Senator Grassley Tones Down Threats on Endowment Spending

Senator Charles E. Grassley—a leading critic of low spending from colleges and university endowments—proposed stricter disclosure requirements in federal tax filings for schools on Monday, suggesting a willingness to stop short of threatened legislation on the issue.

“I would like to ask [federal agencies] to develop a Form 990 schedule for colleges and universities,” Grassley said in reference to the form required for tax-exempt and non-profit organizations. He added that he wanted a specialized form to require information about “student populations or costs.”

Grassley’s proposal left vague what information a revised form might require and his spokeswoman Jill Gerber said specifics were unavailable, though she said the form would likely aim to standardize reporting on financial aid and endowments.

The proposal follows months of threats from the Iowa senator about possible legislation that would require college and university endowments to pay out at least five percent annually—the same standard now applied to public charities.

Gerber said this proposal does not diminish prospects for legislation but stressed Grassley’s preference for “self-regulation.”

No legislation has been filed, and Gerber said committee staff had only just begun analyzing data requested last winter from the 136 wealthiest U.S. schools—analysis she said was “key to have completed” before a legislative effort.

Kevin Casey, Harvard’s associate vice president for government, community and public relations, expressed skepticism about the benefits of a new form in an interview yesterday.

“Just requiring more reams of information on top of other information may not be the most enlightening...” he said. “We’d have to understand more of what the senator is considering.”

Harvard’s ballooning endowment has put it at the center of the school spending debate since Grassley and Senate Finance Committee chair Max Baucus first raised the issue last year. At $34.9 billion as of June 2007, Harvard boasts the largest endowment in higher education.

Grassley has criticized colleges and universities for “hoarding” growing endowment returns instead of spending more on financial aid.

But he did praise a slew of financial aid increases last year from the nation’s wealthiest universities, including a $22-milion expansion at Harvard, as “self-correcting.”

Harvard and other schools with billion-dollar endowments have fought efforts to legislate payout rates, saying that donor restrictions and inconsistent returns require more flexibility than a mandate would allow.

“We must balance our use of its income to support the current generation against our duty to preserve its purchasing power for future generations,” University President Drew G. Faust said in her Commencement address in June. “We cannot treat our endowment as a lump sum.”

Even if Grassley were to act on his legislative threat, the looming presidential election makes it unlikely that a new law would be passed before the next U.S. Congress is sworn in next January.

—Staff writer Clifford M. Marks can be reached at cmarks@fas.harvard.edu.

—Staff writer Nathan C. Strauss can be reached at strauss@fas.harvard.edu.