Friday, December 11, 2015
Chronicle of Philanthropy: College Endowments Are Flourishing Again — and Critics Are Taking Note, by Ben Gose:
Victor Fleischer, a professor of law at the University of San Diego, kicked off the endowment-bashing this year with an August opinion piece in The New York Times. He opened with a startling statistic: Yale University paid about $480 million to its private-equity managers in 2014, nearly three times the amount that the endowment paid out for tuition assistance, fellowships, and prizes.
That column got the attention of Malcolm Gladwell, the best-selling author, who took to Twitter and National Public Radio to complain about how taxpayers were subsidizing the income of hedge funds and private-equity funds through elite-college endowments. "I was going to donate money to Yale," he tweeted. "But maybe it makes more sense to mail a check directly to the hedge fund of my choice."
Mr. Gladwell also called attention to research by the Nexus Research and Policy Center, which found in an April report that taxpayer subsidies for the elite private institutions dwarf subsidies for public institutions when you consider that endowments aren’t subject to tax. The report found a per-student subsidy at Princeton University of more than $100,000, compared with a per-student subsidy at Rutgers University, a nearby public institution, of just $12,000. ...
An often-cited benefit of endowments is the cushion they provide during downturns. But Brian Galle, a professor at Georgetown University Law Center who studies endowments and taxation, testified at the hearing that Harvard has taken its "rainy day" account to an absurd extreme. The endowment could cover Harvard’s entire budget for 12 years, Mr. Galle said. "We can make better use of the money now than the future can," Mr. Galle said in an interview. "By not spending the money now, we’re giving up social-investment returns that are bigger than the dollar returns that organizations are getting by investing their money."
Mr. Fleischer thinks the time may be ripe for legislation, with Republicans concerned about college costs and Democrats concerned about concentrated wealth and the role that tax-exempt colleges play in padding the income of hedge-fund managers. "There’s support from both the left and the right for some kind of legislation that would refocus attention on the true beneficiaries of the endowment — the students and the faculty," Mr. Fleischer says. "But you can’t underestimate the lobbying power of the universities or Wall Street."