Rhode Island bills would tax private college endowments and properties

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Diving brief:

  • Two bills proposed in Rhode Island would allow cities and towns to tax private college endowments and properties.
  • A law project would allow a tax of up to 2% on private school endowments, the proceeds of which would benefit the K-12 public school districts where the colleges are located. The other bill would allow taxes to be levied on the property of private, non-profit colleges, generating revenue that would go into general municipal funds.
  • The measures would fall most to wealthy state institutions, namely Brown University, which opposes it.

Overview of the dive:

Efforts to tax colleges have extended to the federal government, including with reform legislation the Trump administration launched in 2017. This so-called endowment tax imposed a 1.4% excise tax on the net investment income of private institutions that enroll at least 500 tuition-paying students and have assets of at least $500,000 per student.

He caused an outcry from the swath of affluent institutions he touched and other higher education leaders.

Susan Whealler Johnston, President and CEO of the National Association of College and University Business Officers, wrote to the US Treasury Department in 2019, calling the tax “an unprecedented and damaging attack on the tax-exempt status” of institutions.

Democrats proposed to limit the tax in a 2021 spending plan, but it remains unchanged and in effect.

Attempts at the state level to tax colleges have reached public institutions. In Pennsylvania, law Project End property tax exemptions for public colleges. It would include state-related institutions, such as Pennsylvania State University, which receive state funding but operate with more autonomy than colleges in the state’s higher education system. Pennsylvania.

The bill’s sponsor, Democratic Representative Angel Cruz, written in a public note that keeping colleges off the tax rolls means that the financial burden of municipal services falls unfairly on individual taxpayers, even though colleges benefit from these services.

Similarly, the sponsor of the Rhode Island bill, Democrat David Morales, argued that private colleges should pay their fair share.

Morales did not respond to a request for comment on Monday. But to a recent press conferenceMorales pointed out that Brown University’s endowment had risen to $6.9 billion at the end of fiscal year 2021.

“Meanwhile, our public schools in Providence remain underfunded, lack mental health resources, and our facilities are collapsing,” Morales said at the event.

A 2% tax on Brown’s endowment would mean an additional $138 million for Providence.

Brown’s spokesman Brian Clark said in an email that legislative efforts to tax institutions are hampering their ability “to help students, improve education, push the boundaries of knowledge, advance technological innovation and improve the health and well-being of our local communities.”

Endowment money is not just kept in reserve, but increasingly used to support operations, Clark said.

Clark also said such legislation overlooks the contributions Brown makes to the surrounding community, including teacher training, tutoring and other programs in public schools and health care. The institution employs 4,700 residents and injects more than $200 million in research spending into the local economy each year, Clark said.

The National Association of Independent Colleges and Universities, which represents private, nonprofit institutions, is also against taxing endowments. Karin Johns, the association’s director of tax policy, in an email called the practice “ill-conceived at the federal level” and said it “set a dangerous precedent at the state level.”

Private colleges depend on charitable donations, Johns said, adding that when cities and towns fail financially, “they just can’t take the money from private colleges.”

“And the same goes for taxing private college property,” Johns said. “Mayors need to reshuffle their budget priorities and make better funding decisions — and not look to charitable donations to private colleges to shoulder that burden.”

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