Please Write Mass State House

Colleges and Universities A-Z Massachusetts Institute of Technology
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<p>I rarely start threads of my own volition, but I feel very passionately on this subject and I think CC parents are the right people to reach out to. I encourage everyone to read the following article and then write Mass. State Rep. Paul Kujawski protesting the bill to raid private college endowments to make up the deficit in the state budget. Rep. Kujawski can be reached through this address: <a href="mailto:Rep.PaulKujawski@hou.state.ma.us">Rep.PaulKujawski@hou.state.ma.us</a>
President of the State Senate can be reached through here: <a href="mailto:Therese.Murray@state.ma.us">Therese.Murray@state.ma.us</a></p>

<p>These endowments go towards student financial aid, making costly private educations affordable for a wider spectrum of American students. On top of that, the endowment at Smith, where I attend school, helps reduce the cost of education even for students receiving no aid. The sticker price for a school like Smith is considerably higher than the current price to students, and if our endowment were to be curtailed for this reason, it is students who would suffer. </p>

<p>The community would suffer as well. Less money for student programs means that there will also be less money for community outreach and charity programs directed by colleges. </p>

<p>A billion dollar endowment may seem excessive, but the cost of maintaining a school, paying educators and staff, keeping up buildings, meeting ever-rising energy bills, and providing access to lower-income Americans thus allowing them to reach the dreams that they have earned through hard work and dedication, costs a lot of money. Furthermore, these endowments have to last well into the future. Schools aren't sitting around, swimming in gold, laughing about how much they're keeping from the government. They are going about the business of providing education and opportunity to their students and their communities, and they should not be punished. </p>

<p>PLEASE write the Mass. State House, and encourage your friends to do the same. </p>

<p>http//<a href="http://www.boston.com/"&gt;www.boston.com/&lt;/a&gt;...&lt;/p>

<p>Lawmakers target $1b endowments
Exempt status of schools debated
By Peter Schworm and Matt Viser, Globe Staff | May 8, 2008</p>

<p>Massachusetts lawmakers desperate for additional revenue are eyeing the endowments of deep-pocketed private colleges to bolster the state's coffers by more than $1 billion a year, asserting that the schools' rising fortunes undercut their nonprofit status.</p>

<p>Legislators have asked state finance officials to study a plan that would impose a 2.5 percent annual assessment on colleges with endowments over $1 billion, an amount now exceeded by nine Massachusetts institutions. The proposal, which higher education specialists believe is the first of its kind across the country, drew surprising support at a debate on the State House budget last week and is attracting attention in higher education circles nationally.</p>

<p>The idea has prompted a range of questions, including whether it is legal to infringe upon private colleges' tax-exempt status or single them out based on their wealth. It also faces significant opposition from the colleges and some skeptical lawmakers.</p>

<p>But proponents say the colleges' vast accumulations of wealth - Harvard University has the biggest endowment at $34 billion - and their often modest contributions to their host communities justify the assessment.</p>

<p>"When is a nonprofit not a nonprofit because of the wealth they are acquiring?" said Representative Paul Kujawski, a Democrat from Webster and chief backer of the legislation.</p>

<p>"It's mind boggling that one entity not paying taxes has $34 billion. How do you justify that?" said Kujawski, who serves on the influential House Ways and Means Committee. "When people can't afford to live. How do you justify not taxing them?"</p>

<p>University leaders criticized the plan as a gimmick that would backfire by hurting institutions that are pivotal to the state.</p>

<p>"You'd be taxing success here," said Kevin Casey, Harvard's associate vice president for government, community, and public affairs. "Over time, this would put us at a real competitive disadvantage, which would drastically hurt the Commonwealth."</p>

<p>Casey said it was understandable that lawmakers would search for new sources of revenue when economic times are tough. But he said the law would hurt colleges' fund-raising and financial aid initiatives.</p>

<p>The plan was introduced amid a national debate over whether elite colleges are hoarding their endowments. Members of Congress, including Senator Charles Grassley, Republican of Iowa, have questioned why elite universities do not spend more of their vast reserves to defray the cost of tuition.</p>

<p>Amid the scrutiny, some top-tier colleges have sharply expanded financial aid offerings, often replacing student loans with grants and waiving tuition for a greater number of families. At some of those schools, increases in financial aid are outpacing tuition increases.</p>

<p>The Massachusetts plan has also brought to the fore a more radical notion: whether certain colleges have amassed so much wealth that they no longer deserve to be tax-exempt.</p>

<p>In addition to Harvard, the legislation would affect Amherst College, Boston College, Boston University, Massachusetts Institute of Technology, Smith College, Tufts University, Wellesley College, and Williams College.</p>

