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Idaho attorney recommends lawsuit on potentially ‘disastrous’ University of Phoenix deal

Ian Max Stevenson, The Idaho Statesman

A legal opinion from an attorney at the Idaho Legislature has concluded that the State Board of Education violated the state constitution and exceeded its legal authority in its effort to purchase the University of Phoenix, and recommended the Legislature take legal action.

“Although my concerns are many, my primary concern is this: The Board is attempting to escape its constitutional and statutory limitations by recreating itself as a private corporation,” Legislative Legal Counsel Elizabeth Bowen wrote in a letter to seven lawmakers Thursday.

The State Board of Education voted to buy the University of Phoenix for $550 million in August, only a day after the proposal had been made public. The acquisition, which is expected to cost $685 million and was negotiated primarily behind closed doors, prompted a lawsuit from Attorney General Raul Labrador over alleged open meeting law violations. A judge dismissed that lawsuit last month. Moody’s has warned that the purchase could cause a “multi-notch downgrade” in the university’s bond rating.

But the deal has not yet been finalized, and a set of lawmakers appear intent on challenging the deal’s legality.

Lawmakers in the House have proposed a strongly worded joint resolution to give the Legislature legal authority to sue over the deal, which is expected to close in March.

“This process has not been done in the full light of day, the Legislature has not been dealt in at all,” Rep. Brent Crane, R-Nampa, told a legislative committee earlier this month. “When you’re going to enter acquisitions of this magnitude, we need to be at the table.”

Rep. John Gannon, D-Boise, called the deal a “purchase by ambush” and said he had concerns about the difficulties media outlets have had in getting information about the purchase of the mostly online Arizona university with more than 85,000 students.

“If it’s such a good deal, then we should know everything, everything should be on the table at this point,” Gannon said.

In her letter, Bowen said the State Board of Education has “no constitutional or statutory authority to acquire, own, and operate” a private institution and to take on its liabilities, and that taking on hundreds of millions in debt without public transparency about the financial exposure the state faces risks becoming a “disastrous financial judgment.”

“Neither the board nor the University of Idaho has requested the legislation necessary to convert the University of Phoenix into a state institution of higher education,” Bowen said, adding it is “beyond the scope of the board’s charter” to acquire the school. She wrote that the corporation the university has created to purchase the University of Phoenix, Four Three Education, is not valid and therefore lacks “legal existence.”

The Board of Education has not been contacted by the Legislature about the letter and is still reviewing the opinion, spokesperson Mike Keckler told the Idaho Statesman by email.

Bowen noted that she has discussed her concerns with the University of Idaho’s attorney and its government affairs liaison. The University of Idaho did not immediately respond to a request for comment.

“It is my belief that if the State Board of Education and the University of Idaho proceed under the current terms of the proposed transaction, they do so at their peril,” she said.

Bowen said she recommends legal action unless the State Board of Education gets approval from the Legislature for its deal or restructures the purchase to avoid state ownership of a private institution.

“The most solemn obligation of any public entity is to serve the public interest,” Bowen said. “If the State Board of Education and the University of Idaho have forgotten that … they should be reminded.”

Gov. Brad Little defended the decision earlier this month. At an Idaho Press Club event, he told reporters that the state wants to expand university access online and make it more affordable, and that the University of Phoenix could serve that function. He said he believes the worst-case risk would be up to $10 million a year in payments to bondholders.

“It’s got a storied past,” he said. “I’m very empathetic to the fact that this checks the box the State Board has been asking higher education for for a long time.”