UPDATED 1:50 p.m. | The CEO of a Bloomington retirement community says a provision in the GOP tax bill would make it harder for not-for-profits like hers to finance major construction projects.
The House GOP version of the bill would eliminate a key tax-exempt financing tool used by 501(c)(3) organizations to fund major projects. It’s one of many provisions included in competing versions of the tax bill that’s now making its way through Congress.
Westminster Village used that tax-exempt financing tool—called private activity bonds—for a $33 million expansion project that’s now underway. The tax-exempt financing was expected to save Westminster around $5 million in interest over 10 years, said CEO Barb Nathan.
That’s now at risk. If approved as-is, the House version of the bill would eliminate the tax-exempt financing as of Jan. 1. That’s a problem for Westminster because it’s only drawn $10 million of its $30 million loan, meaning the remaining $20 million would be hit by the higher financing costs. That would cost Westminster an additional $3.4 million, Nathan said.
To avoid that, Westminster is facing a difficult choice—whether to grab its remaining $20 million way ahead of schedule to avoid that tax hit. Even in that best-case scenario, Westminster would have to pay an additional $340,000 in interest, Nathan said.
“It’s very scary for the future, but it’s also very scary for the here and now for people who are in construction projects like Westminster is,” Nathan said on GLT’s Sound Ideas.
Westminster would not be the only not-for-profit affected by the change, should Congress ultimately pass this provision in its final tax bill. (The provision is not included in the Senate version.)
There are some signs the provision may not make it into the final version. Twenty Republican members of the Congressional Municipal Finance Caucus sent a letter to House and Republican leaders Nov. 28 urging them to preserve the tax-exempt status of private activity bonds.
“Private activity bonds finance exactly the sorts of public private partnerships of which we need more of, not less,” the caucus wrote. “These bonds help finance housing for low- to moderate-income families that otherwise would not get built; toll roads and expressways, airports and seaports; hospitals and universities. The (Trump) administration has made it explicitly clear that it supports the expansion of private activity bond eligibility.”
The expansion project now underway at Westminster Village, a continuing care retirement community, is the first of three phases. It will add a new two-story building to Westminster’s skilled-care services, part of a larger shift toward private rooms. It will also move the complex’s main entrance to Mercer Avenue and enlarge common areas throughout.
The next two phases would include a new assisted-living building and more independent-living space. But without tax-exempt financing options, those phases are in jeopardy, Nathan said. The added costs would be too great, she said.
“Nonprofits can’t afford that. You’re going to scale something back or not invest for the future,” she said.
U.S. Rep. Rodney Davis, R-Taylorville, whose district includes Westminster, supported the GOP tax bill when it passed the House. A spokesperson said he's spoken directly with Nathan about the issue.
"The Senate bill maintains the exemption. The House is expected to vote (Monday) to go to conference, where differences between the House and Senate bill will be negotiated," said Davis spokesperson Ashley Phelps. "This is certainly one of the differences Congressman Davis is following closely, and he has let Chairman Brady and Speaker Ryan know he is supportive of maintaining the exemption."
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