AGB Comment Letter to the Department of Education on Section 117 of the Higher Education Act

By November 5, 2019 AGB Federal & State Action

Director of the Information Collection Clearance Division
Attn: Hilary Malawer
Department of Education
550 12th Street, SW, PCP, Room 9089
Washington, DC 20202-0023

Dear Ms. Malawer:

On behalf of the Association of Governing Boards of Universities and Colleges (AGB), I write to offer comments on the proposed Information Collection Request (ICR) published in the Federal Register by the Department of Education (Department) on September 6, 2019, Docket No. ED-2019-ICCD-0114. While AGB supports and agrees with the letter from the higher education community on this issue, governing boards have a unique perspective that I believe should be shared with the Department.

The Association of Governing Boards

AGB is the premier organization centered on governance in higher education, serving more than 1,300 member boards, 1,900 institutions, and nearly 40,000 board members. Governing boards hold a discrete authority over the institutions they serve. As fiduciaries, board members are ultimately accountable for fulfilling institutional mission, safeguarding academic quality and financial health, and reviewing and ensuring the continuing effectiveness of all major policies and programs. Through its oversight role, the board ensures that the administration remains compliant with its legal obligations to the Department.

General Concerns

As part of those responsibilities outlined above, boards have a shared interest in safeguarding government-funding research and protecting academic freedom and free speech from foreign influence. However, the proposed information collection outlines new requirements that rest outside the scope of Sec. 117 and the Department.

The proposed information collection appears to require reporting of all gifts and contracts rather than just those that meet the statutory threshold. This will result in many more institutions having to report to the Department, and a significant expansion of the administrative burden and cost on all institutions, preventing governing boards from directing those funds toward ensuring student success and the vitality of their institutions.

Specific Concerns

The $250,000 Threshold. Sec. 117 makes clear that institutions are required to report twice a year gifts from or contracts with a foreign source of $250,000 or more alone or in combination with other such gifts or contracts with the same foreign source. However, the Department’s “Supporting Statement for Paperwork Reduction Submission” page 2 states, “institutions subject to this information request” are required to “disclose fully all foreign money funneled to them, and for this information to be made readily available to the public.” The use of the word all would imply that even modest donations from alumni would be reportable if the alumnus is a foreign citizen. This clearly exceeds the statutory language of Sec. 117. The Department should strike any references to “all” and explicitly state that the information collection request applies only to foreign gifts and contracts of at least $250,000, alone or in combination with other gifts or contacts with that foreign source, as specified in the statute.

Expanding the Definition of “Institution”. The Department’s request would significantly expand the definition of an “institution” contained in Sec. 117. The proposed information collection would require the reporting of gifts to “all legal entities (including foundations or other organizations) that operate substantially for the benefit or under the auspices of the institution.” The request would expand the definition of “institution” to include university foundations, university hospitals/health centers, athletic boosters, research entities, alumni organizations, so-called “supporting organizations,” and other related entities, even if they are organized as a separate legal entity under the Internal Revenue Code’s Sec. 501(c)(3) and/or Sec. 509(a)(3). Under the Department’s request, the university will be required to report information, but it may have no legal authority to compel the requisite information from one of these separate but related entities. Although AGB understands the Department’s desire to include the amounts of foreign funds received by subunits of the college or university, foundations, university hospitals, etc., even if these subunits are chartered as an organization legally separate from the parent institution, it is unreasonable and beyond current law and regulations to do so at this time. This expansion does not align with Sec. 117’s definition of institution, which is much narrower in scope. The Department should limit reporting to the definition of “institution” set forth in the original statute.

