Congress Wraps Up 2014

Budget, Appropriations, & Tax Issues

Congress recessed prior to the November 4^th elections without clearing a final FY2015 budget.  A continuous resolution (CR) was passed to fund the government until December 12^th.  As a result, the lame duck Congress had to come to an agreement on a budget that would pass both the House and the Senate. Most of the challenges to achieve this were not education related but were 1) the actual budgeted amount per appropriations bill (each approps bill funds an agency) and 2) the desire among some Members of Congress to not support the Presidential Executive Order in regards to immigration announced earlier this month. 

The House of Representatives created a “CRomnibus” bill to fund the federal government for FY2015.  The funding measure is being referred to as the “CRomnibus,” because it combines an omnibus to fund the government through September 2015 at new levels and a continuing resolution (CR) for one agency, the Department of Homeland Security (DHS), and funding through February 2015.  The continuing resolution (CR) for DHS will allow Congress to review funding for the agency in the new Congress when it became clear those members opposed to the President’s Executive Order on immigration changes issued during the Congressional recess were not going to support funding for that program in the omnibus.  Thus, the cromnibus was created only supporting the Department of Homeland Security until the end of February.  Congress will have to resolve this funding issue upon return in January.

The House passed the “cromnibus” by a vote of 219-206 and sent their bill to the Senate for consideration.  (All funding bills must originate in the House of Representatives). The closeness of the vote in the House reflected the fact that both liberal Democrats and conservative Republicans refused to support the measure: the former because of policy riders to benefit Wall Street and campaign donors, the latter to postpone funding to next year’s Republican-led Congress. Only a last-minute lobbying blitz —by President Obama, members of the congressional leadership, and various communities, including higher education—convinced enough Democrats that the measure was far preferable for their priorities than a continuing resolution (CR).  The House recessed for their final vote of this session and will open the 114^th Congress in January.

The Senate then began their debate on the FY2015 spending package over the weekend.  Since the CR from August ended on December 12^th, both chambers had approved a two-day continuous resolution (CR) to enable the Senate to give final approval to the FY15 package. The cromnibus contains full-year negotiated funding levels for 11 out of the 12 appropriations bills—hence the “omnibus” part of the title—and a CR to carry the Department of Homeland Security through February, when the Republican-led Congress will use extension of its funding to address the President’s executive order on immigration as noted above.  The Senate through many procedural antics finally approved the spending package on Tuesday.

Spending Package Impact on Higher Education

The two biggest higher education questions in the weeks leading up to the bill’s release were whether Sen. Tom Harkin (D-IA) would succeed in his push to spend $2 billion out of the current Pell surplus on other initiatives and if Republicans would be able to block the Department from implementing its regulations holding career education programs accountable for their results.

The latter did not make it into the bill at all. The push to repurpose Pell funding was only partially successful. In response to significant opposition from both the left and the right, the bill only moves $303 million out of the Pell surplus. The additional money will cover the increased costs of student loan servicing, which had been previously understated through the use of since-eliminated mandatory money. While moving this money away from the Pell surplus will potentially create problems dealing with expected future shortfalls, it does not affect the current program. The maximum Pell Grant award will still rely on mandatory dollars to increase by $100 as scheduled.

The most welcome policy change is a provision that would restore Ability to Benefit (ATB), a provision that until 2009, allowed students who hadn’t received a high school diploma or GED to be eligible for federal student aid if they passed an approved Ability to Benefit test. This bill would restore access to aid for ATB students who are enrolled in career pathway programs and pass a test. That’s good news for students. But the policy also says some new ATB students can only receive the portion of the Pell Grant funded by appropriations, for a maximum $4,860 grant.

There was only one notable cut on the higher education side. The biggest cut was to the First in the World program, an evidence-based competition focused on college success and completion, which shrunk from $75 to $60 million. Congress also asked the Department for a lot more information about what took place in the first competition, which ran last year.

Everywhere else spending was either slightly increased or flat among higher education programs. Federal Work-Study received a $15 million boost, the biggest increase of any postsecondary program. Funds for historically black colleges, minority-serving institutions, and other programs, were increased slightly. TRIO, a conglomeration of nine different federal programs that mostly work on college access, also received a slight $1.5 million increase. It also successfully secured a call from Congress to force the Department to issue applications for the Student Support Services competition by next Thursday (December 18). Given that the competition windows usually run 30 to 60 days, that effectively means potential applicants will have to start working on their proposals over the Christmas holidays.

