Rep. Mark Hutton: Reaction to KU financing plan not ‘petty’

An Eagle opinion item described the House Appropriations Committee’s budgetary action in response to the University of Kansas’ questionable financing of its central district project as “petty” (Feb. 7 Now Consider This). I disagree.

Though KU and the Kansas Board of Regents have attempted to assure the Appropriations Committee that the KU project was thoroughly vetted, many questions remain. I’ll share three:

▪  The structure of this deal essentially resulted in the negotiation of a sole-sourced construction contract. The developer in this case is wholly owned by the primary construction company. Because the contracts between the developer and contractor are not part of the KU contract documents, there are no transparency provisions that would allow the university or state officials to determine if this was the best value for our state.

The law is not silent on this issue. State purchasing statutes provide for three project delivery methods: fixed bid, construction management at risk, and design-build. All three have specific requirements that ensure a competitive, fair and transparent process was used to select the lowest bid or best value for taxpayers. None of these statutes was followed to select the builders of this $350 million project. Even more troubling is the lack of provisions in the contract that ensure a transparent accounting process for the cost of the work on this sole-sourced contract.

▪  KU implies that since the state is not legally liable for the debt, we shouldn’t be concerned about it. But KU is owned by the state of Kansas. In this deal, KU guarantees to bondholders that it will make the $21.8 million annual lease payment for the next 30 years. That’s a sacred promise to pay $650 million that encumbers an asset that is owned by the state.

We may not be legally on the hook, but we are certainly morally obligated to honor commitments to repay debt that threatens the value of a state asset. The credit agencies shared that concern, and it resulted in the outlook for KU’s credit being downgraded to negative as a result of this deal.

▪  KU created a nonprofit entity whose only purpose was to circumvent the legislative approval process. If this project was such a great deal and if KU officials were so convinced it was the right direction, why didn’t they give the Legislature a chance to affirm that? They claim it was a timing issue, but they have been working on this project for more than two years and sold the bonds only days before the session started. You would think they could have waited just one more month to gain our approval and demonstrate some respect for the Legislature and the taxpayers of Kansas.

Tuesday’s budget hearing could have been one of affirmation and approval. Instead, KU’s deliberate actions served only to widen the gap of trust between the Legislature and higher education.

Other questions remain. KU’s debt is significantly higher when compared with that of our other universities, and the projections for enrollment growth necessary to support this debt are questionable.

The budget response to KU’s actions was appropriate. It does not eliminate one dime of KU’s budget, and it does not prevent KU from coming back for more authority on those accounts that have been capped.

This transaction has led many to believe that KU’s finances need to be scrutinized more closely. It’s the Legislature’s job to do that, and the House provision allows for that to occur.

This story was originally published February 10, 2016 at 6:06 PM with the headline "Rep. Mark Hutton: Reaction to KU financing plan not ‘petty’."