The state of Connecticut wants its richest university to share more of its wealth.Facing budget shortfalls and a deep pension hole, Connecticut lawmakers this week proposed taxing the investment profits of Yale University’s $25.6 billion endowment, the nation’s second-largest after Harvard University’s. Yale is located in New Haven, Conn.… Connecticut is home to more than 40 colleges. But the potential tax singles out Yale because it would affect only endowments with $10 billion or more in assets.
There is a widespread (and not-unfounded) perception that the top university endowments are approaching irrational levels—Yale’s chief Ivy League rival has been called a large hedge fund with a small research institute attached to it.Meanwhile, desperate cities and states—caught between the unpayable pension promises created by decades of irresponsible governance, bloated workforces organized into unions that keep asking for more, poor residents wanting and needing more basic services, and rich residents threatening to flounce out of town unless they get more ‘amenities’—have no choice but to scrounge under the couch cushions for extra cash. And university endowments are a prime target.This tension will likely only get worse. But there are things the universities can do to keep legislators at bay, all of which essentially come down to hoarding their money less and investing more of it in education and in the public. Colleges like Harvard, Princeton and Yale haven’t, for example, expanded their undergraduate enrollment much even as they have transformed from training grounds for elite Northeastern WASPs into genuinely national institutions and then into global ones.These schools should think about ways to clone themselves—either by setting up satellite campuses that offer low cost, high quality education to people in all parts of the country, or pioneering new ways to make MOOCs and other forms of online education really work for a larger portion of the population. Some such efforts are already underway at these campuses, but there is much more to be done. If tens of thousands of Connecticut students were benefiting from Yale’s efforts in the state, politicians would be much less eager to go after its endowment.From the point of view of much of the public, highly-endowed colleges are becoming an underperforming asset: The feeling is growing that elite fat cat universities are an expensive luxury, and that the money spent propping up their endowments would be better spent buying school lunches for needy kids, or topping off up the pensions of retired civil servants.For many years, colleges have fended off the fiscal claims of local authorities by pointing to the jobs they create and to the spending of their students and staff. These were and are valid arguments, but the great American private universities are going to have to take a hard look at what else they can do to make more friends among the general public and, consequentially, among politicians.Once Henry VIII discovered that you could squeeze gold coins from wealthy monastic foundations, he decided to squeeze harder. American politicians are no stupider than he was, and the need for revenue to feed Big Blue Machine is continuing to grow. The people who rule the Ivory Tower should start to take note.