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Business and Policy Areas
Business and Policy Areas

Endowment Roundtable Addresses Impact of Mandatory Payouts

September 12, 2008

Senate Finance Committee ranking Republican Charles Grassley (IA) and Rep. Peter Welch (D-VT) convened a roundtable discussion early this week focused on college costs and the potential impact of legislation mandating endowment payouts. 

The September 8 event featured three panels of invited speakers addressing the following perspectives on college cost and endowments: Understanding College Costs; What is an Endowment?; and, Are Mandatory Payouts Beneficial? Appearing on the second panel of invited speakers, NACUBO president and CEO John Walda provided an explanation of the complexities of endowments and the impact of donor restrictions on their use.

At the end of the three-hour roundtable, Sen. Grassley urged representatives of universities and colleges to work together to "self-correct" concerns associated with the payout rates of college endowment funds.  He urged institutions to take steps to make information about cost and endowments more transparent for taxpayers.

Sen. Grassley raised a series of questions about college endowments in his opening remarks at the roundtable.  Specifically, he asked, "Do colleges and universities have fundraising plans with specific goals for not only raising money but also for spending it?  To what extent is fundraising for student aid included in these goals?  If the endowment per student at an institution is greater than or equal to the price of tuition, room, board and all fees per student, should contributions to such an endowment still be tax-deductible to the donor?  If the endowment per student includes graduate students, shouldn’t endowment spending include assistance for graduate students so that future teachers, social workers and health care professionals can work in under-served areas without worrying about their debt load?"

He also asked Treasury and the Internal Revenue Service to develop a Form 990 schedule for colleges and universities, similar to the one that they developed for hospitals (Schedule H of the redesigned Form 990).  He said, "While the new 990 requests some information about endowments, it does not require institutions to report information about their student populations and costs."

Rep. Welch presided over much of the roundtable.  He noted that while he was sympathetic to many of the concerns roundtable participants raised with potential reforms relating to endowments, there also was a need to acknowledge that the federal government provides billions of dollars in resources aimed at higher education.

During his opening statement, Rep. Welch stated that "the Congressional Research Service has estimated that this benefit could exceed $10 billion in foregone tax revenue.  Such preferential tax treatment comes with the expectation that the recipient should confer upon society a benefit.  And it is logical that Congress should want to examine and measure the social benefit resulting from the tax relief it grants."

A press release includes names of other participants. Note that the September 8 event was a roundtable discussion, not a hearing. With a shortened congressional calendar and the November elections looming, Senate Finance Committee staff have indicated that it is unlikely that Congress will take action on an endowment payout proposal this year.