Federal Update on Higher Education Issues Higher Education Government Relations Conference December 3, 2009

1. Federal Update on Higher Education IssuesHigher Education Government Relations ConferenceDecember 3, 2009 Bob Moran, AASCU Jim Hermes, AACC Jennifer Poulakidas, APLU Brian Flahaven, CASE

2. American Recovery and Reinvestment Act • State Fiscal Stabilization Fund ($53.6) • $5 billion to ED • Race to the Top • $48.6 out to states by formula • 2/3: dispersed late spring/early summer • 1/3: announcement issued and second applications pending

3. OBAMA BUDGET • Eliminate FFEL – all loans provided through DL beginning July 1, 2010 • Full mandatory Pell funding • Access and Completion Fund ($2.5 B) • Perkins loan reform ($6 B)

4. Student Aid and Fiscal Responsibility Act (HR 3221) • Eliminates FFEL – Loans will be originated through DL beginning July 1, 2010 ($87 B) • Provides mandatory funding for annual CPI+1% increase in Pell ($40 B) • Access and Completion Fund ($3 B) • Perkins Loan reform ($6 B) • American Graduation Initiative ($10 B)

5. Senate Bill • Holding language close • Will be similar in structure/content to House bill • Timing • Dependent on healthcare measure • February timeframe

6. Obama’s American Graduation Initiative Proposals • $12 Billion, 10-Year CC Investment • “Challenge Grants” to Increase Community College Degree and Credential Attainment • Broad Use of Funds Allowed: Workforce Partnerships, Dual Enrollment, Remedial Education, Counseling, etc.

7. American Graduation Initiative • $2.5 Billion (Over 5 Years) State-Based Access and Completion Innovation Fund to Complement Challenge Grants • $2.5 Billion in CC Facilities Funding—3:1 Match Required • Facilities Funds to Pay Interest on Debt, Seed Capital Campaigns, or Create State Revolving Loan Fund

8. American Graduation Initiative • Create “Online Skills Laboratory”—Grants to Fund Open Online Courses—$50 Million Annually • Courses To Be Made Available by at Least One Community College and Distributed Learning Network • (More on Proposal at www.whitehouse.gov)

9. H.R. 3221, Sec. 503 Grants • Provides $630 Million Annually Over 4 Years for Competitive Grants to “Eligible Entities” • •Minimum Grant $750,000 • •1:1 Match, In‐Kind Permitted • •Joint ED/DOL Administration • •Grants to Support Innovative/Proven Effective Programs Leading to Degree, Certificate, or Industry‐Recognized Credential

10. H.R. 3221, Sec. 503 • Colleges Must Establish Annual Quantifiable Benchmarks in 11 Areas • Grants can be Withdrawn After 3 Years if “Demonstrable Progress” Not Met • 3 Grant Priorities: Serving Nontraditional Students; Title III/V-eligible; Partnerships with Business, Labor, Philanthropy • Misguided Transfer Reporting Requirement

11. H.R. 3221, Sec. 504 State Grants • Years 5 to 10 of AGI—Six-Year Grants to States to “Systematically Reform” Community College Systems • State Policies to be Derived from Federal Study of Sec. 503 Grants • Other State Eligibility Criteria: Articulation, Data Systems, Persistence Plan • $630 Million Annual Funding; 1:1 Match; “Supplement, Not Supplant”

12. H.R. 3221, Sec. 504 Grants • State Must Meet Same Benchmarks as in Sec. 503 Grants; Annual Reporting • Grants Can Be Withdrawn After 3 Years if Demonstrable Progress Not Made • States Must Pass Through 90% of Funds to CCs

13. H.R. 3221 CC Facilities (Sec. 351) • $2.5 Billion in FY 2011 (available until spent) • States Receive Funds on Basis of Relative CC Enrollments; Broad Latitude on Allocation to CCs • Funds to Reduce CC Financing Costs, Capitalize Revolving Fund, Provide Matching Funds for Capital Campaigns • New Construction, Modernization, Renovation

14. H.R. 3221 CC Facilities Funding • 3:1 Match Required • 50% of Campus Assistance Must be Used for Projects Meeting Green Standards

