Fitch Ratings: Tax Bill Could Squeeze School Districts, Colleges and Universities

The GOP tax overhaul will squeeze school districts and pressure colleges and universities, Fitch Ratings said in a statement released today.

The credit reporting agency said the cap on state and local tax deductions will hit residents in high-taxed states harder, and as a result, they "may have less tolerance for higher state and local taxes in the future."

"Less revenue-raising flexibility could limit growth in state and local spending and have negative implications for entities that rely on government support including school districts, public higher education institutions and healthcare providers with high Medicaid exposure."

Fitch Ratings also said that "the 1.4 percent excise tax on net income from the largest private colleges' endowments would be an incremental financial stress but would likely not have significant near-term credit effects on Fitch-rated colleges or universities."

Citing data from The Chronicle of Higher Education, the agency noted that the law's direct impact is narrow — "fewer than 30 private colleges and universities meet the enrollment and endowment per student levels" to trigger the tax — but it could still have indirect effects.

"However, it could lower the incentives for donors to fund endowments and raise the possibility of higher and more onerous taxes on endowments in the future. The incentives for donors could also be pressured by the rise in the standard deduction if it lowers the number of taxpayers who itemize charitable deductions."

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