Will University of Phoenix deal move forward? Idaho Senate proposal could clear a new path

After weeks of doubt, the University of Idaho’s $550 million deal to purchase the University of Phoenix appeared to approach safer ground Tuesday.

Lawmakers advanced a measure to restructure Four Three Education, the entity that will own the University of Phoenix, making it a state public corporation with legislative oversight. The proposed bill would further wall off the state from future liability from the deal and sequester profits from the university into a fund administered by the Legislature’s budget committee.

Following tense hearings in the House, where lawmakers grilled university officials and threatened the completion of the transaction with a lawsuit, the deal got a warmer reception in a Senate committee Tuesday as lawmakers sent the new bill, Senate Bill 1450, to the Senate floor.

The bill would convert the nonprofit into an independent body politic, similar to the Idaho Housing and Finance Association. It would require two lawmakers appointed by legislative leaders and six community members without a financial interest in the corporation to serve on the 11-member board that oversees the nonprofit. Four Three Education would be barred from asking for state funds and required to provide an annual report to lawmakers.

Under the bill, any profits from the University of Phoenix would be set aside to fund “Idaho-specific postsecondary education initiatives for the benefit of all Idahoans.”

The bill was presented by a lobbyist for the University of Phoenix, Kate Haas, and Caroline Nilsson Troy, the University of Idaho’s government relations liaison. Senate President Pro Tem Chuck Winder, R-Boise, who sponsored the bill, said it would allow the transaction to proceed in a “legal way” based on advice he and House Speaker Mike Moyle, R-Star, sought in recent weeks from the Legislature’s attorney and from Givens Pursley, a Boise firm.

Winder said the bill was a business opportunity for the university, and that the state should address the coming enrollment decline facing universities across the country. Many Phoenix students are adults seeking additional degrees or career changes.

“I think this is one way to provide a good platform that doesn’t prevent Boise State or other schools from having online classes,” Winder said.

University of Phoenix deal still faces scrutiny

Senate Assistant Majority Leader Abby Lee, R-Fruitland, said the university’s planned acquisition is “exactly” the kind of innovation and disruption that state leaders have been asking Idaho’s higher education institutions to do.

But the deal still faces a strained path before it must issue $685 million in bonds by May or renege on its deal with Apollo Global Management, the asset management owner of the University of Phoenix.

Several House members have said they felt slighted because they were left out of the decision-making process and questioned whether the state could be on the hook if Phoenix faces financial trouble. House lawmakers passed a concurrent resolution that would allow the state to sue the university and State Board of Education over the proposed sale; that resolution would need approval in the Senate. Another bill that passed in the House would prohibit state agencies from creating corporations without legislative approval.

It’s unclear whether House lawmakers would support the Senate proposal. Moyle told the Idaho Statesman he has not reviewed the bill.

Attorney General Raúl Labrador also argued this month that the State Board of Education’s preparations for the deal exceeded their legal authority, and that he could sue over it.

Over the last 15 years, the University of Phoenix has settled for hundreds of millions with federal regulators over claims about deceptive advertising to students. But the university maintains it has turned its management around, posting more than $130 million in profits over the last two years.

The deal is expected to include $200 million in cash that the university could use to pay off the expected $60 million in annual costs of the debt as well as potential debt failures. University of Idaho officials said the institution will be on the hook for a maximum of $50 million over the next decade in debt liability, which would be paid using non-state funds.

Under the bill, when the bonds are issued to finance the sale, potential investors would be told that if the nonprofits fails to make interest payments to them, they would be unable to get their money from the state.

Senate Minority Leader Melissa Wintrow, D-Boise, was the only senator to vote against advancing the bill. Wintrow said she was still worried about whether the state could be on the hook for written-off student loan debt for Phoenix students.

“I’m just not sure how this is serving the public interest doctrine of government,” she said. “I hope I am wrong and that the state of Idaho will benefit.”