Iowa State University’s contention that President Steven Leath never violated university policy on using state property for personal gain is looking increasingly implausible. Leath tried last week to end the controversy over his piloting adventures, saying he had done nothing wrong but would not fly the university’s Cirrus SR22 anymore “to allay any future concerns.”
However, Ryan Foley reported today for the Associated Press that some of Leath’s flights on the university’s larger King Air 350 “potentially violate policies that require travel expenses to be reasonable and business-related.”
The new revelations not only call into question Leath’s compliance, but could also raise red flags for the Internal Revenue Service about “excess benefit transactions” by ISU’s Foundation.
Foley’s latest report on Leath’s airplane use is worth reading in full, but here’s a particularly important excerpt.
[T]he university says all flights the Leaths have taken on the King Air had legitimate business purposes — often to meet with current and potential donors — or other justifications.
For instance, the school said it wasn’t Leath’s plan to take his brother Ken and sister-in-law on the plane to watch the Iowa State men’s basketball team play Connecticut in 2014 in the Sweet 16 at Madison Square Garden. The pilots wanted to refuel before entering New York City airspace and unilaterally decided to stop at the airport in Horseheads, New York, before the game, allowing the couple who lives nearby to get on at no extra cost, the school said.
The university said the pilots planned a fuel stop there after the game as well, and the couple was dropped off.
What a coincidence that ISU’s professional pilots decided to refuel so close to where Leath’s brother and sister-in-law live. But Horseheads isn’t far from Manhattan–less than 250 miles as the crow flies. Would the plane really need to refuel on the way to New York City and again on the way home?
I’m no plane-spotter, but it took only a few minutes of online searching to learn that the airplane used for ISU’s flight service is renowned for its ability to travel long distances on a single fuel load. The title of a 2008 article in Flying magazine referred to the Beechcraft King Air 350 as a “Flying Fuel Tank,” because “You can stay in the air for over 12 hours, or haul your return trip fuel with you.” According to the same piece, the King Air can “cover more than 2,400 [nautical miles] at high-speed cruise,” allowing pilots to “make several hops on the cheap fuel or one short leg followed by a very long one with no need to refuel.”
Writing for the Aircraft Owners and Pilots Association in 2014, Peter Bedell said of the King Air 350, “Because of its massive useful load and equally large fuel capacity, pilots often fuel the airplane in the morning and fly multiple legs throughout a day on a single load, which can be advantageous if you get a decent fuel price at your home base.”
I don’t know how much extra it cost to have the King Air land in Horseheads on the way to and from the NCAA game, but I understand why ISU officials now present the “refueling” stops as the pilots’ decision. If Leath directed the pilots to make those stops to pick up his relatives, he would appear to be violating Iowa State’s travel and reimbursement policy:
When personal and business travel are combined, expenses must be well documented and may not exceed the lowest available cost of travel on the direct or uninterrupted route. If the traveler uses an indirect route or interrupts travel by direct route for personal convenience, any additional expenses incurred will be the sole responsibility of the traveler. Additional costs incurred by spouses or family members will be the sole responsibility of the traveler.
ISU’s website explaining the “Responsibilities of Travelers and Supervisors” notes,
Employees are expected to make travel arrangements in compliance with applicable laws and in a manner that excludes consideration of personal gain. All travel and related expenses must have a business justification and the traveler must exercise reasonable judgment to ensure that travel is conducted in a cost-efficient manner. […] Particular care should be taken when combining business and personal travel.
The university said one stop the plane made in Jefferson [North Carolina] was to take advantage of “competitive fuel pricing” at its airport on the way from San Antonio to Washington, D.C. But it said other trips to Jefferson were for donor meetings or to pick Leath up for travel to other events. Leath hasn’t reimbursed the university any of those trips — unlike four North Carolina trips he took on the smaller plane in which he paid back $4,700 — and has no plans to do so.
