University Finances: Congress may force universities to spend

With $6.6 billion in the bank, Penn's endowment is doing just fine, thank you very much.

But Congress might be changing that soon enough.

In a Senate Finance Committee hearing yesterday, a panel of experts urged Congress to set a minimum spending requirement for university endowments in order to make college more affordable.

Lynne Munson, an adjunct fellow at the Center for College Affordability and Productivity, testified that universities should be forced to spend at least 5 percent of their endowment, the same figure that charitable foundations have to spend.

Currently, Penn spends about 4 percent of its endowment on financial aid and other programs each year, and most of its peer schools also spend under 5 percent.

"What would your constituents say if gasoline cost $9.15 a gallon? Or if the price of milk was over $15?" Munson asked at the hearing. "That is how much those items would cost if their price had gone up at the same rate that tuition has since 1980."

Munson argued that because of their tax-exempt status and high returns, universities have a responsibility to use their endowments to decrease tuition.

University President Amy Gutmann said Penn strongly opposes any spending requirement.

"The general philosophy of government in this country is not to have centralized control by a centralized government of literally what tens of thousands of non-profits do," Gutmann said. "It would not be wise for government to go down that route."

University Executive Vice President Craig Carnaroli added that, while creating a minimum spending requirement would increase the University's short-term payouts, to do so is inefficient because so many alumni donations are already tied to particular programs.

"The reason you need an endowment is you want to preserve purchasing power," Carnaroli said. "You need a return that at least covers inflation, as well as allows the endowment to grow."

Earlier this month in the House Ways and Means committee, Rep. Sander Levin (D-Mich.) introduced a different piece of legislation that would grant an exemption from the Unrelated Business Income Tax to university endowments investing in hedge funds, allowing schools to avoid using off-shore corporations to invest.

Currently, a portion of Penn's investments in hedge funds, - which accounts for 18 percent of the total endowment - is handled through these off-shore "blocker" corporations.

Both the House bill and the Senate discussion are still in a very preliminary stage, and the final form of legislation is not likely to emerge until late October.

Bill Andresen, the head of Penn's office in Washington, said the House and the Senate have yet to see eye to eye on these higher-education issues.

"The fate of the legislation and the whole issue is very unclear now," he said.

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