ADELPHI -- In the decade since the University of Maryland Foundation Inc. opened shop here, it has amassed millions of dollars from investments, fees and donors who gave with the sole proviso that their money be spent in the best interests of the university.
By the end of that period, the foundation had helped campuses raise tens of millions of dollars, about 95 percent of which officials say is restricted to academic projects.
But it also had created $12.5 million in new debt for the University of Maryland.
And, when classrooms at the state's main research university were so crowded that many students could not graduate in four years, the private fund-raising arm had spent some of its undesignated money on real estate deals that soured and on perks for selected university officials.
The foundation has operated privately under the auspices of the University of Maryland Board of Regents since 1978, and much about it is a mystery.
But records and interviews with several dozen current and former foundation and university employees offer a glimpse into its business. For instance:
* It was the lead player in a Bowie research park that, after 10 years and four developers, has attracted only one tenant and left it with an $800,000 promissory note.
* It agreed to pay Montgomery County to build a new biotechnology research institute in Shady Grove that it planned to rent to the University of Maryland. The bill, now assumed by the institute, totals $12.5 million.
* It spent an estimated quarter of a million dollars designing a hotel-conference center that was scrapped last spring.
* It paid former Chancellor John S. Toll $100,000 to convince major donors to continue supporting the university after he resigned and went to work for a Washington research group.
* It dispensed perks, including thousands of dollars to University of Maryland Baltimore County President Michael K. Hooker, who used some of the money to pay a baby sitter for his daughter. After The Sun discovered this practice, lawyers for the foundation determined that the money should have been reported as personal income under rules governing non-profit, tax-exempt agencies, and Mr. Hooker said he would file an amended tax return.
For much of the past decade, as annual fund raising grew to $25 million, the foundation apparently operated without a list of priorities, ignored policies set by regents for keeping track of money, and rarely reported to the public what it did with income undesignated for any campus.
Even top foundation officials were in the dark.
"I was not aware of where the money was going," said Carol Parr, second in command of the foundation for four years until she quit in 1988. "It was an untenable situation," said Ms. Parr, now vice president for development at Gallaudet University.
The foundation's current directors say they are proud of their accomplishments over the years. They say that any money entrusted to them for specific purposes has been spent as requested and that much of the rest was spent on a fund-raising campaign launched in 1988. They say that their investments were undertaken at minimal expense, in cooperation with the regents, for the good of the University of Maryland System, and that such improvements as new classrooms in Montgomery County could not have been achieved without the foundation.
"It was always for education purposes," said John Martin, current president of the foundation.
Officials say they run a private organization with no obligation to disclose such details as how much unrestricted income they earned and what they did with it, what loans they made, or how they may have benefited university campuses over the years.
"Why should we?" asked Charles E. Peck, the newly elected chairman, explaining that donors have confidence in the foundation and none has ever complained.
The University of Maryland Foundation Inc. is a quasi-public fund-raising arm and bank for five of 11 state university campuses responsible to the regents. Although small in comparison with similar institutions in other states, it is the largest non-profit foundation affiliated with a state university in Maryland and manages more than half of all gifts to state campuses.
In its banking capacity, it disbursed $700,000 in interest for scholarships last year and returned $13.1 million in temporarily deposited gifts for academic purposes to the campuses.
In addition to investing gifts in stocks and bonds for the campuses, however, the foundation's stated purpose is to engage in entrepreneurial activities. This mission is shared by few public universities and only about 1 percent of non-profit organizations nationwide, said Richard Larkin, a senior manager specializing in non-profit organizations at Price Waterhouse in Washington.
The foundation's philosophy has been to encourage gifts and activities whose proceeds do not have to be used for donor-inspired projects or returned to specific campuses.
Until two years ago under the control of Chancellor Toll, Robert G. Smith, the foundation president and a university employee, and Robert Tardio, a Bethesda banker who chaired the foundation, it provided start-up money for projects that could not be tackled with state dollars and that did not rank on any campus president's priority list.
These projects include a subsidiary for classified research, ordinarily banned from university campuses, that failed to produce royalties; a 50-acre parcel for the benefit of Montgomery County; and a research park in Prince George's County that has so far failed to attract faculty or tenants.
The precise amount that the foundation was free to spend is unclear. Current officials will not say, and those associated with the foundation for the past 10 years say they cannot remember. However, Mr. Smith said the figure was in the millions. He and Dr. Toll said that 95 percent of the foundation's income was restricted. By that measure, the foundation would have had $1 million in unrestricted money to spend last year alone.
In addition, the foundation earns income from fees on accounts it holds for campuses, from "courses and conferences," IRS forms show, and from real estate gifts. For instance, it hopes to gain $3.2 million from the sale of land it was given in Baltimore County.
For most of the decade, the foundation had no expenses. Until lawmakers ordered budget cuts last year, it was run by central administration employees and its expenses were paid by
taxpayers.
