Editor’s note: This is the sixth installment in a continuing series on the University of Louisville. U of L media relations executives have stated that Insider Louisville will not be granted interviews with U of L administrators for this series.
There is one truism that really is true: Life is always about numbers.
If you have the patience to wade through financial documents, you get a much more accurate and nuanced understanding of an organization than if you read its marketing materials.
One theme runs through the University of Louisville’s marketing documents: U of L is “a premier, nationally recognized metropolitan research university.” There’s little empirical proof of that, which we’ll address in another post .
By comparison, in U of L budget documents, a different theme has emerged: We’re going it alone, paying our way through our foundations and external corporations to replace dwindling state funding.
Those documents read more like the prospectuses of large publicly traded companies. There is little detail about academic achievements. Instead, budget reports and other financial documents emphasize commercialization of research, creation of new companies and partnerships in the interest of “aggressively improving balance sheet management, with an emphasis on converting underperforming assets.”
To that end, U of L has created a vast and complex matrix of university-related and stand-alone businesses in which it has an interest.
University of Louisville President James Ramsey and his counterpart at the University of Kentucky, Eli Capilouto, have complained repeatedly about the endless series of state budget cuts since since 2000 – 13 budget cuts in 12 years. This is not a new theme for Ramsey.
Eight years ago, Ramsey wrote a long 2006 piece for Business First in which he stated U of L had been “abandoned by the very state we strive to serve. The (budget) vetoes announced this week, and the limited base funding increases provided for U of L in the budget, pose a threat not only to our progress, but to that of our community and state.”
Higher education’s share of the general fund has shrunk to about 10 percent in the next biennial budget from about 15.8 percent as late as 2002.
But what Ramsey fails to mention is U of L’s annual budget for a state university with about 23,000 students and 1,400 professors now totals about $500 million, 5 percent less than the budget for the entire City of Louisville for the fiscal year at $528 million.
By comparison, the City of Louisville has about 7,000 employees and about 750,000 residents.
Apples and oranges, clearly.
But Ramsey has stated U of L brought in more money last year in foundation donations and fundraising – $142 million – than in state funding, which totaled $141 million. That’s not quite true, according to U of L’s own documents. For the latest budget, U of L got about $164 million from the state.
UK gets considerably more: $284 million, or 70 percent more than U of L, though UK has a larger enrollment, at about 30,000.
In response, U of L has created a fundraising behemoth. For example, UK does not have a stand-alone, independent foundation other than its research foundation, which made about $225 million in awards for the latest reporting period. U of L not only has a foundation, it claims about $1 billion in assets and oversees a network of enterprises.
To make ends meet, U of L has affiliated revenue generating entities the other state schools, including UK, don’t have. Transfers for U of L corporations came to $26 million, or about 5 percent of the total budget.
From the latest budget:
Also included in this document are references to budgets for the affiliated and non-affiliated University of Louisville corporations. In the aggregate, the budget for UofL corporations is estimated at $740 million—the same level as FY 2012-13. The following entities comprise UofL’s corporations;
- University of Louisville Research Foundation, Inc.
- University of Louisville Foundation, Inc.
- University of Louisville Athletic Association, Inc.
- University of Louisville Medical School Fund, Inc.
The Quality and Charity Care Trust
In fact, the university has many other affiliated and non-affiliated independent entities. The largest of these rated by expenditures appears to be the U of L Development Co., which is under the umbrella of the U of L Foundation. U of L Development has used foundation funds to build the 700 North Hurstbourne and 600 North Hurstbourne spec office buildings at Shelbyhurst, each valued at $20 million, as well as the new $20 million Nucleus building at Floyd and Market streets.
There are a number of other entities. From the U of L Foundation 2013 Annual Report.
• ULH Inc.: ULH began operations on April 23, 2001 and is affiliated with the foundation through certain common management and trustees. ULH leases land and issues revenue bonds for student housing purposes and receives, retains and disposes of real estate, and manages and operates the student housing properties it owns.
• University Holdings, Inc: UHI (originally named Cardinal Real Estate, Inc.) is a non-stock, non-profit corporation created in September 2007 for the benefit of and to carry out the purposes of ULF. UHI provides oversight and management support to various affiliated entities. UHI is affiliated with the foundation through certain common management and directors.
• University of Louisville Development Corporation. ULDC is a limited liability company formed in September 2007, whose sole member is the foundation. Its purpose is to develop and manage foundation real estate operations of at the Shelby Campus of the University. UHI is the Manager of ULDC.
In October 2010, ULDC became a 51 percent owner of Campus One, LLC (Campus One), and in October 2012, ULDC became a
51 percent owner of Campus Two, LLC (Campus Two). Those joint ventures build and manage rental properties on the Shelby campus.
