‘Confidential’ pact between Ilitch, Wayne State puts taxpayers, students at risk

Billionaire Mike Ilitch and Wayne State University under President M. Roy Wilson tried to keep details of a new business school from going public by agreeing to a confidentiality clause in a contract that puts taxpayers and students at risk.

Motor City Muckraker is the first media outlet to file a Freedom of Information Act request seeking a copy of the gift agreement that binds the public university to a series of obligations under the much publicized business school.

On Friday, the university provided Motor City Muckraker a copy of the “confidential” contract (gift agreement), and it’s clear why neither party wanted to divulge details of the $59 million Mike Ilitch School of Business, which is being built next to Ilitch’s publicly funded Red Wings arena.

Despite the media-peddled narrative that Ilitch paid for most of the construction as a benevolent gesture, the truth is far more nuanced and perilous to taxpayers. It raises questions about the due diligence that the university applied in the preparation of this contract to protect taxpayers.

The gift agreement, for example, contains numerous conditions, including some that would put taxpayers on the line for some or all of the $35 million that the Ilitch foundation pledged to donate for construction of the business school.

Here are some key details of the agreement:

• The Ilitch family must be reimbursed for every dollar of public money that becomes available for building a business school in a clause that states “the amount of cash gift shall be directly reduced by any amount appropriated to donee by the state of Michigan.”
• If construction is late and the building is not “materially complete” by Sept. 1, 2018, the Ilitch family may impose significant penalties by reducing the $5 million endowment by $1 million. If construction isn’t complete by January 2019, the endowment will be reduced by $2.5 million, and if it is not complete by September of 2019, the Ilitch family may “eliminate the endowment entirely,” change the lease or “terminate this agreement and the lease” on land that is owned by the Ilitch family, not the university.
• Given that construction of such projects are routinely delayed because of unexpected expenditures and impediments, the penalties in the gift agreement that President Wilson touted as a positive step for the university will come at the expense of students, whose tuition increased an average of 4.1% this year.
• The Ilitch foundation also will have one or more seats on the school’s advisory board, a voice in the school’s curriculum and access to interns.
• The school also must build a “display case” or designate another area of the building to highlight Mike Ilitch’s “business careers and personal accomplishments.”

President Wilson has boasted the “gift” as a tremendous addition to the university, but he has refused to discuss details of the agreement. When Motor City Muckraker asked for a copy of the contract/gift agreement, we were told the university “doesn’t typically disclose gift agreements,” even though the pacts may include conditions that can be detrimental to taxpayers and students.

It’s unclear why the university and its General Counsel Lou Lessem would agree to a confidentiality clause in the agreement since the publicly funded school is subject to open records laws. It’s also unclear whether the gift agreement is now in danger since the university disclosed the contract as required by law to the media.

According to the “gift agreement,” the university “will not at any time disseminate, publish, state, announce or in any other manner disclose to the general public or any third person any information concerning this Agreement, the Cash Gift, the Endowment, the Lease of the Property, or any over information” related to the deal.

The agreement even says that Mike and his wife Marian Ilitch may “intervene to oppose or to obtain a protective order with respect to any such disclosure.”

The conditions of the gift agreement raise red flags for a university whose outlook has been downgraded to “negative” by the nation’s top two rating agencies – Moody’s Investor Services and Standard and Poor’s. The university is eroding cash reserves at an alarming rate while enrollment is declining, the agencies concluded.

Under the “gift agreement,” the university must chip in $24 million, about $14 million of which likely will be borrowed by issuing bonds.

But that’s the best possible outcome from an agreement that puts additional tax dollars and student money at risk if anything goes wrong.

Last October, the university’s Board of Governors voted for the construction of the business school amidst fanfare and praise without the public knowing the details.

One board member, Dana Alicia Thompson, a University of Michigan law professor, abstained from the vote, stating publicly during the vote that she wasn’t given enough time by the administration to review details of the project.

It is not known if the Board of Governors will convene a meeting on the details of the agreement now made public, and what it means for taxpayers at its upcoming Sept. 23 meeting. The business school was initially billed as a highlight of Wilson’s tenure as president, and he has given numerous media interviews about the school without telling Detroiters and Michiganders the details of the deal.

Motor City Mucraker will continue to analyze the gift agreement for the public to know about the nuances as well the many varied aspects contained in it.

Motor City Muckraker is an independent, ad-free watchdog that relies on donations. Your contribution will help us continue serving as a watchdog who answers to no one but the public.

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  Cass Corridor, construction, Contract, midtown, mike ilitch, Red Wings arena, Roy Roberts, wayne state university

Steve Neavling

Steve Neavling lives and works in Detroit as an investigative journalist. His stories have uncovered corruption, led to arrests and reforms and prompted FBI investigations.

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