College Endowment Bill Is `Misconceived,' Cornell's Garrett Saysby
House Republicans expect to introduce bill on tax benefits
Endowments have legal responsibility to donors, Garrett says
U.S. legislation on college endowment spending, expected to be filed this month, is “misconceived,” said Elizabeth Garrett, president of Cornell University and an expert on tax policy.
The bill, from Representative Tom Reed, a Republican whose House district includes Ithaca, New York-based Cornell, would require schools to use earnings on their endowments to cover students’ tuition costs as a condition for tax-free status.
Reed discussed his plans about college endowments during a House ways and means oversight subcommittee hearing on Oct. 7. Endowments have again caught the eye of Congress, as the values of many of the funds of the wealthiest schools have reached pre-recession levels. The cost of college has risen faster than inflation for decades.
Reed “is motivated by the right instincts of access and affordability,” Garrett, who became Cornell’s president in September, said in an interview Friday at Bloomberg’s headquarters in New York. For those who support legislation, “their hearts are in the right place, but their methods won’t succeed for the goals they have in mind.”
The proposal shows there are misconceptions about how endowments work, she said. Donations to endowments are restricted by the giver and endowment officials have fiduciary and legal obligations to adhere to those restrictions, said Garrett, a law professor and former provost of University of Southern California.
Endowments are “for the promise of the future, for perpetuity,” she said. “They’re a constant and credible source of funding” for a university and can’t be dissipated for issues of the present.
Cornell officials have been in touch with Reed’s staff on the issue, said Joel Malina, a school spokesman.
“We understand exactly how endowments work,” Reed said in a statement Friday. “We are going to use our position on the ways and means committee to change the tax policies that will prevent universities from hiding behind archaic laws which hurt our students and their families.”
Universities “are profiting in the billions of dollars in tax free income on these endowments,” he said in the statement. “It’s only fair that they put some of that profit into lowering, and in many cases removing, all tuition costs of going to college.”
Cornell on Thursday reported an investment return of 3.4 percent for the year ended June 30, the lowest among seven of the eight Ivy League schools that have reported returns. Only Columbia University has yet to announce results.
“We have a terrific investment committee,” she said. “I keep my focus on the longterm, and making sure the asset allocation makes sense and it meets our long-term goals.”
The value of Cornell’s fund reached a record high of $6.3 billion, up 1.6 percent from last year.
The median return for endowments and foundations with more than $500 million this year is 3.6 percent, according to an estimate by Wilshire Trust Universe Comparison Service.