The University of Louisville Foundation claims it is not paying for over $100,000 worth of construction costs to remodel its office space, saying its landlord is picking up those costs through a tenant improvement allowance under a new lease that has yet to be drafted.
However, the foundation’s landlord is AAF-Louisville, a company created by the foundation in 2008 whose sole LLC member was the foundation as late as last year, according to the consolidated financial statements of the nonprofit that manages the university’s $655 million endowment.
These financial statements also noted that AAF is managed by University Holdings Inc. (UHI), another one of the foundation’s companies, with both companies’ balances and transactions included with that of the foundation. The last filings of UHI and AAF with the Kentucky Secretary of State’s office in March show their managers to be former university and foundation President James Ramsey and his former aide Kathleen Smith, who recently retired from the university and is on paid administrative leave from her position at the foundation.
The Courier-Journal reported on Aug. 19 that the foundation was constructing new offices at its building on 215 Central Ave. for Ramsey — who had just been forced to resign as UofL president but was still head of the foundation at that time — and Smith.
At the time of the story, the foundation’s CFO Jason Tomlinson did not comment, and Bob Hughes — then chair of the foundation’s board — said he forgot what the construction was for and didn’t know how much the project would cost, who approved it or who was paying for it. Junior Bridgeman — who was briefly chair of the foundation’s board this summer — told the C-J at the time that the foundation’s board did not approve the construction project.
Following the C-J story, IL submitted an open records request to the foundation seeking records on what specific remodeling changes were being made to the office, what permits were filed with the city, who approved the project and what funds were paying for it. The foundation only acknowledged receipt of the request a full month later, and did not return emails on its status in the following weeks. After contacting attorney David Tachau — recently hired by the foundation’s board to speed up responses to open records requests — in early October to point out the delay, the records were turned over to IL within two business days.
The documents reveal that a July 27 proposal from the chosen contractor states it would cost $102,200 to remodel 2,150 square feet of empty space on the second floor of the building for new foundation offices. Xtreme General Contracting listed 18 items in the remodeling project, including four full-size offices, moving a kitchen and replacing floors, ceiling tiles and light fixtures.
The foundation’s response stated that no records existed related to who approved the remodeling and what funds were used, though it noted that “the Foundation will not be responsible for any costs of construction.” Instead, “the costs of this construction will be paid through a tenant improvement allowance to be provided for under a to-be-drafted lease between AAF-Louisville, LLC, as landlord, and the Foundation, as tenant.”
In response to IL’s follow-up questions, attorney Kate Crosby from Tachau’s office said AAF — whose purpose is to develop and manage the office space at 215 Central Ave. — was transferred last fall to the University of Louisville Real Estate Foundation (ULREF), a separate nonprofit created by the foundation in 2014 to manage its proliferating properties. She said this transaction would be noted in the foundation’s financial statements for the fiscal year that ended this summer, pending its approval by the board. Crosby added that while AAF and ULREF both shared a “common purpose” to work for the good of the university, they are technically “distinct corporate entities” from the foundation and not its subsidiaries.
Crosby added that while neither AAF nor ULREF has any employees, they do have employee-sharing arrangements in which the foundation performs certain accounting functions and Richard Brown serves as the property manager for ULREF entities like AAF. She added that Brown and Tomlinson of the foundation worked to solicit bids — though not through an RFP process — and select Xtreme General Contracting for another unrelated construction project for a medical office in the building earlier this year, “and then when the foundation determined to build out this space, there were efficiencies and it made sense to have Xtreme that was already doing work there to take on that project.”
Crosby said the remodeling of the foundation’s offices is 95 percent complete.
UofL Foundation board chair Brucie Moore — who was elected last month to replace Hughes — told IL that Kathleen Smith was the foundation employee who ultimately OK’d the office remodeling project. Asked if Smith approving a project of this size without board approval was typical, Moore replied “I don’t know what was typical in the past, but we’re now looking at our policies and procedures going forward and when board approval is needed. Those will be considered.”
Since taking over as board chair, Moore has pledged to increase transparency and accountability at the foundation, which has been beset with criticism, negative news stories and an examination by the state auditor’s office over the past two years. In the face of major donors threatening to withhold future donations to the foundation and the UofL Board of Trustees threatening to sue its own nonprofit, Moore recently created a joint committee to select a firm to conduct a forensic audit of the foundation’s finances and a committee to examine best practices for governance of university foundations, in addition to hiring Tachau to fulfill its backlog of open records requests — which has dramatically improved.
Asked if the foundation followed proper procedure in this specific instance, Moore said “it’s easy in hindsight to criticize it, but because of those questions, we should look at this process going forward… I have one mission: to continue the good work of the foundation and make sure that stakeholders are fully informed and comfortable about what we’re doing.”
Moore added that whether or not one approves of the process, the office space being remodeled for foundation employees was badly needed, saying it was not “elaborate” and “not like the Taj Mahal.”
She also re-emphasized Crosby’s point about the larger foundation being a separate entity from AAF and ULREF and not bearing any costs for the construction, though adding that the foundation’s web of related companies and organizations is “a complex system, it’s not simple.”
The ULREF board met last Friday and voted to assume the responsibility of paying back the nearly $30 million worth of debt owed to the university’s endowment by UHI — which had accumulated due to the foundation repeatedly loaning endowment money to UHI. The foundation recently considered writing off UHI’s debt — meaning the endowment would not be paid back — but now ULREF will repay this in installments over many years.
At that meeting, WDRB reported that UofL Acting President Neville Pinto said the foundation would benefit from making its structure less complex and in alignment with best practices.
Asked about the contention that the UofL Foundation is not paying for the construction costs of its office remodeling, foundation board member and board of trustees chairman Larry Benz told IL that “some entity of the foundation is paying for it.”
As for how this project was approved, Benz — who led the effort for a forensic audit of the foundation and the removal of Ramsey and Smith — said “we are becoming more and more aware of many transactions that occurred at the foundation without appropriate approvals. This appears to be one of them.”