✔Good day, Fellow Dukies. Welcome back from the fall break.
The Number One Trick in the PR Handbook is to release on a Friday afternoon information that you would rather have buried. Thus -- with everyone in weekend mode -- Duke followed this playbook when it found “substantial issues” -- meaning many big lies -- in the resume of Dr. Anil Potti, who nonetheless was not fired. And this past Friday, this was the playbook for the annual Financial Report from Executive Vice President Tallman Trask.
Fact Checker and Deputies -- wisely anticipating the timetable -- did not take Columbus Day vacations. By Saturday morning they held a news conference, part of which is transcribed below.
✔Pre-med student: “Fact Checker, I am concerned about the Chemistry Department. Its budget was cut five percent last year, ten percent this year, and now “wet” labs are being cut in half and we will watch demonstrations on the internet. What does the Trask report say about Chemistry?”
Fact Checker: “Nothing.”
✔Parent of freshman: “Fact Checker, I heard things were so bad that Duke is going to have to cut the number of Arts and Sciences professors. What does the Trask report show about Trinity College budget?”
Fact Checker: “Nothing. The words ‘Arts and Sciences’ do not appear. Nor 'Trinity College.'”
✔Faculty grouse: “Fact Checker. Thank you for all you do for Duke! I know the athletics budget has grown at a faster pace than academics. I am concerned about the balance. What does the Trask report reveal?”
FC: “Nothing. The word ‘athletics’ does not appear.”
✔Trinity College senior: “FC, I am contemplating graduate school. Hell, I won’t be able to get a job next June anyway. I am worried about Fuqua though. It failed in London, it failed in Moscow and it lost millions in Frankfurt. As you reported, Fact Checker, the Inter-Continental MBA program is wobbling in its second year, drawing only half as many students as the Dean “promised,” and only 30 percent, rather than the hoped for 50 percent, from international locations. Not to mention Kunshan, where a Deputy reported that despite Brodhead’s cornerstone laying last January, and a PR spin on “site preparation,” there is no construction above ground for the second straight year. What does Trask report on Fuqua?”
FC: “Nothing. The word does not appear at all.”
✔✔Fellow Dukies, you see the point. The Trask report does nothing for transparency in areas of critical concern. It is useless for stakeholders who wish to keep officials accountable and to participate in the governance of Duke. In fact, it raises the substantial question of how Trask and other administrators decide what snippets they will tell us, and how they decide what to withhold. The answer, I fear, is not charitable.
Suggestion: greater transparency should extend particularly to those areas that Trask and his staff have said they would cut, so that we continue to have totals of the number of people laid off (never revealed), so that we know what we are saving by having the thermostats higher in warm weather (not yet in effect campus-wide). In other words, we have heard their proposed changes, but their financial reports do not let us see their accomplishments.
Historically, Duke’s annual financial report revealed much more. It was supplemented by IRS Form 990 which appeared promptly within the federal deadline of six months after the end of the fiscal year on June 30th; now Duke gets extensions -- claiming that numbers which are always audited by the start of October -- are not available until April or May. The result is the Form 990 is always almost a year out of date.
The President too kept us informed. William Preston Few started a tradition of very detailed reports; this continued over the decades, with Nan Keohane adding important and eloquent essays on university policy, her persuasive discussion of the imperative of affirmative action for example. With the advent of the internet, she also posted her reports to the Trustees.
No more. No more. No more. This is the Age of Brodhead and the big secret.
What is most notable about Trask’s report is the cold demeanor. There is no identification with employees who have been laid off, or those who have been asked to work harder. There is no identification of anyone who might have had a stellar performance in steering us through a very rough sea. The cover of the report might be a metaphor: it shows the East Campus steam plant and its chimney, about as far detached from the Duke that most people love and experience as any building I can imagine.
As Loyal Readers might deduce from the length of the introduction, this review threatens to be long -- a discussion and interpretation of Trask’s report and the context for it. Please read it through; it is vital.
✔✔✔✔✔THE UNIVERSITY’S INCOME
✔✔FEDERAL DOLLARS
While most of this essay applies to the entire University, the following concerns only the “educational” side of Duke, including the Medical School and medical research. It does not apply to Duke Health, which is to say patient care.
