A Real Home Field Advantage: Access to Public University Foundation Records

Journal of Law and Education, Jul 2005 by Reinardy, Scott, Davis, Charles N

ABSTRACT

Private, non-profit university foundations have grown into multi-million-dollar entities with very little public scrutiny. The foundations' private status in many states allows them to conduct university business without accountability to the tax-paying public that supports the institutions. In recent years, however, several state courts have opened the records of university foundations. This paper analyzes the public records status of university foundations, concluding that courts in most states would find such foundations public agencies for purposes of freedom of information laws.

I. INTRODUCTION

Jim Walden served as head football coach at Iowa State University from 1987 to 1994. During his eight-year reign as head coach, his teams won 33.5 percent of its games, and Walden earned $111,197 a year. Walden resigned under pressure from disgruntled alumni, donors and ISU administrators in 1994, but he continues to receive annual payments of $529,400 per year from a deferred compensation contract payable over 20 years. The non-profit, private Iowa State University Foundation is responsible for paying Walden.1

The public and press learned of Walden's deferred compensation arrangement after the fact, and only because a 1999-2000 independent audit of the ISU Foundation listed the $529,400 as a long-term liability classified as "other" in a report made public by the state's public records law.2 Initially, Foundation officials would not disclose any further information concerning the liability, saying only that it was "deferred compensation for a former university employee" and a "personnel matter."3 While the audit revealed some details concerning the Foundation's $470.7 million in assets, Walden's severance was not detailed. Only after public pressure did the Foundation reveal identity of the recipient of the $529,400.4 Efforts to reform Iowa state law to make public the financial records of public university athletic foundations thus far have failed, limiting scrutiny of such foundations to public access to such audit reports.5

Private, non-profit foundations created by public colleges and universities have grown to become multi-million-dollar entities supported by private donations and distributed for a multitude of university purposes. Many of the foundations provide financial assistance to campus construction projects and student scholarship funds, coordinate fund-raising activities and provide other appropriate and beneficial tasks in support of the institution. But occasionally university foundations generate headlines for all the wrong reasons. In recent years, they have been found to have misallocated foundation funds used to secretly supplement administrative and athletic salaries;6 to finance closed-door lawsuit settlements;7 to allow donors to unduly influence university decisions;8 and to act as an additional revenue source for the institution while avoiding public scrutiny.9

The foundations' private status in many states allows them to conduct university business without accountability to the tax-paying public that supports their affiliated universities and often the foundations themselves as well. In recent years, however, courts in at least six states have opened the financial records of state university foundations in response to lawsuits from activists, newspapers and others with a stake in scrutinizing the fiscal affairs of university foundations. In the majority of states that have decided the issue, university foundations are exempt from open record laws, allowing individual and corporate donors, and the uses and potential misuses of their donations, to remain anonymous.10

This paper examines the public records status of university foundations by examining judicial decisions, statutory pronouncements and state attorneys general opinions on the issue. It highlights the divergent judicial and statutory philosophies between states that have declared university foundation records to be open and states where university foundations are exempt from disclosure.

II. ARGUMENTS FOR AND AGAINST DISCLOSURE

A. Arguments Against Disclosure

Opponents of closed public university foundation records most often argue that public dissemination of donor information would discourage future donations and invade the privacy of existing donors." They also argue that foundations act as separate entities, independent of the universities they support. Many foundations are financially self-supporting, pay rent for on-campus office space, do not employ state workers and operate such that decisions are made without university interference.

In 4-H Road Community Association v. West Virginia University Foundation, the Foundation successfully argued that it was a charitable, educational, not-for-profit, tax-exempt corporation not subject to West Virginia's Freedom of Information Act. The Foundation said its employees are 38 private citizens paid by the Foundation and do not participate in any state benefit or wage payment plans. The Foundation also had its own offices on the University campus, and its bylaws allowed it to sue and be sued.12