Moody's Report Highlights Potential University Tax Risks

October 11, 2011

In a report about public credit released Wednesday, Moody's Investors Service notes that universities, along with other nonprofit organizations, are at an increased risk of adverse tax law changes as a result of the weak economy. Analysts for the company note in the report that while the most severe federal tax law changes, such as requiring nonprofits to pay taxes on investment earnings, are the least likely to occur, states are more likely than before the recession to threaten tax law changes to seek revenue from colleges and universities. The report points to instances of municipalities pressuring nonprofits to increase payment in lieu of taxes (PILOT) agreements or seeking to tax college and university revenues, as Pittsburgh tried to do in 2009, and notes that such behavior is expected to continue.

The report also discusses how colleges and universities have improved financial disclosure since the start of the recession, but notes that such disclosures are still less comprehensive and timely than for-profit disclosures.

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