• Nucleus: Kentucky’s Life Sciences and Innovation Center, LLC: Nucleus Healthcare was formed in February 2008 and subsequently renamed Nucleus: Kentucky’s Life Sciences and Innovation Center, LLC (Nucleus). Its purpose is to integrate University resources, including life sciences, with those of the region, specifically as it relates to building and maintaining a research park in downtown Louisville. The foundation is the sole member of Nucleus and UHI is the Manager.
• AFF: AAF is a limited liability company formed in February 2008, whose sole member is ULF. Its purpose is to develop and manage the real estate operations of Cardinal Station, the health care complex on the far south side of the Belknap complex. UHI is the Manager of AAF.
• MetaCyte Business Lab: MetaCyte is a limited liability company formed in June 2002. Its purpose is to identify and support commercially promising health science discoveries in the region. ULF is the sole member of MetaCyte and UHI is the Manager.
• MetaCyte Equity Holdings: MetaCyte Equity is a limited liability company formed in February 2006. Its purpose is to hold the equity shares obtained by MetaCyte through development with start-up corporations. As of June 30, 2012 no equities have been transferred and MetaCyte Equity has had no activity since inception.
• Phoenix Place LLC – Louisville: PPL is a limited liability company formed in April 2009, whose sole member is the foundation. Its purpose is to develop and manage the real estate purchase and development of property near the health sciences campus of the University. UHI is the Manager of PPL.
• Louisville Medical Center Development Corporation: LMCDC is a non-stock, non-profit corporation purchased in October 2008. Its purpose is to hold and administer tax incremental financing (TIF) for the Louisville Life and Health Sciences Signature TIF project and in promotion and development of joint medical or medical related projects.
• KYT-Louisville, LLC: KYT is a limited liability company formed in November 2008, whose sole member is the foundation. Its purpose is to develop and manage the real estate purchase and development of property adjacent to the University. UHI is the Manager of KYT.
• Minerva-Louisville, LLC (Minerva): Minerva Minerva is a limited liability company formed in September 2011, whose sole member is the foundation. Its purpose is to serve as a vehicle for the efficient administration of various deferred compensation plans, agreements, and understandings. UHI is the Manager of Minerva.
The sports programs are run under another entity, the University of Louisville Athletic Association, which took in $71.5 million in the latest accounting period. That money is compartmentalized and does not go to academics.
How many of these corporations generate any revenue is unclear, though clearly, the $26 million contributed by school corporations to the latest budget is significant.
Other entities appear to be nominally successful through the magic of marketing:
Working with the UofL Office of Technology Transfer and Nucleus, MetaCyte is creating a seamless commercialization process that will yield viable, operating companies with a combined value in excess of $1B by 2020. Since 2002, MetaCyte staff has secured more than $16M in funding for its portfolio companies, which has created in excess of 40 high-paying jobs, and returned more than $11M to UofL for additional research.
So, let’s do the math. In 12 years, one U of L company, MetaCyte, has “secured more than $16 million” in funding for portfolio companies, according to the U of L budget document. Which works out to about $1.3 million per year, or about $32,500 spent to create each of those 40 high-paying jobs. But within the next six years, that number will jump magically to $1 billion.
Other deals we perceived as home runs have gotten curiously little mention from U of L’s marketing mavens. Late last year, Louisville-based pharma startup Regenerex, which is part of the Nucleus cadre of bio-medical companies, signed a global licensing and research agreement with Basel, Switzerland-based Novartis. Novartis is using its global reach and resources to develop and market Regenerex’s cell therapy regime. That regime helps patients survive without the need for lifelong immuno-suppression.
Success? No idea.
But how – more importantly, how well – this vast empire is administrated is unclear. In the past, U of L administrations including Ramsey’s have argued, for example, the foundation is private and refused to list donors until the courts ruled they must.
Across the United States, university foundations, which are huge pots of money, have proven notoriously vulnerable to poor stewardship, insider dealing and quid pro quo contracts for donations.
In 2005, for example, The Atlanta Journal-Constitution reported the University System of Georgia Foundation donor lists — disclosed only after a legal battle — revealed colleges awarding companies lucrative contracts after they made large donations to a fund that supplemented the University of Georgia chancellor’s salary.
The Courier-Journal fought in the courts – receiving favorable ruling after favorable ruling – for a decade for access to information about which people and businesses give to the U of L Foundation. The Kentucky Supreme Court ruled in 2004 the public has a right to know whether donors, especially those giving large sums, might be trying to influence university policies and decisions, according to the C-J website. You can access that database here.
But the university doesn’t compile and release such information. Also, it’s not clear if U of L uses the foundation for non-academic purposes, such as paying bonuses to university administrative executives. That transparency has become an issue after two trustees complained they can’t get answers to governance questions.
State funding makes up about 11 percent of the university’s total revenue, according to U of L ‘s 2013/2014 operating budget.
That’s down from about 30 percent in the late 1990s. The university has had to rely more on income from tuition, which just went up 5 percent, the maximum permitted under state law.
Tuition and public money combined still account for $435 million of the $500 million, or about 87 percent of the total U of L budget.