Forty-five years ago the front pages of Nebraska newspapers blared news of a scandal at the beloved Boys Town charity in Omaha. The organization, which runs group homes for troubled adolescents, was hit by news reports that it was sitting on a $209 million-and-growing endowment even as it cast itself as operating in Dickensian poverty.
Reporters at the Sun Newspapers of Omaha, owned by a young local investor named Warren Buffett, won a Pulitzer Prize for their reporting on the fundraising practices of Boys Town.
The outrage that followed sparked changes at the charity, although it remains one of the richest in the country, with an endowment now topping $900 million.
Today, nonprofit endowments are under fire again, both from philanthropy critics and on Capitol Hill — and some members of Congress may not be satisfied this time to wait for public pressure to force changes.
During the past decade, the funds of elite colleges and universities have attracted the bulk of the criticism. In 2007 and 2008, Iowa Republican Sen. Charles Grassley requested detailed financial information on private-college endowments and held meetings to discuss how they were being used, or not used, to help the neediest students. He suggested imposing a mandatory payment for nonprofit endowments similar to that required of private foundations.
“If the endowment per student at an institution is greater than or equal to the price of tuition, room, board, and all fees per student, should contributions to such an endowment still be tax-deductible to the donor?” Mr. Grassley said at the time.
The discussion was tempered by the 2008-9 economic recession but was revived in Congress in 2015. Last year, two congressional committees sent letters to dozens of institutions requesting detailed information about the use of their endowments. And New York Republican Tom Reed proposed forcing colleges with endowments of at least $1 billion to spend 25 percent of investment returns to help poor students.
The scrutiny of the funds was spurred by research that showed public spending and tax subsidies benefit the richest institutions and that many do comparatively little to lift poor students into the middle class.
According to news reports, Mr. Reed is now considering putting forth a proposal that would give advantageous tax treatment to donations for scholarships to benefit lower-income students and gifts that are made unrestricted. Restricted donations of more than $5,000 would not be tax-deductible.
Republican lawmakers have said they will include a review of nonprofit endowments amid work to rewrite the tax code this year.
Easier Access to Data
The Boys Town investigation required securing paper records from the Internal Revenue Service. Electronic records have since made it easier for the public to review endowment holdings, and charity watchdog groups like CharityWatch and the BBB Wise Giving Alliance consider those numbers in their ratings of nonprofits. They ding groups that hold more than the equivalent of three years’ worth of operating expenses, a practice that angers some nonprofit leaders.
Still, those watching the issue closely say that changing how higher-education and other types of nonprofit endowments, and contributions to them, are treated under the tax code will be hard to do.
“Like any government subsidy, once you give it, it is hard to take it back,” Michael Fricke, a lecturer at the University of Illinois who has called for taxing nonprofit endowments’ investment returns.
But some argue such scrutiny is fundamentally flawed, given how the resources might be shifted. Said philanthropy expert Howard Husock of the Manhattan Institute, “I’m not convinced — and I think a lot of Americans are not convinced — that the government would do a better job spending that money.”