In the last five years, which is to say three and a half under President Bush and the loath-to-spend Republicans, and then 18 months under President Obama and the fully Democratic Congress, federal grants and contracts have grown 26 percent at Duke. Yes, 26 percent. (In one of the essays I praised earlier, Keohane foresaw a dramatic downturn in federal support!)
In the last year alone, we received $580 million, an 11 percent increase. And don’t say it is stimulus money: only $52 million was from the economic program Congress passed in February 2009. (Overall, as of October 1, 2010, Duke has received more than $200 million in stimulus -- either cash in hand or promised. Duke has no announced plan for when this short term infusion runs out.)
FC Suggestion: that Duke publish a formal report on its stimulus funds, with a candid assessment. Right now I only find lists of projects that right-wingers object to, including a study at Duke of Facebook. I worry that such short term financing is merely opportunistic, not part of a strategic plan.
Put another way, government money represents 28 percent of all income at this private university. Far more than tuition and fees. Far more than the endowment. Far far more than gifts. This is reason enough to open our Board of Trustee meetings, so people shepherding this public money operate in the sunlight.
✔✔SUPPORT FROM OUR ENDOWMENT
Every Dukie who loves and cares about this awesome institution can probably recite the endowment numbers: $6.1 billion before the meltdown to $4.4 billion. And it now has “rebounded” to $4.8 billion.
But while we -- including Fact Checker -- focused on the principal, another number was flying under the radar. That’s the return we get on our endowment. Not year to year, which can bounce around quite a bit, but on a sustained basis over 10 years.
Duke was mighty proud: it boasted our ten year return was among the best among all major college endowments. This appeared near the top of press releases year after year, and right on top of the Duke Management Company’s website.
Kaboom, as they say. We were lulled by what happened in 1999-2000, when the dot.com boom brought Duke an incredible 58.8 percent return on its entire investment portfolio. But with Trask’s new report, that aberration disappears from the average, and we find we’ve only earned a return of 6.5 percent over the decade. Anemic.
If this were not such a devastating number, it would be humorous to watch administrators scramble. Trask himself started talking about an 11 year return, to breathe new life into the aberration, and also a six year average -- statistics he has never offered before.
Loyal Readers, when you hear this, stand up and shout, “I read Fact Checker. Enough with the shuffle. No gimmicks!”
Then there is the comment that Vice President for Finance Hof Milam made to the Chronicle: “There is no magic to a 10-year measurement for one particular 10-year period… I don’t think the 6.5 percent for the last 10 years tells me anything about future returns and certainly not the returns for the next five years.” This explains why Milam’s office draws up a chart every year showing how the ten year average moves.
When you budget for a return of 8.5 percent, and you get only 6.5 per cent long term, this is deep trouble.
Let’s look at this another way: if our endowment of $4.8 billion yields two percent less than we planned for each year, that’s a shortfall of almost $100 million per year. In other words, a shortfall every bit as big as the one that developed when our endowment slipped from $6.1 billion, the $100 million shortfall that President Brodhead has said we are trying to close in three steps ending with our 2011-12 budget.
And yet another way of looking at this. In this decade, the endowment has given us as much as 19 percent of the annual operating income for the educational part of Duke. That has slipped, down to a projected 15 and 16 percent. If we must cut again because the sustained earnings are below expectations, the endowment may only provide 9.8 percent.
Ouch.
By the way, a by-product of our investment return is a slush fund for the President, accumulated through some fancy footwork and leveraging called “virtual equity dividends.“ This allows the President to push initiatives he likes, moving them forward before they are incorporated in the regular budget. Zap. For two years, the slush fund has been dry.
Suggestion: we make the slush fund a permanent part of the budget, rather than having it depend on luck.
✔Speaking of leverage, Duke continues to exploit exotic, risky investments, with only a small sliver of our nest egg in US stocks traded on Wall Street. Twice as much is invested in international stocks.
