After the University of Idaho announced its planned purchase of the University of Phoenix, I asked an official at the State Board of Education how they managed to square the plan with the state constitution, which says such arrangements are unconstitutional.
The answer was one I’d heard many times over many years from government officials: “We had a lot of smart people looking at this, and it’s all perfectly legal.” Well, a month after the plan went public, we’re learning that at least part of the proposal needed to be revised.
The U of I created a new nonprofit organization, which it called NewU, Inc., to acquire the University of Phoenix. The nonprofit is supposed to buy the University of Phoenix, with money coming from $550 million in debt backed by the full faith and credit of the University of Idaho. The problem that has arisen is that there’s already a nonprofit organization called NewU, Inc. It would seem that all the smart people looking at the plan completely missed this obvious point.
A quick search of the Internal Revenue Service nonprofit database shows there’s already a NewU, Inc., and I noticed this when we were researching the school’s plan after it became public in May. Moreover, there’s a NewU University based in Washington, D.C. It’s the very first thing that pops up on a Google search for the term “NewU.” Did no one at the University of Idaho look into this before they went with the name “NewU?”
It’s an embarrassing oversight for the university and the State Board of Education, both of which apparently had “a lot of smart people” overseeing the transaction. This simple mistake is why the State Board of Education met Wednesday to revise the Articles of Incorporation for the U of I’s new nonprofit, which is now called “Four Three Education, Inc.” That’s a reference to Idaho becoming the 43rd state to join the union.
The University of Idaho’s general counsel told the State Board of Education that there was never any plan to use the name of the nonprofit in the marketing of the University of Idaho’s acquisition anyway. It’s a housekeeping thing, he said, implying that the name doesn’t matter a whole lot. But of course not.
As a side note, last week, University of Idaho President Scott Green told lawmakers the nonprofit would be called Idaho Education Initiatives, Inc. If the name really doesn’t matter, the U of I seems intent on proving the point.
Still, it raises the question: What else did the school miss in putting together this transaction? I believe they also overlooked the state constitution’s prohibition on lending the full faith and credit of the state (in two separate sections!) to an outside organization, even if it’s one created by a state institution. After we raised the constitutional concerns, the university had its hired legal guns prepare a memo discounting the arguments we made regarding Article VIII of the state constitution. Interestingly, the memo references another legal opinion produced by the same law firm, Hawley Troxell, dated five days before. I asked for a copy of that opinion but was told it’s not subject to public disclosure because of “attorney-client privilege.”
What does the memo say? What concerns does it raise? What other issues does the university’s plan have that we don’t know about? Already, the proposed purchase has demonstrated flaws —obvious ones at that — that all the “smart people” missed.
Recall that the University of Arkansas looked at buying the University of Phoenix with a similar kind of arrangement and that that deal became public in January. Arkansas’ board of education rejected the deal in April, and in the intervening months, there was a lot of time for the public to react. Here, the University of Idaho gave the public mere days to ponder the decision before the State Board of Education gave the go-ahead.
It’s time to take off the cloak of secrecy and let the rest of us see what’s behind the veil. It’s clear that not enough “smart people” were in the room making this decision, or at minimum, that they didn’t do all their homework before proceeding with a huge and highly controversial purchase.
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