OLR Bill Analysis

sSB 333

AN ACT CONCERNING THE FOUNDATION OF CONSTITUENT UNITS AND PUBLIC INSTITUTIONS OF HIGHER EDUCATION.

SUMMARY:

This bill adds several requirements for foundations established to support constituent units (i.e., institutionally related foundations). Existing law defines the following institutions as constituent units: UConn, the public universities that make up the Connecticut State University System, the regional community-technical colleges, and Charter Oak State College.

Specifically, the bill requires institutionally related foundations to do the following:

1. refrain from engaging in any prohibited acts listed under the state Solicitation of Charitable Funds Act;

2. submit two annual reports, rather than one, containing additional fiscal auditor opinions as part of their fiscal year auditing process to both the executive authority of the constituent units they support and the Attorney General;

3. provide informational filings annually to the Higher Education and Employment Advancement Committee and legislative leaders if the foundation has an endowment fund with a market value exceeding $1.5 million per year; and

4. add two provisions to the contracts between them and the constituent units they support.

The bill also makes several technical and conforming changes.

EFFECTIVE DATE: July 1, 2017

NEW REQUIREMENTS FOR INSTITUTIONALLY RELATED FOUNDATIONS

Solicitation of Charitable Funds Act Compliance

The bill prohibits institutionally related foundations from engaging in any prohibited act listed in the Solicitation of Charitable Funds Act (see BACKGROUND). This state law (1) regulates organizations, activities, and professions related to charitable giving and (2) prohibits individuals and charities from performing specified acts related to charities. (Presumably, prohibitions applicable to both individuals and charities under the act apply to such foundations under the bill.)

Fiscal Year Audits

The bill requires institutionally related foundations to submit two reports, rather than one, containing additional fiscal auditor opinions as part of their fiscal year auditing process to the constituent units they support and the Attorney General. By law, such foundations must undergo fiscal year audits either (1) annually if their fiscal year receipts and investment earnings total $100,000 or more per fiscal year or (2) every three fiscal years if their receipts and investment earnings total less than $100,000 per fiscal year. Table 1 below compares the fiscal audit reporting requirements under current law and the bill.

Table 1: Foundation Audit Report Requirements under

Current Law and sSB 333

 

Current law

(CGS 4-37f(8))

sSB 333

Number of required reports

One

Two

Required report content

Financial statements

Management letter

Audit opinion on conformance of foundation operating procedures to state law

Recommendations for corrective actions needed to ensure such conformance

Report one:

Audit opinion on financial statements

Management letter

Report two:

Audit opinion on conformance of foundation operating procedures to state law

Recommendations for corrective actions needed to ensure such conformance

Total number of audit opinions

One

Two

Annual General Assembly Filings

The bill requires institutionally related foundations with endowment funds exceeding $1.5 million to annually provide to the Higher Education Committee and all six legislative leaders a copy of each of the following items:

1. the most recent annual foundation report;

2. the most recent audited financial statements, management letter, and audit opinions of the foundation required by law;

3. the written agreement required by law between the constituent unit and foundation;

4. the written policy required by law on investigation of ethical and legal violations and whistle-blowing;

5. any conflicts of interest policy of the foundation;

6. the foundation's most recently filed IRS form 990, including all parts and schedules required by federal law to be available for public inspection; and

7. the foundation's bylaws.

Such foundations must also provide to the committee and leaders:

1. a list of the current members and officers of the foundation's governing board;

2. a list of all deanships, professorships, chairs, schools, institutes, centers, or facilities of the constituent unit that were named in recognition of foundation donors upon the constituent unit's board of trustees' approval during the previous fiscal year; and

3. the identity of any person, firm, corporation, or other entity donating funds or other things of value to the foundation unless the donor has requested that his or her identity not be publicly disclosed.

Additionally, institutionally related foundations must annually meet two reporting requirements for the committee and legislative leaders. First, they must give the total number and average size of foundation disbursements made to each public higher education institution for (1) undergraduate and graduate scholarships, fellowships, and awards; (2) program and research support; (3) equipment; and (4) facilities construction, improvements, and related expenses.

Second, they must list the position of each employee of the public higher education institutions for whom the foundation contributes all or some of the salary, wages, or fringe benefit expenses. For each position, the report must provide the financial reimbursement amount from the foundation for such expenses.

Under the bill, all of the above information reported by institutionally related foundations to the legislative committee and leadership is considered a public record under the state's Freedom of Information Act.

Required Contract Provisions

By law, each institutionally related foundation must enter a written agreement with a constituent unit or public higher education institution that governs their relationship. The bill requires such agreements to include two additional provisions beginning July 1, 2017.

The first new provision governs the cash compensation paid by the constituent unit to the foundation. The bill requires the agreement to contain three statements governing this compensation:

1. Cash compensation paid by the constituent unit to the foundation in a fiscal year must decrease from either the amount paid in the preceding fiscal year or the fiscal year ending June 30, 2016, whichever is greater, and must decrease by (a) $1 million when the market value of the foundation's endowment fund is $500 to $700 million as of January 1 of the preceding fiscal year, (b) $1.5 million when the market value of the fund is $700 to $900 million as of January 1 of the preceding fiscal year, or (c) $3 million when the market value of the fund is $900 million to $1.25 billion as of January 1 of the preceding fiscal year.

2. The constituent unit may not pay the foundation any cash compensation when the endowment fund is $1.25 billion or more as of January first of the preceding fiscal year.

3. If the foundation's endowment fund market value decreases below any of the above thresholds as of January 1 of the preceding fiscal year, then the constituent unit must increase the cash compensation it pays to the foundation to the same amount that was paid prior to when the threshold was exceeded, until the July 1 following January 1 on which the market value of the endowment fund once again exceeds the threshold.

The second new provision requires the foundation, on and after July 1, 2017, to use reasonable efforts to raise gifts and commitments each fiscal year for student support, including scholarships, assistantships, fellowships, awards, and prizes. Such gifts and commitments must equal at least 15% of the total amount of all gifts and commitments raised by the foundation in the same fiscal year.

BACKGROUND

Prohibited Acts under the Solicitation of Charitable Funds Act

Under the act, it is against the law for any individual to do the following:

1. misrepresent (a) a solicitation's purpose or beneficiary, (b) a charity's purpose or nature, or (c) that any other person sponsors or endorses a solicitation;

2. use or exploit the charity's registration with the Connecticut Department of Consumer Protection to make the public believe that the registration is a state endorsement or approval;

3. use the charity's name or display its emblem, device, or printed matter without its express written permission;

4. make any false or misleading statement on any document required by this law;

5. fail to comply with this law's requirements; or

6. appropriate a charity's property for private use.

It is also unlawful for any person conducting a charity's affairs to engage in any financial transaction unrelated to accomplishing its charitable purpose.

Additionally, it is unlawful under the act for any charity to do the following:

1. engage in any financial transaction unrelated to accomplishing its charitable purpose,

2. expend an unreasonable amount of money for solicitation or management,

3. use a name which is the same as or confusingly similar to another charity's name unless the latter charity provides written consent to do so,

4. represent itself as being associated with another charity without its express written acknowledgement or endorsement, or

5. use an unregistered fund-raising counsel's or paid solicitor's services.

It is also unlawful for a fund-raising counsel or paid solicitor to perform services for an unregistered charity (CGS 21a-190h).

COMMITTEE ACTION

Higher Education and Employment Advancement Committee

Joint Favorable Substitute

Yea

19

Nay

0

(03/15/2016)