Long before the coronavirus hit the United States, cash-strapped public higher education systems looked to private donors to offset the steady decline in public funding, sometimes with significant secrecy and strings attached.
Critics fear the economic downturn could give donors more leverage to quietly influence curriculum, hiring and scholarships. Open government laws in many states already allow donors to demand that the public – including students and faculty – be kept in the dark.
The pandemic has presented universities a triple whammy: Reduced tax revenues slashing government support, online-only courses gutting dormitory and cafeteria revenues, and – with more students and families out of work – less ability to offset that loss with tuition increases.
“They are going to be desperate for funding,” said Douglas Beets, who teaches accounting at Wake Forest University, and has studied nearly two decades of university donations and donor demands.
Linda Durant, vice president of development for the Council for Advancement and Support of Education (CASE), said she has seen some encouraging signs that those donating to public universities now are simply being generous during trying times.
In May, the University of Virginia reported a $2 million unrestricted gift to help ease fallout from the pandemic. It was part of a larger gift by alumnus and businessman John L. Nau III, who gave $27.5 million specifically to support the university’s Democracy Initiative.
“We are not seeing the same type of restrictions or requests that make the funds much tougher to use,” Durant said. “They understand the magnitude of the needs of students and the variety of needs.”
But, with funding shortages likely to intensify in the coming months, Beets said vigilance is crucial. Donors, he said, may feel emboldened.
“There will be cables attached to it. ‘You have to play our game, put together a center and institute and hire the people we want you to hire,’ ” he said. “You are ending up with a curriculum and faculty that has a debt to a corporation. What kind of education will you end up with?”
In one touchstone case, BB&T Corporation, a major banking company, began donating a series of gifts in 2002 through its foundation to at least 60 universities, many of them public. Details were scant, but Beets found the gifts averaged $1.1 million to teach a course based on objectivism and the “morality of capitalism.” Ayn Rand’s “Atlas Shrugged” was among the required texts.
At Florida State, a promise of a gift of at least $1.5 million from the Charles Koch Foundation to the economics department included establishment of a Koch-appointed board to scrutinize research funding, the hiring of five professors and review professors’ work to ensure it followed the board’s “objectives and purposes” – or risk losing the money.
Since the controversy, which erupted after the 2008 agreement was revealed in 2011, the Florida Legislature has made it easier, not harder, to conceal donor agreements by exempting university foundations – often the conduit for gifts – from open government laws. The Legislature renewed that law last year.
Universities that lunge at money now could find themselves struggling later.
Donors such as the Charles Koch Foundation often make gifts over a period of years, many with the understanding that they can withdraw the remainder of the donation with as little as two weeks’ notice if the university has not complied with terms.
If faculty hired with such donations are tenured, a withdrawal would leave the university on the hook to pay their salaries.
“Especially after hiring tenure-track or tenured professors and creating the infrastructure and publicity related to a new center or institute, an unanticipated contract severance would be very expensive and embarrassing to a university,” Beets wrote in an examination of Charles Koch Foundation contracts with several universities.
A growing pattern of secrecy
Efforts to shield donors from public scrutiny have increased in recent years as public funding for universities became less reliable. About a dozen states have taken steps to change that but so far they are the exception.
Secrecy about donors to public higher education is legal in a majority of states through loopholes in state open government laws that allow open government laws to be circumvented by private foundations, booster clubs and other nonprofits affiliated with public universities.
These organizations, usually set up as private nonprofits, are designed to collect and distribute money for the public universities. While funds often are designated for specific programs, the foundations also raise money for general scholarships and other needs for low- and moderate-income students.
The secrecy issue doesn’t arise as often at private universities because they are exempt from state open government laws and don’t have to reveal information about their donors.
Recently, MacKenzie Scott, an author and the former wife of Amazon billionaire Jeff Bezos, signed the Giving Pledge to donate the bulk of her fortune. Six historically Black universities received major gifts. The universities – all private – voluntarily announced the donations, confirming they have flexibility in how they will use the funds.
Fundraisers tend to make an equity argument, saying that if information becomes public, that can push donors to private institutions where they and their intentions can remain anonymous.
In an amicus brief in a recent lawsuit involving George Mason University’s foundation, a group of university foundations said “anything that threatens donor confidentiality will ultimately disadvantage Virginia’s public colleges and universities” in the competition for dollars.
There is no detailed national accounting of university donations, and many donors have made their gifts contingent on keeping their names, and their demands, secret.
As details of some have leaked out, through lawsuits, records requests and other means, campus controversy has followed. Critics ask whether public universities are straying from their fundamental mission: providing high level, low-cost education to a broad swath of the public, while remaining free from political interference and maintaining academic independence.
