TaxNewsFlash-Exempt Organizations

September 9, 2008
No. 2008-87

PRINTABLE VERSION

Endowment Payout Requirements Discussed at Congressional College Endowment Roundtable

A congressional roundtable September 8 on whether the government should require colleges to dispense a set percentage of their endowments ended with the idea’s chief advocate, Senate Finance Committee ranking Republican Chuck Grassley (IA), urging leading institutions to pursue the question without Congress imposing a mandate.

The roundtable, co-chaired by Rep. Peter Welch (D-VT), featured university presidents, scholars, government analysts, and financial advisers. During a panel that focused on imposing a set payout requirement, similar to that applicable to private foundations, participants argued that:

Colleges are fundamentally different from private foundations in that their communities—staff, students, parents, alumni—are a public check on their activities.

A fixed expenditure requirement would have the effect of turning a university’s budget into a buffer for the endowment, rather than the other way around.

Endowments do underwrite the cost of education; they are not rainy-day funds.

Whereas a private foundation can scale back grants year to year in response to returns, a college endowment is a long-term financing arm, funding expansion, faculty, and programs; therefore, year-to-year expenditures are budgeted regardless of blips in the market cycle.

One participant suggested that while full fare at an elite university may be exorbitant, many students receive tens of thousands of dollars in aid, and reducing tuition for the rich to attend a school whose degree amounts to admission to the nation’s elite should not be a national priority.

The session, held in the Finance Committee hearing room, also focused on rising college costs and financing and the mechanics of endowments, such as accounting, donor restrictions on their use, and the technical problems of crafting a payout requirement.

Senator Grassley concluded the session by urging college officials to “look inward” and determine that endowments appropriate underwrite tuition because self-correction would be preferable to having Congress “pour a mold” for the higher education community.

Senator Grassley’s written statement is available on the Senate Finance Committee Web site: http://finance.senate.gov/sitepages/grassley.htm

For more information, contact Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax), at (202) 533-3084 or rspeizma@kpmg.com

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