Baxter Arena

Baxter Arena


The University of Nebraska is undergoing a renaissance.

At the medical center, NU’s biggest-ever project — a $323 million cancer center — promises to bring high-paying jobs and international prestige. In Lincoln, a $188 million research park is promoted as a home for cutting-edge innovation.

At the University of Nebraska at Omaha, a new $88 million arena has become a hub of school pride, while new dorms have helped transform the Pacific Campus into an upscale, urban residential setting.

All of the projects have risen up with millions in private support, most notably from philanthropist Walter Scott Jr., who is widely considered one of Omaha’s most influential civic leaders.

But the state’s public university has done more in private than line up Scott and other donors:

» NU has built about $691 million in new facilities without the university issuing public bids, even though public bidding is considered to be a government standard and about $264 million in public money has gone toward building costs.

» To develop the projects, the university has set up private corporations and made other arrangements that share oversight with the private sector donors and that shield contracts and spending details from the public view required by the state’s open records law.

» All of the development work has gone to Tetrad Property Group, a firm chaired by Scott’s son, David Scott. Most of the construction management contracts have gone to Peter Kiewit Sons’ Inc., the Omaha-based, Fortune 500 construction company that Scott led for nearly two decades before his 1998 retirement.

University officials say their private business arrangements are legal and in the university’s best financial interests.

The World-Herald found nothing in Nebraska’s laws that expressly addresses no-bid contracts under such business structures — either allowing or prohibiting the practice. The university’s move toward privacy makes it difficult, if not impossible, for the public to examine independently whether the university is getting good financial deals.

Public bidding is typical for government agencies — even when private donations are involved. In other situations, it is NU’s policy and practice for construction. When big government contracts are at issue, bidding is seen as an equalizer for competing firms to avoid favoritism, and check on value when spending the public’s money.

The situation as a whole raises questions about the possibility that Scott’s status as a donor is influencing the business decisions of NU officials.

University officials say it doesn’t.

NU President Hank Bounds said there is no understanding that Scott’s generosity would garner contracts for his affiliated interests.

“Any story that is not about the tremendous success of this public-private partnership really would be a mischaracterization of the relationship that exists,” Bounds said.

Scott is known for a giving style called “high-engagement” philanthropy, which brings hands-on oversight along with major financial contributions. A donation from Scott is widely seen as a stamp of approval that leads to other philanthropists’ donations, and he has been involved on some level in nearly every major Omaha civic project in the past two decades.

His footprint is equally large at NU, where he has funded at least $110 million of student scholarships, academic programs and capital construction projects for the university since 2005 through his foundation. The Suzanne and Walter Scott Foundation built and now operates most buildings on UNO’s Pacific Campus.

Walter Scott declined to comment, as did Calvin Sisson, the executive director of the Scott foundation. Tetrad CEO Zach Wiegert did not respond to attempts to reach him for this article.

Sisson referred questions about the Pacific Campus to university officials: “The university has done a great job with their campus, and I would defer to them as to how they were able to accomplish the redevelopment.”

Regent Hal Daub of Omaha noted that the Board of Regents approved all of the projects at public meetings in “the light of day.” He said the regents and other university leaders provide oversight and management that taxpayers can trust.

“I think they (taxpayers) should expect that there’s some responsible entity or elected official that has the ability to make sure things are done right,” Daub said.

***

There’s no question that both taxpayers and private donors have major stakes in the cancer center, Lincoln’s Innovation Campus and UNO’s Baxter Arena.

At UNMC’s Fred & Pamela Buffett Cancer Center, scheduled to open in 2017, funding includes $90 million from the State of Nebraska, the City of Omaha and Douglas County. The cancer center also has received an investment of $73 million from Nebraska Medicine, the hospital associated with UNMC, and philanthropic donations of $160 million. The Scott foundation was a lead donor for the project, and the research tower will bear Suzanne and Walter Scott’s names.

