Nonprofit Law Prof Blog

Former Detroit Mayor Kwame Kilpatrick May Face Intermediate Sanctions

 According to a December 16, 2009 story in the Detroit News, the Kilpatrick Civic Fund and former Detroit mayor Kwame Kilpatrick are under investigation for improper use of the 501(c)(4)'s money to fund

"romantic getaways for [Kilpatrick] and his then-mistress his then-mistress; the services of at least two political consultants; a trip to a California resort for the mayor and his family; and more than $25,000 in Kilpatrick rent and moving expenses around the time the mayor was freed from the Wayne County Jail and headed for Texas.

If true, the case presents a rather obvious occasion for imposition of intermediate sanctions under IRC 4958.  The case is so obvious it would not even make a good exam hypothetical.  The (c)(4)'s board, by the way, is populated by the Mayor's sister Ayana, and his former mistresses sister, according to the report. 

dkj

NYT: Charities Rise, Costing U.S. Billions in Tax Breaks

The New York Times recently reported that the IRS approves nearly all applications for recognition of tax-exempt status as a charitable organization under Internal Revenue Code section 501(c)(3), including some rather unusual groups.  The article is based on a Stanford University study that looked at 2008 applications.  What the article fails to note, however, is that over 30 percent of all applications are withdrawn, never completed, or not processed because of a lack of the required filing fee (a point the study notes both in footnote 7 and in its concluding points).  My personal, anecdotal experience from nine years of practice is that most such applications are not pursued to completion because the IRS starts asking hard questions and the applicant realizes it faces an inevitable denial or must significantly change its planned activities to obtain IRS approval, resulting in an effective denial if not a formal one.  Moreover, those applicants who pursue the process to completion often adjust their planned activities in response to IRS demands, which may in part explain the high (98 percent in 2008) approval rate for completed applications.

LHM

Federal Government Settles 13 Years-Long Class Action Lawsuit Filed by American Indians

        The National Law Journal reports that the Cobell Litigation started 13 years ago (on June 10, 1996) has settled.  The lead plaintiff, Elouise Cobell, initiated the class action lawsuit to force the federal government to account for what she (and others) argued were billions of mismanaged dollars supposedly held in trust for American Indians.  The trust funds were initially set up under the controversial Dawes Act of 1887 (also known, as the General Allotment Act), a law dating back more than 100 hundred years.  Historically, the Act was responsible for substantial land loss by American Indians.  More than two-thirds of the land held in 1887 by American Indians was transferred to whites during the 47-year history of the Act.  The Act was designed to de-emphasize communal ownership of land and to assimilate American Indians into individual land ownership.  The Act, in relevant part, required that the federal government hold lands alloted to individual American Indians in trust (unless, the American Indian was deemed competent to self-manage the land) and to account for funds generated by the lease of those lands for grazing and the extraction of oil, mineral and timber.  Under the paternalistic law (its amendments and successor legislation), the federal government is to act as a fiduciary for the benefit of hundreds of thousands of American Indians. This summer the U.S. Court of Appeals for the District of Columbia Circuit vacated a trial court decision entered in the U.S. District Court for the District of Columbia by Judge James Robertson that held that it was "impossible" to account for these funds, awarding the arbitrary sum of $455 million to the plaintiffs.  The plaintiffs were suing for billions. 

        U.S. Attorney General Eric Holder, standing with Interior Secretary Kenneth Salazar, remarked before reporters at the Department of the Interior on Tuesday, December 8, that, "settlement talks [had] failed repeatedly over 13 years, '[b]ut today, we turn the page.'" Secretary Salazar wasted no time; he issued a departmental order yesterday, December 9, implementing the first phases of the settlement (click here).  President Obama is said to have "urged Congress to 'act swiftly to correct this long-standing injustice and to remember that no special appropriations are required.'"

        The story is excerpted below.

Capping more than 13 years of litigation, the Obama administration said Tuesday the government will pay $1.4 billion to settle a class action accusing the United States of mismanaging billions of dollars held in trust for American Indians.

