The Iowa Supreme Court has backed Auditor of State Rob Sand’s authority to subpoena records from the University of Iowa about a billion-dollar utilities privatization agreement.
“The taxpayers of Iowa, who bear the ultimate financial risk for this transaction, are entitled to know if the agency got the best deal available and if anyone had a conflict of interest,” Justice Edward Mansfield wrote in a concurring opinion issued Friday.
The deal involves a 50-year arrangement that grants the right to operate campus utilities to a consortium of French companies in return for $1.165 billion, making it one of the largest public transactions in the state’s history.
The arrangement calls for investors to lend the $1.65 billion to utility companies that then pay the money to the university. The university invests that money in an endowment that is expected to provide millions for campus research and education programs.
The university is obligated to pay back the companies at least $35 million annually to operate the plants that distribute utilities to campus buildings. But because the payments increase significantly over time, the endowment will have to earns billions to ensure that it isn’t depleted, which would expose taxpayers to enormous financial risk.
Although the university has claimed 21.5% of the money for the transaction comes from Iowa-based investors, that has not been verified and some Democratic state legislators have questioned whether investors have any ties to Gov. Kim Reynolds, a Republican.
Court records indicate the university first contacted Sand’s office in late 2019 to discuss the transaction. Shortly after that meeting, Sand emailed state officials and asked for information on potential investors involved in the transaction. Those officials told Sand the bids from the three entities not chosen for the project were “considered confidential” until the deal was finalized, and that the requested list of investors was “a trade secret and is confidential.”
After a series of additional refusals to turn over the information, Sand wrote to state officials and said Iowa law “not only specifically authorizes, but requires, we perform those audits. Bid testing and conflict-of-interest testing are normal parts of a financial audit … If I don’t have the materials by January 3, we’ll have a subpoena with a response date of January 4 followed promptly by an action to enforce.”
On Jan. 8, 2020, Sand issued a subpoena requesting thirteen categories of documents related to the transaction. Four weeks later, Sand went to court and asked a judge enforce the subpoena, which the court did 10 days later. The state contested that action and at a subsequent hearing, it argued that Sand was not engaged in an audit and because of that “we could lose confidentiality if we turn it over.”
The court then issued an order upholding the subpoena, ruling it was part of the official fiscal year 2020 audit and that any documents produced by the state agency or the state institution would be protected by confidentiality. University officials refused to turn over the records and the district court decision was appealed to the Supreme Court.
As part of Friday’s ruling, the Supreme Court holds that “the auditor of state shall, in all matters pertaining to an authorized audit or examination, have power to issue subpoenas of all kinds.” The court noted that while the state agency claimed Sand’s request “threatened to upend the transaction at the final hour,” accountants have been “chastised for failing to ensure the legality of transactions, and the public tends to blame the auditor of state for negative consequences resulting from a business failure.”
The court pointed out that Sand argues the “transaction creates a huge financial liability for the institution and taxpayers,” which makes it deserving of scrutiny before the deal is finalized.