Tax measures to help colleges and universities survive the COVID-19 pandemic should be part of any additional economic relief legislation considered by Congress, higher education organizations contend.
Colleges and universities are facing unprecedented challenges because of the pandemic, including enormous expenses and revenue losses, according to Ted Mitchell of the American Council on Education. Some schools may have to close, he said.
And because colleges and universities provide jobs to many communities, the pandemic’s impact on higher education will be felt beyond college campuses, Mitchell wrote in an April 9 letter to the House Ways and Means and Senate Finance committees that was also signed by 31 other higher education groups.
Tax Credits
One proposal that should be part of a “phase 4” recovery bill would make public institutions, including public colleges and universities, eligible for the paid sick and family paid leave credits established by the Families First Coronavirus Response Act (P.L. 116-127), the groups said.
Lawmakers should also consider making large private nonprofits eligible for the credits if they provide such leave, the groups added.
Public institutions should be eligible for the employee retention tax credit enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), the letter suggested.
The groups support temporary enhancements to higher education tax credits. They recommended increasing the American opportunity tax credit from $2,500 to $3,000 a year and raising refundability from 40 percent to 60 percent.
The organizations also suggested modifying the lifetime learning credit to cover 100 percent of the first $2,000 of expenses eligible for the American opportunity tax credit.
Endowment Tax
The 1.4 percent excise tax on the endowments of some private colleges and universities should be suspended in light of sharp stock market declines caused by the pandemic, the letter said.
The market losses “will not only hurt schools that rely significantly on endowment revenues for operations, but also drive up student and family need and affect both short- and long-term philanthropy,” the groups explained.
The organizations noted that their ultimate goal is repeal of the “perverse and damaging” tax.
A separate proposal endorsed by the groups would suspend the taxability of scholarships and grants.
Bond Financing
The letter also urged Congress to temporarily restore advance refunding bonds, which were eliminated by the Tax Cuts and Jobs Act. The bonds would permit schools to take advantage of lower interest rates to reduce their debt service costs, the groups said.
The letter also recommended creation of a temporary Pandemic Response Bond program that would allow public and private nonprofits to issue bonds for COVID-19 costs and capital projects.
The program would help higher education institutions supplement lost revenue more rapidly, absorb COVID-19-related expenses, and amortize the costs over the long term, the letter said. The program would also help schools provide additional debt-financing instruments for capital infrastructure expenses, it added.
Outlook
The prospects of a fourth COVID-19 stimulus bill are unclear. House Democrats have been pushing another stimulus package to help families and small businesses. But Republicans oppose another bill and prefer to focus on implementing the CARES Act.