By Pam Martens: February 26, 2013
Today, an august body of the United States Senate will vote on President Obama’s nomination of Jack Lew to be the next Treasury Secretary, a post that oversees the paying of the country’s bills, collection of taxes, printing of the country’s currency, issuing the Nation’s debt securities and maintaining the stability of the financial system. The full Senate will likely vote in a matter of days thereafter.
And yet, the man who will be voted on by the Senate Finance Committee today will not give straight answers to the most basic of questions about $1.4 million in loans from his previous employer, New York University, and the assumption and modification of those loans by his next employer, the bailed out banking institution, Citigroup.
A mortgage loan is typically a straightforward matter that doesn’t require multiple rounds of written questions. But in Lew’s case, Senator Chuck Grassley has patiently probed the matter while Lew has steadfastly obfuscated.
Lew’s opacity on the matter led to the appearance that NYU, a nonprofit, was forgiving over a period of five years a whopping $1.3 million mortgage on Lew’s 4,584 square foot home in the upscale Riverdale section of the Bronx. Lew initially wrote to Grassley: “In short, the University provided a mortgage forgiven in equal installments over five years, and an additional shared appreciation mortgage. I do not recall the interest rate or other specific terms.”
In the latest round of questioning by Grassley on the matter, Lew now suggests that NYU was forgiving just $100,000 per year on the loan. Lew writes: “…NYU provided $200,000 in principal forgiveness (corresponding to my first two years of employment)…” Lew also says he “repaid the University” but fails to cite what amount he repaid.
Lew refers to the institution that assumed all of the remaining debt from NYU as “a private mortgage lender.” Why not be open and frank with a Senate investigative body and state that your next employer, Citigroup, assumed the mortgages. What is to be gained by this game of cat and mouse other than distrust of your integrity by the public you will serve in one of the highest offices in the land.
One reason for the delicate dance is that Lew, as Treasury Secretary, will also chair the Financial Stability Oversight Council (F-SOC) and serve in a regulatory capacity over Citigroup. Allowing that institution to simultaneously service a whopping mortgage on the roof over one’s head might raise a few eyebrows. But that’s the very reason for confirmation hearings – to learn about conflicts of interests that prevent the public from being adequately served by those that represent them in Washington.
Below is the full exchange of two separate rounds of questions submitted by Senator Grassley. Make up your own mind if the public should have confidence in Jack Lew’s forthrightness.
Senator Chuck Grassley first posed the NYU loan question to Jack Lew in writing as follows:
Grassley: My understanding is that according to Forms 990 filed by New York University from 2002 to 2005 you were provided a sizable loan as part of your employment. The amounts reported include $1.4 million in 2002, $748,000 in 2003, $698,000 in 2004, and $673,000 in 2005.
a. Please describe the terms of the loan including interest rate, minimum payment requirements, term, and the purpose of the loan. Be sure to explain how a reasonable rate of interest was determined.
b. Please describe how the loan was repaid and whether any portion of it was forgiven.
c. Were any terms of the loan altered at any point? If so, please describe which terms were altered and when.
d. Please provide the promissory note and any other documents related to the loan.
e. If the loan interest rate was below market, or if the loan was forgiven, did you report appropriate amounts as income to the IRS?
Lew: The terms of NYU’s housing assistance are described in the employment agreement referenced in my answer to Question 7. In short, the University provided a mortgage forgiven in equal installments over five years, and an additional shared appreciation mortgage. I do not recall the interest rate or other specific terms. According to my employment agreement, the interest on both loans was equal to the rate earned by the bond portion of NYU’s endowment in the quarter preceding the signing of the mortgage. NYU provided an annual payment equal to the interest paid on the first mortgage described above. NYU reported income related to housing assistance on my Forms W-2, and I paid all taxes that were due.
