Category Archives: Governance reform

A Fog Descends upon UVa

uva_fog

Did the University of Virginia’s Board of Visitors hold a closed session to avoid discussing in public what to do with a $2.3 billion pot of money?

by James A. Bacon

This past June 10, the University of Virginia Board of Visitors held its regular quarterly board meeting. With its preferred meeting place in the Rotunda undergoing renovations, the board assembled in the auditorium of the special collections library near Alderman Library.

The meeting started pleasantly enough. The board recognized the contributions of E. Darracott Vaughn, Jr., a graduate of UVa medical school and a prominent urologist who had recently passed away; Robert D. Sweeney, a vice president of development who had headed the effort to raise $3 billion, one of the Top 10 university fund-raising campaigns of all time; and Joe Garafalo, a prominent faculty member and retiring board member.

Then Rector William H. Goodwin Jr. rose to thank Helen Dragas, whose second term on the board expired that day. Her tenure had been a stormy one at times. A previous rector, she had led the controversial ouster of UVa President Teresa Sullivan, endured considerable scorn during the blacklash, and witnessed Sullivan’s re-induction. Although Dragas had mended fences with the president and was appointed to a second term, she continued to question the board’s priorities as it aggressively increased tuition to pay for prestige-enhancing initiatives. Giving a voice to a voiceless constituency — middle-class Virginia parents paying ever-bigger tuition checks — she often found herself voting alone.

Emphasizing the positive, however, the resolution commended Dragas for her service. “Mrs. Dragas is an ardent proponent of academic excellence in, and affordability of, higher education in Virginia. … The Board thanks [her] for her eight years of service and her leadership as Rector … and considers her a friend and colleague. … The Board wishes Ms. Dragas and her husband, Lewis Webb, continued success and happiness in all their endeavors.”

According to the June board minutes, Dragas followed with some comments in kind, saying that “she respected everyone at the table.”

The bonhomie would not last long.

Before the meeting concluded that day, there were a few final items of business to attend to. At 3:30 p.m. the board withdrew into a closed session to discuss personnel issues and legal matters, say the minutes. The board resolution cited Sections 2.2-3711 (A)(1) and (7) of the Code of Virginia.

At 4:50 p.m., the board left the executive session. According to the minutes, 13 board members certified that the meeting had been conducted in accordance with the exemptions permitted by the Virginia Freedom of Information Act (FOIA). Only one board member refused to vote in favor of the certification: Helen Dragas.

Eighteen days later at Dragas’ behest, Kevin E. Martingayle, a Virginia Beach attorney, wrote to Maria J.K. Everett, executive director of the Virginia Freedom of Information Advisory Council, asking for a ruling regarding that executive session. That letter described, from Dragas’s perspective, what had happened June 10. Eight days before the meeting, board members received documents outlining guiding principles for spending income generated by a $2.3 billion Strategic Investment Fund, and a list of grant requests submitted for funding.

The correspondence indicated that the fund and plans for spending it were intended to be topics discussed in an executive session of the BOV and, in fact, were a major part of the discussion during the closed meeting.

Although the motion to go into a closed session referenced personnel matters and legal advice, there was very little substantive discussion of either topic related to the funds during the closed meeting.

The only personnel referenced during that portion of the closed meeting were two former employees cited for having done a good job of accumulating and managing such a large sum of funds over time (though neither individual has been employed by this university for several years). … There was no discussion that related to pending, threatened or possible litigation regarding the fund.

Instead, the closed discussion focused on principles for spending the money that now comprise the fund. By way of example, members were asked to deny granting funds to proposals that would support university operations and to elevate those that would enhance its reputation. Concerns relating to premature revelation and publicity, given the fund’s substantial size, were conveyed, and it was requested that members refrain from discussing the fund with legislators and the media.

Regarding the certification that was read and approved after the conclusion of the closed meeting, “aye” votes were solicited and seemed to be voiced by a majority in attendance. No “nay” or negative votes were requested, nor was any role call taken or recorded. At least one BOV member subsequently notified the secretary of the BOV that the minutes should reflect that this particular Board member did not vote on the closed meeting certification due to questions and concerns regarding whether the discussion in the closed meeting exceeded and strayed outside of what was legally permitted.

If the closed session was illegal, Martingayle asked what remedial action, if any, BOV members might take individually or collectively.

