Democratic lawmakers in Connecticut introduced a bill that would allow municipal governments in the state to tax private university endowment funds located in their local jurisdictions.
Should the legislation pass, which in its current form is unlikely, Yale University's endowment, valued at $41.4 billion as of June 30, would potentially face taxes levied by the city of New Haven.
The bill, H.B. No. 5868, was recently unveiled in the Connecticut House of Representatives by Reps. Brandon Chafee, Anne Hughes and David Michel and is less than a page and scant on details.
"The current proposal is just a 'concept bill,' which means it's just a placeholder for future legislative language," said Jared Walczak, Washington D.C.-based vice president of state projects at the Tax Foundation, a think tank that researches U.S. tax policies at both the federal and state levels. "Connecticut is unusual in allowing these placeholders, but the upshot is that we currently know very little about what the sponsors have in mind. The current language does not specify what the tax rate on endowments would be, nor does it even specify if such a tax would be applied to assets or gains."
If passed, the bill would mark the first time that a municipal tax would be imposed on endowments of universities, Mr. Walczak said, adding that the state considered a similar bill in 2016, and policymakers in other states have discussed taxing endowments, but these efforts have gone nowhere.
But a number of stakeholders have supported the bill in public hearing testimonies before the state's Committee on Planning and Development.
On March 3, Leslie Blatteau, president of the New Haven Federation of Teachers, said "we have a state where hundreds of thousands of working people are struggling to raise families, even while private universities are adding billions to their endowments and failing to pay taxes."
She noted that if New Haven could tax Yale's endowment, the city could invest $190 million to "meet the needs of New Haven children and families" and reduce the property tax burden on poor and middle class renters and homeowners.
Ms. Blatteau said that while Yale does pay some PILOT (Payment in Lieu of Taxes) taxes, "in reality, they only pay a percentage of what they should be paying in taxes to the city."
However, representatives from some local universities testified against the bill.
In a statement to the committee, Yale University expressed its opposition to the bill by asserting it would only serve to "tax charitable donations that support teaching, research on priority areas such as cancer, scholarships that help to make college affordable and reduce student debt, and capital investments that drive local economies."
Revenue from its endowment represents the single largest source of income for the university at 32% of total revenue, Yale noted. In contrast, net tuition and fees across all 15 schools that comprise Yale accounts for only 9% of total revenue.
Moreover, Yale said it already contributes about $7 billion annually to the state economy and is the single largest employer in New Haven. In addition, Yale declared it makes an annual voluntary payment of $23 million to New Haven, the "largest payment by any private college or university in the country."
Endowments are already subject to an annual 1.4% tax on net investment income at the federal level due to the Tax Cuts and Jobs Act of 2017 legislation passed under President Trump.
Neither Yale nor Reps. Chafee, Hughes and Michel could be reached for comment.
