Wednesday, July 28, 2021

NEW INVESTIGATION: NAU Foundation Hides "Extraordinary" $5.5M Proposed Fine; Among Largest Penalties By Trump's FCC For Alleged Misuse of Educational Broadband Licenses

While the rest of the world was still buzzing about the January 6 invasion of the U.S. Capitol, then-President Trump's FCC was hammering Arizona's NAU Foundation with one of the largest suggested fines in the country, $5.5M. Although they had done away with the requirement that licensees of the Educational Broadband Service ("EBS") spectrum use the frequencies for educational purposes, they approved $47M+ in proposed fines.

The NAU Foundation leadership would not say whether they have informed the Board of Directors of the potential mega-hit. And, Washington lobbyists hired to "interact" with Congress had no apparent impact.

The NAU Foundation is an inter-dependent but separate, private entity benefitting Northern Arizona University, the third-largest public university in the state, and its students. It also happens to hold nearly three dozen of the EBS licenses across the country as an investment vehicle. 

The Foundation turned over use of the valuable frequencies when it entered into long-term leases with T-Mobile (fka Sprint), admittedly aware of the risk of them not being used for legitimate educational purposes. It is unlikely they thought the risk was this significant, as two Democratic Commissioners also opposed what they called the "novel" and "extraordinary" fines.

NAU Foundation executives have declined to answer Arizona's Law's repeated requests for documents and information related to its possibly-ongoing battle against the hefty fine, and it is unclear whether it would be subject to Arizona's public records law. Foundation Executive Director Michael Bassoff did acknowledge the nasty situation, stating "NAU has owned and operated several EBS licenses for years without issue while maintaining a professional relationship with the FCC.  In late 2020, the NAU Foundation became aware of the potential issuance of an NAL against certain licenses it owned.   When made aware of the NAL issue, the NAU Foundation began a dialogue with the FCC."

However, examinations of the FCC file, its January 7 "Notice of Apparent Liability For Forfeiture" (commonly abbreviated as NAL and reproduced below) and other public documents explain much of the strange tale. The Foundation began investing in the special educational licenses more than 10 years ago, and have steadily built up a portfolio of 35 of these licenses.

With the Foundation declining to respond, it is difficult to say how much the licenses cost - and, how much revenue the Foundation receives from T-Mobile. However, annual reports which non-profits must file with the IRS give some perspective. Even as the Foundation purchased two additional licenses in 2019, the "book value" assigned to all of the licenses by Foundation accountants has steadily decreased to the current (2020) amount of $177,944. (see IRS report below)

(From Foundation's 2020 Report)
The amount of the lease payments (revenue) received from T-Mobile is impossible to ascertain without the Foundation's cooperation. The IRS reports only require broad categories, and the Foundation undoubtedly receives investment income and royalty income from different sources. 

But the total NET revenue for the entire Foundation in 2020 was $11.2M, making the FCC fine equivalent to almost exactly half of a full year's net revenue. (Akin to paying a $50,000 fine on your annual salary of $100,000 - if you had NO other expenses.)

While the size of the eye-popping $5.5M proposed fine was "extraordinary", in the words of dissenting FCC Commissioner Geoffrey Starks - a Democrat appointed to the Commission by former President Trump - the Foundation knew it was running a risk by not conducting any educational purposes with the spectrum licenses.

At a 2019 Arizona Board of Regents meeting, then Executive Director of the Foundation (and Vice President of Development and Alumni Engagement for the university) Rickey McCurry singled out the licenses as a key non-gift revenue stream for the Foundation, and said "there could be potential challenges that may exist with the FCC that could have an adverse effect." (From the ABOR's Minutes) He went on to tell the regents that the Foundation focuses on mitigating those risks.

Less than five weeks later, Trump-appointed Commissioner Brendan Carr sent the Foundation a letter asking how the NAU Foundation was complying with the educational requirements. That was quickly followed by a formal Letter of Inquiry.

McCurry filed a formal Response in October 2019 - which both the Foundation and the FCC have declined to provide to Arizona's Law. However, the FCC characterized it as saying "the Foundation admits that it has not made use of Local Program Committees for the past ten years since it has relied on “data/Internet transmission” for each of its EBS licenses."

