SUNDAY EDITION | Under Ramsey, University of Louisville endowment borrowing far exceeded board limit

LOUISVILLE, Ky. (WDRB) – Under the administration of former President James Ramsey, the University of Louisville Foundation borrowed millions more than its board of directors authorized from the school’s $715 million endowment to fund real estate purchases, employee salaries and other expenses.

And while the foundation says the borrowed money was used for worthwhile purposes, its leaders are grappling with the possibility that at least some of the money may not be paid back – meaning the value of the school’s endowment could be overstated by as much as 10 percent.

The endowment – which the foundation manages --  is a pool of donated money that is supposed to provide an ever-lasting stream of income for the university through investment returns.

Every year, professors use endowment money to support their research, award scholarships to students and pay for post-doctoral fellowships, for example.

University leaders, including Ramsey, had for years talked up the growing importance of private funding to cushion the university, a state institution, against continual state budget cuts. 

The value of the endowment matters because it determines just how much money is available every year for university departments to spend.

Even as foundation leaders begin to look into whether the $715 million endowment is over-valued, the university’s academic departments are already dealing with cuts in endowment dollars because the fund has had subpar investment returns and high spending in recent years. The endowment dropped by $85 million in the fiscal year ended June 30.

Rodger Payne, chairman of U of L’s political science department, said the school’s Center for Asian Democracy relies on a $5 million fund in the endowment that should provide about $250,000 a year. But this academic year, the fund provided only about $26,000, he said.

That has meant doing with one post-doctoral research fellow instead of two, spending down endowment saved from previous years and cobbling together other funding from the College of Arts and Sciences to make the budget work, he said.

“It is distressing,” Payne said. “… If there is another shortfall next year, I don’t know how that is made up.”

$72 million of endowment is borrowed money

The endowment’s overall value could drop further, however, as foundation board members and staff try to determine just how much of the $715 million fund represents funds that Ramsey’s administration withdrew, but are unlikely to be repaid.

The vast majority of the endowment is professionally invested in things like stocks and bonds.

But beginning in 2008, the foundation allowed its own sub-organization called University Holdings Inc. to borrow from the endowment on easy, open-ended terms, as WDRB previously reported.

Now, $72 million – or 10 percent of the endowment’s value – is not actually cash in the bank. It is money that was borrowed, including interest, by University Holdings, or UHI. 

The money is supposed to be repaid eventually, but it’s uncertain just how much of it will actually come back. 

Last week, two foundation board members said the organization should look at taking a loss on the borrowed money, which would reduce the value of the endowment and thus, the amount of money available to support U of L.  

“There are assets on the foundation’s balance sheet which probably need to be written down -- which impacts the amount of assets the foundation has and, therefore, the amount of money that will come to the university,” foundation board member Craig Greenberg said at a meeting Tuesday of the Board of Trustees, of which he is also a member.

U of L Trustees Chairman Larry Benz, who is also a foundation board member, said in an interview Tuesday that the foundation board needs to determine just how much the total $72 million represents investments that might actually return cash – and how much was spent on “overhead and compensation and car allowances and other types of things” that have “reasonably no chance” of being repaid.

Foundation Chief Financial Officer Jason Tomlinson declined to say if he agrees that the endowment’s value might need to be written down, and by how much.

“We will be working with our auditors and the (foundation’s) Board (of Directors) to determine what if any steps will be appropriate related to these issues,” he said in an email Friday.

In recent weeks, the foundation acknowledged that the borrowing on the so-called UHI Line of Credit with the endowment exceeded a $35 million cap the organization’s board of directors established in 2011.

The admission, prompted by previous WDRB stories, came as part of the foundation’s annual independent audit. The audit notes a “significant deficiency” related to the over-borrowing from the endowment.

While the over-borrowing began in late 2012, foundation auditor BKD LLP did not note it until the most recent annual report, which was finalized in late October.

Ramsey – who was pressured into resigning earlier this year after 14 years as president of the university and foundation – “never knowingly exceeded” the board’s limit on borrowing from the endowment, said his attorney, Steve Pence.