15. H.R. 3221 “National Activities” • $50 Million in Grants Over 10 Years to Develop Open, Online Courses for Training, High School, and College Courses • $50 Million Over 4 Years for (1) “Learn and Earn Research Center” to Develop Metrics to Measure CC Effectiveness (2) Fund Development of “Interoperable” State Data Systems

16. H.R. 3221 Transfer Requirements • Sec. 503 Grantees Must Indicate in Schedules Each Course’s Transferability to 4‐Year • •Authorizes Secretary of Education to Develop National Transfer Platform • •Requires States Getting Sec. 504 Grants to Develop and Implement Public Institution Articulation

17. AACC Proposed Changes to H.R. 3221 • Restructure Second Phase of Grants—Eliminate State “Systematic Reform” and Replace With Competition or Grant Extension • •Reduce 1:1 Match • •Overhaul Transfer Provisions • •Broaden Use of Facilities $ • •Expand Priority Language to Include Remedial Education and Persistence

18. Appropriations • ARRA • FY 2009 • FY 2010

19. Other Science and Research Issues • Political Environment • Re-COMPETES • Stem Cell News

20. CASE & Govt. Relations Nonprofit Sector Higher Education Tax Issues - CASE

21. Our Issues • Itemized Deduction Cap • Estate Tax • IRA Charitable Rollover • Endowment Payout

22. Itemized Deduction Cap • Current Law • Taxpayers making over $200,000 (married couples $250,000) - itemized deductions at 33 percent or 35 percent rate • Proposal in Pres. Obama’s FY10 budget plan • Taxpayers making over $200,000 (married couples $250,000) - itemized deductions capped at 28 percent rate • Revenue raised to cover portion of health care reform. • Modified Proposal • Itemized deductions capped at 33 percent and 35 percent when income tax rates rise in 2011. • Resistance from charitable community and on Capitol Hill

23. Marginal Tax Rates Prior to 2001 Taxable IncomeTax Bracket 0-26,250 15% 26,250-63,550 28% 63,550-132,600 31% 132,600-288,350 36% 288,350 and above 39.6% • EGTRRA 2001 (Bush tax cuts) • Itemized Deduction Rate = Tax Bracket

24. Current Marginal Tax Rates (2009) Taxable IncomeTax Bracket 0-8,350 10% 8,350-33,950 15% 33,950-82,250 25% 82,250-171,550 28% 171,550-372,950 33% 372,950 and above 35% • Itemized Deduction Rate = Tax Bracket

25. Tax Brackets in 2011 Taxable IncomeTax BracketDed. Rate 0-8,350 10% 10% 8,350-33,950 15% 15% 33,950-82,250 25% 25% 82,250-171,550 28% 28% 200,000 – xxx,xxx36% 28% or 33% xxx,xxx – xxx,xxx 39.6% 28% or 35% • 11.6% gap with 28% cap • 4.6% gap with 35% cap

26. Outlook for Cap • CASE Opposes Itemized Deduction Cap • Senate & House Health Bills Do Not Include Cap • Senate Amendments, House-Senate Conference • Other Revenue Raisers Unpopular • House surtax • Senate excise tax on “cadillac” plans

27. Estate Tax • Fully repeals in 2010, returns to pre-2001 level in 2011 • President Obama: Freeze at 2009 levels ($3.5 million; 45 percent rate) • House: Permanent Solution; Senate: Unknown • CASE Supports Freeze at 2009 levels

28. IRA Charitable Rollover • Enacted in 2006 • taxpayers age 70 ½ or older • $100,000 per year • 2 years (2008, 2009) • Extended as part of “Bailout” Bill (H.R. 1424) • Public Good IRA Rollover Act of 2009 • H.R. 1250 (Pomeroy, Herger) • S. 864 (Dorgan, Snowe)

29. Extenders Outlook • IRA Charitable Rollover an “extender” • tax provisions set to expire on Dec. 31, 2009 • other charitable incentives, R&D tax credit • House: Tax Extenders Act of 2009 • Pay-as-you-go • Retro in 2010?

30. Endowment Payout • Sen. Grassley: Mandatory 5% payout for endowments with more than $500 million in assets. • Rep. Welch: Mandatory 5% payout, averaged over a 3 or 5 year period, for all endowments. • Economic Downturn • New Arguments • Action Unlikely in 2009 COUNCIL FOR ADVANCEMENT AND SUPPORT OF EDUCATION

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