Recently, it was made known that the Iowa Board of Regents will be entertaining bids for the lease - not sale - of the University of Iowa’s utility plant to a privately owned utility company for a span of 50 years. This could mean that the winning utility bidder (there will be numerous bidders) would operate the plant independently and sell energy to the university. In addition, the utility running the facility would be responsible for investing in new equipment and technology that would lower costs and make this transaction a win-win for the University of Iowa and the utility company.
Why is this a win for the university?
First, after extensive research, experts hired by the university have determined this process could generate significant up-front resources for the university. This money would be invested in an endowment, at the university, to be allocated to improve the outcomes of students, faculty, staff and Iowans through implementation of the UI’s strategic plan.
Any invested funds would remain an asset of the University of Iowa and be managed by the university, in its own endowment. As a comparison, the UI’s Center for University Advancement currently manages an endowment of approximately $1.14 billion – which over the past five years has earned a return of 5.7 percent per year. Notably, the center’s 10-year investment return rate has been even better, averaging 11.2 percent per year.
Second, the university would free itself from daily management of the utility system, allowing the UI to divert any human and financial resources to the education of students. All this would be done while UI retains ownership of the utility system.
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Recently, after extensive study and research, Ohio State University undertook this process with its university-owned utility. The winning bid for a 50-year lease was $1 billion. That transaction worked because the asset remained owned by Ohio State. The University of Iowa has sought the advice and guidance on this matter with several experts that were involved with the Ohio State transaction. The process that OSU went through has provided a good template for the UI.
In today’s environment, universities need to look at many different and new potential revenue streams to complement state appropriations and tuition. If this utility initiative works, it is a good start for the University of Iowa.
I am sure the administration is looking at other possible revenue opportunities that are unique to higher education. I believe this will be a successful venture for the University of Iowa. It follows that Iowa State University and the University of Northern Iowa could investigate and see if something like this might work for them.
I believe the Board of Regents and the University of Iowa are on the right track with this deal. An idea such as this, when combined with excellent on-campus leadership to complete the execution, could make this something that will benefit many students and families for decades to come.
David J. Fisher of West Des Moines, Iowa, is the retired chairman and chief executive officer of Onthank Co. and served on the Iowa Board of Regents from 1997 to 2003.
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