Education

Iowa Auditor Rob Sand accuses regents of 'bad faith' in keeping utilities deal secrets

Dispute in UI multimillion dollar deal heads to state Supreme Court

Steam rises Feb. 8, 2019, from the University of Iowa Power Plant in Iowa City. In December 2019, the UI <a href=announced plans to partner with a private collaboration in a $1.65 billion deal to operate the utility. (Liz Martin/The Gazette)" />
Steam rises Feb. 8, 2019, from the University of Iowa Power Plant in Iowa City. In December 2019, the UI announced plans to partner with a private collaboration in a $1.65 billion deal to operate the utility. (Liz Martin/The Gazette)
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IOWA CITY — More than a year after State Auditor Rob Sand asked the University of Iowa to divulge the names of secret investors and other details of a multibillion-dollar public-private partnership for operation of its utilities system — and nearly a year since the deal closed — the university still refuses to comply.

“Defendants have invented new and increasingly suspect notions to ensure that the auditor would not receive the originally requested materials, relating to bidding and conflicts-of-interest,” according to a brief Sand filed in the dispute, which this week goes before the Iowa Supreme Court.

“It seems clear that all this is intended to ensure the specific legal and financial contours of this $3.5 billion repayment obligation are not scrutinized — at least not prior to it being finished.

“Why?” Sand asked the court. “It seems to be a pattern of bad faith by the agency and their institutions.”

Although the UI, Iowa Board of Regents and its collaborators in the deal aren’t named in the filings — “at the direction of the court” — details outlined in the case and in footnotes make clear the dispute relates to the UI’s recent public-private partnership for operation of its $1 billion utilities system.

In December 2019, the UI announced plans to partner with a private collaboration involving Paris-based global energy provider Engie and investment firm Meridiam in “one of the largest financial transactions in Iowa history,” according to Sand. The private partners paid the UI an upfront lump sum of $1.165 billion for the promise of 50 years of guaranteed income.

The UI, per the deal, must pay its new utility operator a $35 million annual fee — which will increase over time — plus the cost of utility expenses, employees, maintenance, upgrades, fuel and other costs.

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The partnership benefited the UI by allowing it to invest the majority of that upfront sum into an endowment it could pull from annually to support strategic initiatives. It benefits Engie by affording it a steady stream of income for five decades and access to tax benefits not available to the UI.

In announcing the deal, which officially closed last March, the UI said the “Hawkeye Energy Collaborative” achieved 21.5 percent of its financing from “Iowa-based investors.”

Sand promptly requested details of the deal — including names of those investors — and the UI refused, even after courts enforced a subpoena from the auditor.

In rejecting court orders and appealing the decisions, officials representing the regents and the UI argued — among other things — that Sand was not authorized to subpoena the documents, was not engaged in a “proper audit” and was overly broad and unduly burdensome in his request both in scope and in the timeline he set.

Sand, conversely, accused the board and its university of breaking the law, shirking its duties, misleading the court, dragging its feet, overstating its power, engaging in “bad-faith” tactics and misrepresenting Iowa Code.

“The auditor understands state agencies may at times be concerned about information and actions they wish to keep quiet being included in an auditor’s report,” according to Sand’s court brief. “The better position under Iowa law and public policy is to avoid doing such things in the first place.”

Neither UI officials nor executives with Engie would comment for this article.

Sand, too, told The Gazette he wouldn’t comment beyond what he wrote in the court record, although in a statement said he “looks forward to being able to discuss it in great depth after a report is issued.”

Timeline of dispute

Officials representing the regents and the UI contacted Sand first in 2019 about the “complex financial transaction, creating a long-term multibillion dollar obligation for the agency, as part of one of the largest financial transactions in Iowa history.”

They offered to provide additional information, according to Sand, who said he sought exactly that on Dec. 12, 2019 — when he requested specific names of potential investors.

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“The investors were publicly touted as over 20 percent coming from within Iowa,” according to Sand’s brief. “Yet their specific identities were withheld from the public as ‘trade secrets,’ as was the documentation about the transaction’s bidding procedures.”

The UI has denied The Gazette’s requests for similar documentation and bidding details.

Sand reported the regents directed his inquiry to a separate individual — identified in court records only as “John Doe” — who on Dec. 13, 2019, informed Sand the documents he sought were “confidential pending completion of the process.”

Sand reminded the board that as state auditor he’s “expressly granted access to confidential information.” But it continued to resist and said he’d get the documents after “financial close, with confidential information redacted.”

Nearly four weeks later, on Jan. 8, 2020, Sand subpoenaed 13 categories of documents — giving a response deadline of Jan. 22 that year. On that date, the regents “provided a substantially incomplete response,” according to Sand, who on Feb. 3 filed an application to enforce the subpoena.

The board didn’t respond before the District Court issued an order Feb. 14, 2020, enforcing the subpoena. Only then did the board file a motion to quash, prompting a judge again to order enforcement of the subpoena following a Feb. 18 hearing that year.

The UI appealed and Sand accused the regents of delay tactics they have used before.

“It seems to be a pattern of bad faith by the agency and their institutions,” he argued in court documents, citing a previous dispute between the board and University of Northern Iowa’s faculty union.

In that case, the regents refused to negotiate a new contract until legislators could change the bargaining law stripping public union rights.

“(The board) learned that it would be advantaged in negotiations if it could delay long enough for the legislation to pass,” a judge ruled in that case. “That is exactly what it did.”

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Sand said the board repeated that tactic here “to delay disclosing documents it is required to produce.”

“No matter the reason, this court should put a stop to these bad faith actions and order defendants to comply with the law,” Sand argued.

‘Spurious arguments’

Addressing each of the board’s justifications for withholding the documents, Sand said his office has the right under Iowa law to audit at its discretion state entities that are using the public’s money. He shot down regent arguments the auditor didn’t follow the appropriate process or provide appropriate justification.

“Their assertions are legally wrong and factually misleading,” he argued. “It is the auditor, not the auditee, that determines the scope of audit review.”

Sand noted the university changed its arguments, first asserting the information was a “trade secret,” and than aimed at the wrong party.

“Defendants have dropped both of these spurious arguments,” according to Sand, who said the board’s “attempt to obfuscate the proper custodian of the records was always a red herring.”

“The agency is charged by statute with managing the facilities under its control, and the transaction involves facilities that fall squarely within the statutes,” according to Sand. “Suffice to say, if the agency does not possess the documentation requested, it is not fulfilling its statutory duties.”

Accusing the board of pushing misleading arguments, Sand questioned whether the regents and its institutions “fail to comprehend the auditor’s role.”

“While the auditor needs no justification for additional audits, the fact that the transaction agreement creates a huge financial liability for the agency and taxpayers makes it worthy of scrutiny,” Sand argued. “Moreover, a lack of scrutiny could be seen as the auditor’s failure to do his job.”

Both sides are scheduled to make oral arguments before the Iowa Supreme Court at 1:30 p.m. Tuesday.

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

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