Ghost professors, gold mines and shell games at UNR

This is an edition of the University Scandals 96-97 series, selected installments of which were submitted for Pulitzer Prize consideration. Click here to access the archive.

The corruption in the University of Nevada system goes well beyond the multifarious conflicts of interest of regent candidate Mary Ellen McMullen detailed here last week. The collegiate cancer consumes much more than the capacity of one writer to define its boundaries. The leukemia in academia might require, heaven forbid, no less than the IRS.

I have recently talked to a lot of very good, courageous, well-intentioned people who place the welfare of students before the risk of reprisal. Alas, the U also bears its share of gray individuals who thrive in huge institutional settings. Such people are adept at sucking up and stabbing backs. They are very adaptable, able to blend into the woodwork while waxing very fat and getting very rich. They cull the competent in favor of the sycophant. Every rock I look under sends more such worms and weasels wriggling for cover.

TAKE MY DEAN, PLEASE. In a technique worthy of third world countries, one powerful dean writes himself in for $30,000 or $40,000 in consulting fees on every federal grant. Consulting on two or three grants a year plus his UNR salary generates a cool quarter million annually with time left over for golf and lunch. Others do likewise.

TAKE MY WIFE, PLEASE. Hiring dean's wives seems to be commonplace up on the hill. A roster of whose wife works where would provide very interesting reading. Maybe I'll do that next week. Some of the choicest positions in the university system involve fundraising, the perfect place to park an administrator's missus. The system's superfluition of fundraisers make $50,000 to $80,000 a year with no experience or performance required. University of Nevada President Joe Crowley "has a fundraiser at every college," one high official told me. "They end up going to the same well many times."

Another official added that some potential contributors have expressed frustration at being pecked to death by so many chickens. "Just get me one proposal from one person, please," groaned one beleagured donor. A certain highly paid fundraiser generated a grand total of $9,000 in a recent year. Another, a dean's wife with no experience before she was juiced into the job, turned out both competent and honest, working very hard to earn her pay.

TAKE MY CHANCELLOR'S WIFE, PLEASE. Leadership by example seems in short supply. Chancellor Richard Jarvis is the boss of bosses at UNR. Mrs. Jarvis is employed as vice-president of finance and administration at the Desert Research Institute, a branch of the system. She may be very qualified for the position, but her ascension raised questions and criticism. Regent candidate McMullen sees nothing wrong with this kind of stuff "in order to attract the best we can. We're a small state. She's eminently qualified."

TAKE MY FOUNDATION, PLEASE. In our conversation, Mrs. McMullen said "I'm the best informed regent candidate in northern Nevada." In a fundraising letter earlier this year, she stated "it takes money to run a campaign to inform over 70,000 voters of how qualified, how dedicated and how knowledgeable I am as a Candidate for the Board of Regents."

I thought such a person could certainly provide some hard answers. As she was born to a university family and has long been involved in school affairs, I asked her how many foundations the university system fronts. She did not know, but added that "all (individual colleges) have foundations." Chancellor Jarvis hisself could not tell me how many foundations are running around the university system, let alone total assets controlled and average cash flow. Some foundations on some campuses report to other foundations which report to the treasurer's office which generates paper to Jarvis, but there is apparently no centralized control of the shell game. There may be two dozen foundations, or more.

Because she currently sits on the UNR Foundation board of trustees, I asked Mrs. McMullen to nail down a rumor I'd heard about a recent $2 million endowment fund loss by that body. She recalled that in her first meeting as a trustee, just under a year ago, the board was notified of such a loss, and she thought that a lawsuit to recover had been filed. She couldn't recall any more about it, but promised to get me a report on it last week. I'm still waiting. On Nevada Day, I did get a glossy, full color campaign flyer from her, stating "I will be your watchdog to make sure our students and taxpayers get the most out of every single dollar spent."

I talked to the foundation's boss, Paul Page. He said Mrs. McMullen's memory was faulty, that the loss was a mere $200,000 attributable to a rogue trader who had burned many universities which invest in a pool he called "the common fund." All UNR Foundation eggs are in the common fund basket, Mr. Page stated. The likes of Harvard and Yale lost a lot more than the UNR Foundation, he noted, likewise promising me written reports. "You'll never learn anything from internal audits," a longtime insider told me later.

TAKE CARE OF BUSINESS, PLEASE. "I'm not someone who's going to tear things down till they have all the true information," Mrs. McMullen told me last week, quickly adding a line from her campaign advertising that the university "needs to operate more like a business." Well, apparently that's already happening. Big businesses are forever trying to get the taxpayers to cover their losses, and big money at the U behaves no differently. What's a couple million more or less between friends?

TAKE MY GOLD MINE, PLEASE. As part of the U's participation in a $15 million federally funded project, the school is supposed to build a mining library. A high-level source says "sixty to seventy percent of that money is now in jeopardy. The Department of Defense says that the university has not been in compliance for the past three years for this strategic materials grant."

