What To Do With The Well-Endowed

The proposal to tax the largest university endowments is -- let's see, how can I put this tactfully -- one of the stupidest ideas to recently emerge from the statehouse, as the Globe rightly editorializes today.

But it does bring to mind an intriguing proposal put forward by Chris Gabrieli during his recent unsuccessful gubernatorial campaign. The idea is to encourage companies and non-profits in Massachusetts with large trusts or endowments to invest a larger portion of those funds in in-state development.

If local companies like State Street -- as well as universities like Harvard -- committed to investing, say, a minimum of five percent of those funds into Massachusetts companies, that would provide an enormous pipeline for new and developing companies. It would prompt growth of those businesses, and encourage entrepreneurs to come to or stay in Massachusetts to start their businesses, all of which leads to more jobs and state tax revenues.

It's not that simple, of course. Mandating a minimum percentage is almost certainly too constrictive. Also, many of those large funds are ill-equipped to do well-timed direct funding; they are better suited to funding venture capital funds that then put the money into start-ups or companies well-positioned to expand with a timely shot of capital. Gabrieli has suggested to me that the best method might be encouraging (but not mandating) large institutions to invest more of their funds with local VCs, which do much of their funding in-state. (Gabrieli, of course, made his fortune as a local venture capitalist, but at this stage of his career I don't think he's seeing this as a self-serving policy.) That approach seems promising, although it clearly needs more study.

This doesn't have to mean they'd be forced to choose worse investment opportunities. Gabrieli compares the general concept to the way that some large corporate trusts are being encouraged to do "responsible investing." When faced with investment options of otherwise equal value, if one of them has a positive social value -- reducing greenhouse gases, for instance -- that should serve as the tie-breaker. In this case, the tie-breaker would be the in-state location.

Skeptics of "encouragement" will have a legitimate objection to all this, but I'd be eager to see it tried. And remember that one of the best forms of encouragement is the threat of other action; none of these institutions wants to see the state government targeting their trusts and endowments with statutes and regulations, so the proposal for the endowment tax, as stupid as it is, may be helping to create the right atmosphere for a creative voluntary proposal like Gabrieli's

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