Congress should consider banning colleges from using tax-exempt bonds to finance sports facilities if it fears high-profile collegiate sports programs are becoming too commercial, a new report from the Congressional Budget Office released this week recommends.

Sen. Charles Grassley, R-Iowa, the Senate Finance Committee's ranking minority member who commissioned the report, said lawmakers need to take a closer look at whether or not college sports facilities should receive the benefits of tax exemption in light of their commercial success.

"Given all the tax benefits involved, tight state budgets, and rising tuition despite the recession, it's pretty clear that Congress needs to engage and policymakers need to know more in order to act as responsible stewards of the tax policy that drives this fundraising and commercial activity," Grassley said. "Colleges should explain how they use their commercial revenue to get the biggest bang for the buck in fulfillment of their educational mission."

However, it is unclear if limiting colleges to issuing tax-exempt bonds for strictly non-athletic endeavors would affect commercial athletic programs, according to the report. Instead, colleges could just issue tax-exempt debt for other projects and devote freed-up operating revenue to athletic facilities.

While nonprofit private and public college and universities typically are tax-exempt because their educational mission serves the public good, Grassley and other lawmakers have questioned whether high-profile athletic programs are becoming "side businesses" for schools and should not receive preferential tax treatment, the report stated. For example, the National Collegiate Athletic Association's 2008 men's basketball tournament garnered about $143 million in revenue for athletic departments.

Schools with large athletic programs derive 60% to 80% of their athletic departments' revenue from commercial activities, the CBO report found. That proportion is seven to eight times greater than the schools' non-athletic programs, which suggests "that their sports programs may have crossed the line from educational to commercial endeavors," the report stated. Revenue from commercial activities accounted for just 20% to 30% of smaller athletic departments' revenue, it said.

Although the CBO made a number of recommendations as to how legislators could tamp down the commercial aspects of collegiate athletics, it noted that such actions would be unlikely to alter the nature of the programs or garner much tax revenue because "schools would have considerable opportunity to shift revenue, costs, or both between taxes and untaxed sectors." In addition to limiting the use of tax-exempt bonds, the office recommended removing the tax deduction for school contributions to athletic activities.

Last week, Grassley suggested that with the availability of federal assistance and private insurance, nonprofit hospitals increasingly look more like for-profit hospitals and do not seem focused on treating the poor and indigent. And the Finance Committee is considering mandating nonprofit hospitals to provide a minimum level of charitable patient care and meet other requirements to retain their tax-exempt status and issue 501(c)(3) bonds.

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