Rich D.C. Colleges Don’t Deserve Taxpayer Giveaways

W hile key city services face the budget axe, D.C.’s wealthy universities continue enjoying massive tax breaks. The District currently faces spending cuts of up to $1.1 billion, putting funding for essential services including the Metro, the D.C. Police, and the D.C. Public Schools on the chopping block. These cuts come at a time when government organizations across the city are slashing budgets and laying off workers, further shaking the city’s economic foundations.

One set of local institutions that hasn’t had to tighten its belt this year? The District’s wealthy colleges and universities. D.C.’s universities are some of the richest institutions in the city. George Washington University’s endowment sits at $2.5 billion, while Georgetown University’s endowment is $3.6 billion — greater than the GDP of many countries. The tuition charged by these schools has grown rapidly. For instance, George Washington University charged its undergraduates over $42,000 in tuition and fees in 2010, a figure that has risen to nearly $70,000 for the coming school year. Georgetown’s sticker price has grown even more. Meanwhile, financial reports from Georgetown show that its day-to-day spending on operational expenses has grown by more than 60 percent across the past decade, an increase of hundreds of millions, even as undergraduate enrollment has barely budged.

Schools such as Georgetown, George Washington, and American are flush with cash in large part thanks to tax breaks from District and federal authorities.

Because they’re registered as nonprofits, these universities are exempt from federal tax obligations. However, they’re also given generous exemptions on local property taxes, which require universities to apply separately to the District’s Office of Tax and Revenue. I crunched the numbers to see how much money District taxpayers are leaving on the table by providing universities with tax breaks on the billions of dollars’ worth of property they own throughout D.C.

Using the city’s dataset on tax-exempt properties, I calculated lost tax revenue for the District’s four largest universities. As the largest property owner in the city, George Washington University came in first with a whopping $263 million in forgone property taxes. In second place was Howard University, at $142 million, closely followed by Georgetown University, at $134 million. Rounding out the group is American University, with $82.5 million in property tax breaks.

Taken together, the tax breaks D.C. gives to its wealthy universities exceed the annual budget of the city’s police force. District taxpayers have supported this arrangement until now with the understanding that as they provide hundreds of millions in tax breaks, institutions of higher education should create the educated, civic-minded, and highly skilled workforce key to our nation’s competitiveness and to the District’s well-being.

These universities are not living up to their part of the bargain.

Rather than using their savings to increase enrollment, improve staff pay, or hire tenure-track faculty, D.C. universities have used their dollars to expand their administrative bureaucracies. Take Georgetown University. The university ranks in the top 20 percent of schools across the nation for administrative bloat, employing more than 250 non-instructional staff for every thousand students. Georgetown employs more full-time “Business and Financial Operations” and “Management” staff than instructional staff. In other words, the university has more full-time employees to manage its endowment and administer nonacademic programs than it does to teach its students.

D.C. taxpayers should also be wary of the benefits from degrees they subsidize. It’s one thing to invest tax dollars in higher education, but when subsidized programs fail to generate positive economic returns, taxpayers fund a losing investment. A college degree is no longer the ticket to prosperity that it once was, and many now have a below-average, or even negative, return on their investment. In other words, many students are financially worse off than if they had forgone a degree and entered the labor force.

Consider the average undergraduate studying biology. At American University, that student will see a lifetime return of around $167,000 in increased earnings from their degree, slightly above the national median for all bachelor’s degrees. However, biology students at George Washington University see a negative return of roughly $61,000, while biology undergraduates at Georgetown University lose nearly double that amount. The problem is even more pronounced for graduate degrees: The average return of a master’s in political science may be strong at George Washington, but students at Georgetown lose $135,000, while their counterparts at American lose a devastating $429,000.

Low returns, high costs, and administrative bloat are just some of the reasons why Americans are increasingly skeptical of higher education. They’re part of why Congressional Republicans are considering taxing university endowments and why Democrats in New York City have tried to eliminate property tax breaks for schools such as Columbia University. Whether these tax-code changes happen or not, it’s clear that taxpayers in D.C. should not sit by, subsidizing wealthy institutions, while funding for essential city services is slashed to the bone.