Statesman exclusive: U of I president touts ‘majority independent’ board in Phoenix deal
BOISE – The University of Idaho’s complex plan to acquire the University of Phoenix includes formation of a new nonprofit and board of trustees that oversees the primarily online education program, which has raised questions about who will control its direction in the shift away from its history as a for-profit college.
The contentious $550 million purchase agreement, which awaits trial over an open meetings lawsuit brought by Attorney General Raúl Labrador against the Idaho State Board of Education, still requires regulatory sign-off. For now, the deal remains on track for approval early this year, expected by March, University of Idaho President Scott Green told the Idaho Statesman in a video interview.
In November, the University of Phoenix’s accreditors approved the agreement, which would see the new nonprofit issue $685 million in a mix of nontaxable and taxable bonds to cover the acquisition.
The $135 million in bonds above the purchase price would be used to reimburse both schools for expenses, with up $70 million held in escrow to cover principal plus interest debt service costs for the first year if the nonprofit – known as Four Three Education Inc. – is unable to make timely payments, Green said.
In the meantime, UI accreditors are scheduled to meet at the end of the month and into February to review the deal for possible approval, he said.
“That’s when we should get a decision from them, from what we understand,” Green said. “So once we have that, and any issues around the AG’s lawsuit … are settled, we’ll be ready to place those bonds.”
If the deal is approved, UI and the University of Phoenix would remain separate from one another but become affiliated, the Moscow-based school has said.
Nonprofit board’s composition
A green light on the affiliation agreement also would trigger the appointment of Four Three Education’s Board of Trustees by the eight-member State Board of Education, which doubles as the UI Board of Regents.
That nonprofit board, with an odd but yet-to-be-determined number of members, would be required to be “a majority independent” from either school, Green said. In other words, the independent trustees, selected by the State Board, could have no connection to either university.
Green and University of Phoenix President Chris Lynne would be among the nonprofit trustees based on their current positions – otherwise known as ex-officio members with full voting rights – along with the president of the Board of Regents, or a person they designate in their place, UI spokesperson Jodi Walker told the Statesman by email. At least four other trustees would be appointed to make up the board’s majority.
Under the proposed structure, the UI Board of Regents would have certain authority: setting the number of trustees for the nonprofit board, appointment of those trustees and retaining decision-making power for major borrowing or nonprofit liquidation, Green said. Upon request, the Board of Regents also may review any of Four Three Education’s financial records and statements.
“They get to see whatever they would like to see,” Green said. “Beyond that, really all the oversight will be of this new board that we’re talking about.”
The governor appoints members to the State Board of Education for five-year terms, with the exception of Idaho’s superintendent of public instruction, who is elected by voters statewide to serve a four-year term. Of the board’s current makeup, all seven members have been appointed by Gov. Brad Little, including the reappointment of two selections by former Gov. Butch Otter. Superintendent of Public Instruction Debbie Critchfield, elected in 2022, was previously an Otter appointee on the State Board.
‘Risks in every deal,’ UI president says
The creation of Four Three Education nonprofit helps ensure that UI, the State Board of Education and Idaho taxpayers are not financially liable if the nonprofit defaults on those hundreds of millions in bonds, according to a UI FAQ page.
The university is still negotiating whether it will agree to a guaranteed annual payment from funding sources not appropriated by the Idaho Legislature in case of bond default, Green said. UI leaders are considering such a pledge to help with easier placement of the bonds, and possibly to secure a lower interest rate, he added.
“Under no circumstances would we do more than $10 million a year with a five-year cap,” Green said. “Because that’s what we believe the university could handle in a dire situation like that.”
Recent modeling, however, shows that the University of Phoenix generates more than $150 million each year in profit, Green said, which is expected to cover debt payments, plus offer a return to Four Three Education. The University of Idaho is due a minimum $10 million licensing fee annually in the agreement.
“They’re doing incredibly well,” Green said. “So we expect that they’re going to continue to be financially very strong and we’ll be able … with all the resources to do things together that will be beneficial to the state and the systems of Idaho.”
The nonprofit would receive a $200 million cash payment when the deal closes to account for other possible financial liabilities, UI said. Those could include millions of dollars in debt relief payments each year that the entity taking over the University of Phoenix could be made to cover if the federal government discharges student loans based on allegations of fraud by the former for-profit college.
If the acquisition receives final approval, Green said he feels confident the new nonprofit is set up to be successful. Several other “financial tools,” which he declined to detail, have been established, on top of having $200 million left over to ensure Four Three Education can cover annual expenses, he said.
“But there are always risks in every deal, and there are risks in this one as well,” Green said. “And we’re doing everything we can to identify those, quantify them and mitigate them, and I think we’ve done a really good job of doing that.”