Ongoing Harreld Hire Updates — 16

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1. Ditchwalk says

   November 17, 2019 at 3:29 pm

   The UI Utility P3 in Context — Part 1: Cause for Concern

   In this multi-part post we will attempt to expose the business dynamics at the heart of a proposed public-private utilities partnership (P3) between the University of Iowa and a yet-to-be-determined — or at least yet-to-be-announced — energy company. That we are obligated to speculate about the deal structure of this pending proposal, which has been in the works for the better part of a year or more, is a concern in itself, particularly given that UI is a public institution, and thus derives a great deal of its support from the taxpayers of Iowa. Should the university and the Iowa Board of Regents lock the state into a money-losing or inordinately expensive long-term contract, the people of Iowa will pay that price — although the board does have one deeply cynical out, which we will discuss at the conclusion of this post.

   Unfortunately, despite their status as state employees, the president and other high-ranking administrators at UI have devoted themselves to obscuring key aspects of the proposed utility P3. Where you might expect that interested parties or concerned citizens could visit a web page or download a document that spelled out what will likely be a half-century business commitment, the university has instead posted an anemic P3 FAQ, and that document provides only the most general information, while intentionally obscuring or eliding over critical components of the proposal. (Even the four ‘information sessions’ which were held on the UI campus over the course of this year — which are listed in the timeline on the FAQ — were conducted not to inform the public, but merely to create the appearance of administrative disclosure, which can then be cited as proof that UI fully communicated its intent.)

   From the official UI P3 FAQ, here are the only sections which provide any specific insight into the prospective deal:

   How will the UI Utilities System P3 work?
   The UI will enter into a professional services agreement for the operation of its utility system for up to 50 years while receiving an upfront payment that the university will place into an endowment. 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. It’s a way to act today, protecting existing resources while planning for the future.

   The UI will still own the utility system, and at the end of the agreement the utility system will come under operating control of the university again. Incentives will be in place with the plant operator to the [sic] maintain system in good working order. In addition, the UI will have an industry leader operating the utility system for the length of the contract that will continue investing in efficiency projects and best practice operations, care, and reliability.

   The operating partner will receive an annual fee for providing the utility services for the length of the contract (up to 50 years) while realizing beneficial tax treatments related to the energy sector.

   Who is paying for what? And how much money is involved?
   The partner will provide the UI with a lump sum upfront payment, which will be placed into an endowment to aid in funding the implementation of the UI’s Strategic Plan, today and into the future.

   The university will pay the partner an annual utility fee plus reimburse the cost of utilities needed to serve the campus and will also pay an amount commensurate with the ongoing care, maintenance, and operation of the UI utility system, increased annually to account for standard cost inflation.

   The UI won’t know how much money the utility system P3 will involve until the completion of the Request for Qualifications (RFQ) and Request for Proposal (RFP) processes.

   Even if you know nothing about public-private partnerships — and I certainly didn’t until this deal was announced in early 2019, and I began reading up on the subject — these sections from the UI P3 FAQ should prompt one question in particular. Why would an energy company provide the University of Iowa with a “lump sum upfront payment”, when said company will also take responsibility for providing the power produced by the UI power plant? In the abstract it’s not hard to imagine there might be some mutually beneficial tax advantage to having a private-sector company run the university’s power-generation, and other utilities, but why would that company give UI a lump-sum upfront payment for that privilege? (As noted in a prior post on the subject, you wouldn’t expect an upfront payment if you hired a lawn-care company.)

   Not only does the P3 FAQ not address this question, but the question is avoided and evaded in every single public comment I have read about this prospective deal. That there will be an upfront payment is heavily promoted — apparently to prompt avarice in the UI community — but why that money will be given to UI is never fully explained. And the very fact that it is not explained, including particularly in the official UI P3 FAQ, should make clear that the university does not want to answer that question. The president and administrators at UI are thrilled to talk about the big pile of money UI will get, and how they’re going to put that money in an endowment and generate revenue “today and into the future”, but not why that money is being given to UI, or, more importantly, what that big pile of money will cost the state.

   We know definitively that the question is being avoided because the current president of the University of Iowa — J. Bruce Harreld — is not only a product of the private-sector, as opposed to being an academic administrator, but he has a Harvard MBA, and is thus well-versed in the importance of understanding all aspects of a business deal. If we don’t know why UI is getting a “lump sum upfront payment”, the reason we don’t know is not because we’re stupid or lazy, but because Harreld has intentionally omitted that explanation. (Unfortunately, under Harreld’s leadership UI no longer functions like a public university, but like a private-sector entity itself.)

   The whole premise of Harreld’s appointment — which was rigged by the crony Iowa Board of Regents — was that he alone had the kind of super-colossal business brain that was necessary for UI to weave its way through a nationwide funding crisis in higher education. (Never mind that the same crony board subsequently promoted an academic lifer to lead Iowa State, which had and still has significantly greater financial issues than UI.) In that context, the fact that Harreld has not explained why UI is getting a massive upfront payment means he doesn’t want to explain that part of the deal, not that he can’t explain that part of the deal. Then again, to be fair to Harreld, that also applies to UI Chief Financial Officer and Treasurer Terry Johnson, and to UI Senior Vice President for Finance and Operations Rod Lehnertz, who have also avoided explaining why UI will receive a cash windfall for signing onto a utility P3. (Per the UI org chart for central administration, Johnson reports directly Lehnertz, and Lehnertz reports directly to Harreld.)

   Not only has no one at UI answered that foundational question, but no one at the Board of Regents has either, despite weighing in on other aspects of the proposed deal. In fact, one board member in particular — David Barker, who was appointed just this year, and as a former economist at the Federal Reserve Bank of New York also clearly has a super-colossal business brain — recently commented on the P3 in specifics. That Barker likewise avoided explaining why a private-sector company would throw a massive pile of cash at UI means he, like Harreld, also chose to omit that explanation, not that he couldn’t explain it.

   Despite the universal conspiracy of silence on that question, however — whether coordinated or not — it is also worth noting that while Harreld and Barker both have super-colossal business brains, they diametrically disagree about another core aspect of the proposed deal, which is whether the UI P3 will involve leasing university assets. From his earliest comments at the beginning of the year, to the following recent quote, Harreld has been entirely consistent in saying that the university will not be leasing any assets. From the Daily Iowan’s Charles Peckman, on 10/10/19:

   “This is not the sale of the assets. This is not a lease of the assets,” [Harreld] said. “This is entering into a long-term relationship with an operator who’s in this industry.”

   Barker, on the other hand, recently asserted that the P3 will involve leasing UI assets to a private-sector company. From the Gazette’s Vanessa Miller, on 10/24/19:

   “The idea is to lease the power plant to a private company, allow them to operate it, preserving the jobs that we have there — all those employees will work either for the university or for the company coming in,” Barker said. “That company would sell us the power and operate on a 50-year lease.”

   To our concerns about the UI P3 based on a consistent lack of candor from the very people who are advocating for that murky proposal, we can now add concerns about the fact that two people with super-colossal business brains are giving us mutually exclusive explanations about how that deal will work. Just as we would be uneasy if a pilot and copilot gave us contradictory inflight briefings, it is not illogical to wonder whether we should have any confidence in either of these business geniuses. (Fortunately, in the case of leasing UI assets, we will in due course find out whether Harreld or Barker was correct, and that in turn will provide us with yet another substantive basis for questioning the crony appointment of whomever is wrong.)

   Exacerbating our concerns about both the omission of critical information and the presence of contradictory information, not only is the UI P3 FAQ silent on the question of why UI will be given an upfront payment, it is also silent on the question of leasing, despite explicitly stating that any public-private partnership will not involve the sale of any university assets. Even after multiple statements from the university president in the negative, and contradictory statements between the university president and a member of the university’s governing board, no one has updated the P3 FAQ to provide that information or clarify that contradiction. And again, that can’t be by accident, because that’s the whole point of having an FAQ.

   While they both undeniably have super-colossal business brains, and their professional backgrounds are indeed relevant to the analysis of public-private partnerships, it is also important to remember that Harreld and Barker are in a position to influence the outcome of the P3 not because of their professional experience, but because of crony politics. There are in fact plenty of people in the world who have the same qualifications or better, but the reason Harreld gets to drive the UI P3 debate is because he’s the little buddy of UI mega-donor Jerre Stead, and was hired on that basis. Likewise, although Barker is a former economist, the reason he’s on the Board of Regents is because he shoveled $63K at a bunch of Republican politicians, including spending tens of thousands of dollars to fly Iowa Governor ‘Casino’ Kim Reynolds around on private airplanes, which is her political fetish.

   But still! Other than the fact that they are in diametric disagreement about a key aspect of the prospective UI P3, and both men are only in a position to comment on that prospective P3 because of crony appointments, we can still say with one hundred percent confidence that they are both lying by omission about why a private-sector company would want to give UI a “lump sum upfront payment”, in exchange for the right to then also run UI’s power plant and utilities. They clearly must know, but neither man — nor any of the other individuals who have commented on the P3, either at UI or at the board — have offered an explanation. (If either or both of them really don’t know, that’s obviously an additional concern, because it would mean the people at the bargaining table on behalf of Iowa’s taxpayers are also imbeciles.)

   Finally, and further eroding our confidence, while multiple participants have variously described the P3 selection process as nearing completion, if not rapidly so, we also have multiple instances of UI spokespeople insisting that the development process is only in the exploratory stage. From the Daily Iowan’s Eleanor Hildebrandt, on 10/08/19:

   A member of University of Iowa Graduate and Professional Student Government said in a meeting Tuesday night the UI will soon select a bidder in its exploration of a public/private partnership.

   In the meeting in the IMU, GPSG Sustainability Committee co-chair Christian Bako commented on the potential partnership at the UI, which would allow the university to collaborate with a private company and financially benefit from its own utility system.

   “I’ve been focused on the [public/private partnership] negotiations that have been going on with weekly conference calls,” he said. “The bidders are finishing their bid materials and the final bidder is supposed to be selected by Nov. 15. It’s a fast-moving process.”

   In an email to The Daily Iowan, UI Media Relations Director Anne Bassett said in a statement that the university of Iowa is still only exploring a public/private partnership involving its utility system.

   “A decision to move forward beyond the exploration phase has yet to be determined by the campus team, which includes shared governance,” the statement read.

   So which is it? Is the UI utility P3 about to be concluded, or is it still only in the “exploration phase”?

   From the Gazette’s Vanessa Miller, two days later, on 10/10/19, reporting on a speech that same day by J. Bruce Harreld:

   The University of Iowa is in the “final stages of negotiating” with a “handful” of potential partners to operate its $1 billion utilities system — after administrators earlier this year announced they were exploring whether such a public-private collaboration could generate new revenue.

   Whether this administrative dissonance is the result of incompetence, or part of a deeply cynical if not corrupt attempt to jam this deal through before anyone understand what it entails, I leave for you to decide. Knowing what you now know, do you have confidence in the people who are breathlessly driving this process to fruition, or do you share the concerns outlined above? At minimum, this is precisely why this post is necessary, because a $4B public research university cannot explain what it is doing even when granted endless opportunities to do so. Unfortunately, because we are saddled with omissions and incoherence, and this kind of deal making is not particularly well understood by the general public, it is entirely possible that we may get some things wrong in trying to understand what is happening — but again that’s only because the people who do know aren’t talking.

   Unlike the intentionally vague UI P3 FAQ, however, or the mutually contradictory and evasive statements emanating from the university and the regents, this blog is open to the public, and anyone from private citizens to public officials are welcome to add comments that clarify uncertainties or correct mistakes. (In fact, from the absence of any subsequent commentary or corrections we can infer that we are on the right track, which would be reassuring.) If there’s one thing I believe we can agree on, however, it’s that the taxpayers of Iowa should have all the information they need in order to understand this prospective deal, before a few hand-picked cronies commit the University of Iowa to a half-century contract which could ultimately cost more than any revenue generated by a consequent endowment at UI.

   In order to structure the remainder of this multi-part post, we will pare down the excerpt from the UI P3 FAQ quoted above to the following single sentence, which we will then parse in the context of any other relevant or illuminating information that we have at our disposal — which is admittedly not much:

   The UI will enter into a professional services agreement for the operation of its utility system for up to 50 years while receiving an upfront payment that the university will place into an endowment.

   In this single sentence we have all three of the main components of the proposed UI utility P3: a long-term “services agreement”, an “upfront payment”, and an “endowment” which will be funded by the upfront payment. What we do not know, because no one has provided a detailed explanation, is how those components relate to each other, and how the state will profit — or at the very least, preclude taking a loss over the course of the deal. Still, it should be possible to come to some plausible if not likely explanation as to why the university is considering this deal, and that in turn may explain why UI and the regents have consistently deprived the public of information.

   And no, often-invoked concerns about trade secrets or confidentiality do not apply, precisely because no deal has yet been struck. If full public disclosure would have had no effect on the outcome, or improved the outcome, then Harreld would have already explained what he was up to, if only to impress. That Harreld has not done so means publicly disclosing the deal structure would actually make approval of the UI utility P3 less likely, even though that structure has been freely communicated to all of the private-sector energy companies who are currently bidding on the deal.

   Part 2: The Services Agreement

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2. Ditchwalk says

   November 20, 2019 at 2:57 pm

   The UI Utility P3 in Context — Part 2: The Services Agreement (Part 1)

   While the basic idea of a public-private partnership (P3) is straightforward, such deals can be impenetrably complex even if they are otherwise legitimate. Unfortunately, in such complexity we also have an obvious opportunity for corruption, and that’s particularly true in instances where the public party confers confidentiality on the negotiations and subsequent contract, under a pretense of protecting the private-sector party’s trade secrets. As such — and based on prior statements by the University of Iowa about this particular deal — we can fairly assume not only that we are never going to get an advance look at the details of any consequent agreement, we will likely never be privy to specifics of the deal at all. What we can do, however, is get our minds around how a P3 might work in the absence of any intent to deceive, then compare that ideal to the messaging and information we have been getting from the University of Iowa and the Iowa Board of Regents.

   In the context of a utility P3 at the University of Iowa, imagine you are in charge of a public university, which owns a power plant that provides energy for your campus. On an annual basis that plants costs $1M, but you don’t have to pay for any of the resulting power. (The UI power plant costs considerably more than $1M to operate each year, but here we’re just trying to understand the basic concepts. We will wrestle with larger and more likely numbers later, particularly regarding the upfront payment.)

   In researching ways to decrease your energy costs, your administrative teams comes across a section of the tax code which is advantageous, but the fine print says you can’t take those deductions because you’re a government entity. If you were a private-sector university you could take advantage, but because you’re publicly funded you can’t — so what are your options?

   Because tax laws apply to legal entities, one way to get around that problem would be to partner with a private-sector company that could take advantage of those tax deduction — which is indeed what UI intends to do. If the tax code offered savings of $100K per year, and you leased your power plant to a private-sector partner who satisfied the applicable requirements, you could then split that savings and both come out ahead. In reality nothing would change except a private-sector energy company would be acting as a front for tax purposes, most likely by leasing your power plant under the guise of a “professional services agreement”.

   Assuming a fifty-fifty split of the profits, here’s how that would work for both parties:

   Before P3:
   Power plant cost to school: $1M
   Energy cost to school: $0K

   After P3 Tax Advantages:
   Power-plant cost to school: $0K
   Power-plant cost to private-sector partner: $900K
   Energy cost and/or services fee to school: $950K

   The original cost of energy production on your campus was $1M. In exchange for signing a professional services agreement, and nothing else, your energy cost drops to $950K, which you pay to your private-sector partner. Your partner also profits by $50K, because after they exploit the tax benefits you could not use, their cost is only $900K. It’s the exact same power plant, it’s producing the exact same energy, but because a private-sector company slapped their name on your operation — thus qualifying as the ‘owner’ of your power plant under the tax code — everyone comes out a winner, except for whichever treasury got stiffed for $100K.

   Regarding the University of Iowa, this example seems to be what J. Bruce Harreld was talking about when he said the following — as reported by the Gazette’s Vanessa Miller, on 10/10/19:

   “What this is really all about quite frankly is unlocking the value that’s on our campus and has been there for a long, long time,” Harreld said.

   Notwithstanding Harreld’s tendency to characterize himself as uniquely perceptive, there is nothing unique or perceptive about the proposed UI P3, which comes to us from a similar deal at Ohio State in 2017, which was in turn modeled on a pioneering utility partnership at the University of Oklahoma in 2010. To the extent that federal, state and/or local tax codes can be legally exploited to turn a profit, then yes, that “value” has “been there for a long, long time” at the University of Iowa — or at least as long as the applicable laws have been on the books. By the same token, however, one can perhaps see why leaders of good conscience in public higher-ed have been and still are reluctant to screw the general population out of revenue to generate a profit for themselves, let alone for a private-sector energy company.

   Whether such trickery is now warranted in the face of declining legislative support for public higher education, or is simply a cynical rationale offered by a new breed of higher-ed mercenaries who are shafting the general public in service of their own profit-making aims, we will leave for another day. (And to be fair, if the government didn’t want private-sector energy companies screwing the public out of tax revenue, elected officials would not have passed those tax laws in the first place, after accepting large-scale campaign donations from the very people who ultimately profit from such loopholes.) In the context of the simple P3 example detailed above, however, the most notable feature of that deal is not the savings, but just how little substantive change took place in order to generate a profit for both parties.

   On paper, the professional services agreement between your university and the private-sector partner you contract with makes it look as if you are now buying power from another source, but that would only be true in a narrow legal sense. The power plant would be the same, and whether the private-sector partner merely provided managerial oversight or took on your utility employees, many of the people doing the actual work of power generation would be the same. To you, the only real difference would be that instead of paying $1M per year for power, you would be paying $950K, while from the private-sector partner’s point of view, all they would have to do is front for you in the P3 deal, for which they would get an equal share of the savings, or whatever percentage was specified in the services agreement. As to any actual services being provided to you, there would essentially be none.

   As previously noted, however, even in an otherwise legitimate and fully disclosed P3, the complexities and permutations could be impossible to follow if you were not fully versed in the arcana of federal, state and local tax codes, to say nothing of energy-industry best practices. For example, the private-sector company could act as more than a front, potentially reaping even greater tax benefits while also providing the same power at reduced costs — perhaps through more efficient equipment or operations. If you didn’t have the proper contract in place that would mean more profit for your private-sector partner, while you continued to pay $950K per year for power — which would still represent a savings — but there is also nothing to prevent you from taking a contractual cut of those additional benefits.

   Before P3:
   Power plant cost to school: $1M
   Energy cost to school: $0K

   After P3 Tax Advantages:
   Power-plant cost to school: $0K
   Power-plant cost to private-sector partner: $900K
   Energy cost and/or services fee to school: $950K

   After P3 with Tax Advantages, Upgrades and Efficiencies:
   Power-plant cost to school: $0K
   Power-plant cost to private-sector partner: $800K
   Energy cost and/or services fee to school: $900K

   In this scenario, as a result of actual services being provided by your private-sector partner, the total cost of generating the same amount of power has been cut by $200K. That means the university is now saving $100K per year for the same energy — half of the $200K savings — and the private-sector partner is also making $100K each year, which is the difference between their cost and what your school pays for power. (Because the split is still 50-50, everyone is also incentivized to continue the partnership, but those percentages would ultimately be defined by minutia in the contract between the two parties, which could easily run a thousand pages or more.)

   In terms of the UI P3, we can see from reporting over the past year that tax advantages will indeed be a critical component of any services agreement that may be struck between the university and a private-sector energy partner. From a Daily Iowan interview with J. Bruce Harreld, on 03/11/19:

   DI: The UI announced last month that it’s exploring a public/private partnership for its utility system. Can you walk us through what went through considering this idea and your overall feelings on the possibility?

   Harreld: …

   We have been studying what other universities around the United States and the world have been doing around these public/private partnerships. At the end of the day, it has an awful lot to do with an entity like ourselves that does not pay taxes, and as a result of that, if we let a third party come in and operate part of our facilities, a residence hall or utilities, some institutions have done it around parking, even sports complexes, and that entity is a private entity that does pay taxes, and it may well be that the construction of the transaction is structured in a way that it might help them shelter some of their taxes. That’s what this is, and in that process, it could free up hundreds of millions of dollars that could pour into the university. Which we would then put into an endowment and the returns on that endowment every year would fill that $14 million to $20 million gap. That’s the objective.

   …

   DI: With a partnership like that, it kind of is like an investment, of course, so what’s the university’s investment in that partnership, what do we have to put into it initially?

   Harreld: We already have, we’ve giving them the right to operate a pretty well-honed machine in the utility. We’ve giving them a payment over the next 35 to 50 years, however long the contract is. We’re giving them a very high credit for the organization that will make annual payments to them. That’s what they get out of it, as well as a contract that is depreciable from the IRS perspective, and that gives them that tax shelter.

   Then, we’re going to have to give them a governance structure. They’ll have to work collaboratively to get together. We will still own the plant. We’re not leasing the plant, we’re not selling the plant, so we’ll still own it, we need to make sure they maintain it in a first-class way. Sometime in the future, it will revert back to our ownership. …

   If you are genuinely interested in trying to understand the basis for the UI utility P3, you should read that entire interview because Harreld goes on at considerable length, beyond the quoted passages. As noted in a prior post, however, Harreld’s tendency to talk also routinely exposes fault lines in his reasoning, and here we have a logical chasm. Specifically, after insisting that UI “will still own the plant”, and UI is “not leasing the plant, we’re not selling the plant, so we’ll still own it”, Harreld then says “sometime in the future, it will revert back to our ownership”. Because we don’t yet know whether the UI P3 will or will not include a lease, we don’t know whether Harreld was merely being incoherent or outright lying, but in any event the logical contradiction is obvious. Not only does that contradiction add to our growing list of concerns about the UI P3, but given that Harreld issued that blather months before his recent contract extension and pay increase by the Iowa Board of Regents, it adds to our list of concerns about that oversight body as well.

   Continuing with another example of how tax advantages will form the basis of any shared cost savings in a P3 between UI and a private-sector partner, we have this from the Gazette’s Vanessa Miller, on 05/07/19:

   The university in its appeal for potential partners notes any private operator would see tax benefits from “any additional investment made to the utility system.”

   That, according to the memo, is based in part “on its ability to depreciate utility system assets, including improvement on its federal and state income tax returns” — benefits not afforded the university itself as a public institution.

   And of course from the UI P3 FAQ we have this, as excerpted in Part 1 of this post:

   The operating partner will receive a steady return on its upfront investment for the length of the contract (up to 50 years) while realizing beneficial tax treatments related to the energy sector.

   On its face there is nothing inherently wrong with a public-private partnership regarding utilities or anything else. Even if the entire services agreement is simply a front for a legal tax scheme, both parties could profit, and if genuine synergies are involved that profit could increase. (Although the cost of implementing such a partnership might easily run into the millions of dollars, and require additional millions in oversight and ongoing due diligence as the partnership evolves, it could still be worthwhile from a purely financial perspective. Which is of course why such deals deals are relatively commonplace these days, at all levels of government.)

   With regard to public higher education, as previously noted and as obliquely referenced by Harreld in the quote above, any prospective UI partnership owes a direct debt to the P3 that was pioneered at Oklahoma University in 2010. In that deal — in a state known for and reliant on energy production, which would later become a national leader in fracking — the school’s publicly-funded utilities were effectively privatized for fifty years.

   Flash forward the better part of a decade, and such agreements in higher-ed are no longer limited to public-private partnerships. In fact, energy companies have even begun initiating such deals themselves, just as any service provider would make their services known to potential customers. For example, on 08/30/19 the Gazette’s Vanessa Miller reported on a partnership between Cornell College — a small, private, 166-year-old liberal arts college in Mt. Vernon, Iowa — and an energy company looking to leverage its expertise:

   Aaron Rittenhouse, Midwest program leader with Johnson Controls, said contingent payment programs like this one are “unique in the marketplace because Johnson Controls doesn’t get paid unless we produce the mutually agreed-upon result.”

   “If there’s a shortfall, we have an obligation to fix the root causes,” Rittenhouse said. “If we over-perform, Cornell keeps the additional savings. The risk is fully transferred to Johnson Controls.”

   Though Cornell won’t realize the full savings until 2037, Langseth said, the college will benefit in the short term from a lesser need for upgrades and equipment improvements — not to mention other indirect implications of having inefficient infrastructure.

   “It’s more than just the energy savings,” she said, citing Cornell’s “old and aging steam plant” that needs regular maintenance.