This is the conundrum: higher yields come from bigger risks. FC has no solution other than saying all stakeholders have a right to know where the money is parked and the outcome.
In the last fiscal year, hospital reserves alone took a $50 million bloodbath with interest rate swaps, futures contracts, swaptions (never heard of it, but Trask says we own some), options and warrants.
✔The largest concentration of our money is with hedge funds, about $1.3 billion, and private equity companies, just over $1 billion. We have moved heavily into comparatively safe bonds, just under $1 billion.
Some of the churn of assets has slowed down. In the year after the great Wall Street collapse, Duke bought and sold securities worth $31,818,000,000 as it moved money around. This past fiscal year, the total was $16,538,000,000.
Much of our portfolio -- too much -- is valued by using estimates. And there are three grades:
First, some of our investments can be readily traded, for example stocks on Wall Street. That is, we know the value because there is a ready market (like Wall Street) where the investment can be turned to cash.
The second grade is less liquid -- where there is no ready market but at least there are some guideposts to value. A good example of this kind of asset is your family home even though Duke does not trade in this kind of real estate. You know it can be sold someday, but there is no immediate market. And you know what the guy next door sold for, and what the guy down the street sold for, so at least there are some guideposts.
But $5 billion in Duke money sits in the third grade of investments where we can only pray for its value. Example: a private equity deal that won’t mature for four years. If we try to sell out, for sure there will be a massive loss.
These estimates for the current value of these investments depend on the sharks who put them together -- the hedge fund and private equity dealers. We hope for good faith, we take their word.
Trask writes, “Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in Duke’s consolidated financial statements.“
$5 billion. And counting.
Private equity deals and hedge funds often require not just an initial investment, but continuing deposits. Duke is obliged to pony up $1 billion more. Yes, more money for the precise investments that soured so badly in the meltdown.
Suggestion: the state of South Carolina, fed up with high fees from hedge funds and secrecy about holdings -- both the value of their holdings and the nature of them -- is starting its own fund, hoping to attract other states to invest as well. (The fees are typically 2 percent of your investment every year, plus 20 percent of your profits. If there is a loss, it's yours alone.) Duke should take the lead among universities.
✔✔✔✔✔GIFTS Or more accurately PRIVATE SUPPORT
The separate annual report on “gifts” has not yet been issued yet. We assume the PR people are awaiting another Friday. We do have some snippets.
Caveat one: Duke administrators use the word “gifts” very loosely. Don’t think of this as a gift you may get on your birthday. In many cases, we have to provide services in return. Thus, the American Cancer Society’s $750,000 grant to Dr. Potti for cancer research.
Caveat two: Fundraisers who want to look good, through their national professional association, have developed their own protocols for counting “gifts.” This is called the CASE method. By this standard, as President Brodhead bragged during his start-of-the-school-year tour of local newspaper editorial boards, Duke received $345 million in 2009-10, the third highest on record, recession be damned! Loyal Dukies will immediately notice the selective release of information, since the full report is not yet available.
Here's the problem: Every other number in Duke’s financial reports -- and in reports you see in the outside word -- is derived using a different protocol, called the Generally Accepted Accounting Principles, or GAAP. By this standard, Duke recorded pledges and cash of $174 million -- while Brodhead was talking of $345 million.
This is one good reason why we need Fact Checker!!!
In his report, Trask boasts of “nearly 100,000 donors.” The count is undoubtedly accurate, but let’s put this into context. We reached 100,000 donors in the year before the 1996 lacrosse hoax -- and then saw a big falloff as alumni objected to the administration’s handling of the matter. Duke has just recovered. Or has it.
In each of the last five years, we have added more than 4,000 new alumni, their spouses, their parents and their employers -- all of whom we solicit. The number who have died off is vastly smaller, due to the limited size of the student body 50 and 60 years ago. Thus the “nearly 100,000 donors” is not as strong an army as officials would suggest.
We will have more of this when we get the annual Development Report.
A few paragraphs ago, we mentioned that the “gift” totals combined pledges and cash. This has assumed new importance because the eight year old pledge of $72 million -- Duke's largest gift -- by former Trustee Chair Pete Nicholas, founder of Boston Scientific Corporation, and his wife Ginny, heir to the vast Lilly drug fortune. In a scoop, the Chronicle reported they had stiffed the University.