The settlement would resolve the plaintiffs' claims for an accounting of the trust fund, set up more than a century ago for the collection and dispersal of royalties from oil, gas, timber and other companies that leased Indian land. The agreement requires legislative and judicial approval.

Filed in the U.S. District Court for the District of Columbia in 1996 by Elouise Cobell, the class is one of the largest-ever in the nation's history. The $1.4 billion, which includes attorney fees, would be dispersed to the more than 300,000 American Indians who comprise the class. The settlement also creates a $2 billion fund for the voluntary buyback and consolidation of what government officials called "fractionated" land interests. Individual Indians will have the chance to receive payment for divided interest in land. The government would terminate the administrative costs associated with managing the fractioned land.

Attorney General Eric Holder Jr., addressing reporters at the Interior Department on Tuesday, said settlement talks failed repeatedly over 13 years, "But today, we turn the page." Holder appeared alongside Interior Secretary Ken Salazar.

.  .  .

Settlement talks ramped up after a ruling in July in the U.S. Court of Appeals for the D.C. Circuit put the case back before the trial court. At issue on appeal was whether the government could ever adequately perform a historical accounting of the money held in trust for more than a century. Last year, Judge James Robertson of the federal trial court in Washington ruled such an accounting was impossible. He ordered the government to pay $455 million to the plaintiffs, an amount that was a far cry from the billions the plaintiffs had been seeking. A three-judge appellate panel vacated Robertson's decision.

"While we vacate the district court's orders, including its holding of impossibility, we do so with substantial sympathy, recognizing that our precedents do not clearly point to any exit from this complicated legal morass," D.C. Circuit Chief Judge David Sentelle wrote in the July 24 appellate opinion.

For the full story, please click here.  Here is a link to key litigation documents, please click here.

        In addition to the $1.4 billion settlement to be paid out to individuals and the $2 billion fund for voluntary buyback and consolidation of fractionated land interests, the settlement also provides for the creation of an Indian Education Scholarship fund of up to $60 million to improve access to higher education for American Indians.

AMT 

Survey Reveals that 93 percent of Charities feel Negative Impact of Recession

The Chronicle of Philanthropy recently reported that the nonprofit consulting group, Bridgespan Group, a Boston 501(c)(3) nonprofit that helps other nonprofits develop strategies for sustained growth updated a 2008 study and released its findings providing that 93 percent of charities report feeling the negative impact of the recession.  The story is excerpted below:

The stock market may be rebounding, but for charities the negative impact of the recession has only deepened over the past year, according to a survey released by the Bridgespan Group, a nonprofit consulting group in Boston, The Chronicle of Philanthropy reports.

For the full story, please click here.

Researchers Advocate Direct Donations to Extended Families Caring for Orphaned Children in African Nation

The New York Times recently reported that researchers at Boston University are studying the effectiveness of making direct donations to extended family members willing to care for orphaned children in their homes instead of removing these children to orphanages.  Some experts and advocates suggest that the orphanages are expensive and potentially harmful for children because the children are separated from their extended families.  Some advocates even claim that the orphanages are being built to lure financial donations from around the world.  "Researchers say donors need to weed out ineffective, misconceived programs, scrutinizing those that are managed by international nongovernmental organizations or governments but reliant on volunteers in villages to do the work."

The story reports that a study of African households reveals that the vast majority of orphaned African children are being cared for by extended families, and that these families receive no help.  The story is partially excerpted below:

The Home of Hopeorphanage provides Chikodano Lupanga, 15, with three nutritious meals a day, new school uniforms, sensible black shoes and a decent education.

Her orphaned cousin Jean, 11, who balked at entering the orphanage and lives with her grown sister, has no shoes, raggedy clothes and an often-empty belly. Repeating third grade for the third time, Jean said she bitterly regretted that she did not grow up in the orphanage where Madonna adopted a boy. Had she stayed, she whispered, “I would have learned to read.”

In a country as desperately poor as Malawi, children placed in institutions are often seen as the lucky ones. But even as orphanages have sprung up across Africa with donations from Western churches and charities, the families who care for the vast majority of the continent’s orphans have gotten no help at all, household surveys show.