On July 6, the Washington Post published a column by Dragas criticizing the university for its runaway tuition (a 74% increase since 2009), questionable spending priorities, and the recent revelation after the board voted on a double-digit tuition increase for incoming students that the university possessed a $2.3 billion “pot of reserves, surpluses and earnings” that had previously been classified as operating funds. Administrators, she charged, did not explain the purpose behind the “financial maneuvering” — liberating funds to be spent on initiatives that would enhance the university’s prestige.

A few days later, twelve state delegates including House Majority Caucus Leader Tim Hugo and 11 other delegates sent a letter addressed to Rector Goodwin and President Sullivan. Calling for “full transparency” in the university’s decision-making process, the letter focused mainly on the $2.3 billion fund. But toward the end, it said:

It appears that the university’s Strategic Investment Fund was the topic of an executive session held during your June Board of Visitor’s meeting. Why did the conversation about the use of these funds occur behind closed doors? What exemption to the public records law was pertinent and how was it appropriately applied?

On July 20, UVa’s Chief Operating Officer Patrick D. Hogan held a press conference in the Rotunda, in which he supplied records from a Board of Visitors subcommittee meeting. The records showed that members had discussed what would come to be named the Strategic Investment Fund. “We have absolutely nothing to hide,” he said. “We’re looking forward to answering questions from the legislators.We believe we’ve been transparent.”

The story published by the Daily Progress made no mention of any defense that Hogan might have offered for discussing the fund during closed session.

Bacon’s Rebellion submitted a draft of this article to the University of Virginia public affairs office on late Friday for comment. I have received no response, but I will post it if I do. Continue reading

We Weren’t Hiding Anything, Says UVa’s COO

What would T.J. say?

What would T.J. say?

by James A. Bacon

University of Virginia officials vigorously dispute allegations by members of the General Assembly that the university was less than transparent with its $2.3 billion Strategic Investment Fund, a pot of gold that critics have characterized as a slush fund. Patrick D. Hogan, chief operating officer of the university, supplied records yesterday from a Board of Visitors subcommittee meeting showing that members had discussed using investment earnings to invest in projects approved as part of the long-term plan in 2014.

Said Hogan: “We have absolutely nothing to hide.”

Reports the Daily Progress:

The investment fund originated with more than $1 billion in investment returns that had accumulated between 2009 and 2014. Officials had talked about using this money to pay for some of the projects outlined in UVa’s strategic plan, passed in 2013. The Cornerstone Plan, as it’s called, lays out a broad series of goals, including improvements to UVa’s technological infrastructure and a wave of faculty hires.

The plan — initially priced at $564 million over five years — was not completely funded when it was passed, and there was concern that costs could be passed on in the form of tuition. The idea was to take some of the investment returns that had accumulated over the years and use them to pay for these improvements.

The investment returns were combined with other reserves to create the fund, which could pay out up to $100 million annually, Hogan said.

“We recognized then that the Cornerstone Plan needed long-term support,” he said.

Hogan said the creation of a permanent fund will allow UVa to improve the student experience without passing the cost on to students. This fund will pay for the improvement projects UVa hopes to undertake — hiring new faculty and providing them with research startup money, for example — without straining operating funds.

Bacon’s bottom line: Changes to the fund apparently followed normal bureaucratic procedure, moving quietly through a Board of Trustees subcommittee before surfacing before the full board. I’m prepared to believe that UVa administrators thought they were being transparent. But there was a breakdown somewhere if some board members were caught by surprise and it’s taken this long for UVa to explain in a way that people can understand how the fund came to be. What Hogan did not address in the Daily Progress article was why the board felt compelled to discuss the issue in closed session. Such an action does prompt people to wonder, “What were they hiding?”

At the end of the day, the controversy is over how to use an investment windfall amounting to $100 million a year — whether to invest in initiatives to make UVa a more prestigious institution or to lower costs for Virginia students. Clearly, the administration and a majority of the board favor advancing the university’s institutional interests over its historic mission of providing an affordable, quality education for all Virginians. All the rest is window dressing.

New Criticisms of UVa Investment Fund

Slush

Slush?

by James A. Bacon

Lawmakers have raised new concerns about a $2.3 billion University of Virginia investment hoard that critics have characterized as a “slush fund.”

The controversial pot of cash was originally labeled as “University Operating Funds.” Then it was marked “Strategic Investment Fund” in a Jan. 31 document — two weeks before the Board of Visitors formally authorized the naming of it as an investment fund, reports the Daily Progress.

