By Paul Maryniak
Gilbert’s belly-up deal with Saint Xavier University has come under fire by the Goldwater Institute for leaving taxpayers holding a potential $36 million bag.
The report quotes one expert as calling it “a little wacko” and another as a “foolish and reckless” way to spend taxpayers’ money.
The report was released recently as the private nonprofit government watchdog group announced a lawsuit against the city of Peoria for its plan to give $2.6 million in incentive money directly to Huntington University and a private landowner.
Goldwater senior attorney Jim Manley said neither deal was a good bet.
“The problem with these economic development deals is they leave the taxpayers on the hook if the businesses go bust,” Manley said.
“In the university context, we’ve seen it happen, so it doesn’t really take a lot of speculation to know what it looks like when one of these deals goes wrong. It’s the taxpayers who suffer and it’s the students who suffer,” he added. “It’s just foolish and reckless to spend other people’s money this way.”
Richard Vedder, director of the Center for College Affordability and Productivity, a nonprofit research organization focusing on higher education, was blunter.
“The whole idea is a little wacko,” said Vedder, a professor emeritus of economics at Ohio University who oversees development of Forbes Magazine’s “America’s Best Colleges” report.
“It’s a big, rosy scenario,” Vedder said. “The fact that it is not going on routinely, regularly around the country, to me is indicative that this is not an idea that has resonated, even with people who are traditionally activist in using government subsidies.”
The Goldwater report details how Gilbert had projected the town would reap $281 million over 10 years while creating 170 new jobs.
Gilbert would issue bonds to construct a building on city-owned land that would be custom designed to meet the needs of Saint Xavier, which would enter into a 15-year lease to rent the facility. Lease payments would be used to repay the bonds and other city costs associated with the project.
In return, Saint Xavier would open a campus and offer degrees in nursing, business, and education. The campus was to open no later than August 2015, enrolling at least 200 full-time students with 500 enrolled by the end of the fifth year.
The only security required of Saint Xavier was a penalty of $250,000 and all lease payments due at the time if it breached the lease.
Saint Xavier is a nonprofit Catholic university and enrolls about 4,500 at its Illinois campus.
The report said, “Signs of trouble were evident as soon as Saint Xavier opened in August 2015. The campus was built to accommodate 1,000 students. Yet when the doors opened, only about 25 students had signed up, and most of those were taking online classes.”
Meanwhile, the Illinois Legislature did not fully fund state higher education grants that helped bankroll more than a third of Saint Xavier’s students in that state.
In May 2016, nine months after it opened, university officials announced they would close their Gilbert campus at the end of the fall semester, and had no plans to reopen it.
The town was required to issue bonds that it will have to repay for the $36-million building housing the campus. “Aside from the $250,000 penalty Saint Xavier deposited into a holding account, the university bore virtually no up-front cost or risk,” the report said.
The report depicts the efforts of Town Council members Jared Taylor and Victor Petersen to block the deal, although they ended up on the losing end of a 5-2 vote that approved it.
“At the end of the day, the development agreements will leave us holding the bag if there’s not enough at risk,” Councilman Jared Taylor predicted, rejected town administration assurances that another tenant could always be found for the building.
“Since the university announced it would close, Gilbert officials have been trying to lure another tenant to assume the lease,” the Goldwater report states. “So far, they’ve not been successful, though town attorney Michael Hamblin told the Goldwater Institute there are discussions with several other potential tenants, including other private universities.”
The report says Taylor, who is seeking reelection, noted that private lenders require considerable collateral from private schools seeking loans and that “with taxpayer money at risk, the town should have made similar demands.”
A part of the development agreement stating that Saint Xavier would not open a campus in Gilbert without the city incentives should have been a red flag, Petersen told the Goldwater Institute.
“If it’s really true that they wouldn’t come here without that incentive, it makes you wonder how viable it is of an enterprise,” he said.
The report reported that Saint Xavier has not breached the lease so far and has not notified the city that it will not fulfill its obligations. The first lease payment is due in January.
“So far, the city has not incurred any damages,” the report states. “If Saint Xavier misses the lease payment, and no new tenant is found, the city will have to come up with the bond payment on its own.”
Saint Xavier officials would not agree to an interview, the institute reported, quoting university spokeswoman Karla Thomas as stating, “The payment of lease obligations on Jan. 1 depends on a number of factors that are still developing.”
Hamblin is quoted as stating that “economic development was not the driving factor … Rather it was an investment in the education of Gilbert students, who have few options other than Arizona State University and more distant private colleges in the Valley.”
But the report details the problems that one Gilbert resident and Xavier student has incurred as the result of the university’s closing.
Ryan Schulte spent about $20,000 and a year of his education at Xavier, and now must retake the classes he completed when he begins the MBA program at the University of Arizona.
In response to the Goldwater report, Hamblin told The Tribune that while Gilbert “did perform the necessary due diligence” before making the deal, “the less tangible educational benefits were foremost.” He also said, “Gilbert is confident that another institution of higher education will come to occupy the town-owned building.”
Manley said “Gilbert officials betrayed their own residents when they agreed to finance the Saint Xavier property.”
“The city essentially baited the trap,” Manley said. “In some ways it’s even worse than going to just some private university that opens up in your city. The city has sort of blessed this with its imprimatur and said basically, ‘We think this is a good institution. We think it’s so good we’re going to put your money behind it.’”
Manley said the deal was like “being betrayed by your own city government.”