Sunday, May 11, 2008

Lawmakers target big college endowments

Soak the arrogant Leftist b*stards for all they've got! They are almost certainly using their endowments in ways that the original donors never intended

Massachusetts lawmakers desperate for additional revenue are eyeing the endowments of deep-pocketed private colleges to bolster the state's coffers by more than $1 billion a year, asserting that the schools' rising fortunes undercut their nonprofit status.

Legislators have asked state finance officials to study a plan that would impose a 2.5 percent annual assessment on colleges with endowments over $1 billion, an amount now exceeded by nine Massachusetts institutions. The proposal, which higher education specialists believe is the first of its kind across the country, drew surprising support at a debate on the State House budget last week and is attracting attention in higher education circles nationally.

The idea has prompted a range of questions, including whether it is legal to infringe upon private colleges' tax-exempt status or single them out based on their wealth. It also faces significant opposition from the colleges and some skeptical lawmakers.

But proponents say the colleges' vast accumulations of wealth - Harvard University has the biggest endowment at $34 billion - and their often modest contributions to their host communities justify the assessment. "When is a nonprofit not a nonprofit because of the wealth they are acquiring?" said Representative Paul Kujawski, a Democrat from Webster and chief backer of the legislation. "It's mind boggling that one entity not paying taxes has $34 billion. How do you justify that?" said Kujawski, who serves on the influential House Ways and Means Committee. "When people can't afford to live. How do you justify not taxing them?"

University leaders criticized the plan as a gimmick that would backfire by hurting institutions that are pivotal to the state. "You'd be taxing success here," said Kevin Casey, Harvard's associate vice president for government, community, and public affairs. "Over time, this would put us at a real competitive disadvantage, which would drastically hurt the Commonwealth." Casey said it was understandable that lawmakers would search for new sources of revenue when economic times are tough. But he said the law would hurt colleges' fund-raising and financial aid initiatives.

The plan was introduced amid a national debate over whether elite colleges are hoarding their endowments. Members of Congress, including Senator Charles Grassley, Republican of Iowa, have questioned why elite universities do not spend more of their vast reserves to defray the cost of tuition. Amid the scrutiny, some top-tier colleges have sharply expanded financial aid offerings, often replacing student loans with grants and waiving tuition for a greater number of families. At some of those schools, increases in financial aid are outpacing tuition increases.

The Massachusetts plan has also brought to the fore a more radical notion: whether certain colleges have amassed so much wealth that they no longer deserve to be tax-exempt.


Free Public Schools are Far from Free Actual Costs Greatly Exceed Published Costs

Unlike businesses in the private sector, public school budgets often exclude many significant costs when computing expenditures, thus giving misleading information to the public. The Oklahoma Council of Public Affairs (OCPA) found this to be the case in its comprehensive study, "Education in Oklahoma: The Real Costs." Based upon my hands-on experience with school budgets around the nation, the findings of this report are generally applicable to other states.

The report says that the state government's "official" per-pupil cost of education in Oklahoma in the 2003-04 school year (latest available figures) was $6,429. This amount was derived by the procedure commonly practiced in school districts nationally, that is, by dividing the (published) school district budget by the number of students in the district. However, when OCPA performed its thorough accounting according to the generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board, it came up with a shocking real per-pupil cost of $11,250.

Why the difference? Unlike private-sector businesses, the government's school accounting systems exclude many significant and legitimate costs. If the CEO and finance division of any publicly held company attempted to influence public opinion with such misstated public financial data, they likely would be subject to criminal and civil prosecution. Remember Enron and WorldCom?

Many Costs not Included

Unbelievably, the "official" per-pupil cost did not include - according to OCPA accounting procedures - a number of significant expenditures. (1) Oklahoma taxpayers subsidize the retirement benefits of Oklahoma teachers by having part of taxpayers' individual income taxes, sales taxes, and use taxes sent directly to the Teachers Retirement System of Oklahoma, thus bypassing incorporation into local school district budgets. (2) The state's Department of Career and Technology pays for part of middle and high school business and industry programs. Again, not reported in the local district budget. (3) Yearly depreciation of school buildings is not included in district budgets. This unaccounted-for wear and tear amounted to about $2.2 billion in 2000. (4) The Teachers' Retirement System of Oklahoma defined benefit plan annually adds debt that will be paid for by future generations. In 2003, the total unfounded liability of the retirement system was $1.93 billion. This same problem exists in state retirement funds throughout the nation, where 45 states have gaps between assets and promised benefits

Also not included in the "official" $6,429 per-pupil cost are the state's financial contribution to teacher preparation programs and the $27,000 per pupil for students at the residential School of Science and Mathematics.

Additionally, the public schools receive "off-budget" funds from the state's earnings from state-owned lands and minerals. The OCPA study did not include a number of other revenues that should have been included in an accurate per-pupil cost. For example: the cost of incarcerated students under age 18, high school remedial instruction for freshmen students in college, the cost of collecting school taxes, special student health care paid for by non-education agencies, the cost of maintaining unused and underused school properties, and the "universal service" fee on consumers' telephones that allows a discounted rate for school access to certain telecommunications services.

Other Hidden Costs

The OCPA report could have included other legitimate costs not counted in the state's official per-pupil costs. Such cost are discussed in my book, The Deserved Collapse of Public Schools, such as needed tutoring fees paid by parents, in-kind and cash donations to individual schools, donations from booster clubs and similar organizations, free use of non-school district facilities (such as those at municipal recreation departments), the operational costs of the state department of education, the costs to manage the U.S. Department of Education, volunteer services, and the costs borne by parents for student supplies and materials, estimated to be around $500.

A factor that never is considered is the impact of dropouts on per-pupil costs. If the number of students at the opening of school is divided into the school district budget, a certain per-pupil cost will result. However, if by the end of the year, there are fewer students operating under the same budget due to dropouts, the per-pupil cost increases.

The OCPA study concludes that, "uncounted costs are routinely omitted from official government reports on public education. It's a small wonder that one scholar could remark that 'school accounting guidelines would bring smiles to an Enron auditor.'"

It is likely that any per-pupil cost published by any school district is grossly underreported by as much as 75% (for example, as in the case of Oklahoma). This means that public school per-pupil costs average about three times the per-pupil costs of private schools.

Those who expect full transparency and honesty in school district budgets are doomed to disappointment. All school budgets should be examined with intense skepticism. After generations of training and experience, government bureaucrats have become master illusionists.


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