Secrecy and foundations

How private entities are being held up to the light of open government

Open government advocates have their sights set on fundraising groups that have evaded public records laws for years despite being run by public employees and conducting the state’s business — university foundations.

These foundations, often called auxiliaries, raise funds for public universities through private donations. They are responsible for funneling millions of dollars into higher education for everything from scholarships to major campus renovations.

A common assumption is that because these foundations were established as private entities, their business is outside the scope of state public records law. However, as it became clear that these foundations take on large projects for universities and make decisions that directly affect publicly funded colleges, citizens and journalists began investigating the foundations’ operations and flexing their public information rights.

In California, these investigations revealed rampant corruption. At Sonoma State University, reporters from the Santa Rosa Press-Democrat used public records and inside sources to document a series of unusual personal loans that the Sonoma State University Academic Foundation made to one of its former board members and to clients of his finance company -- loans that the borrowers were unable to fully repay when the economy hit the skids. The disclosures led to an investigation by the state attorney general.

That was only the start of California’s problems as investigations uncovered questionable handling of donor funds.

According to a California Attorney General audit, the president of Sacramento State University, Alexander Gonzales, spent more than $27,000 of the school’s foundation funds in 2007 to remodel his kitchen. The audit found that Gonzales also received more than $80,000 for housing expenses and a loan of more than $230,000 from the foundation.

California State Sen. Leland Yee has fought for three years to pass a bill that would specifically require university foundations to be held to public records law requirements.

Adam Keigwin, a spokesman for Yee, cited multiple cases of corruption within California’s auxiliaries as part of Yee’s motivation for the bill.

“First and foremost, almost all of these foundations and auxiliary organizations are fully administered by public employees and it is taxpayer dollars that are being used to facilitate these organizations and that means that we have a right to know how those funds are being spent,” Keigwin said. “They are there to serve the public universities. They are there for scholarships and other services. If they are being misappropriated that means there is less money for students.”

Yee authored two bills in years previous that passed the state Senate and Assembly but were vetoed by former Gov. Arnold Schwarzenegger.

In May, Yee struck a compromise with administrators of the state’s public higher education system, once major opponents of the bill.

Under the compromise, the legislation was amended to protect the anonymity of foundation donors except those donors or volunteers who receive “something from the university valued at over $2,500” or “a sole source (no-bid) contract within five years of the donation,” according to a press release from Yee.

“We have pretty much guaranteed ourselves a signature [from the governor],” Keigwin said. “For us, it was worth making that compromise.”

Pennsylvania courts weigh in

While California’s open government advocates found a savior in the legislature, transparency supporters elsewhere are taking other avenues to spark change.

Those in Pennsylvania used the courtroom.

David Loomis, a journalism professor at Indiana University of Pennsylvania, teaches news reporting courses after spending more than 25 years as a professional journalist. He gives his students the opportunity to publish stories on The HawkEye, an online site he created and edits.

Loomis said his intention for the HawkEye is to highlight investigative journalism centering on issues directly affecting IUP students.

When a former president announced major campus renovation plans, including a $280 million residential update and an $80 million meeting center, students involved with the HawkEye honed in on funding sources for the projects.

One of Loomis’ students expressed interest in how the university’s foundation, one of the major financial players in the campus overhaul, decided to take on such large plans.

On June 7, 2010, Loomis requested pledge amounts and minutes of meetings regarding the construction from the university’s auxiliary foundation.

What the university released, however, was little more than black bars stretched across pages and pages of foundation records.

Loomis and one of his students went to inspect the released documents before deciding not to pay the $118 duplication fee associated with the documents because they felt information was wrongfully redacted.

“It was like a CIA document,” Loomis said. “We thought that would be a waste of money. The amount of money is not exorbitant and we can afford it. It just didn’t make sense to pay money for no information.”

Loomis and his pro bono attorney, Gayle Sproul, appealed to the state’s Office of Open Records arguing that Pennsylvania’s Right to Know Law required the release of more information than the foundation offered.