The Innovation Campus has about $89 million in public money, $5 million in donations and $94 million in private capital investment.

Construction of Baxter Arena was split about evenly between the university and donors, including $5 million from the Scott foundation. The City of Omaha paid for $6 million of infrastructure around the arena.

Beginning in 1999, the university started an arrangement that allowed Tetrad, Kiewit and the Scott foundation to develop, build and operate residence halls on the Pacific Campus without a public, competitive bidding process. Three dorms have been built through that arrangement.

A fourth residence hall, to be privately owned by Tetrad, has been approved by the NU Board of Regents — again without bidding.

Bounds, who became the university system’s leader last April, said he reviewed the Pacific Campus dorm arrangements after inquiries from The World-Herald began in June. He said he found them to be legal and proper. The exclusive arrangements with the Scott foundation, many of which included significant donations to construction, allowed UNO to launch housing from scratch, he said.

Bounds later declined interview requests to answer questions about business arrangements surrounding the cancer center, Innovation Campus and Baxter Arena.

Nebraska state law requires competitive bidding on public construction projects and purchases by state agencies. NU is exempt from that state law, but it is still required to bid purchases above $150,000 under its own rules, which were approved by the Board of Regents.

The university has options that allow it to use a more flexible, subjective selection process for major construction contractors — not strictly choosing the lowest bidder. But even then, the process requires an open, public request for interested firms to apply.

In the dorm projects, the university says that bidding was not required because NU simply leased ground to the Scott foundation or Tetrad and allowed them to develop and operate the projects. The university and the foundation share dorm revenue on two projects; the foundation or Tetrad keeps nearly all of the revenue on two others.

For the cancer center, Innovation Campus and Baxter Arena, the Board of Regents approved the creation of nonprofit development corporations. Board members for the corporations maintain that the entities are independent of the university and not required to use public bidding. The structure was designed with the goal of completing the projects on time and on budget, the board members said, with input from the projects’ stakeholders and donors.

When The World-Herald asked the university if those three projects were publicly bid, they referred questions to the university-appointed leaders of the development corporations.

NU Regent Howard Hawks, who is chairman of Baxter Arena’s development corporation, said in a statement — which was provided by an NU spokeswoman — that the new corporation “is not required by Nebraska law or Board of Regents policy to use a particular procurement process.”

When asked why a development corporation overseeing a project would mean the university was relieved of bidding requirements, Hawks referred questions to NU’s general counsel, Joel Pedersen, who declined to be interviewed.

The corporations are closely tied to the university:

» Many of the same people who would oversee a project for the university — the university president, chancellors and regents — sit on the boards of the development corporations.

» Nearly all the non-university board members sit on the NU Foundation’s board of directors or are trustees of the NU Foundation.

» All the board members are appointed by NU regents, except two for the cancer center who were chosen by the Nebraska Medical Center.

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Strong links between private boards and NU

Strong links between private boards and NU: The University of Nebraska’s biggest recent projects are overseen by private development corporation boards. The directors say they are independent of NU and offer separate oversight of the projects. But most board members have strong ties to NU.

In interviews and written statements, development corporation directors said the structure makes them more efficient and allows them privacy. They declined to offer many details on how the boards selected the projects’ contractors or share contracts and payment amounts.

“Because of the nature of our formation, we do not have an obligation to disclose that process,” said former Regent Jim McClurg, who is chairman of the cancer center’s corporation.

At Innovation Campus, UNL issued public requests for proposals on early planning contracts. When it came time to select a developer, UNL Chancellor Harvey Perlman said no formal search was conducted.

Perlman, who is on the development corporation board, said the private structure is crucial for the project, where Tetrad is a full-blown partner with its own money at risk.

Tetrad owns two buildings on the campus, and will do the same with an 80,000-square-foot facility in the works.

While Kiewit led construction at Baxter Arena and the cancer center, its role at Innovation Campus was relatively small, Kiewit spokesman Tom Janssen said in an email. Janssen noted that Kiewit used bidding for its subcontracts.

