Some of the richest U.S. colleges are pushing back against scrutiny by Congress over the tax-exempt status of university endowments.
Lobbying disclosure forms show almost two dozen schools such as Princeton University, University of Notre Dame and Cornell University are including endowment tax issues in their federal agenda, along with perennial topics such as student loans and funding for scientific research.
Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee, said Monday that college endowments would be included in a tax code review. The tax-exempt status attracted the interest of Congress at a hearing in October 2015 and remained in the spotlight with initial proposal by Rep. Tom Reed, R-N.Y., for the largest endowments to spend more on tuition assistance. Two congressional committees responsible for the tax code followed with an inquiry on how the funds are managed.
“Endowments are part of that overall trend of things to worry about from Washington,” said Larry Ladd, a director of the higher education practice at Grant Thornton. The accounting and advisory firm included endowments in its annual higher education report, advising clients to “prepare for legislative changes” and expect an increased focus on operations, costs and spending. Endowment investment income isn't taxed.
The term “endowments'' began appearing on more disclosure forms in the quarter following a congressional subcommittee hearing in October 2015 and after the joint Senate Finance and House Ways and Means Committee inquiry into the richest 56 private colleges. Republicans in Congress and President Donald Trump are expected to tackle tax overhaul.
Go make the tax code more efficient, “Congress must undertake a comprehensive and thorough review of the entire statute,” Mr. Hatch said in his statement. “That includes exploring areas of the tax code related to universities and their endowments. I look forward to discussing this topic further with Finance Committee members and the Trump administration.”
Mr. Reed, who represents western New York and was a vice chairman for Trump's transition team, wants the richest colleges to spend more of endowment income on tuition breaks for middle-income families.
Donors receive tax breaks for giving to non-profits including colleges. Under Mr. Reed's plan, which is still being developed, individuals may be able to deduct 150% of scholarship donations that support working-class students while unrestricted gifts would be deductible at 125%. Restricted gifts of more than $5,000 wouldn't be deductible.
“Between what has been said on the campaign trail and what we have seen in Congress in recent months and over the last two years, we know this is an issue that's foremost on some members' minds,” said Josh Farrelman, head of government relations at the University of Rochester, which has a $1.9 billion fund and some hospital affiliates in Mr. Reed's district. “We are trying to do our jobs in terms of educating what these issues are and addressing some of their concerns.”
Schools said that some endowment money is designated by donors for specific purposes and can't be freely spent. Endowments also invest for the long term and help fund university operations for current and future generations of students, educators said.