Connecticut May Raid Yale’s Endowment For Much-Needed Cash

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Blake Neff Reporter
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Connecticut’s cash-starved government is considering raiding the endowment of Yale University in an attempt to plug a growing budget hole.

A bill introduced to the Connecticut Senate would tax the annual gains of any college endowment valued at over $10 billion. The high threshold effectively singles out Yale, as no other schools in Connecticut even come close to having an endowment that large. Yale’s endowment of about $26 billion is the second largest in the country, behind only Harvard University’s gargantuan $38 billion nest egg.

If passed, the bill would be the first law of its kind at either the state or federal level.

Yale would be able to avoid the tax hit, but only if it dedicated all of its endowment gains to its educational mission rather than reinvesting its gains back into the endowment.

Connecticut needs money because of a rapidly-growing hole in the state’s budget that lawmakers are desperate to fill. The state has a current budget shortfall of $266 million, and its unfunded pension liabilities total about $26 billion, one of the most underfunded pension systems in the country.

Yale certainly presents a tempting target to lawmakers. In contrast to regular citizens or businesses, the historic school can’t simply relocate to avoid taxes.

Martin Looney, the Democratic president of the state Senate, said during a recent hearing that the bill would “share a small percentage of [Yale’s] retained earnings with the state’s taxpayers,” The Wall Street Journal reported Thursday. With Looney’s backing and total Democratic control of the state’s government, the bill appears to have good odds of passing.

Unsurprisingly, Yale is vigorously opposed to the law, arguing that it is unwise and would violate the state constitution. Connecticut’s constitution specifically affirms Yale’s charter, and parts of the charter declare most of Yale’s investments to be tax-exempt.

Interest in massive endowments isn’t limited to the state level. Recently, three Republican members of Congress sent a letter to the 56 schools with endowments of $1 billion or more, inquiring about how they manage and use their endowments to benefit students. Rep. [crscore]Tom Reed[/crscore] of New York, meanwhile, has proposed legislation that would require large endowments to use at least a quarter of their endowment earnings to subsidize tuition costs, or else lose their tax-exempt status.

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