The biggest party in Oregon on Saturday was held in a building constructed with $16 million in private funds, next to another structure erected with the help of $1.5 million in donations and a stone’s throw away from a stadium expansion propped up with $60 million in gifts.
Donors and University alumni, many who have helped build the University with their funds, court top-ranking faculty and finance outstanding students, congregated at an unprecedented Hollywood premier-style gala to usher in the second phase of an unprecedented campaign designed to raise more than $600 million in donations.
Even before the gala, that campaign, called Campaign Oregon: Transforming Lives, raised $300 million in private donations for the University.
But that total inched even higher Saturday night after University President Dave Frohnmayer announced another $16 million in gifts that will go toward scholarships, the University’s first two Presidential Chairs and a journalism
program in Portland.
The gala was a celebration of alumni philanthropy that has yielded scholarships, endowments and enormous buildings on the University campus.
But it also underscored and represented a trend emerging both here and at flagship public universities across the nation, a decrease in state dollars and an ever-increasing thirst for private gifts to supplement budgets, both to retain the institutions’ quality and to climb the ladder to join the ranks of elite public universities. Universities are asking for more, and donors are giving more, but in the usually amiable world of donorship a few hiccups have forced universities across the nation to closely watch benefactor relations.
To Presidential Scholars, law and business students, the advantages to getting these monies are clear — money for college and new state-of-the-art classrooms — but the process is not as easy as shaking hands and handing over a check.
Private funding increases
In the 2003-04 school year, less than 14 percent of the University’s total revenue came from the state, while students shelled out more than 33 percent of the University’s budget in the form of tuition and fees. Nearly two decades ago, in 1985-86, more than 32 percent came from the state, and 22 percent came out of
students’ pockets.
Private gifts to the University have also increased, eating away at the percentage of the University’s budget that comes from the state.
University Senior Vice President and Provost John Moseley said in his 25 years at the University he’s seen the amount of gift dollars increase tenfold. In fact, in terms of raw dollars given, the University received more private money than it did state money last year, he said.
The University does not get all of the raw money, however, because much of it is given as endowments. Those monies are invested, and the University gets a percentage of them over a long period to use for a specified purpose, he said.
“My expectation will be that sort of over the next five years or so you’ll see the revenue from total gifts getting up to close to the revenue from state appropriations,” Moseley said.
And Oregon is not alone. There is a strong trend nationwide of fewer state appropriations and more private monies.
John Lippincott, president of the Washington, D.C.-based Council for Advancement and Support of Education, said institutions across the country have felt the pinch from the lack of state support and have turned to the private sector to supplement their budgets.
The University of Michigan, Ann Arbor, is a perfect example.
In the past two years, the University of Michigan has lost 12 percent of its state funding, or $43 million, because of a lagging economy, University of Michigan spokeswoman Julie Peterson said. State money now only accounts for 8 percent of the university’s budget, she said.
“We can’t rely on state funding alone,” Peterson said. “It simply
isn’t enough.”
The University of Michigan is in the middle of a campaign to raise $2.5 billion in private donations. Its last campaign, which ended 10 years ago, raised $2.4 billion. In terms of public universities, the University of Michigan is second only to the University of Texas System, Peterson said.
Kevin Hegarty, vice president and chief financial officer for University of Texas, Austin, said private monies probably fund about two-thirds of the amount the state does for his university.
“I think probably every institution of higher education, both private and public, are looking to private money to help supplement budgets,” Hegarty said. “There’s no doubt that private funding has become a big, big part of our and every other school’s future.”
Supplementing state funds
Experts are quick to point out that private donations are not replacing state dollars, they are
supplementing them.
Lippincott said universities shouldn’t see private money as replacing state money for two reasons: Most gifts are restricted and can’t be used for ongoing university costs, and most states still provide more money than private donations.
Put simply, the vast majority of private gifts are not blank checks. Most are designated for a specific purpose.
“You can’t repair a sudden leaky hole in the roof with money from a professorship or from a scholarship,” Frohnmayer said. “People aren’t going to give for maintenance and custodial care. They want to give for something that puts audio-visuals in the classroom or makes the student lounge look better.”
Hegarty said 98 percent of the money raised by the University of Texas, Austin’s, last seven-year campaign went for very specific purposes.
Hegarty characterized private donations as the icing on the cake, and donors still expect the state to pay for the cake.
“We’re looking more to private funding to fund the basic operations of the university,” Hegarty said. “It’s not been the history of donors that they’ve been all that interested in that kind of thing.”
University officials say the problem is not the stipulations on the private gifts, but the lack of state support.
“(State money) is still crucial in terms of the basic operations that it pays for,” Frohnmayer said. “It shouldn’t be paid for with private gifts … unless they’re endowments, you can’t depend on them year in and year out to be the same level, the same place, the same kind of things they’re given for. That’s why it’s so crucial to have a steady dependable stream of state tax revenues that goes to your basic operations.”
Private monies have not approached the level of public monies at many universities.
Peterson said the University of Michigan currently has an endowment of about $4.5 billion, but the university would still have to raise another $6 billion in endowment funds to replace what the state is
appropriating each year.
“We count very much on the state support,” Peterson said. “It is not insignificant, and we have to
acknowledge how important it is.”
Often the public and members of congress don’t understand why public universities need public money when they receive so much in private support, she said.
“I think our challenge is while we’re receiving private dollars, we have to keep reminding public supporters that their support pays for day-in and
day-out operations,” Peterson said.
Donor disputes
Instances are few and far between, but sometimes problems occur when donors try to guide university policy or private money isn’t used to the satisfaction of either donor or beneficiary. Those cases often prompt disputes that garner widespread attention.
