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University corporation challenged on sealed records, open meetings

A Buffalo lawyer is challenging whether a nonprofit corporation that finances and develops residence halls on behalf of the University at Buffalo has the right to withhold records about its financial dealings and keep its board meetings private.

John N. Lipsitz, a UB Law School alumnus and partner in the firm Lipsitz & Ponterio LLC, has asked a State Supreme Court judge to force the University at Buffalo Foundation Faculty-Student Housing Corp. to turn over several years of board meeting minutes, annual budgets and other documents related to the operation of the nonprofit organization. He also wants meetings of the Housing Corp. board subject to the state's Open Meetings Law.

The legal challenge is the latest in a series of recent efforts aimed at prying more financial information from the University at Buffalo Foundation and its six affiliate organizations. Some UB faculty and watchdog groups outside the university have pushed for years to make the foundation more transparent and publicly accountable.

Lipsitz twice requested the records in writing from the Housing Corp. earlier this year, citing New York's Freedom of Information Law. Edward P. Schneider, executive director of the UB Foundation and of the Housing Corp. wrote back on March 6, stating that neither the foundation nor its affiliates were state agencies subject to FOIL. Schneider attached a 2011 State Supreme Court decision in support of his stance.

"We just got this very short letter saying, 'Go away,'" said Lipsitz. "I wasn't just going to go away."

Lipsitz hired another lawyer, Sean Cooney of Dolce Panepinto, to represent him in an Article 78 petition in State Supreme Court. Justice Diane Devlin is scheduled to hear oral arguments in the case on Thursday. Devlin is being asked to decide if Lipsitz has a legal right to the information.

The UB Foundation is the wealthiest nonprofit organization in the region and the largest foundation in the State University of New York system. It controls more than $1 billion in investments, property and artwork. And even though it exists to benefit the state's largest public university, the foundation's decisions on investments and property deals, as well on additional compensation for UB employees and payments to campus speakers, all happen behind closed doors, with no public review.

"It's been a number of years that I've been concerned about the influence that this large, private not-for-profit corporation has on the economy and culture of Western New York," said Lipsitz. "It sits in many ways like a colossus on Western New York. It's really reshaping the City of Buffalo, where I grew up and where I have my law practice."

"If you look around the country," he added,  "you see there are problems with accountability around foundations that grow up around large public universities."

UB Foundation fends off efforts to pry open its finances

The UB Foundation has been in this position before. In 2010, a writer for Artvoice, an alternative weekly newspaper, invoked the state's Freedom of Information Law in his requests for a variety of foundation records and access to meetings of the foundation board. The foundation rejected the requests. The writer, Michael T. Quigley, petitioned the State Supreme Court. In 2011, Justice Patrick H. NeMoyer dismissed the petition, ruling that the foundation wasn't subject to FOIL because it didn't administer public funds and thus could not be considered a public agency. Quigley did not appeal.

The UB Foundation has relied on the Quigley decision ever since to ward off requests for information beyond annual audited financial statements and IRS Form 990 tax returns it makes available to the public on its website.

Lipsitz and Cooney said their case is different from the one brought by Quigley. The University at Buffalo Foundation administers and invests private contributions on behalf of the university. But the foundation's Housing Corp. handles millions of dollars in what Lipsitz and Cooney believe are public funds – that is, the fees that students, or their parents, pay to live in residence halls that were financed by the Housing Corp. NeMoyer's ruling in 2011 did not specifically address the Housing Corp.

"The Housing Corp. depends on what are essentially mandatory student fees," said Lipsitz. "It's hard to characterize that as private money."

Lipsitz and Cooney argue that the Housing Corp. performs a governmental function for UB and for SUNY and is therefore an "agency" within the meaning of FOIL and a "public body" within the meaning of the Open Meetings Law.

The Housing Corp. "is largely a passive conduit for public funds for SUNY housing operated under direct SUNY control," Cooney wrote in court papers.

The foundation's lawyer, Charles W. Malcomb II, accused Cooney and Lipsitz of attempting to re-litigate the Quigley case from 2011. Malcomb also said that Lipsitz's petition mischaracterized how the Housing Corp. operates. The Housing Corp. enters into what are known as "arms-length transactions" with SUNY to manage the properties owned by the private corporation.

