompted not by Stead, but by the president of another Big Ten school, which was later confirmed by both Robillard and Purdue President Mitch Daniels. Except it turned out they were all lying, because Jerre Stead had in fact introduced Harreld to Rastetter in March.
Flash forward to the weekend before Harreld took office, and not only was the Mitch Daniels lie no longer operative, but in its place, in a matter of two days, Harreld told two different lies in his ongoing attempt to obscure the fact that Jerre Stead promoted his candidacy. First, in an interview with the Press-Citizen, Harreld claimed that some anonymous person at Boston Consulting put his name in play. Second, in an interview with the Gazette on the same weekend, Harreld acknowledged that Rastetter had called him, but claimed that he did not know who prompted Rastetter to call.
If you are a state employee in Iowa, and you lied to get your job, and lied to keep your job, and lied not once, not twice, but three more times to protect the people who rigged your hire, not only should you not receive $1M in deferred compensation, you should be fired. Because the Iowa Board of Regents clearly wanted to hire Harreld, however, and went to the time and state expense of authorizing a fake $350K search to validate his crony appointment, it is unlikely that the board will cut Harreld lose. What should be possible, however, is to reach an administrative settlement in which the board reduces Harreld’s deferred compensation by $350K, in order to reimburse the state — along with promising not to pass Harreld another $350K in the future if his contract is extended.
This post is part of an extended Open Letter to the Iowa State Auditor.
In the two previous posts it was noted that over the past four years the Iowa Board of Regents has raised tuition out of scale to any legislative funding cuts, and that student-subsidized economic development is one explanation for how that new unrestricted revenue is being spent. Unfortunately, because the regents routinely obscure and even scrub tuition totals from their public reports, and because the board is only obligated to report on economic development which is directly funded by the legislature, we have no way of knowing whether the regents are taking money from students and spending it on economic development that the state desires, but does not want to fund with taxpayer revenue. What we can say is that any new economic development programs at the state universities are almost certainly being funded by tuition revenue, because everyone agrees that there is simply no other substantial source of revenue to draw from.
And of course if that’s true for economic development — and it is — then it’s true for any significant new spending on the regent campuses. If the legislature is cutting back, then new programs and initiatives will have to be funded from the bank accounts of students and families, through the imposition of increased tuition and fees. In that context, the regents have increased tuition 18% or so over the past four years, and will now increase tuition a minimum of another 16% over the next five. Specifically, the board will increase tuition 3% per year, and more if the legislature does not offset inflation with increased appropriations. Notably, and in contravention of assertions that tuition only increases when legislative funding falls, those 3% hikes will still be imposed even if the legislature increases funding beyond inflation.
Despite the board’s laudable mission to provide “high-quality programs of…study at reasonable cost”, it is to the obvious advantage of the regents — and thus to the state — to generate excess revenue from tuition and fees, which can then be used for purposes peripheral to, or even divorced from, that academic mandate. Because the board obscures the amount of new revenue it generates with each tuition hike, it is all but impossible to track money flows through the regents enterprise, but on rare occasions we do have visibility to the linkage between tuition hikes and spending. In particular, because the University of Iowa is using its strategic plan as justification for a slate of new expenditures, and has attached dollar values to specific initiatives, we can see where significant sums of new, unrestricted tuition revenue are destined.
As noted in the prior post, in the first three and a half years of his contract, UI President J. Bruce Harreld pushed through multiple tuition hikes to generate a mountain of new unrestricted revenue for the school. That windfall is now being used, in part, to fund the five-year cost of the new UI Strategic Plan, which was prepared under his watchful eye in 2016, and which Harreld has pegged between $155M and $165M. We know that linkage is explicit because during the summer of 2017, when all three of Iowa’s public universities presented five-year tuition proposals to the board’s Tuition Task Force, Harreld overtly and repeatedly tied his request for rapacious 7% annual hikes to the need for additional revenue to fund the university’s strategic plan.
As also noted in the prior post there are important discrepancies between Harreld’s claims about what the UI Strategic Plan entails, and what tuition revenue will be used for in the context of that plan. Before we dig into specifics, however, note that strategic plans at colleges and universities are largely administrative and often aspirational, and as such rarely have a fixed cost — let alone a price tag over a hundred million dollars. In fact, if we look at the current UI Strategic Plan (2016-2021), outside of philanthropic goals in the Engagement section there are few if any specific dollar amounts, and no reference to the $155M-$165M that Harreld claims he must have in order to meet the plan’s objectives.
Likewise, if we look at the prior UI Strategic Plan (2010-2016), which was developed under former President Sally Mason, we find a similar document outlining administrative goals, action steps, and metrics for tracking progress. Nowhere in that document is there a total projected cost, and in local press reports from that time there is no mention of a budget for Mason’s plan. Indeed, even when we look through the annual progress reports on the UI web site — which bridge both of those strategic plans over the past ten years — we find no internal mention of a budget for those plans, and recent progress reports do not detail how much of Harreld’s $155M-$165M has been raised or spent so far. (2018 report here.)
The inescapable conclusion is that when Harreld talks about funding the UI Strategic Plan, he is appropriating the concept and aspirations of that document to push for high-dollar expenditures which may only be tangentially connected to the text. It is as if Harreld has recast the strategic plan as a business plan, to which he then ascribed specific dollar amounts for various line items. It is precisely because of those dollar amounts, however, that we gain visibility into how he intends to spend some of the new tuition revenue that he has engineered, and that UI will reap in years to come. In fact, by comparing the strategic plan to Harreld’s budget for implementing that plan, we can objectively see that his financial aims are widely divorced from the aspirations of the document itself.
The three areas of focus in the UI Strategic Plan are: Research and Discovery, Student Success, and Engagement — the latter of which Harreld routinely mischaracterizes as economic development, or replaces altogether with entrepreneurial buzzwords like ‘innovation and commercialization’. (In reality, Engagement comprises the service mission of the school, along with philanthropy by Iowa’s quasi-independent non-profit foundation, and only peripherally touches on economic development as an objective.) Because there are three broad areas of focus in the plan, we might also expect each area to receive roughly a third of the budgeted $155M-$165M cost. Assuming for the sake of simplicity that the entire plan came in under budget, and only cost $150M over five years, that would be $50M each for Research and Discovery, Student Success, and Engagement.
Indeed, we can see that implicit assumption — and Harreld’s routine rhetorical misrepresentation of the strategic plan — in a presentation that he gave to the Board of Regents on 09/13/18. At the 53:46 mark Harreld is heard speaking over a graphical slide which shows an annual cost of $31M to implement the plan over five years ($31M x 5 = $155M), and that amount is then distributed to Research and Discovery, Student Success, and — instead of Engagement — to Innovation and Commercialization. Because there are no budgeted amounts for those three labeled areas of focus, however, the general impression is that all three will receive roughly equal, or at least substantial, funding from that annual $31M revenue bonanza.
In that same presentation, at the 1:05:50 mark we also get confirmation that students will bear substantial responsibility for the cost of the UI Strategic Plan. In the graphic on that slide, internal cost recoveries account for $11M of the projected annual $31M cost of the strategic plan, UI will request an additional $7M from the legislature each year, and the remaining $13M contribution will be paid through tuition and fee revenue. (If the legislature falls short in any year — as may already be the case this year — additional tuition revenue will be used to compensate for that shortfall as well.)
