1. Mechanisms of Contractual Control

B. Leveraging Annual Payments

A common feature of Koch's large multi-year "gifts" to universities is a donation broken into annual installments, disbursed annually only after the donor reviews the programming and hires for compliance with the donor's objectives. The provision allows the donor the annual ability to renew or withhold funding for curriculum and teaching.

At a 2016 conference, the Koch foundation’s Charlie Ruger confirmed these criticisms while speaking on a panel entitled “Successful Models of Programs in Private Enterprise.” The other panelists were the two directors of Kentucky’s two Schatter/Koch centers; the University of Louisville’s Steve Gohmann and the University of Kentucky’s John Garen.

Ruger clarified the mechanism of contractual control:

Everything we do is on an annual basis. So we want our partners to have certainty and be able to do long term programs and stuff. So we’ll say 'for the first 3 to 5 years of an investment, we’ll commit, formally, 3 or 4 million dollars or whatever it is and we do that with a coalition of stakeholders, a coalition of donors. And here’s what the university has said it would like to do with the money. If it does anything else with it, you know, ‘best of luck but the next check isn’t coming.’ (Ruger, Successful Models)

Koch funded professors on the panel confirmed that this was their understanding. The director of the University of Louisville Koch Center, Dr. Steve Gohmann:

And I don’t worry about the university trying to steer the money away because they know that if they take that money, there won’t be money coming in the future. So this is the nice thing about getting money annually, is that the university is more beholden to let faculty do what we’re what we want to do with the money, which is, the donor also intends us to do, and because that money’s not there for them to grab onto and it won’t be coming the next year if they mess things up. (Gohmann, Successful Models)

EXAMPLES

At Florida State University, the 2008 and 2013 MOU give the Koch foundation veto power through a donor appointed Advisory Board, whose “periodic assessments” act to “[e]nsure compliance with the terms of this Memorandum through appropriate administrative or legal channels” (FSU 20082013 MOU, 7.a.(iv)).

This board is retained the ability to withholding funding for any part of the program at any time. As for hires, the retained the ability to review their performance and annually decide whether to renew or withhold the next year's funding:

The Parties intend that the Teaching Specialist Position will be funded by payments consisting of five installments . . . Each of the subsequent four payments for the Teaching Specialist Position shall be payable on each of the next four anniversary dates of the first installment described herein with annual renewal dependent upon satisfactory evaluation of the FSU Economics Department and the SPEFE-EEE Advisory Board that the individual is advancing the Objectives and Purposes set forth in Section 1(a). (FSU 2008 and 2013 MOU, Sec 4.d)

In both FSU contracts, Section 10 describes an annual payment schedule:

Payment schedule for yearly amounts and dates upon which funds will be released for the following  year will be specified in future Donor agreements between CGK Foundation, other Partner Donors, and FSU. (FSU 2008 and 2013 MOU, Sec 10.b)

The Payment Schedules are laid out in Attachment C of the FSU MOU. It describes the annual payments' dependency on explicit donor approval:

III. Schedule and Form of Contribution Donor agrees to make contributions to the Donee, and the Donee agrees to accept the amounts contributed on behalf of FSU according to the following schedule, subject to the procedures set forth below:
Up to $250,000 on or before June 30, 2009
Up to $250,000 on or before June 30, 2010
Up to $250,000 on or before June 30, 2011
Up to $250,000 on or before June 30, 2012
Up to $250,000 on or before June 30, 2013
Up to $250,000 on or before June 30, 2014
On or before April 1st of each year set forth above, Donee shall submit a written proposal to Donor for Donor’s approval (referred to as the “Donee Proposal”) of the projected expenses for the Professorship Positions expected to be hired by the Economics Department within the College of Social Sciences. (FSU 2008 MOU, Attachment C)

The Koch foundation retains the clear authority to annually renew or withhold funding for programming and hires.

At Utah State University, the 2008 MOU outlines how the Koch foundation would be “augmenting funding for five professors” through annual payments:

Funding Amount. Subject to the terms and conditions of hte Agreement, CGK Foundation agrees to provide or cause to be provided a yearly funding amount not to exceed Twenty-Five Thousand Dollars ($25,000) for each of the Professors payable, to USU Foundation on behalf of USU on an annual basis for a period of five years (USU 2008 MOU, Section 2.a)

In Section 6 of the 2008 MOU, the annual payment schedule is described:

Payment schedule for yearly amounts and dates upon which funds will be released for the following  year will be specified in future agreements between USU and CGK Foundation.

Since this is the identical language used to describe the FSU payment schedule, it stands to reason that the USU agreement has an attachment similar to FSU's Attachment C, which that lays out the details of the payment schedule. No such document has been obtained.

