College Trustees Win Control of $8-Million Fund

A controversial foundation will hand over control of an $8-million endowment to San Diego Community College trustees under terms of a tentative settlement reached Monday in a long-running dispute.

In addition, the foundation will pay $800,000 into the trust over a two-year period, will close a $213,000 reserve account and turn the money over to the college district and will agree to put out for public bid all future contracts it desires with the district in excess of $21,000.

In essence, the foundation--known until last January as the San Diego Community College District Foundation--will sever all control over the endowment. The trust was established as a 25-year formal trust in 1986 after money was accumulated over several years by the foundation, originally set up in 1976 as a private nonprofit corporation under the California Corporations Code.

If it shapes up as expected during a Superior Court public hearing June 29, the agreement will bring to a close a festering legal battle over whether the foundation unlawfully acted in a way to harm the college district.

The settlement includes language stating that all sides in the dispute acted in what they believed was good faith and in the best interests of the community college district, which includes 100,000 students at Mesa, Miramar and City colleges as well at 10 adult education centers. Half the endowment interest each year is given to the community college district--$1.03 million during the past four years--while the other 50% has gone to the foundation for reinvestment or for foundation expenses.

A lawsuit alleging unlawful action was filed in May, 1988, by several community college professors against members of the district board of trustees, against former district Chancellor Garland Peed and against the foundation itself.

The plaintiffs alleged that the foundation illegally used revenue belonging to the district, that it illegally spent money on educational projects in competition with courses taught by district professors, that it held secret meetings in violation of state law, and that it made cash payments to politicians as part of illegal lobbying.

As chancellor, Peed in 1976 formed the foundation to raise money to support college and continuing-education programs. In the early 1980s, the funds began accumulating in significant amounts under an arrangement under which it provided services for educational programs that the district contracted for at military bases around the country.

Community college faculty members argued that the arrangement put the foundation in competition with the district by doing its own hiring for those educational programs and by receiving funds that should have gone to the district. The arrangement sowed distrust among the faculty, who feared that the foundation would grow into a full-fledged educational enterprise that could threaten district growth, a notion disputed by Peed and the foundation.

The faculty further objected to honorariums paid to politicians and alleged the expenditures to be political-influence payments. Until 1987, the five foundation directors were appointed by the board of trustees but otherwise acted independently. For the past three years, the board of trustees has had no control over the foundation board.

Under the agreement reached Monday, the foundation directors agree to resign as overseers of the endowment trust. The community college board of trustees will appoint, at a public meeting, a new overseer and an advisory board to administer the investments.

The board of trustees will set up a new foundation and appoint its five members. The new foundation will decide how to spend the interest that accrues annually. The existing foundation now calls itself the San Diego Foundation for Educational Achievement.

The former foundation will pay $500,000 to the trust on June 30 and an additional $300,000 on June 30, 1991. The community college district has agreed to pay the legal costs of the plaintiffs represented by attorney Patricia Meyer. San Diego County Deputy County Counsel Andrew Freeman estimated those costs Monday at $280,000.

“I think everyone (on the faculty side) will be happy, but the hearing on June 29 is to make sure everyone has a chance to know the terms,” Meyer said Monday.

Freeman said the settlement represents a reasonable compromise for all parties, and Peter Benzian, attorney for the foundation, said it confirms the foundation’s contention that it always acted for the long-term benefit of the district by setting up the endowment.