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Central Hall | Collegian

 

A proposed tax could force Hillsdale College to pay up to $700,000 a year to the federal government.

As part of the Republicans’ $1.5 trillion tax package, a new endowment tax would make private, nonprofit colleges and universities pay 1.4 percent on their yearly endowment income if the endowment is equal to $250,000 or more per student. It would affect nearly 70 institutions nationwide, including Hillsdale College and much of the Ivy League. The House passed the bill on Nov. 16, and the Senate voted Wednesday along party lines to open debate on the tax plan. A vote on the bill could occur by the end of the week.

Hillsdale’s current endowment is $548 million, which breaks down to approximately $364,000 for each of the college’s 1,507 students – surpassing the $250,000 minimum.

Based on how the law defines an endowment’s income, Patrick Flannery, vice president for finance and college treasurer, estimated Hillsdale could pay as much as $700,000 a year if the legislation passes. The college operates on a $121 million annual budget.

“Even a half million dollars per year, that’s enough to have an impact on how much money you can get distributed to general operations for the college,” Flannery said. “It’s something that we will have to think about: How are we going to make up for that?”

For now, Flannery said the college is waiting to see what Congress decides.

Matthew Spalding, associate vice president and dean of educational programs for the Allan P. Kirby Jr. Center for Constitutional Studies and Citizenship in Washington, D.C., said the tax comes in response to a general outrage among members of Congress that schools with large endowments are using much of them, not to benefit students, but more like investment funds.

“At that point, that endowment becomes something different,” he said. “If there is to be an endowment tax, it should only apply if the amount in the endowment fund exceeds that which is needed to support exempt purposes, such as direct asset use or providing financial support for students.”

Spalding added that a broad perception that much of academia support a liberal agenda may also contribute to the support behind the proposal. An overwhelming majority of Hillsdale’s endowment supports scholarships, academic programs, and faculty, Flannery said.

He became aware of the intended tax days prior to the plan being introduced in the House on Nov. 2, and he has been in discussion with members of Congress since then. College President Larry Arnn joined him in some high-level meetings prior to Thanksgiving break.

Spalding said he opposes the tax in general on principle. He said the taxation of endowments to influence universities sets a dangerous precedent that threatens their independence.

“In general, there should be an area of activity outside of government reach that serves higher purposes of society beyond that reach, and private education has long been one of those,” Spalding said. “If the federal government establishes a tax on endowments for colleges, I fear there are other activities that under another Congresses and other administrations government will tax and by doing so regulate, and that could be more threatening to Hillsdale.”

Adding to that, the legislation does not exempt non-Title IV institutions, such as Hillsdale, that do not receive government money. A majority of the universities and colleges affected by the tax, however, do take federal subsidies. At some of these private, nonprofit schools, they account for up to 70 percent of their income, according to Spalding.

Princeton University, whose $23.8 billion endowment is one of the largest in the country (Harvard University has the largest with $37.1 billion), received $420 million in tax breaks on its endowment income, federal research grants, and capital-gains exemptions in 2011, according to The Atlantic. That year, its endowment was $17 billion and accounted for almost half its nearly $1.4 billion operating budget.

“Since Hillsdale receives no federal funds or grants whatsoever, Hillsdale’s position is distinguishable on policy grounds,” Spalding said. “Hillsdale and other colleges that are not taking the federal government’s money should not be subject to a tax on an endowment that was raised from private sources

Spalding said he has made several suggestions to policymakers, including removing the tax entirely, rewording it, or inserting an exemption for schools that refuse government subsidies. He also said an alternative to the tax is to cut the number of government subsidies going to these institutions.

Arnn agreed in an email: “The government subsidizes a thing with one hand and then taxes it with the other. Why did they not simply decrease the subsidies? What they do carries the implication that only the government can get bigger.”

An overwhelming majority of the endowment is to support academics, Flannery said. Half is for scholarships, a quarter is for academic programs, and 15 percent is for faculty chairs.

Flannery added that only about 0.2 percent of Hillsdale’s endowment goes toward “nonacademic” purposes. This piece is for awards for students and faculty such as Professor of the Year and the Emily Daughtery Award for Teaching Excellence, which are presented at spring and fall convocations respectively.

“But I could argue that 0.2 percent is academic in nature,” Flannery said. “It helps people.”

Every year, Hillsdale spends about 5 percent from its endowment, slightly above the more popular 3-4 percent, Flannery said.

“The main reason for that is that we want students going here today to benefit as well as be able to save enough for the students down the road to benefit,” he said.

With the endowment tax, however, the college could pay the equivalent of 27 full-tuition scholarships in taxes each year.

Spalding said that would be harmful, though the college could manage it. Its creation, however, opens up the opportunity for future Congresses to change the tax amount and threshold, which could cause problems in the future. He added that it may also deter other institutions from growing and enlarging their endowments, as well.

