Connecticut Bill Would Allow Cities to Tax Private College Endowments

State lawmakers in Connecticut have introduced a bill that would allow municipalities to tax the endowment funds of private universities and colleges located in their jurisdictions.

If passed and signed into law, H.B. No. 5868, introduced in the Connecticut House of Representatives by Democrats Brandon Chafee, Anne Hughes and David Michel, would mean the city of New Haven could tax Yale University’s $41.4 billion endowment. That would go on top of the 1.4% federal “endowment tax” Yale must pay annually on its net investment income.

In late February, a public hearing was held that featured testimony from supporters and opponents of the proposed legislation. Not surprisingly, Yale University provided testimony arguing the bill should not be passed. Yale representatives said the bill would tax charitable donations that support teaching, cancer research (among other research), scholarships and capital investments and help drive the local economy.

To support its argument, Yale testified that it contributes an estimated $7 billion per year to the state economy and that it is the largest employer in New Haven, spending $3.2 billion on salaries and benefits for its employees this year alone. It also said it makes an annual voluntary payment of $23 million to the city of New Haven, which it claims is the largest payment by any private college or university in the country.

“All of the independent colleges and universities are deeply enmeshed in their communities, and they create many ‘spinoff benefits,’” the Yale statement said. “Colleges and universities wish to be partners with their hometowns; that is the most promising way forward, not taxes on charitable giving.”

Sacred Heart University, a private college in Fairfield, Connecticut, also said in a statement it “strongly opposes” the bill. “If you tax the endowment funds independent colleges and universities use to give private grants and scholarships, you are taking funds away from Connecticut students in need in a state already lagging in per-student spending.”

In addition to Yale and Sacred Heart, the University of Hartford, University of New Haven and Fairfield University submitted testimony in opposition to the bill.

The New Haven Federation of Teachers, a local affiliate of the American Federation of Teachers, testified in “strong support” of the bill.

“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. And it is voluntary,” testified Leslie Blatteau, a teacher and a representative for the NHFT. “Money from Yale should be democratically allotted. Yale should not be exempt from the key democratic feature of government in which the people decide where their tax money goes towards.”

Also supporting the bill is SEIU District 1199 New England, a local union of the Service Employees International Union.

“In a state where working people already face an undue tax burden, paying annually in taxes 19% more of their income than billionaires and multimillionaires, it is unconscionable that the taxpayers are footing the bill for the universities on both the local and state level,” testified Emily McEvoy, an organizer for SEIU District 1199. “Taxing university endowment funds is a practical step towards fixing the ‘revenue gap’ that results when their properties go untaxed.”