<p>Bill</a> would tax rich colleges' endowments - The Boston Globe</p>
<p>I think they should all be taxed except my son's school.</p>
<p>I predict, just as in some public secondary schools, when the government mandates how the money that is donated privately is to be spent, the donations will begin to diminish significantly. It's not about the kids or their families, it's about how someone else is better qualified to spend someone else's money.</p>
<p>Here is a thread from a few days ago on this issue:</p>
<p>The few colleges with the really mammoth endowments can no longer expect that they won't get challenged for sitting on billions and billions while COA hits and exceeds $50K per year. It is time that they start using more of these funds toward aid to students. The Ivies have started to do this, and the other top-tier privates now have to decide whether to keep up with the Ivies. Using their endowments to more directly and visibly aid students will go a long way toward resisting tax revenue grabs by desperate local and state legislatures.</p>
<p>K9Leader</p>
<p>Let's see, yet another grab for money that is not the governments. 12-billion per month for the war in Iraq, I thnk the feds could bail out state of Mass. These guys do not understand economics. Look at the ethanol mess, with corn driving food prices and such up. They are trying to fix it now. Take from the rich give to the poor. Unfortunately, the definition of rich is not Bill Gates that they use, it is something like $75,000 for single $150,000 married. From good schools, not just ivies, kids will be near, at, or even above those levels. Most kids out of school are not rich but will be taxed that way. I have seen many grads who thought the Robin Hood approach was great in school, then when the government took all their money that first pay check had a sudden change of heart. Small rant on the growing stupidity and failures of local, state, and fed mismanagement.</p>
<p>Good thing this won't pass.</p>
<p>No, it won't pass and it shouldn't - but that doesn't mean there isn't some validity to the argument that there is a problem here. Harvard has an endowment of $34 BILLION dollars. Amherst, BC, BU, MIT, Tufts, Smith, Wellesley and Williams all have endowments over a Billion dollars. (Yes, that's a Thousand Million). Yet they still charge sky-high tuition while paying virtually no property taxes. They do make some "voluntary" payments to their home towns, but BC's for example was a mere $261,000, which is a drop in the bucket for a school with 9000 undergrads charging nearly $50k/year. Plus they receive gov't subsidies for research and financial aid. If entities that are not colleges are required to spend 5% of their endowments per year on their "mission" to remain tax-exempt, it seems like colleges should have to meet the same criteria. </p>
<p>The idea that colleges are amassing huge piles of wealth and failing to spend it on their core mission - education - while expecting to receive tax breaks is something that I think needs serious consideration. Perhaps schools that have very large endowments and spend less than 5% per year should start paying property taxes to their host cities, at least.</p>
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Yet they still charge sky-high tuition while paying virtually no property taxes.
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<p>Be careful with the tuition rhetoric. Williams charged its average student $27,455 tuition, room, board, and fees last year. While that is certainly a lot of money, it's not the "sky high tuition" frequently tossed around.</p>
<p>Here's the per student breakdown.</p>
<p>Williams spent $75,000 per student in operating expenses.</p>
<p>The sticker price (also know as the "stick it to the rich customers who can pay it" price) was over $40;000. But, the average student only paid $27,455 after financial aid discounts.</p>
<p>Buying a $75,000 widget for $27,455 is not a bad deal. I wish Mercedes had a billion dollar endowment and would cut me that kind of blue light special on a new car.</p>
<p>What a rich thought. Let's punish the institutions that understand the economics of education!</p>
<p>Assuming a return of 5% per annum at Harvard, the small thievery of the great state of Mass would amount to more than 23 billion dollars in a single generation. </p>
<p>What if Harvard decided to start investing their wealth in more hospitable localities? Harvard at Dubai? Next to Halliburton? </p>
<p>Or for that matter is there any state in the nation that will not welcome a Harvard Branch in exchange for no taxation in perpetuity? Of course, except for California where confiscatory fiscal goons are also playing with the idea of seizing the private endowments to cover the follies of the public university spendthrifts.</p>
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Perhaps schools that have very large endowments and spend less than 5% per year should start paying property taxes to their host cities, at least.
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<p>That's little better than the proposed idea (which is plain ridiculous). What gives government the right to the school's money, just because they aren't spending it? Whether or not you think think the school is justified in its manner of spending is up to opinion. Whether or not you think it's o.k. for the government to seize someone's money just because they aren't spending it... quite different. Approve of that and next thing you know it will be legal for the government to start punishing you if you dare to put too much in savings.</p>
<p>If you ask me, there should be a separation of state and school, much like state and church. Would solve so many issues.</p>
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That's little better than the proposed idea (which is plain ridiculous). What gives government the right to the school's money, just because they aren't spending it? Whether or not you think think the school is justified in its manner of spending is up to opinion. Whether or not you think it's o.k. for the government to seize someone's money just because they aren't spending it... quite different. Approve of that and next thing you know it will be legal for the government to start punishing you if you dare to put too much in savings.
