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Higher Education Watch
Endowments Under Fire from Left and Right

It’s not just Democratic legislators in broke blue states who are eyeing colleges’ war chests; leading Congressional Republicans also have some pointed questions about how the the Ivory Tower is spending the hundreds of billions of tax-exempt dollars tucked away in its vaults. The Hill reports:

The tax-exempt endowments of colleges and universities are coming under scrutiny in a presidential election year where the cost of higher education has become a top issue.

Leading Republican tax-writers in Congress have sent questions to 56 private institutions with endowments of over $1 billion, giving them until April 1 to respond. The answers they receive could lead to legislation.

… Ways and Means member Tom Reed (R-N.Y.) is working on legislation that would require colleges with large endowments to spend a minimum portion of their endowment earnings on grants to students.

While Connecticut Democrats recently earned national media attention for a proposal to narrow their state’s budget deficit by taxing Yale’s $26 billion endowment-cum-hedge-fund, Congressional Republicans seem more interested in putting endowments to work directly for students (by forcing a certain share of them to go to tuition subsidies) rather than leveraging them as a government revenue stream. Either way, the underlying assumption is the same: highly-endowed colleges—which were granted tax-exempt status for their ostensible public service mission—are becoming an under-performing asset, and that the tremendous wealth they are accumulating could be put to better use on other public priorities.

There are a number of things colleges can do to try to fend off this kind of incursion. First and foremost, they can try to expand the number of students who can benefit from their repositories of expertise knowledge—either by meaningfully increasing enrollment (many top schools have not done this in decades, even as their endowment per student ratio has skyrocketed), by opening satellite campuses, or by making more courses available online.

Second they can spend more of their money on education and research in the public interest, and less on massive NCAA-backed athletic projects, luxury student amenities, or highly-ideological outposts for activist-scholars and Title IX bureaucrats. The overriding objective must be to demonstrate to the public that, at this time of economic scarcity and anxiety about access to higher education, the American people are not funneling tax subsidies to fantastically wealthy institutions that have essentially become vehicles for reinforcing elite privilege while promoting an array of corporate and ideological interests.

The pressure on big endowments is building and will continue to build. Forward-looking university presidents should be looking closely at avenues for reform, before politicians have had enough and send the tax man knocking on the tower’s door.

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  • jeburke

    I too am annoyed that Yale and Harvard accumulate huge endowments while keeping their (nominal) tuitions sky high, but I still recoil from federal or state interference just because this is a big pot of money. After all, these endowments don’t exist simply because they are tax exempt. They exist because generations of alumni have enough regard for their alma maters to bestow big and small donations and bequests on them (colleges without such alumni loyalty have little endowment money), and precisely because these Ivy colleges have conscientiously investment endowment money instead of going on spending splurges. While I find the left-wing monopoly at the Ivies distasteful, at least their endowments give them the ability to remain independent of governments — over decades, even centuries. And let’s not forget that two-thirds of all students at Yale and Harvard receive scholarship aid — made possible by their generous endowments. And if lawmakers start monkeying with the charitable tax exemption to force non-profits to engage in the “public services” preferred by reigning politicians, the whole voluntary sector is at risk.

    Bottom line: politicians of both parties hate missing opportunities to spend other people’s money.

    • qet

      These are all fair and persuasive points. The only problem is that the government already interferes so extensively with private universities, just like with everything else under the sun, that to make the endowments off limits seems hard to justify. If the government gets rid of Title IX, it having long since had the remedial effect it was intended to have and is no longer necessary, and if it exercises its prerogative to require that crimes committed on campus be referred to the civil authorities and not adjudicated within the university, and if the government were to get rid of “disparate impact” as a proxy for unlawful discrimination; if the government did these and some other things, then I, too, would argue it ought not to dictate how the endowments are spent.

    • Andrew Allison

      How would you feel about a requirement that the Universities spend the income (including unrealized capital gains) earned from their endowments on students (students, not spas, etc.)? I’m not necessary recommending this, just looking for ideas as to what should be done with the non-donated growth of these monsters.

      • jeburke

        I’d find that more objectionable, not less. The State of Connecticut indisputably has the power to impose a wealth tax on Yale’s endowment, although I think that would be a very bad idea. Worse would be the legislature interfering in Yale’s budgeting and operations to decree that resources be used this way or that at the ever-changing whim of a bunch of politicians.

        By the way, how “fair” is it to impose a wealth tax on Yale but no one else — not other colleges, not other non-profits, not foundations, not wealthy individuals?

        • Andrew Allison

          I’m seeking opinions about what, if anything, such endowments (all such) owe to the Institution which they support and society. An endowment fund is an investment fund set up by an institution in which regular withdrawals from the invested capital are used for ongoing operations or other specified purposes. The question in my mind is whether either the investment income resulting from deductible contributions or, as in the case of an IRA, distributions should be taxable. The issue would be moot if donations to endowments were taxable [grin]

    • Fat_Man

      “They exist because generations of alumni have enough regard for their alma maters to bestow big and small donations and bequests on them”

      With very healthy tax subsidies for the donations.

    • Fat_Man

      The idea that those institutions are in some sense private, is laughable. They are agencies of the leviathan state. I am firm believer in private property and freedom from governmental interference. But, when you are part of the government, there is no such thing as private property or freedom from governmental interference.

      I would not be at all offended, if the Ivy league colleges were to be reorganized as campuses of their respective state university systems.

      It not merely the endemic leftism of the Ivy league. They have become the centers of an elite culture that hates and reviles their countrymen. In turn the outsiders have begun to understand the source of this enmity. That is what is powering the Donald Trump phenomenon. But, Trumpery is not the worst of what will happen if we cannot reintegrate the elite in to the country. We are closer to a shooting war than most of you know or want to know.

      It is not inevitable yet, but drastic action will need to be taken if we are to avoid it.

    • CapitalHawk

      Well, the ivy league (via its professors and executives) have been pushing the “social justice” theme for quite a while now. Perhaps it is time they ate some of their own cooking.

  • Fat_Man

    “they can try to expand the number of students who can benefit from their repositories of expertise knowledge”

    In what? Micro-aggressions? historical revisionism? Halloween costumes? We could shut those he11 holes down and nothing would be missed, at least by the tax payers of flyover country.

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