A Real Home Field Advantage: Access to Public University Foundation Records
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.
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
In State Board of Accounts v. Indiana University Foundation, the First District Court of Appeals of Indiana affirmed the lower court’s decision that the Foundation and its funds are private, not public. In part, the court ruled that the Foundation did not meet the definition of a “public entity” because it is not maintained at public expense or supported by public funds.13
University foundations often argue that disclosure of its finances and donors threatens the purpose of the organization. Foundations are sometimes used to supplement the incomes of university presidents and athletic coaches, and to finance internal investigations. The foundations oftentimes relieve the university of additional or unforeseen expenses. For instance, when Indiana University was investigating the behavior of then-basketball coach Bobby Knight, its foundation spent more than $10,000. The Fort Wayne Journal Gazette reported that the $944-million, non-profit Indiana University Foundation picked up the tab.14 The newspaper obtained the information after filing a request under the Indiana Access to Public Records Act. Although the foundation was exempt from the act as determined in a 1995 ruling, it voluntarily provided the information.15
It is difficult, however, to draw bright lines between public universities and private foundations. Many times the university foundations are supported by state funds, have state employees on their staffs and operate exclusively for the benefit of the state university.16 Yet in many states, the foundations are closed to open meetings and record laws because they are classified as private organizations.
B. Arguments in Favor of Disclosure
Proponents for the disclosure of university foundation records most often cite the need for watchdogs to patrol the affairs of otherwise private entities to guard against impropriety. Pointing to the list of abuses of trust involving university foundations, and to the fact that taxpayer dollars often are mingled with private dollars in ways that render a public-private distinction virtually meaningless, they conclude that public disclosure will serve both as a deterrent and as a regulatory force.
Proponents also argue that university foundations enjoy a relationship with the public institution so close that it becomes intertwined with the taxpayer-funded entity. University foundations often employ university employees and foundation boards of directors include university presidents, members of the institution’s board of trustees, members of the faculty and public officials. Some foundations pay little or no rent for their office space on campus, and can function as no more than an additional financial arm of the university.
Where the records of university foundations have been made public, the available evidence has shown that such scrutiny was sorely needed. After the South Carolina Supreme Court determined that university foundations were subject to the state’s Freedom of Information Act in 1991, it was discovered that the University of South Carolina Foundation had fraudulently used donors’ contributions under directions from the university’s president, James Holderman. After the state Supreme Court unanimously ruled in February 1991 that the records were public, the foundation disclosed that most of them had been destroyed.17 The available records showed that, in 1989, Holderman had spent $533,000 provided by the foundation.18 Holderman was later sentenced to five years probation and 500 hours of community service after pleading guilty to receiving extra compensation and no contest to state income tax evasion. He also received a year and a day in prison following his conviction on eight counts of federal bankruptcy fraud. He was forced to resign as the university’s president amidst the controversy in 1990.19
In 1998, an annual audit of the Bowie State University Foundation in Maryland discovered a rash of inappropriate expenditures, including a $31,513 bill to move the university’s Office of Institutional Advancement to a different building on campus and purchase new furniture, artwork and equipment.20 Another was a $3,356 cruise arranged for foundation volunteers and major donors that was so poorly organized that few guests arrived and the tickets were instead given to students. Also, the foundation spent $5,312 on a reception to host the National Conference for Christians and Jews, $10,270 to host a local high school track meet, $5,757 to assist a faculty member publish a novel without receiving ownership rights or income from its sale, and funds provided to purchase two Washington Redskins season tickets for foundation officials.21 In two years, the foundation accumulated a $181,968 operating budget deficit, forcing it to borrow from endowment funds contributed to the university.22
When Maryland’s Joint Audit Committee began drafting legislation that would allow auditors to examine university foundation records, university officials argued against the additional oversight, claiming the scrutiny might deter donors who have privacy concerns.23 In 1999, the Maryland Board of Regents adopted measures to ensure foundation funds were not being misused. Those measures limit the staff overlap between the foundations and their affiliated universities and improve the authorization and reporting of expenses. The foundations’ records, however, remain closed to the public.24
Audits-by definition public records-often provide the only public glimpse into university foundations. A 2000 legislative audit by the State of Louisiana discovered that the Grambling State University Foundation had approximately $2.9 million available to be used for Grambling State University. The audit discovered that about $1.5 million clearly intended for the university was donated by the university to the foundation in violation of the Louisiana Constitution. Additionally, many of the funds were inappropriately distributed by the foundation. For instance, the foundation spent $1.25 million on its own administrative expenses, including $316,463 in payments to its executive director and $187,570 to support its sports bar and student housing operations. While the foundation collected nearly $1.4 million from private donations, only $580,540 was used for university scholarships, individual university departments or other university needs. More than $776,000 was transferred to the general operating account and used for administrative and operating expenses.25
Five years ago at Iowa State University, three women agreed to an out-of-court settlement in a sexual-harassment suit filed against Leonard Goldman, director of the Iowa State University Research Park, a nonprofit affiliated corporation of ISU. The state paid $157,000 to settle the case, and Goldman was awarded $200,000 in severance pay from the Research Park. The Research Park also paid the women’s damages, but the information was never made public because of the private status of the Park. The information was later revealed by the independent audit of the Research Park.26
Between 1996 and 2001, University of Louisville President John Shumaker was paid nearly $550,000 in consulting fees by the University of Louisville Foundation, for which Shumaker also served as president. The consulting fee supplemented his salary, which had grown from $165,000 to $263,000. In June 2001, the university trustees agreed to ask the foundation to pay Shumaker another supplement, a $1.5 million bonus-$150,000 annually for 10 years-if he fulfills his contract, which was to expire in 2008.27 Shumaker resigned as the University of Louisville president in June 2002 to become president of the University of Tennessee. In December 2003, a Kentucky state auditor’s report discovered that Shumaker did not have receipts for more than $62,000 of credit-card and reimbursed expenses. Shumaker charged $35,716 of personal expenses to his University of Louisville Foundation credit card and was reimbursed $33,670 of that.28
In 2001, Democratic Representative Jim Wayne said augmenting Shumaker’s salary with private money “opens the door for some heavy influencing from outside special interests. It distorts a lot of what we’re trying to do in state government, to have a government owned by the people and schools owned by the people with a recognition that we are (financially) limited.”29
Indeed, a 1998 survey conducted by the Association of Governing Boards of Universities and Colleges revealed that one-third of public university presidents receive some kind of supplemental compensation from affiliated university foundations.
