The unspecified cost of enlarging Kennedy's bed;
$1,530 for personal laundry services for his family;
$1,500 apiece for two Voltaire chairs from Pierre Deux;
$1,200 for a fruitwood commode; and
$1,600 for a shower curtain and its installation.10
Taxpayers also had paid $400 for flowers for the dedication of the Stanford horse stables; $600,000 to make Hoover House, President Kennedy's official residence, earthquake-safe; $4,000 for a reception after the wedding of President Kennedy and his second wife, as well as for the cost of two meals before the wedding; and $10,000 in silverware for Hoover House.11
In at least one instance—that of the silverware—there appeared to have been deliberate manipulation. While the silverware had been appraised at $10,000 in total, the appraiser had broken it down into categories, such as knives, dinner forks, salad forks, and spoons, and appraised each category, apparently to escape the $500 capital expense limit that would have prevented Stanford from charging the whole set to the government in one year.12 Federal investigators stopped short of actually claiming fraud, if only because they did not know the intent of the person who made the decision. But, criminal or not, the mind-boggling pattern of waste and abuse was now public record, and the fallout for Stanford and its multicultural leaders was just beginning.
Kennedy, for one, blamed American taxpayers for their failure to understand what it took to run a major university: “Some expenses associated with the operation of the President's residence” may be “sources of potential embarrassment,” he allowed, but only because “the complexity of the cost accounting makes it difficult for us to gain public understanding of the legitimacy of these charges.”13 Taxpayers (and their elected representatives) simply misunderstood what constituted a research cost. Kennedy knew better: “They are in my judgment allowable. They just don't appear reasonable to most people.”14
In Kennedy's case, it appeared that ideological extremism and bureaucratic arrogance went hand in hand. Both, in the end, were a function of the same loss of perspective engendered by the multicultural revolution. No matter how flagrant any of these violations might appear to outside observers, from inside the multiculture all such external standards had disappeared. Kennedy did not perceive himself as arrogant, because he did not (and could not) believe himself to have done anything wrong. “As a matter of fact,” he concluded, “I wouldn't be embarrassed about saying that every damn flower in the house ought to be an indirect cost against research.”15
Like Sandanista leader Daniel Ortega with his Gucci sunglasses (bought during a 1985 Manhattan shopping spree), Kennedy, who as president was paid more than $200,000 per year, did not perceive the irony of such an exorbitant lifestyle so transparently at odds with his egalitarian rhetoric. Bursting with revolutionary consciousness and run by a corrupt elite, Stanford truly had come to resemble something like the Third World.
One Man vs. The Multiculture
In contrast with the gilded luxury of President Kennedy's official residence, Paul Biddle's office was barely usable when he came to Stanford as the navy's resident representative in 1989. Having earned $142 an hour as a private consultant, Biddle gave up a lucrative accounting practice in 1985 to join the government. As an employee of the Defense Contract Audit Agency, the first government agency for which he worked, his starting salary was less than $18 an hour.16 “I want to see if one person can make a difference,” Biddle told his wife.17
Upon moving to Palo Alto, Biddle intended to do just that. His new position required him to manage the overhead on some 1,700 research contracts and grants the federal government had negotiated with Stanford. By 1990, the federal government funded most research conducted at Stanford, totaling nearly $400 million worth of contracts in fiscal year 1988–89.18 Because much of this research has military-related applications, the monitoring was left to the Defense Department—in the case of Stanford, the Office of Naval Research (ONR). “Stanford is a major defense contractor in every sense of the word,” Biddle explained.19 The auditor hoped to determine whether taxpayers were getting their money's worth.
In the course of his review, Biddle opened a Pandora's box known as “indirect costs.” Unlike direct costs, indirect costs are expenses that are not easily attributable to a specific project but are nevertheless necessary to conduct research—costs to maintain laboratories and other research buildings, even payments for roads, sewers, campus police protection, and the very accountants who prepare the bills. If a researcher uses a library for work on a federally sponsored research project, for instance, he incurs an indirect cost.20 Direct costs, by contrast, include items fundamentally linked to a given research project, such as salaries, chemical solutions, and lab equipment.