From these numbers we can reach two important conclusions. First, Harreld’s $155M price tag for the UI Strategic Plan is actually $100M, because one third of the sticker price will be covered by internal cost recoveries ($11M x 5 = $55M). Second, of the $100M that will be externally funded by some combination of legislative support and tuition revenue, the best-case scenario is that students will contribute $65M ($13M x 5 = $65M), or two thirds of that amount, and the legislature will contribute the rest ($7M x 5 = $35M). The worst-case scenario is that the legislature will contribute nothing, meaning the entire $100M will come from student and family bank accounts.
Because UI has already increased annual tuition revenue by $50M, as compared to 2016, the good news is that almost all of the money needed to fund the UI Strategic Plan — at least according to Harreld’s budget — has already been banked, even before the new five-year tuition plan kicks in. (As noted in prior posts, UI is net ahead $79M through the current fiscal year, even after all funding cuts are accounted for.) If the legislature meets its $7M obligation under Harreld’s budget, then students have already contributed what Harreld claims to need from tuition revenue. Alternatively, if students have to fund the entire $100M, that total will be surpassed in the coming fiscal year.
What we still do not know, however, and did not learn from Harreld’s presentation last September, is how all of those budgeted funds will actually be spent in support of the UI Strategic Plan. Given the entire $155M, what does Harreld specifically plan to do with that money to advance Research and Discovery, Student Success, and Engagement — or whatever phrase he substitutes for that part of the plan?
To answer that question we have to go back another year, to the Tuition Task Force meetings in August of 2017. During the proposal that Harreld pitched to the task force on 08/14/17, a slide appeared titled ‘Implementing the UI Strategic Plan’, and the graphic on that slide (p. 20) shows the line-item costs arrayed like peacock feathers around a total projected cost of $155M-$165M. From that slide, here are the line items and their projected costs, grouped by the part of the strategic plan to which they belong:
* Economic Development increased by 10% – $6 million
* Cultural Diversity and success of non majority students – $10 million
* Increased graduation rate (4 year undergrad – 60% 6 year doctoral – 75%) – $2 million
* High Impact Practices for students – $5.5 million
* Faculty Compensation – $4.8 [million] (Median of Peer Group)
RESEARCH AND DISCOVERY
* Funded Federal Research – $127 M (Median of Public AAU universities)
* Citations in publications Covered in $127M (Median of Public AAU universities)
* National Academies –Covered in $127M (Median of Public AAU universities)
* Faculty Awards, Fellowships, – Covered in $127M (Median of Public AAU universities)
Even if the everything you know about the UI Strategic Plan is only what you have read in this post, some of those budgeted line items probably seem out of kilter. For example — and despite Harreld endlessly talking about the importance of economic development, or innovation and commercialization — the entire cost of that solitary line item under Engagement is only $6M, and that’s over five years, or a relatively paltry $1.2M per year. Not only is that a mere 4% of the projected $155M cost of the overall plan, but potentially more interesting is the fact that the University of Iowa will apparently spend about $60M on economic development over that time frame, or $12M per year. (While spending on economic development in the strategic plan is relatively small, that does not mean all of Harreld’s spending on economic development is fully encapsulated by the UI Strategic Plan.)
The next four line items fall under the Student Success heading of the strategic plan. If you have any familiarity with the higher-ed industry, however, you may note that those items are also metrics used by U.S. News and World Report in ranking rank America’s colleges and universities. In fact, three of the four line items under that section are specifically referenced in the U.S. News rankings methodology (see ‘social mobility’, ‘graduation and retention rates’, and ‘faculty salary’), while the fourth — high impact practices — may also be covered given the plasticity of that term. (For the uninitiated, gaming the U.S. News rankings is not only a thing in higher-ed, but despite efforts by Harreld and his management team in prior years, UI’s ranking plummeted lasted year. For more on the deleterious effects of gaming college rankings, see this post.)
The final four line items fall under the heading of Research and Discovery, which, in an academic setting, holds out the promise of inventions and advances that will change the world for the better. In the specific descriptions of those budgeted line items, however, there is yet another connection to an organization which ranks colleges and universities, and this one is overt. In the repeated parentheticals under that section of the strategic plan, UI makes clear that it intends to spend a significant amount of money raising those factors to the “Median of Public AAU universities”.
To see how closely those budget line items adhere to the AAU’s own metrics, consider the following from the AAU Membership Policy page:
Phase I Indicators
Competitively funded federal research support
Membership in the National Academies (NAS, NAE, IOM)
Faculty awards, fellowships, and memberships
As you can see, the four budgeted line items under Research and Discovery are the four most heavily weighted metrics for membership in the AAU, of which UI (1909) and ISU (1958) are long-time members. Because the AAU is an exclusive, invitation-only organization, however, falling in those metrics does not simply result in a lower ranking, it risks potential expulsion. Fortunately, the AAU keeps its members apprised of their standing by routinely issuing reports about those and other, lesser ‘membership indicators’.
As an aside, note also that in the budgeted line items ascribed to the strategic plan, what the AAU calls “competitively funded federal research support” is described as “funded federal research”. That change in phrasing by UI is misleading at best and deceptive at worst because it is all too easy to misread that description as ‘federally funded research’. External support by the federal government and others adds up to hundreds of millions of dollars in research funding each year (see bar chart here), but that is clearly not what the line item in question refers to, which is a substantial cost to the university, for which revenue must be found.
To grasp the magnitude of the financial commitment that AAU membership requires — and indeed, the commitment that UI intends to make going forward — here are the totals for the budgeted line items under the three main areas of the strategic plan:
ENGAGEMENT — $6M
STUDENT SUCCESS — $22M
RESEARCH AND DISCOVERY — $127M
TOTAL — $155M
In stark contrast to Harreld’s many public statements, which routinely extol the virtues of economic development, that peripheral goal — to say nothing of the greater cause of Engagement — receives negligible funding over the five-year span of the UI Strategic Plan. Likewise, although Harreld often talks about Student Success, and about increasing faculty salaries, that area of focus receives less than 15% of total spending on the strategic plan, and most of that is aimed at gaming the U.S. News rankings. As for Research and Discovery, of the $155M that Harreld intends to spend, a whopping $127M will go toward improving the metrics by which UI maintains its standing in the AAU.
The obvious question, of course, is how the University of Iowa profits by spending $127M over five years to appease the AAU. What return on that investment have the savvy execs in central administration guaranteed, in exchange for that massive outlay of scarce resources? As it turns out, however, membership in the AAU actually confers no tangible benefits on its members, other than the prestige of belonging to the AAU. Meaning in exchange for spending $25M per year for the next five years, the University of Iowa will simply procure the right to tout the fact that it is a member in good standing of an organization that effectively charges $25M a year for those bragging rights.
And if that sounds completely absurd, that’s because it is completely absurd — but it’s also true. Over the past century, in order to avoid the ignominy of expulsion, the AAU has convinced several member institutions to voluntarily withdraw, after they consistently fell short in the AAU’s internal rankings. In 2011, however, the AAU took the unprecedented step of expelling a member for failing to devote sufficient resources to AAU’s ‘membership indicators‘. That school — the nearby University of Nebraska at Lincoln (UN-L) — now serves as a warning that a similar fate could befall other AAU member schools that fail to maintain their metrics, and yet the only impact on UN-L is that they are now no longer a member of that exclusive academic club.
From a 05/02/11 article in the New York Times, following the expulsion of UN-L from the AAU:
Although membership in the association — which now will have 61 members, including most Ivy League institutions and many of the top state schools, like Texas A&M and the University of North Carolina — brings no specific benefits, many campuses see it as a proud indicator of their status.
“Some believe it helps attract faculty,” said Barry Toiv, a spokesman for the group, “and the presidents of member universities appreciate the opportunity to meet twice a year with others facing the same set of issues, and work together on policy and funding issues.”