Researchers now say a far better way to assist these bereft children is with simple allocations of cash — $4 to $20 a month in an experimental program under way here in Malawi — given directly to the destitute extended families who take them in. That program could provide grants to eight families looking after some two dozen children for the $1,500 a year it costs to sponsor one child at the Home of Hope, estimated Candace M. Miller, a Boston University professor and a lead researcher in the project.

Experts and child advocates maintain that orphanages are expensive and often harm children’s development by separating them from their families. Most of the children living in institutions around the world have a surviving parent or close relative, and they most commonly entered orphanages because of poverty, according to new reports by Unicef and Save the Children.

“Because there’s money in orphanages, people are creating them and getting children in them,” said Dr. Biziwick Mwale, executive director of Malawi’s National AIDS Commission.

For the full story, please click here.

AMT 

Charity Governance Squabble in the News

The Boston Globe recently reported in an article entitled, Nightmare at the Museum, that the director of a prominent museum, The Rhode Island School of Design Museum of Art,resigned (or was ousted, it depends on who you talk to) from her position as director of the museum.  It is reported that John Maeda, the new president of the affiliated school of the same name, The Rhode Island School of Design, seemingly clashed with the outgoing director.  The squabble raises the question of the role charity governance  and the board of trustees play in quelling such disputes before donor relations are disrupted, organizational missions are compromised and public loyalties wane.  The story is excerpted below, in relevant part:

They were 200 of this city’s biggest names in arts and philanthropy, gathered on an early fall night to celebrate Hope Alswang, the departing head of the Rhode Island School of Design Museum of Art.

.  .  .

After all, Alswang was leaving after a feud with the new president - a tense battle that left them both smarting, and many more, on campus and off, wondering how things got out of hand so quickly and what it all means for one of the cultural jewels of the city and region.

.  .  .

Few there knew what had really happened between Maeda, who started at RISD last year, and Alswang, who had been at the museum for four years. Her public resignation occurred only weeks after a private letter from the president labeled “final warning.’’ At the tribute dinner, held at a historic venue called, as it happens, the Hope Club, observers wondered whether Maeda understood how many people would be upset by the loss.

.  .  .

The new president had taken office at RISD on a wave of positive buzz, a daring and exciting choice. Proudly declaring in interviews that he did not own a suit, Maeda, then 42, had a Mensa-worthy résumé, capped by a stint as associate director of research at the prestigious MIT Media Lab. Esquire magazine had named him one of the 75 most influential people of the 21st century.

But Maeda and his museum director clashed from the start; their personal styles could not have been more discordant. Alswang, tough and sarcastic, knew how to work a cocktail party. Maeda, slight and cerebral, seemed more comfortable Tweeting than speaking.

.  .  .

Indeed, tension between the museum and school didn’t start with these leaders. Some professors were pleased that Maeda was taking a harder line with the museum.

“We have a new museum building on our campus that cost a hell of a lot of money and that took the attention away from maintaining buildings and raising money for financial aid,’’ said Henry Ferreira, printmaking professor and president of the faculty association.

But the blowup between Maeda and Alswang seems to be as much about personal temperament as professional mission.

.  .  .

“It came to the point where they just couldn’t get along and the disagreements weren’t helping anyone,’’ said Paula Granoff, a museum donor who has served on RISD’s board of trustees and currently is a member of the museum’s board of governors.

.  .  .

Her supporters say the rift with Maeda went beyond personality and stemmed, in part, from the school’s financial crisis.

The financial meltdown hit RISD’s endowment hard, and Alswang believed Maeda wanted to cut disproportionately from the museum, according to a museum staff member speaking anonymously because the staff had been ordered by RISD not to discuss Alswang.

In the end, this staff member said, Alswang fought to reduce the amount cut from the museum’s budget, though ultimately it had to close for all of August to save money.

For the full story, please click here.

AMT 

UCLA Medical School Professor Settles Lawsuit and Agrees to Repay Charity

The Los Angeles Times reported on December 4, 2009 that "[a] UCLA School of Medicine professor of cardiothoracic surgery has settled a lawsuit brought by the state attorney general forcing him to repay $140,000 to a research charity he founded and removing him from multiple positions he held within the charity."

