Bill threatens tax on University of Iowa, Iowa State, Grinnell endowments

DES MOINES — As a bill to tax college and university endowments advanced out of subcommittee Thursday, its sponsor Rep. Taylor Collins announced a coming amendment that will up the taxable endowments from those topping $250 million to those over $500 million.

House Study Bill 544 — as originally written — would have imposed a 15 percent tax on college and university endowments in Iowa over $250 million, but the amendment not only increases the taxable endowment value to over $500 million, but pares down the tax rate to “whatever the corporate tax rate in Iowa is,” Collins, R-Mediapolis, said Thursday.

For corporate income over $100,000, Iowa’s tax rate in 2026 is 7.1 percent.

The amendment could reduce the number of campuses affected by the proposal, which a lobbyist for the Iowa Association of Independent Colleges and Universities initially said was four to five.

“I'm hearing that four to five colleges out there will have a significant impact with this legislation,” Frank Chiodo, with the association, told lawmakers Thursday. “And just for my understanding, because I really find this interesting, we're going to tax a nonprofit endowment 15 percent because government knows how to spend their money better?

“I just want to make sure I'm not in a different universe,” he said. “I think it sets an interesting precedent to anybody that has an endowment in this state.”

Per the proposal, money generated from the new endowment tax will be deposited into workforce grant incentive funds aimed at supporting students pursuing majors in high-wage and high-demand jobs.

Taxes gleaned from regent institutions will go back into regent-based scholarships; taxes pulled from private colleges and universities will go to private-enrolled students, per the bill.

‘We do expect for Iowa and Iowa State to have those funds depleted’

A National Association of College and University Business Officers study published last year showed at least four colleges and universities in Iowa in 2023 had endowments over $250 million — based on data provided by campuses that voluntarily participated.

The University of Iowa reported the largest endowment at $3.3 billion, followed by Grinnell College at $2.5 billion, Iowa State University at $1.6 billion, and Drake University at $267 million. Colleges and universities in Iowa that were below the $250 million threshold included Luther College at $198 million, University of Northern Iowa at $186 million, Buena Vista University at $150.4 million, and Central College at $95.5 million.

The national university with the largest endowment at that time was Harvard University at $49.5 billion, followed by the University of Texas System at $45 billion and Yale University at $40.7 billion.

The anticipated amendment — based on 2023 endowment numbers — would drop Drake from the list of affected campuses but leave UI, Grinnell and Iowa State.

Although lobbyist Jillian Carlson told lawmakers Thursday the Board of Regents is “undecided” on the bill to tax the UI and ISU endowments, she noted that 80 percent of endowment funds already go toward student scholarships.

“With the 15 percent tax proposed in this bill, we do expect for Iowa and Iowa State to have those funds depleted to below that $250 million level in about 10 to 15 years,” Carlson said. “Right now, as the name implies, those scholarships are endowed, and so they go on in perpetuity, allowing us to fund those scholarships that we have set up year over year for our students.”

‘I was kind of surprised’

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During Thursday’s subcommittee discussion on the measure, Rep. Timi Brown-Powers, D-Waterloo, said she’s worried imposing an endowment tax might scare away potential donors thinking about setting up scholarship funds at an Iowa college or university.

She also highlighted vague language in the bill aiming to tax “certain endowment funds.”

“As I read it through and really dive into endowments, it looks like we're just stealing from Peter to pay Paul,” Brown-Powers said. “I don't know if that's the best philosophy.”

Plus, she said, adding taxes isn’t something she’s used to hearing proposed from her conservative colleagues.

“That's not usually something that my cohorts like to do,” she said. “So I was kind of surprised.”

When asked about the bill Thursday, Speaker of the House Pat Grassley highlighted the need to reinvest in high-demand fields and students interesting in pursuing those jobs.

“If that’s where the conversation is trying to get us to, its worth having,” Grassley said. “I don’t think there’s been a decision made on whether it will make it all the way through. But from my perspective, that’s something that if we can provide more support to those students that want to go into those fields, we should at least entertain it.”

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com