Bruce Harreld, president of the U. of Iowa, meets this week with representatives of the French companies that will operate and maintain the campus’s utility system for the next half century.Katarina Sostaric, Iowa Public Radio
The University of Iowa is joining a growing number of public institutions seeking to bolster their budgets by leasing utility operations to private companies. Such plans come with risks for both the universities and the companies, but they are increasingly seen as a way to offset declining public investment in higher education.
Or subscribe now to read with unlimited access for less than $10/month.
Don’t have an account? Sign up now.
A free account provides you access to a limited number of free articles each month, plus newsletters, job postings, salary data, and exclusive store discounts.
If you need assistance, please contact us at 202-466-1032 or help@chronicle.com.
Bruce Harreld, president of the U. of Iowa, meets this week with representatives of the French companies that will operate and maintain the campus’s utility system for the next half century.Katarina Sostaric, Iowa Public Radio
The University of Iowa is joining a growing number of public institutions seeking to bolster their budgets by leasing utility operations to private companies. Such plans come with risks for both the universities and the companies, but they are increasingly seen as a way to offset declining public investment in higher education.
Critics of the deal have focused on its financial risks, its lack of transparency, and, mostly, the budget-slashing that necessitated it.
The Iowa Board of Regents this week approved a 50-year deal allowing the university to lease its power plant and water-treatment facilities to the energy company Engie and its global investment partner, Meridiam. In return, the university will get a lump-sum payment of nearly $1.2 billion that officials plan to tap annually to fund grants for special projects.
Bruce Harreld, the university’s president, pursued the deal with encouragement from the state’s Republican governor, Kim Reynolds, and as a way to make up for the continuing cuts lawmakers have made at the institution.
ADVERTISEMENT
Critics of the plan have focused on the financial risk to the university, the lack of transparency in formulating the deal, and, mostly, the shrinking of state appropriations that has made it necessary at all.
Here’s how the plan is supposed to work:
The university will invest the upfront money and is projecting the fund will grow to $3 billion during the term of the contract.
But first, it plans to pay off $153 million in bonds and cover an estimated $13 million in fees to consulting firms that helped arrange the deal.
Iowa will be paying the companies an annual fee of $35 million, which will increase by 1.5 percent each year starting in 2026, as well as covering the costs to operate and maintain the facilities. Total payments to the companies could add up to more than $2 billion over 50 years.
The university estimates it will eventually disburse $735 million for academic projects awarded through a competitive grant process.
So-called P3 deals — short for “public-private partnerships” — have become popular among government entities over the past 15 years. One that sparked a lot of interest from state and local governments was the $1.8-billion deal to lease the Chicago Skyway toll road to a private company. Since then, Chicago has also made deals to lease the operation of Midway International Airport for $2.5 billion, and the city’s parking meters for $1.16 billion.
Higher education, too, has begun to embrace the P3 model, often through plans to let private developers build and operate residence halls or parking facilities. A January report from Moody’s Investors Service predicted that deals between universities and energy companies would “proliferate” in coming years as a way to meet energy-efficiency goals and reap financial benefits.
Moody’s lists a half dozen such projects already in place and several institutions considering such plans, including Dartmouth College, California State University at Fresno, and Syracuse University.
ADVERTISEMENT
Iowa’s plan is modeled on a 2017 agreement between Ohio State University and Engie. Under that arrangement, Ohio State got an upfront payment of $1.165 billion — though with a very different fee structure for the much larger campus.
A 2017 Moody’s report that focused on the Ohio State deal was largely positive, saying the agreement was one of several revenue streams that would improve the institution’s operations “while moderating tuition and reliance on state appropriations.”
Such deals, however, are not without risks. Iowa is betting, for example, that its investments will accrue enough interest to offset the fees and continuing expense of the power facilities as well as provide added dollars for academic projects.
State Sen. Joe Bolkcom, a Democrat from Iowa City, has questioned whether the arrangement will meet those goals. If the investment falls short, Bolkcom said, taxpayers may be on the hook.
ADVERTISEMENT
Harreld’s own statements have been somewhat less than comforting. In an informational meeting of the regents, the former IBM executive said: “If we get through the first seven or eight years of this thing, we’re going to be in really good shape. If we don’t, we won’t be.”
Loren Glass, a professor of English and president of the university’s chapter of the American Association of University Professors, said he also was concerned than an extra infusion of private money would give state legislators an excuse to cut appropriations even further.
While many faculty members understand the need to find new sources of revenue, some describe the arrangement as a “deal with the devil.”
Michelle M. Scherer, a professor of civil and environmental engineering, said that the agreement “made her very uncomfortable” and that a lack of leadership had put the university in the position of seeking out risky deals.
Scherer pointed to Harreld’s remarks from the regents meeting, where he described the agreement as being necessary because the institution “is on a glide path to mediocrity.”
ADVERTISEMENT
“He’s been our president for several years now,” Scherer said, “so if we’re sliding toward mediocrity, it’s been on his watch.”
Eric Kelderman writes about money and accountability in higher education, including such areas as state policy, accreditation, and legal affairs. You can find him on Twitter @etkeld, or email him at eric.kelderman@chronicle.com.
Eric Kelderman covers issues of power, politics, and purse strings in higher education. You can email him at eric.kelderman@chronicle.com, or find him on Twitter @etkeld.