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EPISODE 7

Public, Not Public

By Sara Ganim 

It was the worst-case scenario for a university — criminal charges, coupled with financial ruin.

And after the two chief executives file into court to enter a guilty plea, the chancellor tells the judge,

“it was never my intention to hurt the institution. I was trying to help.”

What happened here at the University of Wisconsin Oshkosh was not a sex scandal, or a sports scandal, or the kind of financial scandal that makes for salacious headlines. 

It didn’t really get a ton of attention. 

There were no big splashy purchases. The men were not accused of misusing money in a way that benefitted themselves.  

“Personally I don’t think this should have been a criminal conviction, let alone a felony,” one defense attorney told the local television station afterward.  

What they were accused of — at its heart — was trying to help the university. So what went so very wrong?

A change in giving

Let’s rewind a bit — to the 1600s, to the first time it was documented that a university held a fundraising campaign to bring in money outside of tuition dollars. 

The concept took hold at every institution in the country. But what really made it popular was President Ronald Reagan’s 1981 speech about curtailing government spending. 

“You see public support for all sorts of things starts to decline and privatization takes hold,” said Alexa Capeloto, an associate professor at the John Jay College of Criminal Justice in New York City.

Reaganomics.

“That includes for higher education,” Capeloto said. “So as the public support declines, these institutions need to find money from other resources. They start turning to the private sector.”

Despite the fact that university fundraising entities can be tracked back centuries, the 1980s is the decade when it becomes very popular to legally break off the function of fundraising from the actual university, creating a separate non-profit foundation to do the work. 

Before that, “it’s kind of an unusual thing to have this separate arm that’s raising money for a public institution,” Capeloto said. 

But in the next few years, it begins to become very, very common.

“And since then, it’s only gotten more common,” she said. 

The majority of public universities now have these foundations.

More wiggle room

And according to Capeloto, the reason is understandable.

“A lot of it makes sense,” she said. “They are nonprofit, private corporations that have a lot more flexibility in how they raise and invest money. State institutions are really beholden to these very safe strategies for money management, low risk. And so you have these separate bodies that can be a little more nimble in how they handle money.”

“Property transactions can happen faster because they’re not regulated by the state,” she said. “There’s flexibility in how they’re operated. A lot of times you’ll see kind of high profile CEOs and financial experts on the boards and running these foundations because they know money. And so it makes sense that the university would want to have this.”

The problem is, “that all of that extra flexibility then also creates more wiggle room when it comes to transparency.”

Nearly all of these foundations are exempt from Sunshine laws. That means, no open meetings. no open records. Almost everything they do is private, even though they exist for the sole purpose of benefiting a public institution. 

One of the biggest consequences is that donors can make big ticket gifts privately, and also attach strings to their gifts privately.

“These universities were out there soliciting these big gifts, they could offer a lot of anonymity if the donor wanted it,” said Miranda Spivack, a former Brechner Center journalism fellow who recently wrote about this for   USA Today. “Sometimes it’s because they want to lay conditions on the gift, and they don’t want anybody to know.”

Symbiotic branding

This recently happened at George Mason University, where a large donation to rename the university’s law school — partly made by the Koch brothers — resulted in a lawsuit by students who wanted to know what strings were attached. 

The group that sued is called “Transparent GMU.”

“But the university told transparent GMU ‘we don’t have those records,’ ” Capeloto said. “And the foundation said, ‘we don’t have to tell you that, we’re private.’ 

They lost the case, but most of the information made its way into the public domain anyway, and revealed that there were a lot of conditions — the ability to have indirect influence over faculty hiring, even a say in who would become the law school’s dean. 

“Which is an academic decision usually reserved to the university,” Spivack said. 

Eventually, the university agreed that the conditions fell short of the school’s standards for academic independence, Capeloto said. And as a result of that case, George Mason now voluntarily makes all gift agreements public.

But they are in the minority. At most universities, the lines of separation are very blurry.

“They’re legally separated,” Spivack said. “I think to say they’re completely separated leaves people with the wrong impression. In fact, they seem to work hand in glove in most cases.”

Here’s an example. 

If you go to many of the public university “giving” websites, you’d be hard-pressed to find a mention that the foundation is the actual recipient. Some schools use a .edu web address, .edu email addresses and a university building address. 

Some are more transparent, but almost all of the ones we reviewed use the university’s logos or mascots and were pretty symbiotic with the university.

“And, yes, many of them are housed on campus,” Spivack said. “And many of them do share a staff with the university so that staff person is on the public payroll and also on the private payroll of this foundation or 501(c)(3).”

At GMU, for example, the head of development at the university was also the CEO and president of the private foundation, according to Evan Johns, the attorney for Transparent GMU.

“One of the scholars who’s written a lot about this before I did said he called it gymnastics, like the gymnastics they’re doing to keep this stuff from the public is just mind boggling,” Capeloto said. 

Playing it both ways

As you can imagine, these places can be a breeding ground for all kinds of misconduct.

At the College of DuPage, reporters uncovered that the college president was using the foundation as a petty cash fund, “buying all these kinds of extravagant things,” Capeloto said.

“And that, we’ve seen a lot of cases like that,” she said. “You can see how, because there is more privacy and secrecy and not as much oversight, someone in a position of power could misuse that money and you’re not going to know about it.”

Another example is right here in Florida, where public universities use athletic associations to shield all kinds of documents that otherwise would be public. But when one of them, the University of Central Florida, was sued in 2008 after a football player died, the foundation also claimed it was immune from litigation because it’s a state entity.

“So when we talk about hypocrisy, when you have a foundation, when it suits them to say, ‘we’re private, we don’t have to give you this information,’ and then at the same time, turn around and say, ‘no, we’re public, we have limited liability or no we’re public, we were entitled to those property tax exemptions,’ “ Capeloto said. “And that shows you that there is a problem that needs to be addressed.”