“The University has CPAs and a CFO that keep track of the hundreds of financial transactions taken by the University,” Pence said in an Oct. 26 email. “To our knowledge, no one has said that Dr. Ramsey directed anyone to exceed the Board’s limit on a line of credit -- nor could they.”

Tomlinson said he could not say why the limit was exceeded because he only assumed his position on a permanent basis last December.

Brucie Moore, the foundation’s new chairwoman, said in a written statement on Oct. 21 that the borrowed endowment money went to “good investments for the University and the Foundation” but that the withdrawals “should have ceased” when the limit was exceeded in 2012.

She added that the foundation staff and attorneys are “still examining these records and the underlying documents so that we can better understand the activities over the last eight years” and the endowment borrowing may be an issue explored in the “forensic audit” that foundation is set to undergo in the coming weeks.

Money went to real estate projects, overhead

UHI used the borrowed endowment money to fund a number of real estate projects – for example, the first suburban office building on U of L’s Shelby Campus at Shelbyville Road and Hurstbourne Parkway and the now-vacant Kentucky Trailer property where U of L plans to build an engineering research park.

About $11.2 million of the borrowed endowment money represents a loan to U of L’s James Graham Brown Cancer Center, for which the foundation attorneys could find no documentation.

The money was also used to fund operating expenses including employee salaries at the foundation’s various affiliate companies like Nucleus – its downtown innovation and economic development arm – and Metacyte, a health and life-sciences business incubator the foundation shut down last year.

UHI itself also had a payroll of about 10 people that included five employees of the university president’s office who for years were given an extra $12,000 to $51,000 a year for taking on additional duties for the organization, as WDRB reported in August.

Newly released foundation records show that portions of that UHI compensation came in the form of “automobile allowances” of $6,000 per year for three of the president’s office employees, information technology manager Ryan McDaniel and administrators Trisha Smith and Debra Dougherty.

Moore said in an email that as of Oct. 1, the foundation has stopped paying employees through UHI as part of an “administrative restructuring.”

She added, however, that former Ramsey Chief of Staff Kathleen Smith – who is on administrative leave from the foundation – and Tomlinson, the foundation CFO, continue to receive amounts equal to their UHI pay (about $51,000 a year and $42,000 a year, respectively) directly from the foundation.

Very little of endowment debt actually repaid

Every dollar that UHI borrowed from the endowment is supposed to be returned, with what Tomlinson has called a "guaranteed" rate of interest.

But from 2008 to 2015, UHI had repaid only a little under $9 million of nearly $55 million owed, according to a newly released foundation document and information from Tomlinson relayed by the foundation’s attorneys.

In fact, the largest-ever repayment on the endowment credit line came not from UHI, but from university funds.

Last year, Ramsey approved loaning $22 million of the university’s short-term cash to repay the endowment -- a situation one investment expert previously likened to a Ponzi scheme.

Then over the summer, the foundation staff tried to permanently erase $29 million of the $72 million endowment debt by writing it off, newly released emails confirm.

But the foundation board stopped that plan, insisting that the $29 million stay on the books.

The potential hit to the endowment comes as the foundation already faces financial challenges.

Last month, Moody’s Investor Service downgraded its opinion of the foundation’s creditworthiness, citing “weakening operations,” a big drop in its cash and investments, increased demands to make up state cuts at the university and the upcoming forensic audit of the foundation’s finances.

Moody’s noted “transitions” in board leadership at the foundation prompted by “historically ineffectual board policies and oversight for complex real estate and investment strategies.”

Greenberg told fellow trustees at Tuesday’s meeting that both the university and foundation boards will have to deal with the fact that the foundation is spending more than can it afford to in the long run and that its assets are “probably” over-stated.

“I think we are past the point of avoiding tough decisions,” he said.  

Moore, the foundation chairwoman, said she agreed with Greenberg’s characterization of the situation.

“We are very aware of those challenges and we have been talking about them in general terms,” she said at Tuesday’s meeting. “We will have to be more specific going forward.”


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Chris Otts reports for about business and economic topics, higher education and local / state government. He joined WDRB News in 2013 after seven years with The Courier-Journal. Got a tip? Chris is at 502-585-0822 and