By Lynne Munson
Until September 14, anyone can weigh in on proposed changes to IRS Form 990. Why should you care about the form non-profits use to report their financial status to the government? Here are a few billion reasons: Because for the first time, the federal government is trying to get colleges and universities to tell the public how much (actually, how little--around 4%) they are spending from their endowments. That is if Congress and the IRS can withstand the pressures of the higher education lobby, emanating largely from the National Association of College and University Business Officers.
If the government does stick to its guns, this will, in a word, be huge. Institutions of higher education currently are not required to report the amount or proportion of their endowment spending to the public. And of course they don't have to divulge how they spend the few endowment funds they do cash in. Colleges and universities always have been allowed to keep this information secret despite the fact that they are hoarding billions in funds on which they pay absolutely no taxes. These are funds, of course, on which taxpayers already have taken a "hit" in the form of the deductions provided immediately to the alums and others whose donations contribute to these endowments.
So this would be a breakthrough--there's no doubt about that. Still, both the future tuition-paying mom and the policy wonk in me would be even happier if the IRS put some more thought into precisely how they are requesting this information. The draft form is so full of holes anyone could manipulate and massage the numbers to produce responses that make America's most miserly institutions appear downright charitable when it comes to endowment spending.
For example, the IRS makes no attempt to define what an endowment is. And since an institution can decide at any time what funds do or do not count as being in their "endowment," leaving the definition up to reportees would make responses incomparable and unreliable. I want to remain positive and put aside the thought that perhaps the IRS folks who drafted this are so resigned to the belief that the schools will manipulate any description of what an endowment is that they didn't even attempt to define the term. I understand their frustration. The higher education lobby is one of Washington's most powerful. They've protected colleges and universities' ability to keep this information secret for decades and neither they nor the experts who prepare 990s are going to part with these secrets without a very serious fight.
Still, there's reason to be hopeful. There isn't any obvious evidence of it yet, but low-spending, endowment-rich colleges and universities surely must realize they have a problem on their hands. Higher education endowment hoarding is a red hot issue right now. The 990 revisions were most likely a response to the urgings of Senators Baucus and Grassley of the Finance Committee who sent a letter to Treasury Secretary Hank Paulson last spring urging him to revise the 990 to increase transparency. NACUBO et al. are scrambling and met with IRS officials at least once this summer to argue that the new reporting requirements would put too much of a burden on colleges and universities. Really? The endowment reporting section consists of 7 lines of information. I mean, have these folks even seen a FAFSA? For years, these schools voluntarily have been providing NACUBO with vastly more information for their annual endowment study. There is no legitimate argument against sharing this information with the public. None.
Lynne Munson is an Adjunct Scholar at the Center for College Affordability and Productivity