Financial Management |
Article by Jennifer Osland Hillen
With pressure on to pass tax reform, the GOP-led House and the Senate have proposed legislation that could impact independent schools in several ways (see: GOP House and Senate Tax Plans Worry Independent Schools). An additional possibility is the elimination of tax-exempt financing. This could have a devastating financial impact on schools and their capacity to maintain and grow facilities and programs.
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Schools Encouraged to Speak Out on Tax ProposalsGOP House and Senate Tax Plans Worry Independent Schools
GOP Tax Reform Jeopardizes Tax-Exempt Financing for Independent School
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The House bill eliminates private activity bonds (PABs) and prevents nonprofit institutions from issuing tax-exempt debt starting January 1, 2018. The Senate bill does not limit nonprofits from issuing new tax-exempt bonds, though it does prohibit advance refundings, as does the House bill.
Also facing new scrutiny: funds yet to be drawn on schools’ issued debt. Chuck Procknow of George K. Baum & Company, an investment banking company that works with many independent schools, advises that “any undrawn’ tax-exempt funds may need to be drawn prior to 12/31/2017 in order to preserve their tax-exempt status.” He offered the following scenarios:
Regarding the complicated tax law behind the third scenario above, Procknow shared text from Steve Weyl and Rene Moore of Butler Snow, a respected law firm with services in more than 50 areas (see excerpts below). Since this is a complicated legal matter, schools are advised to contact their bond counsel or borrowers counsel for more detail.
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