“Are people still close to the vest on compensation? Yes,” said Tom Longin, vice president for programs and research for the Association of Governing Boards. “It isn’t the best practice, but it’s understandable. We consistently talk about full disclosure and open communication.”30
Representative Wayne said: “It raises real questions about who you’re beholden to. The hope is John Shumaker is above all that.”31
At Florida Atlantic University in July 2003, investigators discovered that $42,000 of foundation funds was allotted to purchase a red Corvette for outgoing president Anthony Catanese. Carla Coloeman, chief fundraiser for the FAU Foundation, arranged to funnel the money through an interior decorator and present it to Catanese’s wife for consulting work. Coleman eventually pleaded guilty to a misdemeanor charge of falsifying records and was sentenced to one year’s probation and 20 hours of community service. Catanese was forced to reimburse the foundation for $42,000.32
In December 2003, former vice president of the University of Florida Foundation, Kenneth Hillier, was charged with five counts of grand theft for embezzling nearly $1 million from the foundation. According to UF Inspector General Nur Erenguc, Hillier is suspected of writing four large checks to himself during an 11-month span. Hillier had worked at the foundation for 15 years.33
Regardless of the merits of either argument, the public records status of university foundations is dependent upon judicial interpretation of the state’s public records law. Examination of the case law reveals that those seeking access to university foundation records are largely dependent upon judicial definitions of “public agency” in state statutes-and upon the deference shown by the courts to university administrations.
III. JUDICIAL DETERMINATIONS OF UNIVERSITY FOUNDATION RECORDS
Courts addressing the applicability of public records laws to university foundations focus on common themes. In some cases, the threshold issue is whether the foundation is a “public body” subject to the open records statutes. If that question is answered affirmatively, the courts must then determine whether the records requested are subject to disclosure under the public records law, or whether they are protected by an exemption from the law, or a privilege.
In other cases, courts employ a balancing test to weigh the privacy interests of donors against the public’s interest in disclosure. Sometimes the issue is not settled in courtrooms but in the office of the state attorney general or the legislature. Attorneys general in nine states have issued opinions on the public status of their universities’ affiliated foundations, adding to the confusing mix of legal opinions on their publicprivate status. The underlying principles that distinguish public bodies from private ones indicate that while states continue to weigh all sides of the issue, university foundations are not unilaterally subjected to public records laws.
A. Findings Supporting The Public Interest in Disclosure
Courts in several states have held that university foundation records must be disclosed under state public records laws. The cases are distinguishable in that a wide variety of records formed the legal disputes, but several general propositions can be drawn from examining the opinions.
1. Frankfort Publishing v. Kentucky State University Foundation
The Supreme Court of Kentucky in 1992 relied upon the statutory definition of a “public agency” to hold that a university foundation was subject to the state’s public records law. In Frankfort Publishing Co. v. Kentucky State University Foundation, the court heard the appeal of a decision reversing a declaratory judgment which held that the Kentucky State University Foundation was a “public agency” as defined in the state’s public records law.34
Focusing on a single clause in the statutory definition of “public agency,” the court found that the use of “or agency thereof at the end of the definition was intended to define as a public agency any agency of a governmental unit listed prior to the phrase in the entire subsection.35 That subsection defines “public agency” as “every state or local officer, state department, division, bureau, board, commission and authority; every legislative board, commission, committee and officer; every county and city governing body, council, school district board, special district board, commission, committee, subcommittee, ad hoc committee, council or agency thereof.”36 The court found that it was erroneous to conclude that the legislature intended to exclude such subagencies “by punctuation or arrangement of the language in the statute,”37 rejecting arguments to the contrary by the foundation.
