Testimony: House Bill 2586, May 7, 2013

MAY 7, 2013


Opposing H.2586, which would tax college endowments







My name is Robert J. McCarron, and I am Vice President and General Counsel of the Association of Independent Colleges and Universities in Massachusetts [AICUM]. AICUM is comprised of 60 colleges and universities located throughout the Commonwealth – institutions which educate 275,000 students each year and employ more than 84,000 people. Our member colleges include large nationally renowned research universities, smaller, highly regarded liberal arts colleges, religiously affiliated institutions, and colleges with special missions focused on business or music or allied health services.


AICUM opposes in the strongest possible terms House Bill No. 2586, which seeks to impose an annual 2.5% excise tax on independent institutions of higher education with endowments having a value in excess of $1B. For the reasons set forth below, AICUM and its member colleges and universities would urge this Committee to find that H.2586 ought not to pass.

  • First, taxing such a small class of tax-exempt institutions is unconstitutional. Attempting to impose a tax on a certain group of tax-exempt institutions by singling out a specific sub-class is unconstitutional, and, at a minimum, would be challenged in court, leading to lengthy and costly litigation. House Bill 2586 would apply to only nine institutions, which is a constitutionally flawed and stunningly inequitable attempt to solve the state’s fiscal problems.


  • Donor giving will quickly erode. Donors will stop giving if they know that the value of their gifts will be decreased by a 2.5% tax every year. Imposing the excise tax called for in this amendment would make it incredibly difficult for colleges and universities to raise money. This will drive donations to other colleges in other states, which means the money will not be spent hiring people in MA, helping MA students pay for college, buying products and services from MA companies, and undertaking cutting edge research in life sciences, clean energy and beyond. This proposal would simply cause job losses on campus and reduce funding for financial aid.

  • Private colleges and universities in MA generate more than $30B in economic activity each and every year. Private colleges and universities employ 84,000 people; they spend more than $7B in salaries and benefits, which in turn generates $250M in state income taxes for the General Fund. These colleges attract $2.5B in Federal and sponsored research annually, and they consistently partner with
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    the construction trades as they collectively engage in hundreds of millions of dollars worth of building projects. This economic activity gets reinvested in Massachusetts families. Last year alone, AICUM institutions awarded more than $560M in financial aid to Massachusetts students and their families – and much of that money came from endowment income. That is a direct return on investment of more than $560M to the sons and daughters of Massachusetts taxpayers.


  • Salaries and financial aid are the two largest expenses for colleges and universities. A 2.5% excise tax will serve only to undermine these economic drivers when the Commonwealth should be encouraging institutions to keep money flowing into the economy. The resulting job losses and/or cuts to financial aid will negate any potential revenue benefit the Commonwealth may accrue via this unconstitutional tax. And at a time when college presidents are exploring all available avenues for controlling costs, this proposal would simply make college less affordable for all Massachusetts families.

  • A significant percentage (as high as 84%) of college and university endowments are restricted by the terms of the donor. Simply stated – colleges and universities are required by law to spend money in accordance with the terms of their gifts or they will be subject to investigation and the imposition of penalties by the Attorney General’s Office. Bottom line, taxing endowments will erode their value. Colleges and universities would have to raise millions of dollars each year just to pay the excise tax. Before using their endowment on financial aid and other spending that provides a direct benefit to the Commonwealth, its students and families, and the businesses located here, colleges and universities would have to raise money just to pay a tax, and very few donors will be lining up to assist in that endeavor.


  • This bill will undermine the competitiveness of MA universities. Universities appeal to donors to support specific specialties of the faculty – such as molecular targeting for cancer research or unlocking the causes of autism and Alzheimer’s – and to fund student financial aid, enhance educational programs, create professorships, and renovate teaching and research facilities. These funds serve as magnets for federal grants that come to Massachusetts in amounts far outpacing the rest of the country. That money is used locally to hire staff, to conduct experiments, and to purchase equipment. Companies, such as Novartis and Merck, and entire industries, such as the biotech and medical device industries, have been drawn to MA by this research activity. Our universities are powerful economic engines that will be severely damaged by this tax. Over time, this would place some of our greatest institutions at a terrible competitive disadvantage.


For the reasons set forth above, AICUM would respectfully request that the Revenue Committee reject H.2586. We stand ready to work with the Committee members and their staff to further explain our concerns with this legislative proposal.