Endowment spending may be mandated
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...
not 5 %, theyd "give up" 5-current, ie 5-3.2 = 1.8 % ... and a certain amount of self-direction. but qualify that: they aren't "giving it up" ... they'd be spending it on renovations, on new projects, on attracting professors, increasing aid ...
and if they did, they'd have hell, if not taxes, to pay to new haven ... i'm sure ONHSA could tell us the difference between the voluntary payments and the would-be taxes.
I have two words for how we should spend the 5%.
Yale Zoo.
Um... I think Yale would be req'd to spend ON ITSELF, so, ixnay on the "iving up of nonprof"gay...
So instead of bumping its spending from the endowment from 4.5% (which it adopted earlier this year as a floor) to 5% it should start paying federal and state income taxes and local property taxes? Hmm. I don't think so.
I say we just buy Caltech.
It's dangerous to regulate minimum endowment spending proportions at the Federal level. For example, if the Federal government instated a mandatory 5% annual endowment spend but markets enter a challenging period making it difficult to earn even 2% reliably for several years, an endowment would lose in both nominal terms (2% - 5% = -3% adjustment to the endowment each year) as well as real terms (inflation will reduce the effective value of an asset by approximately 3% per year, for an approximately 6% total real decline per annum). Moreover, every year that an endowment declines, 5% of the overall value represents an incrementally lower amount compared to years prior. It shouldn't take a top fund manager to realize that inflexibility for an institution to modify its spending levels in the face of a difficult investing environment can only lead to financial ruin in the long-run.
As it is, it is in any university’s interest to spend as much of its endowment as possible as soon as it is appropriate to spend these amounts. Why would a school want to accumulate wealth without intending to use this capital as a vehicle for funding all the projects essential to that university's core mission?
I think we may have entered that "challenging period" that #7 mentions...
If such a legislation is implemented, depending on how egregious it is, wouldn't Yale consider giving up its non-profit status? That seems crazy, but it may not be crazier than giving up 5% of its endowment every few years.