The latest numbers from Trask indicate the problem goes beyond the Nicholas situation -- for the amount of "uncollectible amounts" exceeds their pledge. There is also $13,416,000 promised in the last fiscal year -- well after Nicholas -- that Duke does not think it will ever see.
FC Suggestion: Duke should record and announce all gifts only when the cash is received.
One of the strengths of a university is its endowment, a perpetual engine pushing it to greatness. Duke has added very little in the way of new contributions. A chart in the Trask report indicates $25 million came in during the year for both endowment and long term capital projects. VP for PR Michael Schoenfeld told Fact Checker on Tuesday, responding to an inquiry very promptly, that cash, not pledges, for endowment during 2009-10 totaled $69.1 million on a GAAP basis. He said there is no breakout for donations for buildings.
We will have to wait the annual report on giving to take another look. FC Suggestion: Duke follow the format used by Notre Dame during its last big fund drive, wherein contributions are clearly put into bins for immediate use, for buildings that last two generations or more, and for perpetual endowment.
✔Included in Trask's totals, though it has not yet been publicly announced, Fact Checker can report the biggest gift during the past year was by bequest from the estate of Glenn A. Kiser, MD ‘41 and his wife Muriel, $17.2 million for the pediatrics department. He was a pediatrician in Salisbury NC and his wife, a UNC Greensboro graduate, a public school teacher for more than 30 years.
How does FC find out such things?????
The biggest gift during the past year to any institution went to Columbia University -- $400 million for undergraduate aid from the estate of alumnus and broadcasting tycoon John Kluge. In recent years, many schools have gotten gifts in the $200 million dollar range that have eluded Duke. These include UCLA from record and movie maven David Geffen, NYU from hedge funder John Langone, Johns Hopkins from NYC Mayor Michael Bloomberg and Cornell Medical from Citibank’s Sandy Weill.
President Brodhead has noted the lack of major gifts. And it bodes ill for the forthcoming fund-raising drive, which could well be delayed. Any delay would also play into the question of whether the President, who is 63 years old, would be able to provide leadership for the duration -- in other words continue in office for another decade at least. This continuity is not an option, it is mandatory.
Finally a brief note on The Duke Endowment. Often confused with Duke University's own endowment, with James B. Duke as the creator of each, this giant Charlotte based charity is the University's single most important contributor. It too has hit hard times and is not making all the gifts it once did. We defer discussion until arrival of the annual fund-raising report.
✔✔✔✔✔ THE UNIVERSITY’S EXPENSES
✔Special endowment spending: Duke Health and the “educational” functions of Duke each have a budget of about $2 billion. Duke Health is rolling in money from patients. Duke education is skimping by.
In 2008-09, when the financial meltdown began, "education" went through $182,000,000 of extra appropriations from the endowment to cover red ink. Last year, for 2009-10 we hid $89 million in red ink this way. Our current budget has another $72 million shortfall, even though Trask and Dean Crumbliss have erroneously described it as “balanced.”
This is not sustainable.
✔Routine endowment spending: Moreover, beyond the red ink, the Trustees have juggled the formula governing how much money we routinely move each year from the endowment to the annual budget.
The traditional formula was responsible. It anticipated a continued return of 8.5 percent on endowment. We’d take 5.5 percent of that to spend, and 3 percent to reinvest to protect our purchasing power against long-term inflation.
Even though Fact Checker was assured in writing by a very very high ranking administrator that no changes in the formula had taken place, Trustees acted irresponsibly behind closed doors. We are at work on the precise time-line here, to re-evaluate when the assurances were given and to see if we should scream.
For 2008-09, Trustees approved a special spending rate for endowment related to financial aid. This was 28 percent above normal, which by our calculation would be 7 percent.
And for the 2009-10 year, Trask reveals for the first time the Trustees increased the spending rate for financial aid funds to 7.2 percent, and for all endowment to 5.8 percent.
