Arizona legislators approved a controversial measure that allow the State’s universities to bond during Thursday’s late night session. Both chambers approved the measure after considerable arm twisting deal making with the Republican holdouts.
The measure passed along party lines in the House, and on a barely bipartisan vote in the Senate.
The bonding measure was according to one lawmaker who voted for it, a get-Governor-Ducey-re-elected scheme. While the bonding scheme may help the governor raise campaign cash, the unpopular plan could have a negative impact grassroots’ support.
Some Republicans only held out in order to cut deals. Deals included a tax cut, and more money for the Koch brothers’ freedom schools.
HB 2547: university infrastructure capital financing; appropriations.
Licensure and Royalty Agreements (Sec. 1)
1. Specifies certain amounts each university that has a licensure or royalty agreement or agreement for the sale or transfer of intellectual property developed by a university entered into beginning May 1, 2017 must deposit in the GF by October 1 of each year:
a. For the first three years of the licensure or royalty agreement, 20% of the net income from licensure or royalty payments received by the university or any component unit of the university during the preceding FY.
b. For each year after the third year, 20% of the gross revenues from licensure or royalty payments received by the university or any component unit of the university during the preceding FY.
c. 25% of the gross revenues received by the university or any component unit of the university from the sale or transfer of intellectual property developed by the university during the preceding FY.
2. Prohibits universities from including cumulative losses or reducing its required deposits from any agreements due to net income associated with other projects when calculating certain net income and gross revenues.
3. Clarifies amounts deposited into the GF regarding licensure or royalty agreements or sales of intellectual property cannot exceed amounts appropriated regarding lease-purchase capital financing and infrastructure capital financing.
4. Clarifies each university must report on the total amount of net income and gross revenues received from licensure or royalty agreements or sales of intellectual property.
5. Removes language relating to a constitutional amendment authorizing ownership and securities by ABOR.
6. Defines component unit of the university.
University Capital Infrastructure Fund (Fund)(Sec. 2)
7. Establishes a Fund for each university to administer.
a. Monies are continuously appropriated and exempt from lapsing.
8. Appropriates the following amounts to each university’s Fund in FY 2019:
a. $ 11,927,400 to Arizona State University,
b. $ 10,551,700 to University of Arizona, and
c. $ 4,520,900 to Northern Arizona University.
9. Prescribes a formula to calculate amounts appropriated to each university Fund for FY 2020 through FY 2043.
10. Requires each respective university to appropriate a matching amount equal to the amount of GF monies used for paying debt service on debt financing for capital projects.
11. Specifies monies in a Fund are to be used exclusively for either:
a. Costs of capital projects, or
b. Paying debt service on debt financing for capital projects.
12. Prohibits Fund monies from being used:
a. For any projects reviewed by JCCR prior to April 15, 2017,
b. For the construction, use, furnishing, improvement, operation, marketing, promotion or maintenance of a professional sports facility, or
c. To pay for operating expenditures.
13. Prohibits ABOR from issuing total debt financing for which debt service is paid with Fund monies in a principal amount of more than $1 B.
14. Requires a university to report on its Fund as part of its budget reporting requirement pursuant to law.
15. Requires each university to submit the scope, purpose, and an estimated cost of the capital project to JCCR for review prior to the expenditure of monies in a Fund for any capital project not paid with debt financing.
16. Requires each university to submit the scope, purpose and estimated cost of the project to JCCR for approval prior to the expenditure of monies in a Fund for any capital project paid with debt financing.
a. JCCR must hold a hearing no later than the committee’s second meeting after the project is submitted.
17. Allows ABOR to enter into or make payments on debt financing on behalf of a university with monies from the university’s Fund.
18. Requires debt service payments funded with monies from a Fund to be included in the calculation of a university’s debt service limit.
19. Allows ABOR to refund any debt financing paid with Fund monies on behalf of a university
20. Requires any refunding debt financing issued by ABOR to be reviewed by JCCR and exempts the refunding from the university debt financing cap.
21. Defines capital project, debt financing, debt service, and infrastructure.
Pursuant to A.R.S. §15-1670, universities are appropriated monies for FY 2008 to FY 2031 for lease/purchase capital financing for research infrastructure projects. Universities are required to deposit into the GF 20% of income from licensure and royalty payments and 25% of income from the sale or transfer of intellectual property during the preceding FY.
According to JLBC, in terms of FY 2016 gross royalty revenues, ASU reported $10.8 million of licensing and royalty revenues, NAU reported $5,290 of licensing and royalty revenue, and UA reported $2.0 million of licensure, royalty, and assignment revenues. In terms of net income, NAU and UA both reported a loss in FY 2016. ASU reported a net income of $603,000 in FY 2016. ASU did not deposit any portion of these monies into the GF, citing a $40.3 million cumulative net loss from prior years.