For the full story, please click here.

AMT

European Philanthropists Help Charities Become More Entrepreneurial

The Wall Street Journal recently reported that a growing number of European philanthropists are encouraging the charities they support to run more like a businesses during these recessionary times in order to garner their support.

Philanthropic endeavours are usually one of the first things to fall by the wayside when the wealthy are faced with tougher times.

There are no Europewide statistics on philanthropic giving. But trends are likely to mirror what has being happening in the U.S., experts say -- and the picture there isn't good. The American Philanthropic Giving Index, produced by the Center on Philanthropy at Indiana University, revealed giving fell dramatically in the first half of the year. The PGI, similar to a Consumer Confidence Index for charitable giving, is now 64.8, a 21.7% decrease from just six months ago and a 27% decrease since December 2007. The index found that fundraisers' assessment of the current giving environment fell to its lowest level since records began in 1998.

Lena Schreiber, a senior consultant at the London-based consultancy New Philanthropy Capital, believes that the fall in giving has moved across the Atlantic. "Professional advisers tell us that wealthy individuals who may have intended to set up philanthropic foundations are delaying this decision, along with other decisions about their wealth management," she says.

Still, it's not all doom and gloom. Those at the forefront of the industry say many of the wealthy continue to give, but are often looking for a more hands-on approach, demanding greater transparency and a return on their money. Outright giving is being replaced by social investing, and philanthropy is becoming more efficient and entrepreneurial as a consequence.

For the full story, please click here.

AMT 

The House Passes Bill To Retain 2009 Estate Tax Levels Permanently

On December 3, 2009, The Chronicle of Philanthropy reported that the U.S. House of Representatives passed a bill to retain 2009 estate tax levels permanently.

The House of Representatives has passed a bill that would permanently keep the estate tax at levels that are in effect this year.

The approach is one that many charities have been seeking because they say it will help them appeal to donors.

The Senate has not yet voted on estate-tax legislation.

Under the current estate-tax law, heirs in 2009 can exempt $3.5-million from taxes ($7-million for couples), with amounts above that taxed at 45 percent.

For the full story, please click the link above.

AMT

 

Federal Judge Orders Government to Stop Terrorism Investigation of Charity

We previously reported that a federal district court judge concluded the federal government had violated the constitutional rights of KindHearts for Charitable Development, a Muslim charity, when the government froze the charity's assets in 2005 and so prevented it from adequately defending itself against allegations of ties to terrorism.  USA Today reportedlate last month that the same judge has ordered the federal government to halt its investigation into whether KindHearts should be deemed a terrorist organization, apparently effectively preventing the government from labeling the charity a "specially designated global terrorist."

LHM

ACORN Suit Challenges Congress's Denial of Funding

Late last week, besieged ACORN launched a legal counter-attack by filing a lawsuit in the federal district court for the Eastern District of New York.  Represented by the Center for Constitutional Rights, ACORN argues that Congress's decision to deny ACORN and related entities federal funding is an unconstitutional bill of attainder, citing among other sources a Congressional Research Service report that addressed this issue.

Additional Coverage:  Associate Press, New York Times, Volokh Conspiracy.

LHM

Feed the Children Founder Files Suit Challenging Firing by Board

We previously blogged about the governance dispute at Feed the Children, a Christian ministry that is among the ten largest recipients of charitable contributions (over $1.1 billion in 2008) according to the Chronicle of Philanthropy.  While that dispute appeared to have been close to resolution last spring, recent public developments reveal that it has only moved into a new phase.  According to local news reports in Oklahoma City, where Feed the Children is headquartered, the organization's Board of Directors fired President and founder Larry Jones on November 6th.  The firing may have been triggered by Jones' alleged placement of microphones in the offices of several board members, although apparently the recording system connected to those microphones was never operational.  Jones has responded by filing a lawsuit against the charity and its board demanding reinstatement.  The Oklahoman is providing ongoing coverage of the dispute and related developments through a dedicated webpage.

