Even as the gilded age of booming university endowments recedes into the past, a Democratic lawmaker said Tuesday he would introduce legislation mandating that wealthy schools like Yale spend more of their wealth.
The declaration, made by Rep. Peter Welch of Vermont in an interview with the News, marks the latest round in an ongoing debate over universities’ responsibilitites to low-income students. Officials at Yale and other universities have long insisted that a mandated spending rate could wreak havoc on budgets across the country and imperil the long-term financial stability of many American schools.
But in a conversation Tuesday, Welch went on the offensive, expressing no sympathy for schools he said are not doing nearly enough to ensure access to college to young people from middle- and low-income families.
“Bottom line, the taxpayers are making a big contribution to the value of these endowments with a tax deduction,” Welch said. “The institutions have an obligation to use those funds to make college more affordable.”
Welch, who last month hosted a roundtable on endowment spending with Sen. Chuck Grassley, Republican of Iowa, said he would introduce legislation when the next Congress convenes in January.
While Welch said he would be flexible in how such a mandate would be implemented, the first-term congressman said he expected the legislation would require a rolling average, over a certain number of years, of a minimum 5-percent payout from university endowments. Welch said his legislation would probably apply to all schools, not just Yale and its wealthy peers.
Such legislation would mirror existing law that requires private foundations to pay out at least 5 percent of their assets annually; as with foundations, universities accumulate their endowments in part through untaxed investment income and the receipt of tax-exempt donations.
Given that, Welch said, universities should be doing more to curb rising tuition.
“The issue here is controlling the cost of higher education,” he said. “The tax deduction is given in exchange for the endowment, large or small, contributing and achieving a public goal of making education accessible to young Americans, so there is a quid pro quo.”
Told of Welch’s comments, University President Richard Levin restated his opposition to such legislation.
“I don’t think it’s a good idea to mandate a spending rule, given that there are substantial fluctuations in market values” from year to year, he said in a telephone interview. “It’s a matter best left to the judgment of individual institutions.”
For example, a mandatory 5-percent floor would likely require universities to spend more than they responsibly should in boom years, Levin said. Last year, after the endowment grew by $5 billion, Yale’s endowment payout was about 3.8 percent.
Welch’s sharp comments came barely a year after Grassley, the ranking member of the Senate Finance Committee, first gained the attention of university administrators with his suggestion that perhaps universities with endowments exceeding $500 million should be mandated to spend at least 5 percent of their endowments annually. When Yale announced in January that it would increase its financial aid offerings and institute a minimum endowment spending rate of 4.5 percent each year, Levin admitted that the University’s actions were in part a response to the concerns Grassley had raised. (This year, Yale will spend 5.1 percent of its $22.9 billion endowment.)
Welch’s announcement Tuesday was not unexpected; in February, the congressman briefly attached to an education bill an amendment that would have mandated a 5-percent spending floor. But he almost immediately withdrew it after a fire-storm of opposition from college leaders around the country.
At the roundtable in September, Welch pointedly criticized university officials for that “defensive” response, and he repeated his discontent on Tuesday. “They went into a circle-the-wagons mentality,” he said. “It reflected that they just don’t get it on this cost front. Kids and their families just can’t afford these tuition increases.”
At the time, Grassley said in an interview with the News that he would continue to monitor the colleges’ responses to his concerns, and that he had not made a decision on whether legislation would be necessary or universities would take it upon themselves to reassess their endowment spending policies. The Iowa senator said he would come to a conclusion at the beginning of next year about whether to take action.
Grassley’s spokeswoman, Jill Gerber, said Tuesday that the senator has not changed his plan.
“Sen. Grassley might introduce legislation — he hasn’t ruled it in or out,” she said. “He’s still analyzing endowment issues and pay-out issues for charities in general.”