SUNDAY EDITION | Part 2: University of Louisville Foundation gave $120,000 no-bid consulting contract to ex-board member
Without soliciting bids or getting approval from its board, the University of Louisville Foundation gave a consulting contract worth $120,000 a year to a Louisville businessman who served more than 20 years on the foundation's board. WDRB.com reporter Chris Otts examines the deal.
Saturday, April 18th 2015, 1:02 PM EDT
LOUISVILLE, Ky. (WDRB) – Without soliciting bids or getting approval from its board, the University of Louisville Foundation gave a consulting contract worth $120,000 a year to a Louisville businessman who served more than 20 years on the foundation's board, including the last six years as its vice chairman.
The former board member, Burt Deutsch, began working for the foundation when he resigned his board seat in September 2013, foundation lawyer David Saffer told WDRB News.
U of L President James Ramsey, who is also president of the university foundation, offered Deutsch the paid position without advertising it for competitive bidding or bringing it to the foundation's board for approval, Saffer confirmed.
Deutsch's background and experience make him “uniquely qualified” to consult for the foundation on matters such as real estate development and donor agreements, and it's within Ramsey's authority as foundation president to decide whom the foundation hires, Saffer said.
Neither Ramsey nor Deutsch agreed to be interviewed about the consulting deal, and it's unclear whether they discussed it before Deutsch left the foundation board. In an email, Saffer said the job “started when (Deutsch) left the board.”
The $1.1 billion foundation receives and invests donations to the university, providing more than $100 million in operating support for U of L every year.
In his role as vice chairman from 2007 to 2013, Deutsch was the de-facto spokesman for the foundation's directors on sensitive matters, including the foundation's compensation of Ramsey and other top U of L executives.
Although a public entity, the foundation is not required to follow state rules for government contracting, Saffer said. Even if it were, Saffer said, the lack of competitive bidding for Deutsch's role would be allowed under the “sole source” provision that exempts public agencies from bidding out work when there is only one known vendor providing the services needed.
But the absence of a bidding process and board approval fosters the perception that an insider may be unduly benefiting from the foundation's resources, said Beth Gazley, a professor who teaches nonprofit management at Indiana University's School of Public and Environmental Affairs.
“Regardless of whether this was a legally defensible decision or not, it's an ethically challenging decision to have to report out to donors,” she said. “…The fact that the president of the (foundation) can independently negotiate and execute contracts with a former board member is really problematic to me, and would also be to charity observers and donors.”
Brian Mittendorf, an Ohio State University accounting professor who writes a blog called
, noted that the U of L Foundation's written conflict of interest policy assumes that potential issues involving board members are discussed in front of the board.
The foundation's policy, stated in its IRS tax returns, says board members must alert fellow members of any potential conflicts and abstain from voting or trying to influence any board decision on those matters.
Mittendorf said it would have been safer, from a “best practices perspective,” for the foundation's directors to have reviewed Deutsch's contract.
“To ensure a conflicts-of-interest policy has teeth, it is important to ensure any material activities that present the possibility of a conflict of interest would be reviewed under the policy,” he wrote in an email.
Dr. Robert Hughes, who chairs both the foundation board and university Board of Trustees, said he was aware Deutsch is now a paid foundation consultant, but did not know that the work was not bid or approved by the foundation board.
Still, Hughes said he is comfortable with the arrangement given Deutsch's reputation and experience with the foundation.
“It's not a question of Burt being able to do the job,” Hughes said. “He's done an excellent job for the foundation… He is sharp; there is no doubt about it.”
Deutsch, an attorney, is president emeritus and general counsel of The Corradino Group, a transportation engineering and planning firm based in Louisville.
Deutsch served as chairman of the foundation's finance committee from 1991 to 2013, Saffer said. In that role, he was deeply involved in foundation real estate projects such as the Shelbyhurst office building development in eastern Jefferson County.
He is also manager of the Louisville Regional Airport Authority's voluntary home relocation program and has worked for the airport authority since 1990.
“The Foundation felt that Burt, with his knowledge of real estate matters, his experience with the airport (tax increment financing) district, his experience with city and state governments, and his experience as a member of the Foundation's Board, was uniquely qualified to provide the services described in his contract,” Saffer wrote in an email to WDRB.
runs from July 1, 2014 through June 30, 2015, according to a copy obtained under the Kentucky Open Records Act. It includes a $10,000-per-month retainer.
The foundation has not yet fulfilled WDRB's April 8 request for a copy of the original contract governing Deutsch's work between September 2013 -- when he left the foundation board -- and June 30, 2014.
Deutsch's 2014-2015 contract lists seven broad tasks, including analyzing potential real estate ventures near U of L's main, downtown and Shelby campuses; working with foundation donors to gain more flexibility with charitable agreements; and advising Ramsey and his staff on “funding strategies for revenue growth and implementation” of U of L's three research parks.
Deutsch, in a previous role as secretary of the foundation, signed two amendments to Ramsey's 2002 employment contract, along with Chester Porter, the late former chairman of the foundation.
One of the amendments, in 2005, granted Ramsey a $1.2 million lump-sum payout from the foundation, which was meant to replace the pension Ramsey would have earned had he remained in state government instead of joining U of L in 2002.
Over the years, Deutsch has been one of the few foundation directors made available to the media to explain foundation decisions – a role that he has continued recently as paid contractor.
In February, Deutsch – along with Saffer and foundation vice chairwoman Joyce Hagen – defended the foundation's granting of millions of dollars in deferred compensation to Ramsey, U of L Provost Shirley Willihnganz and Chief of Staff Kathleen Smith in interviews with The Courier-Journal, Insider Louisville and WDRB.
“We don't look at the deferred compensation and retention bonuses apologetically – quite frankly. We look at it as something that, if we weren't doing those type of things, we would have been derelict in our duties,” Deutsch said in defense of the multi-million payments to Ramsey and his key executives.
In 2011, Deutsch was quoted in The Courier-Journal after the foundation approved an increase in Ramsey's salary and an additional $2 million in deferred compensation for Ramsey through 2020.
In 2010, Ramsey declined the newspaper's requests to talk about a foundation-funded buyout worth more than $1 million for the university's former executive vice president of research, according to a story from the time.
Instead, Ramsey referred questions to Deutsch.
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