In tense hearings, lawmakers challenge University of Idaho’s purchase of U of Phoenix

Over two days, a packed hearing room watched a House committee consider a resolution that gives lawmakers authority to take legal action against the University of Idaho over its arranged purchase of the University of Phoenix, a private online university.

This week’s hearings follow a striking memo from an attorney for the Legislature last week which alleged that the University of Idaho’s purchase of the Arizona university, which is owned by a private equity firm, violated the state constitution.

Lawmakers at Thursday and Friday hearings appeared skeptical of the purchase, and affronted that they had been left in the dark about it. The University of Idaho announced the surprise purchase last May, shortly before state officials approved the deal. At the hearing, legislators asked university officials to send them documents detailing the agreement and its implications.

The controversy surrounding the purchase pits the university and the State Board of Education against the Legislature and Attorney General Raúl Labrador, who has already sued once over the deal. The resolution lawmakers sent to the House floor — House Concurrent Resolution 26 — does not guarantee that a lawsuit will be filed, but gives leaders at the Statehouse the authority to do so. It also asks the state board to cooperate with the Legislature and seek its approval.

Tension in the Idaho Capitol this week over the arrangement led to pointed questions from lawmakers on two committees. Co-chair of the budget committee, Rep. Wendy Horman, R-Idaho Falls, upbraided University President Scott Green on Wednesday for his suggestion that the Legislature’s attorney, who believes the purchase is likely illegal, is a “generalist” without expertise on these matters.

“I think that was inexcusable,” she said. Green responded that he did not mean to criticize the attorney, but to recommend they get another legal opinion.

That attorney, Elizabeth Bowen, told lawmakers Thursday that she has “serious questions” about the legal existence of the corporation that the University of Idaho created to purchase the online institution, which could give creditors an avenue to go after state funds if the University of Phoenix’s finances later head south.

The skepticism from lawmakers about the deal ranges from concerns over whether the university has the authority to purchase a private university through a nonprofit and operate it independently to the merits of the financial boon the university has touted and the potential risks the accompanying debt could pose for the state. Some committee members also questioned Green for the school’s decision to contract with attorneys of a law firm he used to work for, as has been reported by Idaho Education News. Green responded that he recommended attorneys at his former law firm because of their expertise, but that he was not the person who hired them.

Debate over the deal itself also hinges on what testifiers described as two serious hazards: the risk of purchasing a private institution that does not have a stellar reputation, and the danger of failing to innovate and expand Idaho’s online education opportunities as colleges across the country face a stark “enrollment cliff” that could endanger Idaho’s land grant university in the coming decades.

The University of Phoenix has previously been hit with a $67.5 million Department of Justice settlement in 2009 and a $191 million settlement with the Federal Trade Commission in 2019 over claims of deceptive advertising.

University of Idaho officials defended the merits of the deal before a powerful House committee as well as the joint appropriations committee this week.

Green, the former chief operating officer of one of the most prominent law firms in the country, Hogan Lovells, told lawmakers that the deal has been scrutinized by legal and other experts. He said the university, which predates statehood, took its authority to act from the state constitution — which names the university’s Board of Regents — and a 1921 Idaho Supreme Court case that detailed the board’s authority.

He said the University of Phoenix has “world class” online systems that would benefit a growing number of adult students looking to make career changes.

“We believe the biggest risk to this state is not taking advantage of this opportunity,” Green said Thursday. “The fact is, there are no state dollars at risk.”

The University of Idaho arranged to buy the University of Phoenix for $685 million in May. The purchase is financed through bonds, which are expected to be issued on the market in the coming months. The university has agreed to purchase all of Phoenix’s assets through a nonprofit called Four Three Education. The university expects to keep Phoenix, which has more than 85,000 students, in operation as a separate entity. If the Four Three nonprofit misses any debt payments, the university has said it will guarantee $10 million annually, but that it expects the deal to result in an influx of millions to the university.

State education officials, who support the deal, said at the hearings that they had to rush last spring to vet the proposed purchase and come to an agreement in a competitive arena and did not have time to hold more public meetings or consult with the Legislature.

Labrador said Friday that he does not have a position on the deal itself because he hasn’t seen the details, but that he has issues with its transparency. The attorney general sued the State Board of Education for violating the state’s open meetings law when it approved the deal. A judge rejected that argument in January, and threw out the case.

“The public’s business ought to be done in public,” Labrador said, adding that he worried a nonprofit, even one created by a government entity, may not be subject to the transparency requirements of other public agencies. The Legislature’s Office of Performance Evaluations gave a presentation to the same committee Friday about a health data exchange created by the state two decades ago that an auditor said operated irresponsibly, was able to evade transparency laws and filed for bankruptcy in 2022.