“Like most business trips, some or all of these trips may have had some personal component to them. ISU does not require any employee to be ‘on the clock’ 24/7 when traveling for business purposes on behalf of the University,” spokesman John McCarroll said. […]
Records show the plane dropped off the Leaths on May 24 in Jefferson after a fundraising trip to Florida. A week later, the plane was dispatched to Jefferson to take them to Dallas for a business trip — at a cost of $6,900. The closest airport, about two hours away in Greensboro, offers direct flights to Dallas for as little as $120 per person.
As Bleeding Heartland discussed here, ISU policy and Iowa Code prohibit using state property “for any private purpose or for personal gain.”
ISU maintains that none of Leath’s trips were entirely personal: all had some business purpose, even if the president met with only one prospective donor during an eleven-day vacation. Furthermore, unrestricted donations to the ISU Foundation’s “Greater University Fund” covered most costs associated with Leath’s use of the King Air.
Unrestricted donations are highly prized in the non-profit world, because they give foundation managers so much flexibility.
But there are still rules on how they can be used.
A certified public accountant with many years of experience working with foundations pointed me to Texas attorney Jeramie Fortenberry‘s writing on prohibited practices under federal Internal Revenue Code, such as “inurement,” “private benefit,” and “excess benefit transactions.” Fortenberry explained,
An “excess benefit transaction” is a transaction in which an economic benefit is provided by an applicable tax-exempt organization to or for the benefit of any disqualified person, if the value of the economic benefit provided by the exempt organization exceeds the value of the consideration (including performance of services) received for providing the benefit.
Applicable tax-exempt organizations include 501(c)(3) non-profits like ISU’s Foundation. “Disqualified persons” are defined as
1. Any person who was, at any time during the five-year period ending on the date of the transaction involved, in a position to exercise substantial influence over the affairs of the organization (whether such influence is formal or informal);
2. A family member of an individual in the preceding category; […]
Leath controls how money from ISU’s “Greater University Fund” is spent, which would appear to make him and his relatives disqualified persons.
After reading the latest AP story about Leath’s airplane use, the CPA I contacted thought Internal Revenue Service sanctions against the ISU Foundation might come into play. Determining how much “excess benefit” Leath derived from use of the King Air could be challenging, though, because fundraising is an important part of his job, and commercial air travel would take up more of his time. Using ISU’s plane to bring Leath’s wife to North Carolina, or his brother and sister-in-law to New York City, seems like a clearer case of an excess benefit.
Any relevant comments are welcome in this thread. I will update this post as needed. I stand by my prediction that Leath may need to retire to the Hardin County acreage he bought from Bruce Rastetter’s company sooner than anticipated.
P.S.- ISU has yet to provide its aviation insurance policy or other documents I’ve requested in connection with the president’s piloting of the university’s smaller, single-engine plane.
Zero of the nine members of Iowa’s Board of Regents have responded to my request for comment on Leath not disclosing his July 2015 hard landing incident before the regents unanimously approved a contract extension increasing the ISU president’s salary and deferred compensation.
UPDATE: The Iowa State Daily’s Alex Connor and Alex Hanson picked up Foley’s story, with some reaction from ISU officials.
Megan Landolt, assistant for communications for Leath, told the Daily Tuesday night that his use of the plane “has proven to be tremendously beneficial to the university.” […]
“One could argue that it is not an efficient use of the President’s time to spend two hours in a car driving to said airport, where he must arrive at least an hour before take-off,” Landolt said. “Other considerations include the President’s transportation to the airport and the departure and arrival time of the flight.” […]
The AP reported that most of Leath’s flights have been billed to the “Greater University Fund,” which are unrestricted donations to the Iowa State Foundation.
The AP reported that the two-university planes were bought with the “Greater University Fund,” which is a pot of donations to the Iowa State Foundation for the university’s “most critical needs.”
Landolt said that reporting is not accurate. She said the King Air was a priority for the athletics department and discretionary funds used by the Iowa State Foundation were designated for athletics’ priorities.
