Facing staggering budget deficits, prominent state legislators and city mayors are eying nonprofit colleges as a lucrative revenue stream.
While officials at Yale University call legislation that would implement a new tax on the growth of its endowment an “attack on independent higher education,” legislative heavyweights backing the bill say its just forcing the Ivy League school to be a good neighbor.
That bill – backed by Senate President Pro Tem Martin Looney and Appropriations Committee Co-chair Toni Walker, both Democrats from New Haven – would require Yale to spend more of its endowment’s annual earnings or have those earnings taxed.
For Yale, Walker estimates this would require the university to reinvest an additional $78 million each year into scholarships or other educational activity or have those earnings, after inflation, taxed at a 7 percent rate. It was not clear how much revenue that tax would generate for the state.
“This is looking at how much of the endowment is invested for the greater public good,” said Looney. “There are some institutions, because of their great wealth, that have greater capacity to do this.”
Walker pointed to the tax exemption Yale enjoys on its $2.5 billion in New Haven property.
The bill specifically targets Yale because it only applies to universities with endowments that exceed $10 billion. Yale’s endowment has grown substantially in recent years – from $16.7 billion in 2010 to $25.6 billion in 2015, reports the National Association of College and University Business Officers. Wesleyan University has the second largest endowment among universities in the state, with $810 million.
A fact sheet released by Looney and Walker said Yale had spent only $1.08 billion of the $2.6 billion it earned on its endowment last year.
“We are in tough times and its imperative we all understand that. With a $25 billion endowment, I think an investment in the state that houses it would be a very good samaritan role for the university,” Walker said. “We are asking Yale to step it up a little bit. … It’s an unfair partnership right now.”
Officials from Yale disagree.
Richard Jacob, the university’s associate vice president for federal and state relations, called the legislation an “attack on independent higher education.”
“A strong Yale is good for New Haven,” he testified Tuesday, saying the legislation would hinder the school’s ability to increase spending on research and student financial aid. “It would diminish what we do.”
He also said the school is a great neighbor and is a major economic driver for New Haven and the state with its $3.2 billion annual budget and 13,000 employees. Additionally, the university voluntarily provides New Haven with $8.2 million each year, has helped redevelop commercial property, provides its faculty with incentives to live in New Haven and gives scholarships to city students.
New Haven Mayor Toni Harp and the majority of city alders support the legislation.
“Since taxing real estate and other property is the only form of municipal taxation allowed by state law, more modern guidelines as to what is taxable and what is exempt is essential,” said Harp during a press conference in New Haven last week, reports the New Haven Independent. “We need to make sure we are getting all that we need given the economic conditions of the state.”
But if the bill becomes law, the university has promised to challenge the constitutionality of any such tax in court.
“It is difficult to see what Connecticut would gain from undermining some of its greatest assets,” Jacob wrote in submitted testimony. The bills “are plainly unconstitutional. Should either bill be enacted, Yale would defend its constitutional right of non-taxation.”
He went on to cite a number of Connecticut and U.S. supreme court cases.
“In every case, Yale’s academic property was held nontaxable,” he testified. “It has been bedrock law that a university charter is a contract protected from impairment by the State under the Contracts Clause of the U.S. Constitution. Yale University is confident that SB413 and SB 414 would be struck down by the courts. The University would be prepared to assert its legal rights to the fullest extent.”
This bill is just one of several the legislature’s Finance, Revenue and Bonding Committee is considering that would increase taxes or fees on nonprofit colleges, and direct the additional funding to either the state or the city where the school is located. Another, backed by Hartford Mayor Luke Bronin, would require the city’s 15 largest not-for-profits that are largely exempt from paying property tax to pay a fee to the city.
Another bill would require non-profit colleges with property worth more than $2 billion to begin paying state taxes on admission to sporting and entertainment events, rent charged and goods produced. The presidents of Trinity College in Hartford and the University of Bridgeport testified against both that proposal and the endowment tax proposal.
“I would urge you to consider the impacts that either bill would have on colleges and universities that are major economic drivers in their neighborhoods and communities,” testified Joanne Berger-Sweeney, Trinity’s president.