Sarah Waldeck (Seton Hall University - School of Law) has posted The Coming Showdown Over University Endowments: Enlisting the Donors (Fordham Law Review, Forthcoming) on SSRN. Here is the abstract:
This essay focuses on the discordance between universities with endowments in excess of one billion dollars and what is occurring in the rest of higher education, particularly with respect to skyrocketing tuition and a growing institutional wealth gap. The essay analyzes absolute endowment values, the amount of endowment per student, and expense-endowment ratios at 60 private universities. It concludes that a small number of schools have an excess endowment, and then provides a convenient proxy for determining when an endowment is so large that it should receive less-preferential tax treatment. The essay then considers the effects that large endowments have at their home institutions and throughout higher education, the arguments in defense of large endowments, and some frequently-proposed modifications to the tax code. The essay recommends that policymakers modify the charitable deduction for gifts to universities with mega-endowments, as part of a multi-faceted effort to spur endowment spending and control tuition.
This is a thoughtful article & certainly is recommended. But I must say that I was left with many more questions than answers. Mega-endowments are held by major research universities that play a major role in promoting the production of knowledge--much of which is in the form of "ideas" in the technical sense (that is, new information that cannot be protected by intellectual property). Creating stable institutions that that invest in the creation of knowledge and make decisions on the basis of academic values and are not responsive to the steering mechanisms of the market or the system of electoral politics is, I would argue, a very great social good. Pace Waldeck (and Hansmann on whom she relies), I should think that the concern for preservation of a culture of knowledge is well justified and hence that the "rainy day" and "intergenerational" arguments are well-founded. I certainly saw no persuasive criticisms in this article.
Moreover, I found the populist, rich versus poor rhetoric of the paper puzzling. If distributive justice is the goal, then forcing tuition cuts at elite universities is likely to undermine rather than contribute to the goal. Tuition subsidies to students at elite universities subsidize the rich--even when the scholarships are targeted at low income students. If the notion is to produce wealth equality between universties, then I am simply mystified: what possible reason of political morality would justify that as a goal?
Moreover, there is, I think, further politicization of university spending decisions has not been demonstrated to lead to superior outcomes, and there is every reason, I should think, to believe that Congress is likely to be make decisions regarding the investment of such resources that will lead to inferior outcomes.
But if Waldeck is right about the state of the literature--and I have no reason to believe she is wrong--then the case for the mega-endowments has yet to be made in a careful and comprehensive way.