A few other changes merit mention. First, the bill requires the Department to add a flag for applicants who are or were foster children to the Free Application for Federal Student Aid (FAFSA). The Department would then use those data to target those applicants for additional information about their federal student aid eligibility. Lawmakers also reiterated a call for the Department to produce a report on the graduation rates of Pell Grant recipients at institutions — a product they requested last year but that never came to fruition. And language in the bill reiterates that states can continue to develop their federal data systems — and link statewide PreK-12, early ed, higher education, and workforce data.

One thing that’s not present: any mention of the Perkins Loan program, which is currently set to expire without legislative intervention. That means, if the Republican House and Senate don’t take up a reauthorization of the loan program next year, students will no longer be able to access Perkins loans.

A Summary of Spending

Pell Grants: The measure provides $22.5 billion for Pell Grants and allows the maximum award to increase by $100 to $5,830 in the next academic year because of an automatic mandatory increase in funding. The bill does not include Senator Tom Harkin’s (D-IA) proposal to reallocate $2 billion of the Pell Grant surplus to other programs, but it does cut $300 million from the program, with some of that funding going toward student loan servicing. Pell Grants will once again be available to students who have not completed high school but are enrolled in a career-training program, as part of the “ability to benefit” provision.

Federal Work-Study will be increased by $15 million, TRIO programs by $1.5 million, and the Department of Education’s Office for Civil Rights by $1.6 million.

Supplemental Educational Opportunity Grants is frozen. The First in the World program is cut by $15 million. There is no funding for the Administration’s proposed college rating system.

Research

National Institutes of Health: NIH is funded at $30.1 billion, an increase of $150 million. The agency will also receive $238 million from the $5.4 billion emergency package to fight Ebola, which will be used for clinical trials to evaluate potential vaccines and therapies, reports CQ.com.

National Science Foundation: NSF will receive $7.3 billion, an increase of $172 million. Within that increase, Research and Related Activities will increase by $124 million to $5.933 billion and Education and Human Resources by $19.5 million to $866 million. Major Research Equipment and Facilities Construction will receive a modest increase of $760,000 to $200.7 million.

NASA: The space agency will be funded at $18 billion, an increase of $364 million. Within that increase, NASA Science will increase by $93 million to $5.244 billion, Aeronautics by $85 million to $651 million, and Space Technology by $10 million to $596 million. Education will be funded at $119 million and Space Grant at $40 million.

Department of Energy (DOE) Office of Science: The Office will be level-funded at $5.071 billion, as will ARPA-E at $280 million.

The National Endowment for the Humanities: Funding for NEH will remain flat at $147 million.

Tax Extenders and Impact on Higher Education

On December 3, the House of Representatives overwhelming passed a tax extenders package (H.R. 5771) that will extend more than 50 expired tax benefits for one year, through 2014 (retroactive and expires December 31^st). The package, which the Senate approved the bill last night before adjournment, It contains tax benefits important to higher education, including the IRA Charitable Rollover, the above-the-line deduction for qualified tuition and related expenses, and the research & development tax credit. Approval of the retroactive extension pushes off to next year more ambitious plans to redo and make permanent a variety of tax benefits for individuals and corporations.

Individual Deductions impacting Higher Education

Above-the-line deduction for higher education expenses

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) created an above-the-line tax deduction for qualified higher education expenses. The maximum deduction was $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns). The bill extends the deduction to the end of 2015. A two year extension of this provision is estimated to cost $596 million over 10 years.

Tax-free distributions from individual retirement plan for charitable purposes

The bill extends for two years the provision that permits an Individual Retirement Arrangement (“IRA”) owner who is age 70-1/2 or older generally to exclude from gross income up to $100,000 per year in distributions made directly from the IRA to certain public charities. A two year extension of this provision is estimated to cost $1.8 billion over 10 years.

House defeats permanent extension of the IRA Charitable rollover and other charitable tax provisions.

December, The House 11 failed to approve under suspension of the rules the Supporting America’s Charities Act (H.R. 5806), legislation to make permanent three charitable tax provisions, including the IRA charitable rollover. The measure fell by a vote of 275 to 149, short of the two-thirds majority needed to approve it under suspension. The White House had threatened to veto the bill because it provided no offsets for its costs. (The other charitable provisions dealt with land conservation and food donations.)

The higher education community strongly supports the IRA Charitable Rollover, which allows individuals who have reached age 70½ to donate up to $100,000 directly from their Individual Retirement Accounts (IRA) to charitable organizations, without treating the distributions as taxable income.

Carol Holladay
Hurt, Norton & Associates
503 Capitol Court, NE Suite 200
Washington, DC 20002