Current Issues in Business & Administrative Operations

2005 WACUBO Annual Meeting

James E. Morley, Jr., President & CEONational Association of College and

University Business Officers (NACUBO)

What we’ll cover today:

• Legislative Issues • Tax and nonprofit orgs• Budget and HEA Reauthorization

• Sarbanes-Oxley

• Regulatory Issues

NACUBO Advocacy Priorities

• Special focus this year on three areas:– Proactive approach to possible application of

Sarbanes-Oxley Act provisions to nonprofits– Provide leadership on nonprofit governance

and accountability issues in Congress – Develop resources for and information sharing

between institutions confronted with requests for payments in lieu of taxes (PILOTs).

Legislative Issues: Oversight of Charities

• Several committees are actively looking at issues impacting tax-exempt organizations:– Senate Finance Committee: engaged in

systematic review of charities • White paper with numerous proposals June 2004

• Joint Committee on Taxation: looking at options for improving tax compliance and increasing revenue

• released a report in January 2005

– House Ways and Means Committee: recent hearings on reform of tax-exempt organizations

Proposals of most interest or concern:

• Eliminate tuition reduction under section 117(d) for employees of colleges and universities

• Limit student FICA exception to codify the recently finalized regulations and restrict applicability for students whose earnings exceed an annual dollar limit

• Require public disclosure of 990-T (UBIT) and certification by an independent auditor of income and expense allocations to UBIT

• Limit charitable contributions of property to lesser of donor’s basis or fair market value for all in-kind property, including capital property

• Extend Medicare payroll tax to all state government employees …(cont.)

Legislative Issues: Oversight of Charities

• Eliminate advance refunding of government and 501(c)(3) bonds

• Combine education tax credits and above-the-line deduction into a single credit that would apply on a per-student basis to qualified undergraduate and graduate education expenses

• And, a couple that we like:• Permit tax-free IRA rollovers to charities after

reaching a certain age (65 in President’s budget proposal)

• Eliminate $150 million cap on 501(c)(3) tax-exempt bonds

Legislative Issues: Oversight of Charities

• NACUBO has joined with ACE to lead the higher education community’s advocacy efforts related to these tax proposals. Our objectives:– Bring together associations + institutions

interested in building consensus on key issues

– Facilitate discussions and tax advocacy work on targeted issues

– Form a central point for information delivery, discussions, development of talking points

Legislative Issues: FY06 Budget

FY06 Budget and Appropriations• President’s budget, released in early February,

serves as the administration’s roadmap for appropriations and reauthorization of the Higher Education Act

• Deficit and need to rein in costs colors everything

• Many of the President’s proposals would require changes to the HEA

• Education slated for more program eliminations than any other functional area

Legislative Issues: FY06 Budget

President’s Budget Proposal (continued):• Proposed eliminations:

• Perkins Loan program, including recall of existing federal Perkins revolving funds

• LEAP• GEAR UP• Byrd Honors and various other scholarship programs

• Funding cuts:• TRIO• FIPSE

Legislative Issues: FY06 Budget

President’s Budget Proposal (continued):Major new proposals include:• Increasing maximum Pell by $100/year for next 5 years• Increasing subsidized loan limits to $3,500 for first-year students,

$4,500 for second-year, and $12,000 annually for graduate students.

• Replacing fixed-rate student loan consolidation with variable rate loans.

• A number of changes to the loan programs intended to save federal $$

• Making Pell Grants available year-round for students at eligible institutions.

• Eliminating of the tuition sensitivity rule for Pell, allowing the neediest students to receive the maximum benefits at low-cost institutions.

Legislative Issues: FY06 Budget

Next steps:

Differing Senate and House budget resolutions need to be reconciled

Approps committees need to work within framework set by budget resolution

Authorizing committees need to consider changes to HEA…

Legislative Issues: Higher Education Act

• Congress is in the process of renewing the Higher Education Act of 1965

• Legislation originally introduced last year by House committee leadership has now been reintroduced with minor revisions (HR 609), and formally launched reauthorization process

• Senate committee plans to take up HEA in June

Senate GOP bill and ED legislative proposals not yet released.

Bill will move slowly through Congress in 2005, and may not be resolved until 2006

Legislative Issues: Higher Education Act

• Central themes of reauthorization include:• Access and choice for students

• College cost and price

• Institutional accountability

• Administrative efficiency

College Access: Is Government Part of the Solution or Part of the Problem?

• Provocative title of hearing held by House Ed & Workforce Committee on April 19 with only two witnesses:

• Richard Vedder, an economist who believes that federal student aid artificially increases demand and drives up prices

• Donald Heller, tried to debunk the notion that increases in student aid lead to increases in tuition and cited level of state appropriations and investment performance as two tuition drivers

Accountability: Sarbanes - Oxley Act

• Not directed at higher education—but trustees will ask

• Major issues:• Financial statement certification• Audit committee• Auditor independence

• Only limited consulting allowed• Partner rotation

• NACUBO on-demand web conference available via NACUBO website

• NACUBO Advisory Report 2003-3

Accountability: Sarbanes - Oxley Act

Key Points for Higher Education

• Not required

• Improved communications needed

• Increasing expectations concerning accountability

• Reassess internal controls

NACUBO Advisory Report 2003-3

Why Developed

• Higher Education has many stakeholders• Trustees share concerns of corporate boards• Some states are considering variations for not-

for-profit organizations• Institutions must already adjust to revised GAO

independence standards (January 2003)• Underwriting and pricing organizations consider

the act relevant to the tax exempt bond market

Accountability: Sarbanes - Oxley Act

NACUBO Activities

• Survey to members on practices in December 2004, see article in May BOM for results

• 360 institutions responded; 73% have read the Advisory Report

• SOX Summit with presidents and CFOs coming up June 1

Regulatory Issues in 2005

• Department of Education– New policy guidance on using stored value cards instead of

checks to pay Title IV aid to students

• Internal Revenue Service– Student FICA rules finalized, took effect in April (web cast

available on demand)

• Department of Labor – New overtime rules took effect last summer

• Department of Homeland Security– Providing executive level emergency preparedness training

at a preconference before NACUBO annual meeting– Tailored for higher education top executives, using FEMA

experience training state and local gov’t officials

Regulatory Issues:

Environmental Protection Agency

• EPA Sector Initiative – NACUBO and five associations working with EPA HQ and regions• Environmental Management Systems (EMS)• Performance Measurement• Regulatory Change (making great progress! with

proposed rule on hazardous waste for academic labs only expected this year)

• Funding for a compliance assistance center for colleges and universities in EPA FY05 budget

Environmental Health & Safety

• Asbestos Class Action Settlement

• Over $55M in settlements to be distributed– Claims process will be governed by guidelines to be

approved by court– Six-month window to file claims likely, possibly

starting in 2005– What should institutions do?

• Start gathering information

• Complete pending asbestos abatement projects

• Rebate coupons available for W. R. Grace & Co. products (see our web site)

Technology: 2005 Technology Issues

• Open source, KUALI Project now using the new term “community source”

• Received funding from Mellon

2005 NACUBO Annual Meeting

BUILDINGORGANIZATIONAL

CAPACITY

BALTIMORE,MARYLAND

July 9-12, 2005

Thank You!