Category Archives: Education (higher ed)

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?”

Where Did UVa’s $2.3 Billion “Slush Fund” Come From?

scrooge_mcduckHere is the University of Virginia’s explanation of where the infamous $2.3 billion “Strategic Investment Fund” came from:

The reserves have been accumulated through sound financial management from the following sources:

– In June 2009, the University held approximately $620 million in unrestricted funds and related earnings that had accumulated in its history and were invested with the University of Virginia Investment Management Company, or UVIMCO;

– The University’s operating reserves of approximately $385 million for the Academic and Health System divisions, principally set aside since 2009 for working capital, future capital needs for major maintenance, requirements of its self-insured health plan and other operating needs, which also were invested with UVIMCO;

– Since 2009, investment earnings realized on University operating funds held at UVIMCO were approximately $700 million, a result of robust average annual returns.

– In November 2015, the Board of Visitors approved a new liquidity policy permitting the establishment of bank operating lines of credit that enabled UVA to transfer approximately $480 million of operating cash for investment with UVIMCO in early 2016. This action was taken in consultation with major ratings agencies to preserve the University’s AAA ratings.

— JAB

Rumble at the Rotunda

affordable_excellence

by James A. Bacon

Two state senators, one Democratic and one Republican, have dialed up the heat on the University of Virginia by calling for an investigation and forensic audit of a $2.3 billion fund that the university describes as a “Strategic Investment Fund” and ex-Board of Trustees member Helen Dragas characterizes as a “slush fund” for favored projects.

Sens. Chap Peterson, D-Fairfax, and Bill DeSteph, R-Virginia Beach, said the surplus operating monies accumulated in the account should be returned to Virginia students and families through lower tuition.

According to the Virginian-Pilot:

“As a senator, and as a citizen, I have more questions than UVA has answers,” DeSteph said in the statement. “There are families and students in Virginia Beach who are struggling to pay for college tuition, and I can’t explain to them why a public university is sitting on $2.3 billion. This was all done in closed session meetings, under the cover of ‘personnel matters,’ which I feel is completely inappropriate.”

Peterson added: “It is uniquely inappropriate for a nonprofit institution to consistently overcharge for its services – there is no legal authority for the university to do this, and no authority for its faculty or the board of visitors to spend these massive sums of money, which represent tuition and fees paid by thousands of working families who apparently have been over charged.”

The university administration presented its defense of the fund on the university website. The fund, the article states, will provide about $100 million a year for the university to pursue excellence at the university and its medical center without passing on additional costs in the form of tuition increases.

Bacon’s bottom line: Here’s what the argument boils down to. UVa says the money can be used to pursue excellence without jacking up tuition. Dragas, Peterson, DeStaph and others say the money could be used to actually lower tuition.

At a deeper level, this controversy reflects a difference in visions. The UVa administration and its allies on the Board of Visitors prioritize building a more prestigious institution. Here’s what Rector William H. Goodwin had to say:

Over the next decade, these investments should elevate the University to be among the top 10 universities in the nation, while keeping our net tuition costs among the lowest in the country.”

That’s the first time I recall anyone articulating the goal of lifting UVa into the ranks of the Top 10 universities in the country. It’s an extraordinarily ambitious goal because you can be assured that the universities standing between UVa and the Top 10 are doing everything they can to rise in the standings as well. (UVa ranks 26th nationally in the U.S. News & World-Report tally, third nationally among public universities.)

There is nothing inherently wrong with this goal. But money spent on pursuing excellence is money that cannot be rebated to students and parents paying a tuition that, despite all of UVa’s verbal circumlocutions, is massively higher today than it used to be.

My problem with the UVa administration is not the goal of putting prestige over affordability — I’ve often opined that we should let the university go private and be done with it — but the less-than-fully-transparent manner in which administrators have gone about achieving that goal.

UVa needs to come out and say, “Yeah, we’re going for Top 10. That’s going to cost a lot of money, and we’re going to jack up the tuition to help pay for it. As for that $2.3 billion fund, we’re keeping most of it to recruit star faculty, buy expensive lab equipment, and do other stuff in the pursuit of excellence. But we know affordability is an issue, so we’ll set aside a few tens of millions of dollars a year to ease the pain for the third of students with lowest incomes. Everyone else can suck it up.”

If UVa could come out and say that, we could have an honest and potentially fruitful conversation.

The Moral Ambiguity of Drunken Party Sex

Non-sanctioned block party near UVa like that where the incident took place.

Non-sanctioned block party near UVa like that where the incident took place.

T. Rees Shapiro with the Washington Post has written an excellent article describing how the University of Virginia’s drunken party culture leads to unfortunate sexual encounters, and how difficult it is to sort out afterwards what happened.

The story focuses on a single incident in which first-year woman Haley Lind and a first-year athlete, who asked to remain unidentified, met at a party, got drunk and went to an upstairs bathroom to have sex. The next day Lind woke up feeling that she had been violated in some way but was unable to remember the details. Basically, her argument was this: She was too drunk to have given consent to sex. The athlete was surprised by the allegation. Lind, he said, never objected. Indeed, she had put a condom on him.

According to UVa’s sexual assault policy, someone who is incapacitated by drink cannot give informed consent. But the athlete accused of sexual assault was himself too drunk to know that Lind was too drunk to give consent.

Writes Shapiro:

Their ordeal provides a sobering portrait of the real-world consequences of college party culture. It exposes the challenges students face in deciphering consent while drunk and in piecing together fragmented memories. It also shows how schools are placed in an almost untenable position of trying to determine what happened and who is at fault — if anyone.

