Sale of Y Cross Ranch the best decision
September 9, 2015
Announcement of the sale of the Y Cross ranch by its owner, C.C. Davis & Company LLC, a for profit Wyoming limited liability company, the members of which are the University of Wyoming and Colorado State University foundations, has prompted editorial comment not only critical of selling the ranch, but also calling into question the integrity of the foundations, their staff members and their unpaid, voluntary board members (who, collectively give thousands of hours of their time annually, as well as their money, to support UW and CSU), and accusing them of violating their positions of trust. It is unfortunate that we cannot have honest differences of opinion and civil discourse without personalizing our differences of opinion by calling into question the intelligence, integrity, motivation etc, of those with whom we disagree, but that seems to be the way it is in our society today. In any event, the following is my attempt to set the record straight.
The UW Foundation is a Wyoming nonprofit corporation that has been recognized as a public charity under Internal Revenue Code Section 501(c)(3). Although its purpose is to support the University of Wyoming, it is a separate entity from the university, it is not a state agency and, therefore, it is not subject to the Wyoming Public Records Act. Endowment and other gift agreements are private agreements between donors and UW Foundation and often contain confidential, personal, financial and family information about the donor. UW Foundation does not have the right to divulge the contents of these agreements, and it would be inappropriate to do so. If these agreements were made public by UW Foundation it would make it infinitely more difficult to raise money for the benefit of the University. For those reasons, UW Foundation is unwilling to make public the Memorandum of Agreement by which the Courtney C. Davis Foundation (99 percent) and Amy Davis (1 percent) gifted their interests in C.C. Davis & Co, LLC to UW Foundation and the CSU Foundation. However, the agreement is in the public record, having been entered into evidence by Ms. Davis in the litigation she initiated against the Foundations and the LLC in the First Judicial District Court in Laramie County, Wyoming, and can be found in the record at Docket 180-233.
The agreement contains a vision statement that says the ranch will continue to operate as a working cattle ranch, the primary objective of which is cattle production and that it would benefit the universities, through their foundations, by generating "net revenues from ranch operations" to be used to provide "scholarship and/or internship support for CSU and UW students majoring in agriculture and national resources," and by providing a "working laboratory for observation and study of plant-animal systems." The agreement is clear that funding for academic programs was to come from net revenues from ranch operations. It was not anticipated or expected that funding would come from any other source. This was a shared vision between the donors and the universities' Colleges of Agriculture when the gift was made.
In recognition that the ranch was not in good repair at the time of the gift, the agreement established two 7-year phases: During the first phase, the ranch was to be put on a "solid financial and structural foundation; During the second phase, the concentration was to be on making funds available "from ranching operations" [author's emphasis] to support scholarships, internships and laboratory/observation activities. Fourteen years after the date of the gift the universities were "… encouraged to continue the joint arrangement for an indefinite term." However, if either university wanted to dissolve the arrangement, dissolution could be accomplished by one foundation becoming the sole member of the LLC or by the foundations together selling the ranch.
The 14 years expired on August 25, 2011. During that period, the universities and the ranch management committee (Ms. Davis, or a representative appointed by her, was a member of the management committee and participated in every decision) did everything in their power to realize the vision. The physical condition of the ranch and the quality of the cattle herd were significantly improved. However, from the date of the gift through June 30, 2011 (end of fiscal year 2011), not only did the ranch not generate any net revenues, the net loss was a cumulative $978,838.87 (see footnote below).
Based upon the 14 year financial performance of the ranch, in 2011 the deans of the Colleges of Agriculture, both of whom were on the ranch management committee and were intimately familiar with the ranch operation, reached the conclusion that there would never be enough net revenue to realize the vision of providing meaningful scholarship/internship support for agriculture students or to develop laboratory/observation programs on the ranch. The deans consulted with their university presidents; the presidents consulted with one another; and the universities, not the foundations, decided to exercise the option clearly, unequivocally and unconditionally set forth in the gift agreement to sell the ranch. The decision was made in good faith in accordance with the gift agreement, consistent with the intent of the donors at the time of the gift, and in the genuine belief that the best way to achieve the donor's desire to provide scholarship/internship support for agriculture and natural resources students was to sell the ranch.
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At the universities' request, the foundations set out to sell the ranch. Through one of her attorneys in October, 2011, Ms. Davis acknowledged that the sale of the ranch was authorized by the Memorandum of Agreement and stated that the Davis Foundation "is in agreement with resolutions to sell the ranch for its highest and best value." In an effort to insure that the process of selling the ranch was completely fair and transparent, a request for proposal was sent to numerous real estate firms in Wyoming and Colorado that specialize in ranch sales and a realtor was selected. So that all potential buyers who were interested in the ranch had a fair and equal opportunity to buy it, a sealed bid process was established. Two former governors, one from Wyoming and one from Colorado, agreed to preside over the opening of the bids to assure the fairness, accuracy and transparency of the process and to confirm the highest bidder and the amount of the bid.
