# Law & Economics Prof Blog

## A Member of the Law Professor Blogs Network

Monday, December 7, 2015

### The Cost to Harvard Law School of Repudiating the Royall Bequest

Some students at Harvard Law School want to eliminate the Royall crest from its seal on account of donor Royall’s slaveowning.  Presumably this means they want to repudiate the Royall gift. How much money would that cost the Law School,  how would it pay for it, and who should get the money instead?

First, the gift. Mr. Royall left land to Harvard, in a will that was probated in 1786.  If Harvard Law returns the value of the gift and all the money it earned for the school along the way now, that's equivalent to asking what was the value of the original gift plus everything it earned along the way.

By 1815, the land's  value was \$7,593 and the school had kept \$432 of its past income, for a total of \$8,025. My source says Harvard earned 6% annually.  It's 2015 now, so let see what the value would be if reinvested for those 200 years at 6%.   That 2015 value is, using  the standard future value formula from finance (in which 2.7 =  Euler's constant),

8025*  2.7^(.06*(2015-1815)) =  \$1.2 billion.

That may seem high, but  who has reinvested their savings since 1786 without spending any of it? Harvard Law spent most of the income from the Royall gift during those 200 years. It wasn't a waste; spending the income is  why Harvard Law has the reputation it does today. If it had reinvested the money, it would have contributed nothing to society and would have to start its reputation from scratch using the \$1.2 billion accumulation.

So, now that we've figured out that Harvard Law needs to return the \$1.2 billion, how can they do it?

The endowment is \$1.7 billion, so they could just pay it out of that. Income from the endowment will fall by 2/3 if they do, so they'll have to do some budget cuts as well if they take that route. Or, we could have them pay the \$1.2 billion over time, by raising tuition or cutting expenditures. The long term tax-exempt rate is 2.61% now, so borrowing the \$1.2 billion would cost about \$31 million/year. With 1,727 students, that's an \$18,000  tuition increase (or financial aid decrease)  over the current tuition of \$57,000.  With an operating budget of about \$200 million, that's a 16% cut. That  would come almost entirely from cutting labor expense, since that's the big and flexible expense.  Either jobs could be cut  or salaries. Since salaries are set in a competitive market--- the Boston market for clerical workers and the national market for professors and other teachers---   jobs would have to be cut or labor quality will suffer. Note that it is quite legal to cut tenured professors’ salaries, and this might induce some of them to switch to jobs at other schools, saving even more expense.

Since this is being pushed mainly (only?) by students, though, I think a fair question is whether the students who support this would be willing to pay \$18,000/year in return for the Administration meeting their demand. Or, perhaps that isn't fair, since most students don't seem to want the seal changed. If we suppose, generously, that this is to satisfy the desires of 20% of the students, we should ask if each of the ones in that 20% would be willing to give up \$90,000/year for the next three years.

The final question is what to do with the \$1.2 billion. There is no legal requirement to do anything in particular with it, any  more than there is a legal requirement to put the Royall symbol on the seal or to return the money at all. The requirement is purely ethical, for those who think it unethical to keep slaveholders’ money. If Mr. Royall’s estate was still open, it could be returned there. Since it is not, the choice is between tracking down his heirs or try to cy pres it--- that is, to decide how he would want the money used.  He was giving the money to fund a young law school attached to a Christian college in Massachusetts, and he was a moderate conservative and probably  a low-church Anglican.  The obvious choice is to give the \$1.2 billion to Boston College Law School. Boston College is Roman Catholic, to be sure, but I don’t know of any other law school in Massachusetts that has some attachment to historical Christianity. If we go outside of Massachusetts, however, Regent University School of Law, founded in 1988 in Virgina Beach, is one candidate. The best choice, however, would be Trinity Western School of Law in British Columbia. It is far away geographically, but it is brand new--- not yet opened--- and traditional. Indeed, its Christianity has created bitter opposition from lawyers in Canada who say that that is grounds for denial of accreditation because opening the school would deny non-Christian students equal opportunity. Mr. Royall would no doubt favor using his bequest to help such a law school--- and, indeed, might say, were he alive, that such a diversion of his gift would suit his intent much better  than  Harvard Law School’s use of it.

Sources:

http://hls.harvard.edu/dept/sfs/financial-aid-policy-overview/student-financial-aid-budget/

http://pmstax.com/afr/exemptAFR.shtml

https://en.wikipedia.org/wiki/Harvard_Law_School

http://www.counterpunch.org/2015/01/06/harvard-law-schools-endowment-as-catalyst-for-change/