Real, unambiguous cases of rape do occur on college campuses, but they are a small fraction of the “sexual assault” incidents that take place. There is a huge problem in America’s colleges and universities, but it is not an “epidemic of rape,” as it has been described for political purposes. The problem is the culture of drunken party sex, and that’s what needs to be addressed.

— JAB

Lots of Questions, but No Evidence that UVa “Slush Fund” Is Actually a Slush Fund

Murky, not illicit

Murky, not illicit

by James A. Bacon

A few more details have emerged about the University of Virginia’s supposed “slush fund,” but not enough to really help outsiders judge whether the university’s financial arrangements amount to a scandal or not. Helen Dragas, the former Board of Visitors member who leveled the accusation in a Washington Post op-ed, talked to Richmond Times-Dispatch reporter Karin Kapsedelis for an article published Saturday Here is Kapsedelis’s summary of Dragas’s allegations:

The board voted in February to create a “strategic investment fund” to support proposals that align with goals adopted for the university as part of The Cornerstone Plan.

But Helen Dragas, … whose term expired June 30, said Friday that members were not informed that the new investment fund would be financed by existing revenue for operations when the resolution was adopted.

She points to a change in labeling after the February vote to support her allegation that the university created a “slush fund” to use on programs that burnish U.Va.’s reputation rather than cut costs for students.

Dragas cited a report from the U.Va. Investment Management Co., UVIMCO, from Dec. 31, 2014, that includes a line item for $1.63 billion in University Operating Funds; in the March report, the line item is labeled University Strategic Funds and valued at $1.83 billion. A third-quarter summary report to the board lists the value of the Strategic Investment Fund as having grown to $2.29 billion with supplementation from other sources.

According to minutes from the February board meeting, the newly established investment fund will support proposals that “clearly align with the university’s strategic plan objectives.”

But the funds will not be used “in lieu of normal ongoing operating costs,” the resolution states.

From this description, it appears: (1) that the same fund has been given a variety of different names, (2) that the mission of the fund has changed from funding operations to funding strategic initiatives, (3) that the fund grew from $1.63 billion to $2.29 billion over nine months, an increase of $660 million, and (4) that the increase can be attributed to both investment returns and “supplementation from other sources.”

It is not clear from this account, however, whether those “other sources” were comprised of donations from friends and alumni of the university or moneys diverted from ongoing operations. Also not clear is whether university administrators reallocated new money to strategic objectives such as buildings, faculty pay and research, or just relabeled existing funds already used for the same purpose.

Certainly the matter bears looking into. But I have seen no indication yet that the Strategic Investment Fund amounts to a “slush fund,” which university officials can dip into for illicit purposes. It may in fact be a slush fund, but Dragas did not present evidence for such a conclusion in Kapsedelis’s article. The real scandal, I suspect, is the one that we have continuously hammered home on Bacon’s Rebellion: the university leadership’s prioritization of the university’s growth and prestige over its founding mission of providing affordable, quality higher education to Virginians.

Dragas Criticizes UVa “Slush Fund”

dragasHelen Dragas, former member of the University of Virginia Board of Trustees, has made an extraordinary charge in a Washington Post op-ed published yesterday.

At our June meeting, administrators revealed their coffers include a $2.3 billion pot of reserves, surpluses and earnings that for years has been hidden in plain sight, loosely labeled as necessary to support operations. Now, through financial maneuvering, this treasury has been liberated expressly to support strategic initiatives that will enhance the university’s reputation. As administrators requested a series of board actions to facilitate that change, members were not apprised of the large sum at stake. Only later did we learn that these moves had created a $2.3 billion slush fund.

Privately referred to as “unfound money” (that is, unfound by legislators, the press, and — as a result — the general public), this astounding sum could run the entire University Academic Division for a year and a half. …  A conservative estimate of its annual earnings potential — $100 million — could be used to cut the tuition of all in-state undergraduates by 70 percent.

Dragas, a former rector and an outspoken critic of the university’s priorities, credits current Rector William H. Goodwin with “tenaciously pressing administrators” for transparency about the accumulation. The revelation of what she describes as a “multi-billion-dollar slush fund for pet projects” comes as the university continues to aggressively raise tuitions for in-state and out-of-state students, putting a quality education increasingly out of reach for middle-class students too rich to qualify for student financial aid and too poor to pay the ever-escalating bills.

The abbreviated format of the op-ed did not give Dragas the space to detail how the “found money” was hidden and how the administration liberated it. But if Virginia’s newspapers have any gumption at all, they will get to the bottom of what could be a major scandal. Dragas has handed them the story on a silver platter. 

Update: The Richmond Times-Dispatch has followed up with an article noting Dragas’s “slush fund” criticism and including a response from University spokesman Anthony P. de Bruyn: The funds in question, he said, support the Cornerstone Plan, enabling “strategic investments in our faculty, academic programs, clinical enterprise, research infrastructure and physical space needs that will continue to benefit future generations of students while also minimizing tuition increases.” For the coming academic year, he added, U.Va.’s tuition increase of 1.5 percent for continuing in-state undergraduate students is the lowest of all public institutions in the state.

Let us see if the T-D digs any deeper than “he-said, she said” coverage.

Update: Rector William H. Goodwin has issued a statement: “The monies have always been included in the University’s audited financial statements. … I have asked the University administration to provide details over the next few days regarding our work to date on this matter.”

Click here to read the full statement. 

— JAB