Gordon M. Grant for The New York Times. The Fire Island beach home of John Sexton, New York University’s president. An N.Y.U. foundation lent him $1 million for it.
By ARIEL KAMINER and ALAIN DELAQUÉRIÈRE
New York Times, June 17, 2013
Follow one of Fire Island’s quaint footpaths away from the ferry dock, past modest cottages and better-appointed vacation homes, to an elegant modern beach house that extends across three lots. A composition in bold, unadorned planes, it has a perimeter of green and two separate entrances, each outfitted with the long ramps that are the local custom.
Ruth Fremson/The New York Times John Sexton, president of New York University, said faculty loans improve revenue.
Its most interesting feature, however, is not architectural, but financial. The house, which is owned by John Sexton, the president of New York University, was bought with a $600,000 loan from an N.Y.U. foundation that eventually grew to be $1 million, according to Suffolk County land records. It is one of a number of loans that N.Y.U. has made to executives and star professors for expensive vacation homes in areas like East Hampton, Fire Island and Litchfield County, Conn., in what educational experts call a bold new frontier for lavish university compensation.
N.Y.U. has already attracted attention for the multimillion-dollar loans it extends to some top executives and professors buying homes in New York City, a practice it has defended as necessary to attract talent to one of the most expensive cities on earth. Mortgage loans to Jacob Lew, a former N.Y.U. executive vice president, part of which was eventually forgiven, became an issue during Mr. Lew’s confirmation hearings as treasury secretary this year.
Universities in similar circumstances, like Columbia and Stanford, also have helped professors and executives with home loans. Aid for vacation properties, however, is all but unheard-of in higher education, several experts in university pay packages say.
“That’s getting to be a little too sexy even for me, and I have a good sense of humor about these things,” said Stephen Joel Trachtenberg, a former president of George Washington University who has publicly defended high salaries for professors and university executives. “That is entertaining, actually. I don’t think that’s prudent. I don’t mind paying someone a robust salary, but I think you have to be able to pass a red-face test.”
Richard Revesz, who recently ended a decade as the dean of New York University Law School, lives with his wife, an N.Y.U. law professor, in a handsome West Village town house that was financed by N.Y.U. They also have a home on more than 65 acres near the Housatonic River in Litchfield County, also helped by an N.Y.U. loan, according to land records in both locales. According to the university’s most recently available tax return, they owe the university $5.7 million altogether.
Since the late 1990s, at least five medical or law school faculty members at N.Y.U. have received loans on properties in the Hamptons or Fire Island, in addition to Dr. Sexton.Martin Dorph, an executive vice president of N.Y.U., got a $200,000 loan on a home in Bucks County, Pa., that he already owned; the university said the loan, which is forgiven over time as long as he stays with N.Y.U., was in lieu of a raise.
“The purpose of our loan programs goes right to the heart of several decades of sustained and successful effort at N.Y.U.: to transform N.Y.U. from a regional university into a world-class research residential university,” John H. Beckman, the university spokesman, said in an e-mail. In some fields, he added, certain loans help retain faculty members who “can easily pursue a financially rewarding professional career instead of choosing the path of university scholarship and teaching.”
He said that only a small fraction of the more than 100 loans given by N.Y.U. (some of which were made by New York University itself and others by related foundations) were for second homes. He declined to comment on the terms of most of those loans, like interest rates and any provisions for forgiveness, citing the privacy of the parties.
In Dr. Sexton’s 11 years as president, N.Y.U. has raised its profile, expanded to campuses around the world and won approval for a major expansion in its home base, Greenwich Village. It has done so in part through aggressive spending and fund-raising.
The rapid change has won Dr. Sexton many admirers, both at N.Y.U. and throughout higher education. The board of trustees has raised his salary to nearly $1.5 million, with a $2.5 million “length of service” bonus to come in 2015, and has guaranteed him retirement benefits of $800,000 a year. The university also provides him an apartment by Washington Square.
But many faculty members have bristled at both his pay package and what they consider a top-down management style more fit for a corporation than a university. The faculties of five N.Y.U. schools have passed votes of no confidence in him this year. (The law school voted to support Dr. Sexton.)
Dr. Sexton declined to comment for this article, but in a March interview he said: “Faculty housing loans on which interest is paid and appreciation is enjoyed by the university actually produce additional revenue. They’re probably the best-performing parts of our portfolio, so as to reduce the amount of tuition that we require.”
Ruth Fremson/The New York Times, Richard Revesz, former dean of the New York University Law School.
Laura Kalick, an expert in tax law at the accounting firm BDO who specializes in nonprofit organizations, said loans of this type do not violate any specific rules about compensation, if they are properly reported, go through the appropriate channels for oversight and approval, and are deemed reasonable.
“They have to have an independent body looking at comparable data and, based on that, make a decision about what is reasonable compensation and document the independence of the process and the comparables that they used,” she said.
Mr. Beckman said that the compensation committee of N.Y.U.’s board of trustees approves such loans, with the exception of law school loans, which in the past were approved by the law dean and the board of the law school’s foundation. The law school’s current policy “is to participate fully in the university’s process for evaluation and approval of loans and loan programs,” he said.
Dr. Sexton was dean of the law school in 1994, when he and his wife, Lisa Goldberg, who died in 2007, bought the Fire Island property, in Seaview, using a $600,000 loan from the law school foundation. That loan grew to $1 million, and was paid off in 2002, according to county records.
In 2003, they also received a new loan worth $200,000 from N.Y.U., and in December 2004, owed the university $137,688. Suffolk County records suggest that N.Y.U. forgave 20 percent of the loan each year — the document with the forgiveness clause was filed with the county, but not signed by Dr. Sexton. By July 2010, he no longer owed anything on that loan.
In 2007, however, N.Y.U. had extended him another loan on the property, a 10-year mortgage for $600,000. That loan was modified twice, both times lowering the interest rate. The loan is now due in 2015, two years sooner.
The second time, the rate was changed to “the current short-term applicable federal rate.” The university declined to elaborate on what that meant, but the Internal Revenue Service’s short-term applicable federal rate at the time was 0.19 percent.
Senator Charles E. Grassley, Republican of Iowa, raised the issue of Mr. Lew’s loans during hearings over his confirmation, which was approved; since then, the senator, who is a member of the Finance Committee, has asked N.Y.U. for more records of compensation and loans to executives and employees. He noted N.Y.U.’s nonprofit status, which generally exempts it from income and property taxes.
“Universities are tax-exempt to educate students, not help their executives purchase vacation homes,” he said in a statement on Monday. “It’s hard to see how the student with a lifetime of debt benefits from his university leaders’ weekend homes in the Hamptons.”