Your child just began classes at San Diego State. You read in the paper the board of trustees just increased the school president’s salary by $100,000 (to $400,000). And, during the same meeting they increased student tuition by 12 percent. As you write your congressman you grumble, “There oughta be a law!”
You can save your breath because there already is a law limiting unreasonable compensation in tax-exempt organizations, including colleges and universities. The problem is that the law doesn’t matter. The Internal Revenue Service (IRS) can’t seem to conclude that even million-dollar compensation packages for school executives are unlawfully unreasonable. The agency put on a good show back in 2008 when it embarked on a college/university compliance initiative, during which it sent detailed questionnaires to 400 public and private schools. The IRS then sent examiners to 35 schools for on-site audits looking at things such as unrelated business income and executive compensation. A ton of money was spent by the schools in answering the questionnaires, and more was spent by the schools and the government during the audits.
Then, nothing. No final report. No new regulations. No tax collected, that we know of (because no report was issued). Apparently the IRS has been dumbstruck on this issue even though colleges and universities constitute one of the largest segments of the non-profit sector in terms of assets and revenue, and as administrative salaries and tuition continue to rise beyond the cost of living. But even as government officials remain silent about high salaries in tax-exempt non-profits, state governors are not.
In July, California Gov. Jerry Brown, who has managed severe cuts in the state’s education funding, lashed out at public university leaders for favoring highly paid “hired guns” from around the country over homegrown (and likely less expensive) talent. He zeroed in on San Diego State’s decision and inspired at least one legislator to propose legislation banning big executive raises in the Cal State system in the same year it increases tuition.
At about the same time, Vermont Gov. Peter Shumlin criticized a $400,000 payand benefits package for the retiring president of the University of Vermont. In response to a question about the payout at a press conference, he said the cost was “excessive” and looks “more like corporate America than the academic America we used to know.” He added, “You didn’t go into academics in the old days to make money.” The package also shocked some university employees, at least one of whom was reported to say the sheer size of it could rekindle efforts to unionize the faculty.
Neither Gov. Brown nor Gov. Shumlin had to conduct a study before making their views known. They spoke out immediately, and because they have executive powers, they probably will be able to take action. Union organizers and state legislators also are in positions to respond. That’s why, if you’re the disgruntled parent of a public college or university student, or a student yourself, you’re wasting your time trying to prod the IRS into action when you see public school tuition increase, arguably to pay for sky-high administrative salaries. An email to your senator or congressman will get a form response, or it might be forwarded to the IRS. Or, it might be lost. The effect is the same.
The IRS is mired in its own procedures. Even if it were set to begin genuine enforcement of the law, it seems unwilling to take on the well-funded advocates for the status quo. Meanwhile, governors seem willing and able to act, at least as far as state-supported schools are concerned. They won’t rely on the tax code and its bans on vague concepts such as “unreasonable compensation” and “excess benefit transactions.” They’ll just get the job done.
Bruce D. Collins is corporate vice president and general counsel of C-SPAN, based in Washington, D.C. Email him at firstname.lastname@example.org.