Corporate Ventures in the Public Setting: What to Know about Forming Partnerships
Remember the days when a handshake was all you needed to “seal the deal?” For those of you who have tried to successfully negotiate a cooperative venture between your college and an outside party, the seeming impenetrable tangle of fiscal and legal “gotchas” probably makes you want to scream in frustration.
The frustration is real, but so are those pesky fiscal and legal mandates. For instance, if we stray into activities for which the Arizona State Legislature hasn’t given us authority in law, we aren’t likely, among other things, to have insurance coverage for that activity. If a cooperative venture permits an outside entity to use facilities or resources that we have funded through tax-exempt financing, we risk losing the tax exemption for that financing.
Here are some questions that you can ask to help you avoid pitfalls. It’s not an exhaustive set, but it will give you an idea of what you need to look for as you set out in the negotiations.
• What’s the primary objective of the venture? Is it educational in nature? The benefit to the District of the venture must relate to the powers that the Legislature granted the District as a place of public higher education. The law does not permit us, for instance, to lease our land at a bargain price to assist in economic development in the county.
• If one of the objectives is revenue generation, does the generation of income as well as its intended use meet fiscal and legal requirements? As a public entity, we are also prohibited from entering into a true, legal partnership with an outside party, so sharing revenues and losses in a venture with an outside party isn’t appropriate. Still other laws, as well as Governing Board policy, preclude us from engaging in an activity that competes with something offered by the private sector. And income we may garner from activities such as advertising in a conference brochure is subject to income taxation, because advertising doesn’t relate to our educational mission.
• Is there a balance between benefits that the District offers to the outside party, and the tangible benefit that the District gets back from the venture or outside party? Generally speaking, public entities in Arizona can’t give away or provide access to their resources without getting something of commensurate and tangible value back. So, for instance, a college has allowed a charter high school to place a modular building on its property, in exchange for the college’s use of the building in the evening for its classes. In doing so, the college properly calculated that it gained more value in getting the use of the building for free than it gave up in permitting the school to place its building on unimproved college property for free. However, if the college didn’t get the use of the building at night, it would need to charge the school rent for using the property.
• Will the venture involve an outside party using or having a presence at a facility or having access to technology that the District purchased using tax-exempt loans that haven’t been paid off? Tax laws preclude us from getting the benefits of low-interest tax-exempt financing, and then permitting an outside commercial entity to benefit through use of our facilities or technology funded with that money. This includes letting an outside entity have exclusive rights to our output (such as classes) using those facilities or technology, as well as providing certain naming rights to a large donor.
• Is the venture one that the District should compete or does it involve the purchase of goods, construction or services that must comply with the District’s procurement procedures? In some cases, we may need to select the outside party for the venture through some competitive means, depending on the opportunities and resources that we intend to provide for the venture. Additionally, a venture idea may require the construction of a facility or the buying of goods or services for its implementation. Where significant public funds are involved in a venture, it generally means that public procurement procedures need to be followed, regardless of who the purchaser is.
And the list goes on. The point of this is to make you aware that there are “i’s” to be dotted and “t’s” to be crossed.
in the Summer 2006 Edition of In Brief