From a 03/22/16 article in the Columbia Missourian, when the University of Missouri was feeling heat from the AAU membership minders:
At its core, the AAU’s current standards emphasize its overall purpose: prestige.
“It depends on what you regard as being important,” [UN Chancellor Harvey] Perlman said. “If you want gold stars after your name, then (the AAU is) important because the AAU is a gold star.”
A little over a year after that article appeared, concerning another Midwestern research university that is also still a member of the AAU, on 05/08/17 J. Bruce Harreld explicitly made the case for improving Iowa’s AAU metrics, while simultaneously omitting the staggering cost of maintaining that prestigious association:
Here are just one set of rankings. This is the AAU and how they look at us. I would say in 2010, which is way up here, we were in the 50th percentile in roughly all of these metrics. This fall, when they sent me the data, we had fallen to the 25th percentile.
This is the game we’re playing. This is the fight that we’ve got. We need more resources, and a good portion of that will go toward supporting students. Better mentoring. You know of the counseling services that we’re expanding. We’ve already done that. Can’t hire them fast enough. The Living Learning Centers. So we’re in the big leagues, and we need the resources to compete.
In reality, the multi-million-dollar price tags attached to the three components of the UI Strategic Plan, by Harreld himself, make clear that only a small amount of money will be spent on students, while 82% of the “new resources” devoted to that plan will be used to appease the AAU. Worse, because of faltering legislative support, students will not only not reap any benefit from that massive outlay, they and their families will pay the bulk of that $127M over five years, so the fragile egos among the administrators, faculty and staff at UI can keep their “gold star”. Of the $155M total for the strategic plan, the best-case scenario is that students will contribute $65M from tuition, which is just over half of the $127M that Harreld intends to spend on maintaining Iowa’s AAU membership. If the legislature falls short of funding, however, students could be responsible for $100M, or the vast majority of the AAU spending — all for the sake of academic prestige.
Even if we assume the best-case scenario, and pro-rate the total amount of tuition revenue across the three areas of focus in the UI Strategic Plan, that means students will contribute about $2.6M to Engagement, about $10M for Student Success, and $53M toward Research and Discovery — which we now know to mean satisfying the membership requirements of an academic organization which “brings no specific benefits”. (As for the worst-case scenario, students and families would end up paying an obscene $83M over five years.)
Across the regents enterprise, however, that’s only half the cost, and conceivably less, because Iowa State is also a member of the AAU. For arcane reasons related to the AAU membership indicators, ISU is also at significantly greater risk of expulsion, and may have to contribute significantly greater revenues than UI to improve their own membership benchmarks. And of course the majority of all of that new spending will come from tuition revenue paid by ISU students and families. (For a deep dive into UI, ISU and the AAU, see this post.)
Even if we merely double the cost of maintaining Iowa’s AAU metrics to account for Iowa State, that’s $254M over five years between the two schools, or more than $50M annually to maintain membership in an academic organization which confers no tangible benefits. That might (or might not) be fine if the legislature was paying the freight with taxpayer dollars — because the state itself wanted that lofty academic status attached to its two research universities — but that burden is now clearly falling on students who attend those schools. In fact, we have indirect confirmation of that from the Tuition Task Force, which subsequently changed longstanding regents policy that all three state universities remain in tuition lockstep. Starting this year, the one school that is not a member of the AAU — Northern Iowa — will be allowed to lag behind, or, alternatively, the two AAU schools will begin charging a premium. (Notably, when the universities unveiled their purportedly independent tuition proposals to the task force, the UI and ISU plans were exactly the same.)
As with revenue totals from tuition and fees, and spending on economic development, the Board of Regents consistently obscures the cost of maintaining AAU membership for its two research universities. Not only does that cost total more than $100M at UI alone, and not only will a substantial portion of that money come from tuition, but we still only have visibility to the increase in that spending that will occur over the next five years. In the interest of transparency and accountability, and in order to determine how much money is being spent on that otherwise empty association, the Iowa State Auditor should prepare a report which answers the following question:
What is the annual cost to the Iowa Board of Regents for maintaining the AAU membership of Iowa and Iowa State?
How much taxpayer money does the legislature contribute to maintaining AAU membership for UI and ISU? How much tuition and fee revenue is devoted to that association? If UI intends to spend $25M a year for the next five years — $127M overall — is that the entire cost, or the tip of a much larger outlay? Have UI or ISU been warned that they are at risk of expulsion? Has anyone at the Board of Regents, or at the state schools, made financial commitments to the AAU about increasing expenditures, specifically in order to avoid expulsion?
As for coming up with that $127M, the UI Strategic Plan runs for five years, from 2016 to 2021, but has no dollar values attached. From a presentation about that plan we have the total purported cost, but that information seems to have been unveiled in the summer of 2017, when the board was deliberating the new tuition regime it is now enacting. One additional question, then, is whether the 3% annual tuition hikes that the board just granted to UI and ISU — for each of the next five years — are specifically intended to fund improvement in the AAU membership indicators for those schools. But of course to make that determination, one of the things we would need to know is how much money the board will generate from those hikes, which it will never publicly report.
The Iowa Board of Regents — which is a department of state government — has been pleading poverty for years. Per the board’s own policy manual it is charged with offering “diversified and high quality programs of…study at reasonable cost”, yet one of the state schools not only plans to spend $127M on membership in an academic country club, but to stick students with a significant percentage of that multi-million-dollar cost. While AAU membership may indeed make it easier to attract the kind of administrators, faculty or staff who are impressed with status symbols, the state owes it to students and taxpayers alike to explain why it is spending $127M on an association that returns “no specific benefits”.
This post is part of an extended Open Letter to the Iowa State Auditor.
In the previous post it was noted that although the Iowa Board of Regents produces copious and detailed reports on all manner of operations and performance, it also goes out of its way to obscure and omit the amount of revenue generated from tuition and fees. While routinely positioning itself as a victim of ‘state’ funding cuts — even as the regents are themselves part of state government — the end result is that the state of Iowa, through the Board of Regents, has raised a massive amount of new revenue over the past four years. What we still do not know is how the board is spending all of that unrestricted revenue, and how much is being spent.
We can answer those questions by having a close look at the regent books, but to determine whether the board is acting properly in generating and spending that new revenue we first have to answer another question. Specifically, what is the official mission of the Iowa Board of Regents, and by extension, what are and are not legitimate expenditures in pursuit of that mission? Unfortunately, that line of questioning leads us down another bureaucratic rabbit hole, which the board also routinely exploits for its own ends.
The obvious place to look for an answer is in Chapter 262 of the Iowa Code, which defines the Board of Regents by statute. Perusing that text we quickly find section 262.9, titled, “Powers and duties”, which runs close to six single-spaced pages. Perhaps because the educational focus of the regents was self-evident at the board’s inception, however, there is no specific mention of the board’s mission in that section, or in the remainder of that document.
To understand how the regents apply their broad statutory powers, we turn to the board’s policy manual (pdf here). Included in that 171-page document we find section 4.1 Mission and Scope, which does directly address our question as a matter of policy. Here is the first sentence from subsection 4.1(A)(i):
Universities under the control of the Board of Regents, State of Iowa, shall offer diversified and high quality programs of undergraduate, graduate, professional and post-graduate study at reasonable cost to those seeking post-secondary education in this state.
Perhaps not surprisingly, above all else the mission of the state universities, under the authority of the Iowa Board of Regents, is to provide “high quality programs of study” — meaning an education. There is a notable caveat, however, which is that those programs of study should be available at “reasonable cost”. While the definition of ‘reasonable’ is not specified, the explicit linkage between education as a government service and the cost of that service makes clear that the board should not raise prices by caprice, or for purposes extraneous to that core mission. What students are paying tuition for is their education.