“It’s almost like the board is there to rubber-stamp [administrative decisions],” said Sen. William R. DeSteph, R-Virginia Beach.

“In light of this cash reserve, why are we raising student tuition and acting like we’re broke?” asked Sen. J. Chapman Peterson, D-Fairfax City.

The university has designated the fund to recruit new faculty, build new lab space, and provide financial aid to high-achieving students from low-income schools around Virginia in support of its “affordable excellence” program.

The magnitude of the controversy has grown in recent days. DeSteph, Peterson and other legislators also allege that the university gave conflicting reasons for opening up a $300 million line of credit. Summarizes the Daily Progress:

In November, the board gave the administration clearance to take out up to $300 million in operating lines of credit.

According to previous university statements, this cleared the way for the university to transfer $480 million in operating cash to the Strategic Investment Fund — providing it with a boost while keeping UVa’s bond rating strong.

But according to minutes from the November meeting, during which Chief Operating Officer Patrick D. Hogan addressed the board, the purpose of these new lines of credit was to meet different “stress scenarios” facing the university, such as an inability to fund operating expenses or convert assets into cash “without significant losses.”

“The operating lines of credit will be a new source of liquidity and are being considered only as back-up liquidity,” according to a summary of the action item provided to the board in November.

DeSteph said the administration acted inappropriately. It appears administrators told the board — and the public — it would use these lines of credit one way and then decided to use it another way, he said.

“What they told the public was they were going to set up lines of credit and only use them if needed,” DeSteph said. “It looks like they set up the lines of credit and maxed them out.”

The legislators also charged that the Board of Visitors went into closed executive session last month to talk about the fund. “I feel like they’re trying to do as much of their business beyond the public’s eye [as possible],” said Peterson. “A $2 billion cash reserve? How can that not be a public issue?”

Virginia’s Email Scandal

House District 72 - does this look compact to you?

House District 72 – does this look compact to you?

by Brian Cannon

Today the Supreme Court of Virginia will hear a case about emails politicians don’t want you to see.  You may miss the story in the news because this has nothing to do with presidential politics. Rather it’s about Virginia’s 2011 gerrymander.

Five years ago, Virginia was split with Democrats in control of the Virginia Senate and Republicans in control of the House of Delegates. Governor Bob McDonnell appointed a blue-ribbon commission to propose less partisan maps for Virginia. Unfortunately, legislators did not take the directive seriously. Instead of agreeing to a reasonable approach that benefited Virginia voters, the partisan political leaders of both chambers agreed to feather their own nests. The Republicans in the House passed the Democratic gerrymander of the Senate and the Democrats in the Senate passed the Republican gerrymander of the House. Bi-partisanship at its worst.

Which lawsuit is this again? In 2015, Citizens from across the political spectrum joined to sue the Commonwealth over the lack of compactness in Virginia’s General Assembly districts. A quick look at the districts will give you a clear view of how non-compact these districts actually are. They include six drawn by the Democrats in the Senate and five drawn by the Republicans in the House. By specifically avoiding districts affected by the complication of the Voting Rights Act, the suit is a clear shot at Article II Section 6’s requirement for compactness without all of the complications of the moving target that is today’s VRA.

This lawsuit is funded by the non-partisan OneVirginia2021 with lawyers and a significant discount provided by Wyatt Durrette’s firm DurrettCrump. This is not the same initiative as the Democratic National Redistricting Trust challenge of racial gerrymandering. One of those cases changed Virginia’s congressional boundaries and the other is before the Supreme Court of the United States this fall.

So how do emails work into this?  In the discovery phase of this compactness trial (yeah, we still haven’t gotten to trial yet), the trial judge in Richmond made a ruling about the scope of legislative privilege. The plaintiffs argued legislative privilege should be narrowly construed — about a foot wide.  The defendants argued it is a broad privilege — about a mile wide. Judge Marchant of the Richmond Circuit Court ruled, in effect, that the privilege was a few feet wide. The House of Delegates complied and has been turning over emails and other related documents since.

In an unprecedented move to avoid turning over their emails, four sitting state senators requested instead to be held in contempt of court. The court obliged, fining each senator $100 a day since early April. The four sitting senators are all Democrats — the same ones behind the gerrymandering in 2011. Originally, the group included one sitting Republican Sen. Richard Stuart, R-Westmoreland, but he complied with the court order, stating to the Washington Post:

I’m a lawyer and I’m never going to refuse a court order. … You just don’t do that. Number two, I’m a public servant and I’m doing the public’s work. Number three, I believe in transparency.

