In a year with severe budget woes, some Connecticut legislators are considering a tax on Yale’s $25.6 billion endowment.
During a public hearing on March 22, the General Assembly’s Finance, Revenue and Bonding Committee heard over seven hours of testimony on seven bills, two of which center on university tax regulations. The first, S.B. 413, would impose taxes on private college endowments of over $10 billion — effectively singling out Yale, the only university in the state with an endowment of that size. S.B. 414, meanwhile, seeks to clarify the regulations regarding taxable property owned by certain Connecticut colleges, including Yale. New Haven lawmakers in the General Assembly have vocally backed the bills alongside local city officials. The bills follow a national effort led by Republican leaders of two congressional committees to scrutinize private universities with hefty endowments.
The University opposes both bills, which Associate Vice President for Federal Relations Richard Jacob described as “unprecedented, ambiguous and sweeping” in his written testimony.
“We would be very concerned about both the fiscal stability of the University as well as the views of donors if we were subjected to a different set of legal constraints about how we managed gifts to the University,” Jacob told committee members regarding S.B. 413 last Tuesday.
If passed, S.B. 413 would be the first tax regulation of its kind, at both the state and national level, imposed upon an endowment as large as Yale’s. The bill would tax the annual endowment earnings that the University does not spend. Over the past fiscal year, the endowment grew by $1.7 billion.
Senate President Martin Looney and Rep. Toni Walker, who both represent New Haven, said the bill would incentivize the University to further invest in the state economy by stimulating the state’s technology sector, backing higher education and mitigating tuition costs.
Sens. Scott Frantz, R-Greenwich, and Toni Boucher, R-New Canaan, voiced concerns on the consequences of S.B. 413. While Frantz suggested that the bill could have a “chilling effect” on donors, Boucher noted that spending over 4.5 or 5 percent of the endowment would make it much more difficult for the University to provide the same benefits to future students as it provides to current ones.
“To me, it’s as un-American as the state government coming in and telling the state basketball coach how to coach his team,” Frantz said.
Yale graduate students and undergraduates alike testified in favor of the bill. They argued that the student income contribution, rising tuition rates and the inadequate size of the faculty body are all incongruous to the size and recent growth of the University’s endowment and the amount paid to its private equity managers.
The University has projected that 2016 fiscal year endowment spending will amount to $1.2 billion, approximately 34 percent of the University’s net revenues. Chief Investment Officer David Swensen GRD ’80 declined to comment on S.B. 413.
Last February, leadership of the U.S. Senate Finance Committee and the House Ways and Means Committee sent letters to 56 of the nation’s private colleges seeking more information on the management and spending of their endowments, all of which were above $1 billion.
A release from Yale News Tuesday morning said the University pays taxes on all of its nonacademic properties and has paid over $4.5 million in property taxes for the current fiscal year. The University’s additional voluntary payment to the city this year totaled over $8.2 million, making it the single largest payment made by any university to any single city in the U.S. The release also reports significant growth in the city’s tax base and job numbers over the recent years, with a 9 percent increase in jobs between 2004 and 2014.
However, some city and state officials still seek to hold Yale accountable for its property taxes.
Mayor Toni Harp, who joined the Board of Alders on March 15 in support of S.B. 414, said at the March 22 hearing that the bill aims to distinguish between the University’s commercial and educational real estate holdings.
“We don’t want our colleges competing with our small businesses,” Harp said.
The mayor has not publicly stated her stance on the taxation bill for the endowment, although the Board of Alders also backs S.B. 413.
Rep. Roland Lemar, D-New Haven, said he and other City Hall officials were concerned that some of Yale’s commercial activities occur inside nontaxable buildings, such as academic buildings.
Supporters of S.B. 414 said the University has long outgrown its current statute, which they say is outdated and unclear.
Attempts were made in 1977 and 1990 to remove the 1834 statute completely, said Susan Valentine, research analyst for national labor union UNITE HERE. But removing it would require a state constitutional amendment. At the time, Yale defended its tax-exempt status by citing the 1819 Supreme Court decision in Dartmouth College v. Woodward, which upheld Dartmouth’s charter against state revision.
Jacob contended that both bills are unconstitutional and that the University would defend its constitutional right of non-taxation, established by its charter and backed by the 1818 state constitution.
Valentine assured lawmakers that the new bill is not a new tax. Rather, S.B. 414 specifies that certain colleges can be taxed for leased commercial property, some event venues and the sale of products and services.
Joanne Berger-Sweeney, president of Trinity College in Hartford, also appeared at the Tuesday hearing, where she spoke against both tax bills. At roughly $562 million in 2015, Trinity’s endowment is the third highest in the state.
“Our endowments, in essence, allow us to take creative risks,” Berger-Sweeney said. “Connecticut needs that desperately.”