As Syracuse University moves forward with implementing a 20-year plan to revamp its campus infrastructure, its ability to pay for the plan’s several construction projects could be hindered by federal tax reform.

Included in the House of Representatives tax bill passed last month is a proposal to eliminate the tax exemption for private activity bonds, which are available to nonprofit organizations and are typically used to finance infrastructure projects. The proposal, which would go into effect on Dec. 31, isn’t included in the Senate tax bill passed last week, meaning Republicans will need to decide whether to keep it as they work out the bill’s differences in a conference committee.

If the proposal does become law, it could alter SU’s plans for financing projects such as renovations to the Carrier Dome, construction of the National Veterans Resource Complex and renovations to Archbold Gymnasium.

Under current tax code, 501(c)(3) organizations — a tax-exempt designation that the vast majority of private universities hold — have access to tax-exempt bonds at lower interest rates than bonds in the taxable market. Without access to them, universities would be forced to borrow from the taxable bond market and pay those higher interest rates, tax experts said. In turn, that would drive up costs of infrastructure projects, something experts said would likely trickle down to students in the form of further increases to tuition and room and board rates.

“Universities are often looking for efficient and affordable ways to do the work that they do, and private activity bonds are an important strategic finance tool for colleges and universities to help them keep their costs down,” said Liz Clark, director of federal affairs for the National Association of College and University Business Officers, a group advocating against the proposal.

The bonds used by colleges and universities typically have lives of about 30 years, and the bond issuance is usually overseen by a local or state government entity.

SU’s most recently available tax forms show that, since 2005, the university has had six tax-exempt bonds issued through the City of Syracuse’s Industrial Development Agency and the Trust for Cultural Resources of the County of Onondaga, which is a branch of the county’s Office of Economic Development.

The most recent of those bonds were issued in 2011 and 2013, both through the county trust, at prices of about $50 million and $68 million, respectively. The bonds have 25-year lifespans at interest rates of about 5 percent.

Stephen Weyl, a tax lawyer at the Mississippi-based firm Butler Snow LLP specializing in tax-exempt bond financing, said if SU had instead accessed those bonds in the taxable market, the interest rates “would be closer to 7.5 percent.”

“That’s a huge difference,” Weyl said.

The proceeds of those bonds have been deployed “for many campus renovations, replacements, upgrades and improvements,” Sarah Scalese, associate vice president for university communications, said in an email.

Official statements for each of those bonds stipulate that the bonds were issued for renovations of certain campus buildings and facilities, including academic facilities, dormitories, athletic facilities and the Carrier Dome. Since they’ve already been issued, those particular bonds wouldn’t be affected by any changes to the tax code, but any new bonds would be subject to the rules of the new tax code.

That could be especially pertinent for SU, which has several major construction projects on the horizon. Renovations to the Carrier Dome and Archbold Gymnasium were previously estimated to cost more than $250 million in total, while construction of the National Veterans Resource Complex is expected to cost $62.5 million.

SU has not publicly committed to comprehensive funding plans for those projects, but the university is exploring tax-exempt bonds as an option, Scalese said.

As part of its Campus Framework plan, SU also expects to add more student housing over the next 20 years and make renovations to buildings such as Schine Student Center and Bird Library.

“The effective proposed elimination of tax-exempt bond financing does have the potential to impact borrowing options for future capital projects,” Scalese said. “However, in the normal course of business, the University evaluates multiple financing options to determine the most appropriate approach for each project.”

Weyl, the tax lawyer, said the sense in the bond industry is that the Senate provisions, which don’t include eliminating private activity bonds, are “much more likely to prevail than the House provisions.”

Congressional Republicans have said they intend to have a bill sent to President Donald Trump by the end of the year. But if they fail to do that, the issuance of private activity bonds will likely come to at least a temporary halt, Weyl said.

“Nobody that I know is going to give an opinion after Jan. 1 that bonds are tax-exempt in this arena unless one of two things happens: There’s final legislation that doesn’t get rid of the private activity bonds, or that Dec. 31 date in the House bill goes away,” he said. “If there’s no legislation, and if that Dec. 31 date is still a marker in the House bill, then we aren’t going to be issuing new bonds until we have clarity.”

Published on December 4, 2017 at 10:02 pm

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