Further rejecting analogies to an earlier Kentucky appellate opinion declaring that the University of Louisville Foundation was not a public agency for purposes of the state’s open meetings laws, the court found the public records law more expansive than its meetings counterpart and distinguished the dispute in that case from the present dispute.38
2. Cape Publications Inc. v. the University of Louisville Foundation
The ruling from Kentucky’s highest court did not prevent university foundations in that state from continuing to challenge public records requests. In May 2001, the Courier-Journal again sued the University of Louisville Foundation, this time attempting to obtain a list of donors to the McConnell Center for Political Leadership. The newspaper also sought other information about the Foundation and the Center. Foundation lawyer Robert W. Lanum argued that the Foundation “is not a public agency” under state law and is not subject to the Kentucky Open Records Act because it is a private entity.39
On Nov. 21, 2003, a three-judge panel of the Kentucky Court of Appeals upheld a lower court ruling that the University of Louisville Foundation is, in fact, a public agency subject to the Kentucky’s Open Records Act. Citing Frankfort Publishing to determine that the Foundation was a public agency, the appellate examined whether the Foundation was “controlled” by the University of Louisville.40 The panel ruled that the University did, in fact, control the Foundation, citing the trial court, which wrote:
“it is undisputed that the University receives money from the state through the ‘Bucks for Brains’ program under KRS 164.791 (1). It is further undisputed that the University receives its money from this program through its agent, the Foundation. If the Foundation were not the University’s agent, it could not legally receive the ‘Bucks for Brains’ money.”41
The appellate also agreed with the Courier-Journal that for the purposes of soliciting contributions, the University and the Foundation act as one and the same.42 The panel wrote:
“All contributions, whether payable to the Foundation or the University, are turned over to the Foundation. The University web page states the Foundation oversees funds donated to the University. The trial court found that ‘the University’s own financial statements indicate that the Foundation acts as custodian and administrator for the University of funds derived from gifts and other sources, subject to the review and direction of the University.'”43
The appellate court did not agree with the trial court on all accounts. The trial court ruled that the privacy exemption in KRS 61.878 (1) (a) of the Open Records Act would never apply to charitable donations by corporations and private foundations. The panel concluded that there may be an expectation of personal privacy for some corporations and private foundations, and it needs to be determined by an individual, case-by case basis. They concluded that some gifts may be conditional and disclosure may revoke the gift, so a blanket conclusion would not be appropriate.44
However, the ruling made public the names of 45,000 people who had contributed to the Foundation. Sixty-two names remained private because the individual donors had specifically requested, and were promised, confidentiality.45
3. The State ex rel. Toledo Blade Co. v. University of Toledo Foundation
In a 1992 opinion, the Supreme Court of Ohio decided a landmark case concerning the applicability of public records and open meetings laws to university foundations in that state. In The State ex rel. Toledo Blade Co. v. University of Toledo Foundation,*6 the court determined that the University of Toledo Foundation was a public office and its records were public as well. The dispute arose after the Toledo Blade requested that the University of Toledo Foundation make available certain of its financial records, including transaction ledgers for the years 1986 through 1991.47 The Foundation agreed to produce the records, but denied that it was a “public office” for purposes of the state’s public records and open meetings laws and stated that it would produce the records only after redacting the names of, and any personal information identifying, donors.48
Focusing on the definition of “public record” as those kept by a “public office,”49 the court examined the statutory language and concluded that an entity need not be operated by the state, or a political subdivision thereof, to be a “public office” under the law.50 Examining several appellate opinions from Ohio discussing the public records status of other quasi-public entities, the court rejected the Foundation’s argument that there is sufficient insulation between it and the University of Toledo to exempt it from the law.51 Instead, it examined the foundation’s ties with the University and concluded that the Foundation cannot be viewed in legal isolation from the University itself.52
The University of Toledo Foundation argued that it had taken steps to distance itself from the University, including paying its employees from Foundation funds, paying rent for its office space (which it had not done for thirty years) and reimbursing the University for expenses retroactive to the date of the Foundation’s creation in 1960. The court found these steps insufficient, as the University continued to pay Public Employees Retirement System benefits on behalf of Foundation employees.53
More importantly, the court rejected the notion that any sort of contractual complexities would alter in any legally significant way the fact that the foundation’s essential purpose and relation is to serve as “a major gift-receiving and soliciting entity of the University.”54 Therefore, the court concluded that a private non-profit foundation acting on behalf of a public university in a fundraising role, and receiving public support, is indeed a public office subject to the public records act.55
The court held that the names of donors to the public fundraising foundation are public record. Using a balancing test, the court then weighed the public’s interest in disclosure of the foundation records over the donors’ privacy interests.56 The court determined that “non-disclosure by the foundation would obscure the sometimes significant link between a gift and its eventual use.”57
The Supreme Court of Ohio’s opinion in Toledo Blade offers the most detailed and well-reasoned judicial justification for making public the records of university foundations. The court not only recognized the university foundation as a branch of the university, but also acknowledged the potential impropriety that might occur behind the secret veil of donor contributions. Rather than focusing exclusively on statutory construction and the definition of a “public office,” the court analyzed and strongly relied upon the public interest in disclosure of foundation records.58
4. California State University, Fresno Association v. McClatchy Co.
Even when constrained by statutory definitions narrowly defining public agencies for purposes of public records laws, state courts have found that the public interest in disclosure of university foundation records outweighs the interest in privacy. A California appellate court in California State University, Fresno Association v. McClatchy Co.(TM) found itself in that situation.
