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Why Colleges Can't Shake the Feds

by: Paul Fain
source: The Chronicle of Higher Education

Congress is cranky about how colleges spend money.

Over the last three years, regulation-minded lawmakers have investigated university endowments, intercollegiate athletics, and presidential pay.

But that grilling has largely ceased. A presidential election has dulled legislative ambitions, and Congress has its hands full trying to renew the Higher Education Act.

So are college costs off the agenda?

Don't bet on it. Beltway insiders say Washington will again make university budgets a target, perhaps with even more enthusiasm. "I don't even think we're at the end of the beginning," said Dean A. Zerbe, national managing director of Alliantgroup, a Houston-based tax-consulting company, and the former senior counsel to Sen. Charles E. Grassley of Iowa, the top Republican on the Senate Finance Committee.

University finances will remain a hunting ground because they aggravate both sides of the aisle. Sen. Max S. Baucus, a Montana Democrat who is the Finance Committee's chairman, has publicly supported Senator Grassley's efforts. And other Democrats have gotten into the action as well. Rep. Peter Welch, a Vermont Democrat, introduced a successful amendment to the Higher Education Act that would require colleges to report on how much of their endowments are spent each year on student aid.

Driving the bipartisan interest is widespread anger among politicians' constituents over the rising price of college.

Tuition has become a populist cause in Washington. And underneath that big tent is a collection of issues that appeal to various political persuasions. Conservatives delight in going after the tax-exempt status of the ivory tower, while even liberal-leaning professors get steamed about the money universities spend on sports and presidents' salaries. And almost everyone can find a reason to be upset about Harvard University's $35-billion endowment.

Cynthia A. Littlefield, director of federal relations for the Association of Jesuit Colleges and Universities, says Congress gets an earful about tuition: "They hear it all the time, and I hear it all the time."

Causing the most anxiety, at least among wealthy institutions, has been the Congressional pursuit of endowments.

Mr. Grassley has flirted with introducing legislation that would require colleges to spend at least 5 percent of their endowments each year. And in January the Finance Committee sent a letter to the 136 universities with endowment holdings of $500-million or more, asking about endowment growth and spending on student aid.

Congress has previously turned its sights toward college coffers, often when the Higher Education Act was being considered.

But this time things are different. More lawmakers are rattling their sabers, and their inquiries have been more serious.

Furthermore, Mr. Grassley appears to be following the same path he took in aggressively investigating nonprofit hospitals and foundations, which resulted in legislation and other substantive changes.

"There's more pressure on nonprofits in general," says Barry Toiv, a spokesman for the Association of American Universities. "So we're having our turn."

The consensus in Washington is that the Finance Committee will continue to ask tough questions about endowment spending, perhaps in a follow-up letter. Also likely to re-emerge is an examination of big-time college athletics. The Congressional Budget Office has a report in the works, and some lawmakers want to go after the tax breaks enjoyed by athletics boosters.

The Internal Revenue Service is also gearing up to play a role, and has promised to be more aggressive with college finances.

The debate presents an opportunity for colleges to educate lawmakers on the budget challenges they face, says Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education. Higher education's advocates will need to be proactive, he says, because Congress will remain on the case for "as long as college prices remain an issue."

Mr. Grassley and crew will have an easy time finding juicy targets. Many wealthy universities will hit new highs in tuition levels, endowment holdings, and coaches' salaries, which will lead to high-stakes conversations between college presidents and their Congressional delegations.

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