Education

Pandemic delays first University of Iowa allocations from its public-private utilities partnership

UI invests $13 million less than expected, but portfolio earns it back

Three turbine generators at the University of Iowa Power Plant in Iowa City on Friday, Feb. 8, 2019. (Liz Martin/The Gaz
Three turbine generators at the University of Iowa Power Plant in Iowa City on Friday, Feb. 8, 2019. (Liz Martin/The Gazette)

IOWA CITY — The COVID-19 pandemic has delayed the University of Iowa’s process of distributing the funds it’s generating from a landmark $1.165 billion deal for the private operation of its utilities system.

The campus also didn’t invest as much into an endowment as originally planned — shaving off $13 million from the original expected investment to pay bond debt, consulting fees and employee training.

But the $985.9 million invested in the endowment in March grew 7.2 percent, or about $70.9 million, to $1.056 billion, by Aug. 31, according to the UI Office of Strategic Communication,

In April — when the pandemic was shutting down the state and forcing most UI employees to work from home — university officials said additional details of how and when campus members could apply for a portion of the public-private partnership funds would come in just weeks.

Those details didn’t come, delaying the “subsequent allocation of funding,” which is intended to “elevate the university’s commitment to student success; research and discovery; diversity, equity and inclusion; and engagement.”

UI President Bruce Harreld, when discussing his retirement with the Board of Regents earlier this month, said, “We’ve got the allocation of P3 monies for the first time here in the next few weeks.”

But UI officials Thursday indicated the allocation could take longer than a few weeks.

They reported via a campuswide communication that a group established to manage those P3 funds, as they are called, “is ready to return to the process and soon will announce how members of campus can apply.”

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A Path Forward Steering Committee — co-chaired by Kevin Kregel, Interim executive vice president and provost, and Marty Scholtz, vice president for research — is finalizing criteria and details for those interested in applying for a first round of P3 grants

“The criteria will be released to campus later this semester,” according to the UI Office of Strategic Communication.

Any campus community member can apply for a grant, which can last up to five years, so long as the proposed project supports the UI strategic plan.

The deal

The university in December — after a nearly yearlong inquiry and search process — agreed to partner with Paris-based global energy provider Engie and infrastructure investment firm Meridiam for 50 years of private operation of its $1 billion utility system.

In exchange for their upfront lump sum payment of $1.165 billion, the partners landed five decades of guaranteed revenue — as the UI must pay its new partner a $35 million annual fixed fee while also covering all utility expenses, employee costs, maintenance and upgrades, fuel and other items.

That fee will increase at an annual rate of 1.5 percent.

Over the deal’s life, the UI expects to pay its new private provider $2.4 million in the fixed fee plus spending on utilities and other costs.

Per the original plan, the UI would use $154 million of its partner’s $1.165 billion upfront lump sum to pay off utility debts. It would use another $12 million to pay consultants hired to negotiate the deal. And it would invest the remaining $999 million in an endowment.

The UI was then to pull $15 million annually from the endowment for campus-generated strategic initiatives — the grants people can soon apply for. In this first year, however, officials expect to approve half that — $7.5 million — for strategic initiatives.

For just the initiatives, the UI expects to allocate up to $735 million from the endowment over the duration of the deal. Including what it will take from the endowment to pay its partners’ fixed fee and other costs, UI officials have projected pulling more than $3 billion over the contract’s life.

Investment update

Although UI officials expected to invest nearly $1 billion of that upfront lump sum into an endowment, estimates changed between September 2019 and March 2020 because of interest rates, according to Rod Lehnertz, UI senior vice president of finance and operations.

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And so instead of paying $154 million to pay off the utility bond debt, the UI spent $158.4 million. The UI also spent slightly more on consultant fees — about $12.2 million instead of $12 million.

In total, the UI spent $8.1 million more on the P3 transition than expected. It also “parked” another $5.044 million in a university account to be used for “ongoing employee transition costs,” according to Lehnertz. Or the money could go toward strategic initiative projects, he said.

In the end, UI invested $985.9 million into its endowment, about $13 million less than originally expected.

“In September, the university did not have a good estimate of the amount in the upfront payment that would be associated with the purchase of furniture, fixtures, vehicles, etc.,” Lehnertz said.

A group charged with monitoring, managing and dispersing the funds — including Lehnertz; Regent Nancy Boettger; and Tom Reitz, finance professor and departmental executive officer of the UI Tippie College of Business — in March agreed to follow guidance from financial advisers Marquette Associates and invest the money in a diversified portfolio of funds and money markets.

As of Aug. 31, the investment fund had increased by about $70.9 million to $1.056 billion, according to the UI Office of Strategic Communication, a growth of about 7.2 percent since March.

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

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