Emory University urges Congress to do no harm to higher ed in tax reform billThe tower that opened in the summer of 2017 was built with a financing method that Congress may eliminate. Emory is fighting the proposal. Credit: whsc.emory.edu
Editor’s note: This story has been updated with related action the MARTA board took Thursday.
By David Pendered
Emory University continues to press its concerns to Congress over the proposed GOP tax reform bill, even as other universities are on a borrowing spree to lock in terms before their debt might lose its tax-free status.
Emory has implored its supporters to contact their congressional representatives and senators to voice their opinions on the planned changes to tax laws regarding the nation’s network of higher education institutions.
MARTA got in on the action on Thursday. MARTA issued a statement with the headline:
- “MARTA SAVES MILLIONS DURING BOND REFUNDING
- “Authority Saves $6.5 Million By Refunding Before Tax Law Changes”
Colleges are scrambling to secure construction funding before a favored mechanism is eliminated if Congresses passes the Tax Cuts and Jobs Act.
Just last week, universities and institutions such as hospitals and nursing homes issued more than $4 billion in tax-free bonds, according to a report Thursday by wsj.com. That’s triple the amount issued in the comparable week in 2016, according to the report.
The mechanism the institutions are using is known as private activity bonds. Issuers pay lower interest rates because bond buyers are not taxed on income from private activity bonds.
Emory built the new tower at Emory University Hospital and the addition to the Chemistry Center with money obtained through private activity bonds, according to a statement Emory issued Dec. 4.
The House has approved a tax-reform bill that would eliminate the tax-free funding mechanism. The bill passed by the Senate would leave the mechanism intact. The two chambers are starting the process of reconciling the two bills, with the goal of getting a final version to President Trump before the end of 2017.
In addition, both chambers intend to eliminate the tax-exempt advance refunding of bonds, according to Emory’s statement. This mechanism allows borrowers to save money when interest rates drop by selling a new tax-exempt bond and using the proceeds to pay off the older debt that carried a higher interest rate.
State and local governments face higher costs if this mechanism is removed.
For example, the board that oversees MARTA voted Thursday to refinance $56.8 million of its 2012A series of bonds. The total savings was reported at $6.54 million, based on an average annual saving of $588,000 a year. Here’s how the statement from MARTA portrayed the situation:
- “MARTA moved quickly on this partial refunding to take advantage of favorable market conditions and to complete the transaction prior to potential adverse changes in federal tax law. The current version of the bill eliminates advance bond refunding after the last day of 2017.
- “’This decision means a significant savings for the Agency,’ said MARTA Chief Financial Officer Gordon Hutchinson. ‘Our board members were wise to act swiftly.’”
Atlanta taxpayers saved about $42 million in interest payments when the city refinanced in May $227 million in water bonds that are tax free for certain buyers, according to terms of the bond. Florida taxpayers saved $2.5 billion by refinancing tax-exempt bonds during a 6.5-year period that ended in December 2016, according to a report published Thursday by law.com.
Construction funding is just one of many major concerns cited by Emory. Emory is part of a broader coalition of higher learning institutions that are protesting the GOP tax reform plans.
The concerns cover the waterfront of the multiple layers of tax laws that colleges and universities use to fund everything from tuition waives for graduate students to charitable donations.
A Dec. 1 report in the trade journal for colleges and universities, chronicle.com, observed:
- “College leaders spoke out in near uniformity against the Republican lawmakers’ plans, which received a major boost over the weekend. ‘At a time when our economy is demanding more education for more of our citizens, we cannot erect new barriers for the millions of Americans who need affordable higher education,’ wrote Margaret Spellings, president of the University of North Carolina system and a former education secretary, under President George W. Bush.”
Emory has been voicing concerns for more than a month, the period in which the House and Senate reform proposals have been assembled. The Dec. 4 statement included this observation from Cameron Taylor, Emory’s vice president of government and community affairs.
- “While we are pleased that some provisions from the House bill that would be damaging to higher education were omitted from the Senate bill, we will continue our advocacy efforts to ensure that they are not returned to the legislation through a conference process, and to oppose measures in both bills that could hinder the Emory’s mission.”