My impression is that whether the ISU Foundation used unrestricted funds or discretionary funds for airplane expenses would not be relevant in any IRS consideration of possible “excess benefit transactions” associated with travel by Leath or his family members. I would welcome feedback from attorneys and accountants with expertise in this area of tax law.
WEDNESDAY UPDATE: Hanson interviewed Leath for the Iowa State Daily on October 5. Excerpts:
“I regret all of this,” Leath said Wednesday during an interview with the Iowa State Daily in his office. “I don’t like to bring any negative image to the university. The fact that there has been all kinds of articles written about this makes me sad.” […]
“There was no attempt the hide this,” Leath said. “If you tell the [flight] tower, the FAA and your boss… I didn’t think [the incident] was worthy of a press release, but probably, in hindsight, I should have told more people. But it wasn’t any attempt to hide it, because I did tell a fair number of people.”
Leath told “his boss” (Iowa Board of Regents President Bruce Rastetter) about the July 14, 2015 hard landing in Illinois at least a month after the fact–which is important, because the Board of Regents approved a new contract for Leath on August 5, 2015.
More from today’s Iowa State Daily article:
Leath said the university-pilots told him they would need to refuel before entering New York City airspace, and the stop in Elmira, New York, was about 30 minutes away from relatives, who then joined for the ride.
The plane also made a stop to refuel on the return trip, Leath said, and the relatives were dropped off.
“In hindsight, I wish they would have never gotten on the plane,” Leath said.
I’ll bet he does. Leath’s version of events doesn’t explain why ISU’s pilots would need to refuel again on the way home from New York City. Did they not fill the tanks at the first refueling stop? I’m seeking information from pilots on whether there could be any reason to make two fuel stops on a trip like this one.
Leath plans to attend an student government meeting tonight to answer questions before students consider a motion ISU senior Abhijit Patwa plans to introduce, which will ask the Board of Regents to investigate Leath’s use of university airplanes.
“There is a lot of confusion, and a lot of information is not yet available to us,” he said.
Patwa was especially concerned with a recent report from the Associated Press that the university recently had removed information about the use of the planes from its website. […]
Patwa would like to have the Student Government agree send a copy of the letter to the regents to the state lawmakers that represent Ames, but that would be up to his fellow senators to decide. […]
Given the controversial nature of the resolution, Patwa said it is possible but unlikely the resolution will be approved Wednesday. The Senate usually requires at least two readings of a resolution, which would require a second reading next week. That requirement, however, can be waived by a two-thirds majority vote.
Speaking to the Iowa State Daily this morning, Leath said, “I have nothing to hide here, I try to do a good job here and be open and transparent … The students certainly have a right to ask for that. They also need to remember that there’s two sides to every story… but, I just would say they shouldn’t rush to judgement.”
Governor Terry Branstad told the Ames Daily Tribune that Leath took “corrective action” on his “mistake.” The governor “opposes further review of the incident or of other university travel policies by the Legislature, saying he wants to keep the Board of Regents separate from politics.”
Maybe Branstad lives in some fantasy world where the Board of Regents exercises its oversight powers in a non-political way. From what I’ve observed in recent years, the board serves as a rubber-stamp for Rastetter’s agenda.
LATER UPDATE: The Iowa State Daily posted the full transcript of today’s interview with Leath, and it’s a must-read. Leath clearly sees himself as the victim of unfair media coverage. He emphasized that he never used the university plane for “a strictly personal trip”–only for “a mixed use trip.”
Our policy allows for you to go on a business trip and take personal time. And the university still pays for the actual travel portion, but not hotels or meals when you’re on personal leave, and of course I didn’t charge any of that to the university. But the reality is, because the bigger block of time was personal, I felt just as good faith move, I would reimburse the university for the travel portion as well, which I did. And I’m at a loss to explain why that hasn’t come across.