(This linkage between service and cost may also explain why each of the regent schools keeps a list of self-selected peers institutions, many of which are significantly more expensive to attend. The regent universities can thus claim to be “reasonable” in their pricing, even as pertinent factors like the regional or local cost of living, or the actual cost to the state, are ignored when making that claim.)
Section 4.1(A) also makes clear, however, that the regent schools are intended to be differentiated as to their individual missions:
Within this framework and the availability of funds, the State University of Iowa, Iowa State University, and the University of Northern Iowa shall seek different areas of specialty and emphasis compatible with their distinct missions in the state system of higher education.
The specific missions of the state universities can be found in sections 4.1(A)(vii-ix), and can be summarized as follows:
UI: teaching, research, public service
ISU: teaching, economic development (largely through agricultural research), preservation of natural resources (service)
UNI: teaching, research/creative activity, service
In the higher-ed industry, the University of Iowa is a ‘flagship’ university, and focuses primarily on the arts and sciences, including human health. Iowa State is a ‘land-grant’ university, and as such focuses on agricultural concerns ranging from crops to livestock. Northern Iowa is what used to commonly be called a teacher’s college, and still educates the majority of Iowa’s K-12 educators.
Despite focusing on different programs of study, all three schools have a teaching component, a research component (UNI to a lesser degree), and a service component. Because Iowa’s public universities are each over 140 years old, however, and because we don’t know the age of that section of the policy manual, it would be advantageous to find a recent expression of the board’s mission for comparison. Fortuitously, following passage of a new state law governing freedom of expression on college campuses, the board added section 4.2(1) Freedom of Expression – Policy Statement — which was approved only two weeks ago.
The Board recognizes that the primary mission of the institutions of higher education under its jurisdiction is the promotion of teaching, research, and scholarship.
While there are programmatic differences between the schools, the only difference between this statement and mission statements elsewhere in the policy manual is the substitution of ‘scholarship’ for ‘service’. If we plug those mission keywords — teaching, research and service or scholarship — into a search engine, we find that those missions are indeed in force at the three state universities.
From a University of Iowa press release on 01/17/19, titled, “A spring semester welcome message from President Harreld”:
In order to ensure the ongoing success of teaching, research, and scholarship at Iowa, we must not overreact in the present to the detriment of the future.
From a speech delivered by ISU President Wendy Wintersteen, during her installation ceremony on 09/21/18:
The impact of their giving is seen in every corner of this beautiful campus, sustaining the university’s land-grant mission of teaching, research, extension, and service.
Because Northern Iowa does not conduct research at the same scale as the other two schools, we find that omitted in the otherwise consistent mission statement on the web page for the Office of the President:
Within a challenging and supportive environment, the University of Northern Iowa engages students in high-quality and high-impact learning experiences and emphasizes excellence in teaching and scholarship.
Across the regent enterprise, each school emphasizes teaching (or education), research is a core component at UI and ISU, and after that you can add a pinch of scholarship or service to suit your needs. As regular readers know, however, following Harreld’s appointment at UI there has been repeated divergence from that consistent messaging in a number of official statements. From a press release on 03/22/18, signed by Harreld, by other executives in central administration, and by high-ranking academic administrators on the UI campus:
Let us all re-examine everything we do and agree to focus all of our resources to improve student success, research, scholarship, and economic development.
If you’re wondering why “economic development” was appended to the traditional UI mission, that’s a good question. Particularly when talking about the university’s current strategic plan, the inclusion of economic development as a core part of the school’s mission has become almost routine. From Harreld’s 03/12/19 interview with the Daily Iowan:
The strategic plan says we need to do this in student success, but out of the frustrations last week [the] things we need to get done to support students better are in that side of the strategic plan, that one pillar.
Then we still have work to do, big work to do, in terms of research on this campus, which is why a lot of our faculty are here — and by the way, it connects to student success, because we try to engage a lot of students, even undergraduates, in the research mission of the university.
Then we have economic development. Those are the three pillars for our strategic plan.
As Harreld knows full well, economic development is not the third pillar of the UI strategic plan. The third pillar, following Research and Discovery, and Student Success, is Engagement — of which economic development is a peripheral component, subordinate to service and outreach. Even when Harreld hews to the school’s traditional mission, however, he still leaves the back door open to economic development, via the strategic plan.
From a UI press release on 02/08/19, announcing the exploration of a possible public-private partnership (P3) with an energy company:
The annual proceeds realized from the endowment will be invested in the core missions of the university (teaching, research, and scholarship), as well as strategies that will implement the UI’s Strategic Plan 2016-2021, which was approved by the Board of Regents, State of Iowa, in 2016.
While the proposed P3 deal is already being obscured by doublespeak and omissions of critical information, this official statement grants UI the license to divert any subsequent revenue away from teaching, research and scholarship, and toward additional economic development. As for J. Bruce Harreld, it is not only possible that he was hired by the board to pursue economic development, there is no other credible explanation for his appointment. Between having zero experience in academic administration or in the public sector when he was hired, and having never been a CEO despite decades in the business world, the only plausible claim to middling fame in Harreld’s past was the fact that he spent thirteen years at IBM, including several years running a division charged with starting new businesses.
Despite that clear entrepreneurial commitment, however, the board itself is reluctant to mention economic development in its own messaging. For example, consider the following statement from an article published on the Iowa State Daily website on 11/14/18:
Josh Lehman, senior communications director for the Board of Regents, said regardless of cuts in state funding, the board has attempted to keep Iowa’s higher education at the same level.
“The board’s primary mission is to maintain quality education to our students, the high quality education that they deserve and demand,” Lehman said. “There are revenue needs, so when state appropriations has gone down, tuition has had to increase to keep the funding level.”
At first blush that all sounds eminently reasonable, and indeed reinforces the board’s mission of providing “programs of…study at reasonable cost”. In Lehman’s official view, not only is education the board’s “primary mission”, but the board only increases the cost of tuition to offset decreases in appropriations. As detailed in the previous post, however, the board has not kept funding “level” at the state schools over the past four years, it has increased tuition out of scale to any decrease in funding. And that means the board’s senior communications director is either oblivious and incompetent, or he was intentionally lying to the people of Iowa.
Some variations in messaging about the board’s mission can be chalked up to political expedience. In a given context ‘service’ might be more rhetorically useful than ‘scholarship’, or vice versa, but the difference between ‘quality education’ and ‘economic development’ is stark. Ironically, Lehman’s statement also appeared one day before the board approved its plan to increase tuition a minimum of 3% per year for the next five years, irrespective of any legislative appropriations. Meaning the board’s plan, in itself, obliterates Lehman’s claim that the regents only increase tuition to offset legislative cuts.
So what’s going on here? Why is Harreld lying about the UI strategic plan, and asserting that economic development is part of UI’s core mission? And why is a high-ranking executive at the board emphasizing the educational component of the board’s mission to the exclusion of all else, while also lying about the basis for predetermined tuition increases across the regent enterprise?
If we search Chapter 262 of the Iowa Code there is no mention of economic development being part of the board’s core mission. If we look in the regents’ policy manual we do find a few stray mentions of economic development, but there are no overt statements. If we keep digging, however, on the Report page of the regents website we do find — in contrast to the complete lack of reporting about tuition revenue — a slew of annual economic development reports going back almost twenty years.
Under the heading of Economic Development and Technology Transfer, those reports detail, to varying degrees, initiatives and programs at each of the state universities. From the earliest report, dated 2000, which runs a loose eleven-plus pages:
Iowa law requires annual reports of the three universities on technology transfer and economic development to be submitted to the executive and legislative branches of state government. The law is consistent with the Board’s responsibility to be fiscally accountable for state funds received by the Regent Institutions.