At Clemson University, the 2009 MOU describes the schedule of contribution:

CGK Foundation agrees to contribute to the University and the University agrees to accept the amounts contributed solely for the purpose of supporting CISC and the Donor Supported Professorship Positions in accordance with this Agreement and the following schedule subject to the procedures set forth below: 
$250,000 on or before September 30, 2009
$250,000 on or before June 30, 2010
$250,000 on or before June 30, 2011
$250,000 on or before June 30, 2012
Except with the respect to the first contribution, on or before April 1st of each year set forth above, University shall submit a written proposal to CGK Foundation for CGK Foundation's approval (referred to as "University Gift Request") of the projected annual expenses for the Donor Supported Professorship Positions expected to be hired (or projected annual expenses for the existing individuals holding the Donor Supported Professorship Positions) by the University (Clemson 2009 MOU, Section V)

At West Virginia University, the “Donor Supported Professorship Positions” established by CKF are required to comply with the following Objectives and Purposes:

CGK Foundation agrees to contribute to the Donee, and the Donee agrees to accept the amounts contributed on behalf of the University solely for the purpose of supporting the Donor Supported Professorship Positions in accordance with this Agreement and the following schedule, subject to the procedures set forth below:
Up to $200,000 on or before October 31, 2009
Up to $200,000 on or before June 30, 2010
Up to $200,000 on or before June 30, 2011
Except with the respect to the first contribution, on or before April 1st of each year set forth above, Donee shall submit a written proposal to CGK Foundation for CGK Foundation's approval (referred to as "Donee Proposal") of the projected annual expenses for the Donor Supported Professorship Positions expected to be hired (or projected annual expenses for the existing individuals holding the Donor Supported Professorship Positions) by the University (WVU 2009 MOU, Section IV) 

At the University of Louisville, the 2015 MOU proposes an annual award schedule:

The [University of Louisville] Foundation shall  submit an annual written report to the Donor of the Donor's consideration (the "Foundation Grant Report") and an accounting of the expenditure of any Contributed amount previously received. If the Donor approves the Foundation Grant Report, the Donor shall make a contribution up to the amount listed in the below schedule to the Foundation, and the Foundation agrees to accept such Contributed Amount on behalf of the University as stated in the below schedule. If the donor does not provide any Contributed Amount in response to the Foundation Grant Report, it shall notify the Foundation and the University as stated in Section 8.a (UL 2015 MOU, Section 5.a)

Section 8.a spells out the donor's "right to terminate this Agreement and discontinue or withhold any Contributed Amount." 

Section 5 further clarifies the annual schedule of potential payments:

At the University of Kentucky, a 2015 MOU  proposes an annual award schedule:

The University shall submit an annual written grant request according to the schedule below for Donor's consideration to provide grant funds and an accounting of the expenditure of any Contributed Amount previously received to the Donor according to the schedule below (the "University Annual Charitable Grant Request"). The donor has the right to decline providing funding in response to a University Annual Charitable Grant Request. (UK 2015 MOU, Section 5.a)

Section 5.b further clarifies the annual schedule of potential payments:

At Ball State University, the 2016 MOU proposes an annual award schedule:

The [Ball State University] Foundation shall submit an annual written grant request according to the schedule below to the Donor for Donor's consideration (the "Foundation Grant Report") and an accounting of the expenditure of any Contributed Amount previously received. The Donor shall review the Foundation Grant Report in good faith. If the Donor approves the Foundation Grant Report, the Donor shall make a contribution up to the amount listed in the below schedule to the Foundation, and the Foundation agrees to accept such Contributed Amount on behalf of the University as stated in the below schedule. If the Donor does not provide any Contributed Amount in response to the Foundation Grant Report, it shall notify the Founation and the University as as stated in Section 8(a)  (BSU Agreement, Sec. 5.a)  

Section 8.a spells out the donor's "right to terminate this Agreement and discontinue or withhold any Contributed Amount."

Section 5.b further clarifies the annual schedule of potential payments:

At George Mason University, the 2016 MOU proposes an annual award schedule:

The [George Mason University] Foundation shall submit an annual written grant request according to the schedule below to the Donor for Donor's consideration (the "Foundation Grant Request") and an accounting of the expenditure of any Contributed Amount previously received. If the Donor approves the Foundation Grant Request, the Donor shall make a contribution up to the amount listed in the below schedule to the Foundation, and the Foundation agrees to accept such Contributed Amount on behalf of the University as stated in the below schedule. If the Donor, in its sole and absolute discretion, does not approve the Foundation Grant Report, the Donor is under no obligation to contribute any funds to the Foundation or the University (GMU Agreement, Sec. 5.a) 

Section 5.b further clarifies the annual schedule of potential payments: