University Enterprise Divisions: Vehicles for Dodging Accountability

A pair of bills filed last year would allow the creation of powerful mini-governments within public colleges and universities. These entities would function similarly to shell corporations by allowing universities to bypass state oversight for bonding, construction and even the exercise of eminent domain.

This legislation – H.4182 (and its Senate companion, S.542)– is specifically designed to allow colleges and universities to avoid the financial oversight of the Commission on Higher Education, which in recent years has begun exercising its authority to oppose higher education spending decisions.

This bill was featured in Best and Worst of the General Assembly 2017. It was filed late in the session and did not receive a committee hearing this year, but could pass next year. A similar bill filed in 2013 passed both the House and Senate and died in conference committee.

Unaccountable powers of bonding, eminent domain, etc.

If H.4182 passed, it would establish brand-new quasi-government entities called “enterprise divisions.” These murky organizations would be created within public universities by resolution of the board of trustees. An enterprise division could purchase and sell property, issue bonds, and build facilities just as a university can. The primary difference between an enterprise division and the university itself is that enterprise divisions would be specifically exempted from state oversight in all of these activities.

Only the board of trustees would be able to hold an enterprise division accountable – a disturbing idea since boards of trustees are elected by the legislature with no provision for their removal, and are therefore unaccountable themselves.

Worse, enterprise divisions would have power of eminent domain – the use of government force to seize private property for public use. According to state law, boards of trustees may exercise eminent domain subject to approval of the State Fiscal Accountability Authority (SFAA) and/or Department of Administration. If this bill passed, boards of trustees would be able to bypass even that scant layer of oversight for the seizure of private property.

Further, the enterprise division would not be required to obtain SFAA and Department of Administration approval for granting easements and right-of-way for infrastructure projects. While this may seem innocuous on the surface, this power could be used to bypass proper approval processes for public projects and roads if opposing public pressure was too great for oversight agencies to ignore.

For instance, if legislative leaders wanted to push through a controversial infrastructure project outside of the public eye, an enterprise division could quietly seize the needed property through eminent domain and grant the Department of Transportation right-of-way through that property – all without public notification, public hearings, or official state approval.

Specific exemption from state oversight

University purchasing and selling of land, eminent domain decisions and construction projects are all currently subject to weak and diffused oversight and approval by the state – specifically, the SFAA, the Joint Bond Review Committee (JBRC) and/or the Department of Administration as applicable. This is hardly an ideal arrangement, as the SFAA is comprised of five ex officio members, none of which can specifically be held accountable for SFAA decisions. The JBRC is appointed by two legislative leaders and likewise impossible to hold accountable.

However, even this paltry oversight would not apply to enterprise divisions. Enterprise divisions could buy, sell, acquire, construct and issue bonds independent of all state approval, accountable only to the board of trustees. The enterprise decision’s procurement code would have to be approved by the SFAA, but that is the extent of state oversight for buying and selling. Construction projects would be submitted to the JBRC, but only for review and comment. There is no state entity with the power to approve or disapprove actual decisions.

Bypassing the Commission on Higher Education’s Oversight

Significantly, the bill also exempts enterprise divisions from the requirement that the Commission on Higher Education (CHE) approve any property acquisition or construction if that property is not contiguous to the university. In effect, this would allow a university to purchase – or exercise eminent domain to seize – land anywhere in the state and no one could be held accountable for the decision.

This comes on the heels of increased pushback by the CHE to higher education spending and debt proposals. Last year, the CHE denied a stadium expansion proposal by Coastal Carolina University due to insufficient funding to cover the bond debt. Lawmakers circumvented the CHE’s financial oversight by approving the Coastal Carolina project in a budget proviso. Earlier this year the CHE opposed Clemson University’s proposal to build an on-campus tennis center as well as the University of South Carolina’s request to purchase land in downtown Columbia – the latter due to USC’s practice of granting approximately $515 million in tuition breaks to out-of-state students.

State lawmakers attempted to slip a one-year proviso into this year’s state budget suspending parts of the CHE’s oversight authority. With that proviso in place, both Clemson’s and USC’s projects could have proceeded. This is a common way state universities get around the CHE’s authority in order to fund highly questionable constructions or land purchases.

It is difficult to see H.4182 as anything other than another legislative attempt to hamstring the only state agency providing real accountability for higher education spending decisions.

Designed to benefit athletic programs at two universities

The bill also exempts capital improvement projects and funding – including bonding – from state oversight. However, athletic facility projects only qualify for the exemptions if they are funded solely through ticket revenues. And only universities with athletics programs generating at least $40 million per year can build athletic facilities through their enterprise divisions.

In fiscal year 2015-2016, only two universities exceeded that threshold: the University of South Carolina ($122,331,092) and Clemson University ($95,800,326). When similar legislation was filed in 2013, it was designed specifically for Clemson University.

Moving toward or away from citizen-controlled government?

While the provisions of this bill are egregiously unaccountable, this approach is typical of South Carolina state government. In every key area from road funding to the judicial system, power is concentrated in the hands of a few government officials most citizens cannot vote for – a fact brought home by the crisis in the energy sector following the failure of the recently abandoned V.C. Summer nuclear construction crisis.

The only way to make South Carolina the freest state in the nation is to return the power to the citizens and hold government leaders accountable for every decision they make and every dollar they spend. Unfortunately, this bill – if passed – would do the exact opposite.