I disagree

You said it in your first couple paragraphs:

“There were understandings at the time, one of which was that non profit institutions carrying out CHARITABLE FUNCTIONS would be exempted from the income tax.”

(emphasis mine) This is not Congress saying the endowment “belongs to the government” as you so overdramatically imply this is Congress, which granted tax exemption to Harvard on the basis of their doing X, checking to make sure Harvard is in fact doing X.

James, at 9:35 am EDT on June 19, 2008

Professor Fryshman raises entirely sensible questions.

The reason for the question is not about non-profit. The reason is the federal tax benefits we, the people, accord these institutions. In exchange for a public subsidy, all we ask is an explanation of the public benefit arising from the subsidies. If that wealth is increasing, is the public benefit increasing? One loud sector of the endowments/nonprofits debate presumed that non-profit status is choice institutions are free to make as a right, not a responsibility.

The question Senator Grassley and the Senate Finance Committee keep asking is blessedly simple: What is the public good arising from the public subsidies you receive?

The temperature is the debate is rising for reasons equally simple. First, the wealthy nonprofits take as a first line of defense that the U.S. Senate has no right to ask. Second, wealthy institutions and their advocates suggest that measuring success is either impossible period or impossible for the rest of us to understand. I’ve read some of the institutional replies to the Finance Committee from wealthy colleges and universities. Regardless of whether I agree with their views, in tone, in argument, in evidence, the replies wouldn’t earn even a C grade from any college expository writing teacher I know.

Somewhere, these self-described elites and leaders of society have the idea that the best defense is to defy and insult not just the U.S. Senate Finance Committee but also the intelligence of the American people. My many accredited courses in U.S. history at the fine institutions I was fortunate enough to attend demonstrated to me that in this country, this would be a dumb strategy, however just my cause.

What’s equally troubling is that describing the public good is not difficult, making the failure of these institutions to try all the more baffling. Just for the sake of argument, even I could make a better case for Harvard than Harvard makes for itself, and I’m not even a Harvard graduate.

The trustees of these wealthy institutions have brought this heat on themselves. Williams College tore down a solid brick student center and built another one even though the campus has plenty of comfortable space. When I have raised this, an irate trustee told me that the old center was worn out and the new one much nicer. Just look at all the students happy in the new center. I am sure the new center is more comfortable. The public issue isn’t comfort; it’s whether these trustees should have federally subsidized upgrades from coach to first class. When single mothers at community colleges in the U.S. lack $100 for a biology textbook, are such trustees using their federal subsidies responsibly? Williams is now completing a humanities center. I’m sure it’s lovely, but is it the proper use of a federal subsidy? Had the trustees chosen to erect, say, housing for single mothers and adult students short on lucky breaks, such as the less wealthy Smith College did years ago, I’d have no complaint about the tax subsidy. Adding fifty or even a hundred of these non-traditional students would put no strain whatsoever on Williams’ academic resources. These are examples from just one college.

Imprudent spending of public subsidies by the trustees of these wealthy institutions has brought on these questions from the public and the U.S. Senate. But even those who defend such spending of public subsidies should know that bit of simple courtesy and respect for the institution of the U.S. Senate, if not for Senators themselves, and this inquiry would never have begun.

Wick Sloane, at 9:55 am EDT on June 19, 2008

Tax exemptions

I think the author missed the real point. Every dollar that someone contributes to Harvard and takes as a tax exemption, means that I (and everyone else) have to pay more taxes. Is it really in the country’s best interest to treat contributions to Harvard’s $34 billion endowment just like a contribution to flood relief in the American Red Cross? When we do away with tax exemptions for contributions to wealthy private colleges, then I will agree that the government has no business there.

Thad, at 10:15 am EDT on June 19, 2008

Wealth and Shame

Dr. Fryshman’s comments are always worth reading and this column is no exception. I agree with much of it, not because I think Harvard is behaving appropriately but because I distrust the government to do better and I expect it to do worse.

