Governmental Secrecy

An investigation into statements by Antioch University officials during crucial times

or

What are they hoping we don’t find?

 

During the most famous downfall of an administration, senators at the Watergate hearings asked “What did the president know, and when did he know it?” In the case of the Antioch University Board of Trustees, the question should be amended to include – “Was the information reliable?” Many have questioned the actions and statements of the Antioch University administration during their public efforts to suspend operations at the College, and yet the Board seems to believe only the information provided to them by the current University administration. Many current documents and reports of the University are not available; however with the benefit of budget documents released last year at The Antioch Papers, we can see differences in statements from prior University officials during a key time in the College’s history: the expense cuts of 2001-02. We can also see that some Trustees at the time may have known that the reports approved by the Board contained information that was inaccurate and misleading-Trustees who are still on the Board today.

What follows is an examination into statements regarding what was called the “non-crisis” that year. There are differences in statements contained in multiple reports to the trustees over time, as well as differences in what was reported to the community vs. what was reported to the trustees. The purpose of this examination is not to question the wisdom nor the necessity of past decisions; rather, it is to look at how these decisions and the precipitating events were presented to the College community and to the Trustees.

In October 2002, University Vice-Chancellor and CFO Glenn Watts gave the year-end final financial statement to the board regarding the University budget for 2001-2002. In his narrative, Watts stated the source of the deficit experienced the prior year, losses on the endowment due partially to the stock market ‘crash’ following 9/11:

“On the one hand, 2001-02 produced the largest accrual deficit ever recorded by the University as a result of major declines in the US stock markets. On the other hand, if the investment losses in the endowment are excluded from operations, the financial performance of the University was considerably better in 2001-02 than it was in the preceding year. Paradoxically, the success that the College has had in increasing the size of the endowment has contributed to the appearance of poor financial performance for University operations. The role of the stock market in 2001-02 cannot be overemphasized.” – Glenn Watts, 10/2002, Budget Report to the Board (emphasis added)

With the stock market having such a major impact on the “financial performance” of the University for the year, it would make sense to see that reflected throughout the prior year in the budget reports to the board and the financial statements made to the campus. But just three months earlier, Watts’ year end projection presented to the board barely made mention of the losses on the endowment; his only statement on the stock market was “For the second year in a row, the stock market has struggled unsuccessfully to move ahead.” Watts stated that Antioch College was having budget problems, and these supposed College problems were the cause of the University’s deficit :

“Although the College will experience a deficit in 2001-02 that will likely put the entire University into negative numbers, the new president is pursuing a strategy to control costs while meeting critical needs.” – Glenn Watts, June 2002 Budget Report to the Board, Projected Year-End Statement 2001-2002 (emphasis added)

The message of “College budgetary problems” was the same message carried to the College by the Chancellor of the University in December 2001. Writing a letter to the community eleven weeks after the terrorist attack-related stock market plummet, Acting President Jim Hall wrote:

“Six weeks ago I reported to you the need for us to reassess the College’s planned budget for the current fiscal year to ensure that our expenditures remain in line with revenue. At the time, I reported to the Community a need to adjust our budgeted expenses by about 9%, or $1.8 million.” – Jim Hall, Letter to the Community,12/3/2001 (emphasis added)

One would assume that we could look to our Trustees for real information. But in 2001, the Yellow Springs News reported:

“According to Board of Trustees vice-chairman Bruce Bedford, the trustees mandated the budget cuts at their October meeting because of a significant gap between the college’s projected income and expenses in this year’s budget.” - Yellow Springs News, 12/6/2001 (emphasis added)

Bedford, Watts, and Hall had appeared at Adcil, community meeting, and other special events on multiple occasions following the departure of President Devine. In their presentations, the stock-market related losses were barely mentioned in passing, if at all. What was a hazy picture on campus during that time has become clear with the benefit of the now released budget documents. In a budget report in early 2003, Watts gave the rational for these changes; the expense of depreciation was previously balanced against unspent interest on the endowment, and since there were losses in the stock market that year, they decided to move depreciation into the operating budget of the units:

“Halfway through the 2001-02 fiscal year, the Board changed the way in which depreciation is handled. Prior to that time, depreciation was budgeted centrally with the expectation that gains on the endowment and required savings would be sufficient to cover the expense. Beginning in January of 2002, campuses and other units were required to budget depreciation as an operating expense. As a result, campuses have had to adjust their budgets collectively to absorb about $1.4 million of expense that previously had been carried centrally. By including depreciation within the operating budgets of the individual campuses and units, revenue is committed to cover these expenses.” – Glenn Watts, 2/2003, Budget Report to the Board (emphasis added)

In a College with a budget of $18 million, this was almost a 10% expense added mid-year to the college. Obviously this was a significant expense, yet the Trustees received assurances that the College would receive assistance to accommodate this budget change. In a revised budget largely written by Jim Hall, submitted to and approved by the board, he stated the assistance would come from eliminating overhead payments to the University, along with increasing the subsidy to the college:

