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UB Foundation fends off efforts to pry open its finances

More than 50 years after its controversial creation, the University at Buffalo Foundation remains a source of argument and misunderstanding.

The foundation’s assets are now 667 times larger than when it first formed with $1.5 million from what had been the private University of Buffalo endowment. It has accumulated more than $1 billion in investments, property and artwork, making it the wealthiest nonprofit organization in the area and the largest foundation by far within the SUNY system.

But questions nag at those who aren’t privy to the inner workings of the foundation: From whom does it raise its money, and how precisely does it spend it?

With each new donation to the university, the UB Foundation wields more power and influence. It compensates some of Western New York’s highest-paid employees. It helped set the real estate market in the booming medical corridor. It pays big sums of cash to high-profile personalities to speak on campus, a list that in recent years has included this year’s presumptive presidential nominees, Donald Trump and Hillary Clinton. The foundation contributes more than $100 million per year to university causes, or about 10 percent of the university’s annual expenditures. It also has expanded with six affiliates, including separate corporations for handling on-campus and off-campus real estate holdings and an arm that administers external research awards.

Despite its growing significance, the foundation operates in relative secrecy.

That’s due to the nature of its establishment 54 years ago, current state laws and interpretation of court rulings. And foundation officials have worked hard over the years to keep it that way. When pushed on the issue of financial transparency, they shove back. Consider the foundation’s response after a group of concerned faculty members wrote a report in March prodding for the release of more details about foundation finances: Its lawyers put out a rejoinder that accused “dissident professors” of promulgating a “campaign of misinformation.”

The document was unsigned, but faculty members traced it to an attorney with Hodgson Russ, the foundation’s longtime legal representative and one of the area’s most prominent law firms. The stern rebuke, which went on for 38 pages, likely tallied up thousands of dollars in legal fees.

The foundation has spent tens of thousands of dollars keeping its finances as private as possible. It paid an Albany lobby firm $55,000 to beat back legislation in 2011 and 2012 that would have made it subject to the state’s Freedom of Information Law.

In the wake of spending scandals at other foundations and campus-related affiliates, State University of New York officials proposed new guidelines for greater oversight of foundations. But attorney Terrence M. Gilbride, a partner at Hodgson Russ, earlier this year helped convince SUNY officials to retreat from revisions that he considered problematic.

While it’s not clear how much the foundation paid Hodgson Russ for its recent efforts, the firm in the past has received more than $300,000 in a single year for legal work on behalf of the foundation, according to foundation tax returns.

Foundation leaders and some university officials maintain that the foundation functions best as a private organization, independent and autonomous of the university.

The private nature of the foundation allows for it to be much more nimble when it comes to making investment and other decisions, said Edward Schneider, executive director. Being subject to open meetings and open records laws would make it much more difficult and expensive for the foundation to operate on behalf of UB, he said.

“It would be burdensome to be that transparent. Do we want to bear the burden of that cost?” he asked.

It could also hurt potential future giving by some donors who would refuse to donate if they were identified, said Nancy L. Wells, vice president for development and alumni relations at UB.

“It’s not so simple as saying that total transparency is always for the best,” said Wells. “But the discussion is a healthy one to have.”

The foundation, noted Schneider, already provides a level of transparency that is modeled after “best practices” nationwide, including making publicly available its tax returns and its annual audited financial statements.

Faculty concern

But those documents provide few details about foundation investments and spending, and a growing number of faculty worry that the foundation is ripe for abuses without more public accountability measures in place.

“It’s ‘trust me,’ that’s what it amounts to,” said Stephen C. Halpern, professor of political science at UB and president of the UB chapter of the American Association of University Professors.

Halpern and others point to previous scandals at university foundations around the country and in New York at the SUNY Research Foundation and at affiliates of Empire State College and the SUNY Upstate Medical School.

More important, critics argue that by resisting the release of more financial information, the foundation contradicts the primary purposes of a public university to create knowledge, foster inquiry and encourage transparency and free exchange of ideas.

Kenneth Dauber, professor of English, said that whether the foundation is up to no good isn’t even the question.

“I’m assuming the best of all conduct and motives. But even with the best of all motives and conduct, the shielding by decision-makers of any kind of view into their thinking about where to spend university monies is itself an evil, something that will tend to bad decisions,” said Dauber, former chairman of the budget priorities committee of the Faculty Senate. “It is very difficult to understand why they don’t open the books. What’s to hide? What’s the problem?”

‘Private’ foundation

Concerns about a private foundation being attached to a public entity aren’t new. The UB Foundation’s very existence was a major sticking point that threatened in 1962 to hold up the merger of the University of Buffalo into New York’s growing public university system. As a private institution, UB had amassed an endowment of nearly $30 million, and university leaders wanted to create a private foundation where all of those assets could be kept for the future benefit of UB. State officials objected, fearing the money would be squandered.

