NORMAL — No one knows what form the final version of the tax reform package might take, but Illinois State University officials are taking no chances.
Because of a provision that would affect refinancing of tax-exempt bonds and similar types of debt, ISU is pushing to complete a planned refinancing of debt for the Cardinal Court project before the end of the year. Otherwise, a change in the law could cost the university several million dollars.
But that isn't the only provision that has higher education officials concerned.
Other elements in either the Tax Cuts and Jobs Act (H.R. 1) or its U.S. Senate counterpart would turn some tuition waivers or reductions into taxable income, eliminate tax deductions for student loan interest and impose an excise tax on large endowments at private colleges and universities.
Illinois Wesleyan University President Eric Jensen said the tax reform package “reflects short-sightedness in a number of ways.”
The provisions would make education more expensive and less accessible at a time when the country needs more college-educated workers, according to Jensen and others in the higher education community.
Jensen notes that the average college graduate makes $800,000 more over their lifetime than those without college degrees — and they pay taxes on that higher income.
“We're all better off” when people graduate from college, said Jensen. “It's a great use of our resources.”
Under current law, tuition reductions for undergraduate tuition given to employees and their dependents are not considered taxable income and neither are tuition reductions for graduate students involved in teaching or research activities for the institution.
But H.R. 1, passed by the U.S. House on Nov. 16, would make them taxable.
U.S. Rep. Rodney Davis, R-Taylorville, voted for the bill but opposes the provision related to taxing tuition reductions, calling it “tragic.” That provision is not in the Senate version of the tax reform package. The Senate is expected to vote on the tax plan when it returns next week from its Thanksgiving recess.
Davis said he has a commitment from the chair of the House Ways and Means Committee, U.S. Rep. Kevin Brady, R-Texas, that the tuition taxation provision would be eliminated in conference when the two bills are reconciled.
“Our goal is to get students out with less debt,” said Davis. “I don't think it was well thought out.”
Half of the employees receiving reductions for themselves or their families had income of $50,000 or less, according to a 2017 survey of nearly 300 institutions by the College and University Professional Association for Human Resources.
Dan Stephens, vice president of finance and planning for Illinois State University, said 40 ISU employees are using the benefit to take undergraduate courses this fall. The average value of the waived amount per employee is $2,110 and the average salary of employees receiving the waivers is $40,671, according to data compiled by ISU.
The most immediate concern for Stephens is a provision that would remove the ability of universities to refinance existing debt as tax exempt if they do so before the normal “call date” — the date at which a bond can be redeemed prior to maturity. For a 30-year debt, that is typically 10 years, according to Stephens.
ISU is in the midst of refinancing its Cardinal Court debt before the call date.
“The ability to refinance at tax exempt rate could save several million dollars,” he said.
Stephens said, in the longer term, the provision would not be a major problem for universities but would “require more strategic planning.”
Another provision would impose an excise tax on income generated by private college and university endowments.
The bill originally would have imposed the tax on endowments that amounted to more than $100,000 per full-time student after the school's initial 500 students. The trigger amount was changed to $250,000 per full-time student after the first 500. That would affect about 70 private college/university endowments nationwide.
Davis said neither IWU nor any other schools in his 13th Congressional District would be affected, but “it's one we're keeping on the radar.
Jensen said even though IWU's endowment wouldn't be affected by the measure in its current form, “I oppose it on principle. … Faulty logic is faulty logic.”