"Non-Profit" and "For-Profit" status benefits

Hi everyone. I'm going to apologize in advance for my laziness because I'm sure this question could probably be answered with a few moments of research. Nevertheless, I'm on a two week break and just finished exams so I would rather lean on the minds of those here. :notworthy:

What are the differences (advantages/disadvantages) for an institution declaring itself non-profit in comparison to for profit? I understand there are certain tax advantages (I have no idea what advantages they are).

 

Correct me if I'm wrong, but being a non-profit means your only allowed to spend the revenue from the school in three ways: Payroll, investing it back into the school, or donating the excess funds to charity. The income for individual running the institution is capped at $250,000 per year.

For-profit's have share holders that they are accountable too, they are publicly traded, and revenue streams have to continually grow in order to increase profits and raise the price of the stock. There are no limitations on how the income can be spent, i.e. bonuses for executives, and the individual running the institution can be paid as much as the company will allow.

I know there are more differences, but those are a few basic differences that come to mind.

 

I don't think your 3rd point on non-profits is correct. Gordon Gee, the President of Ohio State, makes nearly $1M a year. Most presidents of large state schools have salaries at or above $500k.

 

Ditto what AUTiger said, there are several university coaches (school staff) who make millions. The chancellor of A&M U. a few years back made at least 2 million a year, had a mansion provided by the school, a limo, full time house staff, cook and driver. Non-profit does not mean nobody profits

When the president of Texas A&M resigned in 2009 she took a year off and collected a combined salary of $720,000. Now she is a worker bee collecting a meager $260K a year. And this is a tax funded school.

 

The identifiable difference is that for-profits pay taxes on earnings and large non-profits do not. In compensation for this for-profits may elect to distribute earnings after taxes to shareholder, non-profits do not have shareholders so they distribute earnings through additional spending.

Beyond that you have to look case by case to do what everyone really wants to, which is to derive some ‘intent of actions’ based upon tax-status.

For-profits may be public, or may not be public, and may be concerned about stock prices or not, largely to my knowledge there are many more private schools than there are ones publically traded, so stock is not a concern for most, instead what you are looking for is EBIT multipliers.

In education there are also non-profit land-grant schools, which typically enjoy additional hidden revenue streams in addition to not paying taxes. For example XYZ State will have received a land grant (free land to put the school on), does not pay taxes (savings of up to 42% on earnings!!), receives federal aid from federal taxpayer money, and has collected tuitions matched by the state from state taxpayer dollars.

When I was consulting I analyzed several state land grant non-profit institutions and their basic revenue model was 40% tuition; 40% matching from taxpayers behind the scenes (in addition to the FSA student loans the students are being saddled with); 20% donations, grants, and ancillary revenues (aka sports teams and so on).

There are also private non-profit schools, they pay for land and don’t get the matching state monies, but they don’t pay taxes like a private for-profit does.

It is actually a very complicated environment, and even though we may want it to be easy to say that non-profit equals good guys and for-profit equals bad guys, it is way more confusing than that. Also, if you look at a lot of ‘stake holders’ at large universities, in addition to some very big salaries ($M+ counting perks, free housing, travel..), they will sometimes have two or three jobs, each with a salary, and so on. The money they make in salary rivals shareholder equity at many for-profits and then some.

Plus many large schools have unions, and politics aside a lot of the revenues go to the unions, which operate both non-profit and for-profit enterprises, plus many members again have multiple jobs in the union as well as their institutional positions, meaning multiple salaries. Again I won’t name the schools, but when I did the analysis it is like pealing an onion in the large non-profits, layer after layer after layer of revenue flows.

 

For-profit does not necessarily mean publicly traded.

 

Dr. Lady has done a fine (and accurate) analysis. I wish that certain members of the U.S. Senate, the U.S. Dept of Ed. and those writing nationally on this topic has as good an understanding of the topic. Most of the more than 3,000 private sector (for-profit) institutions are not publicly-traded and are not on the stock exchanges, although those that are (Phoenix, Kaplan, etc.) usually dominate the headlines. I worked in the California community colleges for several years and this sector tends to have a significantly higher percentage of its operations funded by state and local tax allotments and much lower from tuition than the 40% for land grant colleges quote by Dr. Lady (whose numbers also jive with my experience at two state universities). If I recall correctly, private sector colleges paid about 3 billion in income taxes to the government last year.

 

Congress and the U.S. Senate have access to this knowledge and they do know it exists but choose to ignore it. For example in Texas the Republican Party has a lot to gain or lose by catering to SMU, Texas A&M and even UT (though the faculty there are notoriously liberal). Same with the Democrats in their respective states. I am sure Senator Harkin would have been more accurate in his hearings on for profit vs. non-profit if he had asked for expert witnesses in education and those within government who service university and college grants (among others). But instead he chose a private hedge fund analyst. It's so obvious that the for profit vs. non-profit debate is driven by money that sometimes my head wants to explode.

DL hit it right on the nose.

 

Can't argue with you there, Friendorfoe

 

Sounds about right, which is why it is a complicated puzzle to try and say who is good or evil...

 

The truth is that there is good and evil in all of these sectors. The problem is that those in one sector seem to ignore the good in another and only recognize the evil and, at the same time, only recognize the good in their sector and turn a blind eye to the evil.

Then there is the US DOE, which appears to need to remove a rather sizable beam from its own eye before it can remove the mote in another's eye.

 

Wow. Thanks for the information.