Idaho budgets $8 million for bad IEN contract

Posted at 11:02 AM, Mar 22, 2016
and last updated 2016-03-22 20:25:50-04

In a surprise end-of-session move, legislative budget-writers Tuesday earmarked $8 million that could settle some claims in the Idaho Education Network contract fiasco.

The money could go to Education Networks of America and CenturyLink, the two lead vendors on the mothballed high school broadband system. Both vendors could sue the state over unpaid project bills.

The Joint Finance-Appropriations Committee put $8 million into the state’s Legislative Legal Defense Fund — allowing legislative leaders to continue to pursue a settlement with vendors. Settlement talks have been in the works since fall — and after JFAC approved the $8 million transfer, House Speaker Scott Bedke was guarded in his remarks about the process.

“(We’re) close-ish,” Bedke told Idaho Education News Tuesday morning.

The $8 million maneuver came with little advance notice. The final item on JFAC’s Tuesday agenda mentioned a transfer to the Legislative Legal Defense Fund, an account overseen by Bedke and Senate President Pro Tem Brent Hill. But the agenda item made no reference to the Idaho Education Network.

Bedke and Hill sketched out their plan in a Monday letter to JFAC — saying the $8 million could “minimize future state liability” in the ongoing legal battle over the $60 million broadband contract.

Bedke and Hill say the state could owe the vendors up to $11 million.

That’s a new number — and a bigger number.

In its March 2015 tort claim, ENA said it was owed $6 million, plus interest, legal fees, and other costs. CenturyLink’s tort claim did not mention a specific figure. The company said it was seeking full payment plus interest — and before the network went under, ENA and the state owed CenturyLink about $1.5 million for its subcontract work.

Penalties and interest have driven up the state’s potential exposure, Bedke said Tuesday morning.

“We have an obligation to attempt to try to do that,” said Rep. Wendy Horman, R-Idaho Falls, a JFAC member who supported the transfer.

At first, budget-writers discussed setting $20 million aside to try to settle the sordid Idaho Education Network saga.

And $8 million may not even cover half of the state’s overall costs, said Rep. Maxine Bell, R-Jerome, JFAC’s House co-chair. But within the context of the state’s budget — and a projected $50 million to $60 million surplus — Bell said it was prudent to set some money aside for a possible settlement.

But before JFAC earmarked the $8 million, Sen. Dan Schmidt questioned the state’s bargaining strategy. Schmidt, D-Moscow, wondered why the state would commit to a potential settlement figure — and do so publicly. “Wouldn’t it be wiser if we kept our cards close?”

Bedke defended the decision to pursue a proactive settlement, but said Schmidt raised a valid point. “You have described the push-pull that has been going on in my head for six months.”

Ultimately, Schmidt supported the transfer, which passed the House-Senate committee on a 19-1 vote. Rep. Phylis King, D-Boise, was the lone dissenter. She labeled the $8 million a “slush fund,” a term that rankled Bedke.

The $8 million transfer now has to go to the House and Senate. Both houses need to approve this budget before it can go to Gov. Butch Otter’s desk.

And the settlement fund addresses only one aspect of the Idaho Education Network aftermath.

Here’s the rest of the puzzle:

Syringa legal fees. The state still needs to settle with Syringa Networks, the contractor that successfully sued over the network’s contract, prevailing both in Ada County district court and in Idaho Supreme Court. On March 1, the Supreme Court said Syringa was also entitled to legal fees. JFAC has approved spending $971,700 to cover Syringa’s legal fees. This budget also must pass the House and Senate.

“E-Rate” dollars. The state might still have to write off — or pay back — more than $25 million in federally administered “e-Rate” dollars. The e-Rate phone surcharges had covered the bulk of the Idaho Education Network’s operating costs. But in response to the Idaho Education Network lawsuit, the feds put $11.9 million in Idaho e-Rate dollars on hold. And the feds have indicated that they may demand that the state returns $13.3 million in e-Rate dollars.

None of the $8 million earmarked Tuesday would address the e-Rate issue. Any leftover dollars would be applied to the state’s sage grouse lawsuit.

Money from vendors. Bedke describes a settlement with vendors as a fairness issue. The companies provided services to the state, he said, and it would be “fundamentally wrong” to renege on payment.

But at the same time, state law forbids agencies from paying out on an illegal contract. And the Supreme Court said the state would need to recover money from network vendors — a sum of $29.7 million.

For more Idaho Education News, visit here.