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Higher Education Watch
Taxpayers Eye the Ivory Tower

There seems to be no safe haven for America’s wealthiest colleges these days. Congressional Republicans have been asking pointed to college presidents presiding over endowments in excess of $1 billion about how the funds are being spent; Connecticut legislators briefly pondered stripping the Yale endowment ($24 billion) of its tax-exempt status; and now, local taxpayers in Princeton, New Jersey, are trying to force their local university (endowment: $23 billion) to pay property taxes on its large swathes of real estate. Bloomberg reports:

Free lectures, admission to athletic games and concerts, even shuttles to Trader Joe’s are some of the perks that neighbors of Princeton University get from New Jersey’s only Ivy League school.

A growing number of residents, though, resent the gestures. Riding a national wave of discontent with nonprofit institutions, they’re suing to challenge the tax-exempt status of Princeton, whose $22.7 billion endowment makes it the fourth-richest U.S. university. The outcome could cut homeowners’ annual property taxes, averaging $17,699, by a third. It also could end the freebies that make Princeton a cushy oasis while other New Jersey towns, burdened by high public-worker costs and flat state aid, struggle to maintain basic services.

Part of the impulse in Connecticut and New Jersey is the result of failed governance of these states, which have massive unfunded pension obligations and bloated public sector workforces that make it impossible to fund basic social services without squeezing taxpayers for more and more. But part of the impulse also stems from the failure of the elite higher education establishment, which seems to more and more Americans like an expensive luxury that primarily functions to perpetuate the privileges of the already-wealthy or the politically favored, all while reaping expensive tax subsidies from ordinary Americans who can never dream of an Ivy League education. Highly-endowed colleges, in other words, seem like an underperforming asset, whose wealth would better be put to use for other purposes.

Unless and until universities take steps to reinvigorate their public mission—either by opening their doors to more students, or investing more heavily in their states and communities, or making a full-court press for accessible online education—this conflict may only get worse. The Connecticut initiative failed, and the Princeton lawsuit may fail as well—but, if universities continue on their current course, it’s only a matter of time before the taxman starts knocking on the Ivory Tower’s door.

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  • Andrew Allison

    The very last thing we need is for Universities to open their doors to more students! There are already far too many people attending college.

  • qet

    The “elite” thing is a red herring. The Ivies would not be Ivies if they didn’t act as they always have–as institutions for elites, both scions and novae homines. John Calhoun famously went to Yale, and he was no elite when admitted.

    No, the present drive to grab university endowments is just an extension of the general attitude fashionable among the Left and symbolized by the notorious “you didn’t build that.” The line separating private from public is being actively erased, an activity invigorated and sustained by the belief peddled by the Left for years that, because the federal government *could* tax everything, to the extent it chooses not to it is thereby *giving* you (“redistributing” to you) “taxpayer money.” (The concept of “tax expenditure” is one of the most brilliant lies ever concocted). The only reason the Right is joining in with the “tax the endowments” lately is because of the Left’s shameless and defiant conversion of universities into propaganda mills and reeducation camps enforcing whatever “values” some professor of feminist glaciology or whiteness studies convinced some impressionable 19 year-olds to incant outside the hall where Milo Yiannopoulos is speaking.

    The government will succeed in getting its hands on all these piles of wealth, first in the universities but it won’t stop there, and they will most certainly not apply the funds to existing deficits, because that garners neither gushy WaPo or NYT headlines nor votes, but instead will fritter the funds away on various new “programs” that amount to a return of campaign contributions from the most recent election cycle, and in 10 years those endowments will be gone, the roads will still be crumbling, the pensions will still be insolvent and the locals’ property taxes will have gone from $17K to $25K.

    “Investing more heavily in their states and communities.” What a load of codswallop. That’s what Rutgers, UConn and UMass are for.

