Any time a state faces a growing budget deficit, voters should always assess politicians’ proposed solutions with an extra dose of skepticism. A budget crisis by nature gives lawmakers the opportunity to propose envelope-pushing legislation that would otherwise fail during fat times, even if their ideas carry little planning or popular support — Gov. Deval Patrick’s failed casino plan was a prime example of these ill-fated ideas. So too is Rep. Paul Kujawski’s proposed tax on soaring college endowments to fill state coffers.
Like Patrick’s now-deceased plan to balance the state budget by licensing casinos in the commonwealth, the proposal to tax the state’s richest private universities was made with noble intentions. The state needs to find a way to pay for promised government services like higher education and health care, and wealthy institutions like Harvard University serve as attractive targets to help close the gap. Because they are considered nonprofit organizations, private universities avoid paying municipal property taxes even while they enjoy the basic benefits these cities and towns provide. Local governments are justifiably annoyed by this free ride and have cause to ask for something in return.
The problem with an endowment tax is that it would mostly benefit state programs rather than local services, at least under the state’s proposal. It is City Hall, not Beacon Hill, that provides the fire protection, utilities and urban upkeep that benefit Boston’s universities. The same is true in Cambridge, Amherst and every other locality with a private college in the area. To remedy this imbalance, colleges are better off providing cities with payments in lieu of taxes, known as PILOTs — a contribution that may offer little comfort to state lawmakers, but provides aid where it is due.
In fact, Boston University already pays the city of Boston about $4.2 million in the form of PILOTs. And according to a quote attributed to Rep. Angelo Scaccia by the State House News Service the university pays $40 million in PILOTs, scholarships and other initiatives. Piling on an endowment tax would only force BU to pay the city and state even more, an added cost that the university would undoubtedly pass on to students through higher tuition rates. Harvard, on the other hand, offers far less to its local community despite a massive endowment topping $35 billion. If the state were to tax endowments, it would have to include exemptions for PILOTs so that schools like BU do not pay double the contributions while richer institutions like Harvard remain stingy with their endowments.
Still, state lawmakers would be unwise to attack private universities’ financial resources simply to fill a deficit. Budgetary shortfalls eventually recede through prudent cost cuts and fair tax hikes, but endowments should preserve colleges’ resources for posterity. If the state raided these funds, private institutions would likely turn to more for-profit ventures to preserve their holdings, since the nonprofit status of their funds would be effectively rescinded — hardly what the amendment’s sponsors have in mind.
