Gov. Hobbs: "I no longer trust the process that is in place" in regard to UA's financial remediation

Governor Katie Hobbs is calling for a remediation of the University of Arizona’s financial issues following a Thursday Arizona Board of Regents meeting.

In her letter to the board chair Fred DuVal and Executive Director John Arnold, the governor said, “there is no coherent vision, let alone even an agreement on the severity of the problem, on how to lead the university moving forward.” Her letter came after an Arizona Republic investigation shared details regarding known concerns about the acquisition of Ashford University, now known as UArizona Global Campus.

“This is no longer just about finances, this is about a lack of accountability, transparency, and at the end of the day, leadership,” Hobbs wrote. “...In light of the recent developments, I no longer trust the process that is in place.”

UAGC’s acquisition was opposed by many faculty and staff from the beginning, many of whom expressed concerns over the university tying itself with former Ashford University, a for-profit college.

“From the very first minute that we heard about it, it caused us to question our administration's wisdom, good faith, and perhaps even fiduciary duties to the university,” UA faculty chair Dr. Leila Hudson told AZPM in November.

However, during a Thursday board meeting, Arnold, who is also the university's interim CFO, said there were no negative impacts from UAGC’s acquisition to UA’s spending in fiscal year 2023 despite November board documents saying that one of the major causes associated with the UA’s financial decrease is the UAGC acquisition. AZPM first reported that the acquisition, which was finalized last summer, “added $265.5 million in operating costs, thus increasing the denominator in the days cash formula.”

“UAGC became an asset of the University of Arizona on June 30 of 2023. So all the expenditures of UAGC were not University of Arizona expenditures in 2023,” Arnold explained.

Instead, on Thursday, Arnold said the new UArizona Global Campus added $47 million to UA’s cash on hand and has been able to eliminate roles that overlap at UAGC and UA.

“We believe that will be a positive impact on the university as we continue to realize savings through the merger process,” Arnold said.

DuVal defended UAGC’s acquisition, going on to say that UA’s financial problems were due to “investments strategically made, but which we could not afford” and that there are “no dollars missing.”

“UAGC did not drive the budget shortfall and articles to the contrary are simply wrong,” DuVal said.

Now, Hobbs is calling for an independent, third party consultant to “avoid this from becoming a case of the ‘fox guarding the henhouse.’” In her call, Hobbs said the consultant will be responsible for proposing a plan of solutions, conductions an external audit and providing monthly reporting to the Governor’s office and ABOR.

Hobbs gave DuVal and Arnold a Feb. 9th deadline to present a plan that has major strategies, tactics, key metrics and benchmarks for measuring progress.

Throughout her letter, Hobbs reiterated concerns about transparency from ABOR and UA regarding how the financial crisis is being handled and who is addressing it–specifically sharing concerns about Arnold's role as both the Executive Director of ABOR and UA’s interim Chief Financial Officer.

“As the financial crisis has already damaged ABOR’s credibility in their oversight functions, there must be a greater separation between the Board and the university to restore the trust of my office and the public,” she wrote. “I recommend Executive Director Arnold transition out of the CFO role at the University of Arizona as quickly as possible.”

In addition, Hobbs has requested a report that details the “rationale and process that were used to assess the purchase of Ashford University and its subsequent rebranding as the University of Arizona Global Campus” by Feb. 20th.

“Significant ethical problems with Ashford University’s business model appear to have been brushed aside by university leadership during the acquisition,” Hobbs said.

Hobbs specifically referred to concerns about academic performance and is requesting performance metrics from UAGC that show it is providing the “same high-quality education given to students in the university’s other divisions.”

She is also asking the board to “prioritize the alignments of messaging, development of strategy and ongoing stakeholder engagement that will provide additional accuracy and transparency in reporting.” The board’s deadline to complete that is also Feb. 9th.

Hobbs finished her letter sharing that there may be a need for changes in leadership and processes if progress is not made. Hobbs did not mention UA President Robert Robbins name.

Her letter comes after the Arizona Board of Regents began to discuss amendments to its financial oversight policies after University of Arizona interim Chief Financial Officer and ABOR Executive Director John Arnold said UA’s cost trajectory is alarming, but changeable.

“The university is in a financial position where we have the time to do that,” Arnold said during the Thursday board meeting.

According to the ABOR Chair Fred DuVal, UA began 2024 with $700 million and has $900 million as of Thursday’s meeting.

“Today, it is a strong university with world-class teaching and research and brilliant students,” DuVal said. “But let's also be clear that the cost curve is unsustainable. These numbers will go lower. Absent change, we will get into trouble. So we must act and we're going to make changes at the University of Arizona that will be far-reaching.”

In December, UA President Robert Robbins announced that the university initiated a hiring freeze, restrictions on salary increases, the removal of guaranteed tuition, and centralization of administration. Those changes came after Robbins along with former Senior Vice President for Business Affairs and CFO Lisa Rulney told the board in November that UA’s financial health is in crisis following a $240 million miscalculation in cash reserves.

Since the December board meeting, Arnold has stepped into Rulney’s former role to help the university navigate its financial issues.

“I'm working closely with the President and the board to nail down the final steps of that define the scope and nature of the problem, and then we'll be rolling that out the next several days,” Arnold said.

When UA’s financial mismanagement was announced, many pointed to issues like the acquisition of the online university Ashford and loans to athletics as factors to UA’s financial crisis.

However, according to Arnold, that is not true.

Athletics

“Of the $140 million reduction in cash on hand last year, athletics was about $35 million of that,” Arnold said.

During a December faculty senate meeting, Robbins said there are about $87 million in loans to the athletic department beginning in 2018.

Arnold told the board that athletics is operating at about a $30 million loss this year and as the national model around college athletics changes, it means that UA will need to modernize.

“There's going to have to be a broad community discussion about what do we want out of the University of Arizona's athletics?” Arnold said. “What do we want out of that experience? What products do we want to provide? And then be realistic about what are the costs to provide those those products.”

In April, the board should expect proposals surrounding new university financial management principles, how often financial status updates happen, a new annual business process review, and a new report on the impact of financial activity on operating cash balance.

The Arizona Board of Regents holds the broadcast licenses for APZM.