Unfortunately, notwithstanding her earlier acknowledgment that the sale of the ranch was permitted by the gift agreement and her agreement that the ranch should be sold for its "highest and best value," in November, 2012, Ms. Davis sued to block the sale. Even though neither she nor her representative on the management committee nor anyone on her behalf had complained to either university or foundation that the ranch was not being used as she intended when the gift was made, she made numerous public statements to that effect. The facts are that, at the time of the gift, the donors and the universities hoped and believed the vision could/would be realized, but they also understood the ranch might not generate sufficient net revenue, in which case they all agreed the universities would be permitted to sell the ranch after 14 years and the proceeds from the sale would be used as set forth in the gift agreement for scholarships, internships and related academic programs in agriculture and natural resources.
Ms. Davis passed away very shortly after the Wyoming Supreme Court decided the litigation in favor of the foundations. After her death, the foundations were approached by her representatives with a proposal that significant additional funds could be made available to support the operation of the ranch, thereby making net revenues from operation of the ranch available for scholarship/internship support and for the establishment of programs that would allow the use of the ranch as a laboratory for learning. With the consent of the universities, the foundations negotiated in good faith with the Davis representatives for over six months. In mid-March, 2015, we thought we had a written agreement pursuant to which the universities would be able to continue to operate the ranch and provide scholarship/internship support for agriculture students. In mid-May, the Davis representatives changed the terms of the agreement so materially and substantially we had no choice but to reject it. And so, we proceeded to sell the ranch.
UW's share of the proceeds from the sale of the ranch will be used to establish an endowment, the annual payout from which will be at least $400,000 in the beginning and, depending upon investment returns, much more as the years go by. If CSU establishes a similar endowment, the two endowments will generate at least $800,000 per year forever for scholarship/internship support and related agriculture and natural resource education programs in the name of the C.C. Davis Foundation and Amy Davis. That comes to $11.2 million generated during the next 14 years versus a loss of almost $1 million during the first 14 years.
Thanks to the generosity of the Davis Foundation and Ms. Davis, for which the universities are extremely grateful, agriculture and natural resources students at both schools will benefit for generations. Under these facts and circumstances, the decision by the universities to sell the ranch was reasonable, rational and produced a very beneficial result for agriculture students at both Universities. Although I respect the right of people to disagree with the decision, calling into question the integrity of those who made it and/or accusing them of violating their trust is inappropriate, uncalled for and wrong.
It has been alleged that UW College of Agriculture and Natural Resources faculty members were not informed of the availability of the Y Cross ranch for academic programs. Even IF true, that is an internal college communications problem that does not support a conclusion that there was an attempt to keep the availability of the ranch a secret so it could not be used, thereby enabling the sale to occur. That is a ridiculous allegation and is completely contrary to common sense and to the facts.
The UW Foundation and its president/CEO, Ben Blalock, have borne the brunt of allegations of lack of integrity and violation of trust. There has been speculation about the amount of Ben's compensation as vice president for institutional advancement of the university and president/CEO of the foundation, and it has been specifically alleged that Ben's motivation for selling the Y Cross ranch is that he will receive a commission or some other increase in compensation as a result of the sale of the ranch. Ben did not have the authority to make the decision to sell the ranch, nor did he do so. His job, and that of his counterpart at CSU, was to supervise the implementation of the decision of the UW and CSU administrations. As a matter of policy, neither Ben nor any employee of the UW Foundation receives a cent of compensation based upon a commission on the amount of money raised or the amount of money for which an in-kind gift like the Y Cross is sold. The UW Foundation portion of Ben's salary is determined by the UW Foundation Board of Directors, which includes several members who have many years experience hiring CEOs and other senior executives and determining salary levels based upon the current market for the position. Ben's UW Foundation salary has always been based upon the board's determination of the current market for successful university foundation CEOs. He did not receive any additional compensation as the result of the sale of the ranch.
Ben Blalock became vice president for institutional advancement at UW and president/CEO of the UW Foundation on September 30, 1996. Although records prior to 1996 are incomplete, it is believed the average annual fundraising at UW for the five years preceding Ben's arrival was approximately $6.2 million and the biggest fundraising year was approximately $7.8 million. When Ben arrived, there had been 11 gifts made to UW of $1 million or more. The endowment pool managed by the foundation when Ben arrived was approximately $34 million. Working with five UW administrations, UW trustees, governors, numerous college deans, faculty, the state legislature, donors, and board members, through June 30, 2015, Ben has been responsible for raising $789.5 million for the benefit of the University of Wyoming and its students, including $199 million in state matching funds — an average of $41.55 million per year. The endowment pool is now $450 million and there have been more than 100 gifts of $1 million or more. Based upon this financial performance, Ben would make four or five times (or more) as much in the private sector as he makes at UW. He deserves our appreciation and thanks. He does not deserve to have his integrity questioned or to be accused of a violation of trust.
FOOTNOTE: Due to high cattle prices between 2011 and 2015, the cumulative net loss from the time of the gift through August 13, 2015 (date of sale) was reduced to $322,243.54. Cumulative net loss includes approximately $1.74 million in depreciation that is offset by capital investments (buildings, corrals, equipment and cattle herd upgrades) of approximately $2 million. Cumulative cash flow during 18 years of ownership was +$277,037.93 compared to at least $800,000 per year in net endowment income X 18 = $14.4 million during the next 18 years all for the direct benefit of students. From my perspective the universities' decision to sell the ranch was the obvious choice to make.