“The greatest misunderstandings, the most arguments and the greatest delays were associated with the establishment of the University of Buffalo Foundation,” recalled Clifford C. Furnas, who led the university as president through the 1962 merger. Furnas dictated his recollection of the negotiations years later to his wife, Sparkle, who wrote them into a 1975 biography of UB’s ninth president.

The two sides ultimately brokered a compromise. UB was allowed to establish a private foundation with a small percentage of the endowment funds. SUNY ended up with the rest.

The Hodgson Russ law firm’s association with the foundation goes back to the birth of the entity. The firm always has interpreted the foundation to be an entity separate of government and therefore not subject to the state’s Freedom of Information Law.

Clashing court rulings

A 2011 ruling by State Supreme Court Justice Patrick H. NeMoyer bolstered Hodgson Russ’ and the foundation’s view. Artvoice writer Michael T. Quigley sued the foundation in 2010 after being denied a FOIL request. NeMoyer decided that because the foundation received and administered only private funds on behalf of the university, it was not a “public body” subject to FOIL. Quigley didn’t appeal.

Before NeMoyer’s decision, however, two other State Supreme Court justices had ruled in separate cases that the SUNY Research Foundation and the Empire State College Foundation, entities similar to the UB Foundation, were indeed subject to FOIL. Neither of those cases was appealed either.

In addition, Robert J. Freeman, the longtime executive director of the New York State Committee on Open Government, has written advisory opinions stating that the foundations of public universities in New York are governed by the state’s Freedom of Information Law. In a recent session on FOIL at UB’s Law School, Freeman described the decision in the UB Foundation case as an “aberration.”

“It’s unsettled,” said Halpern, who also is a practicing attorney.

The UB Foundation was “fighting hard, precisely because they don’t want to lose that battle, and they haven’t won it yet. There has to be a decision ultimately by the Court of Appeals.”

In the absence of any higher court ruling, the Assembly and State Senate have considered multiple bills that would require more financial transparency by campus foundations across the state, as has happened in a few other states, including Nevada, California and most recently Connecticut, where legislators this month passed legislation that would force the University of Connecticut Foundation to disclose more information about its expenditures.

The New York bills haven’t progressed beyond committee, thanks in part to aggressive behind-the-scenes lobbying efforts on behalf of campus foundations, including UB’s.

UB faculty have tried to appeal to university administrators. In 2013, the Faculty Senate passed a resolution asking President Satish K. Tripathi, who serves on the foundation board, to make information more available. Tripathi declined, saying it wasn’t within his purview as president to do so. When the foundation rebuttal characterized the faculty report as “another attempt by a small, disgruntled faculty group to air grievances against UB and UBF” the professors who put together the report, Halpern, law professor Martha McCluskey and English professor James Holstun, went out and gathered more than 100 signatures from colleagues on a petition urging greater foundation disclosure.

“It is not just a few disgruntled people on campus,” McCluskey said.

Meeting with counsel

Halpern and McCluskey also met earlier this year with SUNY chief counsel Joseph Porter to discuss revisions to the SUNY guidelines that govern contracts between colleges and universities and their campus foundations.

The changes came at the suggestion of Chancellor Nancy Zimpher following a 2013 scandal at Upstate Medical University, where former president Dr. David R. Smith was accused of dipping into a private fund to pay $80,000 in household expenses, despite already receiving a housing allowance for those costs. The chancellor initially wanted the power to appoint members of foundation boards and to require campus foundations to get written approvals from the chancellor and from campus presidents for any capital funding. Porter also met with representatives of the campus foundations, including Gilbride and Schneider from UBF. The new guidelines Porter ultimately presented to the SUNY board for approval this month dropped some of the earlier provisions.

The result, Halpern said, are weaker guidelines when SUNY trustees had an opportunity to strengthen oversight of the foundations.

“There’s no teeth in this whatsoever,” he said. “We have to trust that the foundations will do what they have promised to do and are supposed to do.”

At least one trustee, Joseph W. Belluck, a 1994 UB Law School alumnus and partner in a Manhattan law firm, objected to the presumption that SUNY had no direct authority over the foundations. He called upon fellow trustees to stipulate that the campus foundations be subject to the state’s FOIL requirements, or otherwise risk being embarrassed by a future foundation scandal.

“We will look like we have passed the buck and have abdicated our authority. I will foretell for you that we are shirking our responsibility here,” he said. “Other states with a lot less progressive tradition than New York are holding university foundations more accountable than we are.”

Porter told trustees he “made some adjustments” after talking with the foundations, but he also said the new standards were “without a doubt the strongest guidelines we’ve had in the history of SUNY.”