Testimony: House Bill 2678, May 7, 2013

May 7, 2013

TESTIMONY by AICUM

Opposing H. 2678, which targets only private colleges and universities for unprecedented financial disclosure

JOINT COMMITTEE ON REVENUE

PUBLIC HEARING

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OPPOSITION TO HOUSE BILL NO. 2678

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My name is Robert J. McCarron, and I am Vice President and General Counsel of the Association of Independent Colleges and Universities in Massachusetts [AICUM].  AICUM is comprised of 60 colleges and universities located throughout the Commonwealth – institutions which educate 275,000 students each year and employ more than 84,000 people. Our member colleges include large nationally renowned research universities, smaller, highly regarded liberal arts colleges, religiously affiliated institutions, and colleges with special missions focused on business or music or allied health services.

 

I am here today in opposition to House Bill No. 2678, a bill that targets only private colleges and universities in Massachusetts in requiring an unprecedented level of financial disclosure – disclosure that is well in excess of what is required of non-profit organizations under the recently expanded IRS Form 990’s.

 

Independent colleges and universities already are subject to vigorous annual disclosures at both the state and federal level.  Just within the last few years, the required disclosures for all independent colleges and universities were expanded by the IRS to include the annual reporting of any potential conflict of interest between non-profit trustees (including investments or contracts between themselves, members of their family or entities in which they hold a significant interest) and the non-profit entity.  In addition, both state and federal submissions already include the compensation paid to officers, directors, and key employees, as well as the five most highly paid other employees of the organization.  Even a cursory examination of what is required by the revised Form 990’s show that all non-profits disclose an incredible amount information regarding both financial records and compensation.

 

The reporting requirements included in the proposed legislation are overly burdensome and costly, and would entail a near blizzard of data, possibly revealing proprietary information.  Requiring a detailed list of all investments would include thousands of distinct investment instruments which are constantly changing in response to changes in the financial markets.  Disclosures related to service providers could similarly involve thousands of contracts.  Moreover, contracts related to research projects could conflict with efforts to protect proprietary information or trade secrets.  For small institutions, the level of tracking and reporting would be unduly burdensome and expensive while serving no apparent public purpose.  Simply put, this proposal would add significant new administrative costs at a time when college presidents are constantly looking for ways to control costs.

 

H.2678 is an overly burdensome and costly solution in search of a non-existent problem.  To the extent that the purported “need” for the bill is premised on the financial blows experienced by college endowments in the recent recession, it should be noted that Senator Grassley (R-Iowa) convened a Congressional hearing a few years ago to learn more about endowment spending and practices.  In response, all our major institutions gathered extensive information on endowment management and spending policy and practices.  These detailed publicly available responses are an example of the higher education community’s commitment to transparency.

 

Massachusetts independent colleges and universities are committed partners with the Commonwealth and seek to provide educational and economic benefits to the residents of the Commonwealth.  In fact, the 60 AICUM member colleges and universities demonstrate their commitment to the Commonwealth through their public mission daily.  Some crucial facts further illustrate the commitment of the independent colleges and universities in Massachusetts in fulfilling their public mission:

 

  • These institutions education more than 275,000 students annually, and largely with private dollars;
  • Fully half of the high school seniors in  Massachusetts who go on to a 4-year college choose to attend a private college or university here in the Commonwealth;
  • This year, the Massachusetts independent colleges awarded more than $560M  in need-based financial aid to Massachusetts residents;
  • The extensive infrastructure of independent colleges is unique – Massachusetts is the only state in the country that educates more students in private colleges than public colleges.  In fact, 70% of the B.A. degrees and 85% of the graduate degrees in Massachusetts are awarded by independent colleges.  And 84% of the minority students who  graduated from a Massachusetts four-year college and above, graduated from an independent college – again, a sign of our commitment to our public mission.
  • This extensive infrastructure of private charitable not-for-profit colleges is unique, saving the Massachusetts taxpayer some $2-3B annually in state appropriations. NorthCarolina educates about the same number of students as Massachusetts but spends $2.9B more on higher education, because 82% of their students attend a taxpayer-financed public institution. Clearly, our independent colleges provide a crucial public benefit while relieving Massachusetts of a tremendous expense burden;
  • In addition to fulfilling our public mission to education, scholarship and research, the independent colleges are also economic engines throughout the Commonwealth. As a sector, they employ more than 84,000 people with salaries and benefits of over $7B, which of course spins off into significant income tax revenue for the state;
  • These institutions annually generate over $30B in direct expenditures in construction and architectural work, in support of the hospitality industry (admissions visits, parents’ weekends, commencements etc.), professional service firms, etc.;
  • Faculty and alumni at our research universities directly created the biotech industry, software, telecommunications and technology industries, the financial service industries and much of our creative economy. These largely for-profit sectors are the result of the non-profit, tax-exempt academic community fulfilling its public mission of education and research.

 

For the reasons set forth above, AICUM would respectfully request that the Revenue Committee reject H.2678.  We stand ready to work with the Committee members and their staff to further explain our concerns with this legislative proposal.