<p>Lawmakers estimate that by assessing a fee for assets exceeding $1 billion, they would raise about $1.4 billion a year, a significant influx for a state budget of approximately $28.2 billion. Amounts up to $1 billion would not be assessed under the plan.</p>

<p>The House's approval of a study last week was only a first step toward adopting a new assessment, but it indicated a political willingness to cross a previously sharp boundary. Most lawmakers predicted the measure would quickly wilt against the universities' political muscle. But after several hours of debate, it became clear that the issue had gained momentum.</p>

<p>Senate President Therese Murray said she supports the idea of studying the issue. Murray declined to answer questions about the proposal, but her spokesman e-mailed a statement saying: "Some of these institutions give very little back to their communities. With such large endowments, they should be doing more. We've done some research on the endowments at some universities and other large non-profits, and we will continue to look into it."</p>

<p>The plan has garnered support among those who believe many top-tier colleges are managed more like corporations than nonprofits and are not doing enough to reach out to low- and middle-income students and the communities around them.</p>

<p>"The pileup of wealth doesn't match their mission of serving the public good," said Wick Sloane, a specialist on college finances and student access who teaches at Bunker Hill Community College. "These schools have generated huge cash flows but are not doing their civic duty."</p>

<p>Sloane and others pointed out that private colleges receive significant government funding for research and financial aid and that their tax-free endowments, financed by tax-free donations, represent a major public subsidy.</p>

<p>"The Williams indoor golf nets are paid by all of us through federal tax policy," said Sloane, a Williams College graduate. "These institutions have brought this upon themselves."</p>

<p>Yet several leading lawmakers are skeptical about the plan. Representative Kevin J. Murphy, the House chairman of the Joint Committee on Higher Education, said it was unfair to single out wealthy universities to improve the state's finances. "You're picking and choosing someone who has a lot of money," he said. "Taxing the Red Sox would raise money for the state, too."</p>

<p>Critics of the plan said colleges are easy targets because of their wealth and because they do not have the option of relocating.</p>

<p>College leaders said the measure would probably reduce the amount they would raise and spend on financial aid, and noted that most gifts to endowments are restricted for specific uses. Private colleges and universities already make substantial public contributions through taxes on payroll and nonexempt property, and educate the bulk of the state's students.</p>

<p>The proposal is the latest example of state leaders searching for new sources of revenue, such as new taxes on cigarettes and on large corporations.</p>

<p>While states get no direct tax benefit, municipalities often try to coax more revenue from local colleges and other nonprofits when budgets are tight. Known as PILOT arrangements, these payments are voluntary contributions of money and a host of other benefits such as scholarships and volunteer work.</p>

<p>Boston receives $1.8 million a year from Harvard, for example, $261,000 from BC, and $141,000 from Northeastern. Many communities say colleges, which often own significant chunks of valuable land, rarely pay property taxes.</p>

<p>Richard J. Doherty, president of the Association of Independent Colleges and Universities in Massachusetts, which has lobbied against the assessment, said the plan would weaken one of the state's strongest sectors. "It's like Florida taxing oranges," he said.</p>

<p>Amherst College's treasurer Peter Shea said that the idea would be "unfortunate" and that the college relies on its $1.66 billion endowment for more than one-third of its annual spending.</p>

<p>Other critics said the measure would result in donors essentially writing checks to the state government. "This could provoke a real backlash," said Matthew Hamill, senior vice president of the National Association of College and University Business Officers.</p>

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<p>And there will be (I believe) an item on the ballot in Massachusetts this November asking whether or not to do away with personal income tax -- if the state's income tax revenue goes away, expect them to get even greedier about private college endowments.</p>

<p>
[quote]
Sloane and others pointed out that private colleges receive significant government funding for research and financial aid and that their tax-free endowments, financed by tax-free donations, represent a major public subsidy.

[/quote]

I don't see how this follows -- government funding for research goes to, well, research, not to the endowment.</p>

<p>As the article mentions later, MIT already makes significant payments in lieu of taxes to Cambridge (and other schools make PILOTs to their communities), and I can't imagine any of the schools mentioned don't "give back" to their communities in other ways.</p>

<p>I'll definitely write.</p>

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<p>I can't believe what I am reading in this thread. </p>

<p>If the government can raid endowment funds, then what is the incentive for anyone to donate to a college. </p>

<p>If Mass falls, the other states will fall like dominos!</p>

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<p>I don't usually agree with the Boston Globe, but they are spot on (except for their last suggestion viz. raising the income tax). This is a nice quick summary.</p>

<p>How to strangle an economy</p>

<p>May 9, 2008</p>

<p>REPRESENTATIVE Paul Kujawski of Webster says his proposal to tax the endowments of the state's wealthiest universities and colleges was intended in part to "gain a lot of attention from the institutions." In that regard, the proposal has been a success. But only in that regard.</p>

