Editorial from The DesMoines Register

Twenty-three college presidents at private, nonprofit institutions earned more than $1 million last year. The Chronicle of Higher Education examined IRS filings of 419 such colleges and found one in four earned at least $500,000. In addition, many colleges were paying “former officers” more than $200,000.

This is an example of what happens when Congress fails to set clear rules for all of the 1.5 million tax-exempt organizations in this country. Currently, nonprofits – from private schools to hospitals to nursing homes – can pay huge executive compensation and spend millions on new buildings with essentially no repercussions other than outsiders raising their eyebrows.

The public subsidizes these entities. Everyone else pays billions of dollars more in taxes each year to compensate for the loss of revenue for the organizations exempt from property, income and sales tax.

Congress needs to ensure the public is getting its money’s worth. Washington lawmakers should:

– Set nationwide standards for what and how much benefit an organization must provide to a community to earn tax-exempt status. Most people would say a college in town improves the local economy by providing jobs. But they likely would say the same thing about a for-profit businesses that also provides jobs – and pays property taxes.

– Ensure nonprofits adequately justify what they pay executives. Currently, charities can deem compensation reasonable if it’s approved by a body such as a board of directors, relies on data regarding comparable salaries and documents what it’s doing. But it is nearly impossible for the Internal Revenue Service to challenge organizations when compensation is obviously excessive.

– Ensure the Internal Revenue Service has adequate resources to monitor the tax-exempt sector. According to the Government Accountability Office, there were roughly the same number of regulators overseeing these organizations in 2004 as there were in 1974 – even though the industry has grown by leaps and bounds over that period.

-After the guidelines are set in law, Congress should require every organization to reapply for tax-exempt status to meet defined expectations and requirements.

The federal laws governing nonprofits need to be updated to reflect today’s reality: Tax-exempt organizations comprise more than 10 percent of this country’s economy. From 1975 to 1995, the assets of these organizations tripled, while the economy grew at 74 percent. Their reported assets have grown to more than $2.5 trillion, according to the Congressional Budget Office.

And when looking at which organizations are tax-exempt, you really start to wonder what’s going on in some cases. Those recognized under the 501(c) section of federal tax code include professional football leagues, mutual irrigation companies, cemetery companies, teacher retirement unions and credit unions.

Congress needs to ensure all nonprofits are operating in a way that adequately benefits the taxpayers supporting them.