Photo courtesy Grand Canyon University; renderings are fictional

Lope and Change

Written by Jimmy Magahern Category: Valley News Issue: May 2018
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Having tripled its campus footprint and grown twentyfold, Grand Canyon University sets its sights on respect from the higher-education community.

Having tripled its campus footprint and grown its student body twentyfold, Grand Canyon University is now setting its sights on another goal: respect from the higher education community – along with a giant tax break.

On February 15, 2017, at a major media gathering celebrating the grand opening of Grand Canyon University’s latest expansion at 27th Avenue and Camelback Road near Phoenix’s Maryvale neighborhood, university president Brian Mueller stood proudly in front of the new four-story office building – the centerpiece of a 37-acre commercial hub that also includes a renovated hotel and a restaurant – as local dignitaries sang the school’s praises.

One by one, the governor, the mayor and assorted business icons appeared before the enthusiastic crowd of more than 2,000 GCU employees and students clad in “Antelope purple” (the school’s color) to salute the remarkable progress the private Christian university has made in the past decade, roughly tripling its campus size and growing from around 900 on-the-ground students in 2008 to 19,000 now, with another 70,000 enrolled online.

Gov. Doug Ducey called it “a true Arizona success story.” Phoenix Mayor Greg Stanton, noting the increase in jobs, home values and STEM graduates generated by the growth, added, “The economic impact of this university on our city and our state is indisputable.”

GCU after relocating to Phoenix, circa 1960; Photo courtesy Grand Canyon UniversityBut there was one person Mueller couldn’t get to offer any honeyed words: Arizona State University president Michael Crow. For years, Mueller and Crow have carried on a rather public debate about GCU’s legitimacy as a place of higher learning on equal footing with ASU, with Crow focusing on GCU’s status as a for-profit institution, once lumping it in with unscrupulous degree mills “owned and operated by businesses and not accountable to their students.” And Crow’s comments have apparently stung: In August, after Crow called for fellow Pac-12 schools to boycott playing GCU’s Antelopes basketball team – the first from a for-profit university to make it into NCAA Division I athletics – Mueller fired back with his own public statement, lacing into Crow for his “inflammatory remarks” and asserting, “We will obviously not allow ASU’s president to dictate where our university fits in the higher-education landscape.”

This year, Mueller may finally silence Crow’s smack talk – and potentially elevate the university’s standing in the larger higher-learning community. Operated as a small nonprofit university from 1949 to 2004 before taking on investors, GCU looks almost certain to regain its not-for-profit designation. On February 22, 2018, the Higher Learning Commission (HLC), which oversees the regional accreditation of universities in 19 states, including Arizona, approved GCU’s second application (its first was rejected by the commission in 2015) to revert back to nonprofit status. GCU still needs approval from the U.S. Department of Education, the IRS and the Arizona State Board for Private Postsecondary Education, which at press time was set to review the application at its April 26 board meeting. But Mueller is hopeful. “The HLC approval is the major step,” he says.

For Mueller – who helped steer the University of Phoenix to for-profit prominence as the head of the Apollo Education Group before joining GCU – the move appears to be the latest step in an extraordinarily effective long-term management plan. After all, it was Mueller who engineered GCU’s initial stock offering upon coming onboard in 2008, a gambit to repay investors who had rescued the school from near bankruptcy four years earlier.

GCU By the NumbersClearly, the gambit paid off. In a recent story on GCU’s basketball team, ESPN.com noted that the school generated $218 million in the second quarter of 2017 alone, or “$4 million more than professional wrestling giant WWE’s earnings in the same period.” Consequently, GCU now stands on its firmest financial ground ever. “There is no need,” Mueller says, “to go back to the public markets for further capital.”

So why make the conversion to nonprofit? Academic rectitude, officials say. The change will firmly establish GCU as a fourth major university in the state. But it will also relieve the school of a large property tax burden: $9.2 million last year alone, according to its director of communications, Bob Romantic – more than four times as much as the next largest landowner in the city of Phoenix.