If only Senators Dick Saslaw, D-Springfield, George Barker, D-Alexandria, John Edwards, D-Roanoke, and Dave Marsden, D-Burke, saw it that way and complied with the trial court’s order.

Brian Cannon is executive director of OneVirginia2021.

The State Department of Superintendent Protection

monkeysby John Butcher

On June 7, I posted a letter to the President of the State Board of Education from a former Latin teacher in the Roanoke County system alleging cheating at one or more schools in that system. That teacher, Robert Maronic, averred “widespread” cheating and claimed to have informed the administration of the problem in November, 2012, the Board of Supervisors in October, 2015, and the School Board in November, 2015.

(Maronic posted an op-ed in Bacon’s Rebellion on the same topic: “Halt the High School Cheating Epidemic.” — JAB)

On June 24, Maronic received a reply (reproduced below) from the President of the Board of Education. Let’s analyze that letter.

Thank you for your letter detailing concerns with the Roanoke County Public School system. I appreciate you [sic] taking the time to contact the Virginia Board of Education.

Just from the first sentence we know this letter is Bad News: President Cannaday characterizes allegations of wholesale cheating as “concerns.”

The [Roanoke County Public School] division informed the Department that it is taking measures to address this issue and is working with outside support to combat this challenge.

So, the Roanoke County division admits to some or all of the allegations:

  • It is taking unspecified “measures.”
  • Those measures will “address,” but perhaps not eliminate the cheating.
  • The division is “working” with outsiders to “combat this challenge.”

What this does not say is that the Roanoke County School Superintendent has eliminated the cheating and fired the people responsible for it.

Pursuant to the Constitution of Virginia, the Board of Education determines and prescribes the Standards of Quality for school divisions, and the supervision of schools in each school division is vested in the local school board.

Hmmm.  Let’s look at authority:

  • Va. Const. art. VIII, § 4:  The general supervision of the public school system shall be vested in a Board of Education . . .
  • Va. Code § 22.1-65:  A division superintendent may be assessed a reasonable fine, suspended from office for a limited period or removed from office by either the Board of Education, upon recommendation of the Superintendent of Public Instruction or the school board of the division for sufficient cause.

We need not parse the scope of “general supervision” to understand that the Roanoke County Superintendent is responsible for what happens in his system.  Either he knew of the cheating and needs to be fired for not dealing with it, or he did not know of the cheating so he needs to be fired for incompetence.

And Cannaday is president of one of the two boards that can do the firing.

Continue reading

Chicago on the James?

richmond_skylineby James A. Bacon

As if the City of Richmond didn’t have enough problems, now tensions are erupting between the executive director, board of trustees, and members of the city pension fund’s investment advisory committee. Based on the account by Michael Martz at the Richmond Times-Dispatch, the rancorous relations between pension director Leo F. Griffin and members of the investment advisory committee might have originated over policy but have now gotten personal.

The underlying issue appears to be over who should control the pension’s investment decisions. For years the investment advisory committee set policy in lieu of hiring a high-priced chief investment officer. But Griffin, who took on his post three years ago, allegedly has been working behind the committee’s back to assume control of rebalancing the system’s investment portfolio and making other investment decisions, while blocking the flow of information to committee members. In effect, Griffin is alleged to be changing the governance model of the pension fund without a serious discussion by the board.

Like most Richmonders, I had never heard of the Richmond Retirement System. I assumed that the Virginia Retirement System ran the city’s pensions. But, no, the city’s $540 million fund is responsible for paying the retirement benefits of nearly 10,000 retired and current city employees.

funding_progressThis fracas follows on the heels of a proposal by Richmond Mayor Dwight Jones earlier this week to raise taxes and borrow $580 million over the next ten years to fix the city’s derelict public school buildings and meet other capital needs approaching $1.5 billion. The two sets of issues are linked because, it turns out, city pensions are only 63.5% funded, and the unfunded liability amounts to $310 million. As seen in the “Schedule of Funding Progress,” the city has made only marginal progress during the past seven years of economic expansion to restore the pension to the fully funded position it had in 2000.