Fellow Dukies, this is living beyond our means. It is robbing future generations of their rightful share of the money set aside to insure the greatness of this school in perpetuity.
No, I have no suggestions. But we do need a strategic plan so that we do not just take step by step, but rather are running toward the goalpost.
✔Fringe benefits: even with fewer employees, the cost of fringe benefits jumped.
The pension fund -- once with hundreds of millions in surplus -- now has a pad (positive funded status) of just $157,273,000. This suggests that within the next few years, Duke will have to add substantially to its contributions to the pension system at the expense of the current budget.
Look at the growth in pension benefits:
2011-12 $38,907,000
2012-13 $40,512,000
2013-14 $42,316,000
2014-15 $44,990,000
2015-16 $48,136,000
Here's another view: A Loyal Reader -- a mole in Allen Building -- has sent Fact Checker confidential documents that show the cost of fringe benefits continuing to spiral out of control for the next three years -- despite Brodhead Administration attempts to control them.
The current numbers plus the projected increases are startling: right now the University budgets a hidden 25.9 percent of salaries for fringes. But in two years, this will increase to 28.5 percent. (This is one reason why administrative expenses, questioned by the columnist, are so high and expanding).
And it's a drain on resources big enough to affect other budget items, including the amount of money needed to accord employees base salary increases after two years of freezes. Small wonder that President Brodhead and Dean of Arts and Sciences Crumbliss have slipped in, very quietly, talk of the goal of a balanced, sustainable budget being delayed.
When the fiscal crisis hit, Brodhead announced a three year austerity plan that would have ended next year. But more recently, he and Crumbliss have talked of the 2012-13 year as well.
✔The biggest factor in fringe benefits is of course the medical plan. And ours is gold plated. Hearing. Vision. And despite rhetoric, the Brodhead Administration has failed to address the core structure.
Rather, it has danced around the edges making changes that almost every other health plan made years ago. For example, for the first time this year, employees must avoid brand-name drugs and use generics. And employees also must use specialists like cardiologists and dermatologists who have signed contracts with the Duke plan that limit their fees. Previously Duke allowed its faculty and employees to go to any doctor, at a much greater cost. Duke continues to accord retirees and their spouses medical benefits -- no longer enjoyed in corporate America, now reserved largely for military retirees and their spouses.
FC suggestion: Duke make public an analysis of its health plans, comparing them to other schools in the area as well to private industry. Our employees must begin to realize they are going to have to pay higher premiums and higher co-pays.
Another very costly fringe gives almost all employees extra money -- added to their taxable salary -- if they have children in college. This unique benefit -- unheard of outside the academic tower -- started as a benefit allowing children of faculty to attend Duke for free, which in fact did not cost Duke any real money since all the classes were offered anyway.
But the benefit has spread in every imaginable direction, affecting more employees and allowing them to select whatever school they want. As the amount of this benefit is tied to Duke's tuition, it goes up every year. Year old statistics show an administrator like Executive VP Trask, who has two children, would receive an extra $56,232 per year during their undergraduate years.
Suggestion: Duke index this benefit to our own need-blind admissions policy, giving a sliding scale of benefits, with nothing to employees with substantial earnings.
✔A comparison with historical figures for overall fringe benefits is equally stark. The oldest figures that Fact Checker obtained pertain to the 2007-08 academic year. They show fringe benefits adding 22.7 percent to budget costs. With a projected 28.5 percent rate for the 2012-13 academic year, the increase amounts to an astounding 26 percent in just five years.
Fellow Dukies, this is not sustainable.
For the first time this year, Duke has calculated a fringe benefit rate for Ph.D. students who get stipends to teach and do other work. It is vastly lower than regular faculty, 8.4 percent of their salary. This is projected to increase to 9 percent by the 2012-13 academic year.
✔✔✔ FINANCIAL ASSISTANCE: The report says Duke spent $196 million in the 2009-10 academic year, up 13 percent over the previous year. Trask must be counting every crumb, and there is no explanation how he reached that total. Four years ago FC saw a budget estimate putting need blind aid at $53 million.