    • GS

      If we are to believe the 20-year-old stats on the Ivy League admissions from the Murray and Herrnstein’s “the Bell Curve”, then they are indeed the elite, as far as the average student IQ is concerned. However… many years ago I had to TA those very students at Princeton – and I was underwhelmed, should we say. Either they had searched the campus for the most dense students and then gave them to me [which would have been possible, but unlikely], or the Ivies are insufficiently elitist. Ideally, a smart [Ivy-caliber] student should be “getting it” not even at a mid-sentence, but at a mid-thought.

      • Alec Leamas

        Well, I think it’s more a matter of the Ivies having the choice from among the SAT high-scorers (until the late 1990s the SAT was an acceptable proxy for an IQ test – accepted by, for example, MENSA for admission into the association). But the admissions departments have priorities other than picking the top SAT high-scorers until the incoming class is full – diversity and legacy admissions as well as admission of well-connected and wealthy applicants and athletes. (N.B. All four of Al Gore’s kids went to Harvard University; it is highly unlikely that all four were among the very highest academic achievers and SAT scorers in their respective years of high school graduation.

        So the proportion of high IQ students is probably very high, but by no means are the students’ IQs uniformly high. I’d imagine that in practice there are plenty of “Gentleman’s Cs” given, though with inflation they’re probably “Gentleperson’s Bs” now.

        • A’s sir. And that is accepted with a jaundiced eye, I kid you not.

        • GS

          It was about “average IQ”. I am in favor of tightening the screws till they stop squealing, and instituting the rigid IQ floors [and ef the diversity and the rest of it], something like 140 for the Ivies, 130 for the other research universities, and 120 for the other colleges. And cleaning up the faculty, too.

          • Alec Leamas

            I think my point is that a student body can have a high average IQ and still contain plenty of relatively unremarkable students. If you’re in admissions at Harvard, you can probably pick as many of the perfect SAT 1600 scorers as you want (proxy for IQ at or >160) and many, many very high scorers as well as very many dull legacies and Presidents’ daughters and what have you and still have a high average IQ for the class and for the school.

          • GS

            yes, and the “dull legacies and Presidents’ daughters and what have you” are precisely the kind of types I would kick out of there. By the way, there are more than enough high IQers. What I am really interested in is their rather ill-defined subset – the high creatives. All high creatives are high IQers, but far from all high IQers are high creatives. But at least one could say that pre-sifting by IQ enriches the search.

          • Alec Leamas

            I think the striver class has learned how to ape the indicia of the creatives with their college applicant children. Not enough to actually be creatives, but enough to make picking a true one from the chaff at the age of eighteen much more difficult.

          • GS

            To ape creativity? Thank you for the laugh of a year. That’s a recipe of how to be a clown. Creatives, by their very nature, are towering over the rest of us, and are visible to an unaided eye. Read a bit about the young Carl Friedrich Gauss, or Michelangelo. How to ape such people, when they could [and routinely do] manifest themselves offhand, and with consummate ease, since for them it is their only way of being? When the insufficiently creative Ghirlandaio apprentice boys were laboring at copying something, one Buonarroti instead corrected the original – and much improved it in the process. How to ape that? We do not even test for creativity, for it is nontrivial. It is so much easier to test for routine.

          • Alec Leamas

            I don’t think it’s “the laugh of the year.”

            I think what I’m writing about are the resume enhancers like “creative writing workshops” that propose highly edited work as the applicant’s own. The same with modern art projects and the like. Fabricated credentials which propose creative achievement where none exists.

            You don’t really believe that college admissions officers are in a position to credibly judge creativity, do you?