‘A separate legal entity’

In some states, universities can do what George Mason did after the Koch money controversy, and choose to make records available, even though they don’t have to. 

But Florida, which has some of the best records laws in the country, actually also has one of the worst exceptions, when it comes to foundations.

Not only are foundations exempt, but most of their records are considered confidential, meaning, if someone decides to share them, they could be prosecuted for it.

State to state, there are a lot of variations like this. 

“There are a whole lot of ‘why don’t we know’ questions and it will change from state to state, from institution to institution,” Capeloto said. “That’s part of the problem is that there’s no predictable standard.”

Why Don’t We Know associate producer Tori Whidden did a test of public records laws in nine states, by asking 21 public universities to hand over a pretty basic thing — meeting minutes. 

But what she got back, in most states, was some variation of this:

As an independent 501(c)3 nonprofit organization, the Foundation is not subject to…” or

the “…foundation is a separate legal entity.”

or the “…foundation is a separate organization … 

and “…is not a public entity”

“…and its meeting minutes are not a matter of public record.” 

“…Therefore, their records are not subject to the public records law.”

Evan Johns said that’s a loophole.

“There are hundreds of cases that have still said that when you create an entity whose sole purpose is to perform a function that a government entity would have performed any way, that you really eviscerate the open records laws and you just create an invitation for agencies to take any unpopular part of their operations and outsource it to an entity that is nominally a private entity,” he said .

This is why what happened at the University of Wisconsin Osh Kosh is so relevant.

‘They certainly paid the price’

The reason the chancellor and vice chancellor found themselves in legal trouble was that they promised banks that investments that the foundation was embarking on — which were university expansion projects — would be backed by the university if the foundation couldn’t pay the loans. 

“Ultimately when the foundation couldn’t cover it, the bank said, okay, so we need the money. You said the university could cover it,” Capeloto said. 

It was $11 million on the line. 

“And that is when this all came to light and they were never empowered to do that. They couldn’t promise that,” she said. 

Basically, even though the foundation exists for the sole purpose of benefiting the university and sending money it’s way, legally speaking, it isn’t supposed to work the other way around.

And in this case, the money flowed in the opposite direction. And that was the problem,” Capeloto said. 

In court, the chancellor and vice chancellor’s attorneys argued that it was ridiculous to say that they had somehow gone rogue in making this deal. And a lawyer for one of the banks involved, laid out how obvious it was that there is a lack of separation between these two organizations.

He wrote: “All one needs to do to determine that fact is to go to the university’s website and see what it says about the foundation.”

He then quotes the website which says, “the foundation exists solely for the benefit of the university,” and that it “was created to promote, receive, invest and disburse gifts to meet the goals and needs of” the university. And, “the mission … is to be a proactive leader in helping share and refine the vision of excellence of the university.”

He also notes that “all employees of the foundation are state employees.”

So, it isn’t a stretch to understand why the chancellor and vice chancellor believed  that it was okay to mingle funds. They saw this as one big checkbook because everything the foundation does, it does with and for the university. 

It seems only convenient that they claim to be separate from a transparency standpoint, because they’re not really separate in any other way.

(The officials) were basically trying to save these projects and it was not about benefiting themselves. They certainly paid the price,” Capeloto said. 

The federal Department of Education estimates that three quarters of universities have some kind of non-profit foundation working on its behalf, whether it be an athletic association, a fundraising association, or some other reason.

Spivack told me, “these have even been set up for food service at some universities.”

Public, not public

Perhaps one of the most surprising examples is in Indiana, at Purdue University, which recently acquired the formerly for-profit Kaplan University and renamed it to be its new online school

“Purdue University Global is what it’s called,” Spivack said “And Purdue University Global is a nonprofit under Indiana law, and presumably under tax law, too.”

Purdue’s president is Mitch Daniels, and before he was president, he was the governor of Illinois. Spivack said he used his legislative background to convince the legislature that the online university should have an exemption from open records laws. 

“It occurred in a surreptitious way. It was tucked into a budget bill,” Spivack said. “Indiana, interestingly enough, has a state open government ombudsman appointed by the governor, who at the time was Mike Pence, and he didn’t even know that Purdue was going for this exemption.”

Still, Daniels describes Purdue Online Global as a “public university.”

“And it’s doing even more so maybe than the fundraising and the foundations,” Spivack said. “It’s really doing the work of a public university because these people are teaching. So that’s a model I haven’t seen. But who knows? May get replicated around the country.”

Purdue officials justified this exemption by saying that this will give Purdue Online Global “the ability to remain nimble … and innovate in the sector it serves.”

What they mean by that is: Online education is pretty competitive. So having this exemption allows purdue global online to keep its business plans and marketing strategies confidential. 

More and more private’

For the taxpayer, what this all boils down to is more secrecy. 

This is another example of a public agency exploiting a loophole that allows it to keep certain things conveniently in the dark.

Spivack said, “you have a certain expectation that the word ‘public’ really has some meaning and that things are transparent.”

And Capeloto told me: “Honestly, I see university foundations as part of a larger trend …  public institutions become more and more privatized.”

“And there have always been clear cut laws about transparency in the public domain,” she continued. “If you’re a public agency, it’s pretty clear that you need to tell people what you’re doing with their money, how you’re managing their community. I mean, that’s kind of the basis of any democracy.

And I think we need to care when we can’t find out even the most basic information about how things are being run. I mean, that’s a real failure and it could ultimately harm us if things are being done, especially if they’re being done improperly and we have no way to know it.”

Associate producer Tori Whidden contributed to this reporting.