In addition, students participating in work-study programs earned $30,909,000. That’s down from $35,136,000, reflecting fewer employment opportunities at the university.
Students who borrowed from Duke to attend school repaid $6,515,000. That’s way down with no explanation, from $9,493,000 the year before.
Suggestion: As President Brodhead has stated, we cannot let a new barrier go up, based upon the socio-economic status of one's birth, to replace the barrier of race that burdened us for too long. Excellent so far. But Duke has focused on only one part of the equation -- meeting the higher cost. There must be equal focus, realizing that Duke itself is the one raising the barrier with tuition hikes far in excess of education. Our strategic plan, badly in need of updating, should focus on this.
✔✔ INTEREST CHARGES, BORROWING When President Brodhead arrived at Duke in mid-1994, the total debt was approximately $1 BILLION. Six years later, on June 30, 2010, we owed $2,732,000,000. To be fair, and Fact Checker is fair, $500,000,000 of the new borrowing was for cash reserves, just in case. We are sitting on it. FC's previous link of this money to the endowment apparently was inaccurate.
The report states that Duke spent $117,459,000 on interest on indebtedness in one year, a huge jump from $90,836,000 the year before. That’s more than twice what we spent ($42,093,000) on all of our libraries combined! This is an unsustainable course.
Moreover, Duke has been paying very favorable interest rates on its ever-expanding debt. In most cases, the interest rate is variable, meaning that with better economic times, the university will pay more.
Further, unlike people who may borrow money to buy a home, who pay interest plus some of the principal back every month, Duke only plays interest. Example: we are borrowing to put up the new Keohane Quad home. Forty or fifty years from now, we will have an out of date building and still owe every penny from the construction bonds. Our only recourse will be to refinance -- at the mercy of the current interest rate being demanded by lenders.
This is very unhealthy. It is the legacy to future Dukies from the Brodhead years.
Suggestion: we only put up buildings that are fully paid for. Sorry to crimp your style, administrators.
While Duke has maintained high credit ratings (but not the highest), there was a revolt among Duke Health bond-holders during the past academic year. They surveyed the burgeoning debt. They surveyed the risky investments where their collateral was held. And they successfully demanded that DUMAC separate out of its general investment pool the collateral, and put it into far safer investments that can quickly be turned into cash without a fire sale. This has the effect of moving some of DUMAC’s money into investments that yield less.
✔✔✔✔✔ THE DUKE HEALTH SYSTEM
For the 10th consecutive year, Duke Health was profitable. And boy was it. Whoops, this is a non-profit institution so we speak of surpluses.
We shall look at the growth of earnings from the perspective of the controversial bonuses paid to Chancellor Victor Dzau. While we do not know the terms of his secret personal contract, it is safe to assume there is some tie to profitability.
The $1 million bonus that Dzau was paid during the 2008-09 academic year was tied to earnings of $175.4 million in 2007-08.
In 2008-09, we know that profits soared to $220.3 million. We won’t know his bonus based on this until the new Form 990’s appear next May.
In 2009-10, profits leaped again, to $258 million. Dzau will be paid his “incentive” for our last fiscal year during the current one, and in May 2012 we will learn about it.
As FC has noted, this is only the beginning of a compensation package that is inappropriate for these lean years, inappropriate when viewed in the context of the squeeze on so many fellow employees.
Duke allows Dzau to take sufficient time off to sit on four corporate boards, earning another $1 million a year in fees. We believe he is also scientific adviser to other corporations. And in the past, he has received $250,000 in one year from the Diagnostic Clinics, the private corporation that issues no reports formed so Duke Medical School professors can also see private patients and earn fees. We do not know if this is an annual payment.
While Dr. Dzau has taken the brunt of the "bonus" uprising, there are other managers whose bonus -- expressed as a percentage of their base -- was even larger.
Suggestion: candor. FC had to pursue and pour through many pages to compile the list. As is happening with union contracts and personal service contracts throughout our society, Duke should seek to reopen negotiations.
✔Duke Health has been able to grow its profits despite capacity constraints at Duke Hospital. Currently we are building a Comprehensive Care Center and a new hospital, called the Medical Pavillion at present but watch for a donor’s name, that will allow for further growth.