“Depreciation is included in these totals. In FY2002 – FY2004, University overhead paid by Antioch College is waived as an offset to including depreciation in the College operations budget. Additional subsidy is provided to balance the complete depreciation cost ($ 1,450,000 in FY2002).” – Jim Hall, 12/2001, REVISIONS TO THE FINANCIAL PLAN FOR FY2002 (emphasis added)

While Glenn Watts paints a slightly different picture, he does state that overhead was eliminated to assist the College in ‘balancing’ its budget. Interestingly, Watt’s statement puts the blame back on the College’s budget by not specifically mentioning the cause of this imbalance, depreciation:

“The Task Force also recommended that the College be exempted from paying overhead during 2002-03 as a transitional device until the College is able to bring its future revenues and expenses into alignment. This indirect subsidy is worth about $800,000 to the College in 2002-03.” – Glenn Watts, 6/2002, Budget Report to the Board (emphasis added)

 

Examining at the statements, it does indeed appear that the Overhead “To the University” line was ‘zeroed’ out. In 2001-2002, the line item “overhead (…) to the university” showed an expense of $993,411; while in 2001-2002 it showed an expense of $0. However, the “Overhead” category previously included all of the financial agreements between the College, the University, and the other campus, including the revenue agreement with McGregor. The “Task Force” mentioned by Watts recommended the change regarding depreciation and also recommended simplification of the ‘overhead’ category. This category is shown as an ‘expense,’ so support coming to the campus is shown as a negative. The relevant section of the budget is shown in the table.

 

Expenses: Overhead	2000-2001 actual	2001-02 Adjusted Budget
To the University	993,471	0
Rebates from the University	-550,000	0
Subsidy from Adult Campuses	-200,000	0
Subsidy from Overhead	-400,000	-600,000
Other (Intercampus Agree &    Univ Conf)	-378,422	0
Sum of category	-534,971	-600,000

 

The total all of the lines that appear in the overhead category shows the college was receiving a budgeted $535 thousand in support at the end of the 2000-01 fiscal year. After the “simplification” recommended by the ad-hoc finance committee, the College received a flat rate $600 thousand in budgeted support. This was only an increase of $65 thousand over the prior year. This could hardly be called an ‘offset’ to the new $1.4 million depreciation operating expense. Without the real offset of the overhead, depreciation was simply an added $1.4 million expense, and sure enough, the June 2002 budget report showed a projected deficit of $1.4 million with no explanation about the cause. Six months later in October 2002, Watts finally reports the real reason the College’s budget showed a deficit:

“When the 2001-02 budget was approved by the Board of Trustees, it was understood that this change in the way depreciation is budgeted would have a significant impact on the College. For that reason, the budgeted deficit was considerably larger than had been permitted in previous years.” – Glenn Watts, 10/2002, Budget Report to the Board (emphasis added)

From the statements above, it is clear that the reports presented to the Board contained contradictory and misleading information, yet they were approved by the Board. The expected defense would be that these reports are so large, these details could hardly expect to be noticed. However, these changes were not management decisions that were presented to the Board; they were recommendations from an ad-hoc finance group formed of many of the trustees themselves, what Watts called the “Task Force”. Its real name was the Financial Stabilization committee, and this ad-hoc group was started by Board of Trustees in June 2001 and included CFO Glen Watts. Minutes from June and July 2001 show its aim was to “restructure budgeting practices,” eliminate “yellow springs functional redundancies,” and achieve a “mandated headcount reduction of 10 people.” It is implausible that the ad hoc committee did not know the details of the budgetary changes they themselves were recommending. Yet reports the reports referenced above that contained misleading and inaccurate information were allowed to be approved by the Board, and it seems that the Board made decisions with drastic consequences based on the information contained in these reports.

Under section 7.2 of the Trustees “Standard of Care”, Trustees are allowed to rely on reports and financial statements presented from select individuals: other Trustees, and members and officers of the corporation including the Chancellor, the campus presidents and the CFO. If a trustee has knowledge that reliance on these reports and financial statements is unwarranted, then a trustee is said to not be acting in good faith. It would appear that members of the ad hoc Financial Stabilization committee had knowledge that the information contained in the reports presented to the Board was inaccurate, but let those reports be accepted by the board. Many of the Trustees who were active on this ad hoc Financial Stabilization group in 2001 are now familiar names: Current Board Chair, Art Zucker, Glenn Watts, Jack Mersalis, and Bruce Bedford.

Two years prior to the Watergate hearings, whistle-blowers released a confidential report to the press popularly called The Pentagon Papers, a top-secret United States government study about the history of the Government’s internal planning concerning Vietnam. The report showed that the government deliberately misled the public regarding aspects of the Vietnam war. In early 2008 The Antioch Papers, a website set up in the spirit of the Pentagon Papers, was served a take-down notice from Antioch University lawyers.

With the University’s efforts to clamp down on the flow of information and free speech, in contradiction to the traditions held by the College, it raises the question: what are they hoping we don’t find?

- Laura Fathauer

Filed under: Antioch University