For centuries, colleges and universities have been exempt from paying property taxes, and there’s no good reason to change. But that’s not stopping people from trying.
From Connecticut to California, critics are questioning property tax exemptions while arguing that colleges are getting a free ride on the backs of taxpayers.
With states and municipalities still recovering from the 2008 recession, nonprofits and, in particular, universities are being eyed as potential new sources of revenue. The large property holdings of many institutions make us targets for those opposed to exemptions.
Beyond the property tax, there are proposals to tax big-time college sports and other activities. Others want to tax large college endowments and to eliminate charitable deductions on state and federal taxes. Some have proposed an end to tax-exempt bonds for infrastructure projects.
Voluntary payment
Those who favor eliminating property tax exemptions argue that nonprofits don’t pay their fair share of costs for police, fire and public works. To counter this, some states and municipalities have payment in lieu of taxes (PILOT) programs.
According to a 2011 study by the Lincoln Institute of Land Policy, PILOTs existed in at least 218 localities across at least 28 states and were collectively worth more than $92 million per year, with most of that coming from colleges and universities. Boston, Cornell and Stanford universities are among the many institutions that make these kinds of payments.
In Connecticut, legislators are considering a proposal that would revoke the property tax exemption as of July 1, 2016, for both real and personal property acquired by private universities and certain hospitals. It would break with centuries of tradition and modify what is perhaps the most progressive PILOT program in the country.
In fact, it’s a program that other states should consider. Under the Connecticut program, the state provides grants that reimburse communities for a percentage of lost property taxes tied to colleges and hospitals.
Historic precedent
The loss of the exemption would be a historic event in Connecticut, especially considering that Yale University’s property tax exemption predates Connecticut becoming a state and is written into Connecticut’s constitution. It would also have a chilling effect on the state’s 16 private universities.
At the University of New Haven, for example, we have spent $195 million since 2005 on various construction and infrastructure projects. If a property tax had been in effect during that time, we would not have been so ambitious with our plans, adversely impacting our students, faculty, staff, and the local and state economies.
In addition to the state PILOT program, my university makes additional voluntary payments. When we opened our new campus in the nearby town of Orange, we agreed to make additional voluntary payments to the host city.
Yale makes the highest voluntary payments in the nation. It has paid the city of New Haven more than $90 million since 1990.
Enhanced value
Unquestionably, colleges and universities provide value to students and society. We generate direct economic activity from capital investments, ongoing operations, and student and visitor spending. We provide cultural opportunities to residents and support community initiatives and volunteer work.
Additionally, property values near most colleges and universities are often higher than in other parts of a community, so the additional property taxes collected from this enhanced value helps to offset the exemptions.
Colleges and universities are good neighbors. But as someone once said, nothing surpasses the beauty of a bad idea.
I wish there was some magic solution eliminating all attacks on the property tax exemption, but it doesn’t exist. So universities and colleges must do what they do best—educate people about the value we provide and inform them about the immeasurable harm the loss of property tax exemptions would cause.
Steven H. Kaplan is president of the University of New Haven in Connecticut.
