Des Moines Register
01-18-07
Grassley: Do college-athletic donations merit tax deductions?
By TOM WITOSKY
REGISTER STAFF WRITER
U.S. Sen. Charles Grassley of Iowa is researching the federal tax exemption that
colleges and universities use to help finance athletics.
"There are a lot of questions that need to be answered," said Grassley, the
ranking Republican on the Senate Finance Committee. "We need to make sure
that taxpayers are not being played for a sucker by a tax exemption that they are
paying for."
At stake, potentially: Will boosters and corporations that contribute hundreds of
millions of dollars annually to athletic departments nationally continue to receive
tax deductions for charitable donations?
According to the National Collegiate Athletic Association, boosters contributed
$845 million to major college athletic departments in 2004-05. During the 200506 academic year, officials at Iowa's three state universities said, boosters gave
a combined total of almost $25 million to the athletic departments - $20 million to
Iowa, $3.9 million to Iowa State and $1 million to Northern Iowa.
There previously has been little indication of any political will among federal
lawmakers to take up the issue. But Grassley, who has made a national
reputation of taking on the Pentagon and wasteful military spending, could help
change that.
Grassley and other lawmakers question whether donations to athletic
departments should be considered contributions to an educational institution
when some of those donations help pay the skyrocketing compensation
packages for college coaches such as Alabama's Nick Saban, who will be paid a
reported $4 million over the next year, or Iowa's Kirk Ferentz, who is paid $2.7
million annually.
"I wonder whether university trustees are doing their jobs, when there are big
salaries for sports coaches and money for stadium skyboxes while tuition
skyrockets," Grassley said. "Schools must be able to justify those expenses as
part of the public obligation that comes with tax-exempt status."
Federal law permits 80 percent of the contribution made for premium seating or
luxury suites to be deducted on an annual basis. All other contributions, including
those for scholarships and capital projects, are 100 percent deductible.
In Iowa, contributors fueled projects such as the $86 million Kinnick Stadium
renovation in Iowa City, the $20 million McLeod Center in Cedar Falls and the
$15 million Drake Stadium upgrades in Des Moines. Iowa State is about to unveil
details of a proposed $135 million athletic facility improvement plan that will be
largely financed with private contributions.
Iowa State athletic director Jamie Pollard is putting finishing touches on a
major renovation project for his university's football stadium and basketball
facility. He insisted this week that athletic department donations must be
increased if Cyclone sports is to wean itself off direct general fund assistance
from the school.
Asked how big of an impact repeal of the deduction would have on college
athletics, Pollard said: "It would take time to figure out the real impact, but I really
don't want to find out."
Gary Barta, Iowa athletic director, echoed Pollard's view: "You don't know what
the impact would be, but I would think raising money for projects for everyone
would be more difficult."
A spokesman for Senate Finance Committee Chairman Max Baucus, D-Mont.,
said last week that the senator also was interested in making certain that "federal
tax incentives do what they're meant to do - give Americans access to higher
education."
Katie Baird, an economics professor at the University of Washington-Tacoma
and an authority on higher education economic policy, said the federal tax
exemption that university athletic departments rely on to generate donations is
simply a taxpayer subsidy.
"It is a back-door way for the federal government to be subsidizing college
athletics," Baird said. "If you got rid of the charitable donations, it would make the
existing price of attending a game more expensive for the purchaser because he
would not be getting a discount."
Baird said the exemption is no different from an exemption used by a nonprofit
civic opera or symphony, or a charity like the Salvation Army.
"That makes contributors more generous, because contributors are likely to
provide more money in exchange for paying less taxes," she said. "To the extent
that college athletics are treated the same way, it has the same effect."
Pollard said escalating concern about the issue surprises him because elected
officials across the country are urging leaders in higher education to spend more
time finding private financing for school operations, research and facility
construction - instead of relying on tax money.
"This isn't just a college athletics issue," Pollard said. "It's about the fact that
higher education in general is receiving less and less tax support from our
government leaders. Now, they may want to make it more difficult for us to raise
money privately? I don't understand why they would want to open that can of
worms."
Grassley and others, however, have begun to question whether allowing wealthy
boosters to benefit from athletic tax deductions has anything to with a school's
educational mission.
In a 58-page written response to questions last year posed by the U.S. House
Ways and Means Committee, NCAA President Myles Brand argued that the
exemption should be maintained because the educational value of athletics isn't
diminished by the scale of its popularity.
"The fundamental purpose of intercollegiate athletics is the education of studentathletes in both the classroom and on the field or court," Brand wrote.
For now, Grassley said, he is in a fact-finding mode - asking questions to try to
understand whether the skyrocketing costs of major college athletics raise
legitimate concerns about the use of the tax exemption.
Grassley said any congressional inquiry should be directed at two questions: Do
tax-exempt donations made to athletic departments enhance higher education?
And do the boards and presidents who monitor those departments impose proper
oversight of the use of that money?
"We expect the boards to make the decisions that are responsible and in
accordance with the intention of the exemptions they receive," Grassley said. "It
is no different for universities than any other charity or nonprofit corporation."
Reporter Tom Witosky can be reached at (515) 284-8522 or
twitosky@dmreg.com