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As of the end of FY 2021, American college and university endowments totaled over $927 billion, up 34% from $691 billion at the start of the fiscal year. That slightly outpaced the S&P 500's growth during the same period, which was only up 26%. Even if FY 2022 and 2023 weren't quite as bumper years, the tertiary education system in the U.S. undoubtedly has at least $1 trillion in the bank, not to mention that most of the top research universities are also state institutions, with direct support from state-level taxpayers.
There's plenty of money to go around.
Endowments aren't piggy banks that schools can raid whenever they need quick cash. They consist of donor-restricted funds that have strict guidelines on how they can be spent and invested; the purpose of the underlying donations is to fund specific things in perpetuity. If a wealthy donor gives you 5 million to fund the George V. Hamilton Professor of East Asian History (who will be making 200k/year), you can't just fire the professor and spend whatever's left in the endowment. If, for whatever reason, you wanted to end the professorship, you'd have to follow whatever procedures were specified in the original donation to end the endowment, usually under the supervision of the state attorney general. Yeah, these numbers are huge. But they're meant for funding things that are, by definition, already funded.
Some endowment donations are subject to that tight of a restriction, sure. However, there are also unrestricted donations which may be put towards general educational purposes, and donations whose restrictions are much more flexible (for example, a donation restricted to the support of a school's history department generally could likely be used for just about anything - professor salaries, administrative support, facilities maintenance, student scholarships/grants, archival and research purchases, etc.)
Of course, far more common is a restriction that the principal of an endowment can't be spent; only the profits flowing from investment of that principal, which makes endowment absolute numbers a bit deceptive. Given the speed with which endowments have been growing recently, I'm not that worried about this.
Ultimately, colleges and universities are known for being masterful in manipulating bureaucratic processes to achieve their desired results, no matter what the black letter law may say (see, e.g. the lengths administrations have gone to in order to enshrine race-based preferences in admissions). I'm confident that they'd find a way to put that money to real productive work if they had to.
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How true is this? At some point, rules against perpetual trusts must surely apply. And if they don't apply well.. they should.
It's unconscionable for huge chunks of the economy to be tied up by the wishes of long dead people.
It's time to tax the endowments.
The law is excruciatingly clear that perpetuity limits don't apply to charitable donations, or charitable trusts, for that matter. Technically speaking, the Rule Against Perpetuities only applies to contingent remainders and executory interests, and charitable donations have neither. Practically speaking, courts and legislators are reluctant to invoke perpetuity limits on charities as a matter of public policy. I'm on the board of a nonprofit, and large donations to the general fund are rare. You can get this money from annual fundraising events, membership fees, and small donations, but if someone is looking to drop serious cash they're going to want to know in advance what projects you have coming up that it can be used for. If your projects consist of ongoing expenses, like salaries or scholarships, you'll need to raise about 20 times the annual cost and invest it so the money is always available. The alternative is that people just don't donate because they don't want their money going into a black hole. Sometimes you can get out of it, but usually only in extraordinary circumstances, and even then you'll need court approval and have to notify the AG. There's a lot of fuckery surrounding charitable orgs as it is, and removing restrictions without good reason only encourages that kind of fuckery.
Dang. It's worse than I thought. Thanks for the color. Your posts are always very informative.
I wonder what percentage of wealth is controlled by dead hands at this point?
Of course, in reality, it's often worse than dead hands. It's very live hands with a radical agenda and no accountability. Imagine if Henry Ford could see what his foundation is up to today. These endowments simply must be taxed. I'm always blown away by how much wealth they control, and how it's controlled by a group of elites who have almost no checks and balances. (The whole OpenAI fiasco shined a light on non-profit boards that way).
There are random foundations all over the country with billion dollar endowments. For example, the Kellogg foundation in Battle Creek Michigan has $8.8 billion.
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