What if Community Colleges Had Real Endowments?

Lane Glenn, the president of Northern Essex Community College in Massachusetts (and a former colleague), has asked a great question: What would it look like if community colleges captured a small share of last year’s endowment gains from wildly affluent, highly rejective institutions and used them to form endowments?

So many thoughts …

First, it’s worth a try! Private universities benefit greatly from tax exemptions on their property, their investments and their donations. Tax exemptions amount to a form of subsidy. That subsidy by the public can bring with it an expectation to support the public; in fact, it would be strange if it didn’t. And that’s before even counting the public subsidies that run through students in the form of financial aid. So let’s dispense with the hand-wringing about “private” wealth.

Glenn offers some useful figures. Harvard, by his math, spends about $282,000 per year per undergraduate student. NECC spends about $14,000. (For context, Westmoreland spends about $9,500.) A basic application of the theory of declining marginal utility suggests that an increase of, say, $1,000 per student here would have a much greater impact than a decrease of that same $1,000 at Harvard. And it wouldn’t be that hard to do.

Turning to my own state, he notes that the University of Pennsylvania’s endowment grew 28 percent last year, to around $31 billion. Ballparking, let’s say that’s $7 billion in a single year. Applying a lower tax rate than I personally pay, what if $1 billion of that were diverted for a single year to the state’s community colleges to establish endowments?

The state has 15 community colleges. To keep the math easy, I’ll assume the billion is divided by 15, resulting in around $67 million per college. (It would probably scale by size of school, but this should give a general idea.) At a 5 percent payout rate, which is fairly normal for an endowment, that would add about $3.3 million per year to each college’s operating budget. My college’s operating budget is about $38 million per year, so we’d be looking at an increase in the 8 to 9 percent range. And because it’s an endowment, that increase would form a new baseline.

That would wipe out the operating deficit and allow for badly needed hiring of faculty and staff. It would allow for actual planning. That assumes, of course, that the state and/or county didn’t use the new funding as an excuse to reduce their own support even more.

I wouldn’t put it past them.

Glenn goes on to suggest that in addition to establishing endowments, Harvard (in his case) would agree to take a set percentage of community college transfer students. I’m a bit more skeptical on this one, because unlike the endowments, the benefits of compelled transfer would benefit certain parts of the state much more than other parts. Students in or near Philadelphia would be much more likely to be able to transfer to Penn than students from greater Pittsburgh. I’m supportive of greater transfer, but geography looms large for many of our students. Even in a smallish state like Massachusetts, fewer folks west of Worcester would be able to relocate to Cambridge than folks from the Boston area.

Still, the real appeal for me is funding that the community colleges could count on regardless of the political winds. That’s what the elite private schools have that we don’t. Funding like that would allow for more planning, as opposed to reaction. We would be able routinely to replace people who leave, as opposed to rationing attrition. Heck, we might even be able to pay off some debt, thereby reducing deadweight costs in annual budgets. It would be remarkable.

And that’s from a small fraction of a single year’s endowment gains at a single (albeit wealthy) institution. It’s not even an ongoing levy. The numbers are large enough at the elites, and small enough here, that converting a one-time assessment into ongoing operating income would make meaningful change across an entire state for the institutions that most directly serve local employment needs.

Not every state has an Ivy League university in it, of course. But what if we applied a similar principle to, say, the Musks and Thiels of the world? What could we accomplish?

It’s a useful reflection during election season. Thank you, Lane Glenn. I needed that.