Congress Likely to Move to Close College Tax Loopholes Next Month

Legislation to close some of the tax loopholes that today give universities extra thousands of dollars will probably be included in this year's tax law which the House Ways and Means Committee will introduce in Washington about May 15.

The group is now meeting in executive session to decide the exact nature of the legislation it will present. Extensive hearings on the bill have been held by the Committee at which Paul C. Cabot '21, Treasurer of the College, represented the University.

At least a partial tightening of the tax laws covering educational institutions is likely. Objections center around universities which operate non-educational businesses and because of their educational nature are exempt from normal corporation taxes.

For instance the University of Louisville operates the Churchill Downs race track without paying the taxes on profits other race track proprietors must pay.

"Lease back Deals," in which colleges buy a property from a business and then immediately lease it back on a long term basis to the corporation are also under fire. Universities' tax exempt status on the last item alone coses the government large sums annually.

Harvard officials claim that the suggested laws will have little effect on the University since it has always followed a conservative financial policy and has never sought to capitalize on tax loopholes. Cabot, however, warns that careless "sweeping" legislation might be harmful.

The suggested legislation emphasizes the complexity of university finances. Harvard--with an endowment of about $200,000,000--is definitely a "big business."

Head Man

Paul Cabot is the top figure in the management of this part of the University. His extremely-simple downtown Boston office belies the fact that he not only runs the University's finances but also the $70,000,000 State Street Investment Corporation, an investment trust.

When he was appointed treasurer a year and a half ago, Cabot decided to increase the inadequate research facilities of the University investment office. Cabot's association with the State St. Investment firm made it possible to put some of that firm's research men to work for the University.

Harvard has no investment pattern, by which a certain amount of its funds must go for bonds and a certain amount for stocks. Essentially, however, all universities must insist on conservative investments. People give endowment to a university with the thought of the permanence of their gift in mind. This keeps most universities from speculation.

Pay Off

The face value of Harvard's investments fell sharply during the depression, but the money was soundly invested, and the value of the investments climbed when better days returned. However, interest rates have dropped off considerably since the 1920's.

The University's return on its investments has regularly exceeded four percent. 48 percent of the University's funds are invested in bonds, 41 percent in common stock, 8 percent in preferred stock, 1.3 in real estate, and 5 in mortgages and short term loans to corporations.

Two-thirds of the bonds (over 30 percent of the total investment) are very safe but low-interest bonds--most of them government ones. Sound as these bonds are, they present a problem, for the return on some of them is as small as 1 1/4 percent a year.

The University's investments in stocks are widely split up; there is no corporation that Harvard dominates. A fall in one part of the market is not likely to have a disastrous effect. University oil stocks, while still sound, have fallen somewhat from 1948 highs.

Harvard has only very small holdings in the real estate field which has tended to be rather unreliable in recent years, as far as conservative investors were concerned.

The University must always watch out for public events that will effect the value of their investments. Prior to the 1948 election, the University converted a significant amount of long-term government bonds into short-term government ones. It was felt that the expected Republican administration might not continue to support the price of the long-term bonds.

Insurance Plan

Investments is merely one phase of Harvard's finances. University officials must worry about mass purchasing and the cost of building maintenance.

An illustration of the complexity of the other parts of University's financial affairs is its new insurance program adopted last July. Like a few large corporations, the University now has no fire insurance with outside companies on its academic properties.

The various divisions of the University now pay into a central fund the money they formerly gave to the insurance companies. The University pays for all damages that ordinarily would be covered by insurance.

Before adopting this self-insurer policy, the President and Fellows had a study made of the amount of premiums that Harvard had paid previously. Going back 12 years, the investigators discovered that--with the exception of the hurricane year of 1938--the premiums annually exceeded the amount the University got back for damanges. Last year the various schools paid about $45,000 in premiums and got back about $5,000 from the insurance companies.

When the self-insurer program started, $1,500,000 of Thomas W. Lamont's $5,000,000 bequest was transferred to an Insurance Reserve Fund. Profits from the insurance plan are expected to pay this sum back