Sure, Harvard and some other blindingly rich schools should be ashamed to charge tuition to most of their students when it would be socially and morally better not to. But don’t lose sight of the basic point of the essay: do we want the federal government deciding what is and isn’t socially and morally good?

In general, no. Certainly there are extreme cases in which a “nonprofit” has turned into a personal milking machine for unscrupulous perps, but these are rare. Those of us who work in higher education should disdain Harvard and other places that we think are losing sight of their purpose, but we should not invite the IRS to plunder the school just because we don’t like the school’s policies.

Let us instead hide in the imperfect thickets of the law as Thomas More advised in “A Man For All Seasons.” The Crimson One may be in there with us, but what protects him will also protect us. I hope Bernie and St. Thomas will allow an atheist to join them.

But Bernie, arachnids? Arachnids? I had thought you to be a man of standards.

Alan Contreras, Eugene, Oregon, at 11:40 am EDT on June 19, 2008

Endowment Spending

“At this moment, the members of the Senate Finance Committee are not directly threatening to tax Harvard’s endowment but simply to pressure it into spending some of it.”

The Senate Finance Committee, and I suppose the rest of the senators, seem to be dumbfound that any entity has the self-restraint not to spend billions of dollars if it’s available to them. This says more about congressional spending habits than it does Harvard’s. If you’ve got it, (or even if you don’t), spend it. The fact that the endowment grew to over $30 billion before the senate seemed to notice also says more about the senate’s fiscal mindset than Harvard’s. Any amount less is chump change to the big spenders on Capitol Hill. I’d much rather congress show the spending restraint exhibited by Harvard than Harvard adopt the spending habits exhibited by congress.

justaguy, parent & taxpayer, at 1:35 pm EDT on June 19, 2008

I think the crucial point is this sentence: “This is therefore the time we, and Harvard, should tell the honorable members of the committee that as long as Harvard is fulfilling its responsibilities as a nonprofit entity, the question of how — and whether — it spends its money is none of their business.” (The emphasis added is mine).

In general, the argument centers on what is Harvard’s mission. If you believe it should be to provide an education to a large number of wealthy students, then it certainly is fulfilling that goal. If, however, you think that these elite private schools that have been able to use beneficial government tax treatment to amass large amounts of wealth also ought to fulfill a role providing greater access to students, then Harvard is falling short of its mission and does require greater scrutiny.

A college education is an incredibly important tool for social mobility and elite colleges have a societal responsibility to provide access to more individuals than just wealthy children.

I, for one, am in favor of a heightened spending requirement, though not for any old purpose. Schools should not just spend for the sake of hitting a target, but they should take these funds and put them toward fulfilling an element of their mission — locating, recruiting, and retaining low-income students. Hoping to increase socioeconomic diversity simply through expanded aid packages is not proactive enough to achieve this goal. Sometimes a little more pressure is needed to get schools to fulfill their mission.

Ben Miller, at 5:30 pm EDT on June 20, 2008

harvard’s endowment...

if it walks like a duck...blah, blah, blah. as a premier nonprofit organization, harvard should be hard-pressed to justify the hoarding of $34B in their endowment when the american taxpayer is being asked over and over to shell out more and more. if harvard wants to stay true to their mission AND keep their nonprofit status, then they should start acting like it. the mission of harvard (or any other higher ed institution) is NOT hoarding assets, it’s service to the citizens who depend on an educated workforce and electorate. the combined asset value of the top 785 colleges and universities is over $411B; combine that with foundation assets of over $530B and you’re bumping almost ONE TRILLION DOLLARS. No entity or industry, no matter how noble their mission, should be able to hoard almost $1T, especially when the american taxpayer is being squeezed. The mission of the nonprofit world is to give back, not hold back. Make this effort voluntary; if endowments and foundation would give just.001, then $941M could be disbursed. Call it a tax, a fee, whatever; but too many hard-working, responsible tax-payers have been getting nailed through the estate tax, and this, along with some fiscal restraint from congress, would provide some relief

steffan cress, at 2:10 pm EDT on June 25, 2008