Bill would mandate more financial disclosure; Tufts calls status quo sufficient
Published: Thursday, February 10, 2011
Updated: Thursday, February 10, 2011 07:02
State legislation filed on Jan. 25 would require private universities in Massachusetts to increase disclosure of financial information in a bid to increase these institutions' operational accountability and transparency.
Tufts, however, along with the Association of Independent Colleges and Universities in Massachusetts (AICUM), does not support the legislation — the Higher Education Transparency Bill — calling existing disclosure practices sufficient.
"While we respect Sen. Jehlen's views, we feel that this legislation is unnecessary and potentially damaging to a key economic engine in Massachusetts — higher education," Director of Public Relations Kim Thurler said in an e-mail to the Daily.
"Colleges and universities in Massachusetts already have a number of state and federal requirements that provide a tremendous amount of public information and transparency in terms of their finances," AICUM President Richard Doherty told the Daily, citing annual audited financial statements and the IRS form that applies to organizations exempt from income tax.
The bill, introduced by Sen. Patricia Jehlen (D-Somerville) and Rep. Michael Moran (D-Brighton), would mandate increased financial reporting on the part of nonprofit colleges and universities, requiring that schools disclose the value of investment and real property holdings over $10 million, as well as the exact value of tax exemptions enjoyed by the institution.
Schools would also have to disclose any individual conflicts of interest for trustees and directors, information about all staff earning more than $250,000, and details about financial arrangements with external consultants and vendors above $150,000.
Nonprofits that are tax-exempt, like private universities, are currently required by the IRS to fill out Form 990. The form covers similar areas of disclosure but has fewer requirements. Form 990 requires disclosure mainly of personal conflicts of interest, and schools only have to report salary information for the five highest-paid employees of the institution and five most-compensated external contractors.
Support for the bill
Supporters of the bill claim that the huge endowment losses and budget reductions in the wake of the recent financial crisis spotlighted the fact that such institutions, which benefit from public subsidies, needed to be held accountable.
"Most of the schools are saying when they lost money that it was a force of nature, an act of God. … No one took any responsibility and that's just absurd — it's a failure of leadership," Wayne Langley, higher education director for Service Employees International Union (SEIU), told the Daily. SEIU is partially funding the legislation.
A recent study by the Tellus Institute shows that the endowment losses had broader societal implications, adversely affecting local economies and communities through layoffs, pay freezes and program cutbacks or delays.
"We wanted to highlight that [austerity measures] on campuses have multiplier effects in surrounding communities," Joshua Humphreys, the lead researcher of the study, told the Daily. "In addition to those economic costs that accompanied endowment declines, there is a broader context that creates costs for local communities."
Supporters of the bill point out that these schools benefit from public subsidies.
Such subsidies include exemption from sales tax, property tax and corporate tax on investment returns, according to information provided to the Daily by Jehlen's office.
"The public are partners in all these nonprofit institutions that can benefit from millions upon millions of dollars in subsidies and exemptions," Langley said. "What they are not doing is that they are not respecting the public's investment, and the public wants to see accountability. They want to make sure that their scarce tax dollars are being used for the purposes that they expect them to be used for."
Under the legislation, schools would have to calculate the exact benefits they receive from such tax exemptions.
"Although tax exemption creates costs to the state … there are no good estimates for what those costs are," Humphreys said. "This bill would require colleges to report on the cost of tax exemptions so that a more well-informed and robust debate can occur about costs and benefits."
Supporters of the bill raised questions about perceived corporate governance inadequacies, such as excessive compensation and existing conflicts of interest where board members have business ties to funds in which the university invests.
These situations have actually occurred at Massachusetts universities, according to Jehlen's office.
Sophomore Caroline Incledon, leader of Students at Tufts for Investment Responsibility, expressed the group's support for the bill.
"We think that it's a really good idea because, contrary to popular belief, increased transparency is not going to lead to decreased financial returns," she said. "In general, it's going to promote education and dialogue and responsible investing."
Thurler said that Tufts currently discloses an adequate amount of information, citing the fact that Tufts provides audited financial reports and discloses the salaries of their five highest-paid employees.
Doherty agreed, saying that much of the information being requested was already available under current regulations.
"There are very specific requirements to disclose conflicts of interest for trustees of charitable organizations, and that is done," he said. "I don't think that there is merit to the notion that this information isn't being disclosed because I know it is."