LHM

Local Tax Exemptions at Risk: Boston, Cleveland, Pittsburgh, and British Columbia

Local governments facing financial pressure from shrinking tax revenues because of the economic downturn are with increasing frequency looking to tax-exempt nonprofits for financial support.  Some of the most recent developments include:

Boston:  Boston City Councilor and PILOT Task Force member Steve Murphy is cited in the Jamaica Plain Gazetteas saying he expects a big next year increase from the current $15 million PILOT (payments-in-lieu-of-taxes) from Boston colleges, universities, and other nonprofit organizations.  The Task Force is working both to standardize the amounts of PILOT payments based on not only on property owned but also on community benefits provided as well as to increase the total amount of PILOT paid.  It is not clear, however, how the Task Force will sell its plan given that the city cannot legally require any PILOT deals and so must rely on political pressure and the goodwill of the nonprofits targeted.

Cleveland:  Consultants hired by the City of Cleveland have proposed imposing an annual fee on nonprofit organizations, including hospitals, universities, and museums, according to the Cleveland Plain Dealer.  Cleveland Mayor Frank Jackson appeared wary of the idea, however, saying only that he was open to it but refusing to commit to supporting it.  Not surprisingly, representatives of local nonprofits that provided comments expressed concern about the fairness and wisdom of such a fee given the jobs and other benefits Cleveland's many nonprofits, including the well-known Cleveland Clinic, provide.

Pittsburgh:  Just days after Allegheny County Executive Dan Onorato vetoeda bill that would have imposed county fees on nonprofits other than churches and schools, the Pittsburgh Post-Gazettereports that Pittsburgh Mayor Luke Ravenstahl plans to propose a 1 percent college-education privilege tax.  It is estimated tax would raise approximately $16 million a year and presumably would at least partially replace voluntary payments from the Pittsburgh Service Fund, an umbrella group of tax-exempt institutions.  The Fund donated $14 million to the city from 2005 through 2007, but then only offered %5.5 million for 2008 through 2010, which the city rejected.  The proposal has, however, run into troublewith the Intergovernmental Cooperation Authority that must approve city budgets, which is apparently questioning the ability of the city to collect such a tax in the next budget year given anticipated legal challenges.

British Columbia:  These developments are not limited to the United States.  In British Columbia, the District of Sechelt Council voted to taxhalf of Camp Olave, a property owned by Girl Guides of Canada (Canada's equivalent of the Girl Scouts).  The property had been completely tax-exempt before the vote, which it is estimated will result in a more than C$100,000 tax bill in 2010.  As the camp only has an operating budget of $250,000, the Girl Guides have stated that it will likely have to sell the camp.  The tax bill is so high apparently because the waterfront property on which the camp rests has been assessed at C$26 million.  In supporting the Council's decision, Sechelt Mayor Darren Inkster stated that compared to other, similar-sized municipalities his town has an above-average level of nonprofits with tax exemptions.

LHM

Catholic Archdiocese Seeks Exemption from DC's Proposed Same-Sex Marriage Law

The Catholic Archdiocese of Washington raised concerns last week that as presently worded the District of Columbia's proposed same-sex marriage bill would prevent many religious social service providers, including Catholic Charities, from continuing to provide social services in cooperation with (and funded in large part by) the District's government.  According to the Archdiocese, while the bill would not require religious organizations to hold same-sex marriage ceremonies, it might require such organizations to treat same-sex marriages the same as different-sex marriages for purposes of employee benefits, adoption services, and even use of church facilities for events other than marriage.  The Archdiocese further noted Catholic Charities serves 68,000 in DC annually and Catholic parishes operate another 93 social service programs.  A committee of the DC City Council approved the bill.  To become law, the full council and the mayor must approve the legislation.  Congress has the ability to block the legislation, but only if it passes a joint resolution of disapproval and the President signs that resolution.

Additional coverage:  NY Times, Washington Post.

LHM

Conflict of Interest in Art Show?