Lack of Confidentiality Risks Disclosure of Intellectual Property Agreements and Proprietary Information. The information collection request requiring institutions to upload “true” copies of all contracts and provides no guarantee of confidentiality. Indeed, in its supporting statement for the paperwork reduction action submission, the Department “makes no pledge about the confidentiality of the data because the authorizing statute makes no provision for same” (see Supporting Statement, p. 5.) It appears that the Department plans to upload all submitted contracts to its planned web portal. This presents a huge risk of disclosure of intellectual property agreements and proprietary information to a limitless universe of consumers including foreign actors, some with potentially nefarious intentions, at a time when Congress and federal national security and science agencies are worried about elicit foreign technology transfer from higher education. It also will potentially expose colleges and universities to liability because they will be forced to upload agreements to a public web portal, which may include proprietary information that institutions are legally and/or contractually obligated not to disclose. This issue is of particular concern to boards, whose responsibilities include ensuring the fiscal health of the college or university. The Department’s requirements could have a severe and lasting effect on institutions.

Significant Privacy Concerns for Individual Donors and Potential Conflicts with State Privacy Laws. The information collection seeks to expand the text that Sec. 117 lays out in disclosing gifts from foreign individuals. While Sec. 117 provides that institutions should report the amount of gifts attributable to a particular country (or “…the principal residence for a foreign source who is a natural person”), it does not ask for a name and address of such donors. However, the proposed information collection expects this level of identifying information. Practically speaking, this would preclude any anonymous gifts from foreign individuals, even very modest gifts, which is likely to have a chilling effect on the willingness of such donors to make charitable contributions at a time when affordability is a key issue on campuses and among policymakers. It is also at odds with common practice and long-standing policy at many institutions of allowing all donors, including those living in other countries, to permit confidentiality in their giving. Moreover, the disclosure of individual donor names and addresses may violate some state statutes, which preserve donor confidentiality by exempting their information from disclosure under state freedom of information acts. Governing boards and the boards of their institutionally related foundations recognize the potential harm that would follow implementing this request. The Department should only require reporting in the proposed information collection as specific in the statute.

Requesting Information Unknown to Institutions and Requiring Unreasonable and Unjustifiable Certifications. The Department’s information collection request seeks information from institutions about foreign donors outside their knowledge. It also will impose a number of unreasonable and unjustified certification requirements on institutions and their governing boards, including under a number of civil and criminal statutes over which the Department has no authority, which will make compliance essentially unknowable.

With regard to unrestricted gifts and contracts, and restricted or conditional gifts from foreign sources, the information collection request asks a series of seven specific “yes or no” questions about each source, including whether it is a legal entity created solely under the laws of a foreign state or is an individual not a citizen of the United States. In general, institutions will not be able to provide definitive answers to these questions because they do not ask foreign donors or entity partners to identify their country of citizenship or incorporation when they accept such gifts or enter into contracts. As is explicitly permitted under current law, institutions use the primary address of the donor as the best available proxy for country of citizenship or incorporation when identifying reportable gifts and contracts. Sec. 117 specifically states that institutions can report “country of origin” based on principal residence or place of business where the donor’s country of country of citizenship or incorporation is unknown. Contradictory to Sec. 117 language, the Department’s information collection request does not appear to permit that option.

In addition, two of these questions ask institutions to verify whether a foreign entity is substantially owned, controlled, or financed by a foreign source. While in some instances, it may be relatively easy to determine whether a U.S. entity is controlled by a foreign source because the information is well-known or publicly available. However, in many cases, it will not be obvious and may be difficult or impossible to confirm whether a U.S. entity is substantially owned, controlled, or financed by a foreign principal. To comply with this new requirement, institutions will need to ask all U.S. donors to confirm that they are not “substantially” owned, controlled, or financed by a foreign principal and rely on their representations, or undertake considerable and expensive due diligence to verify the information independently. Again, none of this is required under Sec. 117.