          • GS

            Once, long ago, when I worked at a large chemical company, they invited a guest speaker – he was a director of some “creativity institute ” or some other similarly named joint (if my memory serves, in Buffalo), to give us a spiel [from which one could see that our management was less than creative]. I do not recall seeing another such snake oil salesman. I still recall his question to us in the audience: “usually, where are you when your best ideas occur to you?” – and I simply had to give him a creative answer: “usually, I am not there”. And he, a supposed Alfred Zweistein, was taken aback.
            I do not need their essays at all, except as a toilet paper, which I also do not need as I have enough of it – and mine is cleaner and softer, too. If they ask for essays – it is their problem, and their stupidity in asking for them.
            To look for the indications of creativity I would be giving the applicant some problems requiring less than trivial solutions with several cognitive leaps in each, ask the applicant to think aloud, and then I would be looking for his or her errors along the cognitive path. As Confucius taught, “know his errors and you’ll know the man”. Yes, such test is subjective, time consuming and labor-intensive, but I do not know a better one.
            Which means that as a college admission officer [which I am not] I would undertake to credibly judge creativity – I would need a legal immunity and a bunch of my clones, for testing each applicant would take up to several hours of one-on-one interaction [unless s/he is a manifest idiot, in which case it could be minutes]

          • Alec Leamas

            Your proposal reminds me of those “entrance exams” for Harvard College circa the turn of the Century. Some you can find online.

            I’d bet not a single graduate could pass one of those entrance exams.

          • GS

            Yes, they are old-fashioned [of course, I did not invent them, but I was observing them and had to pass through that sieve myself – that’s how I got that knowledge]. And if these “graduates” cannot pass – so much the worse for them. So they will be deflected, one and all. Not that it would be any loss, either, and may they not allow the door to hit them in the butt on their way out…

      • Yeah, look very hard at anything and that is what you find. Lawyers, teachers, doctors (god help us), academics, pols…. It is almost as if social and material increases were more a matter of salesmanship than proficiency or even competence. Oh, wait…..

    • Ofer Imanuel

      Why should their real estate be tax free? I live in NJ, and property taxes are quite high.

      • qet

        Maybe the correct response is to focus attention on the high property taxes themselves and get the state and local governments to reduce those, rather than seeking to expand the tax base? Just a thought. In any case, go ahead and tax the real estate. That will just be passed through to the students, who will pass it through to the loan guarantor, which is the federal government, which means it will be passed onto me, who lives nowhere near Princeton.

    • Alec Leamas

      I think you miss the mark. A condition of nonprofit status under Sec. 501(c)(3) is that the institution be organized for a publicly beneficial purpose (here, education) and offer its services to the public at a reduced fee or no fee. State nonprofit status (exempting from real estate taxes) piggyback on the IRC provision. The Princetons and Harvards of the world get tax-free treatment of the gain on their investment income (see multi-billion dollar endowments) because they have a relatively small University attached to their hedge funds. On top of all this, they charge topline tuition and fees in excess of the median household income.

      They’re not really justifying their tax-free status when you compare the tax-free income against the reduction in fee they provide in the form of meager financial aid. (If you’re destitute, perhaps you can attend for free; if you’re middle class, you have to count on your parents pledging a significant proportion of their wealth – home equity and 401K etc. and/or indebtedness to attend). Because the Ivies in particular don’t grant merit or athletic scholarships, they’re viewed correctly as Country Clubs for the networking of the well-to-do and well-connected.

      • qet

        As a parent currently paying two full rides in cash for two children in college, I know well the inverted economics. But unlike with taxes, I actually have a choice here. As does everyone. The effort, which I am sorry to say is frequently seconded by TAI, to reconceive coveted Ivy admissions places as public goods subject to allocation according to some State-administered public policy criteria, is the root of the current agitation to appropriate the endowments. The blather about the “elite” taint of the places is just a distraction, one that appears to be working all too well.

        I grant your well-phrased point about hedge funds with universities attached, but the easy solution is: don’t send your kid there. Problem solved. Well, not yet. The other necessary solution, not easy, is for the government to cease making and guaranteeing student loans. But for you, the individual, the avoidance of the outrageous tuition etc. is completely within your control. Which disqualifies that tuition as an argument against continuing the tax exemption. Now the growth in administration, on the other hand. . . . .

        I am not defending on principle the tax exemption. What I am pointedly not defending is the timing and the active motivation behind its recent notoriety. Tax exemption is a general matter and as far as I know no one has put forth criteria for determining when the polarity of the university’s magnetic poles of education and wealth accumulation flip.