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<p>Ah, but the government exempted the schools from taxation and granted them non-profit status because they were advancing education, which has value to our society. The question becomes what is Harvard doing with their $34 billion endowment that enhances the reason for the exemption, education? Instead, the fund managers are being paid seven figures for the returns they are obtaining tax free.</p>
<p>This issue has been the driving force behind the recent changes in financial aid at the schools with huge endowments. The government has said that if they are not going to use the money for education, they would look into changing their non-profit tax-free status. It seems to me that the threat worked.</p>
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Assuming a return of 5% per annum at Harvard, the small thievery of the great state of Mass would amount to more than 23 billion dollars in a single generation.
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<p>It would take a better man than me to decipher Harvard's fianancial reports, but I can say with confidence that there are only six LACs in the country who can produce their desired product while spending under 5% of their endowment: Grinnell, Pomona, Swarthmore, Amherst, Williams, and Wellesley.</p>
<p>These schools are all targeting spending right at 5% of their endowment and, on average, that's where they end up. But, they all have stable spending policies designed to spend endowment money at a constant rate, increasing over time. They spend it when the endowment goes up and they spend it when the endowment goes down...because their spending is based on long-term projections rather than boom or bust cycles.</p>
<p>This means that, during a sharp runup in endowment value, the spending will be a lower percentage of endowment. However, that approach allows the spending to continue when the endowment shrinks, of course making the spending a larger percentage of the endowment.</p>
<p>It's hard to say these big endowment schools aren't spending their money when their per student operating expenditures are $10,000 to $20,000 a year higher than the next tier down.</p>
<p>The only outlier is Grinnell. I don't know what they are waiting for? Christmas I guess. They have the biggest per student endowment in the game, yet their per student spending is remarkably low. They are the perfect college to go tuition-free.</p>
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What gives government the right to the school's money
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<p>What gives the government the right to anyone's money? Like most citizens, every year I pay a percentage of the assessed value of my house.. I also pay over a decent chunk of my income.</p>
<p>Is that legitimate? I would say "yes." In a civilized society, it is accepted that the government has the right to take money by force through taxation.</p>
<p>interesteddad</p>
<p>What I have heard about Grinnell is that a certain percentage of their endowment--don't know what percentage--is restricted in how it can be used, e.g. only for building or whatever. I expect this is true of all endowments, but $34 billion is a horse of a different color. You'd think that could cover just about anything short of a war.</p>
<p>Why Massachusetts is not stupid enough to kill off the Golden Goose.</p>
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Economic Impact Facts</p>
<p>Boston's eight research universities constitute one of the region's leading employers. They employed 50,750 people in 2002, more than a number of leading regional industries, including securities, banking, insurance, management consulting, and computer manufacturing. Four of the universities are among the top 25 largest private employers in the state. </p>
<p>Employment at these universities grew 4% between 2000 and 2002, despite the regional decline of 2.8% in employment. </p>
<p>The universities attract $1.5 billion a year in research contracts and grants. More than 81 percent comes from the Federal government; less than one half of one percent comes from state and local governments. University-affiliated hospitals and research centers in addition received $1 billion in grants and contracts to conduct research in 2000. </p>
<p>Construction at the eight universities is expected to average $850 million a year for the next four years, supporting 5,100 full time construction jobs a year. </p>
<p>Massachusetts has the highest percentage of scientists and engineers of the leading technology states. </p>
<p>Payroll in 2000 was $2.5 billion, an average of about $51,000 per employee--7% higher than the regional average. 88% of employees live in the region, 8% live in other Massachusetts towns and 4% in other states. </p>
<p>University alumni have founded major local companies such as Analogic Technologies, EMC, Lycos, Staples and Teradyne. </p>
<p>Faculty members have founded major local firms such as Akamai Technologies, Biogen, Delphi Communication Systems, Genome Therapeutics and InfoLibria. </p>
<p>Hundreds of new startup firms are the basis of future growth in the Boston economy, such as Telica, Tissue Regeneration and Variagenics. </p>
<p>25 of the 50 early stage Boston-area startups that attracted the most outside investment in 2002 were connected to one or more of the 8 universities. </p>
<p>The universities provide the human talent for Boston's knowledge economy. In 2000, they awarded 15,600 undergraduate degrees and 16,300 graduate degrees in a broad range of fields at 87 undergraduate and graduate schools. The 60 graduate schools include 17 schools in the health field, eight schools in arts and sciences, seven in business, six in education, six in public/international affairs, five in engineering, four in law, three in architecture/design, two in social work, and two divinity schools. </p>
<p>The regional community of the research universities in 2000 included about 500,000 people--310,000 alumni (who represent about 30% of the region's residents who have college degrees), 118,300 degree students, 25,000 non-degree students, 48,750 employees and a portion of 70,000 people who took short professional education courses.