The New Museum of Contemporary Art in New York will host a show in March of art from the private collection of one of its trustees, Dakis Joannou.  Mr. Joannou has become known as one of the most important collectors of modern art.  He owns 40 works by Jeff Koons, and many of those works will be included in the show.  Mr. Koons, now a good friend of Mr. Joannou, will curate the show.  The announcement of the show has drawn criticism from those concerned about "the propriety of turning over a public museum to a private collector who also happens to be a museum trustee and a chief patron of the curator."  The choice of Mr. Koons as curator has also raised questions.  A story in the New York Times describes the controversy, in which prominent members of the art world have taken sides.

As I read the article, I wondered where the conflict was.  Giving the public a chance to view works of art held in a private collection seems like a good idea to me.  However, as someone who does not collect art, I had not realized that a museum showing of a private collection will increase the value of those pieces of art.  The value of a museum show is of particular importance for modern art, because a show indicates that the pieces are considered "museum worthy."  So Mr. Joannou's collection will likely increase in value as the result of the show.  There is no indication that he plans to sell any of the art anytime soon, but if he does sell some pieces at some point, he may benefit financially from the show. The museum has said that Mr. Joannou is aware of their policy of not exhibiting art that the owner intends to sell.

Some critics have also expressed concern that the museum's independent judgment may be compromised. A museum should be "an independent arbiter of taste and art-historical value" commented Noah Kupferman, who teaches a course called "Fine Art as a Financial Asset" at NYU.  "It is not supposed to surrender itself to a trustee and donor whose collection stands to be enhanced in value by a major museum show."  

Others from the art world have supported the show.  Several museum directors caution against making judgments too quickly about what the director of the Metropolitan Museum of Art described as "'the delicate dance' between museums and collectors."  And others, including the director of the Guggenheim have applauded the show.

In my view, the benefits of this show outweigh the conflicts.  It sounds like these works of art, described by the international co-head for post-war and contemporary art at Christie's as a "fantastic collection," will be of great interest to lovers of modern art.  I'm guessing that some of those complaining about the show won't miss the chance to see the art.

sng

Ford Foundation to Give $100 Million for Education

The Ford Foundation has pledged to make grants of $100 million available to improve public education. The new program will target seven cities — Chicago, Denver, Detroit, Los Angeles, Newark, New York, and Philadelphia, and will focus on four goals: raising the quality of teaching, exploring the idea of how lengthening the school day and year can improve learning, using new ways to measure school and student performance, and examining why states often do not offer adequate financial resources to poor school districts. Luis A. Ubiñas, president of the foundation, said that the new grant-making effort will seek to “shake up the conversations surrounding school reform.” 

JDC

Texas Tribune: Newest Nonprofit Newspaper

The Texas Tribune is the latest nonprofit news organization to launch (website is here). This article at PaidContent.org gives some of the details behind the effort:

The vision for a nonprofit covering Texas politics, public policy and government started with John Thornton, a general partner of Austin Ventures who wanted to to put money and energy into journalism for the public good. He and his wife seeded the venture with $1 million; another $1.6 million has come in from individual donors and corporations (all identified on the site) plus $1.1 million from foundations. Not that this pace can keep up, but on the last day before launch the Tribune took in $13,000 from 190 founding “members.”

Thornton hired Evan Smith, a renowned journalist, to be editor-in-chief, and both he and the reporters make market-salaries: $315,000 per year for Smith, up to $90,000 for the reporters.

The key aspect of interest to me is that the Texas Tribune is a tax-exempt 501(c)(3) charity (or at least that's what they claim on their web site). The academic community has generated no little amount of angst regarding whether news-gathering organizations qualified as a 501(c)(3) - see the prior blog posts here, here and here.  Rich Schmalbeck at Duke has been in the forefront of the tax-exemption analysis of these questions, presenting a paper on the topic at the May 2009 Law and Society Conference.

