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Foundation To Get New Look

FOR THE RECORD: In this story, the Journal reported that $877,000 from what is known as the Woodward Trust went to scholarships in 2009-2010 fiscal year and $1.125 million went to scholarships in 2010-2011. Those totals were based on an internal UNM Regents memo and other documents. However, rather than scholarships those are the amounts that were added to the endowment overseen by the UNM Foundation. UNM Foundation records show the amounts that went for scholarships were $1.769 million in fiscal 2009-2010 and $1.662 million in 2010-2011.

Copyright © 2012 Albuquerque Journal

University of New Mexico regents are looking to incoming President Bob Frank to weigh in this summer on whether the university’s $336 million foundation should continue as an independent operation or be brought back “in house.”

A disagreement over administrative fees the foundation charged to manage a $36 million scholarship trust — a dispute that once appeared headed for court and still hasn’t been formally resolved — has caused at least two regents to re-examine their previous support of an independent foundation.

Regent Jamie Koch, a Santa Fe insurance executive and former regent president who supported creation of the independent UNM Foundation run by a 25-member board, now says it was a mistake.

Fellow regent Gene Gallegos, a Santa Fe attorney, agrees with Koch that regents need to regain more authority over the foundation.

But Regent Don Chalmers said the regents have as much control as they want to assert over the UNM Foundation. He said the relationship may require some “tweaking” but that most regents fully support the foundation.

Regent President Jack Fortner, the regent member on the UNM Foundation Board, wants to slow down and allow Frank to examine the system with fresh eyes.

Frank, in a telephone interview, said he will be taking a “top to bottom” look at the UNM Foundation over the summer months.

“A successful foundation is vital to UNM’s future,” Frank said. He assumes the presidency June 1.

The dispute stems from 2007-2008 when the regents moved a portion of the Woodward Trust — overseen by the Sandia Foundation — to a consolidated investment pool under the stewardship of the UNM Foundation.

Sandia says the UNM Foundation was charging too much to manage its money and not enough was going to scholarships.

In 2009-10, for example, the fees charged by the UNM Foundation totaled $623,000 while $877,000 went to scholarships, according to an internal UNM memo.

The Sandia Foundation balked and the matter appeared headed for court. However, it appears Gallegos, on behalf of the regents, negotiated a settlement with Sandia in which the management fee would be suspended and the Woodward Trust set aside in a separate account.

Outgoing University President David Schmidly agrees every new president will need to evaluate the role the UNM Foundation plays and how it is paid for.

“This is an evolving situation,” Schmidly said. “We are early in the process and we are going to have growing pains.”

Fortner, a Farmington attorney, agrees that there have been unanticipated problems that went along with making the foundation an independent body.

“The foundation had to assume expenses that in the past were being paid by individual academic departments,” Fortner said. “I’m not sure that was clearly understood at the time.”

But he said the regents have become aware of the situation and each year have discussed the issue during the budget process — including approving the administrative fees the UNM Foundation charged the endowments.

“If the financial markets didn’t crash, I don’t think we’re having this discussion,” Fortner said.

Koch and Gallegos have deeper objections.

“The regents don’t have any authority over the foundation,” Koch said. “We don’t hire anyone there. This is a dilution of the regents’ responsibility.”

The foundation was created as a fundraising arm for the university in 1979, and until the 2007-2008 budget year it was an internal part of UNM operations.

Then, with the support of Koch, Gallegos and other regents it was made into an independent body.

“I was a supporter,” Koch said. “I made a mistake.”

Gallegos said the UNM Foundation is “very independent” of the regents.

‘Subsidies’ disputed

Koch and Gallegos said the UNM Foundation was supposed to become financially self-sustaining — one of the reasons for the administrative fees it charges.

But it still receives what they describe as subsidies from UNM’s budget.

In the latest round of budget hearings, Koch said he learned a $600,000 commitment to the foundation from UNM’s instructional and general budget was actually $1.5 million because it included $900,000 in benefits for foundation employees.

“The costs of running the (UNM) Foundation are out of control,” Gallegos said. “We have to continue to subsidize it, but we have no control over it.”

Schmidly said he doesn’t think the word “subsidy” is an accurate description.

“When I came in, fundraising was stagnant,” Schmidly said. “I recommended the model most flagship universities have adopted.”

But Schmidly said university officials didn’t have a solid handle on the costs of fundraising under the old in-house system.

“Each department was responsible for its own fundraising,” Schmidly said. “There was no way of telling how much was being spent.”

UNM employees involved in fundraising and scholarship programs were transferred to the foundation and money to pay their salaries and benefits was transferred from the university’s instructional and general fund to the foundation.

Schmidly and regents approved a plan to “grandfather” some longtime employees who were transferred but kept on the main campus budget.

When the state budget crunch hit the university’s instructional and general fund income, making it more difficult to shift operating money to the foundation, regents agreed to increase the administrative fees the foundation charged to various endowments until it reached a high of 1.85 percent.

“That may be too high for established endowments,” Schmidly said.

The UNM Foundation in its latest report listed assets of $336 million. A chunk of that — more than $90 million — comes from established endowments the regents transferred to the control of the UNM Foundation. The endowments include the Woodward Trust, The Winrock Land Sale Endowment and the Regents endowment.

Fortner said the new president will be asked to make recommendations on the future of the UNM Foundation.

“Do we absorb the foundation back into the university? Does it remain independent? Or do we create a hybrid?” Fortner said, listing the key points Frank will be asked to study.

Frank said he has been talking to everyone involved.

“Setting up an independent foundation was a great decision, but a complicated decision,” Frank said. “The issue is you have to find an equitable way to fund the foundation so it can continue to raise money.”

He said “transparency” has to be a general operating principle of any university foundation.

Transparency issue

Gallegos said the memorandum of understanding the regents agreed to in expanding the foundation’s authority over endowments is based on a state law that allows regents to establish an advisory committee to oversee endowment investments.

“That has been stretched quite a bit,” Gallegos said.

UNM Foundation Chairman Gary L. Gordon disagrees.

In a prepared release, he said the UNM Foundation is set up exactly as the Legislature intended when it passed a law in 1992, setting out how universities establish nonprofit, fundraising organizations.

Koch raises additional objections.

“They’re not subject to open meetings. They’re not subject to open records and they think they don’t have to tell us anything. Some regents are okay with this,” he said. “I’m not.”

Gordon points out that the Legislature specifically exempted nonprofit, fundraising organizations from the Open Meetings Act and the Inspection of Public Records Act.

Schmidly said, “I think there is a great deal of transparency on the part of the foundation. I never feel information is hidden.”

He said every decision about the financing of the foundation was approved by the regents and the foundation’s budget is approved by the regents.
— This article appeared on page A1 of the Albuquerque Journal