In another sign of changing times at the University of Louisville Foundation, its board on Tuesday approved a line-item operating budget for the next fiscal year — an act that is typical for large organizations, but a first for the rapidly changing nonprofit managing the university’s roughly $784 million endowment.
Before the foundation’s chief financial officer went through the proposed operating budget for the 2017-2018 fiscal year, interim executive director Keith Sherman noted to board members the oddly historic nature of the vote they were about to take, continuing their reform efforts to improve the transparency and reputation of the organization with almost entirely new leadership since last Summer.
“While it may surprise you, this is the first line item budget the foundation has done,” said Sherman. “Historically, they presented a macro budget number to the board. After approved, there was no management review of performance relative to the budget number.”
Sherman noted that after the first month of the fiscal year this summer, board members finally will be able to see how the budget was performing, which is important because “what you measure you manage and what you manage gets done.”
Due to declining contributions to the foundation and its high spend rate in recent years, the foundation already has announced that its direct endowment spending on university functions will significantly decrease next year to just over $30 million. Sherman noted to the board that there would also be a 14.5 percent reduction in the core operating expenses of the foundation, as his team tries “to become as lean as possible as we continue to demonstrate our financial responsibility.”
In a press release following the meeting, Sherman added that passing a transparent operating budget is another one of the steps the foundation is taking “to demonstrate to our donors and all university stakeholders that the ULF has elevated our fiscal responsibilities.”
The need to regain the confidence of donors was made apparent in a presentation on the foundation’s finances through the first nine months of the current fiscal years, as total contributions have only amounted to just over $20 million in that time — more than $32 million less than at this point in the previous fiscal year.
Foundation board chair Diane Medley told reporters after the meeting that the lack of any line-item budgets in previous years — including during the 14-year administration of former President James Ramsey, who was forced to resign last Fall — was “incredibly unusual.”
“I think the way the foundation has been run in the past, there was a lack of accountability and there was a lack of planning,” said Medley. “It was used as a funding mechanism for various projects that the president felt added to the value of the university. And the whole process was not what you would normally expect.”
Medley added that when you have such a disorganized process, “sometimes you have things that are not well thought out. And that’s what we’re also grappling with, is how to unwind some of those contracts and some of those projects and move forward in a good way.”
Some of the contracts that Medley referred to already are beginning to unwind, as she stated that the foundation is cutting ties with its longtime general counsel Stites & Harbison and internal auditing firm BKD. While saying there would not be a big change in its public relations budget or firms, Medley cited the need for a fresh look at the foundation, as “we’re looking at all the contracts, all the relationships… there’s going to need to be a clean break. Practically all of the board members are new.”
As for the significant decrease in contributions to the foundation this year, Medley said she thinks most donors are sitting on the sidelines until they are comfortable that the necessary reforms have taken root, which she expects will be soon.
“We just now feel like we’ve cleared the ground and we’re ready to actually move forward,” said Medley. “I think donors — from what they’re telling us — continue to love the university, they know what it means to the community, but they want to make sure that we’ve got the ship righted… We’re on the brink of being able to turn it, where we’re talking about the future and not the past.”
The operating budget next year includes nearly $600,000 for deferred compensation — the controversial benefits program of the foundation that provided millions of dollars worth of payouts to Ramsey and top staffers. Medley noted that this will be the last year in which deferred compensation would be in the budget — with this figure being the entire amount that is still outstanding and could come due — as the foundation already voted this year to discontinue this practice going forward.
Asked why the foundation had chosen not to provide line-item budgets in the past, Medley said it was likely the style of the old leadership, which has not completely changed.
“The style of the old administration was very much… I’ll just say, entrepreneurial,” said Medley. “And when people have that personality they don’t necessarily go through all the processes. But as you know now, this board is heavily weighted towards business people, so they’re demanding that we operate as a business, even though it’s a nonprofit.”