FRANKFORT, Ky. — A last-minute change to a sweeping overhaul of the nation’s tax code means a private college that serves needy students in Appalachian Kentucky will lose an exemption that could cost it more than $1 million each year.
The tax bill Congress approved Wednesday includes a 1.4 percent tax on the large endowment earnings of private universities with at least 500 students. It was meant to apply to schools with large endowments like Princeton, Harvard and Yale.
Lawmakers crafted an exception for Berea College because of its unique mission. The school doesn’t charge tuition because it only accepts students who cannot afford to pay. Instead, it relies on its billion-dollar endowment while its students take jobs at the school to help pay for their education, room and board.
But Berea’s exemption was removed from the bill in the Senate because it violated the chamber’s budget rules. Berea President Lyle Roelofs says a $1 million hit for a school with a $50 million annual operating budget means it might have to accept fewer students.
“I think we became a casualty of the two sides in that contention,” Roelofs said.
Senate Majority Leader Mitch McConnell, who represents Kentucky, blamed Democrats for removing the exemption. Democrats noted the exemption violated the Senate’s rules and asked for it to be removed from the bill. An effort to keep the exemption failed because it fell short of the required 60 votes.
Removing the exemption meant the bill would have to be approved by the House of Representatives again, thus delaying its final passage.
“I’m frankly mystified that the Democrats stripped this provision from the bill,” McConnell said. “When it came to crunch time, every Democrat in the Senate voted with liberal ideologues rather than stand with working people and their children.”
U.S. Rep. John Yarmuth, Kentucky’s only Democratic member of Congress, said the problem could have been avoided but “this is what happens when you rush bad policy through Congress strictly as a political favor for your big donors.” Democrats have criticized Republicans for rushing the bill through Congress in an effort to get it to President Donald Trump before Christmas.
Berea College was founded in 1855 by an abolitionist ex-Presbyterian minister. It was the first interracial, coeducational college in the South. It serves an area that has been economically devastated by the decline of the coal industry. About 64 percent of its students have parents who don’t have four-year degrees.
The exemption for Berea College could quickly become a political issue in Kentucky’s 6th Congressional District, where Republican Rep. Andy Barr is running for re-election in 2018. At least four Democrats say they are running for the seat, which has flipped between the two major political parties five times since 1979.
Barr took the House floor on Wednesday to ask House Ways and Means Committee chairman Kevin Brady to commit to exempting Berea College from the tax “as soon as possible.”
Brady agreed. McConnell said he’s also working with the Kentucky delegation to find a solution.