The elimination of a university bidding process played “maybe a small role” in using a development corporation, Perlman said, because the primary goal is bringing more private-sector tenants into the campus. “You have to have flexibility to move quickly,” Perlman said. “There are significant costs associated with trying to be fully publicly transparent that private-sector companies won’t pay.”

It’s not clear what role Walter Scott plays in Tetrad and the Innovation Campus. At an event there last fall, Perlman thanked Tetrad’s “key leaders” — naming attendees Walter Scott, David Scott and Wiegert specifically. Perlman said in an interview he had not known the senior Scott was involved with Tetrad when the company was hired.

University records show that Tetrad affiliates began their work on the cancer center and Baxter Arena several months before the development corporations were even formed.

Records provided to The World-Herald show that UNMC, not the development corporation, first awarded cancer center work to a Tetrad affiliate, S2W. In a series of letters, UNMC and its partner, the Nebraska Medical Center, agreed to pay the affiliate more than $900,000 for a year of development work on the cancer center starting in March 2012.

For the arena project, the Board of Regents initially approved a plan for S2W, the Tetrad affiliate, to split most of the costs with Heritage Services, a private, nonprofit group that coordinates civic donations from Omaha’s philanthropists. Scott is a founder and chairman of that group, and Hawks sits on its board of directors.

The university intended to lease the arena back from S2W with plans to purchase it, according to board documents.

The project came back to the regents in March 2013 with a significant change: UNO would own the arena and issue bonds to pay for the half that S2W would have financed. Heritage Services stayed on to raise funds. The plan passed, along with the creation of the development corporation, which the board agenda said was recommended by “community stakeholders and donors.”

***

NU’s lack of bidding on the projects is unusual compared with similar setups elsewhere in Nebraska.

At least one other NU project has used a development corporation — but still publicly bid for contractors.

University of Nebraska at Kearney officials held a public meeting for interested firms and issued a public request in March 2015 for a statement of qualifications for a development partner on a dorm and retail project. Three firms, including Tetrad, have applied.

UNK spokeswoman Kelly Bartling said the development corporation’s board is vetting the firms’ proposals and will make the final selection.

The campus is using a competitive process, Bartling said, to ensure that the project is as open and transparent as possible — and because legal counsel recommended it.

“It’s the right thing to do in this instance where you want to make sure you’re getting a wide array of input, interests and qualifications to bring to the table,” Bartling said.

The university’s corporation model resembles Omaha’s Metropolitan Entertainment and Convention Authority, an independent authority which built and operates the city-owned CenturyLink Center and TD Ameritrade Park.

But unlike MECA’s creation — which was approved by voters in 2000 while Daub was Omaha’s mayor — there has been almost no public discussion over how the university’s corporations would function and what kind of powers they would have.

Scott’s philanthropy model was a big driver for creating MECA. Some donors had indicated that they might withhold their $75 million donation to Omaha’s $291 million convention center and arena project if voters did not approve the new authority.

Back in 1999, Scott told The World-Herald that it’s “very difficult to raise private money and, in effect, let politicians spend it because there’s not a great deal of confidence in how it will be spent.”

Heritage Services has raised a half-billion dollars for a wide variety of public-use buildings over the past 25 years. Baxter Arena is among its more recent projects, which also include the Holland Performing Arts Center and Lauritzen Gardens.

In a 2014 article, Scott explained the rationale behind Heritage Services’ approach to philanthropy, which includes conducting studies, supervising construction and setting up endowments for nonprofit groups and agencies that end up with the keys to the buildings.

If a group has an idea for a project but doesn’t want to follow Heritage’s system, Scott added, “they can get someone else.”

While MECA has long maintained it is an independent, private, nonprofit corporation, the Nebraska Attorney General’s Office in October issued an opinion that the entity is a hybrid public-private agency, subject to public disclosure laws.

