Facing 'run on the bank,' University of Louisville Foundation used Owsley Brown Frazier gift to pay administrators
Just before Christmas in 2011, then-University of Louisville President James Ramsey held a press conference to announce the largest individual gift in the school’s history -- a $25 million pledge from the late philanthropist Owsley Brown Frazier. About $7 million ended up being used by the school's foundation for extra administrator compensation.
LOUISVILLE, Ky. (WDRB) – Just before Christmas in 2011, then-University of Louisville President James Ramsey held a press conference to announce the largest individual gift in the school’s history -- a $25 million pledge from the late philanthropist Owsley Brown Frazier.
At the time, U of L maintained that Frazier’s money would “improve the quality of the university's academic, research and athletic programs.” Ramsey said he would use the money to spur other donations in hopes of raising the total to $100 million.
But about $7 million of Frazier’s gift evidently ended up in the pockets of Ramsey and a handful of other top university administrators.
In mid-2016, the university’s nonprofit foundation needed cash when Ramsey and three other administrators asked to be paid nearly $8.5 million in “deferred compensation” they had earned over several years, foundation records show.
Instead of selling investments within U of L’s $785 million endowment to come up with the cash, the foundation chose to use slightly more than $7 million of the Frazier funds to help meet the payment demands, according to Keith Sherman, the foundation’s executive director.
“When you have a big run on the bank all at once, what do you do? You tap into what you have available,” Sherman said.
Sherman spoke to a reporter Friday after a foundation board meeting in which a slide showed that only $11.3 million of Frazier’s gift remains unspent or not pledged to other uses at U of L.
Sherman said “virtually all” of the deferred compensation payouts occurred before he started at the foundation in December.
Ramsey resigned last year after serving as president of both the university and foundation for 14 years. He left the university in July but held onto the job at the foundation until September.
Ramsey did not respond to a request for comment sent to his lawyer, Steve Pence, on Friday.
Foundation records indicate Ramsey and three other administrators asked the foundation to pay out a total of nearly $8.5 million in deferred compensation between February and September 2016.
Ramsey’s payout -- $3.5 million -- was wired to his bank account on Sept. 16, the day he resigned from the foundation.
Nearly $5 million in additional payout demands came from former U of L Provost Shirley Willihnganz ($2 million), former Ramsey chief of staff Kathleen Smith ($700,000) and Dr. Donald Miller, director of the James Graham Brown Cancer Center ($2.1 million).
The administrators had earned the money over several years, but the foundation agreed to hold it for them like a private retirement account. The foundation treated the money as though it were invested in U of L’s endowment, so the balances grew with the same returns that the endowment earned.
While many university donations come with stipulations as to how the money can be used, Frazier left it up to Ramsey to decide how to spend the funds.
Frazier, who died in 2012 at 77, called Ramsey “the best president” he had seen at U of L.
Like virtually all gifts to the university, it was the nonprofit foundation – not the university itself – that received the Frazier money.
When the gift was announced in 2011, Ramsey said he would use Frazier’s money to match other donor contributions in hopes of raising an additional $75 million.
“The original intent was to leverage it,” Keith Inman, the university’s vice president for advancement, said in an interview Friday. “Dr. Ramsey wanted to make sure however the money was used, it was to entice other gifts.”
Inman, the university's chief fundraiser, said he was aware that some of the money had gone to pay out deferred compensation and thus, is no longer available to match other giving.
Asked whether that was an appropriate use of the funds, Inman said: “It wasn’t my decision.”
Bruce Dudley, a Louisville attorney who represented Frazier’s estate, did not return a call for comment.
Inman added that his office used about $9 million of the Frazier money as matches for $14 million in new donations.
“On what we were able to use, we matched it a lot,” he said.
The university did not immediately fulfill a request for public records showing a precise accounting of the gift and its uses.
Frazier, a descendant of Brown Forman Corp. founder James Garvin Brown, gave the donation in Brown Forman stock, and the shares had appreciated to about $39 million by the time U of L fully received the gift, Inman said.
Meanwhile, $7.65 million went to the university’s athletics department in accordance with Frazier’s instructions and $4.4 million went to satisfy pledges that Frazier had previously made to U of L’s business and music schools, according to Inman.
Foundation never set aside funds to pay over $20 million in administrator compensation
As WDRB reported earlier this year, the foundation, racked up over $20 million in deferred compensation promises to about a dozen top administrators under Ramsey’s watch.
David Grissom, who took over in January as chairman of the U of L board of trustees, repudiated the program earlier this month, saying university administrators will no longer get extra pay from the foundation.
Even as it continued to promise deferred pay to a growing number of administrators over the years, the foundation never set aside funds to make the payments.
The liabilities grew as the foundation added investment returns to any money that the administrators chose not to withdraw immediately. The foundation also made special payments annually to offset the administrator’s local, state and federal income taxes on the deferred pay and its investment returns.
Sherman said using the Frazier money for the payouts not only allowed the foundation to avoid selling endowment investments prematurely, but also to meet the payment demands without running afoul of any rules about how donor money is supposed to be spent.
Much of the money in U of L’s endowment is “restricted” to be used only for the donor’s intended purpose, such as endowed chairs within academic departments or scholarships for students studying certain subjects. The Frazier funds, however, carry no such restrictions.
During the 2011 press conference, a jubilant Ramsey held up a ceremonial $25 million check and stood with Frazier for a photo opportunity.
“Owsley, thank you so very much,” Ramsey said. He added a joke: “As soon as we leave here, I am heading to the bank.”
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