When Stanford receives a government grant to complete research, Biddle knew, it also sends the government a bill for indirect costs, or overhead. Stanford, like many other private institutions, maintains that this bill is necessary to recover the full cost of performing government research, so as not to drain tuition or the endowment.21 But while direct costs—for test tubes and salaries—are paid in full by the government, indirect costs—for heating, lighting, building depreciation, libraries, and administrative overheads—are paid for at a percentage rate negotiated with Washington.
Biddle soon discovered that Stanford had negotiated one of the highest indirect cost rates in the country—78 percent. Thus, a professor wanting to undertake $100,000 of research would require an additional $78,000 to pay university overhead. By 1990, indirect cost recovery constituted 30 percent of Stanford's operating budget, second only to tuition as a source of funds.22 The university received nearly $122 million per year in overhead reimbursement.23
Stanford's indirect cost rate had risen continuously during the 1970s and 1980s. Less than two decades earlier, Stanford's rate had been a relatively modest 43 percent. Even in 1990, a number of other schools were able to make ends meet with rates in the 40 to 60 percent range; for example, Stanford's rival, UC Berkeley, charged an indirect cost rate of only 49 percent.24 The rapid rise was a major source of discontent among research faculty at Stanford: Researchers feared that the university's relatively high rate would drive grants away from their projects to universities where research could be conducted more cheaply. “An increase in the rate doesn't mean more money comes from Washington (for the professor). It just means the university general fund gets a bigger slice,” explained engineering professor William Spicer.25 As the administration charged more money for overhead, researchers could expect to receive fewer grants. In effect, indirect costs represented a transfer payment from scientists to university bureaucrats.
In April 1990, Science magazine reported that Stanford faculty were preparing to stage a sit-in in President Kennedy's office after the news that Stanford's indirect costs would rise to 84 percent by 1993.26 Faculty blamed the high rate on a bloated bureaucracy and Donald Kennedy's edifice complex—a campus-wide building fever with burdensome costs. Provost James Rosse acknowledged that the growth of Stanford's bureaucracy had caused much of the increase; in the 1980s, the University's staff had increased by 23 percent while faculty had grown by only 5 percent.27
Indeed, the multicultural “transformation” of the university had not come cheaply. Stanford employs nearly 7,000 staff and administrators—more than one bureaucrat for every undergraduate—and only 1,400 faculty.28 Many of the new staff positions, such as Residential Education's $50,000-per-year Multicultural Educator, had been created to facilitate the multicultural revolution.29 Nor did the large assortment of new departments (Feminist Studies, African American Studies, Chicano Studies), ethnic centers, Residential Education (which alone receives more than $3 million a year), or a multitude of new classes and trendy multicultural conferences come for free.30
At the same time costs were spiraling out of control, new sources of funding were limited. By the late 1980s, almost two-thirds of Stanford's undergraduates received financial aid.31 Because
these students and their families could not afford to pay any more, even Stanford's large tuition hikes—consistently above the rate of inflation and often around 10 percent a year—simply resulted in ever-increasing financial aid packages and yielded only incrementally greater revenues.32 The one remaining source—which could be tapped with relative impunity—consisted of the American taxpayers at large. The latter could not see for themselves whether their money was misspent and would have to rely on others to provide the needed oversight. So long as this oversight was lacking, the progress of Stanford's “great experiment” would continue unchecked.
