SSU faculty questions private loans by foundation

<p>Sonoma State faculty members are demanding more details about $21 million in private loans made by the university's foundation to local land owners, including seven loans to a former board member.</p><p>The SSU Academic Senate will formally ask university administrators Thursday to schedule a town hall meeting to answer questions about the loans, said Susan Moulton, who heads the Academic Senate.</p><p>“We're all concerned because there are some real problems with transparency and financial management,” Moulton said.</p><p>The SSU controversy has fueled support for a proposed state law requiring universities to comply with public records laws. It passed a key Assembly committee Wednesday.</p><p>In an e-mail sent earlier this month to faculty, staff, students and donors, SSU President Ruben Armiñana said the loans were “totally proper, legal and appropriate.”</p><p>“Those who donate to the University — including our many faculty and staff — can continue to be confident that their dollars given to benefit students are wisely and safely invested,” Armiñana wrote in the Aug. 4 e-mail.</p><p>Some members of the faculty — who have been at odds with Armiñana over his initiatives to build a $110 million music center on campus — want to know more details about the loans that were negotiated behind closed doors. One loan to Clem Carinalli, the county's largest individual land owner, was issued two days after he resigned from the foundation's board of directors.</p><p>University officials have not provided enough information to rule out unethical behavior behind the foundation's loans, said Andy Merrifield, president of the SSU Faculty Association.</p><p>“When money is used without transparency, it is more difficult to make sure something illegal isn't going on,” said Merrifield, a political science professor. “We want to be sure money is being used for the best public uses.”</p><p>On Wednesday, the Assembly Appropriations Committee passed a bill that would require university foundations and other auxiliary groups to provide public access to internal documents. The bill, SB 218 by state Sen. Leland Yee, D-San Francisco, now goes to the Assembly floor. It has already passed the state Senate.</p><p>The SSU loans “may be just the tip of the iceberg,” Lee said in a statement Wednesday. “Taxpayers and students deserve to know how their public universities are run.”</p><p>Leaders of the two major faculty groups at Sonoma State University — the Academic Senate, which helps govern academic policy, and the Faculty Association, the union that represents instructors — have both endorsed Yee's bill.</p><p>Armiñana declined a request for comment.</p><p>“President Arminaña is not available for further discussion on this topic,” SSU spokeswoman Jean Wasp said in an e-mail.</p><p>The SSU Academic Foundation manages donations made to the university and distributes money for scholarships and campus programs. Armiñana is its chairman. In his campuswide e-mail, Armiñana said it made 23 loans to local landowners from 1994 to 2003, including seven to Carinalli.</p><p>University officials have declined to disclose the identities of the other borrowers or divulge whether there were any additional loans.</p><p>Carinalli's mortgage company serviced nearly all the foundation's loans, and he received the lowest rate of any lender.</p><p>The foundation's lending practices came to light in June when Carinalli told the university he could no longer make payments on two outstanding loans as he tries to restructure $150 million in debt. He repaid one $232,500 loan in July and offered the foundation a 10-acre property outside Windsor to satisfy the other $1.25 million debt.</p><p>“No loans of this type are left outstanding,” Armiñana said in his e-mail.</p><p>At a July town hall meeting to discuss how state budget cuts will impact the SSU campus, the university's chief financial officer, Larry Furukawa-Schlereth, asked attendees to refrain from asking questions about the private loans but said a future town hall meeting could be held to discuss the topic.</p><p>Faculty intend to hold him to that promise, Moulton said.</p><p>“We need more information to verify what they say is accurate. Without it we cannot rebuild public trust in the foundation,” Moulton said. “This is a public institution. Information should be made available.”</p><p>Moulton said she will request the town hall meeting on the loans Thursday at a meeting of the President's Budget Advisory Committee. Administrators are expected to address whether the foundation will make its annual endowment payments to support campus programs such as the Anthropological Studies Center, she said.</p><p>Professors have heard the foundation will not make those payments this year due to heavy losses in its investments, mostly from losses on Wall Street, Moulton said.</p><p>Armiñana said in his e-mail that the $1.25 million loan default by Carinalli has had no impact on the disbursements — and will not in the future. The foundation plans to sell the Windsor property when the real estate market improves, he said.</p><p>Moulton and others find it hard to believe that the loan default will have no impact.</p><p>“I can't see how it won't,” she said.</p><p>About $360,000 of the $1.25 million loaned to Carinalli came from the foundation's endowment fund, which generates the money for scholarships and campus programs.</p><p>The rest of the $1.25 million loan was funded by donations that came in the form of charitable remainder trusts — a special financial arrangement that usually entitles the donor to receive regular interest payments until their death with the remaining contribution going into the endowment fund.</p><p>Revelation of the private loans this summer exacerbated an already difficult time as faculty and administrators deal with furloughs and a reduction in campus programs, Moulton said.</p><p>One SSU professor recently changed his will and removed the university's foundation as a beneficiary.</p><p>“In my will was a substantial amount of money to go to endowed scholarships,” said Steve Orlick, a professor of environmental studies and planning who served as the chairman of Academic Senate in 1998. “I can change it back if this place is cleaned up. I've spent 27 of my 30 years teaching here. I have an investment here.”</p><p>Orlick and others complain about a lack of financial governance and transparency, and they point to a 1995 loan given to former foundation board member Carinalli as a prime example.</p><p>In the Aug. 4 e-mail sent to the campus community, Armiñana stated that Carinalli was not a member of the board “at the time of the loan decision.”</p><p>Carinalli received the loan two days after he resigned from the board. The foundation approved the loan while Carinalli was still on the board, said Jim Meyer, the foundation's former president who was in charge of negotiating the loans. Carinalli was asked to resign before receiving the money to avoid a potential conflict of interest, Meyer said in an interview last month.</p><p>“This had all been set up in advance,” Meyer said. “The documents had all been prepared in advance.”</p><p>Orlick accused Arminaña of using foundation money in a way that does not best advance its mission of supporting academics.</p><p>“There has been mischief afoot,” Orlick said. “They are using money for purposes that are not the reason we are here.”</p><p>Armiñana has disagreed.</p><p>“With one exception in which the Carinalli loan defaulted this June, these investments have been successful in meeting the criteria and goals of the Foundation's investment policy,” he said in the e-mail.</p>