<p>His amendment to the House budget calls for a study of a 2.5 percent assessment each year on university endowments over $1 billion. The tax would affect nine of them, and in theory could generate an enormous amount of revenue; Harvard alone, with its endowment of $34 billion, would be on the hook for $840 million a year. But a tax of this magnitude on the state's universities and colleges would be economic suicide.</p>

<p>Major research universities are the closest thing Massachusetts has to a goose that lays golden eggs. The nine schools in question employ a total of 27,000 people and pay $4.5 billion a year in wages and salaries, according to the Association of Independent Colleges and Universities in Massachusetts. They bring in brainpower and outside research dollars. They fertilize the local healthcare, technology, and financial-services sectors - three other cornerstones of the local economy. And like most higher-education institutions, the targeted nine are stabilizing forces, since enrollments generally do not drop even in lean times.</p>

<p>Kujawski says the 2.5 percent rate was inspired by Proposition 2 1/2, the property-tax-control measure that often frustrates city and town officials. He thinks the assessment rate on the wealthy nine "wouldn't be significant enough to be damaging." But even Harvard would miss $840 million a year.</p>

<p>Wealthy private campuses make fat targets, and not just because of their exclusivity. For all the sophistication of their research, they often seem oblivious in their dealings with their host communities. And critics say the public doesn't get enough in return for private universities' tax-exempt status. In their business dealings, top-tier universities often behave more like corporations than street-level nonprofits.</p>

<p>But if communities want these schools to contribute more to public education, or make greater payments in lieu of taxes, or better incorporate community concerns into their construction planning, there are other ways to bring them around. Meanwhile, lawmakers have more sensible options for bringing spending and revenues in line, such as cutting earmarks, asking state employees to pay more of their health insurance, and raising the income tax.</p>

<p>The Legislature should abandon the endowment tax - an ill-conceived money grab that ignores how vital higher education is to the local economy.</p>

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<p>This is a very interesting thread. Here you have Harvard, thought by many to be a bastion of liberal thought and policy, complaining that a governmental unit should not tax it for being succesful because this would disincentivize success. Isn't that the basis for the progressive income tax and the various proposals in this election year to increase taxes on the rich, who are not paying their fair share? In a very real sense, the academic insitutions have made themselves targets for this type of proposal through hubris and greed. Over the last 10-15 years they have taken full advantage of tax benefits and loopholes, the charitable deduction on contributions and their tax exempt status, to grow their endowments, instead of utilizing them on a current basis to hold increases in tuition and other expenses to the rate of inflation or, god forbid, less. The endowments of the HYPSM/ other Ivy institutions have been growing at a rate in excess of 15% per annum, tax free. Despite that, none of them currently spend more than 5% per annum out of the endowment. And, that 5% figure is very recent, being the product of federal pressure questioning whether there has been an abuse of tax exempt status. Some numbers, Free tuition for 4,000 students at full rate, $150 million. Average amount that a $10 billion endowment INCREASES every year, $1.5 BILLION. The strange bed fellows engendered by this debate, priceless. As the saying goes, "Don't tax you, don't tax me, tax that guy behind the tree."</p>

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<p>So, taxation as a punitive measure? Just who are we punishing, here? Surely you can't expect this to be incentive for the universities to be more generous with their wealth. You'll hear me lament all day about the exclusivity of higher education at this level and cutting-edge research, but that is just the nature of the beast, and I'll work all my life to make this world more accessible on the periphery but I'll never propose to disturb it at its core.</p>

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<p>Are they going to tax other nonprofit organizations too? Or just determine it based on how much "the pileup of wealth doesn't match their mission of serving the public good"?</p>

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<p>Wow, what misconceptions. The endowment is not properly viewed as being "their (i.e. the colleges') wealth" and its expediture is not a matter of their "generosity." These institutions, and their endowments, are creatures of the tax code. They played it, grew through it and many are now saying they are abusing it. IRS regulations exist as to what types of expenditures can be made by tax exempts and, in other contexts, as to how much they have to disburse in order to maintain their exemption. If they were spending their endowments for the public good instead of continually accumulating/hoarding them, while charging higher and higher fees, this entire situation would have been avoided. Now, who knows what "remedial" measures the politicians and bureacrats will enact.</p>

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<p>^^What are you talking about? The endowments were grown through investment as well as alumni donations. The point of the endowment is to have a large sum of money aquiring interest so that large ventures by the university can be funded (like new buildings, facilities, etc.) It has also been recently used for financial aid.</p>

<p>I think all the alumni that donated to the school should be able to get their money back before the government raids it. They didn't donate money so that the government could steal it. </p>

