The Iowa Board of Regents and Economic Development

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.

Mark Barrett