Colleges have long promoted the economic boon that their campuses represent to surrounding communities, attracting faculty members as residents and supplying a constant stream of retail consumers in students, parents, and alumni.
But some municipalities, struggling to fill budget shortfalls, no longer believe that those benefits are enough for their towns and cities. Some institutions do make payments in lieu of the taxes on the property they use for educational purposes, but a number of mayors and local politicians are calling on colleges to pay more for the city and county services they use. The most far-reaching proposals have come this year from mayors in New Jersey and Pennsylvania, who pressed for state or city legislation to allow them to tax college students.
The idea of taxing students, while politically explosive and legally questionable, is the newest front in longtime town-gown battles. Even carefully calculated agreements between cities and their prestigious universities to make payments in lieu of taxes haven’t insulated some colleges from the criticism that they are taking advantage of municipal services at the expense of other taxpayers.
So far the political and legal hurdles in the way of taxing students have protected colleges from those measures. But the dispute is likely to continue at least until a national economic recovery puts state and local governments’ budgets back in the black.
“The current system simply doesn’t require universities to do their fair share,” says David N. Cicilline, mayor of Providence, R.I., which is home to Brown University, Johnson & Wales University, the Rhode Island School of Design, and Providence College.
Surprise in Providence
Last year, facing a $17-million budget shortfall, Mayor Cicilline asked state lawmakers to allow the city to tax the institutions $150 per semester for every student at the four colleges, or collect up to 25 percent of the property taxes that large nonprofit entities, such as colleges and hospitals, would owe if they were not exempt.
That came as a surprise to college leaders, who had struck an agreement with Providence officials six years earlier to give nearly $50-million to the city over 20 years to help compensate for services the municipal government provided. At the time, Mayor Cicilline said the donations represented the “beginning of a new relationship” with the colleges, and he promised not to seek any legislation to impose further fees on them, according to a city news release.
Marisa A. Quinn, vice president for public affairs at Brown, says her university worked to defeat the proposals, which died after failing to get support from key committee leaders in the legislature.
Brown has tried to do its part to support its own needs as well as those of the city, she says. In addition to making payments in lieu of taxes, an amount she says equaled just over half of the $50-million in the agreement, Brown operates and pays for its own ambulance service and a police force of 42 officers that works closely with the city’s police. The university donates space, worth about $50,000 per year, for a community police station near the campus.
Brown is also in the midst of a $10-million fund-raising campaign to establish an endowment for the Providence public schools.
With the economic downturn continuing to hammer state and local budgets, the tax-the-colleges movement that began last year in Rhode Island has spilled into other states. Late last year in Pittsburgh, a metropolitan area that has credited much of its economic resurgence to the private colleges within its borders, Mayor Luke Ravenstahl proposed that all students attending college in the city pay a 1-percent tax on their tuition.
Mayor Ravenstahl justified the tax as a way to make up for a $16-million shortfall in the city’s pension plan. But the measure ended up pitting unions representing city workers against the colleges and some business groups, which argued that the tax would mark the city as an unfriendly place for students. Opponents also argued that the tax on tuition was a “simplistic” solution for the complex and long-term problem of the city’s pension obligations.
Elsewhere, a majority of New Jersey mayors in December supported a resolution by the state’s League of Municipalities that sought authority from the Legislature to tax students.
What Colleges Pay Now
For the most part, the tension over payments in lieu of taxes is most evident in Northeastern states, which have a large concentration of both colleges and small towns with declining populations. Where long-term agreements do exist, the bases of those payments vary in scope and time frame.
Many of the nation’s wealthiest institutions make no payments in lieu of taxes at all. Nearly two-thirds of the 30 research universities with large endowments surveyed by The Chronicle said they had no arrangements to make routine payments to their local governments.
Among the universities surveyed, the largest annual amount paid to a local government was $7.5-million, from Yale University to New Haven, Conn. The amount was based on a formula that considers the number of students and employees on the campus.
Of the 11 institutions in the survey that made consistent payments, the University of Virginia had the smallest, contributing nearly $152,000 to the city of Charlottesville and Albemarle County, based on the taxable value of the property the university occupies.
The Massachusetts Institute of Technology has one of the longest histories of making payments in lieu of taxes, beginning in 1928. Last year it paid a total of $1.9-million to five surrounding communities. Harvard University, the nation’s wealthiest college based on the value of its endowment, began making payments in lieu of taxes in 1929, and last year gave $5.5-million to three municipal governments where it owns property.
Some colleges make no set payments but instead make ad hoc contributions. For at least a decade, Northwestern University, in Evanston, Ill., has made periodic cash donations, ranging from about $10,000 to more than $100,000, to local entities, including the school district, the library, and the fire department, according to Alan K. Cubbage, vice president for university relations.