Another interesting feature of the Texas Tribune is that although most of their content will be free, they will charge a hefty fee for some "premium" content. According to the PaidContent article, the organization "already has one premium product—the Texas Weekly, a well-respected state politics newsletter acquired earlier this year; Ross Ramsey, the editor, came with it and is the new site’s managing editor. (Ramsey and Smith are acknowledged as cofounders.) Smith says the weekly newsletter has some 1,200 subscribers at $250 a year."  This arrangement raises a host of unrelated business income and commercial activity questions, which Smith apparently is aware of.  Quoting Smith, the PaidContent article notes,

The goal is to grow the circulation base for more “earned income.” It’s a delicate dance. “We actually had deep conversations with exempt counsel and said, what are the things that we can do that qualify as related businesses that we can generate earned income from—because our model assumes we’ll be funded almost exclusively through philanthropy the first year and gradually transition to a model by the third year, where we’re two thirds philanthropy and a third earned income.”

JDC

Urban Institute and Social Solutions to Launch Web Portal to Help Nonprofit Performance

According to this story in Reuters, The Urban Institute has teamed up with Social Solutions (a leading provider of human services performance management software) to launch a web portal that will provide nonprofits with information and measurement tools to enhance performance. According to the story,

The portal will feature detailed guides to help agencies identify and use proven and promising practices to serve their clients effectively, and a library of tools to assess whether their lives have improved as intended. Portal content will be developed in conjunction with well-known organizations and consultants.

The first phase of the portal is scheduled to launch in spring 2010, and the partners plan to demonstrate the portal`s proof of concept at Social Solutions upcoming ETOlution 2009 Conference in Baltimore.

JDC

University President Salaries Rise and Grassley Bites

The economy appears to have recovered enough for Senator Chuck Grassley, IA, to resume his critique of the spending habits of colleges and universities.  In this press release posted on IowaPolitics.com, Grassley assails the fact that presidents at private colleges and universities saw their pay go up by an average of 6.5%. “The executive suite shouldn’t be insulated from belt-tightening,” Grassley said. “The pressure on students and families gets greater all the time. The fact that these salaries are growing right now is out of sync with the reality for most parents and students who are trying to pay for college in the midst of high unemployment and after savings for education were either wiped out or greatly diminished last year due to the stock market falling.” 

Grassley's ire was sparked by a new survey of college president salaries released today by the Chronicle of Higher Education.  A more in-depth, balanced analysis of the trend is available from U.S. News and World Report, which noted that the salaries of university presidents make up a very small percentage of the overall cost structure of any college or university and also noted that while "sticker prices" of private colleges had been rising, the schools had been giving out so many more scholarships that the average net price students actually paid for tuition, fees, room, and board had dropped by more than $1,000 since 2005 to slightly less than $12,000.

Still, the prospect of many colleges and universities giving hefty raises to their top administrators during these times of economic crises does smack a bit of Wall Street's bonus culture.  But perhaps Grassley should issue a press release about the escalating salaries of college football and basketball coaches before slamming the presidents; data shows that at universities that operate Division I athletic programs, the head football and basketball coaches are almost certain to make even more than the university president.

JDC

Another Tax Controversy Brewing in Urbana, IL?

Most of the readers of this blog know about the pending property tax litigation involving Provena-Covenant hospital in Urbana, IL (see prior blog post here and the previous blog coverage cited).  Now Urbana has a potential new tax controversy on its hands.  Carle Foundation, the tax-exempt entity that owns Carle Hospital in Urbana, recently announced plans to acquire the for-profit Carle Clinic (which employs doctors). Carle Foundation actually already owns most of the property occupied by the clinic, but since the property is leased to a for-profit entity, under Illinois law the property is taxable because it is not used exclusively for charitable purposes.  But if Carle Foundation acquires the lessor (the Clinic) and merges it with the exempt Carle Hospital, the acquisition could take property that currently produces millions in property taxes for Urbana off the tax rolls.  A story in the Champaign-Urbana News Gazette Sunday details the situation, including Carle's promises to continue to make payments in lieu of taxes (PILOTs) to Urbana, although the story is careful to note that Carle Foundation hasn't promised how long it would make those payments, and the Foundation seems to be tying their willingness to make PILOTs at least in part to the outcome of the Provena litigation.  This is going to be a major issue for the City of Urbana; stay tuned, folks.

JDC