A University's Fund Raising Arm Comes Under Attack

At a time when endowment spending practices are coming under increasing scrutiny on a national stage, local efforts to draw attention to such issues are also receiving their collective days in the sun.

March 26, 2008

At a time when endowment spending practices are coming under increasing scrutiny on a national stage, local efforts to draw attention to such issues are also receiving their collective days in the sun.

A new report from a coalition of unions, students and community members blasts the ASU (Arizona State University) Foundation, which receives and administers all private gifts for the institution, for what the group calls “excessive and questionable spending." Foundation officials responded Tuesday that the findings are "distorted and fabricated," and that the coalition is trying to advance a political agenda.

The ASU Foundation, an independently governed group, is failing to adequately support the university by directing too little in the way of grant money and other scholarships that directly benefit students, the report charges. In recent years, it notes, the foundation has greatly increased overhead spending and executive pay while tuition and fees continue to rise.

The foundation's endowment has more than doubled in recent years to its current total of roughly $500 million. In 2005-6, the year that the report investigates by looking at an IRS Form 990, the foundation received $124 million in direct public support. Roughly $33 million in grant money was given to the university. Johnnie D. Ray, the foundation's president and chief executive officer, said it's a "deliberate tactical choice" to increase the size of the endowment and to reduce the amount of money transferred from the foundation to ASU for immediate spending. (He also noted that some gifts are restricted, and thus can't be used for grants.)

One of the primary reasons for the increase in overhead spending has been the rising costs associated with paying investment managers. The staff also has grown over the past several years from 42 to 87 people. Ray says the increase in employees is needed to handle the booming endowment.

According to the coalition's report, the foundation's executive compensation has risen 440 percent over the past six years, and its eight top officials are paid a combined $1.7 million annually -- a total that exceeds comparable foundations. ASU Foundation officials said it's unfair to compare its pay structure with that of other foundations, because at some institutions top fund raisers are employed directly through the university. An apples-to-apples comparison is "almost impossible," Ray said.

"We have to go after the best people we can possibly find," Ray added. "Compensation has gone up by leaps and bounds. We are well within the market for how we are paying people we are hiring. "

Foundation officials criticized the report for relying solely on one financial document and not taking into account a financial statement released by the university.

Responding to the report's claims of "excess" spending on meals and entertainment during fund raising events, Ray said the foundation's spending and practices are comparable to that of its peers. He also defended the annual $160,000 salary given to the wife of Michael Crow, ASU's president, as a "senior adviser." Sybil Francis, Crow's wife, is an "instrumental part of the success" of the foundation in fund raising, serving multiple roles, including co-chair of the women and philanthropy group, Ray said.

ASU's foundation and the Coalition for Justice at Great Western Erectors have been at odds over labor issues in recent years. Great Western Erectors worked as a subcontractor on a project for the foundation, and Ray says the report is the latest effort by the coalition to strong arm the foundation into supporting a political cause. Sara Myklebust, the researcher behind the report, acknowledges that her group has been trying to engage the foundation for years on the issue, but that the report is more an attempt to advance the conversation about how the university foundation allocates its money.

"When you look at the coverage nationally of what's happening, people are looking at how much universities are making on their endowments, how much they are saving, but at the same time how fast tuition is rising," said Myklebust, an ASU alumna. "There needs to be some more oversight, and more management of how the money is being spent.

"This problem extends beyond ASU,” the report says, noting the U.S. Senate's look at endowment spending practices.

Brian Flahaven, director of government relations and institutionally related foundations at the Council for Advancement and Support of Education, said this is an example of a group that has "grabbed onto this issue that's gaining national attention." He said he wouldn't be surprised to see other groups releasing similar reports that examine a local college's spending.

Flahaven said he's noticed that there's still a misconception that if a college increases payout of the endowment, tuition will automatically decrease. Such reports also need to keep in mind, he said, that many gifts are directed for a specific purpose.


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