I’ve been criticized for the trip, but nobody has taken the initiative to say, “but you know, with nobody looking, nobody talking about it, he paid the university for the trip and nobody else would’ve done that. Anybody else would’ve taken the business portion and charged it to the university and paid for the personal portions — I paid for all of it — and I’m amazed that that hasn’t come through anywhere. And so that’s really the story there.
As for the one four-hour meeting that occurred during Leath’s eleven-day trip to North Carolina last summer,
But what I’d say is, for this particular donor and the prospects of this donor, it would have been worth a plane to fly out there and meet with that couple and fly back. I mean it was that important. I could’ve gone and flown right there, met with them and then flown back. It was that important, so what difference does it make if I take vacation afterwards? You have to look at the trip itself — is it worth it. There was a small window of time to see these folks and so the trip on its own made sense.
Leath elaborated on how the King Air happened to pick up his brother and sister-in-law on the way to the March 2014 NCAA basketball game, and drop them off near their home after the game.
In hindsight, I wish they would have never gotten on the plane, but the truth is this: The pilots came to me and said, “You’re gonna want to go right to New York City for the game. You’re gonna be disappointed, but we’re gonna have to stop for fuel. We’re not gonna get in complex New York City airspace low on fuel, and if we get put in a hole or something, it becomes a dangerous situation.” I said, “OK, fine, if we have to land, we have to land.”
ISD: And it happened to be where you could pick up relatives?
Leath: Yeah, it was about 30 minutes from where my brother and his significant other lives. So they were on the plane, 20, 30 minutes at the most.
ISD: But then on the way, they said it was for a refuel again, but you’re already in New York, so would you have to refuel again?
Leath: The thing is, buying fuel in New York City is exorbitantly expensive for planes. So it makes sense to land, buy cheap fuel somewhere else.
ISD: But even on the way back, you couldn’t—
Leath: Well you can’t make it all the way back into the headwinds. Going there, you could have made it but you didn’t we didn’t want to get into the traffic low on fuel. Coming back, into the wind, you probably couldn’t have made it to Ames, so you’ve got to buy fuel somewhere. We could have bought it anywhere. It’s just as easy to get out of the city, get it there, but then jump and come the rest of the way. They were on the plane for a very short time and there was no cost to the university for that. But in hindsight, I wish they wouldn’t have gotten on the plane.
ISD: Would your relatives have to pay for some sort of reimbursement because they did get an hour plane trip? Or is that something you would cover?
Leath: Well, there was no cost to the university. The plane was going and it had extra seats in it.
So there was no cost to them being on the plane.
Bleeding Heartland user scchtick commented earlier today,
I am a retired military pilot, having flown 3 models to include the 350. I don’t believe the 12 hours of fuel accurate in any configuration of payload. The 2400 miles sounds accurate if the airplane is properly equipped. 2000 miles for sure.
The trip out with the prevailing tail wind should be easy to accomplish. The return trip can sometimes require a fuel stop.
That said, no pilot ever makes that decision at the departure point. Typically, fuel checks and decisions are made pointing at the destination and at the desired cruising altitude.
Clearly, there’s so many holes in this story that it’s falling apart.
Leath believes the media coverage of his hard landing has been “blown way out of proportion,” since the damage to the plane was “the equivalent of $600 damage on a $35,000 car,” and could be fixed by bolting on a new flap. He cited a 2013 Des Moines Register profile, which discussed his piloting the university plane to be more efficient, and he said he had “no intent to hide this.”
In this revealing exchange, Leath sounds angry that his critics don’t appreciate all of his hard work:
ISD: But now looking back at all the news reports, this damage incident — I mean, do you regret using the university planes like this?
Leath: I regret all of this. I don’t like to bring any negative image to the university, and the fact that there has been all kinds of articles written about this makes me sad. You know, the university is doing so well in so many ways. Records in fundraising, there’s more kids getting an Iowa State education than ever in history. There’s 23,000 more kids on scholarships since I’ve been here, since we’ve raised over 200 million in new scholarship money. Campustown is way better, and the Research Park is amazing. There’s so many good things going.
