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November 3, 1998

Turn Scrooge into Santa Claus
-- Demands Mobile's Daily

by Tom Brennan

The Mobile Register, in its stories on the USA Foundation, has relentlessly painted the USA Foundation as Scrooging the University when it should instead, the daily believes, delve into its coffers and shower the university with moonpies of gold like some weird Mardi Gras Santa Claus gone crazy. When asked why he climbed Mount Everest, Edmund Hillary replied because it's there. So with the Foundation, the money is there in tempting quantities, and that, some trustees think, with Mobile's daily as their megaphone, means the university is entitled to all the Foundation's spare change, or at least 5% of it. After all, that's what other colleges and universities get from their foundations. The 5% idea originated with magnifico trustee Mayer Mitchell; he said they're all doing it and we should be too. Now statements like that are made for the headlines and Mobile's daily wasted no time in computing 5% of $400 M., and Mobile's media mouth has been drooling ever since over the prospect of the university having an additional $17 to $20 M to spend annually for things like football and other frivolous doo-dads that the daily thinks will goose up the local economy.

But are all those colleges and universities with fat foundations really doing it? Not according to Forbes magazine which points out that while colleges and universities say they are spending 5% of their foundation money each year, "the spending has actually been declining to around 3% at many major institutions" (10/19/98). Foundation are by definition guardians, conservators, and creators of wealth, not wealth for its own sake but for the sake of some worthy endeavor. The University of South Alabama is certainly a worthy endeavor, but the question that looms large in the minds of those who sit on boards of foundations and in the minds of those who manage them is: how best can they serve the worthy endeavor so that the worthy endeavor will continue to exist in perpetuity. This is no easy task in a society that worships the quick fix and the bottom line. Pressures to spend now for every conceivable need are immense and Mobile's daily turns up the heat every chance it gets.

In any event, Jim Gambill, the Foundation's investment manager, said that the request for 5% has been tabled until it can be fully studied. He expects that the Board will have a recommendation report by either the next meeting or by the April meeting when all the documentation and all the numbers will show how much of the Foundation's money is discretionary. It's very unlikely, however, that those figures will show that 5% of the discretionary funds of the Foundation will be available for university use. That would, very likely, take too big a bite out of too small a pie. Gambill added that "there are enough people at the university when Dr. Whiddon was there, and who are still there, who know that 5% is just not feasible."

In response to the question: What is the guiding philosophy of the USA Foundation, Jim Gambill, said basically that the guiding principle is to insure the longevity of the university's educational and cultural mission in southern Alabama, and that its investment policies are aimed at creating that insurance. He added that while the Foundation supports programs that are beneficial to the current needs of the university, it does so with an eye on the fact that this is a "forever young institution," meaning that the Foundation is always looking to the future when it considers current needs. He said "we're doing our best to invest Foundation funds in ways that will safeguard the future of the university. Of course, we know that the university needs money today and we're providing a minimum of at least $5 million a year." But, he added, "I don't know of any foundation that states its purpose is to fund current operations. We can fund scholarships, chairs, help them build a dormitory --something that has long-term benefits -- those things are great, but to help them repaint classrooms that's what we call a general operating expenditure and that ought to come out of the general budget."

But the needs of some trustees and administrators are more grandiose, and they are worried that the Foundation will invest its money in ways that might even cut off the modest sums coming annually now. Those fears found nervous expression in Ronni Clark's recent story about the Foundations latest investment initiative to acquire 529,000 acres of timber land from Kimberley-Clark. My response is, Wow! This is a foundation with vision, and that it should go for it because if it doesn't, it will kick itself in the butt further on down the road for wimping out.

In its story on the Kimberley-Clark deal, the Mobile Register creates the impression that it is a bad investment basing its judgment on the conclusion that Kimberley-Clark is getting out the pulp business -- the timber end of the business -- because it's too vulnerable to "price swings" in the marketplace. In response to the question, is timber a good investment? Jim Gambill said that most members of the Foundation Board think that it is. Gambill pointed out that "there are a lot of reasons Kimberley-Clark and other paper related industries are getting out of the timber end of the business. For years they've amassed timberlands and as a consequence their holdings have gotten out of balance with their broader corporate missions. Paper related industries are struggling, going through major reorganization and consolidation, and Kimberley-Clark globally is going through major restructuring. To suggest that 'price swings' in the marketplace are forcing Kimberley-Clark to sell off timber land is much too simplistic. Timber is still important; it's a multi-purpose fiber out of which many things are made. The timber industry is here to stay and many institutions, whether they be foundations or large insurance companies, are putting timber into their portfolios; they understand that it's a long-term investment based on a resource that continuously renews itself over the years. Timber stands are rotated and harvested annually. "Our figures show," Gambill added, "that there is anywhere from 12 to 18 percent annual return on timber investments, which is good. Of course you can't compare it to last year's stock market, but you can compare it to this year's stock market. It's a fairly stable investment."

But those who want a greater annual influx of money to the university from the Foundation argue that borrowing $300 million and putting up hard cash and others assets to cement the Kimberley-Clark deal will tie up too much of the Foundation's discretionary income in timber investment. Jack Brunson, the chair pro tempore of the USA Board of Trustees, as quoted in the Mob.Reg., believes that it will, though he doesn't give any reasons why he thinks that. Mr. Gambill said that he didn't know how Mr. Brunson arrived at that conclusion, but that the investment would have a negligible impact on discretionary funds available for immediate programs at the university. Gambill pointed out that timber holdings within a relatively few years will produce annual revenues of approximately $10 million, an influx of money that would be available to help fund university programs. Mr. Gambill also pointed out that Mr. Brunson is only one member of the Board of Trustees and that there are other members who support the Foundation's initiative to acquire more timber land. He stated that there is a good deal of excitement among members of the Foundation Board and some members of the Board of Trustees at USA. Though he did not say so explicitly, Gambill suggested that those who envision less money for the university as a consequence of this deal are really concerned not about what the university is receiving now from the Foundation but about how much more they will be able to get in the future. Their idea of the future doesn't quite match the Foundation's idea of the future. What they fail to see is that an investment like Kimberley-Clark will, within a relativity short time, cause all vessels to float higher in a broader stream of income.

