Hands off endowments
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By The News Virginian Staff
Published: May 17, 2008
In the Commonwealth of Virginia, public universities have witnessed state support for higher education on a relentless march toward zero since the early 1990s. The best example at hand, the University of Virginia, has seen annual state support for its ongoing operations decline from 18 percent of its total $2 billion operating budget to less than half that in the past 10 years.
For prestigious institutions such as UVa, far-sighted leadership has steered the university well through the choppy, shallow waters that have been state support.
The university’s endowment of $5.l billion now ranks 19th among all colleges and universities in the U.S. Three years ago, the university joined with Virginia Tech and William & Mary in lobbying the legislature for approval of a bill granting them more autonomy in financial decision-making. That act has already paid dividends to the university in being able to handle its own management and investment of student tuition and other certain operating funds. It also may have provided the university with more latitude to establish its AccessUVa program, which gives scholarship support to a significant number of students in financial need.
Elsewhere among prestigious public and private institutions of higher education, there are similar story lines. Endowments have grown to support and protect these institutions, and ensure their healthy longevity far into the future.
Unfortunately, as these funds have grown, so has the desire by some politicians to tax them or to mandate how and when that money should be spent.
University of Virginia President John Casteen referenced this interest in his February State of the University address: “Some members of Congress and some activists have proposed mechanisms — most not now lawful and some are facially unconstitutional if applied to public universities — to tap endowment funds to cover what federal and state governments no longer provide for student financial aid.”
Indeed, most recently in Massachusetts, home to Harvard University, with its $35 billion endowment, there’s a movement afoot to tax colleges there to the tune of 2.5 percent annually on all endowments over $1 billion. In case you lost count, Massachusetts has nine colleges and universities with endowments over $1 billion. The annual tax take would be estimated at $1.4 billion.
There is a supreme irony in these latest developments, as state support for higher education continues to flag nationwide.
Although it is not likely that a public institution such as UVa could have its endowment threatened with taxation, the very fact that states like Massachusetts are floating such an idea is cause for some concern, on the part of alumni, businesses and others who donate to public and private colleges and universities not to mention the universities themselves.
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Posted by ( Steve L ) on May 20, 2008 at 4:43 pm
Source CNN & Beck
Does anyone else find it ironic that universities overflowing with liberal professors (a 2005 study revealed that 72 percent of professors view themselves that way) embrace conservative values only when it suits them?
It’s an industry that made an average profit of nearly 17 percent in 2007 while most Americans could barely keep up with inflation.
It’s an industry whose members paid a grand total of zero dollars in tax on their endowments last year.
The top five college and university endowments reported a combined value of over $100 billion at the end of 2007. That’s five funds, a hundred billion in cash. Not a nickel in tax. Not an ounce of outrage.
Harvard University, which has the largest endowment in the country, has a total of $34.6 billion. To put into perspective just how much money that is, consider that the largest charitable foundation in the world, the Bill & Melinda Gates Foundation, has a total endowment of $37.3 billion.
But while their financial statements may look similar, their missions aren’t. The Gates Foundation is working to cure malaria, develop new tuberculosis vaccines, and stop the spread of AIDS. Most of our colleges and universities are only working to spread the radical political views of some of their professors.
Let me be clear: I have absolutely no problem with Harvard or any other school having billions in cash. In fact, good for them!
I have no problem with Harvard posting an unbelievable 23 percent rate of return on their money last year. The truth is, I’m jealous of it.
I have no problem with the fact that if you project Harvard’s endowment out using their historical rate of return they would have over half a TRILLION dollars in 20 years.
I don’t even have a problem with Harvard not paying one dime of tax on any of that money.
What I do have a problem with—and it’s a big one—is how Harvard spends that money. Or, maybe it would be more accurate to say how Harvard, doesn’t spend that money.
Schools with large endowments (at least $500 million) reported spending an average of 4.4 percent of their stockpiles in 2007. Meanwhile, those same schools made an average of over 19 percent on their money.
But I also have another problem, and that is how these sanctimonious institutions who are so good at complaining about the injustices of our government are nothing but really highly educated hypocrites.
For what’s been estimated to be about $300 million a year (less than 1 percent of their endowment’s value) Harvard could completely waive tuition, room and board for every single one of their students. Instead, they announced an increase in those fees of about 3.5 percent for next year. Being a student at Harvard will now cost a staggering $47,215 a year.
Doesn’t Harvard know how many millions of Americans are struggling to afford college? Don’t they want to pay their fair share and help those who are less fortunate?
Some politicians in Massachusetts who can’t stand to see so many billions dangling just out of their reach, have proposed a new tax on large university endowments. They don’t have a cute name for it yet, so let’s call it an “endowment windfall tax.“
Under their proposal, all endowments over a billion dollars would be taxed at 2.5 percent, a rate any wealthy individual or corporation would salivate over. The tax would net the state over $1.4 billion a year, which is a lot of money considering that Boston currently receives about $1.8 million a year from the school.
So how did Harvard, which is basically the Exxon-Mobil of higher education (minus the accusations of price-gouging), react to that proposal? In a word, conservatively.
“You’d be taxing success here,“ Kevin Casey, Harvard’s associate vice president for government, community and public affairs complained in a quote that will soon be framed and hung in my office. “Over time, this would put us at a real competitive disadvantage, which would drastically hurt the Commonwealth.“
No Kevin, you’re looking at it the wrong way. These politicians aren’t trying to hurt you, they’re just trying to level the playing field. Greater Shrewsbury Liberal Arts Community Technical College for Women down the road is struggling and here you are making billions. If they could just redistribute some of your profits to GSLACTCFW then everybody would be happy.
As a conservative, I don’t believe in taxing anyone just because they have a lot of money or are an easy target. That applies to individuals, businesses and universities. I believe that taxing success discourages success, and that’s not what America stands for.
But I also believe in something else: consistency and accountability. And that’s where most of our colleges and universities fail miserably.
Besides, Harvard, you’re in the wealthiest 1 percent. Isn’t it time to help those who are less fortunate?
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