Two things to note here. First, the reporting requirement is not elective or even a matter of policy, but a requirement of state law. Returning to the Iowa Code it turns out — logically enough — that the law in question is Chapter 262B — Commercialization of Research, and there we do find an explicit broadening of the board’s mission. From section 262B.2 Legislative intent:
It is the intent of the general assembly that the three universities under the control of the state board of regents have as part of their missions the use of their universities’ expertise to expand and stimulate economic growth across the state.
As for the legally mandated reports, we find that requirement in 262B.3(3) Duties and responsibilities:
Each January 15, the state board of regents shall submit a written report to the general assembly detailing the patents and licenses held by each institution of higher learning under the control of the state board of regents and by nonprofit foundations acting solely for the support of institutions governed by the state board of regents.
The second thing to note is that the board is only obliged to be “fiscally accountable for state funds” — meaning money appropriated by the legislature. Not only is there no prohibition against spending tuition revenue on economic development, there does not seem to be any reporting requirement for such expenditures. If taxpayer money is appropriated for economic development, the return on that investment has to be reported by law, but if tuition revenue at a state school is used, that expenditure doesn’t have to be reported.
It may be that the legislature never imagined decreasing funding to the state schools, including funding for economic development, but the reports themselves tell the tale. From the executive summary of the 2009 Economic Development and Technology Transfer Report:
State funding of ongoing economic development programs at the universities has declined by 58% comparing FY 2001 to FY 2010.
Flash forward to last year, and we find this in the 2018 Economic Development and Technology Transfer Report:
In FY 2018, the Iowa General Assembly appropriated $8.7 million in total funding for economic development, technology transfer, and commercialization of research to the three Regents universities.
Relative to the current $6B operating budget of the entire regents enterprise, $8.7M is less than two tenths of one percent. In that context, the 2018 UI reportruns 12 pages and details a comprehensive set of programs devoted to leveraging IP. The 2018 ISU report runs 59 pages, and the 2018 UNI report runs 16 pages, and those reports also detail extensive programs designed to meet the statutory requirements of Chapter 262B.
Whatever the original intent of that law, from the compulsory 2018 reports it seems clear that it would not be possible to fund all of those initiatives on an annual appropriation of $8.7M, even if we allow for additional support from private-sector partners and the federal government. As to where the state schools might procure additional funds for economic development, one obvious resource would be tuition and fee revenue, which is not only unrestricted, but compels no statutory obligation to report on that money. In fact, in combination with routinely obscuring the amount of tuition revenue that is generated at each of the state schools, it would be trivial to spend tens of millions of dollars in tuition revenue on economic development without ever once accounting for those expenditures.
The most charitable appraisal of the current situation is that Chapter 262B, whatever its original intent, is now an underfunded, if not largely unfunded, legal mandate. Meaning the state requires its universities to spend money on economic development, but provides little if any of the necessary funds. The darker interpretation, particularly since J. Bruce Harreld was hired at the University of Iowa, is that the state schools are actually increasing the cost of tuition to generate a mountain of new, unrestricted money from students and families, which is then shoveled at economic development — including all of the potential for crony corruption that such funds entail.
One obvious tell that something is wrong comes from the Board of Regents itself. Were the regents concerned about decreased legislative support relative to Chapter 262B, we would expect them to lobby either for increased funding, or for statutory relief from that unfunded mandate. Instead, not only does the the board never mention its intensifying pursuit of economic development, the board constantly presses for increased revenue from tuition and fees, which it then obscures from public view.
In the previous post we noted that the board has raised a great deal of new revenue — almost $80M — over the past four years at UI alone. What we still do now know is how that money is being used, but funding economic development is certainly one plausible answer. However, while Harreld is openly talking about economic development at UI, he is also lying to the public in order to do so, and again the question is why. If Chapter 262B mandates economic development as part of the UI mission, why is Harreld intentionally misstating the UI strategic plan? Why not simply point to Chapter 262B and get on with making money?
One reason is that doing so would expose Harreld’s jet-black hypocrisy about student tuition. During his recent attempt to close a number of programs at UI — including particularly the Iowa Labor Center — Harreld not only positioned himself as a protector of student revenue, but he repeatedly railed against exactly the kind of unfunded mandate that economic development seems to have become. From the initial announcement of pending program cuts, in April of 2018:
“Since the state is no longer providing the same level of support it did a generation ago, we can no longer perform various activities the state asked us to perform in the past,” Harreld told regents. “We cannot let student tuition subsidize the various activities the state of Iowa no longer funds.”
The problem with that noble position should be obvious in the context of economic development. If the legislature has decreased the amount of taxpayer revenue which is appropriated to the state schools, but the state also requires the schools to spend money on economic development, the only conceivable source of funding at scale will be revenue from tuition and fees — which is exactly the situation that Harreld vehemently opposed. And yet, in terms of starting new businesses and initiating for-profit ventures, it is clear from Harreld’s impassioned rhetoric over the past three and a half years that that is exactly what he intends to do.
Although Harreld lost his pitched battle to summarily kill off the Labor Center, a little over four and a half months ago he explained his thinking about the ongoing funding of every program on the UI campus. From an interview with the Daily Iowan on 12/12/18:
…if they can find a long term source of funding, I’m more than willing to go back to the Board of Regents and ask to reinstate it. But I’m not willing to do that if the answer is we don’t have a long-term, sustainable source of funding. Just like anything else on the campus these days.
The annual cost to fund the Labor Center is about $550K. The annual cost of the salary for the new chief innovation officer — a position that Harreld created last year — will be $240K alone. Given the magnitude of the new initiatives that Harreld plans to launch, even a conservative estimate would run into the tens of millions of dollars, yet we also know that no new money is coming from the legislature. So where will the “long-term, sustainable sour of funding” for economic development come from at UI?
In order to get around his own prohibition, Harreld seems to be invoking the UI strategic plan to cover for state-mandated spending that will inevitably come from “student tuition”. The only way we could prove that, however, let alone grasp the magnitude of similar spending at the other regent schools, would be to look at the regent books. As for finding a “long term source of funding” for economic development, the obvious solution to that problem — indeed, the only solution — would be increasing the cost of tuition and fees, which is precisely what the regents have done over the past four years, and intend to do for the next five at least. And the regents are also hiding that mountain of new cash in their books. (Base tuition has increased 18% or so over the past four years, and will increase a minimum of 16% more over the next five years, generating hundreds of millions of dollars in new, unrestricted revenue.)
The very fact that high-ranking state officials are in conflict with each other, and lying outright, suggests there is cause to investigate. While J. Bruce Harreld insists that students should not pay for unfunded state mandates, and only days ago insisted — while pressing for yet another steep tuition increase — that there has been a “dramatic decline in state funding over the last decade“, he is also insisting that the best way forward is to invest heavily in for-profit ventures.
Conversely, the board’s senior communications director, Josh Lehman, insists that education is the board’s main priority. He also insists that when the state provides insufficient appropriations, the board only increases tuition to keep funding “level”. In reality, not only do we know that the board is spurring economic development — precisely because it went out of its way to hire Harreld in 2015 — but at that school it has increased tuition revenue almost three times the amount of any disinvestment since that hire was made.
The Iowa Board of Regents is a department of state government. As such we can assume that the nine members of the board and the leadership of the board office approve of these conflicting and false statements, because both Harreld and Lehman work for the board. (All three of Iowa’s university presidents are employees of, and answer directly to, the Board of Regents.)