In reading the pension fund’s 2015 Comprehensive Annual Financial Report, I see that the pension fund could be even more fragile than it appears from those numbers. When calculating its unfunded liabilities, pension managers assume that the fund’s assets will generate an annualized rate of return of 7.5% over the long run. By contrast, the Virginia Retirement System assumes a “discount rate” of only 7.0%. Some pension observers say that, in an era of persistent, near-zero interest rates, the discount rate should be even lower.

The discount rate used by municipal pension funds has political ramifications. A higher rate assumes greater investment returns, which reduces the funds the City of Richmond has to contribute each year to support the pension. But if actual performance falls short, the city will have to increase its annual payout, much as the General Assembly has done in recent years to shore up state pensions.

Fiscally speaking, we live in perilous times. We fantasize that we’ll always be able to muddle along. Then along comes Puerto Rico, which shows how dysfunctional our political system can get when managing long-term debt. Closer to home we can observe the political turmoil created when Illinois and Chicago, a state and city with massive unfunded pension obligations, struggle to avoid becoming the next Puerto Rico.

The City of Richmond is an awesome place and, economically speaking, has more going for it than any time in 30 or 40 years. But weak finances may be its Achilles heel.

Virginia Procurement Process Needs Reform

Complex projects from transportation to IT need risk management.

Complex projects from transportation to IT need risk management.

by James A. Bacon

The Commonwealth of Virginia needs to reform its procedures for contracting and administering billions of dollars of contracts, the Joint Legislative Audit and Review Commission (JLARC) has found in a new study.

In 2015 Virginia spent more than $6 billion through contracts, including for transportation projects, information technology, and building construction, noted JLARC. The process for managing the contracts is decentralized, with each agency handling its own work. State procurement staff are insufficiently schooled in risk management, and the state pays insufficient attention to monitoring and enforcing the contracts.

Even though contracts account for a significant portion of state spending, the state does not maintain comprehensive information on how contracts are performing. This prevents individual agencies and state-level decision makers from assessing whether their investments in individual contracts have provided value to the state. It also prevents agency staff from avoiding problematic vendors and developing and administering contracts in a way that takes into account previous “lessons learned” at their own agency or other agencies.

JLARC embarked upon the study in 2014 after the maladministration of the U.S. 460 superhighway project resulted in a $250 million loss to the state without any ground being cleared or asphalt laid. The state has been embroiled in other high–profile contractual disputes involving the provision of IT services and the explosion of a rocket at the Wallop’s Island space port.

“Risk management isn’t on the radar,” said Tracey Smith, study project leader, in a presentation to lawmakers Monday. Writes Michael Martz in the Richmond Times-Dispatch:

Legislators on the commission, particularly the lawyers, expressed shock that state agencies routinely enter into big, often risky contracts without legal advice from the Attorney General’s Office.

Del. David B. Albo, R-Fairfax, chairman of the House Courts of Justice Committee, called it “ludicrous” that agencies would draft major contracts without lawyers.

Bacon’s bottom line: State procurement laws reformed corrupt practices of an era in which politicians routinely gave contracts to their friends and supporters. The laws emphasized putting contracts out for competitive bids, procuring the lowest price and making the process transparent. The nature of business has changed over the decades, but with one important exception, the state procurement process has not kept pace.

Unless you’re procuring commodity products like office supplies or janitorial services, the lowest price is almost meaningless. The quality of work is often a critical but hard-to-define variable. Another is the allocation of risk — who pays when something goes wrong? Identifying and allocating risk is why we have lawyers. Sometimes the lawyers get carried away, picking at nits, but they perform a critical business function because things often do go wrong. Accidents occur. Disagreement arise. Unanticipated events throw everyone for a loop.

Government employees are not trained to think about risk. Politicians aren’t inclined to worry about risks that might explode on someone else’s watch.But as contracts grow increasingly complex with the trends to outsourcing and public-private partnerships, the allocation of risk can be as important as the price.

There is one outfit in state government that has been acquiring the competencies to engage in sophisticated risk management — the Office of Public-Private Partnerships (OP3), which oversees contracts for some of the state’s most complex transportation projects. As I recall, OP3 raised red flags relating to the infamous U.S. 460 project but its warnings were overruled for political reasons. The office has developed a network of contacts it can call upon to supplement the skills of its in-house staff. Virginia’s Secretary of Technology and the head of the Department of General Services should have comparable capabilities.

Good management doesn’t excite the electorate like, say, banning guns or restricting bathroom options for transexuals. But billions of taxpayer dollars are at stake. And that makes it a sexy topic for me.