If it comes to removing the endowment tax or passing the tax-cutting bill, however, Arnn said he does favor the plan.

“I hope they pass the bill, even with that stuff in it,” he said. “It is a still step in the right direction.”

Flannery said the idea of an endowment tax has been floated for several years, and he said he thinks now that it is in the tax plan, it is unlikely to disappear.

Spalding, however, is hopeful for its removal if the bill goes to a conference committee between the House and Senate. He said many congressmen were unaware that the tax would affect institutions such as Hillsdale before he spoke to them.

“I am cautiously optimistic that this will get corrected in conference, if it gets to conference,” Spalding said, “but they are all very aware that Hillsdale is harmed by it.”

 

  • Sheldon Katz

    First, let’s have everyone pray that this atrocity is removed in conference. Second, in case the creator and ruler of the university has better things to do, please everyone contact your R reps and senators. Let’s get this done!

    • AlexanderYpsilantis

      Contact your Congressmen/women to promote Hillsdale’s unique situation as a college which refuses to accept state and federal money. As for the Senators, our two (2) Democrat Senators have taken their marching orders for Senate Democrat minority leader Chuck Schumer to refuse to participate in the debate of this Bill, essentially rendering them useless to advance any revisions to the Bill which benefit Michigan businesses, schools or individuals. Like truculent children the Senate Dems are refusing to participate in Debate and representing the voters of Michigan. They should return their salaries, since they are not earning them-but I doubt we’ll see that happen.

      • LivingInHellsdaleCounty

        Do you people LIVE in Hillsdale? The college officials RAID this area, their friggen treasurer Patrick Flannery was a city councilman for years, their “economic expert” professor Gary Wolfram has run Economic Development in the city since 2010, yet the city is looking at bankruptcy now! http://hillsdalecollegian.com/2017/01/34547/

      • Sheldon Katz

        Well said Alexander. My understanding is the latest is that the threshold was hiked to $500K/student, which would not encompass Hillsdale . . . for now. While I don’t think this goes in the right direction as a matter of policy, I am grateful it does not currently ensnare Hillsdale for now. We owe Sen. Toomey a big thanks for fighting the good fight.

        • AlexanderYpsilantis

          Great comment, Sheldon. It’s a sad state of affairs when folks in Michigan need to rely on Senators from another state (PA’s Senator Toomey) to advance our interests. By being only obstructionists the Democrat Party is badly serving it’s constituents. Trump won, deal with it and participate in the Debates-represent your constituents. If you can’t do that, resign from office and be replaced by someone who will. That’s how our system of government works.

    • LivingInHellsdaleCounty

      Could you let your R reps and senators know that Hillsdale College employs our prosecutor, that CFO Richard Pewe hired a convicted armed hostage taking criminal to run our airport and despite all the college officials who took over city council and appointee positions, our once thriving city has crumbling infrastructure and is projected to go bankrupt in 2020?
      https://www.facebook.com/HillsdaleMunicpalAirportConvicteArmedHostageTaker/photos/a.199853967018151.1073741827.199837823686432/511234829213395/?type=1&theater

      • LivingInHellsdaleCounty

        Oh and PS? Could you pleaseeeeeee let them know that the school is illegally donating land and opening non profits for board of TRUSTee members to make money off of? Unless you think donors donated cash to student education intending for it to be embezzled for the profiteering of board members. Then you can skip that one. Thanks!

        http://www.hillsdale.net/news/20161214/zoning-board-approves-ordinance-variation

  • Marcy Almay

    LOLOLOLOLOL! The odd thing is, the college claims they do ZERO political lobbying on their 990s (tax returns). Wonder if they’ll report what Spaulding (who runs an illegal political lobby from a rural religious college) and Arnn did on this, unless I’m wrong, and their testimony was on record where the people can access the details of who they met with and what was said and if money changed hands….

  • Marcy Almay

    I am curious about one thing: isn’t being a non profit who ISN’T taxed a federal “subsidy” given the college on everything they have? From the IRS that the college is answerable to? And all those tax breaks to the donors, aren’t those subsidies? If Arnn is so bothered, why not just go PRIVATE, and not CLAIM the riches he gets from having a tax exempt school, why leech off the public by paying nothing IN for all the political input he’s been getting for quite a few years now? Harvard lost 2 billion dollars a couple years ago from their endowment, for all we know, it was planned insider trading causing those losses, they run the friggen Harvard business school and they LOSE 2 billion? Really? LOL! It’s about time that taxpayers demand accountability on behalf of the public and on behalf of the students being exploited for political gain. With the endowment being taxed, hopefully, now the donations and investments, etc, will be more able to be audited to assure integrity.