   Setting aside any other aspect of a utility partnership, including tax advantages, there are clearly legitimate reasons to explore the possibility that a private energy company could produce efficiencies in operations, whether at private Cornell College or at the publicly funded University of Iowa. Even in instances in which a partnership is simply a front, however, and all benefits are derived from exploiting the tax code, what we can say with certainty — even if we have no idea what the specifics of a deal entail — is that the entire justification for such a partnership hinges on generating savings in one manner or another, or in combination, from the services agreement between the two parties. Whether in the simplistic examples above, or any examples you can imagine, the cost of energy for the school would decrease, or there would be no point to the partnership.

   Having said that, it is also important to note that here we are assuming that the members of the Iowa Board of Regents, and senior administrators at UI, intend to act in accordance with their fiduciary responsibility to the state. Unfortunately, people in positions of governmental authority can also act as agents on behalf of private-sector, for-profit companies, which seek not a mutual benefit but the looting of government coffers. For example, what is promoted as a partnership to build a new, state-of-the art sporting venue often turns out to primarily benefit the private-sector partner, while sticking taxpayers with the bulk of the costs. Whether anyone at the board or the university may be acting on behalf of constituents other than the people of Iowa we do not know, but if we did have any suspicions those would obviously fall on appointees who secured their positions of authority based not on their qualifications, but on crony political or business connections.

   Assuming for the sake of argument that better angels in state government will defeat any such corruption, we are still left with considerable uncertainty not only from the secrecy of the deal-making process, and from the blithering incoherence and blatant contradictions of those public officials who have attempted to describe (or obscure) that process, but also because of the manner in which UI expects to be compensated. As the UI P3 FAQ makes clear — and as every UI administrator and regent commentator has emphasized — the most important part of any prospective utility deal is the “lump sum upfront payment” the university expects to receive for signing a long-term services agreement, which the school will then deposit in an endowment. That “payment”‘ will ostensibly be premised on savings derived from the services agreement, but the very fact that a private-sector company may hand a check for hundreds of millions of dollars to a department of state government not only changes the nature of the overall contract, it opens the door to a method of corporate profiteering which would be particularly difficult to expose without intensive analysis of the underlying deal. We will broach those related issues in the next post.

   Part 3: The Up-Front Payment

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3. Ditchwalk says

   November 24, 2019 at 3:42 pm

   The UI Utility P3 in Context — Part 3: The Up-Front Payment (Part 2)

   In 2010, the University of Oklahoma pioneered the concept of a public-private utility partnership in higher education by striking a deal with Corix, an energy company based in Vancouver, Canada. The impetus for that novel, long-term, and purportedly mutually beneficial relationship, however, was not innovation for its own sake, but — as has been said about necessity being the mother of invention — grave concern about two distinct financial threats facing the school. First, Oklahoma was carrying a massive amount of bond debt that required servicing, meaning the university had to make steep annual payments to the individuals and organizations holding those financial IOU’s. Second, at the same time that OU was short on cash, the then-president expected near-term state funding cuts, because the state itself was still on precarious financial footing only two years after the Great Recession commenced in 2008.

   In that context, here is how the OU-Corix deal was explained in the Oklahoma University Daily, on 04/25/11:

   The contract’s net benefit to the university was about $120 million, [Associate Vice President and Chief Financial Officer Chris] Kuwitzky said. Part of that money was used for capital projects and part was used to eliminate the university’s bond obligations on the utility plants. However, [President David] Boren said he set aside $25 to $30 million to cushion against the effects of upcoming budget cuts.

   “If we don’t have to use it all over the next three years, we’ll hold it back because we could face this kind of situation again,” Boren said.

   Boren said that the funds could also be used for the creation of the College of International Studies and the renovations of a monastery in Arezzo, Italy for the university’s study abroad program.

   And here is how Corix reported the same deal, in March of 2012, in a document produced for the Kentucky Public Service Commission:

   Through a nation-wide solicitation process, Corix was selected by the University of Oklahoma to purchase a 50 year concession to invest in and design, build, operate and maintain six utility systems serving a student population of approximately 30,000 at its campus in Norman, Oklahoma. This multi-utility operation includes water and sewer systems, a central heat and power plant, district energy system, chilled water production and distribution system, and electrical and natural gas distribution systems. The initial acquisition price was $118 million and the total 50-year capital investment is estimated at over $600 million. The University’s incumbent employees were hired by Corix as part of the transition. The concession agreement is structured to mirror regulated utilities in Oklahoma using typical cost of service rate-setting principles. The benefits to the University included monetization of non-core utility assets and reallocation of the funds to the core education and research missions.

   The University of Oklahoma needed cash, and in return for signing what is called a ‘concession agreement‘, Corix fronted between $118M and $120M to the school. (The difference in those reported amounts seems to be a separate $2M endowment that Corix also established at the university.) Despite all of the financial information contained in the above quotes, however, including multiple deal points and potential destinations for that mountain of cash, nowhere are we told why Corix paid that money to the University of Oklahoma. We know what the overall deal looks like — that Corix paid $120M or so for the privilege of running OU’s power plant and other utilities — but on its face that obviously makes no sense.

   While that eye-popping windfall at OU did attract considerable notice in the higher-ed industry, it wasn’t until 2015 that another public university took a serious run at a similar large-scale utility partnership. In late February of 2015, after working internally for over a year, Ohio State University put out a request for qualifications (RFQ) for a private company to lease and run its own utility operations. In publicly framing the goals of that potential partnership, OSU administrators primarily focused on the annual savings that would be derived from the resulting services agreement:

   Ohio State projects spending $600 million on its utilities in the next 50 years, with $90 million in the next decade, as the school adds new facilities in student housing, athletics and health sciences.

   The company or companies that win the contract would get money back based on energy-efficiency savings they generate for the school. Ohio State would save, too.

   “Our dividend, if you will, would come over time as we would spend less on energy consumption,” ‘[OSU CFO Geoff] Chatas said.

   Now, were we given to suspicions about the credibility of the individuals and organizations that advocate for such partnerships, we might be brought up short by the uncanny coincidence that both Corix in 2010 and Ohio State in 2015 referenced the same $600M figure in describing the scale of their future commitments. Admittedly, Corix seems to have been referencing its own “50-year capital investment” in OU energy infrastructure, while OSU “project[ed] spending $600 million on its utilities in the next 50 years”, so we don’t know if OSU’s projection references spending on infrastructure or not. Not only is such numerical consistency unlikely on its face, however, but that’s particularly true given that OU and OSU are considerably different in scale. (While Oklahoma is almost identical in size to the University of Iowa, with approximately 32,000 students currently enrolled on each campus, Ohio State is twice as big, with 66,000 students enrolled.)

   Setting aside any paranoia that OSU simply grabbed talking points off the rack from the OU-Corix deal, and ignoring carnival-like rhetoric such as “win[ning] the contract”, Ohio State’s overall messaging about efficiencies was understandably quite similar to the justifications put forward by Oklahoma in 2010, and those being espoused by University of Iowa in 2019. The whole point of a utility P3 is of course to bring in private-sector pros to run a university’s operations, as opposed to the public-sector pros who already know those plants better than anyone, and will probably end up being absorbed by the private-sector partner anyway, meaning the same human beings will still be doing that job under the P3. But I digress….

   Despite championing the savings from a public-private partnership, and implying that benefits would accrue to both parties on an annual basis over the life of contract, the Ohio State RFQ [p. 3] also made clear — as the University of Iowa is emphatically making clear today, and OU made clear in 2010 — that a massive up-front cash payment would be central to any prospective deal:

   The Opportunity
   Ohio State is committed to improving its infrastructure for the benefit of all of its community stakeholders and is seeking an innovative partnership to do so under the Concession Agreement. In addition, Ohio State is seeking to realize value through a substantial up-front payment and to achieve energy savings goals. The private sector partner (“Concessionaire”) will bring operational, technical, and financial expertise and create value for Ohio State and its stakeholders over time and will receive a return on its investment during the term of the Concession Agreement through the rate setting mechanisms prescribed in the Concession Agreement.

   We will consider the implications of this ‘opportunity’ in the context of the UI P3 shortly, but for now simply note that once again we have explicit mention of an up-front payment without any explanation as to what that payment is for. Ohio State wanted to “realize value through a substantial up-front payment”, and the private-sector partner would “receive a return on its investment…through…rate setting mechanisms”, but it was not at all clear why any private-sector company would cut Ohio State a massive check at the commencement of an otherwise synergistic partnership.

   Flash forward a little over two years, and in April of 2017 the good people at the Columbus Dispatch tried to explain what they described as “Ohio State’s big, complicated energy deal”. (OSEP is the acronym for Ohio State Energy Partners — a joint venture between two private-sector companies that engaged in the partnership.)

   Q: Who’s paying whom, for what?

   A: OSEP would pay a little more than $1.1 billion to OSU upon closing of the deal. The money would go into the university’s endowment, and OSU could spend a portion of the earnings each year on university priorities. In addition, OSEP would pay $150 million in three phases for direct spending on university priorities and would spend an estimated $250 million on the energy-conservation projects and new facilities required to reduce OSU’s energy use by 25 percent in 10 years. OSEP also would develop a $50 million center for energy research.

   In return, OSU would pay OSEP a fixed fee each year that would start at $45 million and rise by 1.5 percent each year for inflation. It also would pay an operating fee each year, about equal to what OSU would otherwise spend to operate and maintain its energy systems. That fee starts at $9.2 million and would be adjusted each year based on the university’s actual costs. When OSEP spends to upgrade or build new facilities, OSU would repay the cost, plus an interest rate set by a formula.

   Having already stipulated that it is impossible to know what is going on inside a P3 unless we have the entire contract in our hands — and perhaps not even then — here we have enough information to do a bit of simple math, which will in turn help expose the underlying money flows. (If you would like to read the OSU concession and lease agreement yourself, you can do so by perusing the five documents listed on this page, under the heading of ‘Concession and lease’ — which collectively run 2,665 pages.)

   Although OSEP joined the OSU P3 to drive synergistic benefits for itself and Ohio State, they also fronted over a billion dollars for that ‘opportunity’. In return, OSEP would be paid a “fixed fee each year that would start at $45M”, plus an annual “operating fee” starting at $9.2M — the latter of which would be “adjusted each year based on the university’s actual costs”. Meaning that Ohio State would simply calculate what it would have had to spend to continue running its own utilities, then give that same amount to OSEP for doing that job, along with repaying its new energy partner for any upgrades or new buildings, plus a massive annual fixed fee. (If you’re wondering why the “operating fee” is separate from the “fixed fee”, when the whole point of a utility partnership is to pay a private-sector company to run a more efficient operation, and thus pass on any savings, that’s a good question.)

   Even if we don’t know what the $1.1B up-front payment was for, and even if we are severely math-challenged, it should be clear that despite the initial windfall, Ohio State will send a massive amount of money to its energy partners over the life of that fifty-year deal. Just calculating the minimum $45M “fixed fee” payments for 50 years gets us to $2.25B, and if we add in 1.5% annual increases to compensate for inflation, and $9M or so for the annual “operating fee”, we jump to roughly $2.75B being passed to OSEP over that time. Which, incidentally, is a whopping $2B more than the $600M Ohio State estimated it would spend over the same half century.

   So what’s going on here? Why, in a partnership premised on synergies and annual savings, are massive amounts of money being passed back and forth? What we should expect is that profits would be determined on an annual basis from tax advantages and operating efficiencies, then split per terms in the contract. Instead, we see a billion-dollar check go out at the beginning of the deal, for reasons that are never articulated, then almost $3B will flow back to OSU’s private-sector partners over the life of the P3.

   To better understand what happened in the OSU deal — or at least what purportedly took place — let’s return to the last iteration of our super-simple P3 example, from Part 2 of this post. Assuming again that you were originally paying $1M for energy at your university, prior to entering into a public-private partnership, here’s how you and your partner profited:

   After P3 with Tax Advantages, Upgrades and Efficiencies:
   Power-plant cost to school: $0K
   Power-plant cost to private-sector partner: $800K
   Energy cost and/or services fee to school: $900K

   After one year, because of $50K in tax advantages and $50K in operating efficiencies, you would save $100K on your energy costs, while sending $900K to your private-sector partner for the same amount of energy that used to cost you $1M. At the same time, your private-sector partner would also make a profit of $100K, premised on tax advantages and efficiencies, which is the difference between their cost to produce the energy they sell to you ($800K), and the amount you pay them for that energy ($900K).

   If you had not entered into a public-private partnership, over fifty years you would have paid $50M to provide your campus with energy. Because of the tax advantages and efficiencies in your P3, however, you only pay $45M for the same energy over the fifty-year term of that deal. Truly — at least in theory — this P3 is a win-win, and a valid basis for such a partnership.

   While saving 10% on your annual costs over half a century would obviously be a good thing, however, let’s add another wrinkle to the context surrounding your decision making. Imagine that just prior to signing your P3 contract you are beset with one or more financial crises, as Oklahoma was in 2010. While tearing apart the university couch cushions looking for loose administrative change, it occurs to you that you could ask your private-sector partner to give you all of your expected P3 savings up-front, in a lump-sum of $5M, instead of waiting for $100K in savings to accrue each year. Unfortunately, however, while that certainly sounds mathematically reasonable, there are two very big problems with your math, and those problems would cause your private-sector partner to reflexively laugh in your face, even if they otherwise thought you were swell.

   (Speaking of problems with math…for the sake of simplicity, and because the correct math is beyond me, in what follows we will treat your $5M as payable at the end of fifty years, rather than accruing by $100K each year. That will necessarily mean some of the numbers we come up with are too aggressive, but here we are more interested in the general implications of your request than any specific amounts. Countering that bias, however, we are also going to ignore the fact that inflation should be compounded over time, which will make any calculations significantly more tame than they should be. Finally, in the context of both our theoretical discussion here and the prospective UI P3, note that the average annual inflation rate from 1914, when that metric was first tracked, to today, is about 3.14%, meaning smaller assumptions will also tend to understate results.)

   The factor common to both of the problems with your up-front payment idea is that money does funny things when it travels forward and backward in time. Even if you’re not a financial wizard, however, you probably do have some familiarity with what happens to current dollars that travel into the future, and future dollars that travel back to now. For example, you probably know that ‘inflation‘ describes the tendency of goods to increase in cost over time, which has the consequent effect of decreasing the purchasing power of your money. If you have a dollar in your wallet at the beginning of the year, and inflation runs at 2%, then at the end of the year something that originally cost $1 would cost $1.02 — meaning the purchasing power of your dollar would have been reduced to just over $0.98.

   While that difference may seem small, over longer time spans the effect can be considerable, and that’s the first problem with your math. If you have a dollar in your wallet, and you lose your wallet for fifty years, when you finally locate your wallet you will still have the same dollar, but assuming a relatively low 2% annual inflation rate the cost of goods would have increased 269%. That means something that originally cost $1 would cost $2.69 fifty years later — or, alternatively, that your dollar would have lost 63% of its purchasing power, and only be worth $0.37 today. (Even if you have never thought about how inflation works, and how it affects the future value of present money, you probably still know that you need to protect any retirement savings by investing in a money-market account or similar safe haven, to protect the purchasing power of those dollars over time.)

   As these examples should make clear, the present value of future money is also impacted by inflation, only in reverse. If you expect to have $2.69 fifty years in the future, the present value of that money is $1 — again assuming non-compounded 2% annual inflation. Likewise, if you expect to have $1 in the future, using those same inflation assumptions means your dollar is currently worth $0.37 in today’s money.

   The second problem with your seemingly reasonable request for an up-front payment of $5M — which we will only touch on here, but expand on in a subsequent part of this multi-part post — is that the value of money is not only affected by macroeconomic factors over which you have no control, but by voluntary choices that you make about what to do with your money. For example, even if you are relatively risk-averse you can often beat inflation with conservative investments, meaning you won’t merely protect the value of your money, but increase that principal over time. Unfortunately, that also means that if you ask your private-sector partner to give you $5M up-front, one of the things you’re asking them to do is to give up whatever profits they could have made on that $5M over the next fifty years. And no matter how personable you are, they are not going to want to do that.

   If we again assume 2% annual inflation, but add a 5% annual return on $5M invested, that net 3% increase, compounded each year, would amount to almost $22M at the end of fifty years. And because your private-sector energy partner will have plenty of financial advisors on the payroll, and more financial advisors on retainer, they would know they would be giving up $22M to give you $5M up-front. So not only would your partner say no to that request, but if that company did have $5M in cash lying around, they would put that money into the market themselves and pocket that $22M — while still saving you $100K per year from their part in the P3.

   Apart from any sloppy math, however, and despite concepts that can be genuinely confusing, we can keep the general contours of any up-front payment straight if we just remember — notwithstanding deflation or currency manipulation, and setting aside profits or losses in the marketplace — that a dollar today will always be worth more than a dollar tomorrow. And that in turn means that future dollars will also have to be discounted if we want them today. On that point, however — and momentarily ignoring concerns about lost revenue, and how that might be made up in the following transaction — what your private-sector partner might be willing to do is give you the current value of that future $5M in today’s dollars.

   Again assuming annual inflation of 2%, $5M fifty years from now would be worth approximately $1.86M, which is certainly not what you were hoping for, but still a sizeable chunk of money. (On this page you can confirm this crude calculation by starting with $5M and calculating back, or starting with $1.86M and calculating forward. Note also that if inflation equaled the historical average of 3% or so, you would only get $1.14M, so negotiating the anticipated inflation rate in your P3 would also have a considerable effect on how much money you received.)

   While you might not be thrilled that your future $5M is only worth $1.86M in today’s dollars (or even less), if you really needed cash — as Oklahoma did in 2010 — you might have no other option but to negotiate for the best possible terms. On the other hand, if you didn’t need that money to meet any fiscal obligations, as Ohio State apparently did not, it might also occur to you that you could put that $1.86M into the market and generate more than 2%. Meaning after fifty years you would not only have preserved that $1.86M, but you would have increased it substantially, perhaps well beyond $5M. (Again, we’re ignoring the fact that your private-sector partner would know that, and would still expect to be compensated for losing that opportunity even if they only gave you $1.86M.)

   As you probably know, the traditional way that colleges and universities put money to work to protect against inflation and generate revenue is by establishing an endowment, so this would seem to be the perfect point to transition to a discussion of the endowment that UI intends to fund with a massive up-front payment from its own P3. Before we do that, however, we are going to have a tangential discussion about how easy it would be to abuse the mechanism of an up-front payment to facilitate transactions that are not in the public interest. For example, if you really did need — or perhaps just wanted — more money than you had coming from the services agreement between you and your private-sector partner, how might you use your P3 to achieve that goal? Likewise, even if you planned to invest your up-front payment in an endowment to protect and grow that capital, you might find yourself thinking you could make more money, and thus also spend more money, if you funded an even larger endowment, provided you could get your hands on more cash.

   It is of course a terrible thing to suggest that appointees and state employees at the Iowa Board of Regents and University of Iowa might abuse their powers to facilitate deception, but on the other hand the entire premise of an “up-front payment” is itself an orchestrated rhetorical fraud. Even after reading this post it is probably hard to see that because the regents and UI administrators are doing everything they can to sell the idea of a financial windfall, but when we peel back the messaging — as we will in the next post — it is clear that they intend to deceive the public. (To what ends we don’t yet know, but in service of promoting the UI P3 they are not being straight with the people of Iowa, and they know it.)

   In the context of this post, however, whatever else we got right or wrong in all of the above, we finally do know what the so-called “up-front payment” is for in the UI P3. What the University of Iowa is telling prospective energy partners is that UI wants to take out all of the revenue it expects to derive from that plan in a single lump-sump payment when the partnership commences. As just discussed there are a lot of moving parts to such a demand, and there will be critical negotiations about various assumptions, including the expected rate of inflation, but once both parties agree on what the fifty-year benefit will be, however, figuring out the present value of that future flow of money will simply involve plugging in the right information and calculating the results. The implications of structuring a P3 in that way, however, are actually quite profound, and present considerable risks to the state that have not been discussed by any advocate of the UI P3.
   
   Part 4: Intent to Deceive.

   Reply

4. University Watch says

   November 25, 2019 at 8:01 pm

   Based on your November 24 Ditchwalk, how about this Chronicle of Higher Education report on another Oklahoma fiasco, reported on the same day as your latest column.
   https://www.chronicle.com/article/How-a-250-Million/247607

   Reply

   • Ditchwalk says

     November 26, 2019 at 10:28 am

     Not only are you right to connect the dots in this multi-part post — concerning the University of Iowa’s prospective public-private utility partnership — to recent events at the University of Oklahoma, but I have a section devoted to the specific debacle detailed in that CHE article.

     It is particularly ironic that the school which pioneered the high-dollar P3 in higher-education, and subsequently hired a private-sector crony with no experience in academic administration, is now unleashing chaos on the business sector as a result of blowing up another public-private partnership.

     (The rage among normally staid bond investors and bond-market advocates is something to behold.)

     Reply

5. Ditchwalk says

   December 1, 2019 at 6:11 pm

   The UI Utility P3 in Context — Part 4: Intent to Deceive (Part 3)

   Whatever your personal convictions about the integrity of illegitimate University of Iowa president J. Bruce Harreld, or anyone on his executive staff or at the Iowa Board of Regents who has publicly commented on the prospective public-private utility partnership at UI, we would all agree that these are highly educated individuals. As such, we would thus be justified in assuming that those individuals know the importance of choosing the right word or phrase to accurately convey meaning, and that’s particularly true when explaining their intentions to the taxpayers of Iowa, whom they all serve. Likewise, were we able to show that any of Iowa’s governmental stewards were using words to deceive the public, we would also be justified in concluding that they were doing so for reasons which were not in the best interests of the people of the state of Iowa — which would in turn mean they had breached their fiduciary obligations to the state.

   In Part 3 of this multi-part post we asked an obvious question, which is why any private-sector company would provide a ‘massive up-front payment’ to a public research university, in apparent exchange for then also running that institution’s utility operations. And of course no for-profit company would pay for the privilege of providing a service for which they themselves expected to be paid. In plumbing the depths of that conundrum, however, we concluded that what Oklahoma did in 2010, and Ohio State did in 2017 — and what Iowa intends to do this year — is take out the expected profits from their public-private partnerships at the beginning of their respective deals.

   For reasons articulated in that prior post, taking anticipated profits ‘up-front’ would also necessarily involve discounting the future value of that calculated sum, along with compensating the private-sector partner for their own loss of future revenue from that pile of money. Meaning the universities, and not the private-sector companies, would pay a price premium for early access to those funds. To the extent that we have resolved the financial mystery of what those ‘up-front payments’ represent, however, we are still left with a nagging concern.

   Specifically, in what sense can that money be fairly described as a ‘payment’ of any kind? Because although that probably seems like a semantic complaint, that question goes to the heart of the deception that Harreld and his fellow hucksters are intent on perpetrating at UI. They know using the word ‘payment’ makes it seem like the University of Iowa is owed that money, yet that is clearly not the case because such a ‘payment’ will occur at the commencement of the public-private partnership, long before any savings or profits could possibly be realized.

   (For the record, not only do I usually take a very dim view of semantic distinctions, but I believe there is a special place in hell for pedants who argue over language while ignoring the real-world implications of any hair they are trying to split. In this case, however, not only do I think use of the word ‘payment’ speaks directly to Harreld’s intent to deceive the public about what the UI P3 entails, but by the end of this post I believe you will agree with me. In fact, not only will you understand why use of the word ‘payment’ is inappropriate and intentionally deceptive, but why any purported ‘up-front payment’ to UI actually represents the assumption of a financial obligation by the school. And that of course means the Iowa Board of Regents will be putting state taxpayers and UI students on the hook in accepting that legally binding obligation.)

   From the first press releases about a possible public-private utility partnership at Iowa, which were put out at the beginning of this year, the term ‘up-front payment’ (or ‘upfront payment) has been prominent in messaging by the university. Whatever else Harreld wanted the UI community and greater public to know, preeminent was the assertion that the university would receive a ‘payment’ for entering into a partnership. That university messaging, in turn, also informed reporting on the subject.

   * Iowa Now press release, on 02/08/19: “… will provide the UI with an upfront payment…”

   * UI P3 FAQ, early February, 2019: “… will provide the UI with an upfront payment…”

   * The Gazette, on 03/01/19: “Although UI officials have left open the prospective value of any partner’s upfront payment…”

   * UI CFO Terry Johnson, as quoted by the Gazette on 03/06/19: “The key really is the large upfront payment.”

