A Tale of 2 Speakers

After Senate aide warns private college officials about scrutiny on compensation issues, Santorum butters them up.
February 8, 2006

Rick Santorum is no dummy. When the Republican U.S. senator from Pennsylvania spoke Tuesday to the annual meeting of the National Association of Independent Colleges and Universities, he focused neither on his partial embrace of intelligent design (from which he has largely stepped back) nor his bear hug of David Horowitz's campaign to ensure ideological diversity on college campuses.

Knowing his audience -- which had just been warned by a previous speaker that higher education faced significant scrutiny as part of a broader Senate investigation into the behavior of nonprofit organizations -- Santorum told the presidents and other college officials that he was vigorously opposing efforts by some of his colleagues to crack down on nonprofit abuses in a way that would "throw the baby out with the bathwater." He said he had declined to merge legislation he favors, which would allow people to donate funds in individual retirement accounts to charities without a tax penalty, with a set of nonprofit reform measures.

"I wasn't going to sell my soul," he said, "to get my name on a piece of legislation if the net effect to the nonprofit sector was negative," Santorum said to boisterous cheers -- cheers that were dwarfed a few moments later when he asserted that his IRA legislation could "unlock $2.5 trillion in assets" in contributions by older Americans -- money that would "primarily go to organizations like yours," he told the college leaders, to heavy applause.

Santorum's comments were a welcome balm to the NAICU crowd after they heard from a Republican aide to the U.S. Senate Finance Committee, which announced in December that it would investigate whether the Board of Trustees at American University acted responsibly in its oversight of the institution's former president, Benjamin Ladner, who resigned in October amid charges of profligate spending. In his December statement announcing the investigation, Grassley implied that the committee's investigation would look beyond American: "I’m looking at legislative reforms that will encourage and empower boards to have more oversight of their operations. The best way to avoid problems like Benjamin Ladner’s excessive compensation and severance is for boards to know that the buck stops with them.”

The pending Senate investigation, along with more aggressive scrutiny of tax-exempt organizations, including colleges and universities, by the Internal Revenue Service, have college administrators and lawyers on edge, and eager for any crumbs of information about how to avoid running afoul, particularly, of federal laws and regulations that can penalize college officials and trustees alike for compensation deemed "excessive." Hence the eager if nervous look on the faces as the private college officials listened to the Senate aide speak on a panel called “Governance and Compensation: What the IRS and Congress Expect from Higher Education.”

If they were hoping for signs that Grassley and the Finance Committee are prepared to back away, the Senate staff member disappointed them. Colleges and hospitals, the aide said, are the big players in the nonprofit world, and while that does not necessarily make them the prime targets for investigation, they won’t be immune. The committee is “in the middle” of its investigation of American University, he said, ticking off a list of issues that the panel would probably explore and to which college officials and trustees should pay attention.

Among them:

(1) Board governance and composition. The staff member noted a 2005 letter in which the IRS commissioner, Mark W. Everson, cited the laxity of nonprofit boards as a serious problem. “I can only echo that,” the aide said, adding that too often, trustees seem to think that their primary role is for “ribbon cutting ceremonies, not to oversee the work of the CEO.”

(2) Joint ventures. Colleges and other nonprofits should make sure that such partnerships “are at arms length and are operating in the best interests” of the institution. This is a particular concern in the hospital arena, the Senate aide said.

(3) Bonds. The panel is growing increasingly aware of and concerned by the $5 trillion in outstanding bonds held by nonprofit groups, the aide said, and wants to make sure that “they are being used properly and appropriately.”

(4) Supporting organizations. Fund raising foundations and other related organizations, the staff member said, sometimes “seem to be vehicles for salary augmentation of various people at universities.”

(5) Executive compensation. This is a central focus of the committee’s work, and the aide said that to comply with IRS rules on “excess benefits” for a college president or other top official, institutions need to make “full disclosure of everything this person is getting” on their federal informational tax forms, known as Form 990s, including such things as compensation for spouses.

The aide also said that the Finance Committee would follow the work that the Internal Revenue Service itself is doing on compensation issues at nonprofit entities. “We’re looking at it very, very closely, and expect that we’ll be taking action” based in part on the IRS finds.

After the Senate staff member’s warnings about continuing Congressional scrutiny, the NAICU group appreciated Santorum’s statement that he had helped to get rid of “90 percent of the bad stuff” in tax reconciliation bills that are moving their way through Congress and his promise to continue to try to ward off intrusive regulation.

But Santorum could not help himself when an administrator at Salve Regina College asked him how colleges could correct the impression of Republican political leaders that the institutions are bastions for political liberalism, which the questioner posited had undermined federal support for higher education.

Santorum took issue with the official’s thesis that Congress had been anything but fully supportive of higher education, at least from a financial standpoint. But “there is no question that the majority of Republicans believe that higher education is ‘left,’ “ Santorum said. “We do, and it is.

“Having said that,” he added, “we also understand the importance of higher education to the future of this country, and whether we like your ideology or not, we understand that you’re the platform on which we have to build the future competitiveness of the country.”

Republican Congressional leaders, he said, have shown “remarkable restraint” in not punishing higher education for its ideology, Santorum said, before the lawmaker from Western Pennsylvania exited the meeting room to introduce a resolution on the Senate floor praising the Super Bowl victory of the Pittsburgh Steelers.


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