You asked for information on private foundations affiliated with public colleges and universities. You were specifically interested in funding sources and accountability. You also asked for a legislative history of the state's public college and university foundations.

SUMMARY

A public college or university foundation is a tax-exempt organization established to support a public higher education institution. Foundations rely on a number of revenue sources to fund their operations, which might include (1) institutional support, (2) unrestricted gift funds, (3) investment income on unrestricted funds, (4) management fees on endowed income and real estate, and (5) gift fees. Recent surveys by the Council for Advancement and Support of Education indicate that unrestricted gift funds, investment income on unrestricted funds, and management fees on endowed funds are foundations' most common funding sources. Similarly, respondents identified institutional support, management fees, and unrestricted gifts as their most significant funding sources.

Foundations are accountable to (1) state and national regulatory authorities, (2) their private donors, and (3) the institutions with which they are affiliated.

The statutes do not specifically authorize the foundations for UConn, the Connecticut State University System, the community colleges, and Charter Oak State College. They operate under requirements the General Assembly instituted in 1989 related to nonprofit foundations associated with state agencies.

FOUNDATIONS ASSOCIATED WITH PUBLIC COLLEGES AND UNIVERSITIES

The Council for Advancement and Support of Education (CASE), a professional association serving educational institutions and their advancement professionals (alumni relations, communications, development, and marketing professionals), periodically surveys institutionally related foundations on their funding practices and fees. (Institutionally related foundations are nonprofit foundations affiliated with public colleges and universities. ) CASE's 2006 and 2009 surveys, respectively, had 195 and 98 survey participants. Table 1 describes the participants by the type of college or university.

Table 1: CASE Survey Participants by Institution Type

Source: CASE, “Institutionally Related Foundations and the Economic Downturn: Results of the 2009 CASE Survey on Foundation Funding Sources and Budget Restructuring,” October 2009.

Funding Sources

The survey asked respondents to identify the revenue sources the foundation uses, or plans to use, to fund its operations and each source's average contribution to the foundation's budget. It listed seven common funding sources:

1. Institutional support – received from the affiliated college or university, either through negotiated payments for the foundation's services or other support;

2. Unrestricted gift funds – donation not designated for a specific purpose;

3. Investment income on unrestricted funds – interest earned on unrestricted funds the foundation holds;

4. Management fee on endowed funds – fee the foundation assesses on the endowment for overseeing its investment of the assets;

5. One-time gift fee on non-endowed gifts – for non-endowed gifts, the percentage the foundation takes of a donation when it is made or, if the foundation holds the gift and invests it, the percentage it captures from the earnings;

6. One-time gift fee on endowed gifts – for new endowed gifts, the percentage the foundation takes of a donation when it is made or, if the foundation holds the gift and invests it, the percentage it captures from the earnings; and

7. Revenue from real estate management – earnings from real estate holdings.

Table 2: Foundation Funding Sources: Percent Used and Contribution to Budget in 2006, FY 09, and FY 10

Source: CASE, “Institutionally Related Foundations and the Economic Downturn: Results of the 2009 CASE Survey on Foundation Funding Sources and Budget Restructuring,” October 2009.

Table 2 lists the results from 2006 and 2009. (The 2009 survey asked participants to answer the questions for both FY 09 and FY 10. ) In both surveys, respondents identified unrestricted gift funds, investment income on unrestricted funds, and management fees on endowed funds as the most common funding sources. The percent of respondents using each funding source increased from 2006 to 2009, with the largest increases occurring in gift fees on endowed and non-endowed funds, institutional support, and management fees on endowed funds.

While not among the most common funding source, respondents identified institutional support as among the most significant revenue sources. Respondents were also asked if they expect institutional support to increase or decrease in FY 10; 23% anticipate a decrease, while 11% expect an increase. Management fees and unrestricted gifts were also significant funding sources.

Accountability

As with other nonprofit organizations, foundations are accountable to (1) state and national regulatory authorities, (2) their private donors, and (3) the institutions with which they are affiliated.