   * Iowa Now press release, on 07/11/19: “…will provide the UI with an upfront payment…”

   * UI president J. Bruce Harreld, as quoted on 09/19/19, in an article by the Daily Iowan on 09/25/19: “The UI will receive a significant upfront payment.”

   * Radio Iowa reporting on comments by CFO Johnson, on 9/27/19: “…Johnson says that up-front payment would be…”

   * J. Bruce Harreld, as quoted by the Daily Iowan on 10/10/19: “….[Harreld] said the “massive upfront payment” from this partner…”

   Use of the word ‘payment’ by administrators and information resources at the University of Iowa was not only intentional and coordinated, but given Harreld’s private-sector background — which included a stint as the head of global marketing for IBM — the objective is equally obvious. Distract the UI community and the public with the promise of riches, while avoiding any conversation about the cost of that ‘up-front’ money to the state, or the risks attendant in agreeing to such a deal. To be fair to Harrled and his minions, however, while the word ‘payment’ was not bandied about in the original utility P3 at Oklahoma, it was a prominent feature of the Ohio State P3, which likewise included considerable rhetorical emphasis on an ‘up-front payment’ that proved to be ten times greater than the OU deal. (Once, again — despite having been sold to the UI campus as a genius-grade executive from the private sector — we find J. Bruce Harreld borrowing all of his ideas from somewhere else, including not only the premise of the UI P3 itself, but also how to sell that deceptive scheme to the public.)

   Indeed, unlike the University of Oklahoma — and very much like the University of Iowa — Ohio State promoted the benefits of an ‘up-front payment’ from the get-go in pushing for approval of their own P3:

   * From the OSU RFQ, February of 2015: “Ohio State is seeking to realize value through a substantial up-front payment…”

   * From the Dayton Daily News, on 06/05/16 — before the mind-boggling scale of the OSU deal was fully understood: ” …and pockets deep enough to provide the hundreds of thousands of dollars that would be expected as an upfront payment.”

   * From the OSU Energy Management website, published on 03/30/17 — and this will sound familiar: “Initially, the proceeds of the upfront payment will be invested into Ohio State’s endowment, dedicated to priorities being finalized in the university’s strategic plan.”

   * From the Columbus Dispatch on 04/07/17: “A: Ohio State gets a big upfront payment of $1.1 billion.”

   * From the current OSU P3 FAQ: “In addition to its $1.015 billion upfront payment to the university…”

   What UI and the Board of Regents are selling now is exactly what Ohio State sold in 2017. Although the word ‘up-front’ is appropriate, the word ‘payment’ implies that Iowa will be due something at the beginning of the contract, and that is demonstrably not true. The whole point of the public-private utility partnerships at OU, OSU and now Iowa involves generating a mutually beneficial profit going forward, which neither party could produce on their own. The clock starts ticking when the contract is signed, at which point the private-sector partner springs into action and profits ensue, through a combination of tax advantages, efficiencies and good old entrepreneurial know-how. Until those profits appear, however, there is literally nothing to be paid out.

   To see the effect that this deceptive rhetoric has on public perception, consider the following explanation of the OSU deal from the 06/05/16 Dayton Daily News article referenced above:

   In exchange for an undetermined amount of upfront cash, Ohio State would turn over control of its heating, cooling and electricity assets and agree to buy energy from the vendor for 50 years.

   It would be like selling your house, pocketing the cash and then paying rent to stay while the landlord is responsible for upkeep.

   At first glance this analogy seems sensible, yet that is not at all what happened in the OSU deal, or the OU deal, or will happen in the Iowa P3. To understand why, note that whether any state assets are sold or leased in such transactions, that is done for tax purposes only — meaning the private-sector energy partner does not actually gain the benefits of ownership that come with buying something outright. If you sell your house the new owner can convert it into a bed-and-breakfast, or tear it down and build a better house, or even flip it if they think they can turn a fast profit — and you could do nothing to stop that because you would have given up your ownership rights in exchange for agreed-upon payment.

   Clearly that is not what happened in the Ohio State P3 — or at OU, or will happen at Iowa — and we can see that in this passage from the executive summary of the Ohio State concession agreement [p.1]:

   For purposes of Ohio real estate law, the transaction is a lease of the land and facilities for the term, and only title to the personal property, such as vehicles and spare parts, is being transferred to the Concessionaire. For federal income tax purposes, the transaction is intended to be a lease of the land and a sale of the facilities and personal property.

   At the state level OSU still owns its utilities, while at the federal level it does not — but only for tax purposes. There is no sense in which OSEP can use Ohio State’s utilities to sell power or water or anything else to other clients, and OSEP certainly can’t sell OSU’s utilities if it thinks it can make a profit. That in turn means OSU’s private-sector partners did not buy OSU’s utilities with a massive $1.1B ‘up-front payment’ — so why was it called a ‘payment’?

   Just as OSEP does not own Ohio State’s utilities, and Corix does not own Oklahoma’s utilities, everyone agrees that no one will own Iowa’s utilities when the UI P3 is approved. In each instance the private-sector companies are not owners or even co-owners of the facilities in question, but partners in a venture predicated on those facilities, which is in turn the sole source of potential profits. All of which once again brings us back to what the ‘up-front payments’ represent in all three deals, and it doesn’t have anything to do with selling and or transferring ownership in state assets.

   To understand what is really happening in the proposed UI P3, and what happened at OSU and OU, let’s consider a completely different context in which the dynamics are the same. Suppose instead of running a university with its own power plant, that you’re a private citizen, and for several years you’ve been writing blog posts about an issue you care about. You don’t have any immediate objective other than documenting what’s happening, but as time passes you grind out over a million words, some of which others find useful in trying to grapple with the same concern.

   While you tend to think of your blog as little more than a time capsule, one day a publisher rings you up and asks if you would be interested in the following deal. In exchange for allowing them to use an in-house ghostwriter to mine the aggregate content of your blog posts, and turn out a quickie book based on your writing, you will be paid a percentage of the profits after the publisher recoups its development costs. (Here we are naively assuming that the publisher is honest, and would not drastically inflate their costs to increase their profits at your expense, which is of course standard industry practice in the shark-infested publishing world.)

   While the publisher would put the book together, they would do that as a service and would not own the contents. The words would still be yours, and the only rights you would grant to the publisher would be the exclusive rights to your content for the duration of a three-year deal. You would also have the right to approve edits or proposed changes, and even to back out of the deal if you weren’t happy. In theory you can’t lose, and might win big if ‘your’ book catches on in the public consciousness.

   Just when you think the pitch is about to end, however, the publisher tells you not only that they have confidence in their sales projections, but they are so confident they will give you your expected cut of the three-year proceeds in what is called — in apt industry parlance — an ‘advance’. And of course that ‘advance’ is not a ‘payment’ for something they are buying, but an advance against your expected earnings, which is exactly what the deceptive ‘up-front payment’ terminology obscures in the UI P3. Instead of waiting for profits to roll in over time, you will get your future earnings ‘up-front’, which means you can spend that money or put it to work in the markets, while cranking out more blog posts that could eventually become a sequel. Even better, if it turns out that your book makes more money than the publisher expected, you will also get your share of those profits as they accrue on the publisher’s balance sheet.

   In this publishing example, the industry lingo accurately reflects what happens in your deal — you get money ‘in advance’. The obvious question regarding the UI P3 is why the highly educated brigands who are pushing that plan insist on using intentionally deceptive terminology, instead of explaining that the ‘up-front payment’ is just a massive advance against future earnings. That money isn’t a deal fee just to get in the door with UI, it isn’t ‘payment’ for something that is being purchased, and it isn’t even a ‘payment’ for a service because — like you and your book deal — the university will be a passive player, with the energy partner doing all of the actual work. Only as a result of the partnership, and only in the future, will profits be generated, so why are Harreld and his crack team of entrepreneurial propagandists determined to obscure that fact?

   And of course the equally obvious answer is that Harreld does not want anyone — including, particularly, members of the Board of Regents who are not already committed to this sham — to think about the risks inherent in accepting a huge ‘advance’ from a private-sector energy partner. If you have some familiarity with how advances work in the publishing world, however, not only might you already be entertaining thoughts about how such deals can go wrong, but regarding the UI P3 you may already have leapt to the kind of creeping dread that everyone else reading this post is about to experience. Because the key question with regard to an advance in the book world is not how much money you’re going to get, or even whether you have to pay back any of that money if your books fail to ‘earn out’ — meaning profits do not equal the amount of the advance — but what happens if one or both parties fails to deliver and the project falls through.

   In publishing it turns out that the majority of advances do not earn out, but because most book deals are relatively small, and the shortfalls are considerably smaller, a few profitable hits cover the expected aggregated misses. Likewise, because the time frames are relatively short publishers don’t have to discount the present cost of future money over half a century, or deduct a price premium to compensate for profits they would forego by not investing that money themselves. (Or if they do perform those calculations they’re so small on a per-deal basis that they don’t end up blowing those negotiations.)

   Much rarer in the literary world are occasions where an advance is given for a work that either does not materialize, or is so woefully short of expectations as to breach the contract. For example, if a celebrity accepts an advance to write a tell-all, but fails to dish ‘the good stuff’, or dishes all sorts of ‘good stuff’ that turns out to be false, or just drops dead, the publisher can and probably will sue to get their money back, particularly if we’re talking about millions of dollars. At that point the parties can then either go to war in the courts, or the party that received the advance can give it back — provided they didn’t spend some or all of it in the interim.

   While your book deal and the UI P3 would seem to be safe investments for a publisher and energy company respectively — because in each case those companies will do all of the work — even the best-laid plans can splinter into shards of legal acrimony. If your book deal blows up, however, for whatever reason, the amount involved may be so small as to preclude legal action. Or, alternatively, the threat of being pounded by the publisher’s lawyers for the rest of your life may convince you that refunding your advance is the better part of valor.

   With regard to the UI P3, however, what should be blatantly obvious to everyone is that the minute UI accepts any money from their private-sector energy partner, they are on the hook for that money until it earns out — and one way or another that partner is going to make a net profit on that massive advance, whether the partnership survives or not. In fact, even if the services portion of the UI P3 doesn’t ultimately produce the profits both sides expect, which is in turn the mechanism by which the advance will be recouped, there will be language buried in the contract which guarantees the private-sector partner a profit over fifty years. (In a subsequent post we will dig into the implication of all that, but for now all you have to remember is that there is no way any company is giving the University of Iowa hundreds of millions of dollars and not getting that money back and then some. If there was any doubt about that profitability, the company would simply pass on UI’s demands and invest that money themselves.)

   By changing the terminology from ‘up-front payment’ to ‘advance against earnings’, we can clearly see that in accepting hundreds of millions of dollars from a private-sector partner, the University of Iowa will owe that money to that partner if anything goes wrong before the partnership is concluded. And that in turn is why you might hesitate to accept an advance from a book publisher even if it sounds like free money. What happens if you spend some or part of that advance, then the deal goes sour and no book is ever produced? If you kept all that money in the bank, drawing interest, you could simply refund the advance — which is what UI seemed to be promising as late as last week, because everyone involved swore up and down that any ‘up-front payment’ would be put into an endowment.

   Now, however, we have suddenly learned not only that the Iowa Board of Regents plans to jam the entire deal through in a one-week window, starting with a UI ‘webinar‘ on Tuesday, but in addition to approving the deal the following Tuesday the board will also coincidentally defease $150M in outstanding utility bonds at UI. But if that $150M is coming from an advance on earnings from the P3, then in ten days the University of Iowa will be on the hook to their private-sector energy partner for $150M, as well as any other advanced funds that are spent instead of sheltered in an endowment. (Everything you ever wanted to know about defeasing bonds can be found here. In effect, the regents will be transferring that debt off the books by guaranteeing payment from the P3 advance.)

   Even ignoring the fact that the Harreld’s determination to deceive the public implies corrupt intent, and that the board is acknowledging its own complicity by tying the nullification of $150M in bonds to approval of the P3 — let alone at the last possible minute allowable under state code — the university’s receipt of a massive advance against future earnings constitutes not a ‘payment’ but de facto debt. What we don’t yet know is the total amount of that obligation, but it presumably involves hundreds of millions of additional dollars which will be put into an endowment, ostensibly to help fund the made-up costs of the university’s strategic plan. Even in the best-case scenario, however, in which every dollar advanced by a private-sector partner was put into an endowment, and could thus be refunded if the P3 fell apart in the future, the state would still be exposed to substantial risks that the people who are pushing this deal should be trying to avoid.

   As was once famously said by Warren Buffet — who is a very successful and very rich man — never invest in a business you can’t understand. As a corollary, I would submit that the state should not partner in a venture that is being intentionally obscured by the state employees and appointees who are pushing that plan. What we should expect is that Harreld, his execs and the board would not only be forthcoming and scrupulously honest about this proposal, but that they would answer questions and provide information to the press upon request — including interviews with people who can explain the complexities, if that sort of thing is beyond Harreld and his crack team of highly educated administrators. What we have gotten instead is omission and obfuscation leading to a bum’s rush to approve the deal before anyone can object, which means the people who are pushing this plan — which will sit on the balance sheet of UI and the state for half a century — do not want it understood.
   
   Part 5: A P3 Betrayal

   Reply

6. Ditchwalk says

   December 8, 2019 at 3:43 pm

   The UI Utility P3 in Context — Part 5: A P3 Betrayal (Part 4)

   If you do not closely follow the corrupt bureaucratic machinations at the University of Iowa and Iowa Board of Regents, most of what you read in the press will seem plausibly coherent. That is, in fact, not because what UI and the board are saying is true, but because it is a carefully woven tapestry of oft-repeated lies. In pushing for a utility partnership at the University of Iowa, for example, illegitimate UI president J. Bruce Harreld has relentlessly stressed that the revenue which will be generated from an endowment funded from that public-private partnership (P3) is critical to ‘fully funding’ the current UI Strategic Plan.

   Now here is what Harreld leaves out:

   * The current UI Strategic Plan covers 2016-2021, and a new five-year plan has yet to be drawn up. If UI was really short on funds it could simply cut back on the purported costs of any current or future plan, obviating the need for a risky half-century P3. Instead, Harreld is using a five-year plan that has almost expired as the primary justification and imperative for making an uncertain fifty-year commitment of UI assets and resources.

   * The current UI Strategic Plan has no dollars or costs attached to its aspirational objectives, meaning the amount that Harreld variously cites — currently $15M per year to ‘fully implement’ the UI Strategic Plan — is a Harreld invention. That number does not exist anywhere except in propaganda disseminated by Harreld and the university.

   * One of the earliest references to ‘fully funding’ the UI Strategic Plan comes not from Harreld but from former regents president Bruce Rastetter, who authorized the fake, state-funded presidential search that he and others then used to jam Harreld into office in 2015. In the context of a subsequent failed attempt by Harreld to steal $4.2M from students and families by reneging on scholarships that UI was legally obligated to pay — of which Rastetter also approved — Rastetter said this in early March of 2017:

   “If the state chooses not to adequately fund the UI’s five-year strategic plan, the board is committed to work with the UI to bring its tuition in line with its national peer group,” Rastetter said in his statement.

   * As noted, in 2017 the objective of extolling the sacred virtues of the UI Strategic Plan was not a public-private utility partnership, however, or the revenue that would flow from such a venture, but finding any and every excuse to continue increasing tuition. To that end, Harreld parroted Rastetter’s rationale extensively ahead of the board’s Tuition Task Force that summer. That summit — which the governor bailed on, and prevented her administrators from attending — was convened to justify enacting additional annual tuition hikes over the next five years, in addition to multiple hikes that had already been implemented following Harreld’s hire.

   * In the presentation that Harreld gave to the Tuition Task Force in mid-August of 2017, 7 of the 28 slides [21-26] — fully 25% of his entire plea — tied the need for more tuition revenue directly to the UI Strategic Plan. If the university did not get more money from UI students and families, it would not be able to ‘fully fund’ the fake costs associated with that plan, thus it was imperative that the regents approve minimum annual tuition hikes for the next five years. (You can see and hear Harreld making that hard sell here.)

   * Slide 26 of Harreld’s presentation is particularly informative because it clearly shows the three pieces of the financial puzzle that were needed to fund the UI Strategic Plan in 2017. Along with state resources and cost savings, the critical missing piece was additional tuition, which was precisely what Harreld was arguing for — and indeed received, when the board approved a five-year schedule of hikes. Notably, however, Harreld’s plaintive premise in 2017 was also a lie, because the tuition hikes that were already on the books more than made up for the strategic plan funding shortfall that Harreld claimed at that time. Indeed, as discussed in multiple prior posts, the actual costs of the exact same UI Strategic Plan that Harreld is flogging today — which were detailed on Slide 20 — were not only covered by prior tuition hikes, but had nothing to do with the actual plan. (Instead, those costs were aimed at assuaging concerns from the AAU about UI’s falling metrics. In effect, the University of Iowa and the Iowa Board of Regents were raising tuition on students and families to pay membership dues to the AAU.)

   * Flash forward to today, and let’s compare Slide 5 from the UI P3 Informational Webinar last Tuesday, to Slide 26 from the UI Tuition Task Force two and a half years ago. To begin, Slide 20 from the Tuition Task Force presentation gives us a maximum made-up cost of $165M to fund the UI Strategic Plan, or $33M per year over five years. Slide 26 then shows $11.7M of that $33M coming from cost recoveries, leaving $22M to come from the other two funding components: state appropriations, and of course tuition. (Curiously, there are no dollar amounts for either, but the aggregate goal is still $22M.)

   Now compare that to Slide 5 from last week’s UI P3 webinar. We find the same total listed — $33M — and we find roughly the same $11M in cost recoveries mentioned (down $700K for some reason), but here the total contribution from state funding and tuition hikes is estimated to be only $7M, leaving a whopping $15M to be made up from income from the P3 endowment. And yet, as a factual matter, we know that over the past four years of Harreld’s tenure at UI — which includes five tuition hikes to-date, and four more to come — the university has generated far in excess of $22M per year in new tuition revenue. Meaning the entire made-up cost of funding the UI Strategic Plan is already covered before we even consider generating revenue from the UI P3.

   We can see that increase in tuition revenue clearly in the two pie charts in this post from the beginning of this year. In FY2016 the university generated $432.6M in tuition and fees. In FY2019 the school generated $482.8M in tuition and fees, or $50M more in that year alone. Even taking into account $12M in cuts in annual state funding, that means UI was $35M ahead in that year, and yet where is all of that new tuition revenue on Slide 5? And the answer is that it’s omitted.

   * What Harreld, the university and regents are doing, nakedly, is using the exact same made-up justification for increasing tuition revenue each of the next five years, to now justify the imperative of deriving additional revenue from a public-private utility partnership. And incredibly, to make that actually work in the UI slideshow, they have simply omitted any mention of the massive revenue increases that were derived from those tuition hikes, which already covers the made-up costs of the UI Strategic Plan.

   As you can quite literally see, it’s not that there is one false fact in all of this, it’s that all of it is false. The entire premise of funding the UI Strategic Plan is a lie. That lie was used in 2017 to justify enacting five years of additional tuition hikes, after four hikes had been implemented in three years. In terms of raw dollars, the tuition hikes that have so-far been enacted have generated well over $150M in new tuition revenue, meaning the UI Strategic Plan has already been paid for, and there are another four years of minimum annual tuition hikes still in the pipeline. Incredibly, however, even though we can prove all that, Harrled is now claiming that the university needs $15M in additional revenue from a P3 endowment to fund the UI Strategic plan, which is already paid for.

   Imagine that a weepy J. Bruce Harreld knocked on your door two and a half years ago and told you he desperately needed $10K for a life-saving operation, so you gave him the money. Now, two and a half years later, the same weepy J. Bruce Harreld is not only back at your door, begging for another $10K, but he wants that money for the same operation. At the very least, wouldn’t you want to know what happened to the $10K you already gave him?

   As if it isn’t enough that Harreld is now using the same fake justification to drive approval of the UI P3 — and the Iowa Board of Regents knows he is doing this — we now also know that the regents are, this very weekend, pretending to review four ‘finalist bids’ for the P3, even though the University of Iowa is already working with the winning bidder. Were there any state agency charged with rooting out government corruption, they would start tearing the Board of Regents apart on Monday, demanding documents and communications about the UI P3. Unfortunately, we live in a world where the president of a public AAU university is actively encouraged to be, and rewarded for being, a recidivist grifter for the state.

   Golly Gallogly
   When I first started working on this extended post, roughly a month ago or so, I naively assumed the UI P3 would be on the agenda for the next regularly scheduled regent meetings in mid-January. Indeed, I actually polished and posted the first three parts of this post before the board suddenly announced, less than two weeks ago, that it would jam the entire disclosure and approval process into a one-week window, between two pop-up meetings. And yet, even at that breakneck pace, in the first of those two meetings the university and board failed to answer key questions about the prospective public-private utility partnership, and are now faking a review of the bidding process for reasons no one has explained. (In last week’s webinar, Harreld stated as a fact that the university was already working with the winning bidder.)

   A full discussion of the UI P3 informational webinar will take a while to write up — in part because we still don’t have answers to those key questions — but there was one moment at the end that deserves particular notice in the larger context of the P3 conversation. You can see that moment at the 1:20:35 mark, when Harreld is clearly on a selling high about getting through the entire staged webinar with little more than pom poms and MBA blather:

   We said that — you know, it’s just — these are early days of P3’s across the United States…uh, I think you’re going to see a floodgate of these open up, because every state in the union’s got — every public institution of higher-ed in every state has got this set of issues, and — and, and, if we don’t find; if we don’t do these types of mechanisms — we’re going to find them all either, um, continuing to do — have more struggles, with enrollment declines and all the rest, or…they’re going private, in many ways.

   …said the shyster former business executive from the private-sector, who was advocating for the privatization of the University of Iowa’s utility systems, predicated not on need but on a premeditated and recycled lie.

   As ever with Harreld, the subtext of his rant is that what the University of Iowa is doing on his watch is somehow revolutionary, when it is in fact derivative of a similar plan that was enacted at Ohio State in 2017, which was in turn pioneered at the University of Oklahoma in 2010. So not only is there nothing new in what UI is doing, but over the past decade there has been plenty of opportunity for other schools to get on the P3 bandwagon, yet most have chosen not to do so. In fact — and I suspect Harreld knows this — if there ever was a P3 craze, it almost certainly ended a few months ago, at the very place it all began.

   When the University of Oklahoma initiated the first large-scale, higher-ed utility P3 in 2010, the president was David Boren, a local legend who had previously served as both the governor of Oklahoma (1975 to 1979) and as one of Oklahoma’s U.S. Senators (1979 to 1994). As noted in an earlier part of this post, that deal generated an upfront payment to about $120M to OU, at a time when that state university was desperately in need of ready funds.

   Boren served as president of the University of Oklahoma for 24 years, from 1994 to 2018, and announced his impending retirement in September of 2017, with his last day scheduled for June 30th, 2018. True to the creed of corrupt governmental oversight at public universities, the OU board stacked the search committee with cronies, hired a private search firm, then proceeded to conduct a secret search which returned a single recommended candidate for the job. Not only was the sole candidate to replace Boren a life-long businessman, and a big-money donor to, and alumnus of, Oklahoma — very much like Jerre Stead at the University of Iowa — but that candidate also had zero experience in academic administration or the public sector, just like the private-sector toad that Stead hand-picked to run UI in 2015, Bro Bruce Harreld.

   Not surprisingly, when that sole OU candidate — James Gallogly, former CEO of LyondellBasell, senior exec at various energy firms, and mega-donor to his alma mater — was appointed in late March of 2018, his non-traditional hire was extolled for many of the same reasons that Harreld’s hire was hailed as a bold move, using many of the same buzzwords:

   “Jim Gallogly is a world-class, in-demand transformative leader, and we’re honored to have him as our new president,” said Clayton I. Bennett, chairman of OU’s Board of Regents. “Throughout his career, he’s been incredibly successful. He is a builder known for having strategic vision, for managing large and complex organizations, and for mentoring and inspiring great teams to achieve results – leadership qualities we value for the future. Jim’s skill-set is a perfect match for this unique time in our history.”

   Apparently eager to start off with a bang, Gallogly fired six administrators on his first day in office. His stated justification for doing so was that the university was heavily in debt, but there were also veiled insinuations that David Boren had not managed the school well over the previous twenty five years. Whether that factored into the hire of the hard-charging Gallogly or not, the die was cast, and Gallogly clearly had a mandate for change from the OU governing board.

