University Endowment Reform: A Dialogue

Publication Date: April 2008

Publisher: Center for College Affordability and Productivity

Author(s): Charles Miller; Lynne Munson

Research Area: Education

Keywords: Endowments; Higher Education

Type: Report

Coverage: United States

Abstract:

In late September 2007, the issue of wealthy university endowments became front page news.Members of the Senate Finance Committee, most notably Sen. Charles Grassley (R-IA), questioned why some endowments were amassing vast amounts of tax-subsidized wealth while simultaneously raising tuition on average families to greater and greater levels. The Center for College Affordability and Productivity (CCAP) was pleased to work with the American Enterprise Institute in January of 2008 to host a conference on this intriguing topic. The conference included both those who have called for endowment reform and others that oppose such action. This policy paper includes the remarks of two panelists from that conference, each of whom has very different views on the obligations of university endowments and the necessity for reform. Presenting the case against greater government intervention in endowments is Charles Miller, the chairman of the Spellings Commission on the Future of Higher Education. Mr. Miller, who also served as chairman of the University of Texas Board of Regents, claims that endowments are governed by their fiduciary duties to donors and the university and that the endowment reforms proposed, including a mandatory payout, would conflict with these tenets. Mr. Miller firmly believes that focusing so much attention on endowments is a distraction from broader higher education reform ideas that would more directly help students. Arguing in favor of endowment reform is Lynne Munson, executive director of Common Core, and an adjunct research fellow at the Center for College Affordability and Productivity. Ms. Munson claims
that far from the myth of higher education being cash-strapped, endowments have in fact hoarded tremendous wealth over the years. Ms. Munson cites statistical evidence that suggests using a small portion of this wealth could help alleviate the tuition burden felt by an increasing number of students.

While not the foremost issue facing higher education today, the proper role of endowments remains a hotly contested debate, as our two panelists' remarks will show. The possibility of Congressional actionraises fundamental questions about the role of government in regulating nonprofits, the importance of federalism, and the investment responsibilities of endowment money managers. At the same time, higher education's inability to contain costs in a meaningful way has led many to reasonably argue that universities should begin to spend some of their own resources before asking the taxpayers for even more government dollars. We hope that you enjoy this dialogue between Mr. Miller and Ms. Munson. CCAP will continue to follow this issue into the future as part of its larger goal of making our system of higher education more accountable, efficient, productive, and less dependent on taxpayer support.