State University-Related Foundations and the Issue of Independence

Foundations that raise funds to help state colleges and universities risk growing too close to the institution with which they’re affiliated and losing their legal status as independent entities. Case law contains numerous examples of news organizations and other private or citizen’s groups that take state university-related foundations to court. The result for some foundations has been a loss of privacy for their confidential donor lists or their contributions to the university president’s discretionary spending fund. Unanticipated attention to a foundation’s legal status can alienate donors and perhaps cost some officials their jobs.

A review of key cases over the past two decades shows that the early rulings tended to declare such foundations to be public entities, making them subject to state “sunshine” laws, Freedom of Information Act laws, and public auditing requirements. More recent rulings have tended to support the notion of state university-related foundations that can support their host institutions while operating independently. Which direction a court will lean seems to depend on how convincingly a foundation can show that it is an independent entity that does not receive support from public tax dollars.

The author offers seven “touchstones,” or procedures that, when practicable, can help insulate an affiliated foundation from legal challenges to its privacy and independence. Different foundations supporting institutions in different states might choose differently among these touchstones.