   Less than six months later, however, Gallogly’s new, high-flying regime was bogged down in trench warfare with a lingering Boren, and his advocates and adherents. And then things got ugly:

   The relationship between OU President James Gallogly and his predecessor, David Boren, has crumbled amid threats and feuding over the financial status of the university and other issues, according to multiple sources within the university community.

   Before he took office, Gallogly was critical of the university’s financial status in a June 19 OU board of regents meeting. Boren countered with a letter on June 20 to the Transcript, defending OU’s finances and stating a significant part of the university’s debt was bonded debt with scheduled payments.

   Following the publication of that letter on June 20, Gallogly told a senior OU administrator to deliver a message to Boren: “You tell him that I am the meanest son of a bitch he has ever seen, and if he ever crosses me again, I will destroy him.”

   In late March of 2019, allegations of decades-old sexual misconduct were leveled against David Boren. Less than a month and a half later, and less than a year after taking office, James Gallogly announced in mid-May that he was retiring as the president of Oklahoma, having apparently accomplished everything he set out to do.

   Jim’s exhaustive work on our finances has produced $47.5 million in costs savings the past year, which is incredible. As a result, Jim held tuition flat while at the same time granted pay raises to our deserving faculty. Equally important was his dedication and focus on student success and his commitment to making OU more accessible and affordable to more students.

   Couple these with his clear-eyed approach to investing in research and the result is forward progress across the institution for which we all should be grateful.

   Continuing the administrative purge, a month later the University of Oklahoma also severed its remaining ties with Boren, amid allegations that any prior improper conduct had been covered up instead of investigated. Even as all of that bureaucratic idiocy was unfolding, however, a consequential series of decisions was taking place in the background, which may very well have a profound effect on higher-ed public private partnerships across the United States.

   Before announcing his impending retirement in 2017, Boren was on a building binge on the OU campus, and that included various student-housing projects. Among them was a public-private partnership with Balfour Beatty and another developer, which was formed to build new, high-end housing for upperclassmen in a development called Cross Neighborhood, which was scheduled to open in the fall of 2018:

   Cross Neighborhood is a $194 million project utilizing a public-private partnership. OU retains ownership of the land, but is leasing it to Provident Resources of Baton Rouge, Louisiana, for a 40-year term. Provident will develop, own leasehold improvements, operate and maintain Cross Neighborhood during the lease term. OU retains the right to acquire the leasehold improvements at any time during the lease term. They revert to OU at the conclusion of the lease term.

   When James Gallogly took office in early July of 2018, he not only noticed the mountain of construction debt that Boren was leaving behind, but how Boren’s P3 commitment to the Cross Neighborhood project would cost the university millions going forward. Worse, that new housing development — like many new student housing developments across the country — was having trouble finding tenants, meaning many of those luxury apartments were sitting empty.

   By mid-August of 2018, Gallogly had a fix on just how bad things were:

   Before he took office July 1, Gallogly announced the university has been losing money every year. Total debt is nearly $1 billion at the Norman campus and debt service costs are almost $70 million a year, he said.

   “Our debt has more than doubled in the last 10 years as we’ve been on a building campaign,” Gallogly said. “As a result of that, we have a beautiful campus and a lot to be proud of, but during that period of time, we spent approximately $730 million and that’s why the debt has gone up to that level.”

   Faced with projects that belonged to his predecessor, and with a gaping hole in the budget that now belonged to him, Gallogly did what any CEO would do in that situation. He looked at the university’s legal obligations, realized he could legally cancel the lease that underpinned the Cross Neighborhood P3, and on July 31st, 2019, James Gallogly did just that.

   The university announced Wednesday that it would not renew the commercial and parking lease for Cross Village, though the residential portion of the buildings will continue to be leased.

   An OU official told The Daily in an email Thursday that students living in Cross who wish to cancel their meal plans as a result of this week’s changes can be reimbursed.

   OU’s statement on Wednesday said the university could not continue the commercial and parking lease because it “would have cost the university nearly $7 million and led to subsidizing a private entity, which the university cannot do with student tuition and fees.”

   The university began constructing Cross during the tenure of former OU President David Boren.

   While that cancellation would save OU $7M a year, the loss of that income — and the fact that the apartments were not renting — put OU”s private-sector partners in immediate peril. In responding to that abrupt change, those partners provided some insight into why a private-sector company might provide an upfront payment to a public-sector partner in a P3:

   Hicks said the reason the lease price was negotiated and agreed to was because OU received a $20 million upfront payment, and the lease amounts were necessary to secure adequate bond financing.

   “The university knew that in effect, they were going to be subsidizing a rental space and parking space,” Hicks said. “They knew that when the transaction was put in place. But they did that to get an upfront payment to cover the ground lease. They got an upfront payment.”

   With the sudden loss of guaranteed revenue from the University of Oklahoma, the bondholders for the Crossing Neighborhood P3 are now at risk because revenue is not “sufficient to pay operating expenses and debt service on the bonds”. As a result, the bondholders have been aggressively fighting back, the university is countering that the bondholders may have defamed the university, and as of two months ago the dispute is not only likely headed to court, but has drawn renewed scrutiny to higher-ed P3’s.

   Specifically, the private sector is no longer willing to trust that a publicly funded university will keep its noble word or do what’s right, especially given that such institutions are now being run by the same conscienceless mercenaries who only used to prey on suckers in the private sector:

   “Despite the lack of a legal obligation for OU to renew the lease and make the requisite payments,” the MMA report said, “the institution was heavily involved in the transaction and knew that continuation of its leases was critical for debt service payments, particularly in the early years after capitalized interest ran out.”

   In the original letter sent from a representative of Cross Village in September, the representative maintained that “major mutual funds, which aim to judiciously invest ordinary peoples’ valued savings and pension monies, lent $250 million based on trusting the promise of the university that it would honor its obligations,” meaning that investors believed OU would renew the leases, though it did not have legal obligation to do so.

   Needless to say, the bond industry is not happy (see here and definitely here) Whatever good faith there may have been in the P3 industry prior to Gallogly voiding those OU lease agreements, that’s gone and it’s never coming back, which means the deal UI is about to push through will not have any outs for the university if that partnership falters. Gallogly’s specific claim that OU could not continue to make the lease payments in question, however — because that would be “subsidizing a private entity, which the university cannot do with student tuition and fees” — also raises obvious concerns about the UI P3.

   As reported by the AP’s Ryan Foley this past Tuesday, on 12/03/19:

   The endowment would generate about $15 million annually — or $735 million over the 50-year lease — to support strategic goals like improving its retention and graduation rates and increasing its research, Harreld said. Those funds would be awarded in the form of grants to campus applicants.

   …

   But the bulk of the funding from the endowment, more than $2.2 billion, would be used to subsidize energy costs so that campus utilities users, such as the university hospital, residence halls and athletics departments, are not impacted by projected price increases, according to a slide shown to regents. By 2069, the endowment would need to cover a projected $109 million annually in such subsidies.

   As long as the P3 endowment generates that subsidy, UI can skim the rest. But what happens if the endowment fails to produce the expected revenue? In that case would the university be allowed to increase tuition in order to subsidize a private entity, or would that be prevented by state code?

   Because if the university does not have that option, that means the state would be on the hook for any money owed, and that flatly contradicts what Harreld asserted in the UI webinar. (If Harreld was lying about the state’s potential exposure to the UI P3, that’s not just another routine Harreld lie, that’s a real whopper. Then again, this is the same guy whose presidential bio touts his central role in the explosive growth of Boston Chicken/Market, even though that company subsequently collapsed into Chapter 11 bankruptcy after Harreld slipped out the back door as president of that debt-laden venture.)

   In the webinar Harreld also acknowledged that the university could be compelled to blow up the P3 because of egregious non-performance under the services contract, but that doesn’t mean UI would keep the so-called ‘up-front payment’ — at least $153M of which will become instant debt the moment the deal is consummated. Unfortunately, not only does that mean the private sector partner could sabotage the deal by doing a lackluster job, but UI might still decide it had to suffer poor performance if it couldn’t find the money to repay what was effectively a massive loan. (Yet another reason why, contrary to Harreld’s hucksterism, that this “[type] of mechanism” is not about to take the higher-ed world by storm.)

   The cutting-edge in higher-ed P3 deals is not what UI is doing now, because that was pioneered by Oklahoma in 2010. Instead, the cutting-edge in higher-ed P3 deals is — ironically — taking place at Oklahoma, where a previously celebrated P3 has disintegrated into saber rattling and lawsuits. Does that sound like anything a sane university president would want to be involved with, or maybe more like what a private-sector hustler would be attracted to — particularly if he was risking other people’s money?

   Whatever your personal feelings about public-private partnerships in higher-education, Harreld is not only electively embroiling the University of Iowa in a risky venture for minimal annual gain — $15M or so, against an annual budget of $4B — but the pretext for the UI P3 is a double-decker lie. There are not and never were any costs associated with the UI Strategic Plan when it was developed, and even if there were, five tuition hikes over the past four years have covered those made-up costs. On the other hand, maybe the UI P3 isn’t about the endowment profits at all, but instead about that $153M in bonds that will be defeased right off the top — which was part of the reason David Boren pioneered the utility P3 at Oklahoma in 2010.

   On that point, we would be remiss if we did not note that until the UI webinar was announced two weeks ago — as part of an absurdly contrived fast-track approval process, which has now devolved into naked administrative fraud on the part of the Board of Regents — there was not a single comment or mention about any bonds being defeased in the UI P3. This despite claims from lying Josh Lehman and others that the UI P3 had been “discussed publicly for months“. Yes, it was discussed, but in ways which intentionally obscured and omitted critical information, including the revelation that $153M will be siphoned away from the much-anticipated and relentlessly emphasized endowment, in order to pay off an equivalent mountain of debt with new, costlier, and riskier debt.

   Part 6: J. Bruce Harreld’s Long Con

   Reply

7. Ditchwalk says

   December 31, 2019 at 4:43 pm

   The UI Utility P3 in Context — Part 6: J. Bruce Harreld’s Long Con (Part 5)

   On more than one occasion I have pointed out that the illegitimate president of the University of Iowa, J. Bruce Harreld, is lying trash. I don’t know if that propensity is congenital on his part, or merely an expedient tactic — or perhaps an adaptive admixture of the two — but one inevitable result of that tendency is that it is much harder to figure out what is actually happening at the University of Iowa. (The benefits of that obscurity may also factor into Harreld’s behavior as well, whether consciously or subconsciously.) In employing deceit and prevarication as president of UI, including particularly over long time frames, Harreld makes it that much harder to detect and comprehend what he is doing, and thus harder for concerned citizens to counter or even comment on his decision making.

   Even compared to Harreld’s corrupt appointment in 2015, which was engineered by three co-conspirators and abetted by Harreld himself, there is no better example of Harreld’s intent to deceive than the development and rollout of the university’s public-private utility partnership (P3), which the Iowa Board of Regents recently approved on 12/10/19. Although the P3 is now a done-deal on a 9-0 regent vote, there is still a lot we don’t know, and may never know, about that deal, to say nothing of how the deal itself will ultimately turn out. What we do know, however, indisputably, is that the ten-plus publicly visible months at the end of the full eighteen-month development and approval process were actually used to forestall questions and concerns until the last possible minute, at which point the deal could then be approved in an impervious bureaucratic blitz.

   Specifically, from previous posts on the P3 we can identify five protracted lies that the university purveyed to the public over the course of 2019, precisely to obscure the intent and structure of that deal. Those lies were all told by Harreld himself, but in many cases were also echoed by his executive team and by individuals at the Iowa Board of Regents. While none of those lies were particularly sophisticated — indeed, it was possible to detect them almost immediately — the fact that there were five of them, and they were implemented over the same time frame for the same deceptive purpose, tells us a great deal about J. Bruce Harreld’s incapacity to lead on the merits.

   Adding insult to injury, as soon as the P3 was passed in a rush on 12/10/19, Harreld and the board turned around and pointed to a series of trivial if not staged informational meetings which were held for the public and various shared governance groups on campus, as evidence that the entire process had been inclusive and transparent. In reality, however, Harreld and other high-ranking UI administrators routinely worked to delay and deflect questions and concerns until the final days of the P3 development process, at which point the university and board then denied any opportunity for public comment. (While the university and board do seem to have cleared the very low bar of not actually violating state law, it is critical to understand that there are no state laws which compelled the university or board to act in the manner that they did. Instead, the board took advantage of legal latitude afforded to it and allowed Harreld and UI to systematically defeat the intent of Iowa’s ‘sunshine’ laws.)

   In brute administrative terms the five orchestrated lies detailed below were obviously successful because the UI P3 was approved, but that does not mean those lies cannot be readily perceived. Quite the contrary, while none of the people involved would ever admit the truth short of being placed under oath — and for some, perhaps not even then — this single post will disabuse anyone of the notion that the university or regents were interested in a fully informed discussion about the benefits and risks of taking out what is, effectively, a $1.17B loan. And yet…in reading several haughty comments from Harreld and others following approval of the UI P3, it is also hard not to conclude that they themselves believe they got away with all of these lies simply because they had the administrative power to approve the public-private partnership.

   Fortunately, whether or not you yourself inhabit the diseased echo chamber that is public higher education in the state of Iowa, all you have to do is read this post and draw your own conclusions. Did J. Bruce Harreld go above and beyond to make sure everyone was fully informed about the UI P3, and had an opportunity to comment when all the pertinent facts were known, or is that claim just part of a long con that he ran during 2019? Was the UI P3 approved following an exhaustive deliberative process premised on reasoned argument, or simply because a cabal of higher-ed bureaucrats wield unchecked power?

   The Payment Lie
   We dealt with this lie extensively in Part 4 of this multi-part post, and it was the most widely-disseminated lie over the course of 2019. In early March, the University of Iowa will be handed what the school has consistently characterized as an ‘up-front payment’ of $1.17B — at the so-called ‘financial close’ of the agreement, which takes place ninety days after regental approval — but that money is not a payment for anything. At best it represents an advance against projected aggregate returns from the partnership, assuming there will be a consistent financial benefit derived from the underlying services agreement, yet even J. Bruce Harreld and UI CFO and Treasurer Terry Johnson have distanced themselves from that assumption. More likely, the so-called ‘up-front payment’ represents a straight assumption of $1.17B in debt, which has been obscured by a pretextual concession agreement.

   Making matters significantly worse, the success or failure of the UI P3 hinges not on energy savings or technological advances or even the exploitation of state or federal tax advantages, but on leverage — meaning the borrowing of money for investment purposes. With regard to the UI P3, a majority of the so-called $1.17B ‘up-front payment’ will be invested in an endowment, and it is the returns on that endowment over the next half century which will determine whether the partnership is a success or not. In fact, here is J. Bruce Harreld himself obliquely acknowledging that reality during the UI ‘informational webinar’ on 12/03/19, one week before the approval meeting at the board:

   Key to the success of the plan will be not overspending the endowment based on unrealistic expectations, Harreld said.

   “If we get through the first seven or eight years of this thing, we’re going to be in really good shape,” he said. “If we don’t, we won’t be.”

   If the University of Iowa was being paid $1.17B in cash for any reason, then the school could not possibly get in trouble going forward because it would not have to pay that money back to anyone. The university could blow that money on frivolous causes or failed entrepreneurial ventures, or it could make poor investment decisions which failed to keep pace with inflation or even lost money outright, but there would be no scenario in which the university would end up owing more money to a purported partner than was being generated from that $1.17B. With the UI P3, however, that is a very real possibility, which is precisely why everyone involved at the approval meeting took momentary pains to make clear that the P3 does involve risk.

   To be clear, however, that serial acknowledgment was not done out of any concern that the risks inherent in the P3 were inappropriate, but simply as bureaucratic ass-covering for putting the state on the hook for $1.17B in new debt. If the deal falls apart or falls short, and the state has to cover any losses, everyone involved can say they were honest about the risks, even as they limited that burst of honesty to fleeting sentiments during a seven-day window between the ‘informational webinar on 12/03/19 and final approval on 12/10/19. (And of course after acknowledging the presence of some vague risk, everyone involved went right back to touting the benefits and implying that the University of Iowa will almost inevitably profit from the deal.)

   Given his long history of prevarication, the very fact that J. Bruce Harreld felt obligated to acknowledge an eight-year span of uncertainty means the risk that the UI P3 may not earn out is probably considerably greater, but that isn’t the only financial risk the university now faces as a result of this deal. Precisely because Harreld was so successful in promulgating the lie that the University of Iowa is being paid $1.17B for…something…the school now faces a long-term risk to its overall budget that it would not be facing if Harreld had not pushed that deal through to fruition. Indeed, there have been a few passing comments about this new risk in the press, particularly from state legislators who represent districts which include UI, Iowa City and Johnson County, and that conversation will almost certainly heat up in the coming months, if not explode. (At which point we will get to watch J. Bruce Harreld try to undo his ‘payment’ lie, without admitting it was a lie all along.)

   We will come back to this new risk in the post after next, but in the meantime see if you can figure out how Harreld boxed himself in by convincing everyone that the university is being paid$ 1.17B. Relative to the P3 approval process that ‘payment’ lie was successful, but that doesn’t mean everyone will now forget that lie going forward. Instead, and quite ironically, that lie will actually be internalized by the vast majority of Iowans as a fiscal truth — and particularly so given enthusiastic press coverage like this — and that in turn will almost inevitably bite the university in the ass.

   The Endowment Lie
   For the great majority of the publicly-visible P3 development process, which began with an initial press release in early February of 2019, and continued into late November, the constant refrain from the University of Iowa and Board of Regents was that any ‘up-front payment’ would be put into an endowment, which would then be used to generate any revenue that would be spent — meaning the principal would be preserved. Only at the very end of November, with two weeks left to go in the entire eighteen-month development process, was it finally disclosed that about $150M would instead be used to defease (retire) outstanding utility bonds. As reported by the Daily Iowan’s Marissa Payne, on 11/26/19:

   The UI will deliver an informational webinar about the proposed agreement to the regents Dec. 3 before the regents ultimately decide whether to approve the partnership Dec. 10.

   If the regents agree to move forward with the proposal, they would then consider resolutions “authorizing redemption and defeasance of outstanding University of Iowa Utility System bonds,” which regent spokesman Josh Lehman said in an email to The Daily Iowan would authorize the university to move forward with the process of paying off approximately $150 million in existing bond debt on the Utility System.

   “Regarding specifics on paying the bonds, the University of Iowa will share an informational webinar with the Board a week from today on the P3, and it will be available publicly as well,” Lehman said.

   As to why that particular disclosure was made on that particular day, November 26th was exactly seven days before the UI ‘informational webinar’ on 12/03/19, and under state law the board is obligated to post notice of pending matters at least one week in advance. The university and regents certainly knew long before 11/26/19 that they planned to retire those bonds with money skimmed from any ‘up-front payment’, but rather than disclose that possibility earlier, in the spirit of transparency, they withheld that information until the last possible moment allowable by law. And of course beyond the issue of withholding that information, the fact that UI planned to spend any of the ‘up-front payment’, instead of placing all of it into an endowment, as had been relentlessly stressed for ten months, also increased the risks inherent in the UI P3.

   As we now know, $166M of the $1.17B ‘up-front payment’ will immediately be spent on defeasing those outstanding bonds ($153M) and paying off the consultants who helped broker the deal ($13M). Not only does that mean 14% of the overall cash advance will be gone before the endowment is even established, but that smaller endowment will still have to generate sufficient returns to repay that $166M, plus interest, over fifty years. And of course if anything happens to void the P3 over the next half-century — as happened recently at the University of Oklahoma, where a P3 disintegrated into acrimony and legal threats — UI will be on the hook for that $166M, on top of repaying the other $999M, which will ostensibly be sitting in an endowment.

   Except…the same administrative perpetrators who used lies of omission and commission to secure approval of the P3, and withheld disclosure of $166M in expenditures until the last possible moment, have so far failed to provide even a pledge that all of the remaining $999M will be placed in an endowment. It’s assumed that it will because that’s what Harreld and others said throughout 2019, but as of November 26th we learned that was no longer true. As to what might convince UI to spend more of that $1.17B in cold hard cash, not only are there endless financial needs on any college or university campus, but at UI specifically J. Bruce Harreld is engineering a largely opaque effort to turn the university into a business incubator, and that requires startup capital.

   Were the university to stick another $50M in P3 cash in a startup slush fund, not only would Harreld literally be in business, but we would probably never know that any additional money had been diverted. The very fact that Harreld and UI have that option, however, is yet another clue about how compromised Harreld is by the success of his ‘payment’ lie. Wherever that $1.17B came from, and wherever it’s going, it is undeniable that in early March the University of Iowa will be sitting on a veritable mountain of unrestricted cash, which Harreld is not legally obligated to put into an endowment. (In a prior post it was noted that while Ohio State promised to put most of the $1B that it was given in its 2017 P3 into an endowment, only $700M seems to have been committed.)

   The Exploration Lie
   During the vast majority of the publicly visible P3 development process, the University of Iowa, in its official communications, insisted that the school was only in the ‘exploration phase’ of a possible utility partnership. That rhetorical positioning commenced with the initial press release in February and continued into early October, even as other voices at UI began contradicting those official statements. This naked dissonance and deception came to a head when the Daily Iowan’s Eleanor Hildebrandt published a scoop about the progress of the UI P3, on 10/08/19:

   A member of University of Iowa Graduate and Professional Student Government said in a meeting Tuesday night the UI will soon select a bidder in its exploration of a public/private partnership.

   In the meeting in the IMU, GPSG Sustainability Committee co-chair Christian Bako commented on the potential partnership at the UI, which would allow the university to collaborate with a private company and financially benefit from its own utility system.

   “I’ve been focused on the [public/private partnership] negotiations that have been going on with weekly conference calls,” he said. “The bidders are finishing their bid materials and the final bidder is supposed to be selected by Nov. 15. It’s a fast-moving process.”

   In an email to The Daily Iowan, UI Media Relations Director Anne Bassett said in a statement that the university of Iowa is still only exploring a public/private partnership involving its utility system.

   “A decision to move forward beyond the exploration phase has yet to be determined by the campus team, which includes shared governance,” the statement read.

   The zeal with which UI administrators tried to plug this unanticipated leak regarding the progress of the P3 development process underscores the degree to which the university was determined to obscure that process. Instead of acknowledging that the reported timeline was largely correct, an official spokesperson not only downplayed the significance of the story, but lied in order to do so. In fact, even at the time it was clear the university was lying because of prior comments by J. Bruce Harreld himself, as reported by DI staff on 09/29/19 — over a week earlier:

   Harreld: I’ve been moving really quickly here so my personal involvement on campus has been … last week in other parts of the world trying to deal with the [public/private partnership] and meeting all the companies that are bidding.

   If you are talking to people who are bidding on a project — let alone flying around the world to meet with those bidders — then by definition you are no longer in the “exploration phase” of that project, you are in the ‘bidding phase’ of that project. And indeed, only two days after the university released a patently false official statement about still being in the ‘exploration phase’, Harreld again made clear that the P3 development process was, as Hildebrandt had accurately reported, rapidly nearing its conclusion. From the Gazette’s Vanessa Miller, on 10/10/19:

   Although the university has not issued any public requests for proposals, Harreld said Thursday his administration started with inquiries from more than 100 firms, narrowed that total to 67, and then took 16 bids over the summer.

   “We’re in the final stages of negotiating with them,” Harreld told the crowd in the downtown Iowa City Hilton Garden Inn.

   Not only had the bidding phase begun during the summer of 2019 — meaning the exploration phase had been over for months, even as university spokespersons insisted that the school was still wrestling with whether to proceed or not — but in documents released during the final approval meeting on 12/10/19 we gained additional visibility into that timeline. In a document titled RFP Final Process Letter, dated 10/23/19, we find a recap of the drafting of the concession agreement [p. 7], which includes this [p. 8]:

   i. Initial Draft of Concession Agreement posted to the virtual data room on July 3, 2019.

   ii. Bidders provided the University with their top 10 comments / 5 value drivers ahead of scheduled Executive Level Site Visits.

   iii. University to receive any additional comments related to the Concession Agreement posted on July 3, 2019 from Bidders no later than 12:00p.m. EST on August 14, 2019.

   Even as the university was insisting, as late as October, that the P3 was still in the exploration phase, three months earlier Harreld and his team of covert P3 approval specialists had not only identified bidders, but those bidders were providing feedback on the concession agreement. From that point on, any official statements which portrayed the P3 as still only in the exploration phase were lies, and those lies were specifically intended to allow Harreld and his administration to avoid answering questions about the development process. And of course that in turn means, as a publicly funded institution, that Iowa’s taxpayers were paying employees at UI to lie to Iowa’s taxpayers.