The process has recently shown signs of life. Architectural drawings were completed and contracts let, one official told me. To begin construction, the Mackay School of Mines sent over to the good ole UNR foundation for $2.5 million parked over there just for this purpose. They were shocked when told that their account held only $483,000. (There's a rumor afoot that UNR settled an unrelated court case for about $2 million at about the same time last summer.)

The money in question came from the university-owned Marigold Mine in Humboldt County. According to one source, the foundation first proposed borrowing $2 million against the mine. This is the same operation criticized by former university treasurer and CPA Janet MacDonald, who resigned in protest last summer. The story broke (surprise, surprise) in the Las Vegas Review-Journal. Internal documents obtained by the paper noted that MacDonald "questions whether the royalties that go to the UNR Foundation and then to UNR are being reported as tax-deductible donations by a private company working the mine."

When is a profit not a profit? Apparently when you call it a donation to the outfit which owns the mine in the first place. "Sending the payment to the foundation also could let the mining company keep a tax break known as a depletion allowance that belongs to the university system," the Associated Press reported, adding that "MacDonald also suggested that sending the payment to the foundation could raise tax reporting questions."

There's much more to the story. The mine generates about $500,000 a year, diverted by UNR President Joe Crowley through the foundation for no apparent reason. The manager of Rayrock Mines, the company operating the claim, has held a seat on the foundation board, raising more conflict of interest questions. The company's controller says the tax break is not owned by the U.

Not many realize it, but the university owes federal income tax on many of its profit making operations, from hot dogs to books to mining royalties. If proceeds from the U's own mine are laundered through the foundation, the money goes on the U's books as just another donation when it finally arrives. But the U loses a substantial tax deduction by doing so, a minerals depletion allowance worth about $75,000 annually.

Ms. MacDonald suspected that the mine operator might be retaining the depletion allowance to offset its own taxes. Many other mining entities in Nevada are now looking at this with great interest as a potential new tax dodge - a windfall for a foreign controlled industry which pays no royalties to the public under the archaic 1872 mining law. The IRS takes a dim view of such shell games. A full review of the matter was squashed at the highest university levels, so a legislative audit is in the offing. Worst case scenario: IRS pulls both foundation and university tax exemptions, retroactively negating tax deductions from the date of infraction. Thousands of donors could be getting letters from the feds asking for back taxes on donations going back years. That's how serious the shell game is getting in the halls of ivy.

TAKE MY CASE, PLEASE. Now perhaps we can begin to understand why the foundation could not find a bank willing to loan money on a gold mine. UNR's backup plan is to approach the reconstituted board of regents next month for $2 million to cover the brass asses in the ivory tower. That new board may very well include Mary Ellen McMullen, who views herself as "not someone who's going to tear things down till they have all the information," but says "we need to operate more like a business."

TAKE MY GHOST, PLEASE. I asked Mrs. McMullen if she had knowledge of any ghost professors, guys who get paid but never show up for work. Nope. I made it a point to note that I was not talking about sabbatical or accumulated sick leave.

Actually, I found two types of virtual professors. First, when the U has identified a new prof it wants but who's not ready to move, they might put him or her on the payroll early. One guy got paid for an entire spring semester, even though he taught in another state till fall. Far worse are the apparently not unusual cases of employees who have sued and won settlements.

Last week, I talked with one of the most brilliant and qualified professors anywhere on the University of Nevada system payroll. He was hard at work on his computer when I interrupted him - at the University of East Bejabbers, thousands of miles from here.

He gets paid around $100,000 a year in settlement of a lawsuit he brought against our goofy U. The administration is apparently using funds earmarked for a high-level professor's position to pay him off, a great way to avoid scrutiny. For the next several years, Nevada taxpayers will be paying that person to educate the students at E. Bejabbers A&T. I have been informed that his is not an isolated case. The first mistake made by the prof in question: he took issue with under-the-table payments made by the UNR Foundation.

TAKE MY STOCKBROKER, PRETTY PLEASE. One administrator told me how a seven-figure endowment in the hands of the UNR Foundation went stock trade crazy, selling securities then quickly buying more. Looked like an apparent case of "churning," in the opinion of the official. Someone with influence on the foundation board, he alleged, made heavy commissions buying and selling endowment stocks.

TAKE MY GOLDEN JOCKSTRAP. No UNR column is complete without an update on the influence of the jockocracy. You may not know it, but the Lawlor Events Center's basketball floor is critical to the national defense of the United States. When the big white pillbox (with a floor area intentionally and ineptly designed too small for Olympic ice skating) was being built, construction funds were co-mingled with dollars from other projects, according to an official involved in the process. All of this was illegal and documents were altered when the scam was discovered, the official added. Either way, Lawlor has a $187,000 national defense basketball floor with superpatriot backboards.

In another case, some landscaping funds were shuffled to the wrong place. When the florally deprived complained, somebody was sent over to plant a couple of saplings which, on paper, are the most expensive trees east of the California redwoods.

