Yale Dips Deeper Into Its Endowment

Yale University announced Monday that it would dramatically increase spending from its endowment, drawing praise from federal lawmakers who have criticized universities for hoarding growing endowment funds while tuition rates continue to rise.

Yale will increase its endowment spending by 37 percent for 2008-2009, a move likely to raise its spending rate significantly above the 3.7 percent the school has paid out this fiscal year. Harvard’s rate is now 4.3 percent.

Though Yale’s $22.5 billion-endowment trails Harvard’s by more than $10 billion, the fund has outperformed its rival for more than a decade.

In response to the ballooning size of university coffers, some legislators have sought to require that educational institutions spend at least 5 percent of their endowment annually.

“The donations to those endowments and the endowments themselves are all tax-exempt,” said Sen. Charles E. Grassley (R-Iowa), who has championed the 5 percent mandate, in a statement Monday. “American taxpayers are subsidizing that tax-exemption, and they deserve public benefit in return.”

Yale previously targeted an endowment payout rate of 5.25 percent and Harvard currently aims for 5 percent, but both universities consistently fall short of those goals.

“We always aim for 5 percent, but we also have to be cautious,” said Harvard spokesman Joe Wrinn, citing the volatility of endowment growth.

Harvard’s payout from its endowment has met its 5 percent goal only once in the last decade, in 2003 when investment returns dipped to 12.5 percent, the lowest rate of the past five years.

Proponents of a 5 percent mandate note that other tax-exempt institutions—such as private foundations—are already subject to the rule, as originally required by the Tax Reform Act of 1969.

In a press release detailing the initiative, Yale President Richard C. Levin said the $307 million budget increase would go toward expanding scientific research and upping financial aid for students in an initiative set to be announced next week.

That initiative is expected to parallel Harvard’s move last month to increase aid packages to students with family incomes from $120,000 to $180,000.

Grassley, the highest Republican on the U.S. Senate’s Finance Committee, lauded Harvard’s initiative in December and again praised both universities’ aid expansions Monday, but expressed continued support for the five percent mandate, calling the proposal “reasonable.”

But the legislation remains in the planning stages, according to Grassley spokeswoman Jill Kozeny, who said the Finance Committee had not yet decided to discuss the issue.

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