Precious Space
Even when colleges make payments to cities, some mayors say the amount of real estate occupied by tax-exempt organizations puts an unfair burden on other taxpayers.
Bridgeport, Conn., for example, occupies less than 20 square miles but is home to Housatonic Community College, St. Vincent’s College, and the University of Bridgeport, notes the mayor, Bill Finch.
The state reimburses the city for as much as 77 percent of the tax that both public and private colleges would pay, but the difference must be made up by Bridgeport’s taxpayers, who have a median income of $36,000, he says.
“It isn’t so much that they’re tax-exempt,” says the mayor, referring to the colleges. “It’s who should be making up the shortfall, That’s the social-equity question that people in higher education should be asking.”
In Providence, 40 percent of the city’s real estate is taken up by nonprofit entities, which would otherwise pay $80-million in property taxes annually, says Mayor Cicilline.
Even some big cities see significant revenue opportunities lost because nonprofit institutions own large amounts of valuable property. In Boston, a task force assigned to examine the amount of tax-exempt property in the city reported last year that colleges owned more than $7-billion worth, which would generate more than $190-million annually if it were taxable.
Another issue for cities is that some of the largest economic benefits that colleges provide accrue to state governments rather than to the cities or counties where the campuses are located, according to a 2007 study by the Pennsylvania Economy League, an independent public-policy research organization.
In Pennsylvania students, parents, and alumni may spend lots of money in businesses near campuses, but it is the state that collects the sales tax.
Municipalities do not have the option of imposing a local sales tax, the report said. It noted that while some income taxes can be collected by municipal governments, many college faculty and staff members lived outside the cities’ limits. And income taxes on students who worked on or off campus were paid to the localities where they had their permanent addresses, not necessarily where the college was located, the study found.
State laws vary, but a similar problem exists in New Jersey, where municipal governments do not have authority to impose their own sales taxes and are dependent on property taxes for revenue.
Legal and Political Challenges
So far, ideas about taxing students and colleges have received mixed reviews, at best, from state lawmakers, who in many cases would have to pass legislation authorizing cities to collect those levies. Each state has its own laws governing nonprofit entities and the extent to which they are exempt from taxes.
In Pittsburgh, the mayor’s proposal sparked threats of state legislation that would specifically bar such a tax on students.
In New Jersey, Pamela R. Lampitt, a Democrat and chairman of the General Assembly’s higher-education committee, says she would oppose a proposal to tax students, because colleges are already providing economic benefits to their communities, and it would strain the relationships between those groups. Ms. Lampitt is also general manager for conference services at the University of Pennsylvania, where she has worked for 28 years.
And, of course, many mayors are unwilling to press a proposal that would alienate institutions that are often among the largest employers and taxpayers in their jurisdictions.
The resolution supporting a tax on students was “a cry for help,” says J. Richard Gray, mayor of Lancaster, Pa., which is home to Franklin & Marshall College, the Pennsylvania College of Art & Design, and the Thaddeus Stevens College of Technology. Even though Lancaster has increased its property taxes by 25 percent this year, taxing students isn’t something the mayor intends to pursue. “We have very good relations with our colleges, and we would seek funding somewhere else rather than taxing students,” he says.
Richard Doherty, president of the Association of Independent Colleges and Universities of Massachusetts, says proposals to levy taxes on nonprofit entities in his state have fared poorly with lawmakers, who recognize that education and health care are two sectors of the economy that have consistently grown and created new jobs in recent years.
And in Massachusetts, where a majority of the students attend private institutions, those colleges are essentially relieving the state of having to provide more public colleges, he says.
Apart from the political obstacles, colleges and other nonprofit entities would probably challenge tuition taxes in court, delaying the collection of those amounts for years and defeating the purpose of the tax.
Despite the hurdles, the pressure on colleges to contribute more to municipal government will probably continue as long as the economy is struggling.
Providence’s Mayor Cicilline is still trying to persuade the colleges in his city to increase the amount of their voluntary payments, but he has not yet pressed for legislation to force the issue.
Ms. Quinn, of Brown, says the university is working with federal, state, and local governments as well as private companies to increase economic development around life-sciences research. “Our work with Mayor Cicilline for the past six months or so has really been focused on this effort, which we view as the kind of productive, collaborative work we can do together to advance Providence and Rhode Island in the short and long term,” she says.
The mayor says he is in “negotiations” with the colleges but won’t predict whether he will try to press another bill if those talks fail. “It has always been my hope,” he says, “that this will be resolved in a negotiated settlement.”