Iowa House lawmakers sent amended legislation to require investment of university endowments in state innovation funds back to the Senate Tuesday, with Democrats calling the measure a tax on Iowans looking to support higher education.

Senate File 2453 would require state universities to invest 1% of their endowment fund assets in one of the state’s innovation funds. The bill was amended in the House to include language clarifying that only unrestricted assets will be used for the investment and allowing endowment foundation boards to grant one-year waivers of investments in situations where fund capacity isn’t available or market conditions aren’t right for “prudent investment.”

Rep. Taylor Collins, R-Mediapolis, said these changes came at the request of the Iowa Board of Regents, and told Rep. Adam Zabner, D-Iowa City, during debate that no endowment managers reached out to him about the bill or why they’re not already investing in these funds.

“This bill is measured, especially after it’s been amended, and it’s a policy-driven approach to improving Iowa’s innovation economy while safeguarding institutional investment standards,” Collins said.

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Zabner was one of multiple Democrats to speak out against the legislation, describing it as “an ongoing tax and subsidization of” innovation funds from endowments Iowans have directed their money to “with the thought that it would be going towards investing in our regents universities,” which he said have an an economic impact of $18 billion on the state.

University endowments act as a rainy-day fund for their institutions, Zabner said, in case a period of financial hardship like that seen in 2008 comes around again. If an innovation fund sees a hard year, then universities — which Zabner said are already underfunded by the Legislature compared to past years — would need to backfill them with more money to reach the 1% threshold.

“We want people to attend our regents universities, be successful and then donate to them,” Zabner said. “By taxing these endowments for some other project, you make that story less likely.”

While only one person spoke during the bill’s subcommittee-as-a-whole meeting, in support of the bill, Rep. Timi Brown-Powers, D-Waterloo, said she’s heard from several people in the past two days who have concerns about the legislation — prompting her to be a no vote.

The legislation could be viewed as another tax on Iowans, Brown-Powers said, and it would send the message to university donors that, unless they’ve identified a specific purpose for their gift, that money could be “scooped” out of the endowment and put somewhere else. While coming to the Legislature as a “possible economic development bill,” she said the legislation actually shows a shortfall in the state budget, asking why innovation funds aren’t being supported at the state level.

“We are taking private money that goes to our regents, and we are using it for our purpose to look as if we are encouraging economic development across the state of Iowa,” Brown-Powers said.

Rep. Dave Jacoby, D-Coralville, agreed with Brown-Powers’s comments, saying this bill reflects “the fact that we have to raise a number of taxes to meet the budget guidelines this year” and questioning whether these discussions would be happening if “we weren’t in the hole $1.2 billion.”

Collins said he was “a little surprised” by the debate on the bill, adding that he doesn’t understand why lawmakers wouldn’t want to ensure the money universities are already investing in venture capital stays in Iowa instead of leaving the state.

“Our university endowments, again, already participate in venture capital as part of a diversified portfolio, but currently those venture capital investments are being made outside the state of Iowa,” Collins said. “That is unacceptable.”

The legislation passed with a vote of 55-37.

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