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March 2, 2015 Rule of Law

Subjecting UConn Foundation to freedom of info. act bad idea 

John M. Horak

There is legislation before the General Assembly that would subject the University of Connecticut Foundation to the Freedom of Information Act (FOIA). This is an example of an unfortunate trend in which cash-strapped governments are trying to assert influence over the operations and assets of private nonprofit organizations. The slope is slippery, and state nonprofit leaders should protect their turf by opposing this or any similar legislation.

Our socioeconomic system is akin to a stool with three legs. The first is the private sector (activities and assets controlled by private interests for a private benefit); the second is the public sector (activities and assets controlled by government for the public benefit); and the third is the intermediate or nonprofit sector, which has private and public sector features: activities controlled by private boards of directors with private assets used for a public benefit.

There are two features of nonprofit organizations to keep in mind.

First, they are private entities because individuals create and fund them as a matter of their personal constitutional rights to associate and to decide how to use their property. The freedom of association allows us to form associations, to designate their public purpose, and to decide who will govern them. Similarly, as a matter of individual choice people voluntarily donate their property to these associations to support their public missions.

Second, private nonprofit organizations can lawfully support a governmental activity. This is because the term “charitable” (typically used for nonprofits) is really synonymous with the term “public benefit” (typically used for governmental agencies). The law allows people so inclined to make voluntary tax deductible charitable contributions (over and above their tax obligations) directly to the state of Connecticut (or to its agencies and universities) in the same way they can, for example, contribute to the Hartford Foundation for Public Giving or a local homeless shelter.

The UConn Foundation is a part of the third leg. It is a private association managed by a fiduciary governing board of private individuals; and its purpose is to raise money from private donors for a public benefit. The same is true for the Hartford Foundation and the homeless shelter, though the public benefit is different in each case.

In contrast, the Freedom of Information Act is designed to open the records and meetings of “public agencies” (the second leg of the stool) to public scrutiny.

So, the questions for the General Assembly are these: What is the rationale, in law or policy, to hoist FOIA upon the back of the UConn Foundation, and would that rationale also apply (to choose an attention-grabbing example) to the Hartford Foundation (which has an endowment in excess of $900 million used for the public benefit in central Connecticut)? The only discernable rationale in this puzzle that makes sense is to put the kibosh on the FOIA debate quickly, for the following reasons:

First, the fact that nonprofits provide a public benefit is not sufficient to re-characterize them as public agencies. In a Jan. 15 editorial (“End Secrecy at UConn Foundation”) the Hartford Courant opined that the state should “strip away much of the secrecy” that protects the foundation because it has “a very public purpose...” The Courant should learn the difference between “secrecy” and “privacy,” and note that neither the UConn Foundation nor the Hartford Foundation operates secretly — they operate privately.

Second, the fact that nonprofits enter into contracts with the state does not make them public agencies. The UConn Foundation has a contract with UConn under which it is paid to cover the administrative costs of its fundraising on UConn's behalf. However, the state contracts with different social service and other nonprofits, and they are not subject to FOIA. Moreover, I would hope the General Assembly realizes that if the UConn Foundation did not do this work, UConn would have to do it on its own (and bear the same costs directly). If folks want FOIA level scrutiny of these activities it would be simpler to terminate the contract and bring them in-house where FOIA already applies.

Third, it is likely that the UConn Foundation is successful precisely because donors prefer to give to a private organization so that their contributions will be a step removed from the state's budgetary high-wire act and the political processes by which UConn spending priorities are determined. Private and political governance are different beverages best left unmixed. The funds in the UConn Foundation are not state property — as much as the General Assembly might want to get its hands on them.

Fourth, there is virtue in privacy. It permits nonprofit governing board members (who have a fiduciary duty of confidentiality) to speak with the type of deliberative candor not possible in the public arena; and privacy does not mean that nonprofits are above reasonable regulatory and public scrutiny. Under existing law the Attorney General has the power to investigate and hold board members personally liable for a breach of fiduciary duty; independent annual audits in conformance with Generally Accepted Accounting Auditing Principles are required; and nonprofit federal tax returns (which require detailed disclosure) are available for free on the internet if anyone wants a glimpse of what is going on.

The state should not only leave these organizations alone, it should be grateful they are here. 

John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. The views expressed are his own.

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