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University Foundations See a Dark Side to Sunshine Laws
Thursday, July 28, at 1 p.m., U.S. Eastern time
The Iowa Supreme Court ruled last February that the records of the private, nonprofit Iowa State University Foundation were subject to the state's open-records laws. The case illustrated a trend in which fund raisers are under growing scrutiny from lawmakers and the public.
How can foundations that raise money for public colleges strike a balance between earning the public's trust and protecting the privacy rights of big benefactors? How can the leaders of such foundations persuade prospects that the Iowa law, and similar ones in other states, will not force them to disclose personal financial information, such as net worth?
If major benefactors start requesting anonymity, as many state laws allow, will it reduce the ability of the institution to tout big gifts and thereby encourage more donations? And in states where foundations are exempt from open-records laws, is there a risk that they and the colleges they support will use donations for the wrong purposes?
» The Risk of Sunshine (7/29/2005)
Lisa Eslinger is vice president for finance at the Iowa State University Foundation, where she is responsible for all financial and investment activities.
Erin Strout (Moderator):
Hello everybody, I'm Erin Strout and I cover fund raising, endowment management, and foundations for The Chronicle. I'd like to thank Lisa Eslinger, vice president for finance at the Iowa State University Foundation, for joining us today. Ms. Eslinger was extremely involved in the lawsuit that ended up in the Iowa Supreme Court, which ruled that the foundation is performing a government function, and therefore subject to the state's open-records laws. With that, let's get started.
Lisa Eslinger:
First let me say thank you to The Chronicle, for allowing me to be a part of this discussion, and to all of you for taking the time to be a part of this discussion. Its been clear to us at the ISU Foundation that this is a topic that many of you have become interested in during the last several years, as you've either been following our journey into public records, or have had situations of your own arise.
Question from Philip Breeze, Kutztown University:
What's to prevent John Q. Public from starting a 401-C (3) to receive money from various sources, and then donating it to XYZ University? XYZ's records may be public, but John's certainly are not. John gives "anonymous donor" the gift receipt.
If corporations can buy and sell tax credits, certainly mere mortals should be able to do the same.
Lisa Eslinger:
An interesting point. The legal opinion in our case centered around the fact that the university delegated its governmental function of fundraising and fund management by contracting with a private, non-profit entity –the ISU Foundation. The scenario you describe is decidedly different, as the organization you describe would be established independently and likely not a formal or contractual relationship with XYZ University. Again, this ruling only applies to Iowa, so I can’t speculate how the Iowa or other state courts would rule on this scenario.
The other issue with the scenario you describe is that as important as it is to protect the confidentiality of donors who wish to have that protection, it encourages donors to add unnecessary layers and costs to the system of philanthropy.
Erin Strout (Moderator):
That's interesting, Lisa -- maybe we can get into the issue of how much open-records laws can cost a nonprofit organization when you must respond to those requests or if they end up back in court.
Question from Steve Weldon, California State University, Monterey Bay:
Actually, I've two questions, if time allows:
1. When a potential donor calls who indicates they wish to remain anonymous, what do you tell them? In short, how do you explain the situation while doing everything to avoid losing the gift?
2. Have you considered seeking an outright statutory exemption for just the anonymous donor's name (not the other aspects of the gift)?
Many thanks, and I look forward to participating tomorrow.
Steve
Lisa Eslinger:
Great question Steve. We believe that Iowa law allows for the protection of donors who wish to be anonymous, and we tell our donors we we'll do everything in our power, including go to court to protect that right. However, to date, this has not been tested in the courts in Iowa. That said, we encourage them not to choose anonymity, because we believe it is important to tell the story of why our donors support Iowa State.
In answer to your second question, we have discussed the possibility of legislation to protect the name of donors who wish to be confidential.
Question from David Shufflebarger, Alexander Haas Martin & Partners:
From a donor perspective, it seems that the files most important to protect are those that contain notes from confidential conversations. For example, a widowed donor who is concerned for the care of a child with a disability after the donor's death and confides the full background of the challenges his daughter faces and why he wants to establish a charitable remainder trust.
Is this a high priority for many, or are there other higher priority concerns?
Lisa Eslinger:
Absolutely. This is one of the areas of greatest concern for us. In the course of our relationship building with donors we are entrusted with a great deal of personal and financial information. As our president Dan Saftig alluded to in The Chronicle article, we believe very strongly that this information does not belong in the public domain, and we are willing to go to court to protect this private information.
Question from Blair Friederich, U of Arizona Foundation:
What do you think the single most important "factual" ingredient was for the court to find that the foundation was acting in the public sphere?
Lisa Eslinger:
The Supreme Court said that fundraising was an integral function of a public university, and that Iowa law does not allow a government entity to avoid open record laws by contracting with a private entity to provide an integral service. Therefore, the court said that certain records of the ISU Foundation are subject to the Iowa Open Records Law.