Eight days after making its request for records concerning the identity of the individuals and/or companies that purchased luxury suites at the $103 million Save Mart Center, the Fresno Bee was informed by the California State University, Fresno, that “. . .the benefit to the public from non-disclosure outweighs the benefit to the public in disclosing” the documents.60 “Donors expect that the University will keep their donations private. If the University were to be required to disclose this information, there is a very real possibility that it would lose the benefit of many donations. Loss of donations would work a great harm to the University and to the State, which supports it, and is therefore against the public interest,” university officials wrote.61
According to the University, the Save Mart Center – located in the heart of the Fresno community, partially financed by public funds, built to serve the public during sporting events and concerts, and granted approximately $8 million for road improvements and access to the site by the State of California-was not operated by a public body, nor was the discussion of its affairs in the public interest. The University argued that the Save Mart Center was primarily funded by private donations and operated by a university-affiliated, non-profit auxiliary corporation, the California State University, Fresno Association. Also, in exchange for a generous gift to the CSU Fresno Foundation, another university-affiliated, auxiliary corporation, donors could purchase luxury suites in the arena for five-, seven- or ten-year terms at a cost of $45,000 to $63,000.62
Days after the university provided its reply, denying the Fresno Bee its request for documents identifying luxury suite licensee, the McClatchy Company, representing the Fresno Bee, filed a writ of mandate pursuant to the California Public Records Act (CPRA) against the University, the Association and the Foundation to compel disclosure of the requested documents.63
Clearly displeased with the legislature’s narrow definition of public agencies in the CPRA, the court determined that the association was not a public body because it did not suit the CPRA guidelines of a “state agency” that includes “every state office, officer, department, division, bureau, board and commission or other state body or agency . . .””4 The court wrote:
“There is some ambiguity in the phrase Other state body or agency.’ However, in resolving this ambiguity, we are bound to apply the plain meaning rule and determine what these words mean based on their ordinary usage. In doing so, we conclude a non-governmental auxiliary organization is not a ‘state agency’ for purposes of the CPRA. The words ‘state body’ and ‘state agency’ simply do not include a non-governmental organization.”65
The fact that the Association is not a state agency did not end the court’s analysis, however, as it then turned to a lengthy analysis of the public interest in disclosure of the records. Although the Association is not a state agency, the University clearly is, and the court concluded that while the Association’s records are not subject to the CPRA, the University’s records are public in nature.66 Relying upon a 1999 opinion in which the court had stated “the burden of proof [in public records cases] is on the proponent of nondisclosure who must demonstrate a ‘clear overbalance’ on the side of confidentiality,”67 the court turned to an examination of the public records status of the otherwise non-public entity.
The court determined that the university did not demonstrate a need for keeping the records private, and found a strong public interest in disclosure:
“The Save Mart Center utilized public funds for a public multi-purpose arena on land owned by a public university. The public should be able to determine whether the purchase price for luxury accommodations in the arena is a fair and reasonable return on its contribution to the project. In other words, disclosure allows the public to discern whether its resources have been spent for the benefit of the community at large or only a limited few.”68
The court also dismissed any privacy issue among the donors, stating: “We find the individuals who purchased luxury suites in the Save Mart Center, a public facility, entered into the public sphere. By doing so, they voluntarily diminished their own privacy interests.”69 More importantly, the court lent great weight to the public interest in disclosure, finding that the Save Mart Center “utilized public funds for a public multi-purpose arena on land owned by a public university,”70 and thus raised compelling public interest questions:
The public should be able to determine whether the purchase price for luxury accommodations in the arena is a fair and reasonable return on its contribution to the project. In other words, a disclosure allows the public to discern whether its resources have been spent for the benefit of the community at large or only a limited few. The public should also be able to determine whether any favoritism or advantage has been afforded certain individuals or entities in connection with the license agreements, and whether any discriminatory treatment exists.71
McClatchy was the first case addressing whether state university auxiliary organizations are “state agencies” for the purpose of the California Act.72 The court found that the Association could not be characterized a “state-controlled” corporation subject to the act under the legislature’s narrow definition of “state agency,” but it did not end its analysis there. By giving primary value to the public interest in the relationship between those purchasing luxury suites in the university’s public building and the university itself, the court placed the broader public interest over individual privacy rights of donors.
Other state courts have drawn significant, and consistent, distinctions regarding university foundations, relying on the use of public funds to draw foundations within the ambit of public records laws. Many state public records laws defining entities subject to the act as those “supported in whole or in part by public funds,” “expending public funds,” or some combination of the two. Whether public records laws apply to university foundations in these states is determined by an examination of the foundations’ funding sources.
5. Weston v. Carolina Research and Development Foundation
In We s ton v. Carolina Research and Development Foundation,1^” the South Carolina Supreme Court ruled that the University of South Carolina Foundation is a public body because “it is supported in whole or in part by public funds and has expended public funds.”74 In an analysis typical of this line of cases, the court hinged its decision on a series of telling financial transactions including the sale of the Wade Hampton hotel, a student residence hall owned by the University.75 The Foundation received $2 million of the more than $5 million sale price.76 The Foundation argued that the money did not come from public coffers because it was given the money by a private purchaser as a gift.77 The court, however, determined that the funds were transferred to the foundation in consideration of the sale of public real estate. When it received money from the purchase price paid for publicly owned property, the Foundation accepted the support of public funds, thus making it subject to the state’s public records act.78
6. Jackson v. Eastern Michigan University Foundation
A Michigan court employed similar reasoning to bring a university foundation within the ambit of the state’s public records law. In Jackson v. Eastern Michigan University Foundation,19 the Court of Appeals of Michigan overturned a lower court’s ruling and determined that the Eastern Michigan University Foundation is a public body under the state’s FOIA.
Examination of the fiscal history of the Foundation revealed that during the first two years of its existence, the University contributed more than half of the Foundation’s nearly $420,000 assets.80 Then in 1992, the University transferred its entire endowment of $7.7 million to the Foundation.81 Relying upon Article IV of the Michigan public records law, which defines “public body” as “any other body which is created by state or local authority or which is primarily funded by or through state or local authority,”82 the court found that the Foundation essentially performs a governmental or proprietary function through its unique relationship with the University.83
The Michigan Court of Appeals also determined that the Foundation was subject to the state’s Open Meetings Act because the Foundation was “empowered by” a “resolution” of the university board of regents to “exercise proprietary authority” over the university’s endowment fund.84 The university delegated authority to the foundation to manage its endowment fund, making the agreement between the university and the foundation subject to the open meetings act.
7. Palm Beach Community College Foundation v. WFTV
In perhaps the most succinct of the state court opinions tying state funding to public records status, a Florida appellate court affirmed a circuit court’s ruling in Palm Beach Community College Foundation v. WFTV that said the Foundation was, indeed, a public body.85 In a three-page opinion, the court quickly concluded that because “the organization raises and administers funds on behalf of the community college, and does many things in this regard that the college would otherwise have to do,” it was a state “agency” within the ambit of the public records law.86
In the cases in which courts relied upon the infusion of public funds or the co-mingling of public and private funds, a clear rule emerges: when public funds are disbursed to university foundations, the private status of those foundations is stripped away. Indeed, the receipt and expenditure of public funds appears to obviate the secondary issue of the privacy status of donors, giving primary value to the fact that the foundation performs a public function. While those issues will be addressed on a case-by-case basis, it is clear that university foundations receiving public monies in Kentucky, Ohio, California, South Carolina, Michigan and Florida will be treated as public entities of the university.
8. Cannon v. the Bd. Of Regents of the State of Iowa
In 2005, the Supreme Court of Iowa handed down the latest and perhaps most definitive ruling that a public university’s foundation is subject to the state’s public records law. The case arose in 2001 after a pair of citizens requested copies of minutes, financial records and correspondence from the Iowa State University Foundation.87 The Board of Regents denied the request on the grounds that the foundation was a private corporation it did not create or oversee. Further correspondence failed to satisfy the requesters, who filed suit in 2002 seeking a writ of mandamus ordering release of the requested documents.88
The petitioners presented two theories. First, the petitioners argued that the foundation was a “government body” under the Iowa Freedom of Information Act. Alternatively, the petitioners argued that the foundation was at the very least a “fiduciary” or “other third party” with records relating to the investment of public funds in its custody. Under either line of argumentation, the petitioners argued that they had a statutory right to the records.89
Following a detailed examination of the articles of incorporation and history of the foundation, the district court granted the defendant foundation’s request for summary judgment.90 The court held that the foundation was not a “public body” for purposes of the Iowa FOI Act, as its “history, purpose activities and close ties to ISU” did not make it a government body.91 second, the court reasoned that funds donated to the foundation would be private until dispersed to ISU. The requesters then appealed.92
After reviewing the applicable case law in other states and concluding that a consensus has not emerged on the treatment of university foundations, the Supreme Court of Iowa focused its attention not on definitions of “public records,” nor on whether the foundation’s close ties to ISU render it a “public body.” Instead, the court identified the threshold issue as whether the foundation was performing a government function; if it is performing a governmental function contracted to it by ISU, then the court concluded that its records should be subject to disclosure.93
Turning to the statutory language of the Iowa FOI Act, the court quickly identified a central provision:
A government body shall not prevent the examination or copying of a public record by contracting with a nongovernment body to perform any of its duties or functions.94
The Supreme Court of Iowa disagreed with the district court’s holding that the language did not pertain to the ISU Foundation because the university’s functions are well defined by statute and do not include fundraising or the management of donations. Rather, the court distinguished controlling case law in the area relied upon by the district court as non-persuasive in the current dispute, because those functions did not amount to duties or functions of government.95
The court refused to accept the foundation’s argument that the solicitation and management of private donations was not a governmental function:
We reject such a narrow and archaic interpretation of a university . . . An activity need not be listed in the statute books to be a function of a university. To qualify, the activity at issue need only advance the statutory objects of the institution. We think the activities of the foundation unmistakably advance the institutional goals of ISU.96
Because fundraising has become such a vital function of the modern university, the court wasted little time in concluding that such activities are a governmental function, and thus, the records of the Iowa State University Foundation are public records for purposes of the Iowa FOI Act.
The Supreme Court of Iowa’s opinion in Gannon must be viewed in light of the statutory language in the Iowa FOI Act mandating disclosure of records held by private bodies contracted by the state to perform governmental functions. This provision – not currently employed by the majority of states, most of which are busily contracting out traditional governmental functions in the name of “privatization”-was the determinative factor in the requesters’ favor.
B. An Insufficient Link for Disclosure
In less than two years, Louisiana courts handed down three decisions in Guste v. Nicholls College Foundation after the Inspector General of the State of Louisiana requested documents from the Foundation. The Inspector General wanted to examine the financial records of the nonprofit Foundation, apparently because it believed the Foundation had received “public funds” through a “donation” from the Nicholls State University Alumni Federation.97
David Morales, an auditor with the Inspector General’s office, had previously inspected federation records and determined that the foundation was receiving “public funds” through a student “self-assessment” fee initially assessed in 1962.98 In 1984, the Board of Directors of the Alumni Federation decided to provide the Nicholls College Foundation 10 percent of all student assessed fees.” While the Federation allowed the Inspector General to examine its records, the Foundation refused, arguing that the Foundation was not subject to inspection under the Public Records Law.100
While the Federation and Foundation were both custodians of public funds, the court classified each differently. The court refused to determine if the Foundation was a public body, finding that the issue could be resolved without making that determination.101 Meanwhile, the court designated the federation a public body because it qualifies under the public records law as “a public or quasi-public nonprofit corporation designated as an entity to perform a governmental or proprietary function.”102 The court ruled:
“The Federation enjoys a close affiliation with Nicholls State University as evidenced by its residence on campus in a public building for which it pays only nominal rent, and by its use of state civil service employees to run its office. The ‘Alumni Office’ appears as a line-item in the budget of the University, through which the Alumni Federation’s employees are paid.”103
The court then determined that the student assessed fees were public funds became they were mandatory if a student chose to attend Nicholls.104 Because the Louisiana Constitution prohibits donations by the state to “any person, association, or corporation, public or private,” the court determined that the funds were given to the Foundation under the authority of the state in “furtherance of a governmental purpose” that correlates with the objectives of the university, the Federation and the Foundation.105
Although the Louisiana Supreme Court did not decide if the Foundation was a public body, the Louisiana Court of Appeals later determined that the foundation was a “private corporation not subject to the Public Records Act.”106 The appellate court found that the Inspector General had not introduced sufficient evidence of “other connections” between the Foundation and Nicholls State that would support characterizing the Foundation as an instrumentality of the state.107 The court was satisfied that the public funds in question were treated as separate accounts, and relying upon the Louisiana Supreme Court’s earlier refusal to declare the Foundation a public body, found that the Foundation was legally able to prevent the examination of records regarding private donors.108
The Guste decisions are distinguishable from other state court’s opinions on university foundations. Unlike other open records cases, the Nicholls College Foundation was scrutinized only after another entity, the Alumni Federation, began providing the Foundation with unsolicited financial support. Because of the complexity of the case and the Federation’s involvement, the state Supreme Court did not feel compelled to determine the Foundation’s status as a public or private body. Instead, the issue was sent before the appellant court where it determined the Foundation to be a private entity. The courts found the argument that the foundation was a public body simply because it received unsolicited state funds less than compelling evidence in and of itself. The state needed to provide further evidence that clearly linked the foundation to the university and distinguished the foundation as a public body. The Louisiana decision underscores the need for requesters to make clear the nexus between university foundations and the universities they serve in more than purely financial terms.
Other state courts examining the public records status of university foundations have disagreed that such foundations are public bodies. In some states, narrow definitions of the entities subject to the law make it difficult, if not impossible, to bring university foundations into the sunshine, as they lend themselves to narrow judicial interpretations of the statutory language at issue.
For example, in 4-H Road Community Association v. West Virginia University Foundation,109 the Supreme Court of Appeals of West Virginia found nothing in the state’s freedom of information law that could be interpreted to extend the statute to the West Virginia University Foundation. Turning quickly to an analysis of the statute’s definition of “public body” as “any other body which is created by state or local authority or which is primarily funded by the state or local authority,”110 the court focused exclusively on whether the Foundation was created by state authority.
The court’s analysis began with its finding that the Foundation was formed by private citizens. That, combined with the fact that the University did not control the Foundation’s decisions as to where it commits its fund-raising efforts, led the court to its conclusion that the Foundation is not a public body subject to the state’s Freedom of Information Act, “because it was not created by state authority, nor is it primarily funded by state authority.”1”
The West Virginia Foundation board consisted of 38 private citizens and one ex officio member employed by the state – the university president.”2 Its purpose, as set forth in its bylaws, is to “aid, strengthen and further in every proper and useful way the work and service of West Virginia University.”113 The foundation leased university space and paid nominal rent.114 Yet, because it was not created nor funded by state authority, these links were insufficient to render it a public body for purposes of the public records act.
In Indiana, the case was decidedly different when in 1995 the State Board of Accounts attempted to examine the records of the Indiana University Foundation. The First District Court of Appeals of Indiana affirmed the lower court’s ruling that the foundation was not subject to an examination by the State Board of Accounts because it is not a public entity and its funds are not public, but private. “5
Indiana’s public records law declares that in order to be a “public office,” an entity must “hold, receive, disburse or keep public funds for or on behalf of the state,” then fails to define the term “public funds.””6 Given that restrictive definition, it is not surprising that Indiana courts have ruled that not only are university foundations not subject to public scrutiny, but that the State Board of Accounts also has no right of access to their books.