"Doing business with a governmental entity does not turn you into one," Malcomb wrote in court papers. "This formal, arm's length transaction between SUNY and the Housing Corp. does not inject public funds into the Housing Corp.'s revenue and does not convert the rent payments from private individuals into public funds."

Malcomb submitted to the court affidavits from Schneider, UB Vice President of Finance and Administration Laura E. Hubbard and Amherst Development Corp. Chief Executive Officer David S. Mingoia all testifying that the Housing Corp. is a distinct and separate organization from UB and is not a public entity.

"Any suggestion that the Housing Corp. is merely the alter-ego of SUNY or that SUNY controls the Housing Corp. is simply incorrect," Hubbard said in her affidavit.

The UB Foundation dates back to 1962, when the private University of Buffalo was merged into New York's growing public university system. State officials agreed to allow UB to establish the private foundation with a small percentage of the endowment funds that the university had accrued as a private institution. The rest of the endowment funds went to SUNY. They ultimately were returned to the UB Foundation decades later.

The foundation since then has added six affiliates. One of them, the Housing Corp., was created in 1990, in response to a lack a public funding for dormitories and a shortage of student housing at UB. The affiliate structure allows the foundation to leverage its assets and borrowing capacity for the construction of new residence halls, while also limiting its liability on the projects.

The Housing Corp. financed the construction of seven student apartment projects on or near the North Campus that were opened between 1998 and 2001. The total cost was more than $100 million. An eighth project, Greiner Hall, opened in 2011 at a cost of $57 million. The facilities added more than 2,500 student housing beds.

Foundation funds paid for start-up costs on the early housing projects, and the Housing Corp. secured construction financing through the sale of tax-exempt bonds, usually by the village of Kenmore Housing Authority or the Town of Amherst Development Corp. Those proceeds are private, not governmental, funds. As owner and developer of the projects, the Housing Corp. receives all revenues from student housing fees. SUNY collects the fees on behalf of the Housing Corp., which uses the revenue to fund debt service on the bonds and to pay operating expenses. Any extra revenues are retained by the Housing Corp.

Cooney and Lipsitz argue in court papers that the arrangement amounts to "crossover" between UB's official public actions and the private action or authority of the Housing Corp.  They point out, for example, that UB can use its power to withhold grades and transcripts in collecting student housing charges.

"These people are dealing with the coercive power of their educational institution," said Lipsitz. "I think it's very clear that these mandatory student fees for many can't be compared to the private funds of a donor."

The state Court of Appeals has ruled that private entities with "close government nexus" are subject to FOIL.

Cooney said the recent prosecution of a former UB maintenance supervisor for taking bribes also shows how the interrelationship between UB and the Housing Corp. subjects both of them to public accountability under the broad wording and intent of Freedom of Information and Open Meetings laws.

The Housing Corp. listed a painting contract on its IRS Form 990 in 2013 and 2014. The state Labor Department deemed the contract to be a public work subject to the state's prevailing wage law and investigated the contractor's failure to comply with payroll reporting requirements. Authorities later found that the maintenance supervisor, Dean Yerry, accepted bribes to help a contractor win a job painting campus housing facilities.

"Given this deeply enmeshed public-private relationship, any public concerns about the interests, ethics or actions of the Housing Corp. will risk affecting the public's confidence in UB," said Cooney.

For students or parents with concerns about housing fees, the "blurred" relationship impedes public accountability for decisions related to the students charges, including how they're spent, unless the public has open access to records and meetings of the Housing Corp., as well as UB, he added.

Lipsitz said he's long been concerned with making sure that academic freedom continues to be protected at public institutions like UB. Those protections can break down more easily when  information is shielded from the public, he said.

"Government sometimes does something that's wrong or suspicious or questionable – and likes to cover it up," said Lipsitz. "The Freedom of Information Law is a hedge on that."

Lipsitz said he's not alleging impropriety at UB, the UB Foundation or the Housing Corp. But the public, he said, should have a right to examine routine information from all of those organizations.

"I just wanted to establish that as a citizen and as a resident of the state of New York and as a graduate of the University at Buffalo, I could get those records if I wanted to," he said. "I could be anybody, and I am anybody."


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