   The Lease Lie
   Throughout 2019, in multiple public comments, J. Bruce Harreld insisted that the UI P3 would not, under any circumstance, involve the lease or sale of state assets. Of all the lies Harreld and the university told about the P3, even at the time that one seemed particularly odd given that the UI P3 was almost certainly premised on the 2017 Ohio State P3, which included a lease of state assets for state tax purposes, and the sale of state assets for federal tax purposes. From a Daily Iowan interview with Harreld on 03/11/19, roughly one month after the university first acknowledged that it was looking into a possible public-private utility partnership, even as the ‘exploration’ process had been underway for nine months or more:

   We will still own the plant. We’re not leasing the plant, we’re not selling the plant, so we’ll still own it, we need to make sure they maintain it in a first-class way.

   Three months later, however, on 06/24/19, the Des Moines Register published a letter to the editor from former Iowa regent David Fisher, in which he clearly described the prospective P3 deal as a lease arrangement:

   Recently, it was announced that the Iowa Board of Regents will be entertaining bids for the lease — not sale — of the University of Iowa’s utility plant to a privately owned utility company for a span of 50 years.

   Had something changed between March and June? Was the UI plan, like the OSU P3, now premised on a lease? Well, as far as Harreld was concerned, definitely not — and as the president of the University of Iowa you would think he would know. From the DI’s Charles Peckman, on 10/10/19 — meaning as the P3 was hurtling toward its conclusion in early December:

   At Thursday’s address, Harreld said the list of potential partners has narrowed from over 100 firms to a handful. He said the “massive upfront payment” from this partner would help fund the UI’s strategic plan, tuition, state appropriations, and reallocation.

   “This is not the sale of the assets. This is not a lease of the assets,” he said. “This is entering into a long-term relationship with an operator who’s in this industry.”

   Two weeks later, however, this time a serving regent was quoted in the press, disputing Harreld’s characterization of the deal. From the Gazette’s Vanessa Miller, on 10/24/19:

   “The idea is to lease the power plant to a private company, allow them to operate it, preserving the jobs that we have there — all those employees will work either for the university or for the company coming in,” Barker said. “That company would sell us the power and operate on a 50-year lease.”

   Without ever explaining or addressing this recurrent, blatant contradiction, on 12/03/19 the university presented its ‘informational webinar‘ to the board, which purported to inform the apparently oblivious regents about the complex plan that UI would seek approval for only one week later. In the presentation graphics for that webinar, however, in the upper corners of slides 8 and 9, the word ‘lease’ was clearly visible, indicating that Harreld had misled the public about the nature of the deal for the better part of a year. And indeed, one week later, when documents related to the P3 were finally disclosed, this was the title of the 1,800-page concession agreement:

   LONG-TERM LEASE AND CONCESSION AGREEMENT FOR THE UNIVERSITY OF IOWA UTILITY SYSTEM

   From those documents we also know that on the same day in October when Harreld publicly asserted that there would be no lease or sale of state assets, the university was initiating its third round of revisions to the concession agreement with qualified bidders. Was the adoption of a lease arrangement a late development, meaning Harreld had not lied to the public about the terms of the prospective deal? We find the answer to that question in the first sentence of the first paragraph of another document that was released on 12/10/19, titled RFQ Final Process Letter, which is itself dated 04/18/19:

   The University of Iowa (“UI” or the “University”) and Wells Fargo Securities (“Wells Fargo”) appreciate your interest in the opportunity to manage and operate the University’s on-campus utility systems through a 50-year lease and concession agreement (the “Concession” or “Concession Agreement”).

   Not surprisingly, when the P3 was finally approved in December, multiple press headlines noted that the deal involved a 50-year lease of state assets. At the same time, however, no one in the press, and no one at the university or the board, explained why J, Bruce Harreld spent the better part of a year telling a consistent lie which he had to know would inevitably be revealed. In fact, even as I type this I cannot give you a single coherent reason why Harreld would have initiated or stuck to that lie, other than having some sort of compulsion to tell falsehoods even when they are demonstrably unnecessary, if not antithetical to his aims.

   As it turns out, however, not only did the UI P3 mimic the OSU P3 by including a lease, but the UI deal also included the sale of state assets for tax purposes. From p. 49 of the 1,800-page concession agreement (p. 56 pdf):

   Section 2.6. Intended Treatment for Federal and State Income Tax Purposes.

   (a) Tax Treatment.

   (i) The Parties intend for United States federal and state income Tax purposes that (A) the Closing Consideration will be treated as a payment and consideration for (I) the sale of the Utility System Assets and Utility Facilities, (II) a lease of the Utility System Land to the Concessionaire and….

   Again, while I have no idea why Harreld lied about leasing (or selling) state assets in the UI P3, that’s precisely why those lies — of all the lies Harreld told while pushing the P3 through to fruition — are most concerning. No one who had their wits about them would repeatedly swear that the UI P3 would not include a “lease of state assets”, when he clearly knew the deal was premised on a “lease of state assets”. Yet that’s exactly what J. Bruce Harreld did.

   The Strategic Plan Lie
   Throughout 2019, Harreld insisted that generating new revenue from an endowment which will be funded from the $1.17B loan he is taking out is in turn critical to fully funding the UI Strategic Plan. As regular readers have known for over two and a half years, however, any claim that the UI Strategic Plan comes with a price tag is false. In reality, Iowa’s Strategic Plan — like similar plans at colleges and universities across the country — is an aspirational and organizational document focused on priorities and objectives, as opposed to capital projects or other expenditures with a specific price tag. To that end, the UI Strategic Plan does come with metrics by which administrative progress can be assessed, but any purported dollar costs were assigned later by Harreld and his team, precisely to exploit the UI Strategic Plan as a justification for multiple revenue-generation schemes.

   For example, from p. 9 of the current five-year UI Strategic Plan, which spans 2016 to 2021:

   Competitively funded federal research support
   Three-year average of federal research expenditures (including S&E and non-S&E) adjusted to exclude ARRA and USDA formula-allocated research expenditures. This indicator includes obligations for the AFRI program funded by USDA.

   2021 GOAL: Median of public AAU universities

   Not only does the UI Strategic Plan ascribe no costs to achieving that goal, but even after Harreld lumped that objective in which several others, and assigned them a collective $127M price tag over five years, it was never made clear why the university would have to pay money to generate “federally funded research support”. (If the federal government is funding research, that’s money coming in, not going out.) In a moment we will come back to that $127M cost, but here it is important to recognize that the UI P3 was not the first long con that Harreld ran which involved the UI Strategic Plan.

   A little over four months after he took office in late 2015, J. Bruce Harreld authorized the push for a new fast-track strategic plan. From the Press-Citizen’s Jeff Charis-Carlson, on 04/25/16:

   With a scheduled completion date of June 30, the five-year strategic plan will outline a vision for the university’s future. The UI Office of the Provost will be responsible for fleshing out key strategies and tactics and measuring the plan’s progress in terms of student success, engagement and putting things into practice.

   “We want to put on paper, in writing, what students, faculty and staff think are important things to do going forward,” said David Cunning, chairman of the UI Department of Philosophy and a co-chair the development group. “Then if the university and the administration don’t go in that direction, we can ask ‘Why not?'”

   UI officials have described this year’s development process for a plan as “accelerated” — requiring less than six months to complete compared to the 18-month-long processes required for previous plans.

   This year’s process, however, will include more than twice as many public forums than in the past, they said, and the final document, at three to five pages, will be much shorter than previous plans.

   As for all of those “public forums”, however, they were not only announced very late in the spring term, but were scheduled for the busiest time of the 2015-2016 academic cycle:

   In response to the short timeline for the process, the group Iowans Defending Our Universities has called for a campuswide boycott of the open forums.

   “Does the administration not realize this is the busiest time of the year for students and faculty?” the group wrote in a news release Monday. “Is it unaware that students and faculty have papers to write and grade, exams to write and prepare for, dissertations and theses to read and defend, department business to conclude, faculty governance and evaluation reports to write, and a research mission to advance?!”

   In reality, and despite touting “more than twice as many public forums than in the past”, Harrled and his bureaucratic minions jammed the entire feedback process for the UI Strategic Plan into a ten-day window at the busy conclusion of the academic year. From the Gazette’s Vanessa Miller, on 04/21/16:

   The university’s Strategic Plan Development Group will lead the seven forums, which will be held with students, faculty, staff, and the broader community between April 25 and May 5. The meetings are part of an “accelerated” development process for the UI’s 2016-2021 Strategic Plan.

   “Over the last 20 years, development processes for the UI’s strategic plans have taken up to 18 months, while only hosting two to four open forums for broader community input,” according to a UI news release. “The current development process will take less than six months and will include seven open forums.”

   Assuming for the sake of argument that the university was not simply lying about the number of “open forums” that had been held in the past, the number of forums scheduled for the 2016-2021 Strategic Plan was indeed greater. Because those seven meetings were scheduled in a very tight window, however, and announced with short notice — let alone at the busy conclusion of the academic year — attendance and participation would have been diminished by those administrative choices. (Underscoring the malevolent utility of this administrative subterfuge, note also that because multiple meetings were provided, Harreld could then claim there was simply little interest expressed by the UI community, while ignoring the fact that the meetings were scheduled in such a way as to actively diminish participation.)

   Fortuitously, however, there were plenty of administrators at UI who were eager to look the other way and follow Harreld’s lead:

   Sarah Hansen, assistant vice president for student life, and David Cunning, chair of the philosophy department, are co-chairing the Strategic Plan Development Group. They say the community and constituent meetings will mean the final plan “should hold no big surprises for the campus.”

   “Traditional planning processes can take over a year,” Hansen said in a statement. “But they don’t necessarily have a lot of feedback from the community, which is one of our priorities.”

   She acknowledged that some might have reservations about the fast pace, but pointed to advantages, including the ability to “start working toward those goals sooner.”

   While a draft of the new UI Strategic Plan was indeed published by early July, pushback concerning the accelerated timeline and last-minute feedback sessions compelled Harreld to add additional forums in the fall. By the end of 2016, however, the new fast-tracked Strategic Plan had been approved, and six months later, in the summer of 2017, Harreld ruthlessly put that document to work in pursuit of generating new revenue.

   Specifically, Harreld used the new UI Strategic Plan to press for five years of compulsory tuition hikes, over and above a number of aggressive hikes he had already pushed through in his first year and a half. In arguing for those annual hikes, Harreld referenced not only a desperate need for additional revenue to fully fund the UI Strategic Plan, but he showed a slide [p. 20] which ascribed specific costs to the UI Strategic Plan when there are no such costs in that document. (The slide on that page references the $127M mentioned above, and includes a number of other metrics which relate not to the UI Strategic Plan, but to UI’s membership in the American Association of Universities. In effect, Harreld was using the UI Strategic Plan as a plausible justification for raising tuition on students and families, even as he fully intended to use that money to satisfy the membership criteria of an academic organization which confers no actual benefits on its members.)

   Harreld’s deceptive pleas about funding the UI Strategic Plan took place during a much-publicized Tuition Task Force, which was convened by the Iowa Board of Regents in August of 2017. That task force, in turn, allowed the regent and university bureaucracies to claim they had behaved transparently and engaged in community outreach before approving five years of compulsory tuition hikes at each of the three regent universities. Flash forward to the beginning of 2019, however, and when J. Bruce Harreld broached the possibility of a UI P3, he once again justified the pursuit of new revenue from that deal by claiming that he desperately needed about $15M each year to fully fund the UI Strategic Plan. Meaning the same strategic plan that only a year and a half earlier he said he could fully fund from five years of tuition hikes.

   From the very first UI press release announcing the intention to ‘explore’ the possibility of a P3, on 02/08/19, even as active planning had already been underway for eight months:

   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.

   As to whether Harreld demonstrated any sophisticated administrative sleight of hand while using the same strategic-plan scam to justify both compulsory tuition hikes in 2017 and the UI P3 in 2019, the answer is that he did not. We can even see that by comparing p. 26 from Harreld’s Tuition Task Force presentation and p. 5 from the UI P3 ‘informational webinar‘. In the tuition scam Harreld claimed UI needed $33M each year for five years (extrapolated from p. 20) to fully fund the UI Strategic Plan, of which $12M would come from “campus-based resources” such as cost-cutting and efficiencies. That left $22M that would have to be covered by some combination of new tuition revenue and increases (or decreases) in state funding, in order to fully fund the made-up costs of the UI Strategic Plan.

   If you look at p. 5 of the P3 presentation however, you will find the same $33M in total annual costs for fully funding the UI Strategic Plan, and the same $12M or so in cost recoveries, but the remaining $22M in purported annual need is now largely derived from the P3 endowment, with only a peripheral mention of tuition revenue. To underscore the monstrousness of this serial deception by Harreld, note also that even before the board approved five years of annual tuition hikes, the hikes that Harreld had already pushed through also fully funded the made-up $33M annual cost which he ascribed to the UI Strategic Plan — and that’s true even after cuts in appropriations that were triggered by a two-year collapse of the state budget. Meaning the UI P3 will now fully fund the made-up costs of the UI Strategic Plan for the third time.

   As this post should make clear, the only reason J. Bruce Harreld has been successful in putting forward all of these lies is because the Board of Regents is complicit. Were they concerned about integrity or credibility Harreld would have been fired long ago, but they really only care about generating revenue — and they don’t care who they have to abuse (students and families) or what the downside financial risks are (with the P3). As regular readers know, it is objectively true that from the tuition hikes that were enacted prior to approval of the five-year tuition plan, the University of Iowa is already generating about $35M more each year compared to when Harreld was hired. In the purportedly open, honest and transparent UI P3 development process, however, all of that revenue was intentionally omitted from the conversation, and because the regents are equally corrupt, they abetted Harreld in doing so.

   As to where all of the new tuition revenue will go once the next four compulsory hikes are implemented, and where all of the UI P3 revenue will go once the endowment starts generating returns, it just so happens that J. Bruce Harreld has begun the process of shaping the next UI Strategic Plan, and no one should be surprised if the made-up price tag for that new version goes way up. For that reason, if you are involved in drafting the next UI Strategic Plan, you may want to ask what happens to any money in excess of the various schemes that have already been implemented to purportedly pay for the prior plan. (The very fact that no one has talked about how any annual P3 revenue in excess of $16M will be spent tells us that Harreld and the board don’t want to answer such questions.)

   J. Bruce Harreld’s Long Con
   Over the course of 2019, from early February until late November and even beyond, J. Bruce Harreld told the five lies detailed above in order to forestall question about, and secure the approval of, the University of Iowa’s public-private utility partnership. In telling those premeditated, orchestrated and aggregated lies, Harreld, his executive team, and the officers and members of the Iowa Board of Regents were united in their intent to deceive the people of Iowa, but they weren’t alone in pursuing that objective. Instead, after four years with J. Bruce Harreld in the president’s office — as a result of another long con perpetrated during the fraudulent presidential search in 2015 — the entire leadership structure at UI was a full-on partner in Harreld’s P3 lies.

   Indeed, with what must be the bitterest irony for those who still have some semblance of integrity at the University of Iowa, the foundational premise of higher-education administration that was betrayed by Harreld and his co-conspirators in 2015 — the concept of shared governance — has now been brought fully to heel by Harreld. Instead of functioning as a counter to executive excess and recklessness, shared governance at UI is now a partner in pushing Harreld’s entrepreneurial agenda. Where lying to the press, the public and the UI community were the means by which Harreld’s co-conspirators appointed him to the presidency in 2015, in flagrant defiance of shared governance, lying is now the means by which the various shared governance groups hope to profit during Harreld’s illegitimate rule.

   To be fair, it is of course understandable that academics and professionals would act out of self-interest, even if doing so means betraying the very premise of higher education. It’s one thing to have principles, but when the only thing that really matters is money, principle are a luxury that shared governance leaders at UI can no longer afford. (Never underestimate the amount of damage that a remorseless crony with a penchant for deception and treachery can do to a public research university.)

   Part 7: Shared Governance Sells Out

   Reply

8. Ditchwalk says

   January 19, 2020 at 5:55 pm

   The UI Utility P3 in Context — Part 7: Shared Governance Sells Out (Part 6)

   In the previous post we looked at five specific lies that J. Bruce Harreld, his executive team, and the Iowa Board of Regents perpetrated while claiming that the development of the UI public-private utility partnership was an open and transparent process. In this post we will consider several additional and interrelated administrative lies spanning the entire leadership structure of the university community, which belatedly voiced enthusiastic support for the P3 just before and immediately after the agreement was rammed through the approval process by the Board of Regents. In order to understand this burst of campus-wide enthusiasm in context, however, we must first look back at another pivotal moment in UI history, only four short years ago….

   In early September of 2015, when the corrupt Iowa Board of Regents appointed the complicity corrupt J. Bruce Harreld as president of the University of Iowa, that willful bureaucratic imposition was done not only in defiance of a higher-ed concept called ‘shared governance’, but in open betrayal of that longstanding commitment. If you have never heard of shared governance before — as I had not at the time — you can read a summary here on the website of the American Association of University Professors (AAUP), an organization which plays an important role in enforcing shared governance in the United States. The practical importance of shared governance as a concept, however, is not hard to understand.

   The legal right to control a public college or university is usually granted, by statute, to the governing board of that institution, which then passes considerable executive authority to the president of the school. In a strictly legal sense, the board and/or its proxy president can pretty much do whatever they want, provided they do not run afoul of actual law. (And by ‘run afoul’ I mean not only ‘transgress’, but ‘get caught’ and ‘be indicted’.)

   As with any large organization, however — to say nothing of one teeming with eggheads and know-it-alls — it is one thing to exercise legally sanctioned authority, and quite another to genuinely lead and empower people throughout such an institution. And of course that’s particularly true when college and university presidents are often outsiders, or, as is currently the case at the University of Iowa, a carpetbagging dilettante. If the president of a college or university simply imposes their will they may be within their legal rights to do so, but they will also inevitably weaken their institution because the best people will simply leave, taking their knowledge, grants and teaching prowess with them. In what is usually seen as a worst-case scenario, the faculty body may eventually give a heavy-handed president a vote of no confidence, which may or may not mean the end of that president’s tenure depending on the degree to which the governing board is or is not behind the president’s hostile agenda.

   The time-honored administrative mechanism by which these potentially disruptive tensions are eased is shared governance, which is a voluntary commitment on the part of governing boards and executive administrators to make sure academics and staffers have a meaningful say in the future of the institution at which they work. Shared governance conveys no legally enforceable rights to faculty and staff — and of course the student body is largely an afterthought — but it does provide rolling, real-time proof of the credibility of those who do ultimately wield power. If a governing board of executive suite simply imposes its will on a college or university, that information gets out, and prospective faculty and staff know to look elsewhere for work, where their voices will not simply be heard but respected. In short, in higher education a betrayal of shared governance is a de facto abuse of power.

   As regular readers know, the appointment of J. Bruce Harreld as president of UI in September of 2015 was such an abuse of power, and that was true before we learned that the search process was also corrupt. Although the Iowa Board of Regents had the statutory right to appoint anyone to lead the school, even without conducting a search, its flagrant betrayal of shared governance was stunning. Fortunately, while the regents scheduled Harreld’s campus forum dead last among the four finalists, and allowed less than forty-eight hours between his startling reveal as a candidate and his shocking, done-deal appointment, the local chapter of the AAUP — in observance of its shared governance responsibilities — conducted a survey of the campus, and the results were clear. J. Bruce Harreld was completely unacceptable:

   

   In response to this flagrant betrayal of shared governance the national AAUP launched an investigation, the results of which you can read here. After subsequently finding that Harreld’s appointment was indeed a betrayal of shared governance, the AAUP put the University of Iowa on its list of sanctioned institutions, which was unprecedented for a university of Iowa’s caliber. Even as the investigation was ongoing, however, one of the co-conspirators in that abuse of power — then-president pro tem of the regents, Katie Mulholland, who served alongside president and co-conspirator Bruce Rastetter — decided to pour gasoline on the fire.

   From the Press Citizen’s Jeff Charis-Carlson, on 09/25/15:

   Critics of the search point to Rastetter’s role in setting up the July 30 meetings with Harreld as one more piece of evidence that Harreld already was the predetermined favored candidate and that the other three finalists — two university provosts and a college president — didn’t really have a chance.

   “In my role as a regent, we honor the shared governance of the university faculty and staff,” Mulholland said. “But shared governance is really different from shared decision-making.”

   Arguing that shared governance does not involve shared decision-making is disingenuous, and we can see that clearly if we simply ask how an individual would govern in any meaningful sense if they were precluded from shared decision-making. Again, everyone understands that governing boards and executive administrators hold most of the legal cards in higher education, and that the promise of shared governance is not legally binding. That does not mean, however, that the promise of shared governance cannot be broken, or that breaking that promise — as Mulholland and others did during the 2015 presidential search at UI — holds no consequence.

   Whatever satisfaction Mulholland got by making her dismissive statement in late September of 2015, the University of Iowa ended up on the AAUP’s list of sanctioned institutions for two years. That sanction in turn warned prospective faculty and staff to steer clear, because the board could not be trusted to take the concerns of the UI campus into account. If the board was willing to hire a crony tool as the president of UI, over the objections of the vast majority of people who responded to the local AAUP survey, then it was clear the board was only interested in sharing governance on issues that the board itself did not care about.

   Because academics are also an ego-driven lot, however, it wasn’t long before the more transactional types on the UI campus — including particularly the leadership of the UI Faculty Senate — were champing at the bit to remove UI from the AAUP sanctions list. Flash forward two and a half years from the date of the original AAUP sanction, and the faculty leadership on the UI campus finally succeeded in removing the university from the list of schools that could not be trusted to honor shared governance.

   From the Daily Iowan’s Emily Wangen on 06/17/18:

   The American Association of University Professors removed the University of Iowa from its list of sanctioned institutions — a list it landed on in 2016 for flaws in the search process that resulted in the hiring of Bruce Harreld as the 21st UI president.

   The group voted to lift the sanctions on June 16 at the AAUP annual meeting in Washington after its Committee on College and University Governance recommended the removal of sanctions in April. At that time, the panel noted improvements in UI shared governance.

   “The AAUP only removes institutions from our censure or sanction list after careful assessment of the climate for academic freedom or shared governance at the institution,” AAUP President Rudy Fichtenbaum said in a statement. “The fact that institutions change their policies to conform to AAUP’s recommended guidelines shows that our censure and sanctions lists are effective tools for bringing about change that is necessary to ensure that higher education serves the common good.”:

   As to what actually changed on the UI campus, however, the answer was nothing. We know that as a factual matter because four months later J. Bruce Harreld dropped his presidential drawers and defecated on the faculty leaders who had worked so hard to scrub away the stain of his corrupt hire. From an interview with the Daily Iowan on 10/15/18, here’s Harreld doing his very best Katie Mulholland impression:

   Then, I would remind all of my colleagues on campus that I passionately believe in shared governance. Shared governance does not mean shared decision-making. It’s something different. So they have an input.

   In one of the defining examples of Harreld’s pugnacity, as soon as the AAUP sanction was lifted he pointedly and publicly made clear that he had played and exploited the faculty leadership while giving up nothing in return. In Harreld’s mind shared governance merely afforded various constituencies an opportunity to speak, but denied them any right to have an effect. As to how the faculty leadership responded to Harreld’s naked affront, all we have to do is flash forward to last summer, when said leadership published an AAUP post purporting to detail the history of the AAUP sanction — including particularly the heroic efforts by UI faculty to overcome that black mark — which includes no mention of Harreld’s subsequent denial of shared governance.

   Instead, we get this:

   The improved climate for shared governance is also apparent in the ongoing practice of holding faculty meetings with the board of regents at each regular on-campus board meeting. Bruce Harreld accepted the presidency with a commitment to shared governance and is engaged with the faculty. Faculty senate officers meet regularly with the president and his senior advisers, the provost, and the finance and operation team. Interaction among UI faculty and members of the administration occurs at a high level in strategic planning initiatives, budgeting, campus reorganization, searches for senior administrators, and other activities.

   Bruce Harreld is the living embodiment of the administrative belief that shared governance means nothing. In exchange for the appearance of administrative consensus, he and other UI executives and regents are willing to sit through tedious meetings which bind them to no course of action, and in grateful thanks the self-interested shared governance groups pretend those meetings have an effect. All of which brings us now to the UI P3, which is a case study in how to fake shared governance on all fronts.