The Foundation claimed in the Response that those committees to guide educational uses "no longer serve[] a purpose for EBS Licenses”". The NAU Foundation holds licenses across the country, from rural Vermont and Tennessee to the Silicon Valley and points in between. The FCC noted that the Foundation could not "will away" the requirement for local committees helping determine what educational needs could be met with the broadband.

The $5.5M fine is the 4th highest proposed by the FCC on January 7. Only the Hispanic Information and Telecommunications Network, the North American Catholic Educational Programming Foundation, and the Shekinah Network were hit harder.

Part of what makes the $47M in proposed fines so surprising is that the FCC had just eliminated the educational requirements in 2020 as part of a restructuring. No longer did the Foundation have to convene the local committees or provide at least 20 hours per week (per license) of educational usage.

The FCC stated "(a)s the Commission’s rule changes were forward-looking in nature, a change to the Commission’s rules does not relieve the Foundation of its original obligations to have complied with the rules in effect before the rule change."

The following month, the NAU Foundation retained a Washington, DC lobbying firm to "to interact with Congress and the FCC." Or, as Bassoff told us, they hired Cassidy & Associates because "the NAU Foundation believed it would be in its best interest to acquire the services of a lobbying firm in Washington to be available to provide consultation."

He would not answer which members of Congress the lobbyists spoke with or what assistance was provided under the $30,000 contract. That agreement was terminated earlier this month.

(In 2017, the Arizona Center for Investigative Reporting detailed how the foundations for the University of Arizona and Arizona State University were hiring lobbyists to influence the State Legislature on behalf of their universities - keeping the expenses off of the universities' books and avoiding procurement laws. This is obviously not the same situation, and it appears to be the first time the NAU Foundation has hired lobbyists at the federal level.)

If the intent of hiring Cassidy & Associates was to help reduce or eliminate the $5.5M fine, there is not yet any indication that it was successful, and Bassoff's comment - along with the termination - leads to the conclusion that it was not.
NAU Foundation Exec Dir. Michael Bassoff 

Bassoff also refused to tell Arizona's Law whether the Foundation's Board of Directors had met since January 7 and whether they were informed of the large proposed fine. He declined to answer whether the leases with T-Mobile include an indemnity clause in case of FCC action, nor to discuss how such a financial hit would impact the Foundation's mission of assisting NAU and Lumberjack students. (Bassoff demurred on all follow-up questions by noting the open matter - whether or not the questions were directly related to the FCC matter.)

Perhaps the best chance for the NAU Foundation to get relief from the mammoth fine was the change of power in both the White House and the Senate. The Commission is presently split between two Democrats and two Republicans, with the fifth seat sitting vacant. President Joe Biden named Jessica Rosenworcel as the Acting Chairwoman of the FCC, and she is one of the two Commissioners to oppose the fines.

Rosenworcel made a short and impassioned statement in January opposing the fines. "These decisions suffer from a number of substantive and procedural infirmities. But most troubling is that the fines imposed here on the North American Catholic Educational Programming Foundation, the Hispanic Information and Telecommunications Network, Northern Arizona University Foundation, and other similar non-profit entities with programs to expand educational internet access lack any appropriate sense of proportion. Moreover, they are an unfortunate commentary on the priorities of this agency. During a pandemic when millions of people are struggling to get the connectivity they need to maintain some semblance of modern life, this is a strange use of agency resources. Instead of taking these unreasonably punitive actions, we should be leading with our humanity and finding ways to connect more people to the broadband services they need in crisis."

Once Biden nominates a fifth Commissioner and the Senate confirms the pick, the Commission could vote to reduce or eliminate the $5.5M fine against the NAU Foundation.

"AZ Law" includes articles, commentaries and updates about opinions from the Arizona Supreme Court, U.S. Supreme Court, as well as trial and appellate courts, etc. AZ Law is founded by Phoenix attorney Paul Weich, and joins Arizona's Politics on the internet. 

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