By Kyle Swanson, Daily News Editor
Published May 9, 2010
One federal legislator could be gearing up to take aim at an important financing mechanism that many schools use to finance construction projects on their campuses.
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Sen. Charles Grassley (R–Iowa) said recently that he was concerned with the findings of a government study that examined, among other things, the use of tax-exempt bonds by institutions of higher education.
“This report raises questions for parents, students and taxpayers about universities issuing bonds and going into debt when they have money in the bank,” Grassley said in a statement.
“Issuing bonds costs money on interest and management fees,” he continued. “Does the expense of debt service take money away from student aid or academic service? Do bond issuances occur even as universities raise tuition and build investment assets? These are further questions to explore.”
In a request for comment from The Michigan Daily two weeks ago, University spokesman Rick Fitzgerald said he believed it was too early to comment on the senator’s comments because he hasn’t yet laid out a proposal for revising the current tax-exempt bond program.
“It’s too soon to really speculate,” Fitzgerald said of the implications a change could have on the University.
Fitzgerald acknowledged that a change to the current system could affect the University, which uses tax-exempt bonds for construction projects on campus. However, he emphasized that the University only does so for construction projects.
But University officials are no strangers to Grassley’s calls for reform in higher education. The ranking minority member of the Senate Finance Committee has a reputation for examining the financial management practices of non-profits, like the University.
In 2008, Grassley criticized the investment and spending practices of universities across the country, calling on them to spend a greater share of their endowments.
At the time, Grassley told The New York Times, “Tuition has gone up, college presidents' salaries have gone up, and endowments continue to go up and up. We need to start seeing tuition relief for families go up just as fast.”
However, his efforts created controversy at the University, where University President Mary Sue Coleman told The Michigan Daily last year that she strongly disagreed with Grassley’s assessment.
Coleman told the Daily at the time that she felt the University needed to balance current demands against planning for the future — a reason why a limited payout from the endowment would be in place.
That same message was echoed in Coleman’s response to Grassley and his colleagues on the Senate Finance Committee — which requested information about the endowment investment and payout policies at 136 universities in the U.S.
“The University of Michigan has a responsibility to diversify and strengthen its financial base through its endowment in order to maintain its quality and accessibility in the face of inflation, inevitable fluctuations in the financial markets, and tightening state and federal budgets,” Coleman wrote in a response letter to the committee at the time.
After several months of review, Grassley eventually backed down from his calls for higher mandatory endowment payouts.
But questions still remain as to whether Grassley will pursue a similar campaign with reform of tax-exempt bonds. He has not yet called for any such reform publicly, saying instead that the issue needs to be explored further.
At least one leading industry expert has told The Chronicle of Higher Education that any campaign to restrict access to funding for higher education could be devastating in the current economic climate.
“Now would be a very bad time to make it more difficult for nonprofit organizations in this country to borrow money,” Charles Samuels, an attorney for the National Association of Health and Educational Facilities Finance Authorities, told the Chronicle last week.
