College endowments come under pressure

Businessweek reports that there may be legislation in the offing to make US universities with large endowments spend more money on giving financial aid. I've copied part of the article below. This sort of thing could be difficult to legislate, though.


As targets go, this one is a doozy. With assets totaling $411 billion, the nation's college and university endowments are larger than the annual gross domestic product of Belgium. That's enough money to run the federal government for nearly 50 days. Harvard alone has $35 billion. They pay their managers like rock stars, and, as a group, they've been growing at a double-digit rate by making riskier investments. Their ostensible purpose, providing for the financial needs of their institutions, gets a sliver of the total each year, about 4.6% of assets. And they're tax-exempt to boot.

But maybe not for long. Congress, the IRS, and some states are all taking aim at endowments. Senators Max Baucus (D-Mont.) and Charles Grassley (R-Iowa), the chairman and ranking Republican, respectively, on the powerful Senate Finance Committee, have been pushing to force endowments to disperse at least 5% of their assets each year—as other tax-exempt organizations are required to do. A top IRS commissioner, in a speech last month in Washington, said the agency should be "more aggressive" about ensuring that endowments make "appropriate use" of their resources. And lawmakers in Massachusetts are considering a 2.5% tax on endowment assets exceeding $1 billion. It would cost the state's nine mega-endowments—including Harvard, Massachusetts Institute of Technology, and Boston College—an estimated $1.4 billion.