A Small College With a Big Endowment Gets Snared in Tax Bill

It looks like one more college might be subject to a new tax on endowments.

The House of Representatives will have to revote on a bill to overhaul the nation’s tax code after a handful of provisions were found to be in violation of a key Senate rule. Among the violations: A portion of the provision that would tax some large university endowments.

After the House votes, Kentucky’s Berea College would be among the institutions subject to the tax.

Under the joint committee version of the tax bill, private universities with more than 500 tuition-paying students and $500,000 in endowment per student would be subject to a 1.4-percent tax on their endowment earnings. Additionally, more than 50 percent of the tuition-paying students would have to be located in the United States for the tax to apply.

However, the Senate parliamentarian said on Tuesday evening that the provision would run afoul of the Byrd Rule, which prohibits the Senate from “considering extraneous matter as part of a reconciliation bill.” A Democratic Senate budget committee aide told The Chronicle that the words “tuition-paying” would be struck from the bill in two of the criteria defining institutions the tax would apply to.

Which colleges does the revised language affect? It would seem only one institution: Berea College, a “work college” that enrolls predominantly low-income students and charges no tuition. Berea enrolls just over 1,600 students, and has an endowment of $1 billion.

But that large endowment goes to a good cause, says Steven M. Bloom, director of government relations at the American Council on Education.

“That money goes towards helping low-income students attend and finish college,” he said. “Berea College is the crown jewel for what higher education can do for low-income people.”

The language “tuition-paying” was not always in the tax bill. The House version did not include the provision, and it was added only in the Senate version, ostensibly to exempt the Kentucky college.

Moreover, the stipulation that 50 percent of students reside in the United States was added only in the committee report, confusing analysts who are unsure of whom it might affect.

“In the mad dash to provide tax breaks for their billionaire campaign contributors, our Republican colleagues forgot to comply with the rules of the Senate,” said Sen. Bernie Sanders, the Vermont independent, and Ron Wyden, Democrat of Oregon, in a statement.

“We applaud the parliamentarian for determining that three provisions in this disastrous bill are in violation of the Byrd rule.”

Lyle D. Roelofs, president of Berea College, said in a statement that the legislation had left people on the campus disappointed. “Berea College uses its entire endowment to educate students who could not otherwise afford to attend college, serving them on a no-tuition basis,” he said. “We agree that there need to be incentives for schools to make higher education accessible to all students, but it seems so unfortunate that the political strife over tax reform in our country will result in greater difficulty for colleges seeking to serve low-income students.”

Adam Harris is a breaking-news reporter. Follow him on Twitter @AdamHSays or email him at adam.harris@chronicle.com.