In 2023, following the passage of the Donor Intent Protection Act in Kansas, Philanthropy Roundtable launched a monthly series on donor intent controversies around the country to better inform those who care about this important topic. This month’s Donor Intent Watch includes a story about a current dispute at Webster University in Missouri, a look at one state featured in our recently released 50-state summary on the legal status of donor intent and excerpts from our Top Ten Tips for Higher Education Donors.
We encourage donors to contact us with any questions they have about our featured items and consult additional resources on donor intent at the Roundtable’s Donor Intent Hub. We also welcome any news about donor intent we may have missed.
Webster University Asking to Reclassify Restricted Funds to Meet Loan Requirements
Missouri’s Webster University recently petitioned the St. Louis County Court to lift donor restrictions from $34.4 million of its endowment funds so the institution can satisfy the terms of a $30 million dollar loan agreement. The financial health of Webster is dire following years of declining enrollment and increased costs of operation.
The university posted a $37 million deficit at the close of its 2022-23 fiscal year, so it is no surprise university leadership is pursuing a $30 million loan at this time. The loan’s terms, however, require that Webster “maintain 75% unrestricted assets to outstanding long-term indebtedness,” and by June 30, 2023, its unrestricted assets totaled only 19% of its debt.
The request for reclassification of restricted funds has been met with resistance and lawsuits from donors who have taken care to earmark their gifts for specific purposes, including research, academic programs and scholarships. Jack Schreiber and his wife, for example, donated funds to establish scholarships in memory of their son and Jack’s mother.
Their attorney stated in court documents, “Had the Schreibers been told that the monies in the Bette Schreiber Endowed Scholarship and the Andrew Schreiber Endowed Scholarship would be used for purposes other than the restricted purpose, and inconsistent with their intentions, the Schreibers would not have established and funded the scholarships.”
Although there are circumstances where a court might consider the reclassification or release of restricted endowment funds for an unexpected emergency, Webster’s disgruntled donors claim they can show a pattern of financial mismanagement. This includes a lawsuit filed against Webster for allegedly not paying rent at its satellite campus in downtown St. Louis and the lowering of its bond rating to junk status. Jack Schreiber has said he resigned his position as a Webster trustee in 2018 because of his concerns the university was ignoring the dangers posed by increasing debt and unsustainable spending practices.
Webster University officials maintain reclassification of the restricted funds is simply an immediate need to meet the demands of their lenders, but they will nonetheless continue to use the funds for the purposes their donors intended. Yet court documents in the Schreiber lawsuit note two very different messages in the letter received by the Schreibers on January 31, 2024 from the Chairman of the Webster Board of Trustees, Sumit Verma:
- “If the court removes the restrictions as requested, we will continue to use the earnings from the fund in keeping with your original intent. Even after restrictions are removed from the funds, we will continue awarding scholarships from funds designated for scholarships and supporting the programs that inspired you to donate to Webster in the first place.”
- “We want you to know that while Webster does not anticipate using the funds you donated for a purpose other than the purpose you originally identified, in the unlikely event this occurs, Webster is committed to restoring your donated funds to their present value when resources are available to do so.”
Release of 50-State Study on Legal Protections of Donor Intent
On January 31, Philanthropy Roundtable released the first comprehensive report on the legal status of donor intent in all 50 states. We partnered with the law firm Boyden Gray PLLC to produce this long-needed guide to inform donors, charitable gift recipients, legislators and the general public about a concept that is frequently misunderstood and increasingly the subject of unwarranted criticism. It is – and will continue to be – an invaluable resource for those who champion philanthropic freedom and the critical role of private philanthropy in a constitutional republic.
To provide readers with a sample of the information contained in the report, I include the section on New Jersey (also frequently misunderstood and subjected to unwarranted criticism):
Donor Intent Protections
New Jersey has adopted much of the [Uniform Prudent Management of Institutional Funds Act]. Like the UPMIFA, New Jersey law requires that charities manage funds consistent with their charitable purposes, subject to any gift restrictions imposed by donor intent. State law also authorizes charities to seek court approval to lift donor gift restrictions or void restrictions unilaterally if certain conditions are met.
New Jersey law is weaker than the UPMIFA in that it allows for unilateral modification of funds of less than $250,000, while the UPMIFA limits such modification to funds of $25,000 or less.
Donor Standing
New Jersey has not adopted a donor standing statute, and state courts have not recently addressed the question of donor standing. However, in a 2013 case, the Superior Court of New Jersey, Appellate Division construed a gift as a contract and allowed donors to sue for the return of funds.
The case, Adler v. SAVE, aka SAVE, A Friend to Homeless Animals, involved a married couple’s donation to an animal shelter. Bernard and Jeanne Adler volunteered with the animal shelter, SAVE, and made financial contributions over several years before contributing $50,000 to the shelter to fund an expanded space to house dogs.
However, the shelter did not execute the planned expansion, and instead merged with another organization outside of the Adlers’ area. While there was no formal gift agreement, the court reviewed evidence such as an exchange of letters and communications acknowledging the gift and found that SAVE accepted the gift “conditioned upon fulfilling these material conditions.” Thus, the court held that the donors could sue to enforce their gift’s terms or receive a return of funds.
For charitable trusts, New Jersey has adopted a version of the Uniform Trust Code that provides that “[a] proceeding to enforce a charitable trust may be brought by the settlor, by the attorney general, by the trust’s beneficiaries or by other persons who have standing.”
Learn more and access the complete report here.
Top Ten Tips for Higher Education Funders
A just-released research brief from the Council for Advancement and Support of Higher Education (CASE) says in the fiscal year ending June 30, 2023, higher education continued to attract significant funding from private giving, although the $58 billion received declined 2.5% from the $60 million given in fiscal year 2022.
It is noteworthy that the drop-off in financial support preceded the October 7 attack on Israel, increased evidence of antisemitism on campuses across the country and the widespread donor dissatisfaction that followed. Higher education is facing a crisis of confidence and donors who want to stay engaged with colleges and universities are wary about how their gifts will be used – or misused.
To that end, Philanthropy Roundtable offers a new publication to encourage higher education donors to engage in smart and strategic grantmaking “to focus our institutions back on the promise of higher education: opportunity for all, academic excellence, intellectual pluralism, open debate, access based on merit and institutional neutrality.”
Top Ten Tips for Higher Education Funders contains a wide range of suggestions. Here are a few:
- Conduct Initial Research – Gather reliable information about the current state of higher education and the key concerns being raised by its trustworthy critics. Follow the higher education work of key national, regional and issues-based think tanks aligned with your values. Where possible, speak with faculty, students and other donors of the institutions of most interest to you. Become more knowledgeable about the area(s) where you want to focus your giving.
- Find Faculty and Administration Friends and Form Relationships – Success in higher-education giving requires forming trusted relationships with individuals within a college or university. Most important, look for friendly faculty members who can advance your ideas internally. They are the most critical players. They will execute your project and are most likely to serve as guardians of your donor intent because you share the same goals. At the same time, remember that faculty members may leave or be reassigned.
- Consider Shopping Your Proposal to Multiple Institutions – Higher-education donors frequently focus on their alma maters, which may not be the best institutions for the programs they are considering. In these instances, donors are likely to encounter administrators who persuade them to modify their gifts to suit institutional priorities.
Learn more and access the complete report here.
