Dear WashU students, faculty and staff,
As you are likely aware, major federal legislation (H.R. 1) was signed into law over the holiday weekend. It will be months or maybe even years before we fully understand how the new law will impact higher education broadly. But I want to share with you what we know at this time about the implications for WashU.
You may know that for the past several years WashU has been subject to an annual 1.4% excise tax on the income our endowment generates. You probably also know the endowment return sustains the university’s operations and maintains our ability to provide a world class education, conduct groundbreaking research, and support patient care through our partnership with BJC HealthCare.
As a result of the new law, WashU will be subject to a higher endowment tax rate of 4%. While the amount may vary from year to year based upon the income and gains that the endowment generates, we estimate the cost of this expanded tax to be approximately $57 million annually, an increase of about $37 million from the prior annual tax liability. While this is a significant increase, it is a much better outcome than some of the earlier proposals, which could have raised the rate to as high as 21%. It is not an exaggeration to say that, of the many existential threats we face in the current environment, an increase in our tax liability of that magnitude would have been catastrophic.
The outcome achieved is the result of a lot of hard work over the last two years led by our Office of Government & Community Relations, along with that of partner institutions across the country. This would also not have been possible without the support of many elected officials in the U.S. House and Senate who worked to protect institutions of higher education, including WashU. With their partnership and willingness to engage and compromise, we have been able to strengthen relationships, build bridges, and create greater understanding of the major contributions our colleges and universities make to our nation’s health and prosperity.
The new legislation also has implications for many of the federal financial assistance programs available to current and prospective WashU students. For example, the law makes significant changes to federal loan and grant programs, including Pell eligibility and borrowing limits, which could have an impact on some of our financial aid programs. More information will be shared directly with students who may be affected, but those with immediate concerns are encouraged to reach out to Student Financial Services. Changes to Medicaid funding, energy policy and other topics addressed in this new legislation may also impact the WashU community in the years ahead.
This is not the end of the road in our efforts to ensure policymakers are informed about the implications of federal policies and legislation for WashU. I have spent more time in Washington this year than in any prior year since I’ve been chancellor. I anticipate that trend will continue as we further our work to protect the university’s interests while also shaping and seizing new opportunities to positively impact society.
There are still a lot of moving parts and some unknowns with regard to WashU’s financial situation. Federal research funding, particularly for infrastructure currently paid through indirect cost recovery, as well as reimbursement for patient care, could have a significant impact on our bottom line. We also are facing pre-existing challenges that impacted the financial health of certain programs. We will be communicating soon about steps we will need to take to preserve university resources and become a more efficient and resilient organization. Our focus and commitment is to move WashU forward so that together, we sustain our university’s excellence and grow our impact into the future.
Sincerely,
Andrew D. Martin
Chancellor