Mr. Smith said the foundation spent less than $1,000 on its biggest undertaking -- a $1 billion high-technology Bowie research park intended to rival North Carolina's Research Triangle. He and others defend the project, which they believe may yet bring major benefits. Mr. Smith said the land in Bowie is worth $10 million. If the research park were to take off, it could bring in up to $2 million a year.
"We are prepared to wait it out," Mr. Martin said.
By giving away some of its land to a cash-strapped developer for a promise to pay, however, the foundation lost an opportunity to make money. The developer went bankrupt, leaving behind an $800,000 promissory note. The state and Prince George's County have invested at least $10 million in roads and interchanges, and today many residents view the 466 acres of former farmland as a white elephant.
"The longer it goes, the more in jeopardy these things are," Prince George's County Council member Richard J. Castaldi said.
Had university regents themselves attempted to develop a 50-acre plot of land owned by Montgomery County -- the foundation's second project -- they would have had to justify placing it ahead of major campus needs.
Had they done so, they might have avoided the nine boxes of legal documents and months of negotiations that ended last spring when the foundation withdrew from the Shady Grove projects.
In exchange for the land, the foundation promised university investment, including the creation of a new biotechnology research institute there and the expansion of postgraduate courses for professionals.
In one of the deals, the foundation agreed to pay Montgomery County $12.5 million to finance a building for the new institute, the Center for Advanced Research in Biotechnology. It intended to lease the building to the UM central administration at a profit.
In another deal that has since been abandoned, the foundation intended to borrow money from a bank to build a hotel-conference center to be run by University College, which would repay the foundation from its profits. T. Benjamin Massey, president of University College, estimates that the foundation invested $250,000 in the project. A third building, classroom space for evening programs offered by University College, is being financed by state, county and private funds.
The deals fell through after state officials raised questions and foundation officials decided that their assets might be imperiled if someone fell on a construction site and sued for damages. Last spring, the biotechnology institutes signed their own 62-page lease with the county.
Early in the foundation's history, before individual campuses set up their own fund-raising operations, the foundation provided valuable help, for example, in setting up annual giving campaigns. In more recent years, it has offered the support of experts in planned giving and real estate, according to deans and other top university officials.
Over the years, the foundation has also lent seed money to several campuses to help academic or fund-raising projects. The recipients and terms of the loans are not a matter of public record, but academics report that two of the five campuses -- College Park and UMBC -- received such help.
The foundation also raised money to buy UM football coach Bobby Ross a house that he used until he resigned. (The house was sold, and the proceeds were returned to the foundation.)
There seem to be no rules about dispensing discretionary money. Some campuses paid interest on loans; others, such as the Eastern Shore campus, didn't know they could apply for loans.
"It helped if Bob Smith liked you," said Judy DeSarno, a former chief development officer for the Baltimore-based medical, law and social work schools.
Regents were kept informed of the foundation's activities verbally, according to a former regents chairman, Allen L. Schwait. They ordered the foundation to give a report to the central administration showing how the money was disbursed to campuses, but, according to state legislative auditors who reviewed Dr. Toll's office, it never did. Foundation officials say such information is now computerized and available for review.
Unlike foundations run by the College of Business at College Park, the law school in Baltimore or the University of Baltimore, the UM foundation doesn't specify what it does with unrestricted money or make public its list of priorities. Ms. DeSarno, Ms. Parr, College Park engineering Dean George Dieter and others said they never saw a detailed budget or list of priorities. Only in the last few years did the foundation's annual report note that some of its extra money was spent on its fund-raising campaign.
Every month, the foundation sends out reports to the designated dean or faculty member in charge of each of the more than 800 individual accounts it holds. It routinely reports to donors on their contributions. And every year, it files annual reports with the IRS and hires an independent auditor to check its books.
However, the audits and IRS forms do not tell the full story. The audits made no mention of the $12.5 million the foundation was to pay Montgomery County, for instance, although auditors say the omission occurred because paperwork on the deal had not been completed. Neither does the foundation detail expenses or unrestricted income.
"The foundation -- at least the perception we all had -- was not run very well," said Ms. DeSarno, now chief executive of a national family planning foundation in Washington.
"Mostly, I think it was Bob Smith was so secretive. And when you got the information, it was in bits and pieces and you had to put it together."
In Annapolis last week, a Senate committee killed a bill advanced for the third time by Julian L. Lapides, D-Baltimore, that would have subjected university-affiliated foundations to public scrutiny. Regents also have tried to tighten their grip on foundations by requiring more detailed audits.
Last year, College Park President William E. Kirwan became the first campus president to have a vote on the foundation's executive committee. The campus three years ago considered cutting its ties and forming its own foundation because of "concerns on a variety of issues," the president said. It has put off the decision until the end of a current fund-raising campaign.
BTC "Having a foundation that strongly supports an institution is important," Dr. Kirwan said. "I am optimistic we can develop that relationship."