Federal and State Authorities. As federally tax-exempt organizations, foundations must file an annual reporting return (Form 990) with the Internal Revenue Service.   They must report revenue, expenses, assets, and debts. In addition, the form requires that foundations report their (1) board members, (2) program service accomplishments, (3) newly initiated activities or changes to governance structure, and (4) five highest paid staff members. Form 990 states that it is available for public inspection and requires that organizations identify how they will make the form public. (Websites, such as www. guidestar. org, also provide public access to the filed forms. ) 

In general, state law requires charitable organizations with gross revenues over $ 500,000 to register and file annual financial reports with the Department of Consumer Protection and file an audit report prepared by a certified public accountant (CGS § 21a-190c). The law also prescribes a number of requirements specific to any foundations affiliated with a state agency.   (A previous OLR report, 2004-R-0781, summarizes the state laws governing these foundations. )

The law, passed in 1989 in response to alleged impropriety at two foundations, sets requirements concerning a foundation's governance, operations, and accountability. It requires that a foundation with over $ 100,000 in investments annually complete a full audit of its books. Each foundation must also have a written agreement between it and the state agency with which it is affiliated that, among other things (1) addresses the foundation's use of the agency's facilities and resources and (2) requires the foundation to reimburse the agency for expenses it incurs as a result of its operations.   State university- or college-affiliated foundations must also establish and adhere to an investment and spending policy that is consistent with the Connecticut Uniform Prudent Management of Institutional Funds Act.

Donors. The majority of assets held by foundations are restricted by donors for particular uses. A foundation must comply with a donor's intentions and may not manage, invest, or spend funds in a manner inconsistent with that donor's intent (CGS § 45a-535 – 535i). The Connecticut Attorney General represents the public interest in the protection of any gifts, legacies, or devises intended for public or charitable purposes (CGS § 3-125).

Foundation solicitors must also make it clear to donors that gifts are for the foundation, not the state agency, when soliciting gifts and issuing receipts. The foundation must also disclose to donors their right to require the foundation to keep their identity confidential (CGS § 4-37h). Under state law, a foundation's records are exempt from the Freedom of Information Act.

Affiliated Institution. University- or college-affiliated foundations are established for the specific purpose of supporting or improving a college or university. According to CASE, while institutionally related foundations typically hold and manage endowments like a private foundation, they do not take the lead in establishing funding priorities. The college or university's governing board defines the institution's mission and priorities. In most cases, the school's president or chief executive and other senior staff sit on the foundation's board. (State law requires that the constituent unit's executive authority, or designee, and an elected student and faculty member serve as nonvoting members of the foundation's governing board, unless the board's bylaws allow them to vote. )

The boards of trustees of each of the higher education constituent units are charged with promoting fundraising at the institutions under their jurisdiction. UConn, for example, contracts with the UConn Foundation to carry out the university's fundraising duties. The board assigns this responsibility to the foundation through an annual memorandum of understanding that details the fundraising goals and objectives and the financial arrangement between the two.

LEGISLATIVE HISTORY OF CONNECTICUT'S PUBLIC COLLEGES AND UNIVERSITY FOUNDATIONS

The statutes do not specifically authorize the foundations for UConn, the Connecticut State University System, the community colleges, and Charter Oak State College. They operate under requirements the General Assembly instituted in 1989 related to nonprofit foundations associated with state agencies.

The legislature created a higher education matching grant program to encourage private donations to the constituent unit systems and their individual colleges and universities. It created the program in 1995 as part of legislation establishing the UConn 2000 building program. In 1997, the legislature extended the program to the other state colleges and universities. The law allows the constituent units' boards of trustees to administer their endowment funds or have it administered by a nonprofit entity entrusted for such purpose. (OLR report 2005-R-0717 describes the program's requirements and history. )

Laws Concerning Private Foundations for State Agencies

PA 89-267 established requirements concerning the foundations' governing boards, accounting practices, annual audits, and agreements with state agencies. It authorized the Auditors of Public Accounts to conduct a full audit of a foundation's books and accounts under certain circumstances. And it established whistleblower protection for foundation employees who report any matter involving corruption or unethical or illegal practices. (See OLR report 2004-R-0781 for a summary of the law. )

In his testimony before the Government Administration and Elections Committee, Senator James Maloney stated that the legislation allows foundations to provide state facilities and educational institutions with additional resources and provides some state oversight. Maloney went on to state that:

When bringing out the bill in the House, Rep. Bill Kiner stated:

Kiner went on to explain how the bill addressed two problems raised in the months before the session involving foundations. The first problem involved foundations that took money for their own use that was intended for state agencies. The second problem had to do with university professors who used foundation funds as if they were their own.

In the Senate, Sen. Kevin Sullivan stated that “With this legislation the State of Connecticut will for the first time establish the process of oversight for the private foundations which have a fundraising relationship with our public institutions, including those particularly in higher education. ”

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