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Taxing Harvard Should Just Be the Tip of the Iceberg

8 May 2008 - 11:08pm | jpramas
by Editor

Kudos are certainly in order for Massachusetts legislators led by State Representative Paul Kujawski (D-Webster) that are finally calling to pierce the non-profit fig leaf draped over the vast multinational corporations that several area private universities have become and tax all colleges with endowments over $1 billion.

Amherst College, Boston College, Boston University, Massachusetts Institute of Technology, Smith College, Tufts University, Wellesley College, and Williams College all have endowments that pass that benchmark. But the 900-pound gorilla of the American higher education landscape is Harvard University - with an endowment now in excess of $34 billion. An amount that surpasses the tax bases of several impoverished nations.

Harvard, naturally, claims that the $1.8 million a year that it gives to the City of Boston in the form of a PiLoT (Payment in Lieu of Taxes), close to $3 million a year that it gives to its main base - the City of Cambridge - and $3.8 million a year to the Town of Watertown (agreed to after it sneakily purchased 30 acres at the Arsenal back in 2001) is plenty to fulfill its civic duty. These amounts are pathetically small, but probably the best that relatively weak local governments have been able to negotiate with an institution that can afford the nastiest lawyers money can buy.

However, none of the colleges in question give anything to Massachusetts state government at a time of budgetary crisis brought on by the very bad investment practices that have benefited institutions with huge stock and bond portfolios. Institutions like Harvard and the rest.

Now doubtless such a bill will never be passed in its original form, and the powerful political and economic interests behind colleges like Harvard will line up at the State House to pummel it into useless pablum. But it's worth thinking about the limits of this kind of strategy.

Let's say the bill were to pass in some form, and state government got its tax money from giant non-profits. First, only a 2.5 percent assessment is being proposed - not a normal corporate tax schedule. Second, the State Senate is currently supporting $312 million in corporate tax cuts and $53 million in tax cuts to financial institutions, at the very moment when it finds itself over $1 billion short for the next fiscal year; so the legislature doesn't exactly have its priorities straight overall.

Finally, the bill misses the main problem with private colleges that have endowments of over $1 billion. The problem is that we allow private colleges in the United States. Most industrialized nations have fully public systems of higher education. Be they elite schools like the Sorbonne in France, or more scruffy working-class schools like the CEGEP system of community colleges in Quebec, colleges in most countries are controlled by governments in the public interest, and their budgets - while often controlled by college administration - are funded directly out of the public tax pool.

So what Massachusetts really needs to do is to find a way to make Harvard and all the other colleges in question part of the public higher education system. And in the process seize the endowments of these "corporations in university clothing" and redistribute them for the greater good of the people of the Commonwealth. While they're at it, the state government could then take over all the private high schools in the state, too. A nice place to put all the extra money thus infused into government coffers would indeed be the public education system from kindergarten on up. We could fix all the crumbling facilities. Make sure that every student got a decent education, and guarantee that said education would be taxpayer funded all the way to the doctorate level for those that qualified.

This is all too big a conversation to be properly fleshed out in a single editorial, but it brings to mind a funny thought. If such reforms were to be enacted, instead of Harvard and MIT, we'd have a new public university. UMass Cambridge, the flagship of a revived public education system.

Now that would be a legislative reform that this publication could really get behind.