If the state’s politicians are shifting the cost of economic development at the state schools to the Board of Regents, and the regents are largely funding those initiatives by increasing tuition and fees for the students, that would directly contradict statements by both Harreld and Lehman. To that end, and given that the Board of Regents does not freely provide this information, in the interests of both transparency and accountability the State Auditor of Iowa should prepare a report to answer the following question:
How much tuition and fee revenue is being spent on economic development by the Iowa Board of Regents?
Specifically, how much money has been spent on economic development over the past five years, and how much money is budgeted for “long-term” economic development in the future? Has the Board of Regents increased tuition and fees, or does it intend to increase tuition and fees, to fund economic development at the state schools? How much profit has been generated from funded initiatives, and how much money has been lost? Is any tuition and fee revenue being used to subsidize or support private-sector partners?
On the UI campus alone, we know that the ongoing operating cost of the new innovation center will be funded from gen-ed revenue that is budgeted to each of the colleges. Even if everything is on the level, and donors pay the initial costs, millions in new annual funding will be required to maintain that program, and that’s only one expenditure we know about. What we also know is that high-ranking employees of the Iowa Board of Regents are not being honest, and that clearly suggests something else is going on.
Dear State Auditor Sand,
For the past three and a half years — following the Iowa Board of Regents’ appointment of J. Bruce Harreld as president of the University of Iowa in September of 2015 — I have been paying close attention to the state’s public universities and to the board. While there is a good deal of information available from those institutions, and considerable reporting by local and state press about those institutions, over time I have encountered a number of questions that can only be answered by looking at the financial books of the schools, or of the regents as a whole. Because I have no ability to compel such access as a citizen, and as Iowa’s state auditor you obviously do, I am writing in that regard.
While the state auditor’s website describes your position as the “Taxpayers’ Watchdog”, accounting for the disposition of tax revenue is only part of your oversight responsibility. Among Iowa’s state assets are everything from real estate to intellectual property, and determining whether assets are being used appropriately involves consideration of the laws and administrative rules by which state government functions. In that context, I was particularly impressed by your immediate response when the Iowa Finance Authority announced that paying out millions in legal settlements would not cost Iowa taxpayers a dime.
From Jason Clayworth at the Des Moines Register, on 02/06/19:
Two sexual harassment claims against a former state director fired last year will be paid from an interest-bearing account and not taxpayers, according to the state’s top economic director.
The announcement followed the Iowa Appeal Board’s $4.1 million approval Monday of settlements to two women who say they were repeatedly sexually harassed by former Iowa Finance Authority Director Dave Jamison.
“The payment is coming from a reserve fund comprised of interest earned on investments over time,” Debi Durham, the head of the Iowa Department of Economic Development who is now also the Finance Authority director, said in a statement. “It will not be funded by a program or taxpayer dollars.”
It isn’t clear which financial account the state plans to use to pay the settlements or how the state determined that taxpayers won’t be affected.
“It doesn’t make any difference to the people of Iowa,” Iowa Auditor Rob Sand said Wednesday. “Every penny of that is still taxpayer money.”
As you correctly pointed out, tax revenue is simply one component of Iowa’s overall asset picture, and all of Iowa’s assets belong to the people of the state. Money derived from an “interest-bearing account” is every bit “taxpayer money” as the revenue citizens contribute at tax time. Because the IFA was paying out $4M in settlements, that $4M could not be used to the benefit of the state — which Director Durham herself publicly acknowledged shortly thereafter.
Unfortunately, that kind of rhetorical shell game is so common at the Iowa Board of Regents as to represent de facto policy. Despite being a department of state government, the board has accomplished the rather neat trick of positioning itself in the public consciousness as something akin to an NGO (non-governmental organization), nonprofit organization or charitable trust. This implied extra-governmental status is reinforced in messaging both by and about the regents, which consistently refers to legislative appropriations as money received from the state — as if the state is a separate entity.
Along with taxes, a significant source of state revenue comes from fees collected for various services. In that context the Board of Regents is the state, just like the Department of Motor Vehicles or the Department of Natural Resources. If you want a hunting license you pay the DNR the appropriate fee, and that revenue — along with legislative funding — covers the cost of operating that department. If you want a driver’s license you pay the DMV the appropriate fee, and that revenue — along with legislative funding — covers the cost of that department.
In a similar vein, if you want a four-year college degree, or a professional degree which entitles you to become a doctor, dentist, or lawyer, you can go to one of Iowa’s three public, state-owned universities and pay the appropriate fees, including the fee we call tuition, and that revenue — along with legislative funding — covers the cost of operating those schools. And yet the board not only routinely perpetuates the false impression that it is somehow separate from the state, it actually positions itself as a victim of “state funding cuts”, which in turn then ostensibly compels the regents to hike tuition. And that’s true even when the legislature increases appropriations, but the dollar amount falls short of the board’s self-determined annual request.
Case in point, that seems to have happened just this week, with the legislature voting to increase appropriations by $12M for the regents, which falls $6M short of the board’s $18M request for FY20. That shortfall will now be used to justify increases in tuition by the board, even as those increases will almost inevitably overcompensate for that shortfall, perhaps multiple times over. That in turn brings us to a related de facto policy at the board, which is the systematic obscuring of the dollar value of new revenue generated by tuition and fee increases.
Where the board constantly refers to legislative appropriations in dollar amounts aggregated among the three regent universities, any increase in tuition is usually referenced as an abstract percentage, thus obscuring the degree to which increased revenue offsets any funding shortfall or cut. Even finding the dollar amount of revenue increases at one school can be difficult, and aggregated totals across the regents enterprise are almost never published by the board. Add in new revenue generated by fee increases, by differential tuition increases, and by discretionary increases at individual colleges — particularly at UI and ISU — and what is announced as a 3% increase may become 5% or 9% for students in certain programs, with a consequent increase in the total amount of generated revenue.
The best example I have found of the board’s deliberate attempt to omit revenue information is also the worst example, and occurred during FY18, when the board was setting tuition and fees for FY19. From the docket memo for Agenda Item 12 at the April 11-12 meetings (p. 5), which was the first reading for the planned FY19 hikes:
Projected Tuition Revenue
The proposed tuition rates for 2018-19 are projected generate approximately $24.9 million in incremental revenue for FY 2019. Assuming no further changes in state funding, the projected incremental tuition revenue partially offset by the recent state funding reduction, results in a projected 0.9% increase in the Regent Higher Education budget for FY 2019.
The Higher Education Price Index (HEPI) documents inflation affecting the higher education industry, allowing colleges and universities to determine the increase in funding required each year to maintain real investment. The Institute for Economic Research at the University of Iowa projects HEPI for FY 2019 to range between 1.2% and 2.8% with a midpoint of 2.0%.
Now here is the same section from the docket memo for Agenda Item 12 two months later, at the June 5-7 regent meetings, which was the final reading for the proposed hikes:
Higher Education Price Index
The Higher Education Price Index (HEPI) documents inflation affecting the higher education industry, allowing colleges and universities to determine the increase in funding required each year to maintain real investment. The Institute for Economic Research at the University of Iowa projects HEPI for FY 2019 to range between 1.2% and 2.8% with a midpoint of 2.0%.
As you can see, not only was the heading changed, but the paragraph referencing the expected revenue was actually scrubbed. And yet, the anomaly here is not that the projected revenue total was deleted, but that it ever appeared in a regent document in the first place.
The Iowa Board of Regents produces detailed and extensive reports on all manner of departmental operations, yet I have never found even the simplest graph or chart showing tuition revenue over time — either aggregated among the three state universities, or individual plots for each school. The total revenue generated by the board from legislative appropriations, tuition and fees, and charitable giving defines the budget available to the regents, yet the dollar value of the dominant piece of that financial puzzle — tuition revenue — is routinely omitted from official board documents.
