Tax on Tuition

Many city and municipal governments are struggling to balance budgets (most have balance budget requirements unlike the federal government) in the wake of this recession. Tax reveune is down and government spending is naturally high given that more citizens qualify for income assistance programs during tough economic times. The balance budget requirements of local governments handcuff cities into raising taxes and/or cutting government services at that absolute wrong time. Hence, many local and state governments are getting creative about how to raise taxes. As the state of PA contemplates legalizing table games, cities desperate for revenue are trying anything, like taxing college tuition.

http://www.nytimes.com/2009/12/16/education/16college.html

Given that most schools get federal funds and students at the University of Pittsburgh, for example, receive over $4500 per student in funding from the state of Pennsylvania, it does show some ingenuity on the part of Pittsburgh city planners to try and siphon off federal and state funds back to the city's budget. But at what cost? The city is going to take a lot of heat from a potentially vocal constituency that often has a lot of time on its hands.

A more equitable tax on students might be to tax university endowments and the profits of the for-profit colleges and universities. The University of Pittsburgh has one of the nation's largest endowments for a public university (yet they still enjoy a significant taxpayer subsidy from PA residents). I'm sure Carnegie Mellon's endowment is considerable too. State owned universities and community colleges have little or no endowment and get a considerable amount of their funding from state taxpayers.

Also, just in principle, I would be bothered by the fact that my tax dollars that partly fund higher education across the state would be siphoned off by the city of Pittsburgh to pay for retired city employees.

Dubai

The following financial market commentary was written by Matt Malick and Ben Atwater of Atwater Malick LLC. Ben and Matt have developed a sound and unique investment philosophy for their clients. They regularly write market commentaries and I plan to post them here for interested followers. You can learn more about them at www.atwatermalick.com .

In many ways, Dubai was the ultimate example of the debt-fueled excesses that led to the global financial crisis as it rapidly expanded infrastructure, transportation systems and residential and commercial real estate. Now that the global economy has slowed and the availability of credit has contracted, Dubai’s state-run companies are seeking to delay the repayment of debt, which many traders essentially view as a default.

We are following the situation as it unfolds, in particular as it relates to the long-term investment thesis behind each of our “focus list” stocks. Although global stock markets have sold-off in response to the news, losses have been relatively modest thus far, and we are not making any immediate changes in our client portfolios. Frankly, outside of potential portfolio exposure in financial stocks, we expect the direct impact of the these events on our companies to be nonexistent. But, the indirect effects on the financial markets are indeterminate and impossible to predict. Any action at this time would be emotional rather than enlightened.

For those of you who are interested in learning more about Dubai, here are links to an excellent two-part 60 Minutes story from August of 2008, when Dubai’s growth was at its peak. We find it particularly entertaining to watch this report with the benefit of hindsight.

http://www.cbsnews.com/video/watch/?id=4312234n&tag=contentMain;contentBody

http://www.cbsnews.com/video/watch/?id=4312039n&tag=contentMain;contentBody