A recent anonymous gift to the University of North Carolina in Chapel Hill sparked concerns among some faculty. Professor Jay Smith sought documents about who was providing seed money for an academic program to promote “civic virtue,” since named the Program for Public Discourse.
Smith’s requests were rejected after the university said it did not have the documents and referred him to its foundation. The foundation said it was not required under state open records laws to provide them.
The university did provide emails between faculty members and outside faculty involved in the project. In one, acting program director Chris Clemens revealed that the anonymous donor was the Dowd Foundation, which according to its tax filings is headed by a UNC alumnus and based in Charlotte. The foundation, begun by the family that founded Charlotte Pipe and Foundry, has supported arts programs in North Carolina, among other causes.
Smith and another professor, Karen M. Booth, co-authored an opinion piece in The Charlotte Observer, objecting to the program and secrecy – writing that the records they received prove that the purpose of the program was to counter “liberal voices” on the campus with a conservative center.
“UNC faculty do not need external faculty or BOG (Board of Governors) and BOT (Board of Trustees) members telling us what to teach or how to shape our campus culture,” Smith and Booth wrote last September.
Gift giving also has opened up the potential for conflicts of interest. In 2004, news reports said that 14 companies that had contracts with the University of Georgia System donated $114,000 to the University of Georgia Foundation fund to supplement the chancellor’s salary for three years.
In that same time period, the companies did $29.3 million in business with the regents, who govern the system. Separately, board members of the university foundation received over $30 million in university contracts.
Foundation records, released only after the state attorney general ruled that they were not exempt from disclosure, showed that the regents and foundation trustees – and companies with which they were affiliated – also donated to the foundation, according to the news reports. At the time of the revelations, university and foundation officials said there had been no wrongdoing.
Similarly, in 2015, an investigation by the Chicago Tribune unearthed several irregularities, including that foundation board members of the College of DuPage had received $200 million in contracts from the public college.
Secretive donations with strings from private donors to public universities and university entities have drawn criticism at other universities, including Clemson in South Carolina, University of Louisville, Utah State and West Virginia University.
In Indiana, publicly funded Purdue University acquired for-profit Kaplan University, formerly owned by Graham Holdings – formerly The Washington Post Co. – successfully sought an exemption from public records laws and public meetings law for what is now known as Purdue Global Online, which remains a for-profit organization.
University President and former Gov. Mitch Daniels proclaimed the new entity a “public university” when the deal was done. However, the head of an advocacy group for transparency in Indiana said that the exemptions from public scrutiny, quietly tucked into a state budget bill, made that characterization meaningless.
Controversies arise about donations
Which is the foundation and which is the university? It’s often difficult to see any difference on the surface. They share a name and often staff, too, and may even be housed on campus. They typically coordinate and collaborate closely.
The difference between the two, in the eyes of the law, is key to understanding who must disclose what.
In most states, foundations are exempt from disclosing details about gifts and the foundation’s inner workings, salaries and policies, even though they manage fundraising and other projects for the university. They are considered a private entity that itself does not receive public dollars.
By contrast, publicly funded universities are required to disclose a substantial amount of information under most state public records and public meetings laws.
George Mason University has the George Mason University Foundation. The University of Wisconsin Oshkosh has the UWO-Fond du Lac Foundation, whose website makes it seem that it is part of the university itself. Ditto for Florida State University and its foundation.
Not only are many of these entities housed on campus but their staff often includes employees who hold publicly funded positions on the university’s payroll.
Although there is no official census, at least three-quarters of the 1,626 publicly funded colleges and universities in the United States have some type of tax-exempt entity connected to them, according to several estimates from the higher ed community.
Many public institutions also have established nonprofits to collect and administer funds for university-affiliated think tanks, athletic departments, campus housing and food services.
Nearly 15 years ago, the Journal of Law and Education – a joint publication of law schools at the University of Louisville and the University of South Carolina, published an analysis warning that foundations should be closely watched by taxpayers and administrators.
“Incident after incident on campus after campus demonstrate that university foundations can fail miserably in monitoring themselves,” wrote Scott Reinardy and Charles Davis.
Reinardy and Davis both now are college administrators at journalism schools – Reinardy at the University of Kansas, and Davis at the University of Georgia. They declined to comment on the current state of affairs with donations and secrecy, saying they had not kept track of the issue.
Law professor Martha McCluskey has seen the issue close up at the University of Buffalo, where the university foundation’s spending practices have been questioned by the New York state auditor.
The auditor questioned nearly $40,000 in entertainment expenses, the lack of policies to ensure competitive bidding on contracts, and a decision to pay salaries to two retired university staff members while they were receiving state pensions, a move that allowed the employees to circumvent state limits on “double dipping.”
