A bill requiring universities to provide more comprehensive financial information to the state was unveiled Jan. 25 after a report showed the negative impact of some universities’ precarious economic and investment practices.
Private, non-profit universities that have more than $10 million in investments or property would have to report any contracts for advice or services that are more than $150,000, as well as any employees who make more than $250,000 a year, according to a fact sheet for the bill drafted by Somerville Democratic state Sen. Patricia Jehlen and Democratic Boston Rep. Michael Moran.
The bill, entitled the Education Right-to-Know Act, will be assigned to a senate and house committee in the spring, followed by a public hearing.
The report, authored by a non-profit research organization called the Tellus Institute, examined the financial strategies of six New England colleges including Boston University, Harvard University, Massachusetts Institute of Technology and Boston College in the 2010 report.
The report explained the risky investments that universities made, their tax exemption statuses, board members with conflicts of interest, “the cult of the CIO and the rise of academic finance officers” and other problems negatively impacting communities during the financial crisis.
“A lot of financial institutions have pursued an endowment investing strategy that’s taking on much more risk than they ever did before,” said Heather Mills, the Legislative Director to Jehlen.
During the financial crisis, such risky investing strategies caused harm to local communities when universities began losing money and had to lay off employees, Mills said.
Because of their not-for-profit status, universities do not pay property, sales, income or investment taxes, which mean that taxpayers’ money partially supports them, Jehlen said.
“Some of that risky investment was supported by tax exempt bonds and other taxpayer paid benefits that those universities were getting,” Jehlen said.
According to the report, universities also worked with companies for which board members worked, creating conflicts of interest and undue loyalties.
This was seen at BU as well as at others.
“BU has experienced repeated board controversies related to poor governance and conflict-of-interest issues, especially during president and chancellor John Silber’s tenure on the board,” according to the report.
BU spokesman Colin Riley responded to the report’s findings, saying BU “has prudent management and integrity with regard to how we manage our operating budget and endowment. We’re a generous leader in the area of payment in lieu of taxes and other benefits to the city of Boston.”
Riley said that during the worst of the recession, BU cut back by not beginning any new construction or capital projects.
In an Oct. 5, 2010 letter from BU President Robert Brown, the financial situation at the university was addressed as well.
“Because of the disciplined efforts of our faculty and staff, we completed fiscal year 2010 (ending June 30th) with reserves of $114.2 million, just ahead of our previous record total in FY2009,” Brown said in the letter.
“Approximately $14.4 million of these funds were transferred directly back to academic units, according to revenue sharing agreements and another $75.6 million have been allocated to academic initiatives.”
Brown went on to add that “even with the tight financial controls that we need to employ in the current economic climate, the University continues to make progress on raising faculty salaries on the Charles River Campus.”
BU’s endowment decreased 22 percent between 2008 and 2009 and in 2008 MassDevelopment gave more than $350 million of tax-exempt bonds to BU. BU also has more debt than its endowment value, according to the report.
The bill wouldn’t outlaw these activities, but would require universities to report them, Jehlen said.
“Public money is to a large extent supporting these activities,” Jehlen said. “Just as we would want to know about any government function, we need to know more about how taxpayers’ money is being used.”
During the financial crisis in 2009, Harvard had to halt its expansion in Allston due to a lack of money, according to The Boston Globe.
“The people in the community feel like there’s a big hole in Allston now,” Mills said.
“Land was bought, plans were laid down, and Harvard’s not moving forward with it and they’re pretty angry,” she said. “They feel like Harvard came in and took over part of their town and now they’re not doing anything with it.”
People felt that the universities’ cuts, especially those at Harvard and MIT, were very painful and who questioned whether they were equally distributed, Jehlen said.
“It’s very disheartening to see that publicly supported institutions were behaving in ways that I don’t think most people would approve,” she said.
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