June 18, 2019(2)

(E-RATE, ED FUNDING) Permanent link

Of E-Rate and Approps: An Advocacy Update

E-Rate Update: A recent proposal from the Federal Communications--under the leadership of Chairman Ajit Pai (Republican)--would place limits on the amount of money the e-Rate program could make available to support school and library efforts to improve internet access. Unlike previous proposals we have responded to at the FCC, which have been narrow in scope and focused on E-Rate--this latest proposal targets the broader umbrella program--the Universal Service Fund (USF)--that includes three other sister programs (Rural health care, the Connect America Fund and Lifeline). Currently each of the four USF programs operate under their own cap you'll recall that the E-Rate cap currently sits at just over $4 billion, a cap established in the 2014 E-Rate modernization. The FCC's proposal would set a cap for the overall USF. THe proposed cap is nearly $2 billion above current levels. Specific to E-Rate, the proposal would pair E-Rate with Rural Healthcare under a single cap. This is of particular concern to us because while E-Rate is currently undersubscribed, school and library demand will only continue to grow, and even if these connectivity prices continue to fall, the reality of increasing demand and skyrocketing costs with rural health care create a scenario where one USF program is pitted against another, with rural schools competing with rural health care for connectivity needs. This should not be an 'either, or' funding approach; the USF program was designed to address four distinct connectivity needs, a core tenet this proposal blatantly disregards. The proposal will follow the normal comment period. As an initial reply, AASA partnered with our EdLiNC coalition to request an extension on the filing deadline. You can read that letter here

Big take aways? Moving forward, know that this is the top advocacy priority for the summer. We will be utilizing a full member press to ensure the FCC hears loud and clear about the importance of the E-Rate program, how the proposed partner cap creates an arbitrary competition between complementary programs, and threatens to undermine the viability of the overarching program. Our efforts will focus on the FCC, as this is where the proposal originated and where the decision will be made, but we will also exert messaging effort on Capitol Hill, as Congress oversees the FCC and the Telecommunications Act, the authorizing statute under the overall USF program. 

Appropriations Update: House Democrats plan to pass a nearly $1 trillion spending package this week, a move that would tie up loose ends from the intra-party fight in April over the fiscal direction of the country. Passing H.R. 2740 would require solid support throughout the House Democratic caucus, because Republicans have said they won’t back the measure, which includes Defense, Labor-HHS-Education, State and Foreign Operations, and Energy and Water appropriations. To reach the 217 votes currently necessary for a majority, Democrats can lose support from no more than 17 of their 235 members. AASA sent a letter of support for the bill, with the Committee for Education. Later in the week, the House will begin consideration of its second appropriations package (H.R. 3055) that includes Agriculture-FDA, Commerce-Justice-Science, Interior-Environment, Military Construction-VA and Transportation-HUD funds. Agencies and programs covered by those five appropriations bills would receive about $320 billion in fiscal 2020 discretionary funding under the measure. Over on the Senate side, negotiations on a possible deal to raise the discretionary caps on defense and non-defense spending have not yet been fruitful, and have led to contemplating looking for a deal to raise just the FY 2020 caps, meaning that Congress would have to face a huge spending cut down to the sequester-level caps for FY 2021 in an election year.  That is not an outcome that congressional leadership want.

Big take aways? We are not in the clear when it comes to avoiding a shutdown, nor is there a clear path forward on raising the caps. That said, the question is not so much 'Will Congress raise the caps?' as much as 'How much will Congress raise the caps, and will they address FY20 and FY21 in one package, or will they have to renegotiate in an election year?". 

June 18, 2019(1)

(STUDENT DATA PRIVACY, ED TECH, RESEARCH, PUBLICATIONS AND TOOLKITS) Permanent link

Join Us In Person (or Online!) for Free Student Data Privacy Bootcamp!

AASA: The School Superintendents Association and the Future of Privacy Forum are thrilled to invite you or your designee to attend an exclusive free Student Privacy Bootcamp for School Superintendents and Policymakers on Monday, July 8th, at FPF's office in Washington, DC (1400 I st NW, Suite 450, Washington, DC). This event will also be live-streamed.

