Tiny Berea College in Madison County, Ky., was a big winner in this week’s budget bill, getting a targeted tax break that will save it about $1 million annually.
The college’s legislative victory, secured by Senate Majority Leader Mitch McConnell, R-Ky., and the school’s representative in the 6th District, Rep. Andy Barr, also a Republican, illustrates just how ugly the legislative process can be.
Berea is an unusual school. It is a liberal arts work college, meaning that its 1,600 students don’t pay tuition, but rather work on campus to help pay their freight. Its students don’t have much money and, according to President Lyle Roelofs, wouldn’t be able to pay tuition elsewhere.
Because of that unusual arrangement, Berea has a big endowment for a school its size: More than $1 billion.
So when Republicans enacted a new 1.4 percent excise tax on the earnings of college endowments of more than $500,000 per student as part of the tax overhaul effort, tiny Berea was swept up in it with the Harvards and the Yales of the world.
Republicans may have been acting out of retribution for Ivy League schools, but they weren’t trying to tax Berea. In the final version of the bill, they added a provision narrowly written to exempt Berea.
But Democrats, fighting the tax cuts every inch of the way, demanded that every provision that didn’t fit into the strict budget rules governing the tax legislation be taken out. The Berea fix fell out of the bill, with a few other minor measures, such as the legislation’s official name.
Republicans blamed Democrats for stripping the protections for Berea out of the bill via parliamentary maneuvering.
This week, they put the protections back in, through similar parliamentary creativity.
The budget bill, the result of an agreement between McConnell and Senate Minority Leader Chuck Schumer, D-N.Y., includes an extension of a raft of 30-plus expired temporary tax breaks. The breaks, known to tax experts as “extenders” because they have frequently been extended, are tax cuts for special interests, such as for race horses and rum production. They have the support of home-state senators on both sides of the aisle.
The extenders, worth $17 billion in all, were smuggled into the spending deal, revealed at the last minute. And the break for Berea was slipped in with them.
The bill says schools with fewer than 500 tuition-paying students don’t have to face the endowment tax. Because Berea’s students don’t pay tuition, it gets out of paying the tax.
“We are grateful to leadership in the Senate and the House for working to address this new tax liability,” said Roelofs, noting that the school would have had to scale back its enrollment without the fix.
Barr said he secured a commitment from leadership to fix the bill for Berea before voting for the tax cut bill. “Today, I am proud that the House and Senate have delivered on that promise by providing a permanent fix to exempt schools such as Berea that were never intended to be subjected to this tax,” he said Friday.