College cash crunch could boost secret donors’ sway
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. 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 to conceal donor agreements by exempting university foundations – often the conduit for gifts – from open government laws.
A growing pattern of secrecy
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.
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.
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.
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.
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.
Controversies arise
Which is the foundation and which is the university? 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. 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, the website of which makes it seem that it is part of the university itself. Ditto for Florida State University and its foundation.
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 taxexempt entity connected to them, according to several estimates from the higher ed community.
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.
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.
“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 revealed
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.
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.
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 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 Charles Koch Foundation said in 2018 that in the future it would make public all major, multiyear donor agreements with universities. The foundation now posts grant agreements on its website.
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.
Devi Shastri of The Milwaukee Journal Sentinel contributed to this report. This project was supported by the Fund for Investigative Journalism.
“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?” Douglas Beets Wake Forest University professor