Yes, anything that detracts from all the great things happening here is unfortunate, makes me sad. If I could have avoided this in some way, going back in time, absolutely. But you know, I can’t go back in time. What I can do is go forward in time and continue to grow the university, in terms of scholarships, fundraising, make this a better place. Like I said, I’m not going to fly on the Cirrus anymore. I think in some ways that’s sad because it did make me more efficient, it allowed me to do more things with my time and schedule. I work seven days a week and I was getting more and more things done. But, I volunteered to give it up and not fly it ever again.
ISD: If it’s more efficient and you’re doing the right thing — I understand you don’t want a negative image — but if you’re not doing anything wrong, why would you give up being more efficient?
Leath: Just because I was hoping it would get us past this situation and get rid of the negative press. Plus, I want to be able to focus on the things I’m really, really good at. And if you look at the way this university prospered in the last four-and-a-half, five years, I’ll spend more time doing those things.
It’s unfortunate, it’s just a consequence of this. You have to look at the greater good in the university, and I think right now, there’s so much negativity, people are afraid of planes, that I’ll concentrate on other things.
ISD: I think another thing I wanted to ask about was, after these reports came out, there was a check to the foundation to cover the — what ended up being the cost of — the damage plane —
Leath: And any … I actually paid more than the cost, but we added up the cost of it being hangared there, we added up the cost coming to get me. I mean everything, and I covered more.
ISD: Was that just — why would you if there were really wasn’t anything wrong and Iowa State had the money to fix the plane, I mean why would you cut the check after the fact? It makes it look like ‘oh the AP and other news organizations reported on it and now he’s giving the money.’
Leath: Right. Well, you folks are on the other side of this, nobody likes to have mean, distortions of them put into the press. And, that particular writer is a difficult writer to deal with. Um, you know there’s a lot of innuendos, there’s a lot of negativity. And, basically I did it for the university. If you look at our policy, if someone had had an accident in an Iowa State car, the university would have paid to fix the car. Just like they did to fix the plane. Just like me proactively reimbursing for trips I didn’t have to, I did this in the best interests of the university. And what’s really sad and unfortunate for me is, it’s not that I want to get credit for it, it’s just that people are trying to make a good thing into a bad thing. And I’m at a lost to explain it. I mean you people are smart, and I always trusted your intelligence before, but for some reason, nobody wants to capture the good part of this. I mean he did it just because he thought it was better for the university.
When the Iowa State Daily mentioned that they were unable to access documents used by the AP’s Foley, because ISU had taken them offline, Leath explained,
we didn’t realize is that there was so much information, including all the donors names and the personal information about the donors. That particular reporter was calling donors, to the point of even asking how much they donated. Which was totally inappropriate.
So, we took the website down, really to protect information that should be protected, confidential information. You can still get the information, we’re glad to give it to you, we’re just going to take the donor’s names and stuff off. And again, the report came out, the article came out like we did something bad by taking down public access to the website.
But the reality is, if anyone of you three is a successful journalist, when you leave here, and I hope all three of you are, and you want to give back, it wouldn’t be right to give all your personal information out — how much you donated, where you live, everything else you’ve done, what you did on that trip, personal things you did on that trip — that’s nobody else’s business. So that’s why that was protected. And I feel badly for those donors that were called and exposed like that. In an effort to be transparent, there was too much transparency which is usually not the case.
We try to be as open and transparent as possible. But in that case we went too far.
According to Foley, the records he accessed “detailed costs, destinations, passengers” on the university plane. Other information, such as the donors’ addresses and how much they gave the university, was not posted online–only “their names and where they flew.”
So ISU was not giving out personal information. A reporter found contact information for passengers listed on university flights and asked them about their donations to a public university.
