University of Iowa’s public-private partnership endowment sees gains in first year

IOWA CITY — Since putting into an endowment $985.9 million of the $1.165 billion it received in an upfront payment as part of a blockbuster 50-year deal to let a private collaborative operate its utilities system, the University of Iowa’s investment fund has increased $139.9 million, officials told The Gazette.

That amounts to a 14 percent increase between March 2020 and May 31 — bringing the endowment’s total value to $1.125 billion, before campus disbursements aimed at supporting the university’s strategic plan are taken out.

In December 2019 when the UI first inked its public-private partnership — or called P3 — with Paris-based energy provider Engie and investment firm Meridiam, officials modeled the endowment to increase at 4 percent a year. That would have been about $40 million the first year.

In February, the UI made good on its promise to put some of the endowment gains back into the campus by announcing plans to pull $7.5 million of the investment’s revenue for student retention and success initiatives and to support faculty research opportunities.

That first withdrawal brought the fund’s market value to $1.118 billion. And administrators last month announced plans in the new budget year to disburse another nearly $12.13 million to seven projects aimed at collaboratively advancing the university’s strategic goals.

That $12 million is under the $15 million a year that officials — at the outset — said the investment would allow the campus to return back to its “core missions of teaching, research, and scholarship.”

“The endowment is producing as expected,” UI spokeswoman Anne Bassett told The Gazette. “And while the year-one funding cycle has been completed, the university is always looking to utilize up to $15 million of the P3 non-reoccurring funds in order to further Iowa’s strategic plan.”

Auditor investigation

The massive decadeslong deal has generated a lot of interest and questions — including from lawmakers and State Auditor Rob Sand, who in December 2019 requested a trove of documents about the deal from the UI and Iowa Board of Regents.

Sand’s request — which came shortly after the board unveiled the agreement but before the deal officially closed — sought, among other things, names of investors in the upfront lump payment. Although officials initially boasted “21.5 percent of the investors in the transaction were Iowa-based,” the university later refused to release their identities, saying they weren’t yet final.

Several judges — including all seven justices on Iowa’s Supreme Court — rejected that and other arguments the UI and regents made in trying to withholding documents from Sand. The high court in late April ordered the board to produce 13 categories of records Sand sought in connection with what he called “the biggest debt deal in Iowa history.”

“Taxpayers of Iowa, who bear the ultimate financial risk for this transaction, are entitled to know if the (regents) got the best deal available and if anyone had a conflict of interest,” according to the state Supreme Court ruling.

When asked if the university and board have yet complied with the court order, state auditor spokeswoman Sonya Heitshusen told The Gazette the office can’t comment on an “ongoing investigation.”

At the time of the Supreme Court ruling, Heitshusen said her office had not received the key documents requested. But Sand — speaking June 5 to the Iowa 1st District Democratic Committee — said he expected the high court order would compel timely production of the records.

“We should get information relatively soon because they did not request further review,” Sand said at the time, explaining a losing party can request a review after a Supreme Court ruling. Absent a request, Sand said, “They've got to do what they were ordered to do and turn over those documents.”

In justifying his interest in the deal and its details, Sand highlighted the UI’s commitment to pay back the $1.1 billion “with substantial interest over the next 50 years.”

“It's the kind of deal that you want to make sure it's done correctly on the front side to prevent problems,” he said. “And an interesting thing happened. We were denied access to records, records that are just sort of the type that are routinely requested in an audit that are routinely reviewed in an audit.”

Explaining his interest in the unidentified investors, Sand said, “I wanted to make sure that those were folks who could be investing in this deal without any issues, no conflicts of interest, for example.”

First-year paid

In exchange for the $1.165 billion up front, the private partner — calling itself the UI Energy Collaborative — has secured 50 years of income as operator of the university’s $1 billion utility system. The UI will keep covering all utility expenses, employee costs, maintenance and upgrades, fuel and other costs — while also paying the collaborative a $35 million annual fixed fee that will increase at an annual rate of 1.5 percent beginning in 2026.

Before investing its lump sum into an endowment, the university peeled off nearly $180 million to cover utility debts, consultants and “ongoing employee transition costs” associated with the deal.

For the fiscal year that just ended — the first under the new arrangement — the university paid the UI Energy Collaborative $4.6 million a month, or $55.4 million for the year. That’s the same monthly rate it paid the collaborative in April, May, and June of the 2020 budget year.

Past financial information for the UI utilities operation included in the new agreement indicates the university spent $19.5 million on utility-related operation and maintenance costs in the 2019 budget year. Commodities including fuel and purchased electricity added $32.5 million.

That year, the UI reported a total utility cost of $41.9 million. Including operation and maintenance, commodities and “other expenses” like insurance and support staff, the “grand total university cost” that year was $61.4 million.

Comments: (319) 339-3158; vanessa.miller@thegazette.com