Jim Kenyon: Financial Aid for Dartmouth

With Dartmouth’s price tag approaching $62,000 a year, students and parents have good reason to question whether they’re getting their money’s worth.

The same goes for the rest of the public.

Why should Dartmouth — or any other deep-pocketed private college, for that matter — continue reaping colossal tax benefits afforded to nonprofit organizations when it pays top executives like Wall Street bankers? And how can a college with a $4 billion endowment and which shows no signs of calling off the fund-raising dogs still be considered a charity?

“At some point, a nonprofit gets so rich that it seems kind of obscene to let wealthy universities get out of paying taxes,” said James Miller, an economics professor at Smith College, in a 2011 interview with The Fiscal Times, a digital news service.

The Association of American Universities argues that because of their tax exemption, schools are “able to use more resources than would otherwise be available to fund: academic programs, student financial aid, research, public extension activities, and their overall operations.”

Not to mention lining the pockets of a select few.

My colleague Rick Jurgens wrote recently that a dozen Dartmouth employees received compensation packages of $500,000 or more in 2012, according to the college’s most recent federal tax forms, which are public information. Chief Investment Officer Pamela Peedin topped the list, raking in $1.1 million, including a bonus of $562,500.

President Jim Yong Kim received a $200,000 bonus, which brought his total package to $778,000. Not bad for six months of work. Kim, if you recall, bolted in the summer of 2012, to head the World Bank.

I guess the big salaries and bonuses are to be expected at a school overseen by a bunch of billionaires. Dartmouth’s trustees take care of their own.

The compensation packages lavished on executives wouldn’t seem so egregious if the college didn’t nickel-and-dime its union employees in contract negotiations. In April, a month before the executives’ salary figures were disclosed, Dartmouth also announced that due to “present financial constraints, and the economy as a whole,” most rank-and-file non-union employees would be limited to 1.5 percent pay raises this year. These are often workers — office administrators, science lab technicians and library assistants — who perform essential duties but don’t have much clout.

If Dartmouth is facing “financial constraints,” it can’t blame burdensome taxes. Like most colleges, Dartmouth is exempt from paying taxes on charitable contributions and investment income. Last year, those two sources of revenue brought Dartmouth a combined $716 million.

Sen. Charles Grassley, a Republican from Iowa, has pushed Congress to reconsider the preferential provisions in tax laws that allow elite colleges to get away with “hoarding assets at taxpayers’ expense.” But Grassley has had little success in persuading people in Washington (where there is no shortage of elite college graduates) to look at the underlying reasons behind runaway tuition costs.

“It’s important to understand whether these tax benefits are fueling the tuition increases by subsidizing high salaries for college leaders and rock-climbing walls and other non-educational amenities to try to attract students,” said Grassley, a member of the Senate Finance Committee.

The tax exemptions that wealthy private colleges (Harvard’s endowment is roughly $40 billion) enjoy go beyond the federal level. Many schools receive big breaks on local property taxes as well.

Last year, Dartmouth paid $6.3 million in property taxes to the town of Hanover. That’s a lot of money. But it could have been much more. State and federal laws, however, exempt colleges from paying taxes on property deemed to have “educational purposes,” such as classroom buildings. In Hanover, the assessed value of Dartmouth’s property that isn’t subject to property taxes totals nearly $1 billion.

Michael Ryan, the town’s assessor, crunched some numbers for me. If the college had no exemptions, it would owe the town an additional $10.6 million a year.

Later, I talked with Richard Sansing, an accounting professor at Dartmouth’s Tuck School of Business who is an expert on taxes and nonprofit organizations. I think it’s fair to say he didn’t agree with Grassley and others who are interested in changing laws so wealthy colleges would have to pay more in taxes.

Being a nonprofit “doesn’t mean that people who work there take a vow of poverty, or that the (organization) doesn’t have money in the till,” said Sansing. When talking about endowments, it’s important to remember that colleges don’t think in years or decades but centuries, he said. “When dealing with institutions of an indefinite life span, you need to make sure they can remain financially stable,” he said.

Sansing is a lot smarter me (I’ve also heard he cooks a mean Texas barbecue), but I still have a difficult time accepting the notion that Dartmouth and its elite higher education brethren are paying their fair share of taxes.

Dartmouth is a multibillion-dollar enterprise that strikes me as operating more like a large corporation than a charity. Dartmouth’s business is education. Instead of widgets it produces graduates, many of whom will use their degree to go out into the world and earn big bucks, putting them in a position to make hefty donations to their alma mater.

Tax deductible, naturally.

Jim Kenyon can be reached at jkenyon@vnews.com.