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Jay Gonzalez’s revenue plan would tax state’s major colleges and universities

Jay Gonzalez, the Democratic nominee for governor, has proposed expansive education and transportation plans.
Suzanne Kreiter/Globe staff
Jay Gonzalez, the Democratic nominee for governor, has proposed expansive education and transportation plans.

For weeks, Democratic gubernatorial nominee Jay Gonzalez has faced criticism from Republicans for not detailing how he will pay for his expansive education and transportation plans.

Now comes his proposal: Tax Harvard and the state’s other richest universities and colleges to the collective tune of a billion dollars each year.

The Needham Democrat says it’s a “fair” way to raise the revenue needed to upgrade the state’s beleaguered transportation infrastructure and infuse more money into early childhood, K-12, and public higher education — all without raising taxes on any resident.

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The richest colleges and universities “have accumulated huge wealth as a result of exemption from taxation,” Gonzalez said of the nonprofits. “We need them to step up and help out and help make sure we’ve got an economy that’s working for everyone.”

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But the strategy, aimed at the private institutions of higher education with the biggest endowments, risks antagonizing one of Massachusetts’ marquee industries just as Gonzalez’s general election campaign against Governor Charlie Baker, a Republican, heats up. And it comes after the Republican-controlled Congress and President Trump slapped a tax of their own on elite institutions.

Representatives of colleges and universities immediately panned the proposal.

“That’s a terrible idea,” said Richard Doherty, the president of the Association of Independent Colleges and Universities in Massachusetts, a trade group. “I’m very disappointed that that’s the tack he’s taking, particularly given how important colleges and universities are to the economy of Massachusetts.”

Gonzalez’s plan would levy a 1.6 percent tax on endowments of any private, nonprofit college or university with a fund of more than $1 billion. The tax would be applied to the average value of the endowment over the previous five years to balance out big market fluctuations, according to Gonzalez.

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If the plan were in place, he says, it would have taxed Harvard University, MIT, Boston College, Boston University, Williams College, Amherst College, Tufts University, Smith College, and Wellesley College.

According to Gonzalez’s calculations based on 2013-2017 data, the state would have this year taken in $563 million from Harvard, $210 million from MIT, and between $26 million and $37 million from the other nonprofit colleges and universities that made the cutoff.

Gonzalez argued that neither the state constitution nor federal law would be an impediment to his plan, but he did not directly answer a question about if the state’s nonprofit laws would have to change. “The details of what the legislation looks like in order to make it happen are for another day,” he replied in an interview. “But we will file the legislation in a way that achieves this outcome.”

The proposal, by design, creates a contrast with Baker, who has emphasized his general opposition to new taxes during his almost four years in office.

As part of the argument for his plan, Gonzalez pointed to a 2015 study that found Harvard got $48,000 per full-time equivalent student in total federal, state, and local appropriations and tax subsidies. But, he indicated, the primary reason for the tax is not reciprocity for services, but as a way to raise revenue for needed programs.

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Because colleges and universities have benefited financially from their tax-exempt status, “I think it is fair to ask those institutions that have accumulated so much wealth . . . to pay what is a modest tax,” said Gonzalez, a Dartmouth College and Georgetown University Law Center graduate.

The plan from Gonzalez, who trails Baker by a wide margin in public polls ahead of the Nov. 6 election, is not the first effort to squeeze money out of wealthy colleges and universities.

Republicans in Congress last year enacted a 1.4 percent tax on the investment earnings of high-endowment institutions — a levy that top college and university officials in Massachusetts and across the nation have called “unprecedented and damaging.”

In a joint letter to top congressional officials, nearly 50 college and university leaders excoriated the idea of taxing their academic institutions, and said their endowments support critical work.

“Taxing college and university resources will reduce . . . the impact of our institutions, and the impact of our students,” they wrote. “We will each have less to give in aid, less for research, and less to support public engagement in the lives of our communities.”

Colleges continue to lobby in the hopes of repealing the federal tax. Of the nine colleges that would be taxed under Gonzalez’s plan, six (all but Tufts, BU, and BC) will have to pay the federal tax next year.

University officials have feared that the Republican tax plan would open the door to state endowment taxes too.

“The federal government has put up a green light and states are going to be looking at all these,” said Steven Bloom, a lobbyist with the American Council on Education, which represents university leaders.

No state currently taxes college endowments, Bloom said.

Because they are nonprofits, colleges are exempt from paying property tax to local cities and towns. However, local officials around Massachusetts ask them each year to contribute voluntarily to cover the cost of city services they utilize. Some schools contribute but few pay the full amount.

Gonzalez’s plan is more aggressive than the one put into law by Trump. While federal statute now taxes many of the institutions’ net investment income, Gonzalez would have Massachusetts tax the wealthiest colleges and universities based on the size of their endowments, a much larger amount.

But he says the total amount of new taxes levied on the institutions is small compared to their yearly endowment growth.

In his Democratic primary fight, Gonzalez and his party opponents proposed several high-cost plans — from fixing the MBTA to broadly expanding prekindergarten.

Gonzalez, for instance, promises every child age 0-5 will have access to affordable child care and preschool by the end of his first term, an effort he has said would cost “hundreds of millions of dollars.”

Their proposals relied on a big new stream of revenue for the state: a ballot question that, if passed, would have raised the state income tax on Massachusetts’ highest earners and put that money into transportation and education.

But in June, the state’s highest court deemed the measure unconstitutional. It would have brought in an estimated $2 billion in new revenue next year.

Since Gonzalez won the Democratic nomination earlier this month, Baker’s campaign and the state Republican Party have pressed him on how he’ll pay for his expensive plans — even starting a website, HowWillJayPay.com.

The Democrat now has an answer, even as he acknowledged it won’t cover the cost of all the programs he wants to put in place.

“This is bold. It is significant. And I think it’s an incredibly important first step for us to make,” Gonzalez said. “This won’t solve every problem, but it will make a lot of progress toward fixing our transportation system and getting our education system to where it needs to be, and this will be my first and primary focus.”

Laura Krantz and Deirdre Fernandes of the Globe staff contributed to this report. Joshua Miller can be reached at joshua.miller@globe.com. Follow him on Twitter @jm_bos.