TAKE MY CHECKBOOK, PLEASE. As I reported last Sunday, the U's audit committee met at UNR on Tuesday, partly to address a $7.6 million "bank error" down in Gomorrah South. I asked a source if the meeting would be worth attending. "You'll never learn anything from an internal audit report," repeated the seer, who again proved positively prescient. At the meeting, bank officials apparently did not even know they had been called in to report on misplaced money now pegged at $7.3 million dating back to 1994. Chancellor Jarvis "just shrugged his shoulders," I was told. If history provides any guide, a full report could be years away. Glad I didn't waste my time. (Last week's column was passed out, with regents advised to shut up and hope all this goes away.)

JUST DO YOUR JOB, PLEASE. Some people haven't. Much of what I've printed this week and last has been known to the Reno Gazette-Journal for two years or more. Chancellor Jarvis promised me he would investigate all this stuff. I asked him for a printout of court cases settled in the past few years so we could mutually get a handle on who's getting paid for not showing up for work. He also took umbrage at my printing Janet MacDonald's potshots without giving him a chance to fire back. He says she's just plain wrong, but did not provide details.

TAKE THE CURE, PLEASE. There's an election Tuesday. Mary Ellen McMullen told me "the foundations are needed because there are so many competing forces" (apparently including all those countless University of Nevada foundations fighting each other). Mrs. McMullen is now finishing her first year as a UNR Foundation trustee and has yet to see a check register. She says internal audit reports have been to her satisfaction. Her opponent, Howard Rosenberg, thinks the foundations should be folded and placed under direct control of elected regents.

The foundations seem to have only two purposes. They provide a way to shuffle lots of expensive peas between lots of shells while keeping the public shellshocked. (Legally, foundations are public entities when they want to be, and private when they choose, although a supreme court decision calls that into question.) Their second function according to a highly placed official: "they allow (UNR President Joe) Crowley to go to the legislature every session and say 'I'm broke.'"

Mrs. McMullen says she plans to use her husband and her campaign treasurer to the university's benefit. Sam McMullen and Harvey Whittemore are among the most powerful juice lawyers in the state. Their job is making sure the legislature imposes upon the pockets of big business as little as possible, something in direct conflict with a growing, ever-hungry educational system. A few years back, Harvey was allowed the unheard-of privilege of taking the state senate floor to announce to lawmakers that they were going to pass a 25% tax loophole exclusively for Harvey's clients in the gambling-industrial complex. At least Mrs. McMullen is honest that the whims of big business will firmly control university funding should she get elected.

She sees no conflict in taking campaign money from giant Barrick Goldstrike Mines, a major client of her husband (and possibly their jointly owned lobbying and media firm) and big donor to the university. Maybe that's what she really means about the university being more businesslike. She saw nothing wrong with the UNR Foundation's past practice of giving the use of expensive new cars to certain pet deans. She'd "rather see foundation money for new cars than state dollars," she said, apparently unable to recognize that spending from either source means money taken away from education.

The Reno Gazette-Journal endorsed Mrs. McMullen because she's "a compromiser" and "consensus builder." Sagebrush, the UNR student newspaper, endorsed Mr. Rosenberg. In an editorial written by a student, Sagebrush said "the Gazette killed its chances of logical argument" by praising Mrs. McMullen "because she's 'a product of the system,' because she is willing to compromise and because she won't contribute to discord within the board 'that's already divided.'" (Translation: voice in the wilderness regent Nancy Price of Las Vegas vs. her 10 rubber stamp colleagues.)

"For Rosenbergists, it won't take long to debate," Sagebrush wrote. "Want someone 'outspoken' who will fight for better education? Or 'a product of the system' who will compromise academic integrity for a well-oiled business machine of a university?"

"THAT'S A LOT OF MONEY!" reads the ironic headline on Mrs. McMullen's glossy, new, full color campaign mailer. She's outspending Rosenberg roughly $50,000 or $60,000 to about $15,000, more than half from his own pocket. He has refused gaming industry contributions, including Las Vegas Mirage mogul Steve Wynn, a contributor to Mrs. McMullen and big man on campus. That's a lot of money indeed for a job that pays zero per year.

TAKE SOME AIR, PLEASE. Both candidates were invited to talk issues on KSRN 92.1-fm. Mrs. McMullen accepted, then cancelled. Station owner Bob Carroll offered to work around her schedule, but she told him she was too busy with UNR homecoming activities. So Rosenberg and Carroll will hold forth this evening at 6:00.

"People have a very clear choice of the kind of representation they want on the board," Mrs. McMullen told me last week. I could not agree more.

Be well. Raise hell.
Andrew Barbano is a Reno-based syndicated columnist and 28-year Nevadan.
Barbwire by Barbano has appeared in the Daily Sparks Tribune since 1988.
This column originally published 11/3/96. Copyright © 1996, 2010 Andrew Barbano

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