Weekly Market Update

WHO WILL PAY ENDOWMENT TAXES?

Thursday, January 18, 2018

The tax bill signed into law by President Trump last month levies endowment taxes on private colleges and universities with at least 500 students and $500,000 of total endowment per student. While the rules were intended to apply to large, wealthy institutions, many smaller, liberal arts schools with large endowments--including colleges like Claremont McKenna and Bowdoin--will see significantly increased tax burdens. These changes are compounded by the fact that some large universities with endowments exceeding $3 billion will avoid the new taxes altogether, and for those schools who fall under the new rule, it remains unclear how the taxes will be calculated. The bill's intent was to encourage colleges to spend more on tuition assistance, but some worry that it may not have the intended effect. Institutions may instead seek to minimize investment income in hopes of limiting tax exposure.

In Other News

Rating Agency Update

  • Moody's assigned Aaa to University of Washington's Series 2018 General Revenue Bonds. The outlook was revised to negative from stable.
  • Moody's expected to maintain Aaa on Yale University's Series X-2 and Series 2010A-3 Revenue Bonds. The outlook is stable.
  • S&P assigned AAA to Yale University's Series X-2 and Series 2010A-3 Revenue Bonds. The outlook is stable.
  • S&P assigned AA+ to University of Washington's Series 2018 General Revenue Bonds. The outlook is stable.
  • S&P affirmed Vaughn College of Aeronautics and Technology's BB- rating. The outlook is revised to stable from negative.