Saturday, July 2, 2022

Deep Dive: With 72 hours to go, last minute changes to, and questions about, the $1.25-billion foundation

Built in 1967, New Hanover Regional Medical Center’s main campus has outgrown itself, with physicians concerned that without outside financial resources, the hospital will continue to fall behind the community’s needs. (Port City Daily photo/Johanna F. Still)
Built in 1967, New Hanover Regional Medical Center’s main campus has outgrown itself, with physicians concerned that without outside financial resources, the hospital will continue to fall behind the community’s needs. (Port City Daily photo/Johanna F. Still)

NEW HANOVER COUNTY — One business day before the vote on selling a multi-billion dollar publicly-owned asset, the county shared a final version of the rules that will govern the new, private gatekeeper of the bulk of the profits.

The public was given its last opportunity to comment on an incomplete version of those rules, part of the New Hanover Regional Medical Center-Novant Health sale agreement, Monday. Over the rest of the week, staff and legal counsel putting together the sale documents made daily changes, tweaking sections to clear up unconcise language and in some cases, changing certain rules.

Related: Attorney General’s Office will get final say, paying close attention to NHRMC sale

Monday at 4 p.m., a majority of commissioners will likely approve the sale of the county’s largest employer, and in exchange, get $1.9 billion, including a $1.25 billion endowment set to be re-routed to a new, private community foundation.

In flux with days to spare

The sheer volume of documents and monumental nature of the decision has left many following the sale closely scrambling, trying to catch up ahead of the vote.

At least one commissioner and many community members wish they had more time to review the sale’s proposed details, which first became publicly available Sept. 18. Even late Friday afternoon, several exhibits referenced in the Asset Purchase Agreement are missing from what’s being publicly shared. At same time, the county has moved up the goal line for a final vote: initially, the self-imposed deadline line was late October, then Oct. 19 (a date shared by county staff with other government officials), and finally Oct. 5.

Still, others feel confident in the process that led the community to this point, shaped by hundreds of hours of research, dozens of public meetings, and the minds of well-vetted medical, financial, and legal professionals. Plus, many may consider fine-tuning details of a transaction of this scale, even up until the last minute, on par with industry standards.

But why did the county allow the public to weigh in on an incomplete proposal? Why not wait until the agreement was set in stone?

“The framework for the nonprofit community endowment has been shared publicly, and while some documents are being finalized with last details – they will all be public and available for the community to read and understand prior to Monday’s vote,” county spokesperson Jessica Loeper explained via email Thursday.

Loeper said most of the changes to the rules that will govern the community foundation were made public at the board’s most recent regular meeting.

“In addition, Commissioners have been actively asking questions and receiving explanations on many of these documents and final edits are being made to ensure the documents are in keeping with the board’s priorities and community’s best interest, and again – everything will be shared in the next day so that the community can review those,” she wrote.

Review, yes; comment on, no.

The bylaws

Wednesday, Commissioner Rob Zapple said he wished both commissioners and the public could have more time to pore over the agreement.

“We still don’t have the final bylaws of the community foundation. And that may sound like a small detail, but this community foundation and how it’s set up and the impact it will have on our community cannot be overestimated. It will be the largest foundation of this sort — most heavily funded through the endowment, than any other foundation, certainly in New Hanover County, I dare say, in southeastern North Carolina.

“So knowing the structure of that organization may sound like governmental, gee, who cares. The answer to that in my mind is everybody should care. It’s a really important thing,” he said.

Zapple said he is pleased with many of the last-minute changes, describing them as improvements to the earlier version. Even so, he’s concerned that the final proposal was released with such little time left to spare.

