LSU president F. King Alexander worries the tax reform measures making their way through Congress will, if not modified, increase the financial challenges facing colleges and universities.
As LSU approaches the end of 2017, we are thankful for the numerous transformational gifts our university has received. Among those are a $12 million gift to make our Honor’s College one of the best in the nation, a $5.6 million gift from the Koch Foundation to support entrepreneurship programs, and $1 million given to our College of Music and Dramatic Arts by alumna Janice Pellar.
But gifts from foundations and individuals—both of which are vital to supporting universities in this age of shrinking state budgets—could be substantially curtailed if current tax reform efforts go unchanged. Public colleges and universities like LSU have faced rapidly shrinking pools of state funding over the last decade. Louisiana itself leads the nation in its pace of disinvestment from public higher education. In response, state governments have heightened their expectations from us, asking us to diversify our revenue streams in an effort to become more competitive. But just as we start to do so, the federal government entered into the equation, and through the implications outlined in their tax reform efforts, will eradicate important tax deductions that have incentivized many of our alumni and friends to make essential financial donations. These donations, including those from sports fans who indirectly contribute to our athletic and academic enterprise through gifts connected to the purchase of season tickets, have gone to support exceptional undergraduate and graduate students pursuing an LSU degree.
If passed without important modifications, our public universities will be faced with even bigger challenges at a time of increasing state funding instability. The timing couldn’t be worse for LSU and other public universities.
Unfortunately, the new tax reform bill seeks to balance corporate tax reductions on the backs of students and the universities educating them. If passed without important modifications, our public universities will be faced with even bigger challenges at a time of increasing state funding instability. The timing couldn’t be worse for LSU and other public universities. Currently, LSU is working toward our biggest philanthropic campaign effort to date. But donations to universities are highly reliant on individuals who benefit from tax deductions, and the proposed tax reform will remove the deductibility on many donations, potentially eliminating an important incentive to give. Also, the House’s tax plan would repeal the estate tax, which is the source of between 20 and 30 percent of LSU’s donations annually. Lastly, the proposed tax on private foundations (not like the LSU Foundation) would increase, meaning fewer donations from institutions such as the Gates, Carnegie, and Koch Foundations to universities like LSU.
But the challenges for LSU and higher education don’t stop there.
Let’s start with the effects on students. For years, state legislators have asked us to be more competitive with recruiting and retaining undergraduate and graduate students. Under the House’s action, interest on student loans would no longer be deductible. Imagine if, upon graduating and starting your dream job at a beginner’s salary, you find out that your student loan repayment just got more expensive. For an LSU undergraduate student, this may not be as big of a problem as it is for graduates of other universities, since two out of three LSU graduates leave the university with zero debt. However, nationally, eight out of ten students graduate with an average debt load of more than $30,000, and eliminating the interest deductibility of these loans would inevitably lead to more student loan defaults while also extending the duration of a graduate’s repayment period.
Additionally, the House tax bill hits graduate students much harder. Most graduate students take home less than $20,000 annually and receive a tuition waiver in exchange for teaching and research work done in the classroom or the lab. Right now, those waivers are tax-exempt, but the House bill would change that status to fully taxable. Consider this: a graduate student earns a salary of $16,000 annually and receives an $8,000 tuition waiver … right away, that student will see a 50% increase in their taxable income.
This kind of action could also have the unintended consequence of driving graduate students out of the United States and toward colleges and universities in Canada, Europe, and around the rest of the world.
Furthermore, at a time when state legislators and employers have asked us to expand the pool of college graduates, the House’s version of this tax bill would count employer-provided educational benefits as taxable income. This means the employee and the employer will pay more to enhance their own workforce skills. As history has repeatedly proven, if an employee benefit becomes cost-prohibitive, it will rapidly become a thing of the past.
It is also important to highlight the unintended consequences that both the House and Senate versions of this tax bill would have on athletics at LSU and other public universities. It’s a well-known fact that LSU Athletics takes no state money and no student fees, unlike most universities nationwide. In its own “pull yourself up by the bootstraps” story, LSU Athletics has fueled its own success and even contributes back to the university’s academic operational budget annually. Right now, LSU is one of the only universities in the SEC with a self-sustaining athletics program. The Tradition Fund, which is tax-deductible at the moment, pays for about 40% of athletics scholarships, supports 15 non-revenue-generating sports (including for federal Title IX compliance), and stadium and PMAC renovations—facilities also used as evacuation and special needs shelters during emergencies. However, specific provisions in this tax bill will eliminate the deductibility of such gifts, which will have the unintended consequences of substantial reductions in ticket renewal. This could potentially result in ticket cost increases, scholarship reductions, elimination of athletic programs, and decreased student affordability.
Here in Louisiana, where we already lag at 49th in the nation in terms of college degree attainment, the residual effects of these impacts could linger for generations.
LSU is vital to Louisiana because it provides higher education opportunities to more than 45,000 students across the state. LSU also generates an economic impact of nearly $4 billion annually, and provides solution-based research that does everything from slowing coastal erosion to enhancing business operations and developing new drugs to improve health outcomes for Louisiana citizens. Before reading this, you may have thought the implications of proposed tax reform on higher education would be minimal and easily rectified. I hope that now you see that these unintended repercussions are wide-ranging and damaging, hurting students, families, and the universities that support them. Here in Louisiana, where we already lag at 49th in the nation in terms of college degree attainment, the residual effects of these impacts could linger for generations.
I am not debating the value of the corporate tax reductions passed by both the House and Senate. I am, however, raising serious concerns about offsetting these tax reductions on the backs of the next generation of students and our public colleges and universities charged with educating them.
(LSU President F. King Alexander oversees the statewide system and the state’s flagship campus in Baton Rouge.)