Campus Reform - Wealthy universities fear GOP will end their tax breaks Education13

May 4, 2017 06:02 AM
  • America’s wealthiest universities appear intent on protecting tax breaks for their endowments in response to mounting conservative criticism of the multi-billion-dollar loophole.

  • Since the beginning of 2015, the number of universities lobbying Congress on the issue has jumped from 2 to 18, coinciding with escalating Republican criticism.

America’s wealthiest universities appear intent on protecting tax breaks for their endowments in response to mounting conservative criticism of the multi-billion-dollar loophole.
At the beginning of 2015, just two universities with endowments valued at $1 billion or more ("wealthy" universities) reported lobbying Congress on the tax treatment of their endowments, but by the first quarter of 2017, that number had risen to 18 amidst escalating criticism of the hefty exemptions.
Republican lawmakers have been toying with the idea of going after endowments for some time, starting with a 2015 House Ways and Means subcommittee hearing in which New York Rep. Tom Reed disclosed that he was "taking a very close look" at legislation targeting wealthy colleges and universities, which currently earn tax-free income by investing portions of their endowments.
According to Bloomberg, Reed’s proposed legislation would have required such universities to either devote those investment earnings to financial aid or share the proceeds with other universities in order to retain their tax advantage.
Around the same time, Cornell University President Elizabeth Garrett lambasted the proposal as "misconceived," saying Republican legislators are "motivated by the right instincts of access and affordability," but predicting that "their methods won’t succeed for the goals they have in mind."
Research conducted by Campus Reform reveals that Reed’s comments coincided with an uptick in endowment-related lobbying efforts disclosed by wealthy institutions between the first and last quarter of 2015, according to records maintained by the U.S. House of Representatives.
In the first quarter of 2015, just two universities had disclosed endowment-related lobbying. One was Harvard University, which has lobbied on the issue continuously since at least 2011, and the other was the University of Notre Dame.
By the final quarter of that year—when Reed first began discussing the legislation—seven additional universities had disclosed endowment-related lobbying activity, bringing the total to nine.
Then, at the beginning of 2016, Congress sent a letter to 55 of the nation’s wealthiest private institutions seeking information on how they use their endowments, just as Reed was again drawing media attention for drafting actual legislation on the matter, which he used to declare suggestively in his public comments that the actual language remained open to further revision.
A spokesperson for Boston University, which jumped on the endowment-lobbying bandwagon in the first quarter of 2016, confirmed to Campus Reform that the decision was prompted by "congressional interest" in addressing the topic.
"As you may know, in February 2016, the Congressional tax writing committees sent letters to more than 55 private universities, including BU, inquiring about how we use our endowments," explained Director of Media Relations Colin Riley. "So, our efforts to be responsive correspond to the Congressional agenda, just as we do for any number of issues."
While the letter may have sparked the school’s interest originally, however, BU has continued to report endowment-related lobbying ever since.
In fact, the number of schools disclosing such activity continued to jump in subsequent months, reaching a total of 14 by the third quarter of 2016, when President Trump criticized wealthy institutions for taking advantage of tax breaks while doing little in the way of helping their students, saying he would back efforts to pressure schools "to spend their endowments on their students, rather than on things that don’t matter."
"These universities use the money to pay their administrators, or put donors' names on buildings, or just store the money, keep it and invest it. In fact, many universities spend more on private equity fund managers than on tuition programs," Trump remarked during a September campaign stop. "But they should be using the money on students for tuition, for student life, and for student housing."
Some schools even acknowledged that the escalating political rhetoric on the issue has caused them to change their approach to lobbying activity, with the University of Michigan explaining that in previous years the school "considered these endowment-related items to fall under the umbrella of ‘charitable giving,’" but "this year, with a more defined national discussion taking place related to endowments, [the university] reported it as a separate issue on the lobbying report."
Princeton University told Campus Reform that "lobbying does not occur when there is general discussion about a topic," such as if the school is "asked a question about how endowments are used or managed," but did say that discussions concerning "proposed or potential legislation" would trigger a lobbying disclosure, noting that this has been the case for Princeton since the final quarter of 2015.
Overall, Campus Reform identified 18 wealthy universities disclosing endowment-related lobbying in the first quarter of 2017 (the most recent quarter for which filings are available), six of which had not done so at any point in the preceding three years.
Notably, OpenTheBooks released a scathing report, deftly titled Ivy League Inc., early in the first quarter of 2017, attracting significant notice with its revelation that the Ivy League schools alone received "a $9.6 billion tax break on the $27.3 billion growth of their endowment funds" between fiscal year 2011 and 2015.
With combined endowments of $119 billion in 2015, moreover, the eight Ivy League universities have enough money to provide every undergraduate student with a full-ride scholarship for the next 51 years without adding a single cent from donations or investment income.
"Procuring federal funding and favorable regulation has become a favor factory. The rich schools are getting richer in part because money buys influence within the halls of power," Adam Andrzejewski, CEO of OpenTheBooks, now tells Campus Reform. "Colleges with $1 billion endowments need to start paying their own way and reduce their dependence on taxpayer contracts, grants and direct payments. If a project has a significant public purpose, then start funding it, either in full or in part, from private donor gifts."
Campus Reform reached out to each of the 23 schools that disclosed endowment-related lobbying at any point between 2015 and 2017, but only those cited in this report responded in time for publication.
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