The goal of the training program is to gather superintendents and policymakers to help them understand the regulatory requirements and best practices to properly handle student data in a complex and rapidly changing environment. The full event is from 8:30 - 11:30am ET. You can see the agenda and register to attend in person or via live-stream here

Questions? Contact Amelia Vance with FPF (avance@fpf.org) 

June 18, 2019

(ADVOCACY TOOLS, GUEST BLOGS, ED FUNDING) Permanent link

Guest Blog Post: New SALT Workaround Regulations Narrow a Tax Shelter, but Work Remains to Close it Entirely

This guest blog post comes from Carl Davis, with the Institute for Tax and Economic Policy. Carl serves as the research director at ITEP. This blog post originally appeared on the ITEP blog and is published here with permission. Follow Carl on Twitter @carlpdavis (carl at itep.org)

Today the Internal Revenue Service (IRS) released its final regulations cracking down on a tax shelter long favored by private and religious K-12 schools, and more recently adopted by some “blue state” lawmakers in the wake of the 2017 Trump tax cut.

The regulations come more than a year after the IRS first announced the launch of this project and about nine months after it unveiled an initial draft. Overall, the regulations are a big improvement but fall short of ending the tax shelter entirely for wealthy investors. The IRS has indicated that additional guidance will be needed to deal with a variety of lingering issues, though it remains to be seen what that guidance will entail.

At issue are state and local tax credits for taxpayers who make so-called “charitable donations” to specific causes cherry-picked by elected officials, including private K-12 schooling. For years, private school donors have used tax credits in exchange for donating to school voucher programs to beef up their federal charitable write-offs at little or no cost to themselves, since up to 100 percent of their “charitable gifts” to such funds are reimbursed with state tax credits (18 states offer these types of credits). A large state tax credit for private school donations combined with the federal tax deduction for charitable contributions allowed some high-income taxpayers to receive a tax benefit larger than their actual donation. In essence, state and federal law incentivized donations to private schools through a system of credits and deductions that allowed high-income taxpayers to profit from so-called donations. 

For years, these perverse tax shelters went unchallenged. But then in 2017 federal lawmakers enacted the Tax Cuts and Jobs Act, which capped the federal income tax deduction for state and local taxes (SALT) at $10,000. Lawmakers in higher-income states, which have a greater number of taxpayers affected by the SALT cap, began to take interest in this shelter as a way of helping their residents cut their federal tax bills. If federal law no longer allows SALT payments above $10,000 to be deducted, why not allow taxpayers to make “charitable gifts” (reimbursed with tax credits) to their state or local government instead of tax payments? New York, New Jersey, Connecticut, and Oregon enacted these arrangements. Then the IRS noticed the surge of interest in this tax strategy and decided to get involved. 

Under the new regulations, people receiving state tax credits in return for donations will have to subtract those credits when determining the real, deductible amount that they donated. For example, if a taxpayer donates $100 to support private or public education in Pennsylvania but receives a $90 tax credit in return, then only $10 of their donation will be deemed truly charitable and eligible for the federal charitable deduction. In other words, the regulations inject a welcome bit of common sense into the federal tax code’s definition of “charity.” 

Some private school groups were up in arms about this proposal when it was first unveiled and argued that this change should only be implemented in the context of donations to public schools, not private ones. But the IRS wisely rejected that argument and will treat donations to all types of entities in the same way. Failing to do so would have created a grave inequity in our tax code, would have been unnecessarily complex and would have reopened the door to more creative SALT cap workaround schemes. 

The main area where the regulations fall short, however, is in their treatment of investors donating stock or other property in exchange for tax credits. As ITEP explained in its comments on the initial draft of these regulations, investors in states such as South Carolina with stock they wish to offload will be advised by their accountants to “give” their stock away in return for a 100 percent tax credit, rather than sell that stock on the open market. To the IRS, selling a stock generates cash income that triggers a taxable capital gain, but a state tax credit received in return for donating stock has typically remained invisible. A South Carolina taxpayer with $75,000 in capital gains income, for example, could come out ahead by about $23,100 if they take their payment in the form of a state tax credit rather than cash, as ITEP has shown. In other words, some investors making so-called “charitable gifts” will continue to turn a profit as a perverse reward for sham generosity. 

Without question, Congress could fix this lingering problem if it wished. Legislation introduced by Rep. Terri Sewell (D-AL) in the previous Congress, for instance, would require taxpayers to pay capital gains tax if they receive a large state tax credit as compensation for their gift of stock or property to a private school voucher organization. This improvement to our tax code’s measurement of real “charity” is worthwhile and could even be expanded to cover contributions of appreciated property to any organization. 

But the IRS has also indicated that it might seek to address this problem on its own, as it mentions that additional guidance will be needed on a number of issues including the portion of federal law governing treatment of capital gains income. 

Regardless of whether Congress or the IRS is the body to ultimately take action, it’s clear that additional work is needed to preserve the integrity of the charitable deduction by reserving it for real acts of charity, not sophisticated tax planning. Today’s regulation is a great step in that direction, but it shouldn’t be the final word.