Randy Evans, executive director of the Iowa Freedom of Information Council, pointed out that if ISU removes passenger names and destinations from the information they provide about the flight service, the public won’t be able to determine whether Leath’s trips were justified.
Leath defended the use of his North Carolina home for donor meetings, saying some donors
are absolutely thrilled to be able to go to our vacation home. It’s a beautiful, log cabin, not very big, not super fancy — but it’s a nice, log cabin in the Appalachian Mountains — so you think about that in the spring when the colors are changing, it’s spectacular.
So, to be able to spend some quality time with people at a place like that, it makes them feel more special. The experience is more special, you get to know them better, you get to bond with them better, and it’s better for the overall process.
So, if you think of it that way, or if you ever do fundraising, it makes really good sense. Again, it’s disappointing to me to see it characterized like he went to his North Carolina home like it was just a vacation.
It’s far from that. I should also point out to you, when I’m there, I work all the time. There’s days that Shirley [assistant to Leath] calls me at two o’clock and I haven’t left my office there in that little cabin. I’ve been working on emails, phone calls from seven in the morning to two in the afternoon. It’s not like I’m on vacation, alls I’m doing is working in a different environment. So, a lot of times I’ll go there, we’ll have these donors that I met with for four hours, the rest of the time I’m just working. It’s just a nicer place to work.
Leath said he has “very limited involvement” with his family’s Christmas tree business in North Carolina, and mentioned near the end of the interview that he does fly commercial for most of his travel on behalf of ISU. He explained the importance of traveling to different parts of the country for donor meetings, adding, “So you know there is some cruel irony in the fact that I’m doing exactly what I was asked to do, doing it better than anyone’s ever done it here and getting criticized for it.”
No one has criticized Leath for his fundraising. People are merely asking questions about his use of a university plane, including whether he has sometimes used it for personal gain.
The Iowa Board of Regents issued the following press release on October 5:
Statement from Board of Regents Executive Director Dr. Robert Donley on Policy Compliance Review
On September 29, I began conversations with Board of Regents Chief Audit Executive, Todd Stewart, about performing a compliance review of policies regarding use of equipment and travel at each of the three Regent universities. Today, Mr. Stewart and I agreed on the scope in which they will review the policies to ensure they are clear and consistent, and that policies and state law were followed. They also will certify that existing internal controls are adequate and appropriate.
After the compliance review is complete, findings will be publicly shared with the Board. I have asked Mr. Stewart to present an update on the progress of his review at the October Board meeting.
THURSDAY UPDATE: On October 5, ISU’s student government approved a resolution asking the Iowa Board of Regents to investigate Leath’s use of university planes by a vote of 23 to 4, with one abstaining. Vanessa Miller reported for the Cedar Rapids Gazette, “Leath urged the students not to pass the resolution, asking them to consider the board’s limited resources and time to spend on something like this.”
You can watch the video of Leath taking questions from student leaders here. The students were well-informed and covered a lot of important angles. I hope the Board of Regents will take their oversight role seriously and ask some tough questions about Leath’s conduct themselves, rather than circling the wagons.
I enclose the student government’s resolution below.
[I]n 1991 I hired Bob Bowlsby to be the men’s athletic director at the U of I. He was an experienced pilot and wanted to be able to fly himself to out-of-town events and meetings with donors. I told him no.
When I asked why she had rejected Bowlsby’s request, Rhodes explained,
I told him that I wasn’t sure that he would be covered under the Iowa tort claims act because it wouldn’t fall within the scope of his employment. It would at least raise questions. I was also concerned about his use of donor’s airplanes (his proposal) because of documentation and tax issues. Also, I thought [it] was stupid and was asking for trouble. […]
Flying a plane was not in the scope of his employment. And I didn’t want to take the risk of losing an AD in a plane crash, among other considerations. One of the ISU planes had crashed with the track team aboard, as I recalled, in the past.