Political Spat Over a Kentucky College Prompts Charges of Favoritism
By Michelle Hackman / WALL STREET JOURNAL
WASHINGTON—Republican lawmakers are looking for a way to exempt a small, tuition-free college in Kentucky from a provision in their new tax law that imposes a levy on university endowments, prompting charges of favoritism from Democrats.
Republicans say Berea College deserves the exemption because the small liberal-arts Christian college is unusual, even unique: It accepts only low-income students and fully covers their tuition costs, while they work to pay for living expenses.
“Each year, Berea uses the returns on its endowment almost solely for scholarships, which sets it apart from nearly every other college and university in the nation,” Senate Majority Leader Mitch McConnell (R., Ky.) said recently on the Senate floor.
Democrats, however, accuse Mr. McConnell of favoring with a school in his home state while ignoring the fact the new law, by taxing large university endowments, damages numerous other schools that also subsidize poorer students.
“The truth is that while Berea College is an excellent school, there are colleges all over this country that use their endowment funds to provide free, or significantly reduced, tuition for lower-income students,” said Sen. Bernie Sanders (I., Vt.). Mr. Sanders successfully pushed for the Berea exemption to be stripped from the tax bill on procedural grounds.
Now Republicans hope to insert a Berea exemption in an upcoming spending or tax bill. The debate reflects a broader dispute not just over the effects of the new tax law, but also over the role and value of higher education in America.
“This is what happens when complicated legislation is written behind closed doors and is enacted hastily,” said Terry Hartle, a senior vice president at the American Council on Education, which represents university presidents and opposes the endowment tax.
Republicans created the tax on large university endowments, defined as those worth at least $500,000 per student, as one of several new sources of revenue in their tax overhaul. The tax is expected to bring in $1.8 billion over a decade and sweeps in about 60 schools, from large research universities like Harvard and Stanford to smaller liberal arts colleges like Swarthmore in Pennsylvania.
Lawmakers for years have been casting about for ways to pressure universities to put more of their endowment resources toward financial aid. Then-candidate President Donald Trump voiced that frustration on the campaign trail, saying wealthy universities were “paying more to hedge funds and private-equity managers than they are spending on tuition assistance.”
The tax bill doesn’t directly address that issue, since it doesn’t provide incentives for colleges to provide financial aid. But Rep. Kevin Brady (R., Texas), chairman of the tax-writing Ways and Means Committee, said it puts wealthy universities in line with other large private foundations.
The affected universities are raising alarms, saying the new tax will siphon money that would otherwise go to aiding students.
In penalizing the wealthiest institutions, they say, the tax targets the very places that often provide the most generous aid packages.
“While I understand the broader frustration around how we finance higher education in this country, this does nothing to fix that,” said Raynard Kington, president of Grinnell College, a liberal arts school in Iowa with an endowment of about $1.9 billion.
Mr. Kington said the school spends about $50 million a year on tuition assistance, and he estimated the tax would cost it between $1 and $4 million annually. That could force the school to cut back aid or other academic resources, he said.
Still, some higher education analysts said the effect of the tax will be muted, particularly for universities with multibillion-dollar endowments. It’s possible that smaller schools, like Grinnell, could feel a larger impact, they said.
“I think the effects of the endowment tax are more about the rhetoric around it than the actual effect it will have,” said Ben Miller, senior director of postsecondary education at the liberal-leaning Center for American Progress. “The big purpose of this was really to send a message to the perceived elites of higher education.”
Republican lawmakers say the impact on Berea will be more tangible.
Founded in 1855 by abolitionists as a place to educate freed slaves and white students side-by-side, the school has become known for graduating low-income students, often debt-free, who give back to the institution later in life.
“I’m sure the government could use the $1 million from us, but I’m also sure that 30 students could use the free education more,” he said.
While Democrats say Republicans are targeting universities, Mr. McConnell says Democrats are targeting Berea.
GOP leaders used a parliamentary procedure to pass the tax bill that required its provisions to impact the federal budget. When the Senate parliamentarian ruled that the provision exempting Berea didn’t meet that criterion, Democrats raised a procedural challenge stripping it.
