Mudville

Or walk-off shot

Many innings into this, four conclusions seem to me to be unavoidable.

1. Princeton has no legitimate excuse for charging tuition.

Net tuition revenue (after aid) for 2006-2007 was $67,000,000. Reinvestment (endowment additions, appreciation, gains, and earnings not spent) in the same year was $2,738,300,000, which means that net tuition revenue was 2.4% of endowment reinvestment (a half of one-percent of the endowment itself). If Princeton had not charged tuition last year endowment reinvestment nevertheless would have been $2,671,300,000. The difference between that and actual reinvestment is entirely insignificant. Therefore there is no sufficient financial excuse for charging tuition. If there is a non-financial excuse, I haven’t heard it, and I seriously doubt that it could have any substance.
To make matters worse, Princeton had an operating surplus of $141,525,000 last year (that is, operating revenues exceeded operating expenses by that amount), which means that if Princeton had eliminated tuition (and spent an unchanged amount from the return on the endowment) it nevertheless would have had an operating surplus (in the amount of $74,525,000).

2. Princeton is a profligate spender.

Princeton spends significantly more per undergraduate than other schools. For instance, last year:
• Amherst spent $78,883 per student;
• Brown spent $98,093;
• Dartmouth spent $163,415, and
• Princeton spent $204,802.
Princeton consistently increases its spending at super-inflationary rates. For instance, over the last ten years the national annual rate of inflation has averaged 2.6%. By comparison, over the same period, Princeton has increased its spending at the average annual rate of 7.0%, which is, on average, nearly three times the national rate.

3. Princeton is not a charity entitled to tax-exemption.

When the government treats a potential taxpayer as tax-exempt the effect is not a reduction in government spending, it is a shifting of the tax burden from the exempt entity to the non-exempt taxpayers. Because Princeton is treated as a tax-exempt charity, tax dollars are taken from the pay-envelopes of wage-earners, instead of from Princeton’s investment accounts (or from the investment accounts of those who donate to Princeton). There is no ethical or equitable rationale for that shifting of tax burden.

4. Princeton’s endowment is needlessly at risk.

Aggressive, risky investments may be warranted for investors who have needs that cannot be satisfied with low rates of return. Princeton has a runaway endowment. It has no need (or even use) for high rates of return. The entire investment return on the endowment in excess of four or five percent per year is reinvested. All of Princeton’s needs can be satisfied with an annual investment return five percent greater than the rate of inflation. That target can be met with a portfolio of fixed-income securities, preferreds, and utility stocks. The latest debacle in which our biggest banks have embroiled themselves should be evidence enough that Princeton’s current policy of investing (47% of the endowment) in hedge funds, private equities, foreign stocks, and other high-risk securities is pointlessly dangerous.