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Comments

jpramas wrote on 10 May 2008 - 12:27pm
In response to Mr. Beckmann, I'm not exactly sure what we're arguing about aside from his couple of cheap shots at us and whether or not making private colleges (and perhaps private high schools) public would be "nationalizing" them.   At OMB, we too might agree that Grassley's ideas are worth considering as an interim measure, just as we think that Kujawski's proposal is decent. But we certainly do believe that the U.S. made a wrong turn post-WWII when it did not move to a fully publicly financed system for all accredited colleges and universities during that period of great expansion of higher education systems worldwide - which in-and-of itself afforded a significant percentage of humanity the possibility of upward class mobility for the first time in history.   Plus Beckmann, like many erstwhile higher education experts, misses the forest for the trees in discussion of private higher education in the U.S. It's already not private. Virtually all private colleges receive huge portions of their budgets from the federal (and state) government. In Massachusetts, at least half of federal higher education money - plus huge amounts of defense and other federal monies (like National Science Foundation grants) - pour into private schools like Harvard and MIT.   This at the cost of strangling public higher education in the Commonwealth. So schools which get to cherry-pick from the global meritocratic, plutocratic, and aristocratic elites get the lion's share of higher education money that would otherwise go to the far more democratic Massachusetts community colleges, state colleges and state universities - all of whom are mandated to set a lower admissions bar to account for massive class inequity in K-12 education and to make college "accessible" for as many people as possible.   Given these facts, Beckmann and any partisans he may have on these pages can forgive us if we'd rather move to a system like Canada's that still manages to preserve the class stratification in higher education that he seemingly defends (witness the profound dissimilarity between elite McGill University and more earthy University of Prince Edward Island), but does provide a heavily taxpayer subsidized higher education to all Canadians. And many other countries still provide almost free higher education to all their citizens.    The reason these countries do this is because they realize that providing higher education to their citizens improves the political, social and economic futures of their countries. It's an investment in the future.   The U.S. is no stranger to such systems - given that a number of U.S. states have had free or nearly free higher education systems in the recent past. New York (especially the City of New York), California, and Ohio spring immediately to mind. Ideological changes have brought rising tuition and fees in all 50 states, but there are still many states with much better deals than we have. Naturally, because of different patterns of colonization and development, many states never had the large number of private colleges that Massachusetts is blessed/cursed with and could only compete with the older and more established higher educational regimes like ours if they devoted a significant percentage of their annual budgets to public higher education - but also because there was strong public support for such measures.   In closing, let's also consider that education is one of those areas that the market - inasmuch as it does a good job with anything, which this publication will certainly devote itself to disputing - can't handle. There's no evidence that a truly private higher education system could ever outperform a public one, but there's voluminous evidence that public higher education systems work decently well. As long as societies choose to invest in a better future, over war spending and various other forms of socialized theft.   Of course, if any group of American private colleges wants to prove that they can compete against a similar group of American public colleges, they are more than welcome to try. To create a proper test, however, they would have to agree to give up all government money - including all federal and state student grants and loans. We don't see any of them doing that. Because they would collapse like the house of cards private colleges already are.   In any event, even if privates are viewed as non-profits serving the public interest, those that accumulate and hoard vast sums of money - as Harvard, MIT and several others do in this state - are clearly in massive violation of the public trust. The purpose of non-profit institutions, similar to the purpose of the best democratic governments, is generally to fulfill the mandate of their non-profit charters to some good purpose. Not to become profit-making institutions on a grand scale. To do so, is to annul their non-profit status - be they hospitals like Beth Israel/Deaconess, funding conduits like United Way, or higher education institutions like the aforementioned big bads.    As such, they deserve - from the perspective of this publication - to have their non-profit status stripped away, to be taxed as corporations in the short run, and to be retooled as public institutions in the longer run.   Besides, as Beckmann infers, Harvard was originally a public college at its inception in 1636 - chartered and funded by the colonial government of the time. It was written into the Constitution of the Commonwealth of Massachusetts (though not precisely as a "fourth estate") during the American Revolutionary War. MIT was a land grant college in the 1860s, and thus founded as a public college along with UMass Amherst. So, for those two schools at least, becoming public again would merely be returning to their original state. Far from nationalizing them, we'd merely be repossessing them in the public interest.     Jason Pramas Editor/Publisher Open Media Boston
daveburt wrote on 10 May 2008 - 12:57am

making all private universities public is heading in the right direction, notwithstanding its near impossibility as a political challenge.   most industrialized countries in the world have fully public higher ed.  and the trend in the US is leading us away from funding public education in general.  we need a movement in the streets to support the idea that education should be a fully public enterprise.  bring back freedom schools! 

Joe Beckmann wrote on 9 May 2008 - 2:25pm

In the first place, Harvard already IS UMass, Cambridge, and is constitutionally the fourth branch of state government. Unlike a UMass however, it has never been taxed and its tax free status, predating the Commonwealth and the United States, won't be changed with a simplistic formula of 2 1/2% on an arbitrary gross of a daily changing endowment value, much less will it become a fully public institution in any century, let alone this one.

Beyond that, however, the premise for taxation comes from Senator Grassley, Republican of Iowa, who argues - persuasively - that universities should have the same kind of fiscal accountability as any other nonprofit: spend 5% of their assets per year just as a foundation or a trust must, or be taxed as a profit making entity. That precedent, based on plenty of constitutional precedents, gave Grassley the muscle to demand the IRS identify the universities with over $1 billion, and the invitation to Kujawski to hold them up.

We have no tax rates that begin with $1 billion in assets. And there is no real reason to consider that number as sacrosanct. Ironically, several small schools with large endowments have higher endowments per student or per faculty or per square feet than other larger ones. At issue is not how much money they have, but how much they retain and reinvest and avoid spending, thereby how much they betray the bequests that got them the money in the first place.

Some universities - like Cooper Union for example - use their resources to offer free tuition. Others - like Harvard - use their resources to get more resources. And in that there is the problem.

The problem is one of accountability and community impact, answered a lot better by Grassley than by Kajawski's conundrum. In fact, his pitch is only useful to scare some of those universities to actually deliver some real benefits to their communities - which is valuable, given how isolated most of them have become, but which is very poor tax policy. And, as bad as that policy is - largely because it won't be sustained by the courts - it's a lot better than your suggestion to "nationalize them."

The problem is that universities are profoundly ignorant about their community impact. Were a park to replace Harvard Yard, for example, there'd be loads more "community impact studies" for that park than there ever were or will be for a university. Harvard's PiLoT, for another example, is a hell of a lot more than Tufts' $75,000 to Somerville. Largely because those "deals" are made in back rooms with crooked pols, the idiots in Somerville actually bragged about their "victory." There are no standards because those deals are all idiocyncratic. In fact, the Harvard kick back in Boston is still rancorously remembered as free tuition for a pol's kid.

The universities should be called on to deliver serious community value for the non-profit tax-free status they enjoy. They should engineer tuition loans convertable to loan forgiveness for public service; they should make program-related investments in affordable housing and transportation infrastructure, and use endowment funds to support public bond issues; they should deliver subsidized health through their medical schools, rather than exploitive pricing through their semi-private HMO subsidiaries. Briefly, they should help their communities with substantial and meaningful investment - of money, professional skills, students and faculty.

The history of private higher education in this state - with the greatest concentration of private colleges on the planet - is replete with over simplifications like your "solution." Do your homework before shooting off your mouth!

Joe Beckmann
Somerville, MA

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