    • AlexanderYpsilantis

      We ALL lost money ‘just a few years ago’ on paper with the Great Recession of 2008. The astute ones amongst us just weathered the storm and are recovering now just nicely. I don’t know anyone sharp enough to predict every market correction or crash, do you? As for Harvard, they accept plenty of Federal and State money. Hillsdale doesn’t. Their Endowments need to be evaluated on that basis.

  • AlexanderYpsilantis

    The $ 700,000/year is really a trifle when you consider the positive aspects of this Tax Reform Bill-which will surely benefit Hillsdale. Private overseas capital that businesses have been keeping outside the USA due to tax implications will be brought back to our banks to the tune of $ 4 Trillion in some estimates. Business will prosper, personal taxes will be lower, unemployment will be reduced even more and salaries will increase. All of that makes for a setting to promote more giving by donors-Hillsdale need only be ready to take advantage of that. So, as a business case, there is far more good in this Bill than bad for Hillsdale. Like everything else, you need to be nimble and react to the changes.

    • AlexanderYpsilantis

      “the legislation does not exempt non-Title IV institutions, such as Hillsdale, that do not receive government money. A majority of the universities and colleges affected by the tax, however, do take federal subsidies.”…..This is a significant fact that might be used to challenge that part of the bill. Harvard for example has a $ 36 Billion Endowment Fund yet takes a great deal of Federal Funding for research and other activities. That’s really what this measure was intended to address, not schools like Hillsdale that refuse to accept any federal or state money. Our position should be advanced through our Congressman-since Democrat Senators Debbie Stabenow and Gary Peters have like all the Senate Dems refused to participate in the Bills debate and made themselves useless in the negotiation of this measure.

    • LivingInHellsdaleCounty

      Dude, they’re a NON PROFIT! An IRS licencee! A R E L I G I O U S college! They refuse to build dorms for their students, pleading poverty while they hoard hundreds of millions in cash and publicly traded securities! Why is it that you think it to be good public policy to render a full 1/3 of their students homeless and violate the housing guarantee they give upon admission just to hoard cash meant for the kids? http://hillsdalecollegian.com/2016/10/students-living-off-campus-ever/
      They built a $28 million dollar church, they should be able to house every one of the 1500 students off their half a billion endowment! http://hillsdalecollegian.com/2016/10/hillsdale-students-need-new-dorms-not-expensive-chapel/ They’re not a PRIVATE business, they’re a non taxable NON profit who are profiteering off the endowment! All they have to do is start putting those funds INTO the operation, why is that so bad? Build some damned dorms for the kids, why defend them for robbing students of their guaranteed housing?

      • AlexanderYpsilantis

        Have you even looked at Hillsdale’s Capital Plan? It certainly does include building new dormitories, but you can’t do everything all at once. If only HC had that kind of money! Yeah, they have an Endowment that stands at around $ 540 Million at the current time. Much of the interest on that Endowment is used for scholarships and grants for students. Unlike state supported schools, Hillsdale has to do all the with only their private funds–for reasons everyone knows. I commend Hillsdale for being tight-fisted with their money, if only more Americans were like that we wouldn’t have such massive debt-as a nation and as individuals. I’ve always been frugal with my own money, so I can appreciate when somebody else does it. You have great passion in your comments, but passion unsupported by facts is just noise.

        • LivingInHellsdaleCounty

          FACT: they DO collect civil rights related data in order to participate in the NCAA.
          http://hillsdalecollegian.com/2016/10/college-sent-racial-data-student-athletes-ncaa/

          • LivingInHellsdaleCounty

            FACT: every private school MUST do so if they want tax exempt status from the IRS https://www.irs.gov/publications/p557#en_US_201701_publink1000200076

          • LivingInHellsdaleCounty

            The fact is, they lied all these years about not tracking data related to gender and race and the IRS rules are being broken by Hillsdale College, which doesn’t qualify for tax exempt status via federal administrative law. Don’t get me started on how religious schools are not allowed to have an endowment at all per IRS rules, only the church the school is under. That’s the facts sir, they cannot have it both ways! Go actually private and don’t get tax free status, (which are subsidies, trust me, they’re wrecking the city and county they’re in financially, gobbling up land they pay no taxes on, causing huge low cost housing issues thanks to tossing a 1/3 of their student body off campus per semester and using the infrastructure they pay NOTHING in to, etc) and claim they’re exempt from adhering to the rights of disabled children, which is simply vile, but y’all seem to admire them for kicking disabled kids out using “Christ” as their authority to allow them to do so. To each his own sir, but those are F A C T S ! 🙂

          • AlexanderYpsilantis

            When someone refutes your statements you change the topic. You have an issue with Hillsdale College, but I’m not really interested in entertaining any more of your allegations. You throw them out like dried peas against an window pane-and with equal effect. All.