February 11, 2016; Boston Globe
When is a nonprofit a victim of its own success? It might be when wealthy nonprofit colleges and universities have large endowments that attract the attention of political leaders who are looking at how the federal tax code deals with their tax-exempt status.
The Boston Globe reports that two congressional committees “are asking the nation’s richest colleges and universities for details about their multibillion-dollar endowments, which have continued to grow even as tuitions increase and the schools benefit from tax breaks because of their ‘charitable and educational’ missions.”
“Despite these large and growing endowments, many colleges and universities have raised tuition far in excess of inflation,” said the letter, signed by the chairs of the Senate Finance and House Ways and Means committees.
Harvard University, with the world’s largest endowment at $36 billion, was on the list, which comprised 56 private institutions with endowments of $1 billion or more, as were Stanford and USC.
“As Congress moves forward with efforts to reform the tax code, it is prudent we gather as much information as possible about how preferences in the tax code are applied,” Senator Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee, added in a statement to the Globe.
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College officials defended their endowments, saying that they are designed to pay for current operations, including student financial aid, faculty salaries, and research, as well as to generate income that helps to fund operations.
One college spokesman said it would be dangerous if lawmakers were to try to force colleges to spend more of their savings: “We’ve got a pretty good formula working, a lot of it driven by private dollars, and I think it would be unwise to tinker with that.”
College administrators also say that college endowments can be spent only on certain programs because of donor restrictions. U.S. Representative Tom Reed (R-NY) has proposed requiring colleges with endowments of $1 billion or more to either spend about 25 percent of their annual endowment income on financial aid or forfeit their tax-exempt status.
The wealthiest colleges have been criticized for having an inordinate share of the wealth in higher education. The paper reports that the combined value of the top one percent of college and university endowments represents about 72 percent of all higher education endowment dollars nationwide.
Congress should be asking questions “to gently pressure universities to consider their policies with more of an eye to the general social good,” Brian Galle, a Georgetown University law professor who has studied college endowments, told the Globe.
A spokesman for a college association said that their responses to the letter “will demonstrate the prudent practices through which higher-education institutions manage their endowments.”—Larry Kaplan