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Super-Sized University Endowments: Is Your Alma Mater Richer (or Poorer) Than You Think?

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4 Responses

  1. A.J. Sutter says:

    I don’t understand at all why this should be an issue for Congress. It strikes me as perverse that instead of focusing on regulating private companies, hedge funds, etc., Congress should move to force non-profit institutions to spend their money. Is that just a tactic to divert money from “super-rich” non-profits into the pockets of lobbyists and legislators themselves?

    Can you please explain what’s the rationale for prioritizing this?

    And if your idea is that Congress should only seek to “encourage” institutions to spend their endowments, in the sense of some sort of carrots-only measure, why should this be limited to super-rich institutions?

  2. I agree that this is not what I want Congress to concentrate on but then there is very little I want Congress focused on (is it August yet?)…but part of me says why not: better Harvard gets picked on than Congress focus on tax increases, trendy enviro solutions and other ways to further get the feds into my life. In a way then Harvard, Yale etc. are reaping what they’ve sown.

    on the practical side, I’m sure any restrictions will carve out restricted endowments…which will then be an excellent way to get around the restrictions

  3. Sarah Waldeck says:

    The Senate Finance Committee is interested in this primarily because of the extent to which the federal government subsidizes university endowments and higher education more generally . While I can’t put a precise dollar figure on the extent of the subsidy, here’s just a couple of examples (and there are many): (1) if endowments were subject to the corporate tax, the federal government would have collected about $18 billion last year; (2) in 2008, the deductibility of gifts to educational institutions is projected to cost upwards of $4 billion in forgone income tax. With tuition costs continuing to escalate (while some institutions have huge financial reserves), Congress is wondering whether the public is receiving adequate benefit in exchange for these subsidies.

    What Congress giveth, Congress can taketh away. I’m not sure whether to call that a carrot or a stick. Whether new Congressional measures should apply to all universities and colleges or just the “super-rich” depends on the nature of the measure, and on whether we believe that some amount of accumulation is appropriate. I’ll be posting more about specific proposals over the next couple of weeks, but wanted to get a quick response off to you tonight.

    Sarah Waldeck

  4. A.J. Sutter says:

    Thanks for your quick reply. But why is it appropriate to compare universities and corporations anyway, given the different functions and missions in society of the two types of institutions? Who is in the role of shareholders as universities’ sole consituency? My understanding is that universities already pay tax on profit-making ventures in which they may engage. But even if the analogy were apt, maybe Congress should instead, say, make it more difficult for companies to use corporate offshore tax havens. Might there be more than $18 billion buried there? (Is the Hoover Institute, American Enterprise Institute or some other conservative think tank somewhere in your stat’s provenance, BTW?)

    As for adequate benefits, at least in the case of Harvard, see, e.g., http://www.news.harvard.edu/gazette/2008/05.29/07-financialaid.html . A partial quote: “Families with incomes of $60,000 or less will pay nothing; those with incomes up to $120,000 will pay on a sliding scale topping out at 10 percent; and those families making up to $180,000 will pay an average of 10 percent of income for undergraduate education. (About 70 percent of current Harvard undergraduates already get some kind of financial aid.) Students will also no longer have to take out loans, which will be replaced by grants — a guarantee that students starting with the Class of 2012 will graduate debt-free. And Harvard will no longer use home equity to calculate income levels for aid.” (Full disclosure: I too received a Harvard College scholarship some 30+ years ago.)

    Maybe in a future post you could also mention to what extent the “subsidies” (which sound prima facie like a Bad Thing) universities receive are actually earmarked for specific purposes.

    I’m not in favor of everything universities do, by a long shot, and that certainly includes Harvard. But that this should be an issue at this time smells like continued cowardice on the part of Congress, who miraculosuly have never let up dashing the hopes that were raised in November 2006. Making Harvard and other pointy-headed institutions look like bloated bad guys is low-hanging fruit compared to even considering a tougher political decision that might ruffle corporate donors’ feathers. I wish I could add “especially in an election year,” but I’m afraid off-years aren’t any better.