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<p>^^^ Puts the argument in a whole different light now, doesn't it?</p>
<p>I'm of mixed minds about this one. I take it as a given that politicians pander. I take it as further given that endowments often have a substantial portion of earmarked funds. And (the kicker), that politicians don't have higher education for the citizenry as their top priority almost goes without saying.</p>
<p>However, my alma mater (one of those really rich places - the one with the indoor golf nets) claims that they spend $72k per student per year (it's higher now), but only charge a maximum of $47k. In other words, they provide a $100k subsidy over four years to students who neither qualify for nor receive need-based financial aid. It is likely that almost half of them could actually afford $72k or something close to it (and hence provide more financial assistance to those who can't afford it.) A substantial portion come from millionaire or multimillionaire families. It is hard to make an argument that the state has an interest (or that I do, with my measly alumni contribution) in subsidizing the millionaires' kids - especially when they'd likely be quite sanguine about paying for what the education of their children actually costs.</p>
<p>If Amherst is relying on their endowment for 1/3 of their annual spending, the simple reply is that they don't have to. They have made a choice to subsidize the millionaires. All they have to do is charge what the product costs, and then subsidize those who can't afford it.</p>
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All they have to do is charge what the product costs, and then subsidize those who can't afford it.
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<p>Which is precisely where these colleges are all headed. They don't talk about it much, but they've made a collective decision to steadily increase the "soak the rich" price and simultaneously increase the financial aid discounts. The goal is to move to a progressive pricing structure as quickly as the market will allow. I've read of student lunch conversations with Swarthmore board members who have openly discussed this as an explicit pricing strategy of the College.</p>
<p>This is exactly what you are endorsing and the colleges are moving there quite quickly with the annual compounded 5% sticker price increases. </p>
<p>So what do the politicians do? Beat up the colleges for raising their sticker prices.</p>
<p>BTW, for those interested. The per student operating costs (not including financial aid) at one top LAC increased 231% from 1970 to 2005 in constant inflation-adusted dollars. The net tuition, room, and board paid by an average student increased 195% over the same time frame. The colleges are selling a more expensive widget for a higher price, but the bottom line is that customers are getting slightly more widget for their money than they were in 1970.</p>
<p>I hate the "sock it to the rich kids" argument. We're paying full-ride ($47k next year) to my son's LAC, which is not in Masssachusetts by the way, and we are by no means rich. There's a large number of us in the high-cost-of-living Northeast who according to FAFSA can spend more than 1/3 of our family's income to send ONE kid to college. Yes, it's a choice we made. Yes he could have gone to a state school or a cheaper private. I'm not begging for aid, I'm willing to pay the cost. But Harvard and other schools are hitting people who make $150k/year for nearly $50k per year in tuition & fees while sitting on unbelievable piles of money and still calling themselves a non-profit charitable institution. (And in Eastern Mass, $150k a year doesn't go very far).</p>
<p>What bugs me even more is when they won't even pay their janitors and security guards a living wage. Then at the same time, when they have so much money they don't even know what to do with it (at the moment, Harvard seems intent on buying up all of Allston, but they refuse to tell the city what they plan to do with the land), they pay 7 figure fees to money managers and beg their alumni for still more donations. They are a private institution, so if that's what they want to do that's fine - but don't pretend they're non-profit, and don't expect my tax dollars to subsidize them and don't exempt them from paying their fare share of taxes on their overflowing vaults of money.</p>
<p>The amount of money Mass wants to get out of the schools with this bill is ridiculous, but the concept of requiring a non-profit charitable institution to actually behave like one if they want the tax-free status is long overdue, in my book.</p>
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All they have to do is charge what the product costs, and then subsidize those who can't afford it.
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<p>Even the wealthy I would imagine, appreciate value. How many wealthy would continue to pay full sticker price and many others become significantly subsidized? There are already threads with animus towards those who receive the benefit of a selective school experience w/o paying full price.
The fomula isn't perfect, but it certainly is working. There are only so many uber endowed schools. We could only speculate what would be the result of lesser endowed schools attempting to compete. We are starting to get early results now. Is that the desired result we are looking for?</p>