The University of Louisville Foundation has fought for years to keep its secrets.
But few institutions have ever, through their actions, made such a strong argument for transparency.
Just in the last few months, the foundation has been ordered three times by the Kentucky Attorney General’s office to turn over records it’s withheld from news organizations, prompting U of L Board of Trustees chair Larry Benz to complain about a “culture of secrecy” at the foundation.
The re-energized U of L board of trustees under Benz must hold fast in the push to reform the foundation, restructure its board and conduct a thorough, independent forensic audit of its dealings.
Revelations about the strange, inbred dealings between the foundation and a clique of top administrators at U of L were bad enough. Millions of dollars were paid in bonuses and perks to former President James Ramsey — who also served as president of the foundation’s board — and others, often without the knowledge of U of L’s board of trustees.
But the Kentucky Center for Investigative Reporting also recently revealed a strange insider deal between the foundation and one of its chief donors that could threaten the tax exempt status of the $700 million foundation.
KyCIR’s Kate Howard reported on the transaction involving businesses owned by the family of Henry Heuser Jr., which has made significant gifts to U of L and promised over $13 million to the foundation in an estate.
It’s a complex deal, but essentially one arm of the family holdings loaned the foundation money to buy a vacant factory building in Oklahoma from another family entity. Under the agreement, the foundation would repay the loan and reap an estimated $1.94 million from the sale.
It didn’t turn out that way. The building didn’t sell in two years on the market and, when Howard began asking questions, lawyers began to “unwind” the entire agreement.
No deal, no foul, one might say.
But this cozy arrangement could threaten the foundation’s tax-exempt status, according to a former IRS official consulted by KyCIR. Marcus Owens, a Washington, D.C. attorney who ran the Exempt Organizations division at the IRS for a decade beginning in 1990, said that if the factory had sold, Heuser’s companies could have received significant tax breaks by funneling the transaction through the foundation.
The deal “certainly seems like it was structured to benefit the donor rather than the university,” Owen told KyCIR.
Understandably, the federal tax code doesn’t look favorably on a tax-exempt non-profit structuring deals to help a big donor avoid taxes.
Despite the avalanche of revelations and promises to change, it’s not clear the foundation has truly learned its lesson.
For weeks, foundation leaders fought with the board of trustees in an effort to maintain control over an audit of its activities, only coming to an agreement after the trustees threatened a lawsuit and a host of local donors threatened to withdraw support for the foundation without significant reforms.
The agreement finally worked out calls for the U of L board to conduct a national search to hire an independent auditor whose work will be overseen by a joint committee of the two boards, chaired by a member of the foundation board.
The audit’s findings must be made public, as should the actions of both boards.
Transparency can be hard, messy and embarrassing; but secrecy comes at an even greater price.