The University Record, September 17, 1997

U-M students, families fare well in tax-relief; research funding looks promising

From the U-M Washington, D.C., Office

The major budget and tax bills that became law this year have historic implications for higher education and research, according to Walter Harrison, vice president for university relations, including an estimated $150 million in tax relief over the next five years for U-M students and their parents.

The tax legislation passed during the summer will, for the first time, provide significant benefits designed to help families finance higher education.

The overall package of tax reductions for higher education is estimated to amount to about $40 billion nationally over the next five years. University of Michigan students and their families could receive about $150 million.

This calculation is based on the assumption that U-M students and their families who currently receive federal grants and loans will be the same ones who benefit from the tax relief.

These new benefits will be coupled with Pell Grant increases, where the maximum has increased $630 in just two years to $3,000 for 1998-99.

Estimates from the Office of Financial Aid indicate that tax relief for U-M families in Title IV programs could reach $12 million for FY 1998, $32 million for FY 1999 and $36 million for FY 2000. These annual increases are due to the phased-in nature of the tax law changes.

According to Thomas A. Butts, associate vice president for university relations, a tax credit for the first two years of college that could amount to $1,500, and a 20 percent credit for out-of-pocket tuition costs for the first $5,000 in tuition paid for years three and four of undergraduate work and graduate school, are among the new tax provisions. The credit also is available to individuals who take lifelong learning courses.

Other provisions include the extension of Employer-Provided Education Assistance (undergraduates only), a deduction for student loan interest payments, IRA withdrawals, Qualified State Tuition Plans and others.

An effort during the summer to tax the tuition payments the University makes to teaching and research assistants was defeated. The provision in the House bill that would have done this created great concern during the summer.

Congress is in the process of acting on the 13 appropriations bills for FY 1998 that are supposed to be completed by the end of this month, and prospects for increased funding for most research programs look promising.

Congress is still working on the Fiscal Year 1998 appropriations bills, but the likely end result of that process is beginning to take shape.

Robert Samors, assistant vice president for research, says it appears likely that the National Institutes of Health (NIH) will be the big winner again this year. The House approved a 6 percent increase over the FY97 funding level, while the Senate has proposed a 7.5 percent increase.

"While a 'split-the-difference' compromise is often how this type of situation is resolved, there appears to be some momentum on Capitol Hill for the higher number to prevail," Samors says.

The National Science Foundation (NSF) also appears headed for a decent increase in its FY98 budget, although not as large as NIH. The House provided a very generous 6.6 percent increase in its appropriations bill, while the Senate proposed a 3.3 percent boost.

Because NSF funding must compete with such agencies as Housing and Veterans Affairs, it is unclear at this point exactly what will be the final outcome.

"At a minimum, however, it appears that the agency will receive an increase over last year that is higher than inflation," Samors says.

The funding picture is not entirely positive, as a couple of trouble spots still continue to plague the research community.

Most notably, the Department of Defense basic research account (6.1) is in danger of being reduced below the FY97 level. While the Senate provides for a healthy 8.8 percent increase over FY97, the House bill includes a 4.8 percent cut.

The university community is mounting a vigorous effort to ensure that the final figures are closer to the Senate level than the House level, but the outcome of this initiative is uncertain.

Similarly, the future of the National Endowment for the Arts, and, to a lesser extent, the National Endowment for the Humanities, also hangs in the balance.

The House has voted to eliminate funding for the NEA. The Senate is expected to take final action on its version of the funding bill this week.

While there are a number of proposals being discussed (including providing no funding or sending all the arts monies to the states), no one knows for certain how the Senate will act, Samors notes.

In addition, there is some discussion of merging the Endowments into one organization. But there is concern within the humanities community that such a move could have severe negative consequences for federal support for the humanities.

A full report on the outcome of the FY98 appropriations process will be forthcoming in an October issue of the Record.