… fewer than ten thousand students that concentrates the mind. The town of Princeton seems sort of amazed, in an ongoing way, about its university’s remarkable tax exempt wealth, and it’s clearly on a campaign to chip away at it.
The latest thing is that a judge has refused Princeton University’s request to throw out a case against it brought by residents and the town in which they claim that a number of buildings on campus should not be tax exempt since they’re non-educational.
Another, broader, charge in the case argues that
the University is not qualified for the tax exemption because it in fact makes money and distributes profits, especially proceeds from patents registered by the University.
Princeton is now lawyering up to defend its exemptions.
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Princeton’s got the same problem Harvard (well on its way to a forty billion dollar endowment) does; maybe their lawyers can work together. As one observer points out:
Viewed purely in terms of economics, Harvard is really a $40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University that has the job of raising the investment capital and protecting the fund’s preferential tax treatment.
The trick is that this hedge fund can’t remit earnings to investors, and has to keep them in the company’s account, renaming these retained earnings as an “endowment”. So how do the insiders extract value from this business? One way is by giving themselves cushy jobs that pay a ton of dough. Those who manage Harvard’s money are well-paid. The prior investment head, Jack Meyer, left after criticism of a compensation plan that paid some investment management professionals more than $35 million each in a single year...
When tax-advantaged non-profits start to accumulate billions of dollars of cash through investment gains, and the insiders seem to be doing very well, it creates legitimate pressure for some legal changes. There is a broad range of alternatives: capital gains taxes on investment income, directly taxing the endowment, placing limitations on employee compensation, and forcing the distribution of a fixed percentage of the endowment are all obvious choices. Sanctimonious talk about “the mission of the university” is not likely to stop this …
Actually, I think sanctimonious talk, done well, can probably hold the line for a school. UD has always privately felt that the switchover from Lawrence Summers to Drew Faust as Harvard’s president had in part to do with the, uh, incompatibility of Summers and sanctimony.