Brown U. to Pay Its Hometown $31.5-Million to Help Close Budget Gap

May 01, 2012

Brown University has agreed to pay Providence, R.I., $31.5-million over the next 11 years, a move that Angel Taveras, the mayor, said would help the cash-strapped city deal with a vast budget deficit.

Ruth J. Simmons, Brown's president, joined Mr. Taveras and Gov. Lincoln Chafee of Rhode Island at the State House on Tuesday morning to announce the deal, which still must be approved by the Providence City Council to take effect.

Under the agreement, Brown will pay the city an additional $3.9-million in the current fiscal year, which ends June 30, bringing to $8-million the university's total annual contribution to municipal coffers.

Mr. Taveras called the agreement "a renewal of our shared willingness to work together to make both Brown and Providence successful."

The arrangement, which took many months to hammer out, reflects the new state of town-gown relations. No longer are the primary fights about underage drinking or other bad behavior by students. Instead, the main friction is pensions—namely, whether, and how much, tax-exempt universities and other nonprofit groups should contribute to cities weighed down by retirement costs for municipal employees and other expenses.

As the need for new revenue grows, city leaders in places like Providence and Boston have looked to colleges to help make up the difference. Tensions in Pittsburgh boiled over two years ago after the mayor proposed charging a 1-percent tuition tax to close budget shortfalls, arguing that the city's 100,000 students should pay up for the municipal services they use.

As nonprofit organizations, universities are exempt from taxes on property used for educational purposes, but many make other voluntary payments to local governments. College leaders say their institutions also contribute plenty to cities' bottom lines, by hiring residents and attracting newcomers, spinning off research-driven businesses, and providing a constant stream of young consumers for local stores and restaurants.

In a letter to the campus, Ms. Simmons noted that Brown already makes $4-million in voluntary and property-tax payments to Providence (the latter on property not used for education) as well as $2-million in fees.

Certainty in Budgeting

Under the terms of the new deal, Brown committed to paying an additional $3.9-million per year for five years, followed by $2-million annually for six years, until June 2022.

The voluntary agreement with Brown is the latest struck with colleges and other nonprofit groups by Mr. Taveras. On Monday night, he announced an arrangement with Lifespan, a local hospital system, to pay $800,000 annually over three years. In February, Johnson & Wales University said it would give the city as much as $11.4-million over the next decade.

The new payments are on top of $50-million that private colleges, including Brown and Johnson & Wales, pledged in 2003 to give to the city over 20 years.

In her letter, Ms. Simmons wrote, "Brown is deeply concerned about Providence's financial situation and is committed to supporting efforts to enhance the city."

Brown, she said, "is one of the largest contributors to the local economy and one of the few entities already positioned to support long-term sustainable growth in our city and state."

Ms. Simmons, who has announced her retirement, said university leaders had "insisted" on certain principles during the protracted negotiations, namely that the terms of the 2003 agreement between the city and its colleges not be altered and that Brown's legal status as a tax-exempt institution be preserved.

Providence will also turn over several streets adjacent to the Brown campus to the university, and provide a long-term lease for 250 parking spaces for Brown employees.

The 11-year agreement is good for both Providence and Brown because it will give them certainty in their budgeting, said Daphne A. Kenyon, a visiting fellow with the Lincoln Institute of Land Policy, a research organization in Cambridge, Mass. The public has little appetite for raising taxes, leaving muncipalities, which rely heavily on property taxes, with few other revenue sources to tap, she said.

Evelyn Brody, a professor at the Illinois Institute of Technology's Chicago-Kent College of Law, studies property taxes and higher education. She agreed that local leaders may turn to colleges and other nonprofits to make up continued shortfalls.

The reliance on higher education's financial support, Ms. Brody said, is troublesome to college presidents who "worry that even if the payments are voluntary, they'll become expected."