Senator Grassley’s second round of questions on the matter:
Grassley: Mr. Lew, Principle 23 of the Panel on the Nonprofit Sector’s “Principles for Good Governance” specifically states a “charitable organization should not provide loans (or the equivalent, such as loan guarantees, purchasing or transferring ownership of a residence or office, or relieving a debt or lease obligation) to directors, officers, or trustees.” In the limited circumstances that a charity does provide a loan to an employee, its terms “should be clearly understood and approved by the board.” Given that these guidelines raise significant issues for tax-exempt organizations like NYU, it is critical that the Senate has the ability to see if those guidelines were adhered to and to receive a fully transparent answer from you.
a. In your response, you state that the terms of NYU’s housing assistance are described in your employment agreement you released to the Committee. The employment contract does describe housing assistance that “will be available to you….[e]xcept as otherwise provided for in any subsequent written agreements.” However, it is not clear these details are specific to your loan. The information you have provided thus far does not answer the questions I asked including the terms of the loan, the loan’s interest rate, and minimum payment requirements. Please provide me this information as previously requested. Please feel free to consult your records regarding this information. If these records have been destroyed, please inform us and explain why they were destroyed and why they are not accessible to you through NYU or your lender.
b. Your answer indicates that the interest rate was equal to the rate earned by the bond portion of NYU’s endowment. How was it determined that this was a reasonable rate of interest? Did this constitute a below market rate and by what measure, for the purposes of determining your tax liability?
c. Your answer to my questions appears to indicate you received a 5 year forgivable loan from NYU. Is this an accurate description of the loan? Please clearly identify the amounts of the loan that were ultimately forgiven and all amounts that were reported as income, including amounts that would be considered income from receiving a below market loan.
d. At the end of your term with NYU, what was your share of the equity in the property financed by the NYU loans? Assuming this property has been sold, what was the gain you received and what was the gain received by NYU?
e. In response to my question asking whether any terms of the loan altered at any point and if so, asking you to describe which terms were altered and when, you did not provide any information. Please answer whether any terms of the loan altered at any point. If so, please describe which terms were altered and when.
f. I requested that you provide the promissory note and any other documents related to the loan; you did not provide them. Please provide the promissory note and any other documents related to the loan. If you are refusing this request, please explain the statutory basis for refusing to answer this question. If these records have been destroyed, please inform us and explain why they were destroyed and why they are not accessible to you through NYU or your lender.
Lew: As I noted in my previous submission to the Committee, I received housing assistance from NYU. The terms of that assistance are described in my May 2001 NYU employment agreement, which I have disclosed to the Committee. According to the agreement, the terms include: a mortgage forgiven in equal installments over five years; an additional shared appreciation mortgage; and an annual payment equal to the interest paid on the first mortgage described above. The agreement states that the interest on both loans was equal to the rate earned by the bond portion of NYU’s endowment in the quarter preceding the signing of the mortgage. NYU provided the financing over a decade ago. During the intervening time period, I repaid the University and privately refinanced the mortgage on my home multiple times. I am still living in the same home today.
To the best of my recollection, I believe the history is as follows. I obtained mortgage financing from NYU in the summer of 2001, and the University determined the interest rates (consistent with my employment agreement). According to the publicly available Forms 990 filed by NYU, the financing was provided “in connection with the University’s Faculty Housing Program, a program approved by the University’s Compensation Committee.” The Forms 990 list the balance of the loans as of August 31 of each year, from 2002 to 2006. Between the 2003 and 2004 filings, the principal balance was reduced by approximately $700,000. During that period, NYU provided $200,000 in principal forgiveness (corresponding to my first two years of employment), and I refinanced approximately $500,000 into a separate private loan not provided by NYU. Several years later, when I left the University in the summer of 2006, the balance of my remaining debt to NYU was approximately $670,000. I repaid the amount in full within a year by refinancing through a private mortgage lender. Since that time, approximately six years ago, I have not had any outstanding debt to NYU. Over the course of my five years of employment, NYU reported approximately $440,000 of total income associated with housing assistance on my Forms W-2, and I paid all taxes that were due.