As an accounting matter, it is not possible to show that Stanford's rising indirect cost bill went directly to pay for its growing budget for multicultural programming and personnel, even though both increases occurred at the same time. Stanford makes public very little detailed information about how it funds line items in its operating budget, and any useful information, which could establish the link, is unlikely to be forthcoming. But that missing data is not necessary to reach an inescapable conclusion: Without the financial burden imposed by multiculturalism, the university could have operated with much lower overhead costs. OMD Director Sharon Parker admitted as much: Just as other departments would be fighting the budget cuts due to cuts in the indirect cost rate, she declared, she would be doing the same.33 If Parker's statement meant that cuts in the indirect cost rate could be paid for with cuts in the OMD's budget, then the following corollary also must be true: A higher rate could have been avoided from the beginning if Stanford had never undertaken the “great experiment.” With a bit more institutional modesty, Stanford could have avoided the unpleasant issue altogether.
Meanwhile, as Paul Biddle's own audit was turning up some of these, and other, irregularities, he—and not the irregularities—became the target of university denunciation. Janet Sweet, Stanford's assistant controller, reportedly warned him, “Paul, you're not here to do all these things. You are here to stamp, sign and pass the paper.”34 University officials were not used to operating under much oversight. Tom Dolan, head of the ONR, intervened on behalf of the university and reportedly threatened Biddle's job: “You've made waves here; you make more waves here, you're gone.”35 Biddle was told repeatedly not to waste time on his study and to get back to processing the agreements Stanford presented.
Biddle faced a crisis of conscience. As Reader's Digest reported, “Discouraged by repeated warnings and the lack of encouragement, Biddle considered taking a far better-paying job in private industry. But he knew he'd feel guilty if he left and allowed such a scandal to continue. One Sunday after church he approached his minister for advice. ‘You've found coveting of taxpayers’ money,’ said his pastor. ‘You have a duty to do something if you can.’”36
Biddle decided to stay and fight. On May 29, 1990, he picked up the phone and called Washington. The following week, three investigators from the House Energy and Commerce Committee came to campus and started combing through the university's files.37 By December 1990, their audit would find the yacht, flowers, parties, and other abuses billed to the government as “indirect costs.” The following March, the committee would show that the navy auditor's efforts had not been in vain, as misspent tax dollars began to be recouped.
In the aftermath of the indirect cost fiasco, the government instituted strict new spending controls and slashed Stanford's indirect cost rate to 55 percent. The university faced projected budget deficits of $110 million over three years ($44 million in 1992, $41 million in 1993, and $25 million in 1994).38 By the end of 1992, the Stanford administration had shifted its focus from funding multicultural priorities to paring a budget deficit. Stanford's “great experiment” lost momentum and slowly ground to a halt.
Duping and Doling
In 1994, Stanford and the federal government reached a settlement on the indirect cost issue that cleared the university of any legal wrongdoing.39 The university, of course, touted this as a victory and pointed out, justifiably, that a number of Biddle's more ambitious charges were unsubstantiated. But the settlement did not represent a complete or even partial vindication of Stanford's behavior, because the real scandal never had to do with the legalities of indirect cost accounting. As Mark Simon, a columnist for the Peninsula Times Tribune, observed: “The question never has been whether Stanford did wrong. The question was whether Stanford had done all it could to do right. In that sense, the university leadership was revealed as expedient rather than lofty. And in response to the scandal, the university leadership was revealed as arrogant, rather than earnest.”40 The real outrage concerned institutional conceit—the arrogance that led Stanford to believe it could dictate research costs to the government, the arrogance that led Stanford to believe it was a model for society, and, similarly, the personal arrogance that led Stanford's leaders to believe they were entitled to taxpayer-subsidized fruitwood commodes. This top-to-bottom immodesty, laid bare in the course of the debate over indirect costs, was always the real issue.