There is another way of looking at all this: every time a patient is charged $1,000, Duke keeps $125 in profits, adding it to massive reserves. We have a separate corporation, the Patient Revenue Management Organization, with 1,257 employees sending out bills for every aspirin. That’s right. 1,257 at last count. Including the Medical School, Duke Health embraces 24,791 employees.
Trask‘s report reveals that Duke expanded its charity care policies so that uninsured people, who formerly were billed for full freight, receive some of the same discounts negotiated by insurance companies for patients they cover. This seems like major wonderful news to Fact Checker, but the tiny type in a footnote is all we know.
In discussing malpractice at Duke Health, Trask reveals Duke has set aside about $70 million to cover lawsuits. Then there is this oblique warning, perhaps with Dr. Anil Potti in mind: “The estimated liability for professional and patient general liability claims will be significantly affected if current and future claims differ from historical trends.“ FC anticipates a flood of lawsuits from cancer patients; we will be watching carefully to see if Duke sets aside additional monies.
Which brings this discussion to the Durham Casualty Corporation. This is not in Durham at all, in case you are looking around for its office. And the casualties happen to be victims of Duke malpractice. Duke runs an insurance company that has hopped around the Caribbean and is now headquartered in Bermuda, which is to say in tax havens. FC has no idea how all this works, for no reports are available, but we do know that exemption from the federal income tax only extends to core functions, not auxiliary enterprises.
As a statement of high principle, Duke should not only conduct its affairs with transparency, but it should not dodge taxes. It should be a good corporate citizen of North Carolina and the USA.
Moreover, just as we look for moral investments, for green investments, we should look for investments that create jobs, good jobs. No one in the USA ever got a job because of money stashed in Bermuda. Nor because of an investment in a private equity situation. We should have annual reports on social responsibility achieved as well as dollars earned by our endowment.
As Loyal Readers will undoubtedly recall, Duke faced significant liability claims of another nature stemming from its handling of the lacrosse hoax. But aside from one $2 million payment to a law firm in one year, we have not been able to trace the totals. At the present time, Duke and two insurance companies are locked in a three-way federal court battle over the costs of defending and settling this mess. One of the insurance companies is balking because Duke will not reveal the extent of its costs to settle with the three players who were falsely indicted.
✔✔✔✔✔THE CRISIS IS NOT OVER
Trask is his usual blunt self in saying Duke is not out of the woods, identifying 2009-10 as a period for “important first steps toward achieving stability.” Note: first steps.
Again, Trask writes that our endowment “returns are expected to experience continued downward pressure in the coming years.”
Brodhead told us when all this started to fall apart it would take only three years. In fact, the acting Dean of Arts and Sciences Crumbliss let a little secret out of the bag when he said Trinity College would need an extra year -- that is, 2012-13 -- to achieve sustainability. They should share with us more of what they know, and also give us a blueprint for the future, which at the moment ends with 2012.
As Loyal Readers can deduce from this FC report, despite lip service and constant repetition of the word “transparency” in the administrative corridors of Allen Building, there is no accountability. Example: we were told one area being addressed with cost cutting vigor was travel expenses. There is no documentation anywhere that would allow us to monitor that; the Form 990 expense category for travel expenses actually is growing, but it includes expenditures in research contracts that are expanding in size, which is to say the category embraces more than travel to meetings and conferences that Allen Building might reign in.
Finally, we point to one coming decision we will be watching very very closely. President Brodhead has stated that there will be a limited amount of money -- that which is not sucked up by fringe benefits -- to give small raises for the first time in two years. We believe these raises should not be accorded across the board, but rather weighed toward employees with low salaries, for they have had far less flexibility in dealing with their personal budgets than a faculty that is, collectively, one of the best paid in the world.
Just as Duke gave one time payments only to people earning under $50,000 in the first year of the freeze, and under $80,000 in the second, we believe any increases in base salary should also be responsive to faithful lower-paid employees caught in a frightful squeeze.
✔Thank you for reading Fact Checker. Informative. Incisive. Not verbose.
