As Usual Taxpayers Will Have To Bailout Supposedly "Independent" University Foundation

The Dickinson Press today continues their excellent in-depth coverage of the Dickinson State University Foundation scandal, including this starting revelation of just how large an impact the foundation’s problems may have on Dickinson State University:

The attorney general’s complaint alleges that the Foundation has not paid DSU for money that the university has already provided to students for scholarships.

“During the first semester of the academic year, DSU provided $260,000 in scholarships to students, anticipating reimbursement from DSUF. However, the Foundation failed to reimburse DSU. It now appears that the Foundation may not have the funds to reimburse DSU for scholarships during the second semester of the year,” the affidavit states.

Just to put that into perspective, a budget document prepared by Legislative Council in June stated this: “The current estimate for tuition collections for the 2013-14 fiscal year is $6.9 million, $1.3 million less than projected.”

For a university which has already struggled with declining enrollment and revenues, losing out on more than a quarter million in tuition dollars has got to hurt. And that’s not even the full picture yet. Inevitably the foundation’s creditors are going to try and make themselves whole again, and they may well be awarded what remains of the foundation’s assets. That remains additional restricted funds that were to be used for future scholarships, not to mention building projects the foundation funded which the university currently counts among its assets.

I don’t think we have anything close to a clear picture on what sort of impact this will have on the university’s finances, and thus the taxpayers. It’s more than just scholarship dollars. The state is pushing the foundation into receivership, and someone will have to pay for the accountants and the lawyers who must clean up this mess. With Attorney General Wayne Stenehjem already expressing doubt that the foundation can meet its already existing liabilities, you can bet that the burden for that will fall on the taxpayers.

And that the taxpayers will also likely have to eat at least a big chunk of that tuition handed out based on the expectation of repayment by the foundation.

Which is always the thing, isn’t it? Much like the UND Research Foundation debacle earlier this year, these non-profit spin-offs from the universities are always supposedly private and independent until the collapse. Then it’s the taxpayers picking up the pieces.

But why was the university, and by extension the taxpayers, in a position to be hurt? As the Press reports, these problems at the university weren’t exactly new, and despite the best efforts of university system officials to place all of the blame on the foundation and absolve themselves of responsibility, there are plenty of indications that they should have seen this coming:

While the complaint and the accompanying evidence raises serious questions moving forward, it also provides a timeline that shows that the Foundation’s problems have been years in the making.

Sagsveen’s affidavit alone lays out problems with the Foundation that are more than a year old.

While some of those problems — like the resignation of three board members and a qualified audit — were reported in the fall of 2013, there have been several issues since that time that have not be brought to the public’s attention.

According to the affidavit, when Sagsveen asked former Foundation CEO Kevin Thompson for records in November 2013, Thompson refused the university system attorney access.

The affidavit also states that in March “the DSUF board of directors amended its bylaws to remove the president of DSU from its board of directors and executive committee.”

Up until that point, the affidavit states that DSU President D.C. Coston was a non-voting member of the board and committee.

Clearly Coston, who was on the board of the foundation until earlier this year, had to of seen some of this coming. Yet his university still obligated itself to a quarter-million dollars in scholarships from the foundation trusting that they’d be repaid?

“North Dakota Needs Some Sunlight On University Foundations”

That was the headline to a post I wrote earlier this year after winning an open records complaint against the NDSU Development Foundation. In it I note that the universities put significant amounts of resources into their foundations. NDSU President Dean Bresciani, for instance, estimated to the Fargo Forum that he spends most of his time as a highly-paid public servant raising funds for NDSU’s supposedly private development foundation.

Yet, these foundations have consistently fought efforts to open up their books to public scrutiny despite benefiting from public resources and representing enormous potential liabilities for taxpayers.

The idea of independent university foundations may undermine transparency efforts, and give university officials a convenient dodge to avoid accountability when things go bad, but the taxpayers deserve better.

The foundations are not independent. They exist to serve public institutions, they rely on government support, and when they fail they can leave the taxpayers wounded. Our university officials shouldn’t be allowed to duck responsibility when that happens. If they’ve been lax in their oversight of the foundations, that’s not an excuse.

That’s the root of the problem.