On Dec. 7, 2021, I provided testimony before the Ohio House of Representatives Committee on Higher Education and Career Readiness in support of proposed legislation that would protect donor intent in endowment agreements with public colleges and universities. That legislation — Sub. Senate Bill No. 135 — stemmed from an ongoing dispute between the family of Michael Moritz and Ohio State University regarding a $30.3 million endowment created by Moritz in 2001. If you are not familiar with this situation, see this July 14, 2021 blog.
In my testimony I said the bill offers provisions that would benefit and encourage philanthropy in three important ways:
- Legal standing: If an endowment benefactor discovers that a beneficiary who signed an endowment agreement is failing to honor its terms, he or she can notify the attorney general, and can file a complaint if the attorney general fails to resolve the issue within six months. This guarantees the right of donors to enforce the commitments made to them by a charitable institution.
- Appointment of a legal representative: Donors will be able to name a legal representative who would be able to enforce these agreements when the original donor is no longer able to do so. This would provide an additional safeguard to prevent breaches of endowment agreements. It also would assure donors that representatives of their choosing will monitor and enforce the commitments made to them by the charitable institutions they funded.
- Remedies: The remedies provided in the bill are restorative rather than punitive. None of them provide any personal benefit to the original donor or that donor’s legal representative; the funds involved can be used only for charitable purposes. And all of them seek to honor the benefactor’s intentions and the corresponding commitments made by the beneficiary institution.
The Ohio State Senate has already passed the bill by a bipartisan vote of 31-2. Unfortunately, as was evident in the Dec. 7 hearing, it is facing a few serious challenges in the Ohio House. Members of the House Higher Education and Career Readiness Committee expressed concerns that the bill resulted from one donor’s battle with one institution, and that this is not a common situation. Part of my testimony addressed this misconception, noting “We have seen similar issues arise in hospitals, human service organizations, museums and other charities across the country.” The multiple examples of donor intent recounted included those involving the Robertson family at Princeton University, the Barnes Foundation and even Garth Brooks.
Frederic Fransen, a philanthropy consultant who regularly assists higher education donors and a former staff member at the Philanthropy Roundtable, also testified at the same hearing. His statement, which included a number of examples from his experience, added to the evidence that the Moritz case was not a singular incident. “I have seen too many examples of bad faith on the part of universities,” Fransen told the committee, “And in fact the current way in which many grants are negotiated by universities invites such bad faith.”
Another issue that threatens House passage of the bill is a misapprehension its opponents are disseminating about the role of a donor’s assigned legal representative. Claims that these legal representatives will be able to redirect endowment funds in violation of donor intent are simply false. The bill does include as a possible remedy “the transfer of property from the endowment fund to such other institution as the party, or the party’s legal representative, directs in writing,” but opponents fail to mention the clause that limits any such transfer to purposes “consistent with the charitable purposes expressed in the endowment agreement. …” Those who are misreading the bill are consequently suggesting its passage will discourage philanthropy — the exact opposite of what its proponents claim.
The Ohio legislature has now concluded its 2021 session. We will continue to follow its consideration of Sub. Senate Bill No. 135 in 2022 and report developments as they occur.
