Universities know foundations: Higher
education and foundations go together well Mobile's
USA has three of its own
By LAWRENCE F. SPECKER, Staff Reporter, Mobile Register, Mar. 7, 1995.
The University of South Alabama may be a public
institution,
but it has formed three private foundations to control portions
of its money.
Those portions total about $220 million today a
full-year operating
budget for the university and its hospitals.
Similar arrangements are common in higher education,
and in
some extreme cases have led to major problems.
In 1991, Greenville S.C. News reporters tipped
off to look
in a waste dump found lost'' records from a University of South
Carolina foundation. James Holderman, who had resigned as university
president under pressure, eventually pleaded guilty to felony
tax-evasion.
The relationship of USA and its foundations has
drawn scrutiny
over the past five years from the Alabama Department of Public
Examiners
and at least one legislator. The financial web has, at times,
proved
too much for the university's own trustees to understand.
Last fall, the trustees and the state seemed
satisfied that
nothing was amiss. Questions linger, however, about whether the
public is well-served when its institutions conduct business
through private channels.
There is a move on the part of state legislatures
to say if it's
a part of a public university, then it ought to be public,'' said
Ed Collins, a consultant with Pittsburgh-based Ketchum Inc.,
the nation's oldest fund-raising consultancy.
As an Alabama legislator, Taylor Harper of Grand
Bay argued
unsuccessfully that all university-affiliated foundations
should be more open to state supervision.
As with almost all tax-exempt entities, the university
foundations
must make annual information returns available to the general
public. This gives state examiners a window on foundation finances,
but not the level of access some legislators would like to have.
There could be a potential,'' said Harper, former
chairman
of the House Ways and Means Committee, referring to problems
like
those in South Carolina. But I don't know of a case where it's
been
a concern in Alabama.''
Three-way support
USA's three foundations are technically known as
supporting
organizations,'' an Internal Revenue Service term. They support
a specific nonprofit institution, the university.
They can be seen as the points of a triangle,
each with its own
duties.
The lines connecting the points represent a few
common financial
transactions and board members. The foundations are also connected
in their mission of serving the university:
The University of South Alabama Foundation supports
the university
and its three hospitals by building an endowment fund that provides
millions each year in interest income.
The University of South Alabama Health Services
Foundation
coordinates the medical work of teachers in the College of
Medicine.
The South Alabama Medical Science Foundation
handles private
research and development contracts.
The USA Foundation is the endowment foundation,''
said Scott
Weldon, executive director of the Health Services Foundation.
The South Alabama Medical Science Foundation is research. We
are the health-care foundation.''
The simplicity of Weldon's summary, however,
doesn't explain
why USA, or any state university, would want foundations in
the
first place.
From USA's standpoint, it's much more efficient
to have clear lines of
division between private donations and government funding. It's also a good
idea to separate diverse missions, such as endowment-building and faculty
medical practice, into specialized organizations with qualified boards.
The need to separate public and private money
led USA to create
the first of its foundations, the USA Foundation, in 1968. The university
was only five years old at the time, and was receiving only a trickle
of private money.
Over the years, that trickle grew dramatically.
Today, the
foundation holds about $200 million, which generates millions
of dollars each year in interest.
Growth took off in the 1970s after natural gas
was discovered
on offshore land deeded to USA. But the real surge began in
1990.
With the approval of trustees, USA President
Fred Whiddon decided
to steer special Medicaid funds into a trust within the foundation.
These funds were intended to reimburse USA-owned hospitals for
treatment of poor patients.
At the end of 1990, the USA Foundation was worth
$24 million.
A year later, the Medicaid trust alone accounted for $48 million
and was expanding rapidly. So was the attention given to it.
In 1993, the state's chief examiner of public
accounts issued
an order calling for Medicaid money to be open to state audits. USA
trustees demanded that the foundation release the money to its
control, but the foundation refused.
The three-way tussle lasted until last fall,
when the trustees
agreed that the foundation's management of the money benefited
the USA hospitals. By then, the Medicaid funds alone accounted
for well over $100 million.
If doubt lingers, it may be mainly the fear that
the foundation
is too conservative, socking money away in the face of immediate
needs.
There's no one at this table who's a more firm
believer in endowment
that I am,'' Trustee Mayer Mitchell said at the fall meeting of USA's
trustees, but are we endowing ourselves to death?''
In the end it was Mitchell, a leader in questioning
the foundation's
control of Medicaid funds, who made the motion to approve the arrangement.
Fulfilling their missions
The fray didn't touch the other USA foundations,
mainly because
they aren't as involved in accumulating money.
The Health Services Foundation was founded in
1976 so that USA
medical faculty members wouldn't fall behind as doctors. They
needed a venue through which they could see patients.
We operate basically as any medical science entity
would
operate,'' said Scott Weldon, foundation president. With the
difference that all our physicians teach and do research.''
The foundation serves about 165 faculty members,
plus resident
physicians. It handles business common to any practice, such
as
billing patients and paying doctors for their work, done mostly
at the USA Medical Center.
The patient bills provide a cash flow. Weldon
said that most of the
foundation's $15 million in assets represents accounts receivable'' rather
than cash.
If we do nothing but support the school of medicine
and never
make a dime, we are fulfilling our mission,'' he said.
The third USA foundation, the Medical Science
Foundation,
was incorporated in 1981 to administer clinical research contracts
with the private sector.
According to information provided by its president,
Dr. Sam
Strada, it also supports the development of new medical products
and procedures through the patenting and licensing of biotechnology.''
It is worth about $4 million.
Strada said the three foundations provide a clarity
of purpose
that would be impossible if one foundation pursued three separate
goals.
Bill Messina, vice president for development
at Spring Hill
College, said multiple university foundations are the rule rather
than the exception.
Messina said he knew of universities where practically
every
department has a foundation.
You really only need a few,'' he said. Less than
five.''
This article reproduced with special permission
from the Mobile Register.
