December 9, 2011

HIGHER EDUCATION BUBBLE UPDATE: Sen. Grassley criticizes universities for “hoarding assets.”

A few years ago, Senator Charles Grassley (R-Iowa) caused consternation among the nation’s wealthiest colleges by scrutinizing their endowments, saying that universities needed to spend more of the tax-exempt funds they were accruing. He also requested a variety of data on tuition prices, financial aid and endowment management. While only a small share of colleges have mega-endowments, the focus on those with billions frustrated many institutions without much money — while causing public relations headaches for those who have plenty.

Then the stock market crashed, the average value of endowments dropped by almost 21 percent, and the issue briefly became moot.

Now, as endowments have rebounded, Grassley is revisiting the issue. In a press release Thursday on a Treasury Department study on donor-advised funds, he blasted colleges for “hoarding assets at taxpayer expense.” (The study did not focus on college endowments, but did note that colleges are frequent users of tax exemption provisions.)

“It’s important to understand whether these tax benefits are fueling the tuition increases by subsidizing high salaries for college leaders and rock-climbing walls and other non-educational amenities to try to attract students,” said Grassley, a member of the Senate Finance Committee. He pointed to tax-exempt bonds and charitable contributions, as well as the income-tax exempt endowments, as examples of preferential tax provisions that universities frequently use.

He linked the issue to the Obama administration’s new focus on college costs, which has emerged in recent days as a key issue.

Interesting angle.

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