Fundamentally Un-American

As Budget Woes Grow, Some Want To Tax Yale’s Endowment

Courant

HARTFORD — Faced with hundreds of millions of dollars of red ink and shrinking state income tax revenue, some state lawmakers have set their sights on Yale University’s $25 billion endowment as a source of new money.

A bill introduced at the finance committee would make earnings on university endowments taxable, but the language specifies endowments of more than $10 billion, effectively singling out Yale.

“[The legislation is] a specific attack on independent higher education,” Richard Jacob, Yale’s associate vice president for federal and state relations, said in written testimony submitted Tuesday. “It is difficult to see what Connecticut would gain from undermining some of its greatest assets.”

Supporters said the first-of-its-kind law would give Yale an incentive to invest money earned on its endowment back into the university to avoid the tax. Puya Gerami, an organizer with Local 33 of UNITE HERE, a union representing graduate students at Yale, said the bill “[encourages] Yale to reprioritize spending on its educational mission over endowment growth.”

“In the midst of this great recession that’s affecting everybody, here’s this institution that’s making millions of dollars per day on interest and yet has chosen to refrain from allocating those funds to the areas it should really go,” Gerami said.

According to Yale, the university’s endowment earned an 11.5 percent investment return in the last fiscal year. The university benefited from investment gains of approximately $2.6 billion. Yale has the second largest endowment among national universities, trailing only Harvard, which has an endowment of more than $36 billion.

Sen. Scott Frantz of Greenwich, the ranking Republican on the committee, told Gerami the legislation was “fundamentally un-American.” Frantz, a graduate of Princeton University, with an endowment of more than $22 billion, said the law would send a chilling message to potential donors.

“It’s as un-American as Connecticut state government telling the Yale basketball coach how to coach his team,” he said.

Yale officials questioned the constitutionality of the proposal and mentioned agreements, some hundreds of years old, that protect the university’s tax-exempt status. In his testimony, Jacob said Yale “would be prepared to assert its legal rights to the fullest extent” if the bill became law.

“Perhaps the original intent of providing a tax-exempt status to a small, ministerial training college 300 years ago isn’t the same thing that we’re seeing now,” said Rep. Roland Lemar, D-New Haven.

Senate President Pro Tem Martin Looney, who represents New Haven, spoke in favor of the bill.

“It is our hope that these rich schools can use their wealth to create job opportunities, rather than simply to get richer,” he said.
Jacob said the university makes millions of dollars in voluntary payments to the city of New Haven and has a scholarship program for youths in the local schools. He said Yale is a key economic engine for the city, employing thousands and bringing in millions of dollars. The legislation was an attempt by lawmakers “to create a new source of revenue from Yale,” Jacob said.

“If you’re feeling under siege right now, I don’t blame you,” Frantz told Jacob. “Sometimes I scratch my head at some of the things that come out of this building.”

“Now we’re going after one of the very things that are the bright spots we have to offer,” said Rep. Laura Devlin, R-Fairfield.

Joanne Berger-Sweeney, president of Trinity College in Hartford, pointed out that the discussion of taxing earnings on Yale’s endowment came the same day the committee heard testimony about a bill that would provide incentives to universities to grow research and entrepreneurship opportunities to benefit the state’s economy. The two ideas seem to be “in direct conflict,” she said.

Gov. Dannel P. Malloy has said he will not support tax increases to close a $266 million projected deficit this fiscal year and a $900 million projected deficit next year. A spokesman for Malloy declined to comment directly on the proposal.

The fact that universities stow away billions of dollars in endowments while tuition costs skyrocket has become a talking point in educational and political circles. Republicans in Congress sent letters in February to colleges and universities across the country with endowments of more than $1 billion.

“Despite these large and growing endowments, many colleges and universities have raised tuition far in excess of inflation,” the lawmakers wrote. They asked more than a dozen questions of the 56 private colleges, requesting answers by April 1.

U.S. Rep. Tom Reed, R-N.Y., proposed legislation that would require the country’s wealthiest colleges and universities to spend 25 percent of the earnings on their endowments on financial aid for students.