Yale balks at 'unprecedented, ambiguous, and sweeping' taxes aimed at the school

Yale University CampusVia FlickrYale University’s New Haven campus

Connecticut lawmakers have been trying to dip into Yale University’s $25.6 billion endowment. Now, the mayor of New Haven, Connecticut is backing a proposal that could make it easier to tax Yale’s commercial real estate, the Associated Press reports.

The proposal attempts to distinguish between real estate that Yale holds for educational purposes, and is therefore tax exempt, and its commercial real estate property.

In her testimony supporting the proposal, New Haven Mayor Toni Harp used an example of a building that Yale recently purchased. Previously, the city received $275,000 annually in taxes for the property.

The city risks losing that taxable income since Yale, as an educational institution, owns the property — even though Yale stands to make money from the building for products and services it may sell, according to Harp.

Richard Jacob, a Yale associate vice president for federal and state relations, presented written testimony opposing the proposal backed by the mayor.

“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 neighbourhoods and schools, the proposal to single out Yale by imposing unprecedented, ambiguous, and sweeping new taxes on the University is troubling,” Jacob said.

The mayor’s push for this proposal comes amid similar proposals that appear to target the mismatch between Yale’s massive wealth, and the fact that it enjoys tax exemptions as a university.

The Connecticut Legislature proposed a bill earlier this month that would tax income from Yale’s $25.6 billion endowment, Bloomberg reported.

The legislation specifically targets schools in Connecticut with endowments of $10 billion or more. Yale is the only such school in the state with an endowment of more than $10 billion.

And in January, a draft congressional bill grabbed the attention of America’s massively endowed colleges and universities, as it proposed that schools with endowments of more than $1 billion use 25% of their annual endowment income toward student financial aid.

Colleges and universities would almost certainly balk at such requirements, as it would put billions of dollars of endowment funds at stake.

Schools use the help of in-house private-equity managers to grow their endowments — sometimes by huge margins.

But they are not taxed on their earnings because they’re nonprofit institutions, an extra boost that normal hedge funds and private-equity funds don’t enjoy. It’s a benefit that some higher-education experts have argued should be reevaluated.

The top 10 university endowments by size hold an unbelievable amount of wealth. Harvard University’s endowment had a 5.8% increase in 2015, bringing it to $37.6 billion. Yale University had an 11.5% increase, bringing it up to $25.6 billion.

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