State Proposals to Tax Private University Endowments: The Bills, the Math, the Budget Risk

Massachusetts state representative Natalie Higgins, a Leominster Democrat, has refiled legislation this session that would impose a 2.5 percent excise on the portion of private university endowment assets above $1 billion. The threshold captures only the wealthiest institutions in the Commonwealth: Harvard, MIT, Boston College, Boston University, Northeastern, Tufts, Williams, Amherst, Smith, and a handful of peers. Higgins has framed the money as a recurring source for public higher education, which absorbed years of enrollment pressure while private balance sheets recovered.

In Connecticut, New Haven Mayor Justin Elicker has renewed a parallel push, asking the General Assembly for authority to levy a tax on Yale's enormous investment income. Yale reported an endowment near $41.4 billion in 2024, and the university's tax-exempt property sits inside a city that must fund schools, firehouses, road repair, and pension obligations from a constrained property tax base. The Connecticut proposal is not an abstract debate. It is a city, a university, and one very large number.

The Political Logic Is Easy to Follow

Local aid formulas reward municipalities that have taxable property, not those that host tax-exempt universities. A selectman can point to an empty mill building and then to a university science building across the street; both are real estate, but only one pays property tax. That gap is the legislative fuel. Mayors and town managers argue that endowments have grown faster than municipal budgets while universities buy more land, remove it from the rolls, and then ask for more police and fire coverage. The state responds with payments in lieu of taxes, usually a fraction of what full property taxation would produce.

Massachusetts, for example, has institutions that would trigger a $1 billion threshold almost immediately. Most state colleges and public universities would not. That matters because the bill's supporters can correctly say it targets concentration, not the sector. But the same concentration means a handful of employers and research anchors, not an abstract higher education, would pay every dollar.

Connecticut's version is more pointed. New Haven's state delegation and mayor have pushed for a city option, rather than a statewide formula, because a broad threshold might apply only to Yale among private campuses. The city already receives voluntary payments from Yale, but those payments are negotiated, not statutory. An endowment tax would shift the conversation from philanthropy to liability.

How the Revenue Math Actually Works

There are two distinct designs hiding under the same headline. An asset-based excise taxes the fair market value of the endowment above a threshold, regardless of what the portfolio earns that year. An income-based excise taxes net investment income, tracking the approach the federal government adopted in 2017. The distinction determines whether a bad market year still produces a tax bill.

Under a 2.5 percent asset-based levy with a $1 billion exemption, a $41.4 billion endowment would owe roughly $1 billion a year before deductions, exemptions, and phase-ins. That is simple arithmetic. An income-based levy would be more volatile: a strong year might generate a similar figure; a negative-return year might generate close to zero. University finance officers understand this difference, and so do the bill sponsors. The Massachusetts design is the blunt instrument; the federal design is the scalpel.

The federal government has already crossed this line. The 2017 Tax Cuts and Jobs Act applied a 1.4 percent excise to the net investment income of private colleges that enroll at least 500 tuition-paying students and hold at least $500,000 in endowment assets per student. The rule lands on a few dozen institutions. State bills often use that threshold as a starting point, then swap in local priorities such as public college funding, student aid, or municipal revenue sharing. The Internal Revenue Service publishes guidance on the federal excise, and its compliance burden is one reason private colleges have built endowment tax working groups even in states where no bill is active.

Why Universities Push Back

Endowments are not a checking account. The money is a collection of thousands of funds, many of them restricted by donor gift agreements to scholarships, instruction, collections, or research. A university cannot simply sweep the next year's tax bill out of unrestricted cash; it has to run the charge through the same budget process that supports faculty lines and financial aid. Distribution from an endowment also tends to be based on a trailing average to smooth volatile markets, usually in a range between 4.5 percent and 5.5 percent of asset value. A 2.5 percent asset tax would sit on top of that, consuming a share of annual returns before any spending reaches a lab or a classroom.

The legal argument from universities runs in a different direction. Private colleges hold 501(c)(3) status and state constitutional and statutory property tax exemptions. A university's general counsel will argue that taxing endowment assets is a backdoor property tax, or an unconstitutional targeting of a particular class of nonprofit. The first test of that argument would take years, which is itself a deterrent: cities and states avoid taxes that arrive with a decade of litigation attached.

Donor restrictions add a second complication, as this site's earlier reporting on donor intent lawsuits showed. A donor who endowed a named chair in 1987 did not fund a state budget stabilization line. If an endowment tax forces a university to reduce chair payouts, families and alumni notice. The political cost can exceed the fiscal benefit.

What This Means for Your Department

A physics department chair I'll call Dr. O ran a version of this calculation for her own institution last March. The proposal would have cost her campus, on paper, about 1.2 percent of the operating budget. Because most budget lines were fixed, the cut landed on a search for an instrumentation engineer, a graduate recruitment visit scheduled for the first week of February, and a shared helium recovery line. Two of those items sat in the same lab. She did not object to paying a tax; she objected to discovering it after the dean's budget memo went out.

The base rate for these proposals is failure. Most get a hearing, a think-tank panel, a constituent email campaign with a form letter template, then die in committee. No state has enacted a broad endowment excise. But universities often respond as if the risk is already priced in. That means slower approval for open faculty lines, more scrutiny of graduate stipend increases, and deferred maintenance on buildings that already have a backlog. That administrative caution is what a campus feels first.

Administrators should map the exposure, not wait for the fiscal note. A provost who can say a 2.5 percent asset tax would cost our campus X, and our current endowment payout already covers Y percent of financial aid, is in a better position to negotiate a payment-in-lieu-of-taxes agreement than one who waits for the mayor to produce a spreadsheet. The NACUBO-Commonfund Study of Endowments is the shared data source both sides cite, and it is worth reading the same tables your state representative is reading.

What to Watch in This Legislative Session

The Massachusetts bill's path runs through the Joint Committee on Revenue, where similar proposals have stalled before. What is new is the state's own budget pressure: public campuses have absorbed midyear rescissions, and an endowment tax is an easier floor amendment than a broad income surcharge. The Connecticut proposal will likely resurface as a New Haven-specific authority bill, tied to the city's next round of voluntary payment negotiations with Yale rather than to any statewide tax.

Other jurisdictions are watching for a first mover. A city option would matter more than a state excise because it is replicable. If New Haven could tax Yale investment income, Providence would ask why it cannot tax Brown's returns, and Princeton's governing body would get a call. That is why university associations have treated these bills as a national property tax fight rather than a local curiosity. This site's prior reporting on university property tax exemption challenges traces that same pattern: one city starts, others copy the language.

None of this means an endowment tax will pass. The largest endowments employ sophisticated lobbying and have long-standing relationships in their statehouses. But the proposals have already changed behavior, and that is cheaper for sponsors than passing a statute. Cities extract larger voluntary payments, universities announce new local spending on schools and police, and the bill quietly disappears. Whether that counts as success depends on which side you ask.

If you want to find the exact language of an active bill, the Massachusetts General Court and the Connecticut General Assembly both publish bill text and fiscal notes online. Read the definitions first: the difference between endowment assets and net investment income decides everything that follows.

Next step for your department: take your university's latest audited financial statement and locate the endowment note, then calculate what a 2.5 percent levy above $1 billion would cost your institution. If that number is smaller than expected, you can say so at the next faculty senate meeting with a specific figure instead of a feeling.

Photo by Tim Alex on Unsplash