No matter MECA’s form, it used public bidding to handle construction for TD Ameritrade and CenturyLink Center.

***

Several NU regents told The World-Herald they support competition for university contracts generally — but said the cancer center, Innovation Campus and Baxter Arena are reasonable exceptions.

Hawks and other regents said in interviews that significant private donations in the development corporation projects make them different.

Daub said the deals in question are more “private-public” than public-private. The process may be different from how someone would expect a government to operate, Daub said, but the university is unique.

“It’s a very creative way of getting stuff done,” Daub said.

Regent Rob Schafer of Beatrice said he doesn’t know enough about the development corporations to comment on them. “I think where it’s possible, we should bid, and maybe there’s some instances where we’re not able to or it just doesn’t fit within the timeline,” he said.

Regent Jim Pillen of Columbus said he supports the development corporations completely because he believes it’s the only way NU will get projects done. “There may be things that some people will try to say are not 100 percent transparent,” Pillen said. “But we are following state law to the nth degree.”

Pillen said he hopes more developers would get involved with NU. When asked how they would know about the opportunity without a public process, Pillen said Nebraska is a small community.

“People who are in that business, if they had that interest, they have the opportunity to visit,” Pillen said.

Hawks, too, said he would like other developers to step forward if they have better offers to make. Discussing the fourth UNO dorm deal in June, Hawks said he assumed that $7 million in donations by the Scott foundation hinged on Tetrad getting the contract.

“They have not made that statement,” Hawks said in an interview. “But if I were in their shoes, I would make it. ... I would like someone to offer us the same package.”

In an October interview, however, Hawks said he never thought the donations and contracts were connected.

Regent Kent Schroeder of Kearney said he sees the new dorm project as no different from the others the board has endorsed.

“I am not alarmed by the process nor competitiveness, or lack thereof, of the bids,” Schroeder said.

Numerous outside experts interviewed by The World-Herald say competitive bidding is a routine part of public projects even when private money is involved.

A university needs to ensure it’s getting the best possible deal, said Michael Poliakoff, vice president of policy at the American Council of Trustees and Alumni, an independent organization that promotes accountability at colleges and universities. “Typically,” Poliakoff said, “that involves bidding things out.”

Julie Skolnicki, senior vice president of university partnerships at Education Realty Trust and a longtime consultant on public-private partnerships, said competition is a virtually universal aspect of privatized deals she’s been involved with. The real estate investment trust owns or manages nearly 42,000 dorm beds at 52 universities.

If UNO offered a competitive process for the Pacific Campus dorms, Skolnicki said her investment trust “absolutely” would have pursued it.

“Sometimes you wish you could just make friends and agree on a deal, but primarily, (the partners) are public institutions and required to have some sort of procurement process,” Skolnicki said. “That’s just the way the world works.”

As public-private partnerships become more common, universities should have policies that dictate how they access capital, said Bob Shea, a senior fellow for finance and campus management at the National Association of College and University Business Officers. His association, of which NU is a member, offers training on innovative financing and managing a partnership and reflecting those arrangements in their policies.

“Many of our schools have that, and many are developing that,” he said.


In Mississippi, where Bounds was higher education commissioner until last spring, the board of trustees for the State Institutions of Higher Learning passed a draft policy governing situations similar to the Scott partnerships.

The proposed policy addressed how colleges should proceed when entering into contracts with “supportive entities,” such as alumni associations, corporations or foundations.

A supportive entity owning, building or developing buildings for an institution’s use is often beneficial, the policy said, but the board should ensure some conditions. The proposed policy, which has not yet received final approval, notes that students ultimately bear the cost of the debt from those projects.

Among the conditions: a number of entities, rather than just one, should be considered to ensure a partner is selected for ability, quality and price, “and not as a result of favoritism or improper influence.”

Contact the writer: kate.howard@owh.com, 402-444-3185, twitter.com/KateOWH

 

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