Question from David Bass, CASE:
What sorts of information have been published in the media as a result of the ruling and how have donors and prospects responded?
Lisa Eslinger:
The vast majority of the information that has been published since the ruling has been operational information about not only the Iowa State Foundation information, but about all three public universities in Iowa. By and large the response from our donors and prospects to that information has been positive, however as was mentioned in The Chronicle article, a local newspaper printed an article of all gifts to the foundation in the month of May. That sort of publc listing of donors has caused some concern amongst our donors, and although they understand we are doing what is required by law, they are not necessarily happy about it, and I suspect it will lead more of our donors to ask for confidentiality.
Lisa Eslinger:
Erin makes a good point about costs. Responding to or litigating open record requests can be expensive, both in terms of real dollars and in time. As CFO I'm spending a significant amount of my time currently dealing with open records requests. But this isn't just me, responding to requests involves people from our communications team, accounting, technology, and takes time away from fundraising. This clearly will impact the cost of doing business in the future.
Question from Steve Weldon, California State University, Monterey Bay:
Philip's question is a good one. My study of all of the cases nationally indicates that the courts will look at the substance of the transaction and would rule that one cannot avoid the freedom of information statute by setting up a conduit.
Lisa Eslinger:
That was clearly the situation in our case.
Question from Erin (moderator):
If more donors request confidentiality, how would that play out in your marketing strategies? Often institutions advertise their big gifts to encourage others to give. How do foundations help donors to overcome those fears?
Lisa Eslinger:
It is clearly our preference to shout our gift announcements from the rooftop, and we continue to urge our donors to let us tell their stories to encourage philanthropy from others. However, we must be respectful of our donor's desires for privacy. In those cases where it is important that their giving not be public, we will honor those requests.
Erin Strout (Moderator):
We have about 15 minutes left in our discussion, so if you have a question, feel free to send it now.
Question from Erin (moderator):
Since the ruling what have been some of the hardest adjustments for the ISU Foundation as far as infrastructure and operations?
Lisa Eslinger:
There’s no doubt that this process has really brought on significant culture change for us, and in many ways, we’re experiencing a lot of growing pains. We’ve had to educate thousands of donors on what the ruling means to them and their giving records. We’ve had to educate our volunteer leadership and our employees on what information is now considered public record and what information we feel is still protected. As with any major change, you have your “early adopters” and those who are somewhat hesitant to embrace the new dynamic, but we’re making significant progress.
Question from Goldie B., from The Chronicle:
Many of the concerns raised about opening up donor records seem similar to those raised about donations to political candidates, yet it appears that those rules haven't really discouraged people and companies from making political donations to candidates or PACs. Why is there so much conern about similar disclosure for gifts to public university foundations?
Lisa Eslinger:
The reasons for political giving are much diferent than philanthropic giving. For public universities its an issue of being able to operate on a level playing field. If Joe Smith can give $100,000 to charity A and be assured of confidentiality, and yet if he gives to a public university that can offer no assurances, that puts the public university at a competitive disadvantage.
Question from David Bass, CASE:
What advice would you give other foundations that may face open-records challenges in the future?
Lisa Eslinger:
My advie to other foundation would be not to wait until they face open records challenges, but to be proactive. Understand the open records laws in your state, be as forthcoming as you can with information about the operations of your foundation, and consider whether you need legislation in your state to protect those donors who wish for privacy.
Question from Philippa M. Guthrie, Indiana University Foundation:
In retrospect, are there any preemptive steps your organization might have taken before this became a judicial matter to minimize the amount and type of information you are now being required to release?
Lisa Eslinger:
The Supreme Court ruling that we're living under is unique to the special circumstances in Iowa. The bigger question is what steps should foundations in other states be taking to avoid finding themselves in a similar situation. Those are the steps I mentioned in responding to David's question. In particular, be aware of whether your state has specific legislation that protects donors to public entities.
Question from Libby Banycky, SIU Foundation:
Lisa, How has this affected you record retention?
Lisa Eslinger:
We've had a comprehensive records retention policy for a number of years. We continue to operate under that policy.
Erin Strout (Moderator):
Looks like we're out of time. I thank you all for your great questions and especially thank Lisa for anwering them and sharing valuable information. Lisa - do you have anything to add in closing?
Lisa Eslinger:
Thank you all for your questions, and thanks to Erin for moderating this discussion today. The issue of open records and accountability is not one that is going to go away for private foundations supporting state institutions. One of the silver linings about this issue is that it has brought what we do and the role private support plays in supporting state schools to the forefront of public discussion. Ultimately, that can only benefit public education, either through increased private support or increased pressure on state government to restore funding levels, which is an issue we all face. If you have further questions that I wasn’t able to answer, please e-mail me at questions@foundation.iastate.edu.
Erin Strout (Moderator):
Great - thanks everybody!