In particular, the Kennedy administration's reaction to the indirect cost scandal is more illuminating than any minutiae of misallocated money. President Kennedy's statements were rarely consistent from week to week, but they did seem designed to placate disgruntled alumni and others who were angry with him. When local newspapers first began reporting Biddle's charges of overbilling, the president laughed off the allegations. He joked glibly that the charges were “enough to send Trustees off to their cardiologists,” but were “without foundation” and “entirely unrelated to impropriety or fraud.”41 Kennedy assured the faculty in September 1990 that his administration was “unusually well positioned” to defend itself and had “nothing to fear.”42 Provost James Rosse also reflected the calm before the storm: “There's nothing illegal about it. It's not as though anybody's building swimming pools or taking trips to Tahiti.”43
As the investigation deepened, the administration's unseemly confidence became even more brazen; a good offense would be the best defense. In October 1990, Stanford released a “self-audit.” It not only found no university wrongdoing in the school's assessment of indirect costs, but claimed that the government actually owed Stanford an additional $13 million—Stanford really deserved an even higher indirect cost rate of 84 percent!44 Taxpayers could rest easily, however; the university announced it would not try to claim the money.45 Nor did Stanford faces turn red that November, when after initial denials Stanford officials reimbursed the government $184,286 for improper charges on the yacht Victoria.46 Still, apologies were not forthcoming. “We have seen no evidence suggesting wrongdoing by Stanford personnel,” Kennedy insisted.47
By the beginning of 1991, it had become clear that the inappropriate billings extended beyond Stanford's sailing program. House investigators found the flowers, piano, cedar-lined closet, antique commode, and other taxpayer-subsidized luxuries in Donald Kennedy's mansion.48 The government had also paid for embarrassing entertainment expenses, such as a wedding reception for President Kennedy and his second wife.49 These discoveries, unfortunately, were not only professionally compromising to the president; they dredged up personal rumors. His remarriage in 1987 to an attorney in the university's Legal Office had raised eyebrows, following just two months after Kennedy divorced his wife of 34 years.50 Signs saying “He's No Kennedy” had even popped up in student dorms, a reference to Massachusetts Senator Ted Kennedy's reputation for infidelity. The wedding reception had been hosted by the Board of Trustees to smooth over Robin Kennedy's introduction to the university community “in her new role as the wife of Stanford's president and official hostess.”51 That old wound was now unkindly reopened.
Remarkably, every time Stanford's multicultural leaders tried to present their side, they lost further ground. During a special on ABC's 20/20 television show and during the House Oversight hearings, Kennedy lectured his audience on the priorities of higher education and the complexities of the university's accounting, which, he assured them, mere citizens could not poss
ibly understand. But because Congress and the public understood all too well, Kennedy's performances further undermined the university's credibility. Kennedy became increasingly petulant:
I don't care whether it's flowers, or dinners and receptions, or whether it's washing the table linen after it's been used, or buying an antique here or there, or refinishing a piano when its finish gets crappy, or repairing a closet and refinishing it—all these are investments in a University facility that serves a whole array of functions.52
In rushing to support Kennedy, the university's Board of Trustees echoed his indignant attitude. Chairman of the Board James Gaither likened Kennedy's residence to a “mini White House” deserving only the finest—paid for by taxpayers, of course. In a signed letter to Representative Dingell, Chairman Gaither, joined by several past chairmen of Stanford's Board of Trustees (including future U.S. Secretary of State Warren Christopher), applauded President Kennedy for setting “the highest standards for the educational community.” They also emphasized the importance of furnishing Kennedy's house “in a manner appropriate to its distinction,” with “items such as silver, crystal, china, flower arrangements, table linen, antique tables, chairs, desks, and other furniture, expenses of refinishing the piano or other furnishings and the cost of upholstery, draperies, and carpets.”53
Paul Biddle, who was perhaps not accustomed to living in such high style, interjected a little common sense: “How is the cost of putting cedar in a closet remotely relevant to organized research? They were gilding the lily.”54
As publicity mounted, university officials announced that Stanford would withdraw about $500,000 of federal research billings that had been used to cover upkeep of the president's home and the residences of two other Stanford administrators.55 Still, officials stipulated that they had not done anything wrong, but pulled the costs because of the possibility of public misperception.56 The president, who earlier was “unusually well positioned to handle it,” now blamed the scandal on public relations: “We've had no opportunity to tell our story first. It's always a disadvantage to be following up instead of leading. In that sense, I don't think it's possible for us to do a very good job.”57
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