Use of Funds

How does Princeton use Robertson Foundation funds?

In large part, the process by which the Foundation provides support to Princeton has been in place for more than 40 years. [See: How has the Robertson Foundation governance process evolved since President Tilghman became President of the Foundation? for a discussion of the improvements that have taken place since 2002.]

First, the Woodrow Wilson School makes academic judgments about how best to develop a curriculum for its graduate program, attract and retain faculty and recruit graduate students. The School then determines the costs of the graduate program, which initially are paid for by the University, not the Foundation.

Under this procedure, the Foundation does not contribute any funds toward these costs as they are actually incurred. Rather, the University directly funds all of the School’s expenses throughout the fiscal year. After the end of the fiscal year the University obtains reimbursement for the Foundation’s share of the costs through what is known as an annual “settlement” process. The Foundation’s share is calculated according to an agreed-upon formula (initially the “Bowen Formula,” now the “Slaughter Formula”). In this “settlement” process, Princeton presents the Foundation board with written reports from the Woodrow Wilson School dean detailing the School’s programmatic activities, a dean’s report on School expenditures, and a report by the Foundation treasurer. In addition, the University presents the Foundation board with financial tables that detail total annual expenditures for faculty instruction, research, student fellowships, staff, overhead or indirect costs, and other costs, as well as a breakdown of “credits” owed by the University to the Foundation (credits that cover, for example, costs attributable to the undergraduate program, which is not funded by the Robertson Foundation). Only after the settlement materials are presented are Foundation funds transferred to Princeton to reimburse the University for the Foundation’s share of the costs of the graduate program.

Over the past 45 years, Princeton University has used Foundation funds to provide the most generous financial support in the country for outstanding graduate students, hire and support a distinguished faculty, create research centers and programs that serve both to recruit and retain faculty and to create intellectual communities and opportunities for more specialized study for faculty and students, administer outreach and placement programs, and construct buildings to accommodate the steadily expanding range of School activity. [See:] The result of all this investment is not only a preeminent graduate program that prepares its graduates for leadership positions in the federal government in particular and the public sector in general, but also a genuine leader in public policy education, a School that is constantly innovating, experimenting and looking for ways to train the future public leaders in both government and quasi-governmental organizations.

Does the Robertson Foundation pay for University “overhead” and administrative costs related to the graduate program of the Woodrow Wilson School?

Yes. From the beginning, the Foundation realized that calculating the actual cost of the School’s expanded graduate program on a dollar-for-dollar basis, year in and year out, would be impossible. As a result, the Foundation looked to a formula designed to approximate the portion of the Woodrow Wilson School’s total costs for which the Foundation should be responsible. The defining principle of this formula, which was in place for 40 years, was articulated by University President William Bowen:

Because the School is an integral component of the University, sharing the time of faculty members with other departments and sharing facilities and supporting services with all of the other components of the University, a straightforward system of direct charges for all School activities is impossible; the need to allocate joint costs cannot be avoided, and any such allocation is inevitably somewhat arbitrary. Hence, what we are seeking is a fair approximation of the true costs involved in the expansion of the School’s graduate program.

The so-called “Bowen Formula” operated through a series of annual charges and offsetting credits that, taken together, were designed to achieve a “fair approximation” of the cost of the expanded graduate program. This formula was vetted with the Foundation board at the time of its implementation and applied by the University and accepted by the Robertson family trustees for more than 40 years before this litigation began.

Plaintiffs have focused on the Bowen Formula’s charges without acknowledging its many offsetting credits and have distorted the application of the formula in various ways. Princeton has worked hard to make sure that the Robertson Foundation is charged its fair share of the expenses of the Woodrow Wilson School’s graduate program, and no more.

Haven’t plaintiffs raised questions about the Foundation’s spending?

The Robertson family members make a series of claims concerning alleged misspending by Princeton of Robertson Foundation assets over the past 45 years. They claim that Foundation support for Princeton’s expenditures on Woodrow Wilson School faculty summer salaries, faculty research, research centers, capital construction, administration, and overhead (to name a few) is improper.

The Robertson family members’ view on spending is colored by their overly restrictive interpretation of the “mission” of the Foundation. [See: What do the plaintiffs claim is the purpose of the Robertson Foundation?] For example:

