Connecticut General Assembly allows municipalities to tax private college endowment funds

Connecticut municipalities may soon gain the authority to impose a tax on the endowment funds of private higher education institutions, following the introduction of House Bill 7147 on April 9, 2025. This legislation aims to address the financial pressures faced by local governments by tapping into the substantial resources of wealthy educational institutions.

The bill allows municipalities where more than half of the students from a qualifying institution attend classes to levy a tax of up to two percent on the net investment income of these institutions. To qualify, an institution must have an endowment exceeding $300 million. This provision is designed to generate additional revenue for local services, potentially easing the burden on taxpayers.

Supporters of the bill argue that it is a necessary step to ensure that affluent educational institutions contribute fairly to the communities they inhabit. They contend that these institutions benefit from local infrastructure and services while maintaining significant financial reserves. Proponents believe that the revenue generated could be used to fund essential services such as public safety, education, and infrastructure improvements.

However, the bill has sparked notable debate. Critics argue that imposing such a tax could deter private institutions from investing in local communities or expanding their programs. They express concerns that it may lead to increased tuition costs or reduced financial aid for students. Some educational leaders have voiced their opposition, suggesting that the bill could undermine the collaborative relationship between municipalities and educational institutions.

As the bill progresses through the legislative process, its implications could be significant. If passed, it may set a precedent for how municipalities interact with private institutions, potentially reshaping the financial landscape of higher education in Connecticut. The bill is set to take effect on October 1, 2025, with taxes applicable to taxable years beginning January 1, 2026.

In conclusion, House Bill 7147 represents a pivotal moment in Connecticut's approach to funding local services through the resources of private higher education institutions. As discussions continue, the outcome of this legislation could have lasting effects on both the educational sector and the communities they serve.