Tax shakeup rattles colleges, grad students

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The GOP tax plan has Colorado universities worried about a range of issues, from the future of graduate students and philanthropy to building projects and workforce development.

The proposal that’s raised the most vocal opposition from students and universities is a plan to tax tuition waivers, which appears in the House version of the bill.

Many grad students work at the universities where they study, usually in teaching and research, in exchange for free tuition and a modest stipend. They never actually see the tuition money, but the House bill would treat the value of that tuition as ordinary taxable income.

Graduate students working as teaching and research assistants could see a 400 percent to 500 percent increase on their tax bill as a result, Regis University Provost Janet Houser said.

“Many will not be able to pay it,” she said in an email. “We will see fewer grad assistants turning into professors, and our future workforce will be the worse for it. A society whose success rests on innovation and knowledge transfer cannot prosper without its most educated citizens.”

Doctoral programs produce the nation’s next generation of faculty, Salvador Aceves, senior vice president and chief financial officer at Regis, said in an email, adding that research is the foundation for advances in the sciences, humanities and business.

“At the student level it’s a disheartening prospect; as a tax strategy, it is short sighted,” he said.

William Craighead, assistant professor in Colorado College’s Department of Economics and Business, said few outside academia understand how students in doctoral programs work.

“You’re enrolled as a graduate student but, in a lot of ways, it’s really much more like a medieval apprenticeship,” he said. “Graduate students do a lot of the teaching, a lot of the work in labs, and you’re really getting training by learning-through-doing.

“The way it’s framed, it sounds like the graduate students are getting something for free,” he added, “but you’re basically taking five or six or seven years of your life — usually in your late 20s or early 30s — and committing to being kind of a low-paid employee of a research university. That’s how it is in practice.”

The American Council on Education said 145,000 graduate students received a tuition reduction in 2011-12, the most recent year for which such data were available, Aceves said. More than half of those were in science, technology, engineering and math programs.

“Potentially all of these students will be impacted by this law,” he said.

Ken McConnellogue, the University of Colorado’s vice president for communication, said the House version of the bill would “certainly” impact the flow of graduate students in Colorado Springs and around the state.

“Graduate students generally live on very thin margins as it is,” he said. “Nobody is getting rich being a graduate student. They are, in most cases, barely covering their costs. So if we’re making it much more difficult for them financially to attend, it’s going to have ripple effects throughout the whole higher education system.”

Graduate students “are the type of people that our state and our nation need,” he added.

“They’re the highly skilled, highly technical workforce that makes the economy go — so making college less affordable for them doesn’t seem like a good strategy.”

Houser said she expects to see the flow of grad students constrict in general, but Colorado may see a more severe drop in numbers.

“Student debt for graduate degrees is high,” she said. “In addition, the Front Range cost of living makes it difficult to attract top talent within a constrained budget.”

Undergraduate education would take a major hit if the supply of grad students dwindles, as would the STEM workforce.

“Graduate students are important in teaching, so anything that’s going to make it more difficult for them to undertake that role makes it more difficult for the entire university,” McConnellogue said. “There’s been a critical push for more graduates in STEM fields and I think those fields in particular would bear the brunt of some of this if it’s passed as it’s been drafted.

“I would caveat all of this by saying it’s a long way between here and there, there’s still a lot of conversation that needs to be had …  and we are making our voices heard.”

Lawmakers were set to meet the afternoon of Dec. 13 — around the time the Business Journal went to press — to reconcile the two tax bills, which were passed separately and contain substantial differences. The Senate version of the tax bill, for example, does not tax tuition waivers. With Republicans eager to pass the bill by Christmas, it may be the only time the committee meets.

CU leadership, including UCCS Chancellor Venkat Reddy, sent a letter detailing their concerns about the higher education provisions in the Tax Cuts and Jobs Act (H.R. 1) to Colorado’s congressional delegation on Nov. 10.

McConnellogue said, as it stands, the tax overhaul would have “a triple whammy effect on the University of Colorado.”

In addition to treating tuition waivers as taxable income, the House version would repeal the tax exemption for the advanced refunding bonds that allow universities to make capital infrastructure investments. It would also nearly double the standard deduction for charitable donations, “a change that is projected to eliminate the use of the charitable deduction for more than 90 percent of U.S. taxpayers … [and] could result in a loss of millions of dollars” for financial aid programs, teaching and research, and patient care programs, according to the letter from CU’s leadership.

“We’re worried about some of the implications for private support,” McConnellogue said of the provision. “We got $386 million in private support last year across CU and I think our state funding was about $180 million — so that tells you the importance of private support.”

As an undergraduate institution, Colorado College won’t be directly impacted by the tax hike on tuition waivers for grad students, but it would be impacted by the House bill provision to tax universities on profits earned from investing endowments.

“Our calculations point to a roughly $1.2 million impact (new cost) on the endowment return we generated last year,” Kevin Rask, research professor in Colorado College’s Department of Economics and Business, said in an email. “That is a pretty large number when you think about it as roughly 20-25 full financial aid packages when we have an incoming class of around 500 students.”

Craighead agreed.

“The endowments are a big financial piece for private colleges — we get revenue from tuition, but the endowment is also a big source of how we fund our programs, so that could be significant for us,” he said.

Rask listed other areas of concern for Colorado College.

“More importantly [than the issue of taxing the value of tuition waivers] for a place like ours is the tuition benefit that goes to faculty and staff children,” he said. “That would be a significant new tax for many people.

“The elimination of tax-exempt bonds would increase the cost of building facilities in higher education. The taxation of athletic seating purchases would have an impact on schools with big-time sports programs. The taxation of employer-provided education assistance would decrease the incentives for working adults to go back to school to further their education.”

McConnellogue said CU has been working hard to show Colorado’s congressional delegation the implications of the tax bill from a university perspective, saying the lawmakers had been receptive to the conversations.

“Who knows what they’ll come up with … when they do the conference,” Craighead said, “but it seems to be moving around and moving too fast for anybody to really carefully think through all of the implications, which is kind of scary.” n CSBJ

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