  • Plaintiffs seek to limit the use of Foundation funds to support summer research salaries for Woodrow Wilson School faculty members. Plaintiffs’ approach is unduly narrow and at odds with the historical and current view of the importance of summer salary funding. The Foundation has supported summer salaries from its earliest days. Plaintiffs ignore the continuing broad benefits that the Woodrow Wilson School graduate program receives from faculty research, as well as its role in recruiting and retaining preeminent faculty members. A 2005 report by Joseph Nye, Jr., former dean of Harvard’s Kennedy School of Government, who is serving as an expert witness for Princeton in the litigation, states that “[r]esearch funding, including summer salaries to support research, is an essential component of the formula for success” for a public policy graduate school.
  • Plaintiffs claim that they are entitled to more than $16 million in accumulated equipment depreciation charges dating back to 1965 because the University allegedly “double charged” the Foundation for both direct equipment purchases and indirect equipment depreciation costs. Plaintiffs admit that they cannot establish that this alleged double charge occurred during most of the years during that period. Until 1985, all basic equipment was paid for by the University; indeed, only two “extraordinary” equipment purchases—totaling less than $140,000—were charged to the Foundation, and those charges were disclosed to the Foundation’s board. Even after 1985, many Woodrow Wilson School equipment costs were borne by the University rather than the Foundation.
  • Plaintiffs claim that every dollar of Foundation money directed to School-affiliated research centers and individual faculty research accounts from fiscal year 1993 onward was improper and should be repaid. Plaintiffs make this argument without analyzing the purposes and specific use of these funds. The Robertson Foundation has partially funded School-affiliated research centers for decades without complaint from the Robertson family members. From 1980 to 2000, the financial tables presented to the Foundation board disclosed $10 million (only a small part of the total costs of the School-affiliated research centers) in Foundation support for faculty research, professional research staff, and faculty non-program research. There was no objection by any member of the Foundation board to any of these expenditures. These research centers contribute in a meaningful way to the environment of the School, encouraging critical thinking and helping make the School vibrant and relevant. As Robertson-designated trustee General Goodpaster recognized: research “bring[s] and keep[s] faculty and students at the frontiers of understanding and knowledge in the field, and [provides] thorough, honest and scholarly studies of past policy cases and of some continuing policy problems. To get and keep the outstanding faculty required, such research would seem to be essential.”

In claiming that Princeton has “overcharged” the Foundation (for spending that the Robertson family admits went to Princeton and the Woodrow Wilson School), plaintiffs fail to take full account of a long-established series of annual charges and credits between the University and the Foundation which have been in place since the Bowen Formula was adopted 40 years ago. [See: What is the Scholars in the Nation's Service initiative?]

In addition, plaintiffs choose to ignore the fact that Princeton’s use of Foundation funds has been regularly reviewed by Robertson family representatives. Prior to the filing of the lawsuit, none of the family-designated Foundation trustees ever objected to these expenditures. Plaintiffs William Robertson and Robert Halligan, who have served on the Foundation’s board since 1974 and 1982, respectively, at no point ever objected to any of the financial statements or dean’s reports presented in the course of the Foundation’s annual meetings, or to any of the Foundation funding that they now attack in this litigation.

By asking for legally unsupportable “present-valued damages” on expenditures that are in some cases four decades old, plaintiffs not only make claims that lack merit, but grossly overstate and misrepresent the true value of their claims. For example, the plaintiffs claim that the Foundation was charged both for the purchase of certain equipment and for equipment depreciation, and that this represented an improper “double-charge.” The total amount paid by the Foundation in direct equipment costs was $1.5 million, yet plaintiffs want to recover over $16 million for these charges—an amount they calculate by annually compounding supposed charges over 40 years, often using the Foundation’s exceptional rate of investment return to do so. Under plaintiffs’ arithmetic, an equipment depreciation charge of $10,763 in 1965 is extrapolated into a current day “overcharge” of $788,175, and a challenged charge of $23,315 in “building depreciation” in 1966 becomes a $1,708,598 claim in the litigation.

Princeton takes its obligations to the Foundation seriously. Not surprisingly, when combing through 45 years of Foundation records to respond to plaintiffs’ scorched earth litigation campaign, Princeton identified a limited number of bookkeeping and related inconsistencies and has made corrective adjustments.

Why did Princeton reimburse the Foundation for the Graduate Funding Agreement?

In March 2007, Princeton announced that it would reimburse the Robertson Foundation for the relatively modest cost of a program called the Graduate Funding Agreement (“GFA”).

The GFA was a pilot program between 2000 and 2002 that was established by former Woodrow Wilson School Dean Michael Rothschild to support Ph.D. students in three academic departments closely related to the Wilson School—economics, politics, and sociology—for the purpose of attracting and retaining excellent faculty in the School. By virtue of its design to support the Woodrow Wilson School, the GFA program was a permissible expenditure for the Robertson Foundation under its Certificate of Incorporation. In 2002, at the conclusion of its three-year trial, the agreement was discontinued by the current dean, Anne-Marie Slaughter.

During the most recent annual budget reconciliation, President Tilghman determined that the inception of the GFA pilot program had not met appropriate standards of transparency. The funding of the program should have been specifically presented to the Foundation because, although in support of the School’s graduate program, the funds were not direct expenditures through the Woodrow Wilson School. Princeton’s voluntary decision to return $782,375 to the Foundation was an affirmation by the University of its commitment to sound governance practices for the Foundation and of its willingness to take corrective action when it finds that such practices have not been followed.