In 1990, the Attorney General of Indiana issued an opinion stating that the Indiana University Foundation was subject to a State Board of Accounts examination. The opinion indicated that because the Foundation’s records were open for inspection by the board, they therefore were open under the Public Records Act because the Foundation qualifies as either a “public office” or public “entity” under the State Board of Accounts statute.”7 When a journalist attempted to obtain the Foundation’s records, the Foundation refused and filed a declaratory judgment action against the Board in an attempt to prove that the Board did not have audit authority over its accounts.118
At the time of the action, the Foundation’s board of directors included the University president, three members of the University’s Board of Trustees, the University’s chancellor, a president emeritus, the athletic director and former trustees.”9
Under a 1989 “Development Services Contract,” the University and the Foundation agreed that the foundation “may serve as the contracting organization or grantee of certain grants or contracts with external funding sources as mutually agreed between the parties from time to time; . . . is authorized to receive and collect the income, issues, dividends, and profits on the property place in its charge; agrees to distribute money from the fund to the University upon request, and: shall have full power to buy, sell, invest and reinvest assets of the account.”120
Regardless of its intimate role in University business, the court determined that the Foundation was not a public office because it did not literally “hold, receive, disperse or keep public funds for or on behalf of the state.”121 Lacking any statutory guidance, the court offered its own definition of “public funds” as “monies in possession of or entrusted to a public officer.”122 The court found that the Foundation funds at issue were held by a not-for-profit corporation whose members were not public officers. Public officers are defined as a “person elected or appointed to office of state or political subdivision, or officer of body established by law.”123 Foundation members were neither, and thus the court concluded that the foundation was not a “public office” under the State Board of Accounts statute.124
The narrow statutory definition of “public office,” the lack of any definition of “public funds” and the court’s narrow definition of “public officer” effectively forestalls any public examination of the records of agencies not explicitly created for the purpose of expending state funds. Such black-and-white distinctions leave no room for quasi-public organizations in the public records law; an entity is either entirely public or entirely private.
IV. THE ATTORNEYS GENERAL WEIGH IN
Attorneys General in Alabama,125 Connecticut,126 Texas,127 Kentucky,128 Illinois,129 Arkansas,130 Oklahoma,131 Iowa,132 and Wisconsin133 have made rulings regarding the public status of university foundations. The Attorneys General have split fairly evenly on the issue for a variety of reasons.
In an opinion issued on behalf of a newspaper requester, the Kentucky Attorney General stated that the Kentucky State University Foundation was a public agency. The foundation issued a declaratory judgment action in the circuit court. The foundation did not provide the requested records until the Kentucky Supreme Court concurred with the attorney general’s opinion that the foundation was a public agency whose records were subject to the Open Records Act.134
A 1991 Texas Attorney General opinion used privacy law standards and placed the burden on the foundation to meet two requirements to prove that disclosure of its records would constitute an invasion of privacy. West Texas State University had received an open records request for information concerning its Shared Visions capital campaign. The request sought a list of donors, date and amount of the donation, as well as the form of the donation, i.e. whether it was in cash, a pledge, stock, land, policies or other forms. “If the donation was a pledge or in a form other than cash, please include whether the university has received the actual amount or the actual property,” the request said.135
According to the Texas Attorney General, Shared Visions had to meet two requirements to constitute an invasion of privacy: 1) the information contains highly intimate or embarrassing facts about a person’s private affairs, the publication of which would be highly objectionable to a reasonable person, and 2) the information is not of legitimate concern to the public.136
Attorney General Dan Morales wrote: “A pledge or donation of property to the university is a financial transaction between the donor or pledger and a public body. As such, it does not involve facts about an individual’s private affairs. It is, moreover, a matter of legitimate public concern as the public has an interest in knowing who funds and therefore influences public entities. The concern extends to the amount of donation as well as the identity of the donor.”137 Morales ordered the records to be opened.
Long before the state’s highest court settled the matter in 2005, the Iowa Attorney General issued a 1978 opinion that included wording that allows universities and foundations to avoid the open records law. The opinion states: “The open meetings and open records would apply to the activities of such foundations where foundations are appointed or designated by the Board of Regents to act in place of the board in the acceptance or administration of trusts. In such situations, the foundation takes on the character of a governmental entity and accordingly is subject to the Open Meetings Law.138
University foundations often are not created by regents, so making their public records status dependent solely upon such considerations seemed designed to avoid open records laws. For instance, Iowa State President James H. Hilton founded the Iowa State Foundation in 1958. The 1999-2000 audit showed the foundation had more than $470 million in assets but remains a private agency, even though it says “the Foundation has become the fund-raising arm of the University.. “m
Attorneys general in Illinois, Wisconsin and Connecticut also have issued opinions stating that open records acts do not apply to university foundations. In 1999, Illinois Attorney General James Ryan overturned a 1976 AG opinion that deemed a university foundation as a “corporate outgrowth” of a university.140 Ryan concluded differently, stating that the term “corporate outgrowth” was not included in the definition of “state agency.” Ryan wrote: “As distinct, not-for-profit corporations, they do not ‘constitute boards, commissions, agencies, institutions, authorities, [or] bodies politic and corporate of the State’ in the executive branch of State government. Moreover, they are not institutions under the jurisdiction of governing boards of the public universities and the Board of Higher Education.”141
While the Wisconsin attorney general’s office in 1985 deemed the foundations corporate, it determined that the foundations were not “bodies corporate and politic and are not quasi-governmental corporations.”142 It wrote: “Neither the open meetings law nor public records law is applicable to independent private associations or non-profit corporations which have a public purpose and are organized by friends of the university or other state agencies.”143
