Charitable donors who have experienced donor intent violations will be happy to learn that the Ohio state legislature is considering legislation that will provide remedies in such instances.
At Ohio State University, alumnus Jeffrey Moritz, son of Michael Moritz for whom the College of Law is named, has been disputing a fee levied by the university on a $30.3 million endowment created by his father in 2001. Michael Moritz was both an undergraduate and law school alumnus of Ohio State. He was able to attend law school at OSU only because he was offered a full tuition scholarship plus a stipend.
His gift was his way to give back to the university that had given him his successful profession. The terms of the gift were specific: OSU would invest those funds as a permanent endowment and spend the earnings only for his specified purposes: to support four chaired professorships and 30 annual law school scholarships plus stipends. OSU named its law school after him, and it remains The Michael E. Moritz College of Law to this day.
Nine months after he made this incredibly generous gift, Michael Moritz was killed by a hit-and-run driver. His family had no reason to doubt that Ohio State was honoring the terms of Moritz’s gift. But in 2016 his son, Jeff Moritz, reviewed a financial report that OSU unexpectedly sent to his mother and discovered that the university had never provided the full 30 scholarships since the gift was made in 2001. He learned that OSU was distributing only 12-16 awards each year and that the endowment held only $21.9 million. Jeff Moritz estimates that by now the endowment should have grown to over $50 million, easily providing 30 law students with full-tuition scholarships every year. He notes that over 300 law students have incurred substantial debt for a legal education that should have been free—paid for by privately-endowed funds—at no cost to the taxpayers.
When he confronted OSU, the university first claimed that the drop was entirely due to the recession, but financial reports eventually revealed that about $3 million had been taken from the Moritz fund to support the university’s development operations. The 1-1.3% annual fee—which the university had begun charging in 1994—appeared nowhere in the 2001 gift agreement and the Moritz family claims the school never told them about the fee which began to appear in gift agreements only in 2008. Jeff Moritz grew even angrier when he realized that OSU was using what should have been scholarship funds to support its development operations—a practice he viewed as robbing one donor’s endowment gift to entice other donors to make still more endowment gifts on which such fees could be levied.
In response to what he had discovered, Moritz demanded that OSU return $3 million to the endowment, but both OSU and the state’s attorney general fought his attempt to reopen his father’s estate so the probate court could appoint him as administrator to enforce the original gift agreement. He began to speak with other OSU donors and discovered that there were others who shared his frustration. In 2020 he launched the Honor Bound Initiative to bring together these donors, publicize their dissatisfaction with OSU and put pressure on the university to change its policies around endowed gifts.
As the publicity spread, the Moritz story caught the attention of newly-elected state Sen. Jerry C. Cirino, vice chair of the Workforce & Higher Education Committee. A longtime businessman, Sen. Cirino previously served as chairman of the board of trustees of Lakeland Community College and as a board member of his own alma mater, Lake Erie College. In March 2021, he introduced S.B. 135 to remedy those deficiencies in Ohio law that had frustrated Jeffrey Moritz’s ability to hold OSU accountable for its actions. Following testimony from Moritz family representatives and OSU students, the Ohio State Senate passed the bill on June 16, 2021, by a bipartisan vote of 31-2. It was introduced in the Ohio House of Representatives the next day and has now been referred to the House Higher Education and Career Readiness Committee. With the Ohio Legislature out of session for the summer, formal action on the House bill is likely to occur after Labor Day.
The proposed legislation addresses three distinct, but related, issues:
- The deficiencies in Ohio’s laws on endowments: As Jeff Moritz noted in his testimony, “Of the 49 states that have enacted some version of The Uniform Prudent Management of Institutional Funds Act (abbreviated UPMIFA), Ohio is the only one that makes constant spending of endowed funds legally incontestable.” Unlike other states, Ohio’s version of UPMIFA includes an “irrebuttable presumption of financial prudence” for annual endowment spending not greater than 5% of the fair market value of the fund, regardless of the fund’s performance. S.B. 135 removes endowment funds held by state institutions of higher education from that provision and also provides that for such endowment funds, annual expenditures of greater than 7% of the fair market of that fund “creates a rebuttable presumption of imprudence.”
- The difficulty of obtaining legal standing for donors whose endowment restrictions are being violated, based on the contention that the endowments are irrevocable gifts: S.B. 135 provides that in such instances the donor—or the donor’s legal representative—is to inform the Ohio attorney general of the violation. If within six months the attorney general has not obtained both compliance with the restriction and restitution to the fund of any value lost, the donor has the standing to file a complaint. The bill also lists a broad array of remedies which a court may order if it determines that a violation has occurred.
- The specific obstacle that the Moritz family faced in attempting to reopen the estate of Michael Moritz: S.B 135 states, “The estate of a decedent who transferred property under an endowment agreement may be reopened for the purpose of appointing an administrator to file complaint authorized by this section if the applicant to reopen is a surviving spouse or one generation below.”
Both Sen. Jerry Cirino and Jeff Moritz graciously shared their thoughts on the proposed legislation with me. Sen. Cirino noted that his experience as a higher education trustee had led to concerns about student debt, graduation rates and workforce development—all matters he intended to address as a state legislator. When he first heard the Moritz story, Sen. Cirino was shocked by the alleged misuse of scholarship funds but was additionally drawn in by several of the legal aspects and the lack of relief offered by current Ohio law.
“Incontestability around endowment spending is a huge problem,” he noted, as are potential conflicts of interest for the state attorney general in these cases. Asked about the potential to include private institutions of higher education in Ohio under S.B. 135, Sen. Cirino replied that he would have to look into that applicability.
For Jeff Moritz, the Ohio Senate’s passage of S.B. 135 is some—but hardly final—vindication of his five-year struggle with OSU. His goal is simple. “I want the university administrators to honor the promise they made to my father and the commitments they made to other donors,” he explains. “If they know up front that they can’t or won’t do what the donor asks, then they shouldn’t take the money.”
For more information on best practices related to protecting donor intent please see Philanthropy Roundtable’s Donor Intent Hub and the “Protecting Your Legacy” guidebook.