<p>"If they were spending their endowments for the public good instead of continually accumulating/hoarding them, while charging higher and higher fees, this entire situation would have been avoided"</p>

<p>I don't get this quote at all. What do you think the universities use their endowment for? The point of the endowment is to increase the strength of the university. In Boston, particularly, the strength of Harvard and MIT have enabled the biotech industry to spring up there, something which supports the economy. The strength of the university directly relates to the public good. God knows that MIT didn't use any of that money on beautifying the campus. I just think this whole situation is ridiculous.</p>

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<p>collegealum314: What is there to "get"? Obviously the endowment has grown through both contibutions and investments, but mostly investments. In fact, until relatively recently investment earnings have exceeded 10-15% TAX FREE. That's another governmental subsidy. Investing the endowments tax free, and not spending them, is the primary means by which the endowments have been grown. It is entirely appropriate for the government to insure that the benefits that it has conferred are not abused. In terms of your statement on use of the endowment for financial aid, while also increasing the sticker price, that is another topic for another day. It's just typical oligopolist pricing. </p>

<p>More numbers, in 2007 MIT's endowment grew by $1.6 BILLION, all but $100 million was from tax free earnings. It only spent about $60 million on financial aid. And, only 70% of that $60 million came from the endowment. Tuition and fees charged other students is the likely source for the balance since it is the major other source of revenue. What exactly is the basis for you opinion that endowments are being appropriately expended for the public purposes intended by their tax exempt status when they are growing by these amounts AFTER expenditures? If you don't get it, it's because you don't want to. I don't mean to single MIT out on this. It is actually one of the better ones.</p>

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<p>"What exactly is the basis for you opinion that endowments are being appropriately expended for the public purposes intended by their tax exempt status when they are growing by these amounts AFTER expenditures?"</p>

<p>What do you think they are spending it on? They certainly rarely spend it on the students or beautifying the campus. Compared to a state school, most of the dorms at MIT look like dumps. For about 60 years, most of the labs at MIT were in these temporary shanties built in WWII behind the dome. They only recently tore them down to build real buildings. </p>

<p>As for hoarding the money, is the big fear that they will not spend it on anything? How does that even benefit MIT? MIT has recently expanded, and a lot of this was directed toward biological research facilities, including the very new field of neuroscience. This expansion directly boosts the booming biotech industry in Cambridge/Boston.</p>

<p>You know, Paul Gray, the president of MIT in the 1980s, was recently asked why the Silicon Valley ended up in California and not along Mass Ave. He was at MIT from the 50's and was a prominent faculty member in the 60's. He said in the early 60's MIT had to make a choice on how they would allocate the funds and decided that they didn't have enough money to invest in the software/computer industry. He said if they had, the silicon valley would be in Cambridge. If they had had a larger endowment then, they could have made that investment and all the money the software/computer industry has made would be going into Massachusetts, not California. Now, because their endowment has grown, they are trying to invest in the biotech industry. I think your definition of the "public good" is too narrow.</p>

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<p>collegealum314: You are raising strawman arguments. I am not questioning whether MIT in particular uses its endowment for good purpose. Clearly it does. It is the $1.5 BILLION in annual tax exempt earnings which is NOT being spent that is the issue. And, the question is - why should the government subsidize this growth for growth's sake with a tax benefit? The specific issue that has brought this matter to this point is the unrestrained increases in tuition and fees during the same 10-15 year period that these endowments have grown to these proportions. Again if you look at the numbers there would appear to be no good reason for this. In 2007, the endowment grew by $1.5 billion and MIT spent $60 million in financial aid. Yet, it did not fully fund this financial aid through the endowment. Rather it paid for finanicial aid, in part, by charging higher tuition to students from families with incomes in xs of $50k (now75k). IMO this is harmful at a number of levels. And entirely unnecessary. The huge tuition increases from colleges having billions of unspent tax free endowment earnings is the precise issue that motivated the congressional inquiry. Again MIT is not alone in this and is better than most. As a tech schools its labs etc cost more than ivy covered walls. Yet, spending what it spends, it still had $1.5 Billion in endowment earnings that it did not spend and nonetheless raised tuition again. Certainly MIT and others could easily go to a tuition free system like Cooper Union and Olin if they wanted to and there is no real good reaon IMO not to. It never ceases to amaze me how many people who pride themselve on being crtical thinkers in other areas, unthinkingly defend the status quo when it comes to academe.</p>

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<p>I thought the reason that this issue has come up was because the Massachusetts government needs money, not because of tuition increases. </p>

<p>BTW, doesn't Olin have a much smaller student body than MIT? </p>

<p>It's in MIT's best interests to be generous in financial aid because they have to compete with the offers of other elite universities for students.</p>