If the proposed University of Phoenix purchase goes south, it might or might not affect Idaho’s credit rating.
It boils down to definitions.
A state auditor presented this murky and intricate picture Wednesday afternoon, as the Legislature’s Joint Finance-Appropriations Committee took another look into the University of Idaho’s plan to acquire the for-profit online education giant.
But unlike a June oversight meeting — when skeptical lawmakers peppered U of I President C. Scott Green with questions — no U of I officials were in the meeting room. And on Wednesday, lawmakers focused on the debt.
If the Phoenix deal goes through, a nonprofit with ties to the U of I would be responsible for financing the $685 million purchase and overseeing Phoenix, which would be run as a nonprofit.
The nonprofit, Four Three Education, would receive $200 million in cash from Phoenix at the time of purchase — reducing the price, but not necessarily reducing the nonprofit’s debt, said April Renfro of the audits division of the state’s Legislative Services Office, a division that provides budget analysis to JFAC.
The additional debt would be considerable. The state’s colleges and universities now carry about $730 million in long-term debt, Renfro said.
While a Phoenix purchase will certainly add to the debt load, it’s not clear whether a failure would jeopardize the state’s lofty — and coveted — AAA credit rating.
Here’s where the definitions come into play.
If Four Three and Phoenix is defined as a “blended” program — in other words, a program tied to the university’s overall services — its financial failure would also be tied to the university. That’s when a failure would affect the state’s credit rating, Renfro said. If Four Three and Phoenix is defined as a standalone operation, its failure might not affect the state credit rating.
Either way, she said, it’s unclear whether the U of I would turn its back on a faltering nonprofit. “At what point would we let it fail?”
Since the purchase was announced in May, U of I officials have steadfastly maintained that Phoenix would be a moneymaker. Officials say they expect to collect at least $10 million a year in revenues off of Phoenix operations.
University officials have acknowledged some risk. They say the U of I might pledge to backstop Four Three to the tune of up to $10 million a year, if the nonprofit can’t swing its payments.
However, U of I officials insist that the purchase will not affect the state’s credit rating.
“Neither the Legislature nor the University of Idaho would be responsible for the debts of Four Three Education Inc.,” Green said in a letter sent Friday to state Treasurer Julie Ellsworth, and shared with JFAC members.
The chair of the state’s Credit Rating Enhancement Committee, Ellsworth has questioned whether the Phoenix purchase would jeopardize the state’s credit rating.
‘We have our work cut out for us:’ a complicated K-12 budget awaits JFAC
Earlier Wednesday, JFAC got an early look at an intricate K-12 budget proposal.
State superintendent Debbie Critchfield is asking for a $77.6 million general fund increase for public schools — a 2.9% boost. But she is proposing some big changes in how the money gets moved around:
- Critchfield has proposed three new line items: $40 million to support “outcomes-based” programs such as early literacy, junior high and high school math and graduation rates; $16 million in new transportation money; and $3 million for student-teacher stipends. The Legislature would need to pass policy laws to establish each of these programs, Legislative Services Office budget and policy analyst Jared Tatro told JFAC.
- Critchfield wants to eliminate several existing line items — earmarked for programs such as college and career advisers, math and science and teacher training. The idea is to free up another $42.7 million that schools could use at their discretion. It would take at least four new laws to make these changes, Tatro said.
- Critchfield also wants to reorganize the budget bills themselves. The Legislature passes seven K-12 budget bills each session; Critchfield wants to pare that down to five bills. That change will require about a dozen policy changes and an undermined number of new laws, Tatro said.
JFAC members asked no questions during Tatro’s whirlwind presentation.
But at the end, JFAC co-chair Rep. Wendy Horman made her concerns known. Horman, R-Idaho Falls, has worked on K-12 budget bills for a decade, and said the Critchfield proposal is “far and away” the most complicated budget she has ever seen.
“We have our work cut out for us,” Horman said.
JFAC is meeting at the Statehouse through Friday to take an early look at a variety of budget issues. The 2024 legislative session begins on Jan. 8.