FAQs for proposal to re-establish GCU as a non-profit institution

January 05, 2018 / by / 0 Comment
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Why is GCU pursuing a return to its non-profit status?

The proposal with the Higher Learning Commission is being considered as a way to return to the University’s historical non-profit roots. It is in the best long-term interests of our students, faculty and staff, the community and our investors, in that it would:

  • Provide faculty and students equitable opportunities to participate in academic and co-curricular opportunities with our peer institutions without being segregated based on tax-status.
  • Open up the world of non-profit philanthropic giving, grant writing and research opportunities.
  • Better enable the University to continue to hold the line on tuition – which has been frozen on the ground campus for 10 years – and keep higher education affordable for all socioeconomic classes of Americans.
  • Allow the University to continue to invest in infrastructure and maximize opportunities for faculty/staff growth.
  • Maximize opportunities for continued investments in the community.
  • Provide the opportunity for the University to become a full voting member of the NCAA.
  • Allow Grand Canyon Education, Inc. to continue as publicly traded educational services company that has the potential to provide services to other institutions in addition to GCU.

In short, this return to our historical non-profit status conveys an accurate reflection of who GCU is today and will be in the future.

What is the proposed structure of the new organization?

A non-profit corporation would acquire certain academic and related operations and assets from Grand Canyon Education, Inc. (GCE). The non-profit corporation would change its name to Grand Canyon University as soon as the sale closes.

GCE would enter into a long-term master services agreement with GCU to provide services such as marketing, recruitment, accounting, student service counseling, IT, human resources and other support services.

Academic operations would reside with GCU along with departments such as Student Services, Facilities, Strategic Educational Alliances, Public Safety and Athletics.

The arrangement would be similar to the proposed structure in which Purdue University hopes to acquire the education assets of Kaplan University (a for-profit online university), with Kaplan becoming the service company for the new Purdue NewU online platform. Further, the educational services that GCE would provide to GCU in the proposed structure would encompass services that are similar to those that are currently provided in outsourcing agreements that well-known service companies have in place with hundreds of regionally accredited universities throughout the country.

Is GCU doing this to avoid federal regulations aimed specifically at the for-profit sector of higher education?

No. GCU has very strong metrics for all of the current regulations. For example, because GCU maintains affordable tuition, none of its programs failed the gainful employment regulations. GCU’s loan default rate will be an estimated 6.5% for the most recent cohort – well below federal guidelines. For the 90/10 rule, GCU sits at 72.3% (and dropping).

The University also has an exemplary record of regulatory compliance, including visits from six major accrediting bodies within the past two years. GCU met those comprehensive reviews with 100 percent compliance, including a visit from HLC in which the University’s accreditation was reaffirmed for an additional 10 years, which is the maximum extension of accreditation the HLC offers. In addition to the HLC accreditation, GCU recently received the maximum 10-year accreditation from the Commission on Collegiate Nursing Education; completed the four-year transition to NCAA Division I athletics; completed a Veterans Administration audit with no findings; received a 10-year reaccreditation from the Accreditation Council for Business Schools and Programs; and has been granted associate membership of the Association of Theological Schools as it completes the process for full accreditation.

How is GCU different than other for-profit universities?

GCU is the first for-profit university to offer hybrid learning environments with a significant ground campus environment for traditional students as well as a state-of-the-art online platform for working adult students. The University further distinguishes its innovative approach to higher education in that it has never paid a dividend to its shareholders since becoming a publicly traded institution in 2008. Those shareholders have received a return on their investment via increases in the value of the stock price that are a result of the University’s continued success. GCU has also invested more into its campus infrastructure and technology — $1 billion over a 10-year period – than it has made in after-tax profits during that time; has not raised tuition on its ground campus in 10 years, which is unheard of in higher education; is the only for-profit member of the Association of Theological Schools (currently we have associate member status); and the only for-profit institution participating in NCAA Division I athletics.

How is this different than GCU’s initial application to convert to a non-profit in 2015-16?

