Thursday, February 07, 2008

Universities' Endowment Funds and the Federal Government

Here's an idea I hate (via the instapundit). Congress is considering regulating the amount of university endowments that schools may keep for themselves and how much they have to pass on to students (in the form of tuition cuts, financial aid, or scholarships). Do these guys really have this much time on their hands?

Laws such as those being proposed give our legislature the bad name that it has. Why a private, non-profit organization such as a university endowment "needs" to be controlled by the federal government eludes me. Don't get me wrong. When I read that elite schools such as Harvard could pay the tuition of their entire student body on just the interest that their endowments earn, I find that reprehensible and a poor reflection of their governance. But that's their problem, not the fed's.

Surely people will make the argument that as tax-exempt organizations, some limitations on their behavior is appropriate. Really? Is the federal government really so much the paragon of efficiency and insight that they should decide where the Red Cross or Harvard should allocate the contributions they collect? Is that what we want?

Likewise, some will point out that many (most?) students receive some federal aid in the form of grants or federally insured student loans and as such, the government has an overriding interest. To me, this just strengthens the position that the fed should get out of higher education completely.

My guess is that such legislation will probably go nowhere (although some provision for more transparent reporting of where endowment money actually goes may pass). I think though, that the real intent of such debate is to put a chill in the minds of fund managers' minds. The mere threat of such laws may well be enough to "influence" behavior. In my opinion such saber rattling is an immoral use of federal power.

Bad law. It's contagious.

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Blogger VA Doc for Financial Security said...

By calling these legislation as being "immoral use of federal power," then what is the supposedly "moral" use of tax-exempt legislation by these endowment funds?

Public interest is at issue here. If these endowment funds can become private entities, then certainly a lot of open scrutiny can be avoided.

February 20, 2008 5:27 AM  
Anonymous Anonymous said...

I agree with you, Dr. Ford. This is not the pace for government to intervene. If gross fraud or misappropriate of tax-exempt funds is the issue ( like the previous Red Cross or United Way scandals), that should be addressed through the justice department. I would rather see them go after the phony tax exempt religious organizations and see where they are using their donations! At least education benefits society.

March 01, 2008 6:43 AM  
Anonymous Anonymous said...

Q: What is the purpose of "tax exempt"? Ans: to reward/encourage institutions doing 'public good'.

Q: How much 'public good' is being done if all the money is being hoarded for decades? Ans: Not much.

That said, it isn't clear what limits are appropriate. The line is not black and white - but neither are any of the other divisions between non-profit and for-profit. That doesn't mean some (somewhat arbitrary) dividing line shouldn't be made.

May 04, 2008 11:14 AM  

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