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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

State extends UI repayment deadline

The University of Idaho will have to wait five years for the repayment of $7 million lost in a questionable series of transactions that financed the school’s expansion into Boise.

The state’s Board of Education voted to extend the deadline for the repayment of the money from the UI’s fund-raising foundation until 2010. It also agreed that UI would be repaid only after the foundation finished repaying the millions it borrowed from trust funds.

The delay won’t mean changes on the ground at the UI campus, since the spending occurred a few years ago, said Luci Willits, spokeswoman for the board.

“This really doesn’t affect the day-to-day operations of the university,” she said.

The spending between 2000 and 2002 was part of the run-up toward the construction of University Place, an ambitious attempt to construct a UI campus in Boise that collapsed when bond financing fell through.

The result was a $25 million debt shared by the university and the foundation, the resignation of key UI administrators, two ongoing criminal investigations, and a network of lawsuits among every party involved.

To deal with its budget problems – not all of which stemmed from the project – UI trimmed more than 250 positions in recent years, and alumni giving has fallen off.

UI President Tim White would not comment beyond a written statement issued Monday that said the agreement, which still requires foundation approval, “ensures the best long-term outcome” for the university and the foundation.

He said the UI and foundation were still trying to “maximize their recovery of losses,” a reference to lawsuits against attorneys, contractors and others involved in University Place.

The foundation has already had the repayment deferred twice by the Board of Education over losses generated by University Place.

“We are working with the foundation so we can recover as much as possible,” said Dwight Johnson, the state board’s interim executive director.

Attempts to reach foundation officials for comment were unsuccessful Tuesday.

The money in question was spent out of a UI “agency account” set up by the former vice president of finance, Jerry Wallace.

The use of the account was one of the key methods for financing pre-development costs for University Place, and it was criticized by investigators for its secrecy. Few administrators knew any details of the account, and a couple of them warned Wallace it was improper, investigators said.

In essence, the account was used as a charge card – a place for expenses to be charged, though there was no money in it. The idea was that the foundation would repay the money, but foundation officials said they had no idea they were on the hook for the growing millions in expenses, and the expenses were never approved by the state.

A state investigation into the project concluded in 2003 that the agency account spending was an improper use of state money and possibly illegal.

The foundation financed much of the pre-development costs for the project, which was initially proposed as a $136 million, multi-building campus but was eventually scaled back to one building.

The foundation borrowed $12 million from its trust funds, which are endowments given specifically for scholarships and other directed purposes.

The state investigation concluded the foundation likely breached its fiduciary duties of loyalty and care in approving the loans.

As part of the board’s vote to delay the repayment deadline, it also said the foundation would use any money recovered through the lawsuits first to repay its remaining trust fund debt, and then address the $7 million owed the UI.

The foundation has paid back millions to its trust funds, but it was unclear Tuesday how much debt remains.