The obvious question is why, but the answer was alluded to above. Though the Board of Regents is part of state government, it is to the financial advantage of the board to position itself as a victim of the state, rather than as a component part of the state’s sprawling and interrelated bureaucracy. It’s not that the board wants to increase tuition, or even benefits from increasing tuition, but that it has to increase tuition because of insufficient appropriations from the mean legislators.
Again, this cultivated impression runs counter to reality. Fortunately, despite the board’s efforts to obscure that reality, we can prove that assertion by digging through press reports and publicly available financial information at one of the state schools. Among the three regent universities, the University of Iowa is relatively forthcoming about its finances, and we can find a variety of helpful reports on the UI
Financial Management and Budget website. In fact, from four simple pie charts we can clearly see that annual tuition and fee revenue has increased $50M at UI over the past four years — even though the board itself never mentions that fact:
This does not mean, however, that UI is only $50M ahead over that time, let alone that the $50M increase was necessary to compensate for funding cuts and shortfalls. Instead, to grasp the full picture of how much additional tuition revenue has been generated since FY16, we first have to compound those annual increases. Assuming FY16 as baseline, here is how all of that new tuition revenue adds up through the end of the current fiscal year (FY19):
FY17: $27.2M = $27.2M
FY18: $27.2M + $17.6M = $44.8M
FY19: $44.8M + $5.4M = $50.2M
Total increase in tuition revenue FY16-FY19 = $122.2M
Even if you pay attention to the funding issues at the Board of Regents, chances are you have mostly heard about funding cuts and budget shortfalls, not about a massive tuition windfall generated by the state. So what about appropriations, and the funding cuts that got so much notice over the past two years — thus ostensibly triggering the need for multiple aggressive hikes?
Again, assuming FY16 as baseline, here are the annual changes in legislative appropriations for UI over the past four years, as determined by press reports:
FY17 appropriation: $1.3M
FY17 mid-year clawback: ($9.2M)
FY18 appropriation: ($6.2M)
FY18 mid-year clawback: ($5.2M)
FY19 appropriation: $3.2M
Annual change in appropriations FY16-FY19 = ($16.1M)
The University of Iowa did endure a number of funding cuts, largely triggered by the collapse of the state budget for two years running. We can also confirm this math by turning to a UI press release on 07/10/18, which makes pointed mention of the total amount of the cuts, while making no mention at all of the mountain of new tuition revenue generated from tuition hikes over that same time frame:
Since Fiscal Year 2016, the Iowa Legislature has cut the UI budget by $16 million.
Again, however, that’s just the relative change in annual funding. To see the aggregated effect we have to compound those cuts:
FY17: $1.3M + ($9.2M) = ($7.9M)
FY18: ($7.9M) + ($6.2M) + ($5.2M) = ($19.3M)
FY19: ($19.3M) + $3.2M = ($16.1M)
Total change in appropriations FY16-FY19 = ($43.3M)
From FY16 to FY19, the University of Iowa’s annual appropriations decreased by $16.1M, leading to an aggregated loss of $43.3M in legislative funding over that four-year period. Over that time frame, however, tuition-and-fee revenue increased $122.2M, or almost three times the loss. Even after subtracting all of the legislative cuts, the University of Iowa is still net-ahead $78.9M in total revenue, yet because of the board’s revenue blackout I am confident that you and most other Iowans had no idea that was the case. (Because of projected increases in both legislative funding and tuition for FY20, UI will be net-ahead another $20M or so in the coming fiscal year.)
Because the regent universities were in tuition lockstep until this year, we can also conclude that gains at UI over the past four years were replicated at UNI and ISU, meaning those schools also generated revenue significantly in excess of any funding cuts. And yet the narrative at the board — and consequently in the press — is that the regent universities have been struggling to find sources of new revenue. Instead, by diligently digging we can clearly see that the state of Iowa — meaning specifically the Board of Regents — is actually profiting from the ostensible need to replace legislative appropriations with money from students and families.
From all of the above we can see why the Board of Regents is so determined to suppress disclosure of tuition revenue at the state’s public universities. Instead of replacing lost funding with tuition increases on a dollar-for-dollar basis, the state — meaning the Board of Regents — has been taking almost two additional dollars for each dollar cut from the UI budget, beyond the dollar-for-dollar match. While the board certainly has the authority to raise tuition as it sees fit, I think most Iowans would agree that it should do so in a transparent manner, including explaining what all of that extra new revenue will be spent on — and not in a vague, abstract way.
It makes sense that most of the financial abuses in state government will be traced to improper expenditures. In order to understand the financial picture in any department, however, it is also important to understand the revenue side of the equation. With regard to the regents, it is not merely the case that the board obscures the amount of new revenue generated from tuition hikes, we have compelling evidence that the board does so because it is taking significantly more than necessary to maintain its overall budget.
To underscore the naked cynicism at work, even during the collapse of the state budget in FY17 and FY18 — which affected departments and services across the state — the regents used that fiscal crisis to pass multiple tuition hikes, thus raising tens of millions of dollars at UI in excess of concurrent cuts. Instead of shared sacrifice, the board was opportunistic, and used a legitimate crisis to loot student and family bank accounts. If spending money under false pretenses is worthy of investigation by the auditor’s office, the same should be true of raising money under false pretenses, and that’s particularly true given that all of that additional revenue is — in the parlance of higher education — unrestricted, meaning it can conceivably be spent on anything once it has been collected by Board of Regents.
To that end, here is my first question to you as State Auditor of Iowa:
Why is there no detailed annual public accounting of tuition and fee revenue from the Iowa Board of Regents?
Clearly the board has all of the relevant information, yet it rarely produces even the most basic numbers, and reporting across the state schools varies wildly. On a year-to-year basis, how has tuition and fee revenue changed both in the aggregate and at each of the state schools over the past five years? How much has base undergrad tuition increased, in dollars, and how much revenue was generated as a result? How much revenue has been generated from differential tuition increases? What about graduate tuition and tuition at the professional schools? (Note that only base undergraduate tuition is set by the Board of Regents, while individual schools and colleges are free to tack on increased costs to students, with only perfunctory permission granted by the board.)
While your predecessor pursued an exceedingly narrow mandate, I have been encouraged by your call for increased transparency in the reporting of financial information about the state, and for a broader exercise of the powers of your office in service of Iowa’s citizens. With regard to the concerns raised in this letter, I would cite the following authority for producing a detailed report on revenue at the Board of Regents — from Iowa Code:
11.4 Report of audits.
1.The auditor of state shall make or cause to be made and filed and kept in the auditor’s office written reports of all audits and examinations, which reports shall include, if applicable, the following:
a. The financial condition of the state or department.
e. Any other information which, in the auditor’s judgment, may be of value.
If there is any lingering doubt that the Board of Regents has been generating a mountain of new revenue from tuition and fees, simply because it can, note that despite having motivated prior hikes by referencing shortfalls and cuts, this year the board is dispensing with that pretense entirely. As of last fall, the board has instituted a five-year plan which will increase base undergraduate tuition a minimum of 3% per year at UI and ISU, if not more, irrespective of any legislative funding, and apart from inflation. Again, however, there are no estimated or projected dollar amounts attached to those increases, and those numbers will almost certainly never be reported.
