Unknown and Unaccountable

It's time for lawmakers, the IRS, the press and academics to subject public college and university foundations to more scrutiny, writes Pablo Eisenberg.

May 10, 2010

There are over 1,500 private foundations that support public universities and colleges in this country. Their collective assets are enormous – 25 have endowments of at least $1 billion each. Yet little is known about them. Journalists, with few exceptions, rarely bother to find out how they support their universities and colleges.

What we do know is that many are not transparent and publicly accountable; allocate substantial funds to supplement CEO and senior administrators’ salaries and benefits; provide superfluous benefits unrelated to academics such as country club memberships, leased cars, housing allowances, housekeepers, spousal travel, lawn care and other perks to coaches and administrators; engage in self-dealing relationships with their trustees and university regents; and pay their executives high salaries.

In difficult financial times, when state support of higher education is being cut, tuition costs are rapidly rising and financial aid for needy students is declining, such expenditures are increasingly hard to justify. That is why parents, public officials, students and the general public have the right to know what is going on in these institutions.

Jack Gould, the coordinator of Common Cause in Nebraska, has been monitoring the work of the University of Nebraska Foundation for almost a decade. His efforts to make the foundation more transparent and accountable have led to added pressure by the media and state legislators for greater disclosure by the foundation. As a result, we learned that in 2009 the foundation provided free country club memberships to at least 51 university administrators and athletic department employees and 81 leased cars to coaches and top administrators. In defending these perks, according to The Lincoln Journal Star, Joel Pedersen, legal counsel for the University of Nebraska, said that about 200 of the 250 public universities in the country offer similar vehicle allowances.

The Nebraska foundation provides the Nebraska president with most of his perks and a growing amount of his salary, including a 19.3 percent increase in 2008. It also gives the president a $700,000 discretionary fund every year.

In 2003, also in Nebraska, the Peru State College foundation made a secret deal with the Peru State College president to give him $455,572 in deferred payments if the president agreed to continue in his position for five additional years. This transaction was never reported to the state, a violation of the law for which the president was fined all of $1,200.

In California, Sonoma State University's foundation made a $1 million loan to a board member. The most recent California State University scandal occurred a few weeks ago at the Stanislaus campus where the Stanislaus foundation refused to reveal how much it was paying Sarah Palin to speak at a fundraiser and to divulge the names of the donors to the event. The foundation claimed that its charity status exempted it from the state disclosure laws. Several state legislators have introduced a bill that would bring public university foundations under the state record rules.

The University of Georgia Foundation was the focus of intensive investigative reporting by The Atlanta Journal Constitution in 2003-4. The paper also found that half of the University of Georgia trustees were connected to firms that had done more than $30 million in business with the foundation since 2000. The trustees never revealed a conflict of interest or recused themselves from such decisions.

And the list of questionable activities could go on and on. What is clear is that much of what is happening at these public college foundations is the result of a lack of transparency, strict guidelines and oversight.

Reporters, regents, and the public should be asking these foundations and their boards some tough questions, including:

1. What expenditures did the foundation make during the year, including cash and in-kind contributions to the CEO, administrators, coaches and faculty?

2. Were any building contracts or services provided to the university, eg., fund-raising, legal, etc., from foundation funds tied in any way to firms with which foundation board members or university regents had relationships? How much money was involved?

3. What were the salaries and benefits paid to foundation staff?

4. What contributions were made to a president’s discretionary fund, and what expenditures were made from this fund?

5. What percentage of the money distributed by the foundation went to student scholarships and academic programs?

6. How much money did the foundation give to the university’s athletic programs?

7. What reporting requirements are demanded from these foundations by their boards, the universities and colleges and the state regents, legislatures and governments?

In short, we need a much more accurate profile of this vast universe of private foundations: their assets, their priorities and programs, the activities they support and the extent to which their boards and state regents are holding them accountable.

Should this huge network of foundations be permitted to operate as private institutions supporting but not a part of public universities and colleges, and therefore immune from the latter’s transparency and accountability requirements? Or should they be absorbed into public universities and colleges as fund-raising entities subject to state regulations? If one could start from scratch, one could easily make the case that the second alternative would be in the best interest of taxpayers and the public. The entrenched nature of these foundations and political realities, however, would probably doom any such radical restructuring of the system.

But state legislatures, with major public support, should demand that these private foundations are publicly accountable, free of self-dealing and no longer the incubator of special perks for administrators and athletic departments. The Internal Revenue Service should alter its regulations and practices to make certain that these foundations serve the public and the universities and colleges they are supposed to support. It’s a challenging task, but the time to begin is now.


Pablo Eisenberg is a senior fellow at the Georgetown Public Policy Institute and a columnist for The Chronicle of Philanthropy.


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