February 6, 2008

Regulation of College Endowments Has Support in House

Washington — A controversial idea to require colleges and universities to pay out more from their endowment assets annually seems to be gaining traction among both Democrats and Republicans in the House of Representatives.

Rep. Peter F. Welch, a Democrat from Vermont, proposed two amendments this week to be considered in the debate on the House version of legislation to reauthorize the Higher Education Act. Lawmakers are scheduled to begin considering the bill (HR 4137) on Thursday.

Mr. Welch decided today to withdraw an amendment that would have required institutions to pay out at least 5 percent of their endowment assets each year and direct those funds toward “efforts to contain college costs.”

In offering the proposal, Mr. Welch said in an interview on Wednesday, “my goal was to get the attention of the higher-education community.” He said he wanted to spur college administrators to respond more aggressively to Congress’s calls to rein in costs and help keep tuition down.

He said that he succeeded in getting the attention of many college administrators in Vermont and elsewhere, and that he would follow up to make sure they developed plans to contain costs. On that basis, he said, he withdrew his proposal.

But he is pressing ahead with the other amendment, which would require colleges to report annually on how much of their endowment they had paid out that year and how the money had been spent. The reports would include information on the ways the funds were being used to contain college costs.

The general proposal to direct colleges to pay out more of their endowment assets, first raised in the Senate, is fiercely opposed by colleges, which say the government should not be meddling with their endowments.

Sen. Charles E. Grassley, the top Republican on the Senate Finance Committee, has proposed requiring well-off colleges to spend at least 5 percent of their endowments, as private foundations are required to do, or lose their tax exemptions on endowment earnings. Many of the wealthiest colleges spend closer to 4 percent than 5 percent of their endowment assets.

Mr. Welch said he would wait to see any legislation Mr. Grassley proposes before saying whether he would support it.

The top Republican on the House education committee, Rep. Howard P. (Buck) McKeon of California, said today that he did support the principle of requiring colleges to spend more of their endowment assets. But the rule should apply only to the wealthiest institutions, he said. —Sara Hebel

Comments

1. This is a fine idea – as long as they are willing to link it to legislation requiring corporations to spend a certain percentage of their profits on health care, job training programs, etc.
   Exxon Mobil’s $40.6 billion profit (on $404 billion in sales) comes to mind.
   The cynic in me says we won’t see this since corporations can move overseas (taking their profits with them), where colleges and universities cannot.

   — Scott    Feb 7, 09:38 AM    #

2. Given Congress’ spending habits the members of that organization should be embarrassed to be pretending to be a source of prudent financial advice.

   — harley    Feb 7, 09:48 AM    #

3. “legislation requiring corporations to spend a certain percentage of their profits on health care, job training programs, etc.”

   Donations are made with the intent that they will be paid out in this particular manner. Corporate profits are earned from taking on risks and work and they are the rightful property of the owners of the business, at least in non-communist countries (and even in some communist countries).

   The government already takes about a third of all corporate profits to fund government activities. You mention Exxon Mobil’s profit: that particular company pays out more taxes than the entire bottom 50% of individual taxpayers in the US. What more do you want?

   — Bruce    Feb 7, 10:56 AM    #

4. How do they propose getting around the fact that most endowments are restricted for other purposes?

   — Alice    Feb 7, 10:59 AM    #

5. Why should Exxon’s profits be an issue? They are using their profits in ways a corporation should. They are returning it to their shareholders view dividends or buybacks or using it for expansion. More importantly they paid taxes on them. (Exxon paid well over $20 billion in taxes on profits) In contrast, universities are nonprofits who are given exemptions on taxes on endowment earnings because they are expected to use it for some worthy cause. Universities aren’t given special status so they can accumulate huge endowments while collecting enormous tuition payments from students.

   — ATM    Feb 7, 11:03 AM    #

6. Spare me the faux-indignation. Academics (most of whom would sooner vote for Satan than a Republican) have eagerly supported government meddling in other areas for decades. So what made them think their own chickens wouldn’t eventually come home to roost?