Whether the board is acting out of arrogance or a sense of entitlement, the regents themselves are now decoupling legislative funding from the question of tuition and fees, and plan to increase tuition no matter how much taxpayer money is appropriated. As to where that money is destined we have vague assurances, but because we do not know how much money is in play it is impossible to make an informed judgment about whether those plans are an appropriate use of the statutory power to raise and spend revenue. Particularly at the auditor’s office, it would seem critical to have these revenue numbers, in order to determine whether or not state money — including over a billion dollars in tuition revenue — is being used in accordance with the statutory mission of the Board of Regents.
I will continue to add updates about J. Bruce Harreld and his illegitimate presidency to this threaded post. If this post scrolls you will be able to find it by clicking the link in the sticky post at the top of the home page. You can also bookmark this post, or search for it using various keywords and phrases, such as Harreld, fraud, co-conspirator, or carpetbagging dilettante.
For previous posts about the Harreld hire, click the tag below.
05/23/19 — The Iowa Board of Regents and Naming Rights.
05/17/19 — The Iowa Board of Regents and Fiduciary Duty.
05/10/19 — The Iowa Board of Regents and the AAU.
04/26/16 — An Open Letter to the Iowa State Auditor.
—————^^—– Published as Regular Indexed Posts —–^^—————
04/13/19 — J. Bruce Harreld and the 03/12/19 Daily Iowan Interview: Part 2. Updated 04/15/19.
04/09/19 — In advance of next week’s meetings of the Iowa Board of Regents, two very sharp reports from the Gazette’s Vanessa Miller. First, the regents are postponing their tuition hikes for next year, despite having imposed perennial hikes precisely to provide “predictable” tuition. (The idea of “predictable” tuition was in fact a deliberate perversion by the board’s president, Mike Richards, who substituted that concern for very real concerns from students and families that tuition hikes were announced at the last minute — as will again be the case this year.) Second, Miller provides critical context for the University of Iowa’s request to once again explode the budget for the new children’s hospital, after years of downplaying the school’s exposure to additional charges in the tens of millions of dollars.
A new threaded post on this topic can be found here. For previous posts about the Harreld hire, click the tag below.
02/06/19 — If you haven’t read this story, it’s an exceedingly bad look for the University of Iowa. The best-case scenario is that it describes jaw-dropping incompetence. The worst-case scenario is that J. Bruce Harreld was moved to assist a Chinese student in maintaining his progress toward a degree. (See posts below on 01/02/19 and 01/05/19 for more.)
01/18/19 — The 2020 Task Force Phase II Final Report.
01/02/19 — Fresh off Harreld’s obligatory appearance with the UI Football team in Tampa — not far from his multi-million-dollar vacation home in Jacksonville — I was not expecting additional media availabilities until the start of the academic year. Silly me. Here’s Harreld giving an exceedingly conciliatory interview to Chinese media. Related concerns here.
11/28/18 — The Daily Iowan’s Marissa Payne reported today on the deep political and financial connections of members of the Iowa Board of Regents, including particularly President Michael Richards. It is a straightforward accounting of how beholden Richards and a majority of the board are to the Republican party.
11/03/18 — The Iowa Board of Regents and the 2018 Elections.
09/24/18 — J. Bruce Harreld at Three Years — Part 1: The Children’s Hospital Construction Debacle. Updated 09/28/18.
A new threaded post on this topic can be found here. For previous posts about the Harreld hire, click the tag below.
07/08/18 — A must-read report on the chaotic and reckless construction process of the new UI children’s hospital, from the Gazette’s Vanessa Miller.
06/18/18 — J. Bruce Harreld Tells (More) Lies to the Daily Iowan. Updated 06/20/18.
05/13/18 — J. Bruce Harreld Lawyers Up.
05/01/18 — That didn’t take long. The Gazette’s Vanessa Miller reports that J. Bruce Harreld is killing off Iowa’s 70-year-old Institute of Public Affairs.
04/25/18 — Which UI Centers and Institutes Will Harreld the Ogre Slash and Burn? Updated.
04/15/18 — J. Bruce Harreld Turns on the University of Iowa.
03/25/18 — How State Legislatures and Governing Boards Prey on Higher-Ed Students. With particular attention paid to Iowa Representative Pat Grassley, R-New Hartford.
03/18/18 — J. Bruce Harreld at the Halfway Point. It’s all downhill from here.
03/04/18 — Part 7 of Designing the New American University: a Book Review in Context. What Mike Crow’s book is really about and who it is for.
03/01/18 — Part 6 of Designing the New American University: a Book Review in Context. Covers the period between publication in March of 2015 and today.
02/25/18 — Part 5 of Designing the New American University: a Book Review in Context. Covers the second half of chapter seven — p. 267-297 — and the conclusion. Updated 03/05/18.
02/22/18 — Part 4 of Designing the New American University: a Book Review in Context. Covers the first half of chapter seven — p. 240-267.
02/18/18 — Part 3 of Designing the New American University: a Book Review in Context. Covers chapters five and six.
02/16/18 — A few quick thoughts on the now-annual conjecture that UIHC might be privatized or partner with a commercial healthcare provider.
02/15/18 — Part 2 of Designing the New American University: a Book Review in Context. Covers chapters three and four.
02/11/18 — Part 1 of Designing the New American University: a Book Review in Context. Covers the preface, acknowledgements and introduction, and chapters one and two.
A new threaded post on this topic can be found here. For previous posts about the Harreld hire, click the tag below.
01/28/18 — Iowa’s Rapidly Devolving Higher-Ed Budget Battle.
01/21/18 — Wendy Wintersteen Talks Tuition and Funding Cuts.
01/14/18 — Casino Kim’s FY19 Higher-Ed Budget Proposal.
12/15/17 — By Way of Thanks to the UI Faculty Senate.
12/03/17 — J. Bruce Harreld and the Proxy Provost.
11/11/17 — A short note on Interim Provost Sue Curry’s Crusade to Destroy the UI College of Liberal Arts and Sciences.
10/20/17 — The Iowa State Presidential Search in Context.
10/16/17 — For all the right reasons, Art Cullen, editor of the Storm Lake Times, comes out hard against Wendy Wintersteen for president of Iowa State.
09/28/17 — Updating the Iowa State Presidential Search.
09/17/17 — The Student Guide to the Iowa Tuition Task Force.
08/12/17 — The UNI and ISU Five-Year Tuition Proposals.
08/05/17 — The Iowa Board of Regents and the $91M Lie.
07/30/17 — Perusing the Tuition Task Force Reading Room.
07/27/17 — The Iowa Tuition Task Force is Exposed.
07/23/17 — What the Iowa Tuition Task Force is Really About.
07/16/17 — What the Iowa Tuition Task Force is Not About.
07/03/17 — Reintroducing Steve McGuire to Reality.
06/25/17 — J. Bruce Harreld and the Tuition Task Farce — Part 4. Updated.
06/22/17 — J. Bruce Harreld and the Tuition Task Farce — Part 3.
06/18/17 — J. Bruce Harreld and the Tuition Task Farce — Part 2.
06/14/17 — J. Bruce Harreld and the Tuition Task Farce — Part 1.
06/04/17 — Today Tuition Hikes, Tomorrow a Task Force.
05/21/17 — J. Bruce Harreld and the UI Peer Group Tuition Lie: Part 2. (Part 1 was published on 05/17/17.)
05/19/17 — The University of Iowa has settled the case brought by Tracey Griesbaum, and reached a final agreement with Jane Meyer. UI press release here, which includes links to regents source docs. All moneys to be paid from Athletic Department funds.
05/17/17 — J. Bruce Harreld and the UI Peer Group Tuition Lie: Part 1.
05/03/17 — What Gary Barta Did to Jane Meyer. Updated 05/04/17.
04/27/17 — J. Bruce Harreld Makes His Move.