One example of damaged donor-university relations occurred when philanthropist Paul F. Glenn sued the University of Southern California in 2000, accusing the school of misusing his $1.6 million gift for biological research by not spending the money on a researcher he identified as eligible and spending it instead on one he considered
ineligible and then lying about it. He still gives, but he carefully watches how universities use the money.
“Those instances really are extremely rare when you consider that in a given year American education is raising 25 billion from donors,”
Lippincott said.
However rare, Lippincott told The New York Times that universities should still pay attention and learn from these cases.
And many have.
Duke University made it clear in its last $2.6 billion fundraising campaign that it would not allow donors to influence how the university was run, no matter how much money they gave, according to The New York Times. That was a point of contention in past donor disagreements at Yale University and at Case Western Reserve.
One way to learn from these cases is by drawing up clear memorandums of understanding, so that both the university and donor are sure the money will go to where they want it, Lippincott said.
“The nature of the gift itself should be identified,” he said. “That way, down the line there is not any confusion, but the donor takes satisfaction in knowing that the money is being used for what it is indeed intended for.
“It’s in the absence of those agreements that you can run into misunderstandings from time to time.”
Hegarty said the University of Texas is occasionally approached by a donor interested in trading “dollars for admission.”
“We don’t trade seats for gifts,” he said. “So when there’s any hint that that might be the case, we decline.”
At the University, former Nike CEO and President Phil Knight, a philanthropist whose funds helped expand the Knight Library and the Knight Law Center, declared he would no longer give funds to the University after it joined the Worker Rights Consortium, an organization that monitors the rights of workers who produce goods for colleges and universities. The University later left the WRC, restoring the relationship with Knight.
As far as donors attaching unwanted strings, the University has had no high-profile disaster cases.
“We don’t take a gift with any unlawful strings, and we don’t take a gift that’s not in accordance with the needs of the University,”
Frohnmayer said.
Moseley said he can remember two instances where a donor wanted the money used for a purpose the University did not, but he declined to give specifics on the cases.
“Not often, but it has happened, and usually we’re able to talk to the donor and come up with something that is acceptable,” he said.
Campaign Oregon Chair Randy Papé said matching the wishes of donors and the University is the biggest challenge in the fundraising process.
“We rarely see a donor who wants to give money and says ‘Do as you choose with that,’” Papé said.
Problematic funding
More private gifts mean more chances to accept dollars from bad or questionable sources.
A. Alfred Taubman, the former chairman of Sotheby’s, gave $7 million to the University of Michigan, pledging an additional $30 million; donated $3.2 million to Brown University; and gave a large gift of an undisclosed value to Harvard University, according to a Chronicle of Higher Education report. Taubman was later convicted of colluding with the auction house to fix prices and was sentenced to one year in prison and fined $7.5 million.
Former Enron Chairman Kenneth L. Lay, who gave millions of dollars for named professorships to Rice University and the University of Houston, is currently awaiting trial on counts of fraud.
Peregrine System Chairman John J. Moores gave $51.4 million to the University of Houston. His company, which declared bankruptcy in Sept. 2002, came under scrutiny by the U.S. Securities and Exchange Commission and was named in several class-action lawsuits claiming fraudulent accounting practices were used to inflate the company’s stocks.
And it has happened here at the University too.
In 2001 the University renamed its former law school in honor of alumni Jeff and Susan Grayson after Jeff Grayson pledged to give the University $1.5 million. Jeff Grayson, head of investment firm Capital Consultants, was indicted by a grand jury and charged with 22 counts of mail fraud, conspiracy, money laundering, witness tampering and making illegal payoffs to a former union pension fund trustee. He later pled guilty to mail fraud and filing a false tax form.
In the end, the University of Oregon Foundation gave back the $850,000 it received.
“I commend the University for that,” Lippincott said. “I think the whole point of this is what you’re really doing is trying to get people to buy into, with their donation, the culture and values and mission of the institution. So it becomes all that more important to become very clear about what your values are.
“In the long run, it serves institutions more if they recognize that money was bad and give it back.”
Papé, who was on the University of Oregon Foundation Board of Trustees at the time of Grayson’s donation, said it dealt with the situation appropriately by giving back the money.
“It continues to be a concern, and I think the trustees have put policies in place,” Papé said. “There are some provisions put in place to better understand where the donations are coming from.”
Competition for gifts
According to a Chronicle of Higher Education database, 41 universities across the nation currently have campaigns to raise at least 1 billion dollars each. The top five — University of Southern California, Columbia University, University of California, Los Angeles, Harvard University and Duke University — have raised $13.2 billion in recent capital campaigns.
“The competition is stiffening, and not just from the universities, but from other sectors. Lots more nonprofits are out there raising money,” Lippincott said. “That said, they continue to be successful because the amount of money out there continues to increase. There’s a huge transfer of wealth from parents of baby boomers to baby boomers, and they have those
resources to give.
“There are more people after those dollars, but there are more dollars.”
Lippincott said the standing joke at most institutions is that everybody is either in a fundraising campaign, they have just completed one or they are planning the next one.
“It’s actually fairly true for most universities these days,” Lippincott said.
Frohnmayer said he has also seen the increase in fundraising by universities. Campaigns have become more prevalent, professional and constant for universities, he said.
“Part of it, I would hope, would be natural evolution,” Frohnmayer said. “But part of it is driven by the fact that we know that to excel or remain competitive we need to be looking for sources other than the state or our students for the margin of excellence.
“We’re just beginning to tap the potential of philanthropy that I think exists, and should exist, for a superior institution of higher education.”

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