   — MarkJ    Feb 7, 11:06 AM    #

7. And they paid 30B in taxes – so what. What was the profit of Big Software and Big Computers? What was the profit of Big Government? Leave our necessary businesses, the foundation of our nations economy, alone.

   — Dave    Feb 7, 11:10 AM    #

8. Scott:

   Exxon Mobil’s ’07 Federal tax payment of $30bn must certainly have led to the spending of “a certain percentage of their profits on health care, job training programs, etc.” I mean, don’t you think? And that’s not counting the money they actually spend on “health care, job training, etc.” for their employees. And never mind that the after-tax profits accrue in one way or another to shareholders, including large pension funds, many of whom spend the money on health care.

   Universities, on the other hand, are tax exempt and really do seem inclined to hold onto any surplus capital to the benefit of nobody much.

   — Lilly    Feb 7, 11:29 AM    #

9. “This is a fine idea – as long as they are willing to link it to legislation requiring corporations to spend a certain percentage of their profits on health care, job training programs, etc.”

   I say we require said corporations to spend x% of their profits on training clowns to perform in parades on holidays. Sadly this is becoming a lost art and the world is suffering for it. As long as we’re ordering other people how to spend their money what the heck. As for schools having to spend money educating students from funds given them to educate students, what am I missing? What else did they have in mind for it?

   — willis    Feb 7, 11:34 AM    #

10. Perfect storm! Republicans get to irritate the academy which dislikes them, Democrats get an unfunded mandate which they can claim helps students.

    — Alex    Feb 7, 11:41 AM    #

11. Universities are different from Exxon/Mobil in one significant way: they do not pay taxes, Exxon/Mobil does.

    If they want to give up their tax-exempt status, I would have no problem with them spending their money as they please.

    But, as long as they are subsidized by me (and you), I think there is at least a basis for insisting that they spend their money for the public good.

    — allan    Feb 7, 11:45 AM    #

12. >>> “colleges to pay out more of their endowment assets, first raised in the Senate, is fiercely opposed by colleges, which say the government should not be meddling with their endowments. “

    Oh, the irony. But it’s all for the common good, you know.

    Not only should they lose their tax exemption but they should lose all government funding and all student loan programs should be ended.

    Then the university’s would have to live within their budgets (like everyone else) and we’d see tuition fees cut in half as thery competed for student dollars.

    — John    Feb 7, 01:09 PM    #

13. “This is a fine idea – as long as they are willing to link it to legislation requiring corporations to spend a certain percentage of their profits on health care, job training programs, etc.”

    You mean legislation like, say, the tax code? Based on their tax bill, it looks like Exxon spent about 6 Bil (8.9% of pretax profit) on Health Care and about 1.35 bil on education – NOT counting anything they spent on their own employees. I wouldn’t go with this line of reasoning if you’re trying to defend academia.

    — J    Feb 7, 01:50 PM    #

14. Nobody will cry any tears for America’s universities, but the big push to punish Yale is going to punish little schools you’ve never heard of.

    I think it’s still a good idea to make sure that no one’s money becomes an immortal pile administered by well-connected goody-goodies. Nobody’s wealth should outlive him by more than a generation.

    — Tertium Quid    Feb 7, 02:16 PM    #

15. I love the comment about Exxon and what it suggests about how most liberals think. Think about how corporate taxes are actually paid. Exxon’s tax bill is funded by people that buy gasoline. This is a very large percentage of the population. Income taxes are mostly paid by the affluent (see the comparison of the taxes paid by the bottom 50% compared to EXXON). So guess what – increasing corporate taxes actually shifts the burden to the larger population.

    — no one    Feb 7, 02:16 PM    #

16. Does this mean a tax credit in the form of cash if an endowment posts a loss (below 5%)? Also, if we start taxing colleges, we must tax ALL 501c3 organizations.

    — Ed Caner    Feb 7, 04:43 PM    #

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