For restricted or conditional gifts or contracts, institutions will be required to verify and describe whether “the restricted or conditional gift [was] for the purpose of or did it have the effect of influencing any program or curricula at the institution, either directly or indirectly.” For example, if a foreign individual, corporation, or foundation made a gift to an institution to establish a lecture series or scholar-in-residence program that brought prominent foreign scholars, authors, or public figures to campus, it would quite easily have the effect of directly or indirectly influencing programs or curricula at the institution, but the nature of that influence, especially any “indirect” influence, will be impossible to measure. Sec. 117 does not require an institution to disclose whether a restricted or conditional gift or contract influences the institution and therefore the Department has no authority to require such a verification.

Institutions and governing boards will also be required to certify compliance with a list of anti-terrorism, sanctions, export control, anti-boycott, and other trade laws and regulations, and they will be required to certify that the foreign sources have not engaged in activities that violate federal criminal law. Notably, the Department has no role with regard to any of these laws and no authority to enforce them. The purpose of requiring such disclosure is beyond the statutory requirements and unnecessary. Institutions have no way to satisfy these requirements. Some of the required certifications go beyond compliance with law and would necessitate significant due diligence and/or would require foreign sources to certify that they are in compliance with the requirements. In many instances, boards would have to rely on the foreign source’s certification as the basis for their certifications.

Burden and Cost of Compliance and Reporting. Under the Department’s proposed information collection request, institutions would be required to upload to the Department’s information collection portal a “true copy” of any gift or donation agreements, contracts, and restricted or conditional gift agreements. This will be an enormously burdensome, costly, and difficult task, particularly for larger institutions, where there could be hundreds or more of such documents during each six-month reporting time frame, spread out across campuses in the United States and abroad, in numerous academic and administrative offices as well as university foundations, university hospitals, athletic boosters, research entities, alumni organizations, so-called “supporting organizations,” and other related entities which the Department is now including in an expanded definition of “institution.” This burden will be exacerbated if the Department expects institutions to report all gifts, contracts, or restricted/conditional gifts even if below the Sec. 117 threshold of $250,000 as well as contracts involving foreign individuals such as students (residential and online), scholars, employees, and others engaging with a campus. Indeed, the breath of information demanded covers a virtually limitless universe of transactions.

In its supporting statement for the paperwork reduction action submission, the Department estimates that the reporting under this information collection request “will take an institution 10 hours on average to complete.” In reality, the Department underestimates the administrative and cost burden resulting from this proposed information collection. It is not uncommon for colleges and universities to receive hundreds of gifts or enter into contracts each year potentially covered by the reporting. In addition, institutions will have to upload “true” copies of all relevant gift agreements, contracts, and restricted or conditional gift agreements. If institutions are required to report all foreign gifts and contracts regardless of the $250,000 statutory threshold, the number of gifts and contract each six-month period may go from fewer than a hundred to tens of thousands, particularly at large institutions. And if institutions are required to conduct due diligence and run reports on whether foreign sources have complied with U.S. anti-terrorism, sanctions, export controls, and anti-boycott laws, this will undoubtedly add substantial time for each gift or contract.

Additionally, under the expanded definition of “institution” in the Department’s request, colleges and universities will be challenged to obtain these documents from entities over which they have little, if any, control. Even the act of uploading the data would take more than the 10 hours estimated. It will also require the creation and maintenance of expensive databases on campus and significantly tax the personnel needs of institutions to comply with this requirement. Moreover, given the volume of information to be submitted to the Department by each institution, it is simply not credible for the Department to claim—as it does in its “Supporting Statement”—that it will take no more than two hours to review each institution’s disclosure report. The reporting and steps necessary to comply with these requirements will only seek to channel institutions’ efforts into compliance rather than driving student success and institutional vitality.

Conclusion

Ultimately, the Department’s proposed information collection request exceeds the Department’s authority under Sec. 117. AGB’s member boards and the institutions they oversee are willing to work with the Department to comply with Sec. 117 to provide statutorily required disclosure. However, the effects of complying with this information collection could result in significant challenges for boards and diminish the focus on successfully serving their students.

Sincerely,


President & CEO

AGB