City College entities battle over fiscal oversight in the wake of a money laundering scandal
The Foundation of City College of San Francisco is seeking to shield its financial dealings from public scrutiny under a new agreement that could limit the college district's oversight of fundraising done in its name.
The agreement establishes the formal relationship between the foundation and the district, renewing a document that expired last June. But it became controversial when the district sought to make the foundation into an auxiliary organization, which would allow greater oversight by the district and the public, while the foundation sought greater autonomy and secrecy surrounding its fundraising operations.
The two sides have been in strained negotiations for months, but the freshly inked compromise agreement will likely be on the Feb. 25 Board of Trustees' agenda as a discussion item so that public testimony can be taken and changes can be made before it's formally considered for approval.
The backdrop of the dispute — and the reason it's so contentious — is last year's criminal indictment of former City College Chancellor Philip Day for a money-laundering scheme using foundation accounts. Last July, Day was charged with eight felonies for misappropriating more than $150,000 in college funds, including using the foundation to funnel public money into a political campaign and maintaining an unregulated slush fund. The trial is set to begin later this year.
But the foundation, which controls more than $19 million in scholarships and other assets for the district, says that corruption is precisely why it wants to back away from the college, which managed the foundation's finances under the previous agreement that expired last June.
Peter Bagatelos, the foundation's lawyer, said Day's missteps have cast a shadow on the foundation that has impeded its ability to fundraise. He explained that many donors mistook the district's actions for those of the foundation and were scared away from donating, which is why the foundation is seeking to be an independent body.
Yet a Guardian investigation ("On shaky ground," 3/5/08) unearthed documents showing that the foundation helped Day launder $35,000 in public funds into a 2006 political campaign, although an internal audit couldn't find evidence that foundation directors approved the transfer and, as Bagetelos told us at the time, "It was never done with their consent or knowledge or participation."
Now the foundation is asserting that it cannot fundraise successfully if it is turned into an auxiliary organization, as some trustees are seeking, which would subject the foundation to public records, open meetings, and other sunshine laws that Bagatelos derided as "a lot of bureaucracy and entanglements."
"They just want to go out and raise money to help the students," Bagatelos said. As for why transparency hinders that cause, he said: "There are many donors who don't want to be made public."
"The foundation is not a public agency, it's a private corporation," he noted.
A rough draft of the agreement, which is still under review, lays out the steps the foundation will take to gain greater autonomy, including hiring and paying its own employees, and adopting a structure comparable to other nonprofit entities to make it more attractive to prospective donors.
But some college trustees, including President Milton Marks and Vice President John Rizzo, believe they should be given greater oversight over the foundation's finances. "The district [and the foundation are] equally tarnished by the activity because they enabled [Day]," Rizzo said. "I just want to get enough sunshine in there that goes beyond what they have to report by law, so if a future chancellor does something like that, we'll know about it."
Bagatelos said the foundation will still be subject to monthly reviews and regular audits as outlined by the laws governing all nonprofit organizations, but the district may not have access to donor and fundraising information.
Hao Huntsman, president of the Academic Senate, which represents the college faculty, said this lack of transparency would hurt the ability of both entities to rebuild their reputations.
"The foundation raises money using the City College name. We have a lot of investment in that name and are very sensitive to how that name is being used and the kinds of places we are soliciting money from," he said. "We don't want to be taking money from firearm manufacturers and tobacco companies, for example."
But Rizzo explained that the college has no control over where the foundation gets its donations. "They could collect money from PG&E or Chevron and give scholarships and the district would have no say," he said.
This leaves the college wide open to efforts by corporations to make donations that direct the course of research at the college, a phenomenon that has blighted many a public school over the years. "We are concerned that there won't be the same degree of knowing," Huntsman said. "If the college doesn't have a say in the control of that money, it could be used for something other than what it was intended for."
As it stands, the foundation primarily raises money for scholarships. Rizzo would also like to see the foundation give the college from $3 million to $5 million annually to help cover operational costs and close the budget deficit. "It's great to have scholarships, but if we don't have classes the scholarship can't mean much," he said.
Rizzo and Huntsman also want the new agreement to require the foundation to turn over upwards of $3 million raised by faculty members independently of the foundation.
Rick Knee, a member of the San Francisco Sunshine Ordinance Task Force who has tried for years to bring City College under its oversight, said the potential agreement raises concerns about the foundation's ability to wield unprecedented political clout.
"It might enable them to do some arm twisting," Knee said. "If the foundation wants to make a clean break from the Day era, they should give the current Board of Trustees a chance to make their case and demonstrate that they're not Phil Day."
Peter Scheer, executive director of the First Amendment Coalition, said that an agreement in which there was both independence and transparency for the two parties would strike an appropriate balance.
"The irony here is that you have the college and the foundation saying the exact same thing," he said. "The college is worried that unless they have control the foundation will threaten its integrity, and the foundation is saying that without autonomy the school will tarnish its name and make it harder for them to get donors. They are both right in light of what happened with Day."
Lawyers on both sides agree that, as a nonprofit, the foundation has the right to control its own assets. But that doesn't mean they should keep the district in the dark, say the trustees, who want the foundation to open its books to the district, if only to ensure a modicum of public accountability.
Rizzo, who was on the negotiating team, told us that the agreement currently maintains donor secrecy but allows for some financial oversight by the district, including monthly audit reports and notification of instances when district funds enter foundation accounts. "They'll have to report some things to the Board of Trustees, then the district will make them public," Rizzo said. "But they do not want to report donor names and that will be an item of discussion." *
Steven T. Jones contributed to this report.