Late Friday afternoon, the county released a revised version of the foundation’s bylaws, included in its agenda packet for Monday’s meeting (starting on pg. 40). The packet includes a list of the county’s five appointees to the new foundation, to be named the New Hanover Community Endowment, Inc., which were previously unknown:

  • Spence Broadhurst (PAG member, former Wilmington mayor)
  • Dr. Virginia Adams (PAG member, dean of the UNCW School of Nursing)
  • Hannah Gage (PAG member, former media exec and UNC BOG member)
  • Stedman Stevens (CEO of Vū Systems)
  • Shannon Winslow (strategic account executive for RxBenefits Inc., according to the Wilmington Business Journal)

Six additional members, making up a majority of the foundation, will be named by a new 17-member hospital board formed after the sale is approved. This board was named by current NHRMC BOT members, who are each appointed by commissioners; the 17 nominations, which include 10 current members, will have to be approved by county commissioners on Monday.

How interconnected this board is with the county will determine whether or not certain laws that apply to local governments will kick in.

Public v. private

A major, still unanswered question surrounding the sale is whether or not this new community foundation will be considered public in accordance with the state’s Open Meetings law.

If it is, the public can attend the foundation’s meetings, keep track of who voted for which projects, and more. If it isn’t, the public will have no right to attend the group’s meetings.

The county’s outside legal counsel hired to form the foundation’s bylaws and creation documents intentionally designed it to avoid Open Meetings law. He told commissioners late last month that applying these laws, thereby subjecting the board to political influence, would be the most “destructive” thing they could do to it.

In its final form Friday, the foundation is still designed as a private non-profit entity. Kara Millonzi, distinguished professor of public law and government at the UNC-Chapel Hill School of Government, said it’s not simple to determine whether sunshine laws apply to a foundation like this.

“This is a grey area of the law,” Millonzi wrote in an email Wednesday.

She said she spoke with county staff about general legal issues but not specifically about the proposed foundation or sale at hand. Only the state’s Attorney General can definitively determine whether Open Meetings law should apply to the board, according to Millonzi.

“Unfortunately there is not a clear answer to the questions you raise,” she wrote.

Presented with the same questions, a Local Government Commission spokesperson said the determination was outside the agency’s authority. In the end, it’ll be up to the AG or, should the matter ever be litigated, a judge.

In considering this determination, the county has competing goals: reducing or eliminating the possibility of politicians influencing the foundation’s dealings while keeping the public in the loop with how the board spends public money.

At the direction of the majority of the board of commissioners, the county has intentionally proceeded in shaping the foundation as a private entity in order to “minimize political influence.” This thought process is an attempt to separate the group’s decision-making from partisanship or outside influence by envisioning this entity as a purely fiduciary board.

This is complicated by the fact that the group’s sole purpose is to manage $1.25 billion in public funds. It’s created by the county, the county will appoint five of its board members, have a one-step removed say in its remaining six members, and would absorb the funding back in the event the group would dissolve.

Because there is no clear definition of what renders a group a “public body” for the purposes of Open Meetings law, stakeholders have relied on case law to inform how the group is designed.

A UNC School of Government analysis on the topic concludes that the courts tend to focus more heavily on the extent of control the government has over the private entity — not the reliance on public funding.

Changes

Faced with public criticism, the county made at least two concessions in its 11th-hour changes to the bylaws. As first presented, the foundation would submit one financial report to the county a year (how detailed this report will be remains to be seen).

Friday’s version includes direction that the group make biannual reports publicly available and host biannual meetings hosted by the CEO “to answer questions from the public.”

The concessions show the county is making attempts to let the public feel more involved.

But still, they fall short of access afforded under Open Meetings law. A red-lined version of the bylaws current as of Tuesday afternoon shows the county was considering requiring quarterly CEO meetings and quarterly reports presented to commissioners in a regular or special meeting (the current version does not specify the venue of the report’s release).

Removing the requirement that the report be presented to commissioners is one of a handful of changes the county made this week in an attempt to further distance the foundation from the county. The updated version also removes previous requirements that the county must sign off on any future changes made to the group’s bylaws and the new hospital board must sign off on removing any of the foundation’s board members.

These changes give the foundation more independence and were likely made to further distance the county’s control over the group in order to see out the original vision of it being a private, fiduciary board, with limited local control.