After investigating his claim, the OOR ruled in Loomis’ favor and ordered the university to release everything in the original request, except information that would reveal donor identities.

In response, the university appealed the decision to the state appeals court arguing that Loomis was not allowed to challenge the redactions because he failed to pay the $118 duplication fee.

The appeals court sided with the university, reversing the OOR decision and ruling that because Loomis never paid the duplication fee he had no right to the requested information.

In July 2011, Loomis requested the documents in an electronic format, hoping to reduce the reproduction cost. The university refused to release an electronic version of the documents and Loomis eventually paid the $118.

He is now discussing further legal action with his attorney.

In the same court that the Loomis case ended, a regional paper in Pennsylvania, The Pocono Record, won a two-year legal battle over records from East Stroudsburg University and its foundation. Sproul was the newspaper’s attorney in that case as well.

In February 2009 the paper filed a public records request for funding information from the East Stroudsburg University Foundation in connection with the paper’s investigation of an ESU official suspected of sexual and financial impropriety.

The foundation denied the Record’s request, arguing that the private foundation was exempt from the Right to Know Law. However, on May 24, 2010 a state appeals court sided with the Record, finding the foundation performed a “governmental function” and ordering it to release donor information and pledge amounts made to the ESU Science and Technology Center.

The court mandated the release of ESU Foundation board meeting minutes regarding fundraising and fund management, and donor files and contributions from five specific donors and one corporate donor.

The university then released a 187-page document that — in Sproul’s opinion — redacted too much information and was a “flagrant violation” of the law.

Unhappy with the information the paper received, Sproul wrote to ESU Public Information Officer Richard Staneski threatening legal action if more information was not released in compliance with the court’s order.

In May 2011, the university filed a motion for clarification, seeking to “determine what, if any error,” was made by ESU.

The university argued that the release of information about the six specific donors was impossible without actually identifying the donors.

On June 6 a state court judge ruled in favor of the newspaper, granting Sproul’s motion for the court to enforce the original ruling. All information that would reveal donors’ identities was withheld from release.

Restraint without secrecy

Frank LoMonte, executive director of the Student Press Law Center, said these foundations, though established as private entities, are still under the scope of public records laws because they perform “indispensable government functions.”

“We don’t want government agencies hiding functions from scrutiny by privatizing them,” LoMonte said. “If the foundation didn’t exist, the university would clearly have to use public resources to raise its own money.”

LoMonte said foundations can be transparent without revealing personal donor information.

“I think as much as anything, the reason for having the external entity raise money is for donor confidentiality purposes,” LoMonte said. “But what you are seeing is that it is possible to keep donor information private and still have a good level of transparency. Now, at least the public could know, broadly, how the money is being spent.”

Across the nation, the applicability of public records law hinges on the way each state views university foundations and the relationship between the foundation and the university. If a foundation works closely with a public university, its records are more attainable.

The level of transparency also depends on the particulars of each state’s public records law.

For instance, university foundations in Nevada are simply subjected to the same public records requirements as other government agencies, while foundations in Colorado are able to restrict identifying donor information and donation amounts.

Like California’s potential law, the Georgia Legislature passed a bill in 2005 making donor names non-public, unless the donors have sold goods or services to the university worth more than $10,000 within three years of making a donation.

Loomis, the journalism professor at IUP, said he saw newsworthiness in what his employer’s foundation was doing because cuts in public education spending by state governments are causing public schools to find funds elsewhere.

“I can see why these organizations were created. The legislatures in their wisdom decided to slash public support for higher education and that imposes tremendous burdens on undergraduates and it forces administrators out of the public spigot in search of private funding,” Loomis said.

“That tends to leave the impression that there is some evasion of public scrutiny. They don’t want us to know anything about it, but I think those are answers my students and I want.”

By Nick Dean, SPLC staff writer

Fall 2011, reports