        But the selection of certain nonprofits for attack on the basis that they are “country clubs for networking” makes little sense to me. The well-to-do don’t need Princeton and Harvard to find each other and perpetuate their 1%-hood. And as I have argued in these very pages on more than one occasion, whatever umbrage one might take at the thought of all those WASP scions coasting along in their Harvard ties like so many Louis Winthorps, the fact is that Harvard, and the rest, have still somehow managed to be, for centuries, places which kids all over the world aspire to enter, and not so that they can rub elbows with the WASP scions in their Orphic networking rituals.

      • GS

        There are, or were, the merit scholarships at the Ivies, Alex Leamas. Long ago I used to have one.

  • Jacksonian_Libertarian

    Both the locations mentioned have been run by the Leftist Democrats for generations, so I feel no sympathy as they have justly earned their coming demise.

  • MarkE

    Long-lived foundations are the ones that manage money well. They often become captives of people with agendas that are much different than their endowers. For this reason society would be better served if foundations had lifetimes that were a small multiple of human lives, e.g., 150 years.

    In the case of the Ivies they have been teaching socialism and state –sharing ideas since the 1950’s. It is not too surprising that the states would look to their mentors for spare-change when those ideas came up short in the budget area.

    As for the Ivies it is long past time to try something new. They could give the campuses the tax hungry Northeastern states and move to Florida or Texas. They could split up their endowments and start 50 smaller billion-dollar schools around the country.

    • Perhaps they have taught ‘sharing’ because they were certain that they would receive more than they gave and retain all the imbalance.

      • MarkE

        Sort of like stone soup? It worked well for them. Best stone soup ever!

    • CapitalHawk

      It’s funny that you suggest they move their campuses to Florida or Texas. Sure, those states have no income tax, but have you seen property taxes there? Super high.

      • MarkE

        Yes, but the universities would still be exempt from property taxes and in a less sharing environment generally than the apparently declining Northeastern states.

        • CapitalHawk

          These universities are just finally reaping what they have sown. For literally decades they have been preaching that the poor should take from the rich. The poor have just now noticed that the universities are rich and therefore…

          • MarkE

            I would hope that a shock like that would make them more objective about their political teaching. On the other hand they could just wreck the Soutern states too.

  • Josephbleau

    Like any good criminal politicians have a roving eye for stores of loot to call their own. Every now and again the trial balloon is floated where the Government must take over everyone’s 401K in order to protect folks from their stupid choices. The Labor dept. for some reason is regulating who can give investment advice, (The fricking Labor Dept!). In reality this would destroy the last incentive for individuals to provide for themselves, as it is certain that the principal would be borrowed by the system and spent to no effect. This would be a good thing for Democrats as they would own everyone like slaves and provide only what they think people need ( you don’t need so much food! the average person is fat! You only get a little of your savings!). Ivy Endowments have to be safe, they are too deeply a Democratic constituency to really be hurt, they can’t afford it. It will be talked about and studied but killed at the last.

  • John Stephens

    Let me tell you the beginning of a sad story, and see if you can guess the ending:

    “First, they came for the small businesses…”

    The universities are about to find out how it ends.

  • In New Jersey property taxes have skyrocketed and then left earth orbit. Sounds like Princeton alone could add 10% or more to receipts if it only paid like everyone else. Probably their tax exemption goes back to pre-Revolution but why should it persist? These institutions also get preferential tax treatment on investments. Certainly they should be subject to the same laws and rules as everyone else…. say DeVry Institute, the local McDonalds or your grannie in her ancestral home. Otherwise we have a caste system. Oh, wait…..

  • Boston_Patriot

    Hoist them by their own petard.

  • Fat_Man

    Princeton is another Hedge Fund running a college because that is cheaper than paying taxes. Yes, New Jersy is a failed socialist state, but Princeton has been promoting socialism since Woodrow Wilson. They deserve each other.

  • Misanthrope

    So, the institutions that have taught for generations that confiscating others’ wealth is a legitimate exercise of political power are now having their lessons applied to them.

    I love the smell of irony in the morning.

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