GCU initially explored reverting to its nonprofit status in 2015-16. That application was denied by the HLC, in part, based on its view that it did not have the necessary guidelines in place to evaluate the type of shared services agreement that GCU proposed. In May 2017, GCU became aware that the HLC was considering adopting new accreditation guidelines that would allow HLC-accredited institutions to engage in shared services arrangements. Following the HLC’s adoption of those guidelines in November, GCU submitted its updated application on December 18, 2017.

What will be the state and local impact of this proposal?

If the State of Arizona would have sought to create a fourth major university years ago, it would have cost them millions of dollars. We have had the privilege of paying taxes to create what now exists at GCU.

This proposal provides the best of both worlds by re-establishing a regionally accredited, comprehensive, non-profit university that can continue to grow and meet the demand of families interested in affordable, private higher education, while enabling GCE to become a tax-paying, multi-billion dollar market cap, publicly traded company in the fast-growing educational service market industry, with its headquarters in Phoenix.

Combined, both entities will employ over 10,000 people in high-quality, high-wage jobs with anticipated combined new job growth of 5% per year.

What are the tax implications of GCU returning to a non-profit status?

GCU and GCE will continue to generate significant state, local and federal tax revenue.

From 2008 to 2017, GCU and its employees paid $824 million in federal, state and local income, sales and use, payroll, and real and personal property taxes, including $145 million in state and local taxes. In 2017 alone, GCU and its employees paid $141 million in federal, state and local income, sales and use, payroll and real and personal property taxes, including $24 million in state and local taxes. 

The vast majority of these taxes will continue to be paid subsequent to the closing of the transaction as the University and its students will continue to pay sales and use taxes on its ongoing construction, operations and student spending and the University and its employees will continue to pay payroll taxes. GCE will continue to generate significant tax revenue through sales, use, income, property and payroll taxes.

The only tax difference resulting from the transaction is slightly lower income taxes as University profits are not subject to income tax and the University’s campus will not be subject to property tax. GCE profits and property will continue to be subject to income and property taxes.

While public and private non-profit universities pay no property taxes, GCE will continue to pay significant property taxes — benefiting public school districts and homeowners in the Canyon Corridor. GCE will pay roughly $1.7 million in property taxes beginning in 2019 – an amount greater than what GCU/GCE paid in 2013. As a non-profit entity, GCU paid no property tax from 1949-2004. That increased to $300,000 in 2004 and by 2017 that skyrocketed to $9.2 million as the University continued to expand. Those increases are unsustainable long-term and would make it difficult to avoid tuition increases in the future if this proposal is not successful.

Does the establishment of the not-for-profit change the overall mission of the University?

No. GCU believes that the proposal would further the mission of the institution by providing opportunities to increase efficiencies by utilizing resources strategically that further the teaching and assessment of student learning, as well as the overall student experience. GCU’s Board of Trustees believes such a partnership would be beneficial based on the aligned goals of both organizations, as well as the integrity and ethics of both organizations.

How will the proposal affect GCU’s future growth plans?

It won’t. In the next five to seven years, the University expects:

  • Enrollment on the ground campus to grow from approximately 19,000 to approximately 30,000 students
  • Online enrollment to grow from approximately 70,000 to approximately 100,000 students
  • Academic programmatic growth to continue from 220 to 320 programs, emphases and certificates
  • Employee growth (full-time, part-time and student workers) to jump from 9,500 to 12,100 employees.

What effect will this have on GCU’s involvement in the community?

It will make it easier for GCU to continue those investments. Among them:

  • GCU and the Phoenix Police Department are in the midst of an eight-year, combined $1.6 million investment to beef up patrols in the surrounding area and pay for police overtime to reduce crime and make neighborhoods safer.
  • GCU has contributed $1.2 million and 14,320 volunteer hours to complete 346 repair projects alongside Habitat for Humanity at homes in the Canyon Corridor.
  • The University has provided free tutoring to more than 3,000 K-12 students at 76 participating schools at GCU’s Learning Lounge in the last four years. Over 1,400 GCU students participate as tutors, providing more than 60,000 hours of academic assistance to inner-city students. In addition, in the past two years, GCU has provided 200 Students Inspiring Students full-tuition scholarships to students from 17 inner-city high schools who otherwise may not have been able to afford college.

 

 


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