Dartmouth College is one of about 30 schools in the country to be hit by a new provision taxing endowment returns under the Republican-backed tax overhaul.
The measure targets private schools with large endowments relative to their student population — specifically, endowments that represent more than $500,000 per student.
The tax will likely translate to slower investment growth over time. And, because the college draws from its endowment for annual operating expenses, that’ll mean less potential growth in budgets for things like faculty and student research, as well as construction and renovation projects.
While Dartmouth funds student financial aid in part from its endowment, the college is unlikely to roll back its scholarship offerings, said CFO Mike Wagner.
It’s difficult to put a figure on the financial impact looking forward, Wagner said. But, if the measure had been in place for the previous five years, by his estimate it would have translated about $5 million in additional taxes for the school.
That's not just a one-time $5 million hit, but $5 million that won't be reinvested. The impacts will compound over time, Wagner said. In addition, he said the college will see its taxes increase under other aspects of the tax plan, most notably new limits on interest deductions.
That said, there are several variables making these financial predictions uncertain. One is how the markets will respond overall to the tax plan — affecting investment returns. Another is how the changes will affect individual giving and the college’s annual fundraising capacity.
Dartmouth’s endowment stands at about $5 billion — an all-time high for the school. The endowment generated an investment return of nearly 15 percent for the fiscal year ending in June.
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