   Shared Governance and the UI P3
   From the outset, exploiting the shared governance process as a means of purportedly validating the UI P3 was emphasized by the University of Iowa media shop, which is controlled by J. Bruce Harreld. From the initial press release about the faintest possibility of a future public-private utility partnership, on 02/08/19:

   The UI will actively engage the campus through shared governance and information sessions to ensure an outcome that is in the best interest of the university and its constituents.

   Note specifically that ‘shared governance’ is described as an active administrative mechanism — “…through shared governance…” — even as we already know from Harreld’s post-sanction bowel movement that “shared governance does not mean shared decision-making”. The obvious conclusion is that Harreld was happy to use the concept of shared governance to advantage, by implying that independent groups on campus approved of the UI P3, while at the same time denying those groups any actual right to approve or disapprove of the plan. And that in turn effectively co-opted those groups, because how many people involved in shared governance at UI would ever admit they have no actual power?

   As to what information about the P3 was communicated to the shared-governance groups on the UI campus, we had very little visibility about that until late in the development process, when the Daily Iowan’s Eleanor Hildebrandt published her previously mentioned scoop (see Part 6) on 10/08/19. In Hildebrandt’s report, a member of the Iowa Graduate and Professional Student Government (UI GPSG) said the UI P3 was a “fast-moving process”, and that the final bidder would be selected in a little over a month. That in turn prompted immediate pushback from a UI spokesperson — who also takes orders from Harreld — who characterized the UI P3 as still being in the “exploration phase”. (And of course Harreld himself then obliterated that statement two days later, on 10/10/19, by saying that the UI P3 was in the “final stages” of the negotiating process.)

   As to the question of transparency, the fact that a member of UI GPSG was listening in on “weekly conference calls” sounds encouraging, but again neither the GPSG nor any other shared governance group had veto power over the P3 process. They could be let in on discussions, and feel special as a result of that access, but they had no vote. More importantly, as Hildebrant’s reporting made clear there were multiple levels of access, and what the public was being told — including by a UI spokesperson who insisted that the P3 was still in the “exploration phase” — was clearly at odds not only with what shared governance leaders were being told, but with reality.

   Still, at the tail end of the P3 development process the shared-governance leaders at UI began giving a big public boost to the P3, as reported by the Press-Citizen’s Aimee Breaux on 12/06/19 — — meaning three days after the UI ‘informational webinar’, and four days before the P3 approval meeting:

   In a statement to the Press-Citizen, Faculty Senate President Sandra Daack-Hirsch said administrators met with Faculty Senate in February and have subsequently held six open information sessions since that meeting. She adds professors Tom Rietz and Joe Yockey served in an advisory role to UI administrators, “providing countless hours of review and critical analysis.”

   Continuing a particularly deceptive administrative tactic — which we also referenced in Part 6, regarding Harreld’s hyper-accelerated schedule for developing the current UI Strategic Plan — Daack-Hirsh focused on the number of meetings, as opposed to any qualitative assessment of the information conveyed. We will take a closer look at Daack-Hirsch’s enthusiastic claims about transparency shortly, but the question here is not whether UI administrators held a lot of meetings, but whether those meetings were something more than theater. (As regular readers know, almost everything that takes place in public view at the University of Iowa, and at the Iowa Board of Regents, is staged for effect, and has little or nothing to do with any active decision making process.)

   As to the specific individuals mentioned by Daack-Hirsch, when I first read Breaux’s report the day it was published I did not remember ‘Yockey’ at all, but ‘Rietz’ did sound vaguely familiar. When I did an internet search for ‘Rietz’ and ‘public-private partnership’ that same day, however, I got surprisingly few hits from Google, including no links to news sites other than the Press-Citizen article in question. (It may be that the Google algorithm terminated early for some reason, but I also think the subsequent wave of reporting on the UI P3 boosted the number of hits returned.)

   Curiously, one link that did stand out among those sparse initial hits was a link to this site, which, on closer inspection, seemed doubly odd because it pointed to a post from August of 2016 — meaning long before the UI P3 was a topic of conversation. When I looked up that post I was even more surprised to find a deep dive into a white paper that had been written by a Faculty Senate working group (FSWG), which had in turn been formed in response to a prompt from then-regent-president Bruce Rastetter. Specifically, after learning that former UI President Sally Mason was retiring, Rastetter’s big idea was that the University of Iowa could elevate itself to a “top ten” public research university, and he charged the UI Faculty Senate with achieving that goal.

   While the Faculty Senate working group did quickly conclude that there was no chance to elevate UI to the stature Rastetter sought, even at that the resulting white paper was so completely devoid of academic merit that it was scrubbed from the UI Faculty Senate website after I wrote about it on this blog. Fortunately, I archived a copy and linked to it in the original post, and in that archived copy you can see that although Rietz is not quoted or even mentioned, he is one of the signatories. And yet you would not know that were it left to the UI Faculty Senate to determine which historical documents to retain and which to purge.

   As an R1/AAU public research institution, I am confident that an official UI spokesperson would say that the university steadfastly believes in the foundational importance of history. At least until a written record makes the university look like an insane asylum or a den of thieves, at which point UI is all-in on scrubbing information. Speaking of which, from — ironically — the 10/18/17 meeting minutes for the UI Staff Council Executive Committee, which, along with the Faculty Senate, is one of the official shared-governance groups at UI, we also have this fine example:

   Discussion to eliminate minutes from meetings except full Staff Council and Executive Committee monthly meetings
   Discussion regarding whether to continue formal meeting minutes for Staff Council Executive Committee meetings with President Harreld, and with Interim Provost Curry. These minutes are not a requirement as these are not open meetings, and Staff Council does not make policy as it is in an advisory capacity. It was suggested that if we are eliminating these minutes, that we also remove all past minutes for these meetings from the website to avoid confusion as to why there are no future minutes.

   • A motion was passed to eliminate the minutes discussed in the above paragraph

   ◦ First Motion to Approve -Jeri King
   ◦ Second Motion to Approve –Erin Brothers

   Approval of motion was passed by majority vote.

   Additionally, it was agreed that more abbreviated minutes from the Staff Council and Staff Council Executive Committee meetings may be more effective to communicate the presentation of ideas and exchanges.

   And from the minutes of the 11/08/17 full Staff Council meeting, when the rest of that body was informed that Harreld and Curry would be able to speak off the record going forward, and have their prior conversations scrubbed — but only in the interests of expediency, avoiding confusion, and promoting “open conversation”:

   It was noted that there will no longer be recorded minutes for UISC Executive Committee Meetings with President Harreld or Interim Provost Curry to eliminate the time spent on these minutes, and to allow a more open conversation during these meetings. After a quick review of the Bylaws by H Pedelty, it was noted that minutes may or may not be required per the Bylaws. Further study of the Bylaws may be required to resolve this.

   This is shared governance in action at UI: eliminating accountability and scrubbing J. Bruce Harreld from the history books. (I did not find any subsequent discussion about changing the bylaws, and there are no meeting minutes showing discussions with Harreld or Curry. So Bro Bruce has had secret “open conversations” with the Staff Council for going on two years.)

   With regard to the UI P3, while I had indeed run across Rietz’s name in another context, the fact that the current Faculty Senate president was touting his involvement convinced me that I had also run across his name more recently. That in turn led to more digging, and one site I focused on was the meeting minutes of the UI Faculty Senate — which, to be fair, are some of the best meeting minutes you will read anywhere. Except when Harreld drops by…at which point the Faculty Senate always goes into closed session, leaving nothing but a few recorded motions to that effect.

   Sure enough, when I dug into the archive of Faculty Senate and Faculty Council meeting minutes which had so far been posted for 2019 (currently through October as of this writing), I found Tom Rietz mentioned in the same February meeting that Daack-Hirsch specifically referred to in the Press-Citizen quote above. It was at that point that I recalled reading those minutes when they were posted, but what was startling in retrospect was both how little Rietz had to say about the P3 at the time, yet how completely he laid out the potential pitfalls and true nature of the deal — in stark contrast to page after page of tap dancing and hard sell from UI CFO and Treasurer Terry Johnson during the same Faculty Senate appearance.

   Indeed, on the topic of the UI P3, the single-spaced meeting minutes from 02/12/19 fill just over four pages, yet this is the bulk of Rietz’s recorded contribution:

   Professor Thomas Rietz, from the Department of Finance in the Tippie College of Business, who has been working with the Office of the Vice President for Finance and Operations on this issue, then spoke briefly. He commented that there was no guarantee that a P3 agreement would be a good deal. Aside from the financial aspect, there are many legal details to work out, as well as details regarding the upfront payment. He reiterated that the university would receive this upfront payment and then pay the private company back over a period of fifty years. There are three ways that this could be beneficial for the university. First, the university could realize a profit on the upfront payment after it is invested. Second, the private company could operate the utilities more efficiently than the university does, although that is unlikely. Third, the private company could acquire a depreciation tax shield, thereby making the investment appealing to an outside operator. The university will need to determine whether the return on investment generated by the upfront payment will be enough to cover the payments back to the private company plus generate funds to invest in the projects outlined in the UI strategic plan.

   In response to that blunt assessment a member of the Faculty Senate asked a question, but that question was answered not by Rietz but by CFO Johnson. Over the entire presentation — which Johnson dominated — Rietz also added the following spare comments:

   Professor Rietz acknowledged Professor Macfarland’s concerns. He commented that the reason for putting the upfront payment into an endowment instead of spending it outright was to be sure future costs could be covered.

   Here Rietz acknowledges that the fifty-year loan for the UI P3 will be leveraged, meaning profits from the invested debt will be required to pay back the loan itself. (Without those profits UI would lose money, with students and/or taxpayers having to cover the losses.)

   Professor Rietz reiterated that when fuel purchase costs drop, so do the university’s costs, because that is a direct pass-through to the university, not part of our fees to the provider.

   Here we have early confirmation — which also occurs in the larger passage on Rietz’s commentary — that there will be little or no savings derived from leasing UI’s utilities to a private-sector operator. UI will still pay for the fuel, and for the personnel costs even though the workers will become private-sector employees, meaning the ‘privatization’ aspect of the deal exists primarily to obscure and legally facilitate the borrowing of $1.17B.

   As for Joe Yockey, who was at the time serving as secretary of the Faculty Senate, by happenstance he turns up in the same February meeting minutes, but not in the context of the UI P3. Instead, Yockey is referenced in a separate section regarding a committee review of the UI Office of Finance and Operations [p. 8], which he chaired. And of course the current VP for Finance and Operations is Rod Lehnertz, who gave an extensive interview to the Daily Iowan in October, before taking a star turn in the university’s ‘informational webinar’ here [seated on right].

   As to next steps for the Faculty Senate, in the February meeting minutes we find this note at the top of p.6:

   President Ganim indicated that special sessions of the Faculty Council and Faculty Senate will be held over the next two weeks to allow for senators to have additional time for discussion with university administrators about the proposed P3 agreement.

   In the UI Faculty Council meeting minutes for 12/19/19, we do indeed find the council discussing the UI P3 with Lehnertz and Laird Harreld hisself, but we don’t know what anyone said because the council moved into ‘executive session’. Likewise, one week later, in the UI Faculty Senate meeting on 02/26/19, we find the full senate discussing the UI P3 with Lehnertz, Harreld and interim-provost Sue Curry, but we don’t know what anyone said because the senate also moved into ‘executive session’.

   Other than a short note that the university would soon release a request for qualifications (RFQ), the next mention of the UI P3 in any of the meeting minutes for the Council or Senate comes from the 04/23/19 Faculty Senate meeting:

   Secretary Yockey was also an unsung hero in representing the faculty on the P3 initiative, examining the proposal from a legal perspective and providing advice as to whether or not the potential agreement could serve the university’s long-term interests. President Ganim noted that Secretary Yockey regularly draws upon expertise from his day job—that of a specialist in corporate law—to help the officers understand the nuances of legislation or proposed changes in university policy. President Ganim thanked Secretary Yockey for his service and stated that the Senate is deeply indebted to him.

   As a reminder, we now know that the UI P3 involves borrowing over a billion dollars from private-sector investors, skimming $166M off the top to retire other debt ($153M) and pay off consultants ($13M), then ostensibly investing the remaining $999M in the sphincter-puckering hope that the resulting returns will be sufficient to pay back that loan with interest. As for Joe Yockey, as a result of the leadership conveyor belt at the Faculty Senate he is now the Vice President, which means he will soon be president, then past-president of that august body. So you just know he’s going to be really tough on J. Bruce Harreld, and totally hold him to account in his role as head of UI’s most important shared governance body, even though Harreld has stated that shared governance is not shared decision making.

   That April meeting was the last Faculty Senate or Council meeting of the 2018-2019 academic year. Following the long summer break, the only substantive discussion of the UI P3 in the minutes posted so far for the 2019-2020 academic year occurred during the 10/15/19 Faculty Council meeting, in a conversation with Harreld’s senior advisers (Peter Matthes and Laura McLeran), but we don’t know what anyone said because the Council moved into ‘executive session’. At no point after Tom Rietz spoke to the Faculty Senate in February of last year, however, was Rietz’s name ever mentioned again in any of the meeting minutes, which seems more than a little odd given the importance that current UI Faculty Senate president Sandra Daack-Hirsch assigned to him on 12/06/19:

   In a statement to the Press-Citizen, Faculty Senate President Sandra Daack-Hirsch said administrators met with Faculty Senate in February and have subsequently held six open information sessions since that meeting. She adds professors Tom Rietz and Joe Yockey served in an advisory role to UI administrators, “providing countless hours of review and critical analysis.”

   While Daack-Hirsch was perfectly happy with the premise and outcome of the UI P3 — despite clear warning from Tom Rietz back in February, and despite all of the deception and lies detailed in the six sections of this post that you may or may not have read so far — she did have one concern about divvying up all of that borrowed loot, as reported by Breaux:

   However, Daack-Hirsch said the process of allocating the endowment funds needs more discussion.

   “The Faculty Senate is particularly interested in the proposed P3 resource allocation process,” Daack-Hirsch said. “I think what’s been proposed is a good place to start a conversation, but I think the process needs to be vetted, challenged, and revised until campus stakeholders are confident in the process.”

   You can see the proposal in question here, on p. 22 of the UI ‘informational webinar’ slides, which Harreld, Lehnertz and Johnson presented to the Iowa Board of Regents on 12/03/19, just one week before the perfunctory approval meeting. What is particularly interesting about Daack-Hirsch’s comments, however, is not only that she has no leverage — because Harreld is already on the record stating that “shared governance is not shared decision making” — but that she had no input into the proposal prior to the presentation. If J. Bruce Harreld “passionately believe[s]” in shared governance at the University of Iowa, how did that proposal find its way into Harreld’s presentation without first being “vetted, challenged and revised” by “stakeholders” like Daack-Hirsch?

   Despite having clearly been marginalized in the P3 development process, however, not only was Daack-Hirsh an enthusiastic supporter four days before the approval meeting, but on 12/11/19 — meaning one day after the regents approved the UI P3 — the Daily Iowan’s Rin Swann and Eleanor Hildebrandt reported that all four of the official shared governance groups were fully in support:

   Shared governance at the university involves UI Student Government, Graduate and Professional Student Government, Faculty Senate, and Staff Council. All four were engaged in the process that developed a $1.165 billion public/private partnership between the UI and French companies ENGIE and Meridiam.

   …

   Staff Council President Michael Weaver, assistant to the vice president for Research, said that university administration has been transparent about the transaction to the various branches of shared governance.

   …

   Weaver said every section of shared governance will continue to hold the university accountable in the future when it comes to the public/private partnership.

   If UI administrators were “transparent about the transaction”, does that mean the shared governance groups knew the university was taking bids even as the university was officially claiming that the P3 was still in the development process? Did all of the shared governance bodies know about the size of the loan in advance, or about $166M being diverted to pay off other debts and consultants? Did the shared governance bodies also know that roughly $250M of the money that UI would be borrowing would actually come from unnamed investors in Iowa, which the university refuses to disclose? And again, how about that allocation process, which the Faculty Senate president herself was lobbying to change only five days earlier, after clearly being blindsided by Harreld’s “proposal” three days before that?

   As for Weaver’s claim that shared governance at UI will “continue to hold the university accountable in the future”, there is no evidence — none — that shared governance held Harreld or the regents accountable for anything during the P3 development process. In fact, not only is Weaver’s assertion simultaneously hilarious and pathetic, but it counts as a lie because there is no mechanism by which shared governance could possibly hold J. Bruce Harreld for anything. (And that’s assuming anyone in a leadership position in shared governance had the guts to publicly confront Harreld on a given issue, which they clearly do not. Even going back to the naked corruption surrounding Harreld’s hire, which Harreld himself abetted by lying to the UI community on multiple occasions, no one in a leadership position in shared governance ever dared publicly speak truth to power, so there is no chance that will happen now.)

   It is not surprising that people who know they are otherwise powerless might resort to cheap rhetorical bravado to maintain relevance. Of real concern, however, would be evidence that shared governance at UI is actually in league with UI administration in deceiving the public about the UI P3 or anything else, and that brings us back to the following two quotes.

   From 12/06/19 — meaning three days after the UI ‘informational webinar’, and four days before the P3 approval meeting at the Board of Regents:

   In a statement to the Press-Citizen, Faculty Senate President Sandra Daack-Hirsch said administrators met with Faculty Senate in February and have subsequently held six open information sessions since that meeting.

   From 12/11/19 — meaning one day after the P3 approval meeting:

   Staff Council President Michael Weaver, assistant to the vice president for Research, said that university administration has been transparent about the transaction to the various branches of shared governance.

   So Daack-Hirsch touted the number of meetings, and Weaver touted the administration’s transparency, and that all sounds great until we put a simple timeline together. In the initial UI press release in early February of 2019, which announced that the university was “exploring a potential public-private partnership (P3) with its utility system” — which, by that time, had already been under active development for eight months — we find the schedule of meetings that were held with what the DI reporters subsequently called, on 12/11/19, the “four pillars” of shared governance:

   Feb. 12: Faculty Senate information session
   Feb. 13: Staff Council information session
   Feb. 19: UI Student Government information session
   March 4: UI Graduate and Professional Student Government information session
   March 5: Information session on the west side of campus, 9:30 to 11 a.m. in the Urmila Sahai Conference Room, Medical Education Research Facility, room 2117
   March 6: Information session on the east side of campus, 9 to 10:30 a.m. in the Big Ten Theater, Iowa Memorial Union, room 348

   As you can see, all four of those shared governance meetings, and the first two public information sessions, were concluded within about three weeks of the initial announcement. So what actual information could have possibly been shared at those meetings? Indeed, the UI RFQ would not be released until a month or more after all of those meetings, and even then the university refused to make the RFQ public. (Did the shared governance leaders at UI get a look at the RFQ, or were they also frozen out?)

   Continuing from the Swann/Hildebrandt report in the DI on 12/11/19, we find even more hilarity about the importance of shared governance:

   GPSG Co-Sustainability Chair Christian Bako also expressed his approval of the public/private partnership in the present and the future, stressing the need for use of the UI’s Path Forward Steering Committee. The committee is dedicated to the implementation of the UI Strategic Plan.

   “Shared governance is well-represented in the Path Forward Committee,” Bako said. “So, I think it’s important to have all shared-governance voices at the table when deciding how the funds resulting from the P3 agreement are allocated and spent, and I think the Path Forward Committee is a good place to do that.”

   …

   UISG President Noel Mills told the DI in an email that she was optimistic about what the public/private partnership could bring, especially in regard to shared governance.

   “I’m thrilled students have a seat and vote on the Path Forward Steering Committee and the Budget Review Board, which are the last two steps before the [nonprofit] board…” she said. “I feel content right now, but we all should stay vigilant to make sure student voices are always at the table.”

   Again, if you’re involved in shared governance on the UI campus, which involves advocating without any meaningful ability to act, you’re probably not going to point out that you have no actual power. By the same token, if you know there is money on the table, and you’re trying to get your cut in a committee full of shared governance competitors and administrative thugs, you’re probably going to go out of your way to assure Harreld that what he is doing is wonderful, because otherwise you’re going to be left out in the fiscal cold. And that’s all true before we get to questions about actual coordination between shared governance leadership and UI administration in deceiving the UI community and general public about what actually transpired.

   On 12/09/19 — just one day before the P3 was approved — J. Bruce Harreld gave one of his regular sit-down interviews to the Daily Iowan. Although that interview was not published until 12/15/19 it is important to get the sequencing right because Harreld previewed his disingenuous defense of the secretive UI P3 development process, which hinged on stalling and deceived the public until it was too late for the public to ask informed questions. From the top of that interview:

   DI: In regards to the P3, state lawmakers said in a forum hosted by the DI yesterday on Sunday that they fear the potential p3 is a gamble that seems to rely on some uncertain factors like unforeseeable, long-term risks. And they also fear that this deal would fleece federal taxpayers in particular. So what is your response to that character description of the P3?

   Harreld: Well, I don’t know where to begin because I don’t know how to discuss unforeseen factors. If somebody [foresees] them, then I will talk about what we’ve done to mitigate them so I feel like it’s just a little broad. I’ve read it, I mean I think there’s several pieces. And if I leave something out, take me where you want to go. One portion of this is that it’s been too fast. We’re not transparent. And I think I have a real problem with that. I just don’t think that’s the truth. The truth is this started, for me, it started in August of 2018 — a letter from the governor asking us to be much more creative in thinking about new alternatives, including philanthropy, for the university. We talked about that probably in September of 2018.

   And so that’s when we specifically started thinking about a P3, in this type of structure, in the early part of 2019. In this year alone, I counted at least 17 major public events on campus and public forums. About six to eight of them have been town hall meetings that have been wide open for anybody who wanted to come. And then I counted at least 10 articles that have been written in the major newspapers. The first one, back to February 8 in The Daily Iowan as matter of fact …

   So to say that this hasn’t been transparent or that it’s been too fast I don’t stake in this [garbled] a better part of, perhaps, I’d say 16 to 18 months to deal with this and to work it through.

   Again, here we have Harreld leaning heavily on the volume of meetings, and on subsequent press coverage about those meetings, most of which not only disclosed nothing worth reporting, but actively obscured the considerable progress Harreld and his team had already made. What the University of Iowa officially characterized in February of 2019 as the beginning of the P3 “exploration phase” was, by Harreld’s own admission in the DI interview, a process that had been underway for eight months. And of course this is the same man who spent the entirety of 2019 telling everyone that the UI P3 would not involve the “lease of state assets”, when the entire deal was premised on a lease of state assets. (I still have no idea why he did that, but he did that, and you should never forget it.)

   A bit later in the DI interview — which again took place the day before the UI P3 was approved, and three days after Faculty Senate President Daack-Hirsch singled out Tom Rietz and Joe Yockey for their contributions — Harreld said this:

   There are a lot of people I need to thank in this process, one in particular is Tom Rietz – Professor Rietz – whose [sic] the chair of the finance department, the Tippie College of Business. He’s been involved in this … [since] very early on. I recognize that, even though I have some reasonably good finance skills, I need a lot of help. And we all did.

   So, I sit down with Dan Collins and Tom Rietz and Dan is the chair of the accounting department for Tippie. The three of us met and I said, here’s what I’m beginning to see and to understand and how it would work. But boy, the risks of this are huge. And we need to be able to model how the financial markets may play out over 50 years. We need to be able to model how much money we would need to fund the gaps in our strategic plan. We need to — I can just keep going.

   There are layers and layers and layers to this and so Tom, in particular, did an awful lot of modeling. In particular, once we started to get the structure reasonably well-defined, [we] started running various scenarios of a 2007, 2008, 2009: fiscal collapse, credit lock up in the US economy through P3. So we just look through scenario after scenario after scenario. This is not risk free, something like this will never be risk free.

   On the day before the P3 approval meeting, in an interview that Harreld knows will not be published until after the P3 is approved, he not only acknowledges the risks involved, but like UI Faculty Senate President Daack-Hirsch he identifies Tom Rietz as having somehow minimized the risks by running countless theoretical models. And yet from reporting by the DI”s Katie Ann McCarvery way back on 02/12/19, about the Faculty Senate meeting where Rietz and CFO Johnson brought that group up to speed, it is clear that Tom Rietz was not giving the P3 his seal of approval:

   “There’s no guarantee this is a good idea,” Department of Finance Executive Officer Thomas A. Rietz said. “The financial side is the easy question to answer.”