Each year, the board will gain access to 4% of the endowment’s total market value, which will start at about $50 million and will vary annually. Depending on its investment strategy, the endowment could grow substantially in size, leading to more available funding for the community. This is the primary motivating reason the county sought LGC guidance on whether or not it was subject to §159-30, a specific statue outlining the investment of idle funds.

After being told by the LGC the board would likely be subject to the statute, therefore minimizing investment returns, the county continued to seek ways to avoid the statute via the aforementioned measures to reduce direct control over the foundation.

Public vs. private: Politics and investment

The twin concerns of a public board, according to County Commissioners and outside counsel Don Munford, are limits to investment returns — which means less funding for the public good — and the risk of ‘politicizing’ the board.

In an interview this week with WHQR, Commissioner Woody White put the maximum return on investment under the idle funds statute at 1.5% to 2% (the county’s own investments average a little over 2%, with no individual investment earning more than 2.8%, according to a report delivered to commissioners last month).

There are other government-controlled investment strategies, however. The Golden LEAF Foundation, created by state statute in the late 1990s, currently manages an endowment of over a billion dollars from settlements between major tobacco companies and the state. Golden LEAF is a public body, subject to public meetings and records laws, with members appointed by the Governor, the President Pro Tempore of the Senate, and the Speaker of the North Carolina House.

It’s not an apples-to-apples comparison, but Golden LEAF certainly invests successfully despite being a public body. The Foundation’s investments fluctuate with the market, but its benchmark for returns is 11.6%. It’s worth noting that Golden LEAF’s returns are not a guarantee. For example, in 2017 the foundation’s investments netted $116.7 million (a 13.1% return) but the previous year the foundation actually posted a net loss of $4.2 million when investments earned just 0.4%, according to an independent auditor’s report.

Related: It’s a high-tension moment as a board in flux prepares for the monumental NHRMC sale decision

The other concern — politics — is more slippery. One issue was removing at least part of the foundation board from the direct appointment of commissioners. In a StarNews opinion piece, Pat Kusek accused fellow commissioners of trying to “hijack” the foundation by appointing all 11 members — a move Kusek argued would substantially reduce the benefit to the public by reducing the board’s investment potential. Chair Julia Olson-Boseman responded in her own opinion piece, saying Kusek’s allegations stemmed from a conversation about one possible option, not a final decision; Olson-Boseman reiterated her own belief in the importance of keeping the foundation apolitical.

Appointments by commissioners have an obvious potential to be political; commissioners could, for example, appoint only those people who share their ideological beliefs about how the money should be spent. However, the concern of politicization due to the board being public is harder to map out. When Munford told commissioners that making the foundation board public would be “destructive,” he didn’t explain why that would be the case, other than stating it would inherently make the foundation political.

The majority of commissioners have simultaneously denied that there are any political motivations behind the community foundation while also taking pains to make sure things don’t become political in the future (which was, at least in part, Kusek’s concern about commissioners making all appointments). Some would say that same forward-looking concern should apply to making the board open to public inspection.

So far, Commissioner Zapple is the only board member to take a hard stance in favor of opening up the foundation to public meetings. Commissioners Pat Kusek and Jonathan Barfield each aren’t outright opposed to meetings being open to the public; Kusek prefers the foundation the way it is while Barfield said he is fine either way.

Commissioners Woody White and Julia Olson-Boseman each see the need for the fiduciary actions to remain private, protected from outside political influence.

In August, Olson-Boseman took initiative to introduce a two-year “cooling off” period for elected commissioners or current NHRMC trustees before they could gain a seat on the community foundation, approved 4-1, with Kusek dissenting. She said she did so after learning a couple of her elected peers may have been vying for a seat on the foundation board. “I thought it was totally inappropriate,” she said at the time.

Responding to questions raised by Senator Harper Peterson about the group’s accountability, Commissioner Woody White said these concerns don’t account for the myriad of rules it will have to follow, including the IRS tax code and state statutes that govern non-profit entities.

“Nothing about what it will doing in the community will be secret. To the contrary, everyone will see how the community will be transformed,” he said Friday.


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