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Business Officer Magazine

Capitol Report

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark

All Eyes Are on the Supercommittee

When Congress returned to Washington after Labor Day, there was no shortage of business to be attended to. Appropriators quickly returned to unfinished work on FY12 spending legislation, and the bipartisan Joint Select Committee on Deficit Reduction (the "supercommitttee") appointed staff and scheduled its first meetings.

The committee named Mark Prater, a senior-level Senate Finance Committee Republican aide, to serve as its staff director. Sarah Kuehl, a high-level aide for Senate Budget Committee Democrats, will serve as deputy staff director.

As the FY12 budget process moves forward and the deficit reduction talks commence, NACUBO is concerned about the path Congress will take to protect the $5,550 maximum Pell Grant award and the outlook for the future of tax-exempt bond financing, as well as tax treatment of the charitable deduction.

Outlook for Pell Grants

NACUBO is concerned about the path Congress will take to protect the $5,500 maximum Pell Grant.

Federal student aid benefits have slowly eroded over the past two years as a result of the elimination of LEAP (Leveraging Educational Assistance Partnership) funding, year-round Pell Grants, the in-school interest subsidy for graduate students, and student loan repayment incentives. Ironically, these cuts were made, in part, to protect the cornerstone of federal student aid programs: the federal Pell Grant.

While the debt deal provided $17 billion to help fill a budget gap in the program—the "Pell shortfall"—Congressional Budget Office estimates provided in August indicate that appropriators still need roughly $1.3 billion to maintain the maximum
Pell Grant at $5,550 in the FY12 budget.

Because the Budget Control Act of 2011 caps discretionary spending, if appropriators choose to maintain the maximum award at its current level, it is possible that the $1.3 billion could be found elsewhere. Possible areas for budget adjustment include cuts to other student aid programs, cuts to other budget lines important to colleges and universities, or even legislative changes to the award calculation and Pell Grant award rules.

Tax Exemption and Withholding Issues

Other areas of concern to higher education leaders include (1) consideration of revenue raisers such as limitations on tax-exempt bond interest and itemized deductions and (2) the repeal of the 3 percent withholding requirement.

Tax-exempt bonds and itemized deductions. Should the supercommittee consider revenue-raising options, NACUBO is attentive to the possibility that the group may seek to limit tax-exempt interest for newly issued municipal securities. While the savings from lower interest rates on municipal bonds benefit public projects, critics have come to view the tax exemption for bond buyers as a tax benefit for those in high-income tax brackets.

Among the ideas the Obama administration previously offered as revenue sources was a proposal to limit itemized deductions, including the tax deduction for charitable donations. The administration's FY12 budget proposed for families earning more than $250,000 an exemption limit of 28 percent for the combined value of tax deductions for charitable donations, state and local taxes, and mortgage interest. The nonprofit sector is understandably concerned that the supercommittee will consider this proposal as it seeks to reduce the federal deficit.

While the prospect of altering the treatment of public bond financing and the charitable deduction may seem unpalatable, both issues were identified last year as two of the top 10 federal income tax expenditures (see figure). Undoubtedly, the foregone revenue for the federal government from each of these politically popular provisions will be closely examined—and measured against other large tax expenditures such as preferential treatment for home mortgage interest, capital gains, and the deductibility of state and local taxes.

The 3 percent withholding requirement. An additional issue that has garnered some recent attention-and support from House Majority Leader Eric Cantor (R-VA)—is the suggestion of the full repeal of the 3 percent withholding requirement enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 and included in Section 3402(t) of the Internal Revenue Code. Cantor identified the repeal as a House Republican priority for passage this fall.

NACUBO's position is that the 3 percent withholding requirement will have a disparate impact on state colleges, universities, and some of the nation's larger community colleges. Compliance will impose significant financial burdens that will only exacerbate the existing financial strains on public institutions. NACUBO fully supports the law's repeal.

Clearly, Congress is faced with difficult and contentious decisions now and in the coming months. We urge all business officers to consider the impact each of these issues will have on their respective institutions and higher education across the nation. Watch the NACUBO Web site for updates and opportunities to support our legislative efforts.

NACUBO CONTACT Liz Clark, director, congressional relations, 202.861.2553

RESOURCE LINK Watch NACUBO's home page under "Stay Current" for updates on these and other legislative issues.

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