   Despite Rietz’s concerns in early February, to say nothing of his description of the UI P3 as a de facto loan, in mid-December Rietz was suddenly being lauded for his role in shepherding the UI P3 to fruition. Despite no other appearances that I can find following his minimal comments to the UI Faculty Senate in February, by the time the UI P3 was on the verge of final approval both Daack-Hirsch and Harreld singled him out — if not fingered him — as one of the main reasons that the university decided it was worth risking the future of the school on a $1.17B bet. (That particular DI article is one of the links that my initial Google search failed to return, but it is also one of the only mentions of Rietz prior to the sudden convergence of notice by Daack-Hirsch and Harreld in early December.)

   Now, I don’t have any idea why Rietz was a party to the embarrassing white paper about gaming Iowa’s national rankings, and I don’t know what he did or didn’t do with regard to the UI P3, but it is worth noting that even now we don’t actually have Rietz on the record about the P3 other than his comments ten months ago. Daack-Hirsch is thrilled with Rietz, and Harreld is thrilled with Rietz, but the one guy those two leaders agree was pivotal in the decision making process has not been quoted in the press for close to a year, and the obvious question is why not? If his modeling proved so persuasive, why hasn’t Tom Rietz presented his data to the UI community — particularly given that it represents state-funded research derived from his work as a member of the faculty, as differentiated from any trade secrets involving the private-sector energy partners that the university finally got in bed with.

   As for Dan Collins, until Harreld’s DI interview I had never heard of him in any context, and when I did a search for his name and ‘public-private partnership’ I got zero hits other than a link to that interview. Because I was still concerned that Google wasn’t accurately reporting results I then went back through all of the 2019 meetings minutes for the Faculty Senate and Faculty Council, but his name wasn’t mentioned once. Yet to hear J. Bruce Harreld tell it on the eve of approval for the UI P3, the otherwise invisible Dan Collins was critical to the university’s transparent and extensive deliberative process. Really?

   Whatever role Collins, Rietz and Yockey did or did not play in convincing the University of Iowa to borrow $1.17B from a European energy consortium, it is also worth nothing that while Daack-Hirsch and Harreld were heaping praise on those men — and indeed crediting them with having assured the shared governance groups that the UI P3 was a great idea — there has been little public mention of the consultants that UI paid to vet the deal that was actually consummated. Even in his extensive DI interview on 12/09/19, Harreld mentioned them only in passing:

   That’s one of the things we did very early on is we hired a specialist, and a law firm and financial advisors who had been through these multiple times. It wasn’t their first rodeo as people say. It might have been the university’s.

   In particular, our advisers were both one way or the other involved in Ohio State’s, and they understood what that document looked like and what was considered.

   The University of Iowa is paying those advisors $13M, yet in the span of a few days before the UI P3 was approved what Daack-Hirsch and Harreld wanted to talk about were not the major corporations that did the heavy lifting, and vetted the contract that was actually signed, but three academics who were, by every available public measure, only peripherally involved. Even if Tom Rietz ran ten thousand iterations of a hundred different models each, however, it was the financials that Welles Fargo produced which would have defined the parameters of the UI P3 concession agreement, because that’s what investment bankers do. And whatever sanction Collins and Yockey gave to the premise of the UI P3, it can be said with a reasonable degree of certainty that none of their input, and none of Rietz’s models, would have dissuaded Harreld from plunging ahead if Jones Day and Wells Fargo said they could make it happen. And we know that in part because unlike such deals in the private sector, not a damn person at University of Iowa had any skin in the game. If the whole deal implodes for any reason, or the economy tanks and the endowment falters, UI can simply raise the cost of tuition or beg the legislature for more funds, which actually incentivized the risk-taking we see in the UI P3.

   All of which now brings us back to shared governance at the University of Iowa, and claims by both Daack-Hirsch and Harreld that the UI P3 development process was transparent. It is not only abundantly clear that more information was shared internally at UI than was shared with the general public, but that does not mean Harreld kept shared governance leaders fully apprised — and why would he? Just as Harreld and his executive team controlled the flow of information to the greater public, we can assume that they controlled the flow of information to shared governance leaders, and we have Harreld himself attesting to the right to do so.

   Again, from a Daily Iowan interview on 10/15/18, here is what J. Bruce Harreld really thinks about shared governance at the University of Iowa:

   Then, I would remind all of my colleagues on campus that I passionately believe in shared governance. Shared governance does not mean shared decision-making.

   There is zero chance that J. Bruce Harreld would have rejected the UI P3 if shared governance leaders had expressed strong reservations, and nothing about the shared governance process had any effect on the outcome of the UI P3 development process. Harreld may have kept shared governance leaders apprised of various aspects of the plan, but that doesn’t mean he kept them fully informed, and it is self-evident that he did not give them a vote about whether to push ahead or not. So whatever Rietz, Collins or Yockey did or did not do, that was either a mutually beneficial smokescreen or ass covering depending on whether the gamble pays off.

   If the P3 endowment makes money, then everyone can claim to have been critical to that success, and add that to their extensive C.V. If the P3 endowment loses money, then Harreld and the regents can claim shared governance was fully in support, and that esteemed academics on the UI campus gave it the green light. [Had Rietz’s models forecast financial ruin, it’s a safe bet that Welles Fargo — which systematically defrauded its own customers — would have produced reports which gave Harreld and regent president Mike Richards (who, no joke, is part owner of a casino) odds they could stomach, and UI would have pushed ahead anyway.]

   Having said all that, as noted earlier there is a practical aspect to all of this as well, and in that regard Harreld also checkmated shared governance leaders into submission. If you haven’t already, take a look at the Path Forward Steering Committee that Harreld intends to use to dispense money from the P3 endowment, which Harreld himself sits on, along with representatives from the four shared governance bodies. If you intend to get your cut of the P3 pie, will it help or hurt your chances if you were on the record pointing out that the P3 is reckless? And of course the answer is obvious. Anyone who was disloyal to Harreld would inevitably be punished, and the other shared governance leaders would not come to that individual’s aid because that would mean more money for them and their constituents. (This is in fact a microcosm of the divide-and-conquer approach that Harreld employed in rolling out a new budget model, which also pits colleges and departments against each other, fighting over funds that Harreld doesn’t care about.)

   In the context of the UI P3, then, here is the reality of the shared governance process on the University of Iowa campus. From the get-go Harreld made it clear that the university was going to borrow an insane amount of money (albeit cloaked as a ‘payment’), the bulk of which he would then invest in the markets in the hopes of generating a profit. From that prospective profit Harreld would then make a capped amount — roughly $15M or $16M — available to the greater campus, through a grant process which Harreld imposed without asking for permission from any of the shared governance groups. Because there will now be more money to play with, however, and the process by which those funds will be distributed is ‘competitive’, everyone in shared governance is incentivized to validate any lie that Harreld has told or will tell about the UI P3, even if doing so puts the university or the state at risk.

   In sum, across the spectrum of executive, academic, staff and student leadership at the University of Iowa, truth has been devalued to the point of irrelevance. The only thing that matters is telling the most compelling lie, for the most money, irrespective of any risks to the institution. That isn’t shared governance so much as shared deceit, but hey — they’re all pulling in the same direction, even if that collaborative effort is antithetical to the premise of higher education. Unfortunately, instead of searching for truth, everyone at UI is now a game show contestant looking to score a cash prize.

   And that would all be fine if the University of Iowa was a private institution, but it isn’t. Instead, it’s a state-funded public research university, yet no one in a position of leadership at UI — or at the Board of Regents for that matter — feels that the university has any obligation to be fully transparent to Iowa’s taxpayers. With regard to the P3 specifically, the question isn’t whether all of the self-interested grifters and bureaucratic hostages at UI agree that the process was transparent and allowed time for informed comment, the question is whether it was transparent and objectively it was not. (While this is admittedly not a new phenomenon at Iowa, the degree to which Harreld and shared governance leaders equate internal collaboration with fulfilling their duties as state employees makes clear that they have effectively privatized the university in their own minds, if not also turned it into a lucrative country club.)

   As we will see in the next part of this multi-part post, however, one Iowan did pointedly object to this entrenched institutional arrogance, particularly as displayed by the Board of Regents. The fact that J. Bruce Harreld took pains to publicly deride that individual also underscores the degree to which his pugnacious attitude drives his reckless decision making. Unfortunately, I have every confidence that the shared governance leaders at UI will remain mute in that regard, even if Harreld’s petty, bratty and vindictive attitude costs the university dearly. What was a hostile takeover in 2015, when Harreld was appointed, is now complete, and the capitulation and collaboration of shared governance during the UI P3 approval process makes that clear.

   Update 01/25/20 — The Daily Iowan published a letter to the editor on 01/23/20 (which I have been told was submitted in December, just prior to the campus going on winter break), which pushes back against the idea that the university’s shared governance bodies were wholly in support of the UI P3. Even if Harreld’s recklessness cannot be mitigated, it is important that individuals with first-hand knowledge help make the historical record, as opposed to leaving that to Harreld and his collaborators on the UI campus.

   Part 8: J. Bruce Harreld and the Iowa Legislature

   Reply

9. Ditchwalk says

   February 19, 2020 at 5:23 pm

   The UI Utility P3 in Context — Part 8: J. Bruce Harreld and the Iowa Legislature (Part 7)

   I don’t know how other states go about legislating, but in Iowa the legislature is a part-time affair with sessions usually running from mid-January to late April. As to the make-up of that branch of state government, there are 50 senators (currently 32 Republican, 18 Democrat) and 100 representatives (53 Republican, 47 Democrat), and over that three-and-a-half-month span they all congregate in the capital city of Des Moines to enact new legislation and hammer out the budget for the next fiscal year.

   In the context of the University of Iowa’s public-private utility partnership (P3), which was approved by the Iowa Board of Regents on December 10th, this background information is important because of the one truly unexpected moment that occurred during that otherwise ruthlessly scripted meeting. (While there were important disclosures that took place, and we will dig into one of those disclosures in the next post in this series, the dissemination of all of that previously secreted information was still under the control of the university and the board.)

   You can see — or more accurately hear — that unscripted moment for yourself at the 48:37 mark in the video of the approval meeting, which was gaveled to a close shortly thereafter. In its own right the moment is hilarious precisely because it reveals the literal scripting of the proceedings. The president of the board, casino owner Michael Richards, reads a few lines from a text in front of him, then says, “Any discussion?” Because he already knows none of the regents will speak Richards turns the page in his script without looking up, only to be startled to a head-snapping degree when someone does start speaking off camera.

   In textbook administrative fashion Richards quickly recovers, listening blankly until the 49:26 mark, then picks up right where he left off in his script, as if the interruption never took place. Moments later, the UI P3 is approved and the meeting adjourned. While the speaker is never revealed on camera, and what they said was unintelligible during the live-stream (at least to me), from journalists who were in the room we did quickly learn who spoke out and the gist of what they had to say.

   As reported almost immediately in tweets, then expanded on in press accounts of the meeting, the off-camera speaker turned out to be Iowa State Senator Claire Celsi (D), who represents Senate District 21. (That district includes a chunk of West Des Moines, and is located just south of the suburb of Urbandale, which is where the regent offices are located.) Not only had Senator Celsi taken time to attend that meeting, but after witnessing the breakneck pace of the proceedings and the total disregard for public input and comment, she spoke out in defense of the disenfranchised citizens she represents.

   While I have yet to find any comment about Senator Celsi’s impromptu remarks from members of the Board of Regents, when the press asked illegitimate University of Iowa president J. Bruce Harreld for his thoughts after the meeting, he seized the opportunity to shoot off his mouth. (That is notable in itself because for the most part — save his obligation to regularly meet with the staff of the student-run Daily Iowan — Harreld has made a point of avoiding the local and national press during his tenure.) Although Harreld could have easily taken the high road, or said nothing at all, because he is a petty, bratty and vindictive man he went on the attack, almost certainly because Senator Celsi accurately exposed the false narrative that the UI P3 development process was broadly inclusive and transparent.

   From Iowa Public Radio’s Katarina Sostaric, on 12/11/19:

   Sen. Claire Celsi, D-West Des Moines, interrupted the meeting and told the regents it is “shameful” that they did not allow for public comment at Tuesday’s meeting.

   “This is a State of Iowa asset, not your monopoly board,” Celsi said. “So not letting the public outside the University of Iowa itself have any input is unconscionable.”

   Asked about those criticisms, UI President Bruce Harreld said there were six town hall meetings about the proposal, as well as dozens of meetings with university stakeholder groups.

   “So that’s one wave of this that I get a little bit frustrated with that, quite frankly, we somehow think that this has been too fast? It’s been a year and a half,” Harreld said. “Secondly, that it hasn’t been transparent. Stop it. It’s been very transparent and will continue to be.”

   On the merits Senator Celsi had Harreld and the regents dead to rights, so Harreld did what he often does. Like a third-rate debater — or trapped rat — he ignored Senator Celsi’s damning charge and simply changed the subject, while also salting in various insults. As a factual matter, however, Senator Celsi’s description of what had just taken place was entirely accurate. After sharing limited P3 information internally at UI, and holding a spate of largely meaningless public meetings as detailed in prior parts of this post, Harreld and the regents only disclosed the critical components of the deal during the same meeting at which the P3 was then immediately approved.

   Indeed, when members of the press asked in advance why there would be no public comment at the final approval meeting, not only did the board spokesperson laughably assert that the regents were powerless to provide any opportunity for public comment because of the type of meeting taking place, but both he and a spokesperson for the university once again emphasized the number of prior meetings — as if those meetings absolved the board of any subsequent obligations to the citizens of Iowa. From the Gazette’s Vanessa Miller on 12/09/19 — one day before the slapdash approval of the UI P3:

   When asked last week about the potential for public comment, regent spokesman Josh Lehman told The Gazette the board allows public comment at regularly scheduled meetings — not special meetings.

   “The proposed public-private partnership has been discussed publicly for many months, including having numerous meetings on UI’s campus,” Lehman said.

   UI spokeswoman Ann Bassett said in a statement the university has followed a competitive process that has “been in place for decades.”

   “The university publicly announced its intention to investigate a public-private partnership on Feb. 8, 11 months ago. Since then the university has held six forums/comment sessions for the public and campus, as well as one information session with each of the four shared governance bodies,” her statement said. “President (Bruce) Harreld has spoken publicly about the process at seven regular Board of Regents meetings and provided a 90-minute information session for the Board on (Nov. 3), which was live-streamed and remains available on the Board’s website.”

   As a factual matter nothing prevented the board from allowing public comment at the approval meeting, or the university from releasing critical details prior to that meeting. Indeed, in the ‘informational webinar’ that UI conducted the week before, Harreld and his transparency-positive team could have easily divulged key details that they held secret until the approval meeting, thus giving the public time to digest that info. Instead, because they did not want to answer questions or hear any pushback, they used their own policies and governing latitude as an excuse to ram the approval through. (As to why the board and university were afraid of public reaction, a lawsuit that was filed against Ohio State during its own secretive P3 development process was almost certainly the driving force behind UI’s deceptive practices, including falsely asserting that the UI P3 was still in the “exploration phase” when the university was already soliciting and winnowing bids.)

   Fortunately, and to her everlasting credit, Senator Celsi called Harreld and Richards on their bureaucratic duplicity in the moment. Like the giggly cool kids they believe themselves to be (watch President Pro Tem Patty Cownie immediately to Richards’ right — camera left — in the video clip above), they know no one can make them do the right thing, so they do whatever they want. In this instance, however, we do have a pointed and pertinent accusation on the record, which reveals the P3 approval process to have been an administrative boondoggle in itself.

   Were we in a generous mood we might excuse both the board and university spokespersons for ‘following orders’ from their superiors, but what about Harreld’s disingenuous rant at Senator Celsi? There is in fact a lot to say about Harreld’s bitter retort, but to understand where that particular blast of bile came from we have to pull back and look at the larger context. Specifically, we need to take into account both the preceding forty-eight hours and the remainder of the day on December 10th. In doing so we will not only reveal J. Bruce Harreld’s rhetorical deception to have been premeditated, but expose the degree to which Harreld believes all of Iowa’s legislators are deserving of his personal contempt.

   As just noted, after lying about the development of its public-private utility partnership for the better part of 2019, the University of Iowa conducted an “information session” for the Board of Regents on 10/03/19 — as if the board was, at that late date, still oblivious to any prior planning, even as the university and board spokespersons now insist that the entire project was fully disclosed throughout the entirety of 2019. (If everyone in Iowa knew exactly what was happening, why did the regents need an informational webinar one week before the approval meeting?) Three days after that perfunctory clown show, or four days before the final approval meeting on 12/10/19, Iowa state senator Joe Bolkcom — who represents Senate District 43, which includes the great majority of Iowa City and thus the great majority of the UI campus — published an op-ed on the risks inherent in the proposed P3. (That opinion piece, which appeared in multiple publications in early-to-mid-December, seems to have appeared first in the Iowa City Press-Citizen, and was accompanied that same day by a separate write-up from the PC’s Aimee Breaux.)

   From Bolkcom’s op-ed:

   The University of Iowa and Iowa Board of Regents are moving at breakneck speed toward approving a proposed University of Iowa’s plan to privatize management of the institution’s electricity and water systems in exchange for a $1 billion-dollar (my guesstimate because it’s still a secret) payment.

   When I read that op-ed at the time I was brought up short by what turned out to be Bolkcom’s prescient guess about the staggering valuation of the P3, but for the purposes of this post we will focus on Bolkcom’s invocation of the phrase “breakneck speed”, and on his concerns about disclosure. Continuing, from later in the op-ed:

   Except for [a] handful of legislative leaders and the Governor’s office, Iowans have been left in the dark about the financial details of this deal. The assets of the University of Iowa belong to Iowa taxpayers not any board or unelected administrator. We have not privatized the University of Iowa yet! Iowans deserve a far more transparent process and a timely sharing of the financial details of such a complicated long-term deal.

   Iowans will have no opportunity to express their views on the final details of the borrowing plan. At the Board of Regents meeting next week, they will reveal the successful bidder and the amount of the deal moments before they vote to approve the contract. Their agenda does not allow for any public input.

   Taxpayers deserve some straight answers to basic questions before the Board of Regents rubber-stamps the deal.

   Clearly this is the same concern that Senator Celsi expressed four days later, during the breakneck approval meeting, which in turn prompted spittle from Harreld’s perturbed lips. If a state agency intends to assume a massive debt, and the state itself is ultimately on the hook for that debt — despite Harreld’s scandalous on-camera denial to the contrary — then the public deserves an opportunity to comment before that debt is assumed. Unfortunately, any fiduciary stewardship that was originally intended when the Board of Regents was created has been obviated by the modern-day entrepreneurial ethos, which exults in risking taxpayer funds for the benefit of private corporations. (As a reminder, and as we will see in the next post, $250M of the total $1.17B in upfront cash that will be given to UI was contributed by a secret group of Iowa investors that the regents and university refuse to identify.)

   Although Bolkcom’s op-ed did not appear in the university paper, two days later, on 12/08/19 — meaning two days before the P3 approval meeting — the Daily Iowan reported on a forum it had just hosted for local legislators. Among those in attendance were Bolkcom, Representative Vicki Lensing (House District 85, encompassing northern Iowa City), Representative Dave Jacoby (House District 74, covering western IC, Coralville and a rural strip to the north), Representative Mary Mascher (House District 86, which includes southern Iowa City and a strip to the south), and Senator Zack Wahls (Senate District 37, covering far-west Iowa City, Coralville, and a sizeable chunk or rural Johnson County).

   From the write-up about that forum, by the Daily Iowan’s Marissa Payne:

   “The amount of secrecy in keeping Iowans in the dark on the process side has been a failure — a failure of the Board of Regents and a failure of the administration at the university here,” Bolkcom said.

   The lawmakers criticized that information-sharing timeline, but UI media-relations director Anne Bassett said in an email that university officials held several forums with the public and with shared-governance branches to discuss the potential partnership.

   Regarding why the request-for-proposals process has been private and not publicly shared, she said, “Throughout the entire consideration of a public-private partnership with its utility system the University of Iowa has followed its existing purchasing process. This process, which has been in place for decades, was created to ensure the most competitive bids in order to benefit students, families, and taxpayers.”

   As luck would have it, the very next day, on 12/09/19 — meaning the day before the P3 approval meeting — J. Bruce Harreld sat for one of his regular interviews with the Daily Iowan. Although that interview was not published until 12/15/19, or five days after the P3 was approved, the reporters did ask Harreld for his thoughts on the legislative forum:

   DI: In regards to the P3, state lawmakers said in a forum hosted by the DI yesterday on Sunday that they fear the potential p3 is a gamble that seems to rely on some uncertain factors like unforeseeable, long-term risks. And they also fear that this deal would fleece federal taxpayers in particular. So what is your response to that character description of the P3?

   Harreld: Well, I don’t know where to begin because I don’t know how to discuss unforeseen factors. If somebody [foresees] them, then I will talk about what we’ve done to mitigate them so I feel like it’s just a little broad. I’ve read it, I mean I think there’s several pieces. And if I leave something out, take me where you want to go. One portion of this is that it’s been too fast. We’re not transparent. And I think I have a real problem with that. I just don’t think that’s the truth. The truth is this started, for me, it started in August of 2018 — a letter from the governor asking us to be much more creative in thinking about new alternatives, including philanthropy, for the university. We talked about that probably in September of 2018.

   And so that’s when we specifically started thinking about a P3, in this type of structure, in the early part of 2019. In this year alone, I counted at least 17 major public events on campus and public forums. About six to eight of them have been town hall meetings that have been wide open for anybody who wanted to come. And then I counted at least 10 articles that have been written in the major newspapers. The first one, back to February 8 in The Daily Iowan as matter of fact …

   So to say that this hasn’t been transparent or that it’s been too fast I don’t stake [sic] in this a better part of, perhaps, I’d say 16 to 18 months to deal with this and to work it through.

   Setting aside his instant pissiness, and the fact that Harreld just happened to have a bunch of oddly specific data points in his head — as if he stayed up all night cramming for a transparency test, which, in retrospect, he clearly had — this response was simply a verbose preview of his reaction to Senator Celsi the next day. Instead of actually speaking to valid concerns about the P3 approval meeting, at which substantive information would finally be disclosed only moments before the deal was approved — and no public comment would be allowed — Harreld changed the subject and went on the attack. And of course the very next day he did the exact same thing.

   As it turns out, however, not only did Harreld use the same disingenuous argument with the DI and at the P3 approval meeting, but he also used it when speaking to the UI Faculty Senate on the afternoon of the 10th — meaning after the P3 was already approved. (Of course by that time it didn’t really matter what the hell he said because the issue was moot, and everyone knew it.) From the meeting minutes for the UI Faculty Senate meeting on 12/10/19, which took place almost immediately after approval of the UI P3 by the Board of Regents:

   Noting that there has been concern raised in recent days about a perceived lack of transparency throughout the P3 consideration process, President Harreld pointed out that there have been over 16 public events about the P3 process held since February. He added that shared governance representatives have been significantly involved in the process. Members of the university’s utilities infrastructure have also been involved. At least ten major articles about the proposed P3 agreement have appeared in various local news publications.

   Clearly, Harreld’s game plan over that forty-eight hour span was to deny that there were any issues about transparency, while also citing all of the meaningless meetings that were conducted during 2019 as proof that the P3 was fully disclosed. At the same time, however, Harreld’s appearance in front of the UI Faculty Senate mere hours after the P3 was approved — to personally inform them about a series of last-minute disclosures that the Faculty Senate and other shared governance bodies knew nothing about — — puts the lie to Harreld’s repeated assertions. (In fact, the meeting minutes for Harreld’s presentation run over three single-spaced pages and comprise two thousand words, and the obvious question is why that presentation was necessary if Harreld kept the Faculty Senate fully informed all along.)

   Looking at the big picture, what seemed like a petulant blast directed at Senator Celsi on 12/10/19 was part of larger messaging campaign designed to confuse Iowans about whether the P3 development process was transparent. After Senator Bolkcom’s op-ed dropped on December 6th, Harreld had four days to get his talking points down, and three days later he began hammering his false message at every opportunity — first to the DI on the 9th, then after the approval meeting on the morning of the 10th, and again during the Faculty Senate meeting on the afternoon of the 10th. And of course in all three cases he avoided addressing the legitimate complaint that Iowans had no chance to comment once the most important facts were divulged, because formal board approval followed immediately thereafter.

