Documents leak could lead to increased scrutiny of endowments
- Multiple renowned colleges and universities throughout the country have set up offshore investments through international law firms as a means to downplay their attempts to expand their endowments and make investments in politically fraught companies and situations, according to the New York Times. The information comes from the recent "Paradise Papers" leak concerning Appleby, a law firm based in Bermuda.
- Institutions that use "blocker" corporations can ensure that potentially taxable income never becomes a part of the endowment, with the tax usually being owned by a corporation set up in countries and locales with low taxes.
- The financial maneuverings on the part of institutions are legal, though many believe they reflect negatively on colleges and universities, especially considering the current political climate and antipathy towards elite higher ed institutions among many. Some schools, like Columbia University, have used firms like Appleby to own stock in companies with practices which may have caused students to protest for divestment if they were aware of the involvement.
Though the article notes that many of these actions are legal, many colleges and universities with sizable endowments are nevertheless coming under increased scrutiny, especially considering the continuous rise in tuition rates for students. While endowment spending can often be more constrained in terms of what it is allowed to spend than public perception, college leaders should still be wary of dismissing the concept of finding ways to use endowment spending to increase college accessibility. As negative opinions regarding the usefulness of college continue to propagate, students, parents and advocates may have less patience for an argument that states a school like Harvard University, with an endowment totaling more than $35 billion, cannot ensure access and affordability for all students.
College leaders need to be concerned that in an era of increased student activism and frustration, illustrated across many campuses about many issues in recent years, the mere existence of such sizable endowments while college remains financially out of reach for many could become a controversy that could shut down classes, and begin reflecting negatively on the college in question. The news that these colleges are also employing international law firms and offshore corporations to ostensibly "hide" the money will not help matters. Just as colleges need to harness the narrative of higher ed away from it being a fruitless pursuit, they must also be willing to show how endowments and endowment spending has altruistic and concrete benefits for students.
- New York Times Endowments Boom as Colleges Bury Earnings Overseas