So, the real answer: academics and money. And, yes, profits will still be had.

GCU,s change to not-for-profit will certainly bring new challenges. According to the proposal, GCU operations would essentially be split in two: academics, athletics and other student services would fall under the purview of the nonprofit Grand Canyon University, while administrative matters – marketing, recruitment, IT and accounting – would stay with for-profit Grand Canyon Education. GCE, the publicly traded entity formed in 2004 by a who’s who of private equity investors including The Vanguard Group and Fidelity Management, would essentially function as a servicing company with one client: GCU itself. And Mueller would remain CEO.

“The investors will maintain their ownership of the for-profit, publicly traded service company,” Mueller explains. “And then there’ll be nobody who really owns the university; the university will be a not-for-profit institution that’s governed by a board of trustees,” who would then hire a salaried dean to run GCU.

Mueller suspects HLC’s earlier approval last August of a similar plan by Indiana’s Purdue University – in which Purdue will acquire the for-profit Kaplan University to create the new public online school Purdue University Global – may have paved the way for this second proposal to pass. “It’s really the best of both worlds for us.”

Questions will need to be addressed: Will the board of trustees be able to terminate the contract with GCE if it wants to? How will the board be chosen? And is it curious that the newly-nonprofit GCU would be obligated to cut a check every month to the people who formerly owned it? Some analysts see a conflict of interest. Robert Shireman, the former deputy undersecretary for education under the Obama administration who wrote a lot of the rules to increase scrutiny of for-profits, says of the arrangement, “It would be like the CEO of Girl Scouts also being the CEO of the cookie baking company.”

There’s also the issue of Mueller’s remuneration. Already one of the highest-paid people in Arizona education – he pulled down $6.23 million in total compensation in 2013, according to SEC filings, and a little over $2 million last year – if he chose to liquidate his GCE stock holdings, which jumped in value from $98.18 to $101.66 a share the day after the HLC’s approval, he’d make nine figures. Mueller holds just more than 1 million shares of the stock, which trades on the Nasdaq under the stock name LOPE.

The transition also raises another broad question: Why go nonprofit now, at a moment when the country is being led by a former owner of a for-profit education company – albeit a specious one – whose administration is relaxing federal oversight of such schools?

Mueller with students; Photo courtesy Grand Canyon University“There are things that will be open to us now that wouldn’t have been open to us before,” Mueller says. “We will have a large development office, and we will be able to accept philanthropic contributions. Writing for grants and other research opportunities, which were largely closed to us, will now be open to us. Right now, we’re not a full voting member in the NCAA because of our for-profit status. We will be, as a not-for-profit. There will be certain conference affiliations that will be open to us that weren’t in the past. And that property tax burden being removed will allow us to not have to raise tuition and keep our offerings affordable to all socio-economic classes. So it’s very definitely a good move for the university.”

Arizona Republic congressional reporter Ronald J. Hansen, who has covered GCU for the paper and recalls Mueller being “quite angry” the day the HLC rejected the university’s first application, returns to another overriding reason: The conversion will finally help the school shake the stigma that for-profits acquired in recent years, not to mention the federal regulations still in effect for the sector.

“The whole for-profit education industry really got creamed pretty badly during the Obama years,” says Hansen. “Grand Canyon has always kind of shined compared to others in that space. But its administrators made no secret of the fact that they really wanted to get out from under the stink of an industry that had really crumbled around them, and even though they certainly regarded themselves as being better than all the other competitors out there, they just didn’t want to be associated with it. They felt that was damaging to their reputation. I think they felt tainted by it.”

Public support for GCU’s gargantuan growth has always been somewhat complicated by the school’s standing as a Christian university, dogging every savvy business decision with a nagging “What would Jesus do?” reassessment.

