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.
School Groups Outline 5 Key Issues Involving Tax Overhaul
Interest on Tax-Exempt Debt Could Increase in 2018
Tax Overhaul's Impact on Independent Schools Still Uncertain
Tax Bills Extend 529-Type Plans to K-12
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
Connect discussion on tuition remission
Connect discussion on learning differences schools
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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