   Even with all of that context, however, and seeing Harreld’s messaging for the orchestrated lie that it was, that doesn’t explain his bile when asked about Senator Celsi’s comments following the approval meeting. And to see what I mean, here again is Harreld’s response as quoted in the press:

   “So that’s one wave of this that I get a little bit frustrated with that, quite frankly, we somehow think that this has been too fast? It’s been a year and a half,” Harreld said. “Secondly, that it hasn’t been transparent. Stop it. It’s been very transparent and will continue to be.”

   Because Harreld knows the press is obligated to pass along whatever he says, whether it is true or not, it may be that a certain percentage of distracted Iowans were swayed by his false insistence that the P3 development process was open and transparent. In reality, however, not only is that not the audience Harreld should have been concerned about when responding to Senator Celsi, but from his “stop it” comment it’s clear that his inner brat was once again in control of his mouth. And that is potentially a big problem for Bro Bruce and UI, because as noted above the legislature is currently in session, and part of the legislature’s job is determining how much state money each regent university will receive for the coming fiscal year.

   In that context, and whether you believe J. Bruce Harreld is a super-colossal business genius or a crony toad, let’s consider a simple question. Was Harreld’s response to Senator Celsi smart, or not so smart? Because from where I sit up in the nosebleed section, barking “stop it” at a state legislator during funding season is not just a punk move, it’s a dumb punk move. (There are only 150 Iowans who will vote on how much money you get from the state, and you decide to publicly belittle one of those people?)

   If Harreld had a bit more self control he could have said a hundred different things ranging from the banal to the diplomatic, but he clearly cannot moderate his condescension. To underscore how his pugnacity could cost the university, let’s also note that of the legislators mentioned so far in this post — Celsi, Bolkcom, Lensing, Mascher, Jacoby and Wahl — all are Democrats, but Celsi has a unique distinction. Where the others represent districts in which the University of Iowa and/or its students, faculty and staff reside, not only does Celsi’s Des Moines district have nothing to do with UI, it has nothing to do with any of the state universities. Meaning when Senator Celsi is thinking about what’s best for her constituents, she isn’t thinking about spending money on Iowa, Iowa State or Northern Iowa, but about other priorities.

   Whether Harreld was high from having rammed the P3 through to completion, or indignant because his pristine power play was sullied, treating legislators like children when you want them to give you money is cosmic-grade idiocy. Making that idiocy all the more inexplicable is that while the University of Iowa is once again pleading poverty, it is also about to take custody of a $1.17B check. Not surprisingly, the implications of that windfall on the school’s appropriations have prompted concerns by everyone from local state legislators to members of the UI campus community, and even Harreld himself seems to be aware of the risks.

   From the Daily Iowan’s report about its legislative forum on 12/08/19 — two days before the P3 was approved:

   Iowa Sen. Zach Wahls, D-Coralville, said that $15 million amount is “interestingly about the same amount of money that the Legislature gave to the state institutions last year with no privatization of the Power Plant.” The Legislature this spring boosted fiscal 2020 funding by around $12 million — $6 million less than the regents requested for their three institutions.

   Wahls said he wonders how GOP lawmakers will respond to the potential partnership and feared they may view this deal as a signal that they can provide that amount less in funding to the UI.

   From the UI Faculty Senate meeting minutes for 12/10/19, mere hours after the P3 was approved:

   In concluding his presentation, President Harreld observed that public higher education is experiencing a drop in state funding across the country. The P3 provides UI with a wonderful opportunity to advance our goals in spite of this difficult financial environment. Professor Glass expressed concern that the P3 would still lead to a decrease in funding from the state.

   In the DI’s 12/10/19 write-up of that same Faculty Senate meeting, J. Bruce Harreld was not only clearly aware that the legislature could reduce Iowa’s appropriations as a result of the P3 windfall, but he had a novel solution to that potential problem:

   As some members of the public and Democratic lawmakers have raised concerns that the General Assembly will defund the University of Iowa for its pursuit of a public/private partnership, UI President Bruce Harreld told the Faculty Senate Tuesday that the power of the polls got him over that concern.

   “I want to remind you that everyone in this room is a voter,” Harreld said during the Tuesday Faculty Senate meeting in the Old Capitol Senate Chambers. “And I think it’s about time we stand up and start asking people who are running for office, ‘What’s your point of view on public higher education, and are you willing to fund it?’ ”

   His remarks — met with applause from those in attendance — came as part of a response to questions from Faculty Senate member Loren Glass regarding how the UI will allocate funding from the university’s public/private partnership for its utility system.

   Glass also asked how state lawmakers, who are already notorious for trimming the regent universities’ budgets in recent years, would respond to the approximately $1 billion endowment the UI would manage in proceeds.

   “The last few times you guys came here and mentioned this to us, you were asked whether the state was going to deappropriate relative to what we were getting, and there was no satisfactory answer,” Glass said.

   Given that Harreld got the job he now holds because he is the little buddy of a rich UI alum, and has never stood for public office in his life, and would have been flushed down the higher-ed toilet if the 2015 UI presidential search had been an election instead of a corrupt crony hire, it is more than a little ironic that Harreld is now agitating for Iowa’s state legislators to be thrown out of office if they won’t give him more money. In fact, the record shows that while Harreld has relentlessly advocated for tuition hikes since he was hired, over the past four years he has done almost nothing to encourage Iowa’s legislators to increase funding. Then again, Harreld also knows there is no mechanism by which the UI community can vote him out of office, so he has no incentive to advocate for more funding unless the regents tell him to do so, which they never do.

   Again however, what we should really be asking — as we did moments ago regarding Senator Celsi specifically — is whether it is strategically smart for the president of the University of Iowa to actively campaign for sitting legislators to lose their jobs, while he is in fact waiting to find out how much money they intend to give him. And of course the answer is no, that is not smart, but it is in keeping with the petty, bratty, vindictive way that Bro Bruce conducts himself. Precisely because he is protected by the crony Board of Regents, Harreld knows he can shoot his mouth off and go on the attack against Senator Celsi or any of the other 149 members of the Iowa legislature, and it won’t cost him his $50K monthly state checks.

   So how does the funding picture look for the regent universities for the coming fiscal year (FY2021), which begins on July 1st? At a remove the appropriations conversation seems to be little different than it has been the past four or five years. In mid-January, when the legislature gaveled into session, new Republican House Speaker Pat Grassley laid out his budget priorities, and as reported by the Daily Iowan’s Julia Shanahan on 01/13/20, the regents didn’t even merit a mention. The next day, however, when the governor detailed her own FY2021 budget, she had quite a bit to say about the regents, as reported by the DI’s Marissa Payne, on 01/14/20:

   While the cash-strapped state Board of Regents universities tout their roles as economic engines for Iowa, Gov. Kim Reynolds has recommended the institutions receive a boost to their general funds of $15 million in fiscal 2021, according to her budget unveiled Tuesday — falling $3 million short of the regents’ request.

   Under Reynolds’ recommended budget for the fiscal year beginning July 1, 2020 and ending June 30, 2021, the University of Iowa would see a $6.7 million bump, Iowa State University would receive $5.3 million more, and the University of Northern Iowa would get a $3 million increase. The regents have asked for a funding boost of $7 million each for the UI and ISU, and $4 million for UNI.

   Regent Executive Director Mark Braun said in a statement that the regents and university leaders look forward to working with the governor and lawmakers in this legislative session to advocate for sufficient funding.

   “We will continue to be good stewards with funding that our universities receive,” he said. “…We will continue to advocate for a level of funding that is needed to provide the first-class education that our students demand.”

   At first blush this substantive support from the governor would seem to be good news, but as regular readers know this is merely part and parcel of regent theater. In the fall of each year the regents ask for a given amount of funding — usually around $20M — which the governor and legislature then intentionally fall short of in the final budget. That shortfall, no matter how trivial, is then used as justification by the board — which is appointed by the governor — for again raising tuition on students and families, completely out of scale to that funding shortfall. (Overall, even when there are actual cuts in state funding, the regents increase tuition about $2.7 for every $1 cut. And of course when the state does increase appropriations, tuition hikes in those years are pure profit.) It is, in every sense, a racket, and again this year the governor is proposing $15M of the board’s initial $18M request, thus fulfilling her headlining role in this year’s theatrical budget production.

   As to how much money the regent universities will actually get, however, and specifically the University of Iowa, it is not surprising that local state legislators and the university faculty, and even Harreld himself, are concerned that UI might see a reduction in support following approval of the UI P3. If the university really is about to receive a ‘payment’ of $1.17B in cash, of which $999M is liquid, why wouldn’t the state cut funding to the school now that is demonstrating increased self-sufficiency? Particularly given that the other state schools — Iowa State and Northern Iowa — will not be receiving checks for $1.17B, what possible justification could there be for giving UI another $6.7M on top of the massive windfall from the UI P3?

   The great irony, of course, is that the University of Iowa proved so adept at obscuring the fact that the $1.17B P3 ‘payment’ is a loan that will have to be paid back with interest, that the regents must now fight against a pervasive belief they themselves created. Even after skimming $166M to pay for incidentals it is undeniable that the University of Iowa will end up sitting on a $999M endowment, which may be the single biggest liquid asset in the state. Whether that money is a ticking time bomb of debt, or — as the university and regents implied for all of 2019 — straight-up profit, the result is that the University of Iowa is about to find itself flush with $1B in unrestricted funds. Which may explain why the regents are now slithering around behind the scenes, trying to convince Iowa’s legislators that UI should still not have its funding cut, despite all that moo-lah. (Cow joke!)

   From Kelsey Harrell and Marissa Payne at the Daily Iowan, on 12/10/19 reporting on Harreld’s extensive post-approval briefing to the UI Faculty Senate:

   During the meeting, Harreld said the state Board of Regents has educated the current members of the state Legislature to ensure they understand the partnership is not a reason to decrease appropriations; they still need to fulfill their part of the funding deal.

   Setting aside the possibility that J. Bruce Harreld let the cat out of the bag, and there is a secret “funding deal” that the regents and legislative powerbrokers agreed to behind the scenes, let’s consider the implications of this sentence. As with the 12/10/19 Faculty Senate meeting itself — which should have been unnecessary because Harreld and his crack team of administrative brigands were so transparent about the details of the P3 — here we inexplicably have the regents “educat[ing] the current members of the state Legislature”, even after UI spent the better part of a year doing just that. Given all of the P3 meetings that were held, and all of he press reports that Harreld himself seems to be able to tick off from memory, what exactly is there to educate Iowa’s state legislators about?

   To that point, two weeks ago, on 02/05/20, J. Bruce Harreld appeared before the Iowa House Appropriations Committee and answered questions about the UI P3. Unfortunately, the most important observation we can make about the questions from members of the House, at least as reported by the DI, is that no one asked the most important questions, which include whether the $1.17B in cash that UI is about to receive constitutes a payment or a loan. Equally frustrating, however, is that after four-plus years of paying close attention to the University of Iowa and Board of Regents, I still can’t tell if Iowa’s legislators are genuinely oblivious of the cons that Harreld keeps running, or whether some of them are also bit players in regent theater.

   For example, and as detailed endlessly in prior posts on this site, the first sentence in this quote is a flat lie by Harreld, which he nonetheless told with characteristic ease to Iowa’s elected officials:

   Harreld told legislators the partnership will fill an annual $15 million funding gap left after state appropriations and tuition to support the UI’s strategic plan. However, he emphasized, the partnership is not a replacement for state appropriations to the UI from lawmakers in Des Moines.

   For any legislators reading this post who may be out of the loop, here is a snapshot of the University of Iowa’s overall funding picture since J. Bruce Harreld was hired in 2015:

   * At the end of the 2015-2016 academic year (concurrent with FY2016), the Iowa Board of Regents — on the pretext of a $1.7M funding shortfall from their revised $8M ask — unleashed a massive set of tuition hikes at all three state schools. From that single year of hikes alone the University of Iowa instantly generated an additional $27M in revenue from tuition and fees:

   FY2016: Appropriations $230.9M; Tuition and fees $432.6M
   FY2017: Appropriations $232.2 (+$1.3M); Tuition and Fees $459.8M (+$27.2M)

   * When the state budget collapsed in the middle of FY2017, the governor and legislature took the opportunity de-appropriate UI by about $15M on a permanent basis. In response, the Iowa Board of Regents again increased tuition, this time by more than enough to permanently compensate for those state cuts going forward. To see this clearly, here are the budgeted revenues for FY2018, which show a $15M decrease in appropriations relative to FY2017, but a compensating $17M increase in revenue from new hikes:

   FY2018: Appropriations $216.8M (-$15.4M); Tuition and fees $477.4M (+$17.6M)

   The net result of these cuts and hikes was that the $27M increase in annual revenue that was generated by tuition hikes the year before was not only preserved, but slightly increased, meaning UI was again net-ahead $30M or so in FY2018, even after all of the funding cuts and de-appropriations.

   * In late summer of 2017 (beginning FY2018), J. Bruce Harreld repeatedly referenced de-appropriations in his presentation before the Board of Regents’ Tuition Task Force, while saying nothing about the $30M in additional tuition revenue that the university would generate that year, and every year going forward, because of hikes he had already pushed through. In fact, in that presentation Harreld requested five years of additional tuition hikes specifically to pay for the five-year costs of the UI Strategic Plan — meaning the exact same strategic plan Harreld just used as justification for entering into the recently approved public-private utility partnership.

   As put forward by Harreld in the summer of 2017, we can extrapolate the estimated annual cost of the UI Strategic Plan from two slides in Harreld’s presentation. (Note that the specific costs attributed to the UI Strategic Plan, then and now, do not actually exist in the plan itself, but were ascribed by Harreld after its creation.) From the slide on p. 20 we get a total five-year cost of between $155M and $165M, or $33M per year at the high end. From the slide on p. 26 we can deduct roughly $12M in incremental/campus savings from that $33M, leaving a professed annual need of about $21M, or $105M total over five years.

   Even as Harreld was using that purported annual $21M cost as justification for five years of additional tuition hikes, he made no mention of the fact that prior hikes already provided sufficient revenue to pay for the UI Strategic Plan — and of course the board was fully aware of that surplus as well. Not only did the regents eventually approve Harreld’s demands, albeit at a lower percentage than initially requested, and following a one-year delay, but the board also granted itself two important caveats. Along with raising tuition 3% each year for the next five years, the board would do so even if state appropriations increased dramatically. Conversely, if state appropriations failed to keep pace with inflation as gauged by the Higher Ed Price Index, the board would simply add any shortfall to the annual 3% increase, again guaranteeing itself a profit regardless of state funding.

   * Although the new compulsory tuition hikes were stalled for a year, in FY2019 the board once again increased tuition while also seeing another small decrease in appropriations:

   FY2019: Appropriations $214.7M (-$2.1M); Tuition and fees $482.8M (+$5.4M)

   Once again, the result was that the University of Iowa was net-ahead another $33M or so for that fiscal year, as compared to FY2016.

   * Only in FY2020 (the current fiscal year), has the University of Iowa experienced a decline in revenue from tuition and fees, and yet increased appropriations largely compensated for that drop:

   FY2020: Appropriations $218.7M (+$4M); Tuition and fees $477.7M (-$5.1M)

   The end result is that over the past four fiscal years, even after taking into account all of the funding cuts and de-appropriations that Harreld and the regents have been wailing about over that time, the University of Iowa is net-ahead approximately $120M in total, or about $30M per year. Not only is that roughly one and a half times the annual $21M amount that Harreld said he needed to pay for the UI Strategic Plan in the summer of 2017, but it is twice the $15M or $16M Harreld now says he needs from the UI P3 to pay for the exact same strategic plan in FY2020.

   All of which now brings us back J. Bruce Harreld’s testimony before the Iowa House Appropriations Committee two weeks ago:

   Harreld told legislators the partnership will fill an annual $15 million funding gap left after state appropriations and tuition to support the UI’s strategic plan. However, he emphasized, the partnership is not a replacement for state appropriations to the UI from lawmakers in Des Moines.

   As just detailed using the University of Iowa’s own data, not only is there no “funding gap left after state appropriations and tuition” with regard to the UI Strategic Plan, but UI has been able to cover the professed costs of that plan since FY2017, following the massive hikes that were pushed through at the end of FY2016. All of Harreld’s claims in FY2018 about needing additional tuition revenue to pay for the strategic plan, or now needing revenue from the UI P3 to pay for the same strategic plan, have been premeditated lies. In fact, for FY2021 and every year going forward, the University of Iowa will bank another $30M or so in tuition revenue as compared to FY2016, and that would still be true even if the next four years of compulsory hikes were abandoned and the UI P3 produced not profits. On the other hand, once those new tuition hikes are implemented and the UI P3 endowment begins to generate returns, the University of Iowa will be net-ahead an additional $20M to $30M each year, or $50M to $60M from all new sources or revenue as compared to when Harreld took office.

   Even assuming that the majority of Iowa’s legislators do not know these facts, at what point do legislators get tired of being played for suckers? In his recent testimony before the House Appropriations Committee Harreld not only lied to their faces about needing additional funds for the UI Strategic Plan — which he is already generating from prior tuition hikes — but immediately after doing so Harreld went right back to calling for those same legislators to be voted out of office if they don’t give him more money:

   After the meeting, Harreld told The Daily Iowan that he remains concerned about state disinvestment now that the UI expects to have “an adequate set of funding soon to fill our strategic plan” from the partnership proceeds.

   “I think the best defense against that is to continue to tell them that we’re worried about that as well as suggesting to citizens throughout the state that they care about higher education — and of course I think they should — they should be thinking about that as they elect representatives in the state Legislature,” he said.

   Again, what is the benefit of antagonizing the very people who will determine how much funding you get for the coming fiscal year? How is that smart, particularly when the regents are skulking around in the shadows, trying to ‘educate’ legislators about why they should keep shoveling money at UI? Whether the P3 is a loan or a payment, the University of Iowa is about to receive $1B in cash, all of which will be unrestricted as to its use — yet Harreld is talking trash in Des Moines?

   Consider what the UI P3 must look like to legislators from either party who hail from, say, western Iowa — where there are no regent universities benefiting each year from hundreds of millions in state appropriations. Whether they have been paying minimal attention or have been educated about the UI P3 by the Board of Regents, they know the University of Iowa is about to find itself sitting on $1B in cash, which it can use for any purpose under the sun. Not only have those legislators never seen that much money themselves, but they have to fight tooth and nail, every year, just to get a few thousand dollars here or there for law enforcement or social services in their districts. And yet, at the same time that UI is about to become cash-rich, they know that the president of the University of Iowa is demanding even more money from the state.

   Wasn’t the whole point of hiring a non-traditional university president from the private sector to generate additional revenue? And isn’t that non-traditional president now fulfilling that mandate, by generating a truly stupefying windfall for the school, and thus also the state? So on what basis is that same university president not only calling for more state aid, but threatening to vote legislators out of office if they don’t meet his demands?

   Were I such a legislator, not only would I be dubious about anything the board told me — particularly after that university president not only lied to my face, but showed me his ass on the way out the door — but I would be thinking very hard about why I would want to give more money to the one regent university that was about to receive a billion in cash, while the other two state schools were fighting for relative funding scraps. In fact, I think I would also take a very hard look at the premise that the University of Iowa should be allowed to protect that $1B ‘payment’, and only spend the proceeds of an endowment, when the university could actually do both to the benefit of the state, while still honoring its contractual obligations.

   Specifically, as a state legislator looking for money for my own constituents, I would agree that the University of Iowa should generate as much revenue as possible from the initial $999M endowment, but at the end of the first year not only would the university be obligated to spend that revenue in full, it would be required to draw the endowment down by $20M. ($999M divided by the fifty-year term of the P3 is roughly $20M per year.) In the second year that $979 endowment would again generate a profit, at which point both those returns and another $20M could be used to fund whatever programs or expenditures the campus deemed appropriate.

   At the same time, however, because of all of that new, unrestricted cash and revenue at UI, I would argue — perhaps from the well of my chamber — that appropriations to the University of Iowa should be reduced by $35M, precisely because the non-traditional president of the school proved so successful at generating what the president of the Board of Regents called a “new revenue stream“. (I would stress that this was not a cut, but a reallocation of state resources made possible by J. Bruce Harreld’s heroic success.) While the university and regents would probably prefer to keep the $999M endowment intact, and only spend the proceeds, it would obviously be selfish for a regent university to sit on a billion in cash when there were so many other pressing needs. In fact, the current proposed funding increase that UI clearly does not need could be split between Iowa State and Northern Iowa, both of which struggled this year with enrollment declines, which significantly reduced tuition revenue. (An extra $5M would be an incredible boon to UNI, while that same amount is a a drop in the bucket at the University of Iowa, which has an annual budget of $4B.)

   Whether or not any legislator proposes something along those lines during the current session, ask yourself how likely it is that other legislators from either party would sign on. The Democrats who represent Iowa City and Johnson County would certainly be opposed, but what about legislators from districts which do not materially benefit from the hundreds of millions of dollars the state sends to the three regent universities each year? For example, how do you think Senator Celsi would vote if someone proposed a cut to UI’s funding commensurate with profits from the P3? Do you think Senator Celsi, a Democrat, would be favorable disposed to the petty, bratty, vindictive university president who told her to “stop it”, or might she be more inclined to vote in favor of shifting revenue to her own constituents?

   As for any financial concerns about strategically reducing the P3 endowment by $20M per year, note that during the university’s ‘informational webinar’ on 12/03/19, Harreld and his administrative team took great pains to point out that even if the endowment was reduced to zero at the end of fifty years, UI could simply turn around and do the same deal all over again:

   Regent David Barker: “If I could just follow up on that, I think — Terry, you were saying that, if the returns were fairly low, like four percent, that…that would mean the principal would be paid out entirely over that fifty years. If I understand it correctly, that’s not a catastrophic outcome, right…because after fifty years we still — we still own the plant and could do this all over again. Am I saying that right?”
   
   CFO Terry Johnson: “That’s exactly right.”

   J. Bruce Harreld: “Absolutely right. In fact — you know — I think an interesting question, is fifty years from now, uh, wouldn’t we like to be at zero or slightly positive…but to your point, we will then have lived through this transaction and could do it all over again. And…and so yes, we haven’t — we haven’t mortgaged our future….long term future, we have actually signed up for the next fifty years with a partner, but we haven’t committed any of that. Those assets are still ours and we can do it all over again. And that — going to zero is not a bad thing, it’s actually how we modeled it.

   If the University of Iowa was a private institution there would be nothing wrong — indeed everything right — with sitting on a massive endowment and only spending the annual returns. That is in fact how many private colleges and universities survive, precisely because they do not receive taxpayer support in the form of state appropriations. For a public university to assert, however, that it should be allowed to preserve a mountain of money that was generated from state assets, and can be generated again when the UI P3 contract expires, would simply be bureaucratic greed. (Given that UI is about to receive an unprecedented windfall, not only should Harreld and his team be thankful that the state facilitated their success, but as a steward of state resources Harreld himself should insist on a commensurate reduction in state support, so critical funds could be directed to agencies and citizens who will not benefit from the UI P3.)

   As to the Board of Regents trying to head off funding cuts at UI by educating legislators about the UI P3, the board is almost certainly doomed to fail not because of external opposition, but from internal dissent. To see why, take a moment and consider which state legislators would be at the front of the line in advocating for less funding for the University of Iowa. And of course the answer is those legislators who represent districts which include Iowa State and Northern Iowa, which are the other two universities operating under the auspices of the Board of Regents. If only to make clear that they were fighting for every penny for their constituents, the senators and representatives who represent ISU and UNI would almost certainly come out in favor of reducing UI’s appropriations, lest they leave themselves vulnerable to a challenger in their party’s primary or in the general election. (Even if the regents made it menacingly clear to the presidents at ISU and UNI — who work for the Board of Regents — that they were expected to publicly support increased appropriations for UI, those presidents comprise only two voters, whereas the justifiably irked students, staff, faculty, and administrators at those schools number in the tens of thousands.)

   I honestly don’t know whether Senator Celsi or anyone else in the state legislature knows that J. Bruce Harreld is, objectively, lying trash, but the thing to remember is that Harreld certainly knows, and on that basis alone you might think he would avoid denigrating elected politicians. Indeed, once we start considering who would support cuts in funding to Billionaire Bruce, and who would oppose such cuts, the only people in the 150-member legislature who would have any reason to vote against such cuts would be the Democrats who represent districts that include UI, which are already among the wealthiest districts in the state. In fact, if you live outside the Iowa City/Johnson County area, you might ask your local legislators how they feel about the University of Iowa hoarding a billion dollars in cash, while the president of the school runs around telling anyone who will listen that they should be thrown out of office if they don’t give him even more money.

   Or, alternatively, you could send them a link to this post.

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