Yale University’s $25.6 billion endowment is the target of a taxation ploy by the cash-starved State of Connecticut. School officials are vowing to go to court to defend the endowment.
The Connecticut General Assembly’s Finance Committee met on March 22 for a hearing regarding SB 413. “Each taxpayer that is an independent institution of higher education having one or more endowment funds of ten billion dollars or more in the aggregate at the end of the taxable year shall add the amount calculated pursuant to this subdivision to its federal unrelated business taxable income…,” the bill reads, in part.
Yale is the only university in the state with an endowment in excess of $10 billion. The bill would go into effect on Jan. 1, 2017.
The university reported in September that investment gains totaled $2.6 billion from June 30, 2014 to June 30, 2015, elevating the school’s endowment to $25.6 billion. In the same announcement, the university estimated that $1.2 billion would be used as revenue for the 2016 fiscal year, representing just over a third of the university’s net revenues.
A university spokesperson said that the proposed tax would place a 7 percent unrelated business income tax on any investment return not spent by Yale, an estimated $78 million. The spokesperson claimed that the tax would “quickly erode the value of the endowment and eventually reduce the amount of endowment revenue available to support recurring expenses.”
Senate President Pro Tempore Martin M. Looney and state Rep. Toni Walker, both representing Yale’s home city of New Haven, Conn., have voiced their support for the bill. “We need to increase our investment in innovative jobs,” Looney said in a release. “To accomplish this, we need two things: more private investment to create these jobs, and affordable access to higher education so that our children can fill these jobs. SB 413 accomplishes both.”
The committee will vote early next month on what to do with the proposed bill, according to a Senate Democrats spokesperson. Referring the bill to another committee or the state Senate floor are both options.
Richard Jacob, Yale’s associate vice president for federal and state relations, provided testimony in opposition of the bill as well as SB 414, which would eliminate exemptions for properties affording an annual income of more than $6,000. Relevant income would include rents, admission costs for sports or entertainment facilities and fees, charges, or royalties for goods or services designed, produced, manufactured or rendered.
The Senate Democrats spokesperson said that he was unaware of any revenue estimate for SB 414 and that tax revenue would go to the municipal government.
Jacob’s testimony focused on Yale’s existing economic benefit to the state. Yale contributed nearly $8.8 billion to Connecticut’s economy in 2013, according to Jacob, citing a report conducted by the Connecticut Conference of Independent Colleges. The sum included a $5.2 billion five-year average of construction, renovation and equipment; $1.8 billion in salaries, wages and benefits; and over $700 million spent on goods and services.
Voluntary payments to the municipalities of New Haven, West Haven and Orange amount to an additional $8.9 million annually, according to Jabob. “Given Yale’s unparalleled commitment to New Haven, and the gains made by the City of New Haven and Yale in building employment, expanding the tax base, and strengthening neighborhoods and schools, the proposal to single out Yale by imposing unprecedented, ambiguous, and sweeping new taxes on the University is troubling,” Jacob’s testimony reads.
A tax on endowments would diminish Yale’s ability to carry out its mission and grow its support with New Haven, Jacob’s testimony continues. Endowment funds are used to help students avoid loans for attendance and launch research programming. Describing the bills as “a specific attack on independent higher education” and “plainly unconstitutional,” Jacob indicated that the university is willing to battle back in court.
“Should either bill be enacted, Yale would defend its constitutional right of non-taxation,” the testimony reads. “Yale University is confident that SB 413 and SB 414 would be struck down by the courts. The University would be prepared to assert its legal rights to the fullest extent, because the legislation raises issues of profound importance not only to Yale but the entire charitable community.”
The Greater New Haven Chamber of Commerce, too, provided testimony in opposition of SB 413. “A proposal such as this bill ignores the economic impact created by Yale, and lacking any connection to reinvestment in the community, the bill misses the larger picture,” Anthony Rescigno, president of the chamber, said in a statement to the committee.
The Senate Democrats spokesperson said that Yale’s existing community benefit is being taken into account, but that the bill is targeting growth in Connecticut’s economy and job growth. The state, for instance, has worked toward creating a bio-tech corridor down Interstate 91. “I think that we recognize that universities are job incubators, a large amount of economic spin-off is associated with a large research university,” the spokesperson said. “The idea is for that spending to act as a catalyst for job growth in our innovation sector.”
Yale spending more of its endowment earnings would reduce the payment of a proposed tax. Despite reports to the contrary, the spokesperson said that the proposal is not seen as a means of rectifying the state’s budget deficit, which stands at more than $250 million – pointing to the bill’s effective date starting next fiscal year.