In 2014, when the university announced plans to buy up homes and apartment complexes in the largely impoverished neighborhood surrounding its west Phoenix campus to clear room for an expansion, Mueller faced angry residents at zoning meetings and endured critical jabs from the media. One condo owner who was offered roughly $50,000 for his unit complained to a local news reporter that university officials had clearly forgotten the eighth commandment: “Thou shalt not steal.”

Garnering less media coverage were the steps GCU took as reparations: contributing $100,000 in total to help cover relocation expenses for the roughly 500 residents displaced by the expansions; working with Habitat for Humanity to rehabilitate more than 120 homes in the area, with plans to repair or remodel 600 more by 2020; partnering with the Phoenix Police Department to improve safety in the community, lowering the crime rate by 30 percent in the surrounding 2-mile radius; offering free one-on-one tutoring and mentoring to students at K-12 schools in the local community and rewarding high-performing students in the mentoring program with 200 full-tuition scholarships.

Slicing GCUIt’s not surprising, then, that Mueller, who considers himself a devout Christian, is particularly sensitive to charges that GCU’s growth has been all about driving up GCE’s stock price.

“Our decisions are always made with four major constituents in mind,” he says. “First is our students. Second is our faculty and staff. Probably fourth is our shareholders, but above them is our community.

“We’re centered in a minority community that’s over 80 percent Hispanic,” he adds. “And that’s reflected in our school. When people come on this campus, what they realize is it’s not an elite, privileged white community on the campus gentrifying a minority neighborhood. Twenty-eight percent of our students are Hispanic; 47 percent are people of color. So our campus looks a lot like our neighborhood.”

Mueller believes that the increased respect he seeks for the school by shedding its for-profit stigma will ultimately also trickle down to the students – many lower income, and many immigrants – who graduate with degrees from Grand Canyon University.

“I think, slowly but surely, people are getting less suspicious of us and getting behind this effort,” he says. “They’re starting to get the idea that we don’t want to grow if we’re not blessing the neighborhood.”

But the nonprofit move could also place a higher financial strain on the city and potentially taxpayers. Mueller acknowledges that the change in status will ease a “significant property tax burden” for the school. Shedding its hefty $9.2 million bill will help GCU hold the line on tuition, as it’s managed to do for the past 10 years. But the city’s Budget and Research Department estimates Phoenix will lose approximately $1.1 million from its share of that tax revenue, and Maricopa County and the school districts will also be impacted.

For his part, Mayor Stanton remains bullish on GCU, even while staring down that loss in tax revenue. “I’ve never been concerned with their status as a for-profit or a nonprofit,” he told Hansen after the school’s first proposal to go nonprofit. “It’s way, way more important that they crank out highly educated, qualified graduates in nursing and education, business and areas where they excel.”

Speaking for city manager Ed Zuercher, Julie Watters, public information director for the city of Phoenix, echoes Stanton’s support. “The city of Phoenix and GCU have a strong, community-based partnership,” she says. “Over the past six months, three top executives of companies selecting Phoenix over other metro areas specifically cited the quality of education from both Arizona State and Grand Canyon universities as reasons their corporations selected the Valley for new or expanded facilities. Each of these companies are adding hundreds of employees. The fact that they’ve specifically mentioned GCU graduates entering the workforce as a reason for selecting the Valley provides long-term financial benefits to the city greater than any short-term loss in property tax revenue.”

Though the university itself will be tax-shielded as a nonprofit school, it should also be noted that GCE will remain a “tax-paying entity,” Romantic says, with a $1.7 million burden in 2019 for the offices it will inhabit near the campus.

Mueller insists the switch will be a win-win for both the school and the city. “You know, if Arizona would have said 10 years ago it wanted a fourth university, it would have cost the taxpayers billions of dollars to create this,” he says. “Instead, we’ve had the privilege of paying hundreds of millions of dollars into taxes to create it. So this is really a good thing for Arizona.”