Proposition would allow universities to partner with private investors - East Valley Tribune: East Valley Education News

Proposition would allow universities to partner with private investors

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Posted: Saturday, July 24, 2004 7:10 am | Updated: 5:29 pm, Thu Oct 6, 2011.

July 24, 2004

Arizona companies are planning to spend up to $900,000 to convince voters to approve a change in the state constitution they say will benefit business and universities.

Formed under the banner of Arizona Forward, the political action committee hopes to get approval of Proposition 102. That measure would exempt the Board of Regents — and the state’s three universities — from constitutional provisions that now prohibit the state or any of its agencies from becoming an owner in a private company.

More to the point, it would let the universities become partners with private investors, with the schools doing research and development on new technology and being paid not in cash but by obtaining an equity interest in the companies that actually bring it to market.

So far, there has not been any organized opposition to the measure.

But a $17,000 poll commissioned by Arizona Forward shows only 52 percent of 500 people asked are in favor of the concept, with 32 percent opposed and the balance undecided.

And a handful of lawmakers who question the whole concept could change a lot of minds.

Right now universities are free to license their developments to corporations. The problem, however, is that many young companies lack the cash for those kinds of payments.

This proposal, if approved, would provide a cash-free option: The universities would get their payment if and when the technology proves commercially viable.

Sharon Harper, president of The Plaza Cos., said Arizona is one of only a handful of states that has constitutional and statutory prohibitions against taking an ownership position in private companies.

Harper, chosen by Gov. Janet Napolitano to chair the drive for voter approval, said that puts Arizona at a disadvantage with other states and public and private universities.

She pointed to Stanford University which was an early investor in Google, the company that created the successful search engine software. Harper said that Stanford, which invested only a portion of the $25 million Google got five years ago in start-up funding, probably will get about $250 million in return.

Todd Bankofier, president of the Arizona Technology Council, said that potential to make profit is good for the state. He said it paves the way for the universities to become less dependent on taxpayers for their budgets.

But Sen. Dean Martin, RPhoenix, said Arizona voters should think long and hard before they create an exception in the constitution to regulations that keep the state and private business from getting into bed together.

Martin said he has no problem with the idea of expediting technology transfer. But he said the measure has insufficient safeguards.

He said the change would mean corporations that are jointly owned by the state — meaning the public — and private investors.

"Once these companies are created, they’re excluded from open records laws,’’ Martin said. "We want to know who’s making money.’’

He said there is a potential for mischief with some people having conflicts of interest as they push certain research — at university expense — when they are the ones who will financially benefit.

Bankofier said those fears are unwarranted. He said the Board of Regents, which oversees the universities, can establish rules to monitor these companies and regulate the entire process.

Anyway, he said, there have not been similar problems in other states that already allow these partnerships.

"The concept is sound,’’ he said. "It’s being played out across the country.’’

Lawmakers were able to put some safeguards into the plan. For example, it prohibits the university from actually investing its own cash or property in exchange for an equity position.

Instead, the only contribution it could make would be the intellectual property or technology developed.

Another provision, prohibits any regent from being paid for serving as a director or trustee of any company, other than reimbursement for actual expenses.

And the law says that neither the Board of Regents nor the state is liable for any debt or other obligation of the private companies created.

Sen. Robert Blendu, RLitchfield Park, has different concerns. "When we are taking five years to get kids a four-year degree, we need to get back to what universities are for: giving kids an education,’’ he said.

Blendu said he fears that the universities, armed with a new legal ability to make money from private investments, will move even further away from teaching.

Bankofier said while education must remain the top priority of the universities, they also have a role to play in research.

Harper said research is important to many of the top professors.

She said without the opportunity to create commercially viable uses for their studies they may choose to go elsewhere.

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