“For education and research and science to have any value it has to be governed by academic merit,” McCluskey said, “independent of who is buying and selling in the market.”
Some donor deals are known, despite secrecy
While many donors have succeeded in keeping their requests secret, in some instances pressure from the university community has unearthed documents that expose the depth of donor demands, and the willingness of public universities to go along with them.
That was the case at George Mason University in Northern Virginia where student activists and worried faculty managed in 2018 to pry loose documents that showed George Mason had accepted a variety of donations that made specific demands on curriculum and hiring.
The situation was opaque: Money from the Charles Koch Foundation had been donated via the George Mason Foundation and then funneled to The Mercatus Center, a Koch-backed free economy think tank on the Northern Virginia campus. It influenced who taught economics and which students got scholarships.
Controversy also arose over a $20 million donation from an anonymous donor, and $10 million from the Charles Koch Foundation that included renaming the law school for Supreme Court Justice Antonin Scalia, a conservative appointed by President Ronald Reagan.
Among the strings: donors would be notified of a change in deanship and could play a role in picking a new dean. The Scalia heirs also could give notice if they did not like the direction of the law school, and withdraw the use of Justice Scalia’s name.
The resulting outcry led then-president Angel Cabrera – now president of Georgia Tech – to say the university needed to rethink how it would handle future donor agreements.
The Charles Koch Foundation said in 2018 that in the future it would make public all major, multiyear donor agreements with universities but did not offer to do the same for those already in existence. The foundation now posts grant agreements on its website, including some multiyear gifts from 2016.
The controversy reached the Virginia Supreme Court, which in December 2019 ruled that George Mason’s foundation could keep its donation details private.
That outcome troubled Virginia state Rep. David Bulova, a Democrat. He won passage of a bill this year that requires Virginia’s public universities to make details of some large gifts public, including the donor’s name, if someone asks.
“I was painfully aware of what happened with GMU and the revelation that they had in the past taken some donations with strings attached that were not necessarily appropriate,” Bulova said.
New policies emerge in Virginia
In Virginia, under Bulova’s bill, which became law in March, public colleges and universities are required to establish policies for accepting major gifts with demands. Those documents also now will be held by the university itself, making them subject to the state’s public records laws.
The donor’s identity cannot be kept secret if the donations impose terms or conditions that “direct academic decision making.”
Exactly what would qualify remains to be defined in more detail, said Terri Cofer Beirne, president of GMU’s Foundation. But, she said, the law signals to donors that they need to be aware that, if strings are attached, they and their gifts could be subject to more public scrutiny.
Another bill that also became law this year, sponsored by state Rep. Jason Miyares, R-Virginia Beach, requires foundations of public institutions to publish annual reports about their finances and donations, and how those donations are used.
Megan Rhyne, executive director of the Virginia Coalition for Open Government, called the two measures a positive step towards greater transparency.
“We are not talking about run-of-the-mill donations,” she noted, “only those that are trying to steer the direction of the university.”
Virginia remains an anomaly. In the majority of states some details can be gleaned through the IRS’s Form 990, a publicly available annual statement that most nonprofits must file with the federal tax agency.
That information lags behind the donations by at least a year, usually well after the donations have been put to use.
At George Mason University, IRS 990 forms allowed emeritus professor Jim Finkelstein to dig deeply into the 2016 donation of $13.4 million from the Charles Koch Foundation to the George Mason University Foundation, four years before the transparency legislation that became law in Virginia this year.
In turn, the data on the 990 forms show that the university foundation gave $24 million to The Mercatus Center there, a nonprofit think tank that promotes the libertarian economic philosophy espoused by the Koch family.
Finkelstein’s analysis found that the bulk of the center’s $29 million reported income in 2016 came from the university foundation. The foundation, by contrast, provided about $6 million to the university itself for student scholarships, and another $23 million for operations and salaries, the data show.
Many of the details of those transactions remain hidden and are not affected by the new Virginia laws, which took effect on July 1. The Mercatus Center is not a formal part of the university – although on its website it notes its “40 years at Mason.”
The center is a separately incorporated organization, not subject to scrutiny under Virginia’s public records laws. Its executive director is appointed by the university, however, and its website outlines a close relationship between the two.
“As part of Virginia’s largest university, the Mercatus Center supports students in George Mason University’s world-renowned department of economics,” the website says.
Going forward, donations made to the center would not have to be made public but donations it makes to the university, depending on their impact on academic programs, could be.
Devi Shastri of The Milwaukee Journal Sentinel contributed to this report. This project was supported by the Fund for Investigative Journalism.
This article originally appeared on USA TODAY: COVID has colleges desperate for donations as fall semester 2020 looms