Connecticut Attorney General Richard Blumenthal ruled in 1995 that the University of Connecticut Foundation was not a state agency. “A ‘foundation’ is an organization, fund or other legal entity . . . established for the principal purpose of receiving or using private funds for charitable, scientific, cultural, educational or related purposes that support or improve a state agency,” Blumenthal wrote. “A ‘foundation’ is not a state agency.144 Under Connecticut statute 10a-104(a), the Board of Trustees is required to promote fund raising at the university. The board is allowed to contract a foundation to do the fund raising for the university. The contract does not, however, designate the foundation a “state agency.”145
On Nov. 14, 2003, Georgia Attorney General Thurbert E. Baker wrote a letter to Letitia A. McDonald, an attorney representing the University of Georgia Foundation, explaining that the Foundation was, in fact, subject to Georgia’s open government laws.146 Baker was asked to issue a statement after the Atlanta Journal-Constitution requested audit records chronicling the spending of Foundation funds by University President Michael Adams, and the Foundation denied the request.147 In the letter, Baker wrote:
“In this case, the Foundation exists only for the benefit of the University of Georgia and it is a substantial vehicle through which the University carries out its fundraising functions. … In addition, it is clear that the records of the Foundation have been ‘prepared and maintained’ by a public institution and are thus subject to the open records act.”148
V. STATE STATUTES
Not all states wait for the courts or the attorney generals to issue a determination as to whether the open records act applies to private nonprofit university foundations. Nevada and Minnesota have revised their state statutes to address the issue directly. In 1993, Nevada redefined its public records statute to include university foundations. Under the revised statute, “All public books and public records of a public agency, a university foundation or an educational foundation, the contents of which are not otherwise declared by law to be confidential, must be open at all times during office hours to inspection by any person. . .”149 The foundation is not required to disclose the name of the donor, the amount contributed or “any information which may reveal or lead to the discovery of his identity.”150 The Nevada revision was prompted after the University of Nevada-Las Vegas Foundation came under scrutiny for its “questionable use of discretionary money.”151
In 1996, the Minnesota legislature re-wrote the open records statute to state specifically that data maintained by “the Minnesota zoological garden, the University of Minnesota, the Minnesota state colleges and universities, and any related entity …” are “classified as private or nonpublic.”152 The list of nonpublic information includes specific data in prospects lists that would identify potential donors, portions of solicitation letters and proposals that identify the prospect being solicited, and portions of thank you letters or other gifts that would identify the name of the donor. However, the statute also declares “names of donors and gift ranges are public data.”153
Meanwhile in Louisiana, in 1991 Governor Buddy Roemer vetoed a bill that would have allowed university foundations to conduct some business behind closed doors. He said the bill needed to be more balanced between protecting the interests of the donors and those of the public. The bill would have exempted “every present or future university foundation from the Open Meetings Law and from any aspect of the Public Records Act-regardless of public funds spent or public functions performed.”154
In 2000, a three-person House subcommittee in Iowa reviewed a study bill that would have forced non-profit university foundations to comply with state open records law. The bill proposed that foundations provide access to information, just as the public universities are required to. The subcommittee voted 2-1 against sending the bill to the full committee.155
Incident after incident on campus after campus demonstrate that university foundations can fail miserably in monitoring themselves. Hefty donations to private non-profit foundations provide a university with multi-million dollar academic and athletic facilities without the required approval of the taxpayers. The foundations provide financial bonuses to top administrators who oftentimes serve on the foundations. Meanwhile, many foundations continue to use university-paid employees and accept state and local monies to operate.
Many foundations argue that public exposure of donors will drastically diminish their resources. Any potential chilling effect on donations is, however, unproven at best, and at worst an assumption used to justify needless secrecy. The mere assertion of possible endangerment does not clearly outweigh the public interest in access to these records, as courts typically require far more than unproven assertions to trump public interest in disclosure under public records laws.
Indeed, the available evidence on public fund-raising contradicts the chilling effect argument. Disclosure has not damaged the fund-raising efforts of the Eastern Michigan University Foundation, the University of Toledo Foundation or the University of Louisville Foundation. A year after Jackson in 1997, the EMU Foundation reported its assets increased more than $5 million to $25 million. The foundation has continued to increase its endowment each year since, surpassing the $40 million mark this year.156
The University of Toledo Foundation has also continued to build its financial base. Earlier this year, the UT Foundation’s investment portfolio alone surpassed $130 million.157 And after the University of Louisville was forced to disclose its donor records, the foundation broke its all-time record with $498 million in assets.158
If the chilling effect on donors is a less than compelling argument for closure, then the many improprieties discuss in this paper offer a clear reason for openness. These are clear examples as to why a state university, supported by taxpayer money, should not be allowed to secretly conduct business behind the veil of a private branch of the university. Without foundation accountability, universities are possibly afforded the opportunity to circumvent the checks and balances set by the legislature, the judiciary and the public.
The debate over opening foundations to public records scrutiny will continue to be carried out in the attorneys general offices, the courtrooms and the legislatures. Many university foundations will fight to keep their records confidential, out of the watchful eye of the public. Whenever an organization, public or private, handles large sums of money on behalf of a state institution, impropriety, or least the suspicion of impropriety, can loom. If the only argument for confidentiality is donor privacy, eventually many foundations might find themselves opening their records for all to see.
SCOTT REINARDY* and CHARLES N. DAVIS**
* Scott Reinardy is a journalism doctoral student at the University of Missouri and a news editor at the Columbia Missourian newspaper. He has a master’s degree in journalism from the University of Missouri.
** Charles N. Davis serves as Executive Director of the Freedom of Information Center at the University of Missouri School of Journalism and is an associate professor and chair of the News-Editorial Department.
Copyright Jefferson Law Book Company Jul 2005
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