Given these possibilities, why then is it that the Mob.Reg. always seems to put a negative spin on the Foundation's activities and personnel? Its latest effort to drive a wedge between the Foundation and the university appears to be aimed at getting Dr. Fred Whiddon removed from the Foundation. Gambill said he meets after every meeting with Ronni Clark and explains what went on in the closed sessions -- she's there in the open sessions -- and she reports things the way she sees them. "She's got her interpretation of what I say." She does her best, apparently, to make the Foundation out to be Scrooging the university in every way possible. Gambill said his impression is that the paper would love nothing better than to see the Foundation reject outright every request the university makes. The shopping list of a smorgasbord of projects recently received from the university is a good example. "That list," Gambill said, "submitted by a committee of faculty and administrators was, in part, I believe, instigated to embarrassed the Foundation. The hope was that we would flat out reject it, refusing to give them what they need when they are in dire straits." Gambill said further, "We got that list seven days before the Board meeting on Oct. 22, and there was no prioritization; it was just here's what we want. In the board meeting of the Foundation, the board felt it couldn't tell the university which of the 7 or 8 projects listed should be most important to them."

In a story in the Mob.Reg. a while back, Gordon Moulton said he hoped "that they [the Foundation] would stop and begin to work with the university board of trustees and the administration to set some priorities for university needs that can be met by use of the endowment money." Gambill believes it's not the Foundation's place to do the prioritizing; he said, "The university needs to go back and form a committee and prioritize these several projects, and in the mean time, as we're looking at the spending rate, we'll also analyze these projects to see which qualify as the types of investments that benefit the future of the university over the long-haul, or if it's just general maintenance they're talking about." Gambill said he thought that some of the items on the list were questionable--wiring the dormitories for computers seemed more of a luxury than a necessity for education. Gambill, acknowledging that enhancing computer access for students might be really beneficial, said that if the project can really be shown to benefit the faculty and students the Foundation will look at it favorably. Obviously, what's needed here is not a shopping list, but concrete proposals with fully developed rationales for projects. Aside from dealing with shopping-lists requests, the Foundation has been sending funds to the university for various programs, but the money doesn't seem to be getting to the proper departmental destinations. Gambill stated that prior to September 4 funds totaling $2.3 million had been sent to the university. The money was sent to Wayne Davis's office where presumably it still is gathering dust because some of it, if not all, has not reached the recipient departments. Gambill said he's not real sure how the university accounts for this money, but the money is there and he doesn't know how they go about allocating to the departments. He said the money is earmarked and cannot be used for something other than the project for which it is allocated.

In his concluding remarks, Gambill said he thinks the Foundation is on the right track. The paper quoted him as saying that the university should send a "wish list" of things they needed and that's what he got. I said "if they would send us a wish list we would be glad to review it and they did. There are more tears cried over prayers answered than over prayers unanswered, but one of the issues that stick in his craw is the controversy over the "honors program." Gambill said that the USA Board of Trustees objected to the criteria of the honors program that the Foundation sent to them, saying that there weren't enough scholars in Alabama who could qualify if they had to meet the extremely high ACT scores specified. "The USA Board sent the program back to the Foundation requesting lower standards -- ironically the USA board had more students targeted at the high ACT score than the Foundation had targeted -- anyway since we had already passed on the concept we agreed to allow them set whatever standards they wanted." The controversy, as it got reported in the Mob.Reg, centered on the remarks of trustee Ken Kvalheim who called the initial motion a scam, saying that with such high ACT scores no one would qualify and therefore the Foundation would have control over the $15 million allocated, and that the Foundation would then blame the failure of the program on the university.

To Kvalheim's charge that the program was a scam, Gambill said, "This was not the case. In the documentation that we provided to the Board, including the original resolution, we have a letter from David Sterns to Dr. Whiddon recommending the high scores we included in the honors program. And now they're saying we're using those scores to manipulate Foundation Funds." The resolution approved Aug. 20, 1998 says that the "Scholars Program had been developed through faculty input and in accordance with the recommendation of Dr. J. David Stearns, Associate Vice Presidents for Enrollment Services." In the proposal for development of the honors program, sent to Dr. Whiddon from Stearn's office, funding is requested for 225 scholarships as follows:


I suppose that, if he can find a way to do it, Kvalheim will blame the budget deficits brought on by the change to the semester system on the Foundation, especially since the Foundation is not inclined to bail out the university. "What makes one wonder here," Gambill said, "is that two days after the announcement of the deficit we heard they're hiring the decorators for the Sports Arena [the Mitchell Family Center]. Decorators aren't cheap." Gambill said the university is requesting funds to make up the deficit, and added that if the Foundation ever gets in a posture where it's having to meet every financial crises of the university, there won't be any Foundation; it'll be nickelled and dimed to death. We might make funds available on a one-time basis but once you give a holiday you can never take it back. If we start funding operational deficits, we'll be creating in the university an unhealthy welfare-client dependency."

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