Pilots Taking Off: As Their Cities Struggle to Find Tax Revenue, Some Colleges and Universities Are Stepping Up with Payments in Lieu of Taxes

By Schachter, Ron | University Business, January 2011 | Go to article overview

Pilots Taking Off: As Their Cities Struggle to Find Tax Revenue, Some Colleges and Universities Are Stepping Up with Payments in Lieu of Taxes


Schachter, Ron, University Business


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IT WASN'T LONG AGO THAT THE LONGstanding relationship between town and gown in both Pittsburgh and Providence absorbed a shock, as city officials rolled out plans to tax local colleges and universities.

In 2009, the mayor of Pittsburgh proposed a 1 percent tax on tuitions at the city's 11 higher education institutions to shore up the pension fund for city employees. The mayor in Providence, meanwhile, sought legislation to reduce a $17 million budget deficit with a levy of $150 a semester for each student at Brown University, Johnson and Wales University, and Providence College.

"By proposing a $300 annual tax on every student who enrolls at one of Providence's private colleges, the mayor would create a fee for the right to become educated in the city," Providence College President Rev. Brian Shanley, protested at the time in an op-ed response in the Providence Journal.

Pittsburgh institutional leaders also voiced strong reactions. "It seemed first of all an unfair tax to pass on to students and make Pittsburgh institutions less competitive," says Kenneth Service, the executive director of the Pittsburgh Council on Higher Education. "It gave the impression that the city was not welcoming to higher education."

While both initiatives were withdrawn by year's end after hearty opposition and some compromise by the schools affected, they have left a lasting impression in their local communities and cast a longer shadow over institutions in other urban locations trying to cope with shrinking tax bases and dwindling state and federal aid.

Progress in Massachusetts

In Massachusetts--the only state in which the student population at private institutions exceeds that at public colleges and universities--a growing number of institutions are getting out ahead of any future encounters with the city tax collector. By including fixed payments in their long-term budgets, say school leaders, they are writing a new chapter to a largely positive history of town/gown cooperation and absorbing the added expense over time.

In Worcester, both Worcester Polytechnic Institute and Clark University began the current school year with considerable fanfare by announcing long-term agreements to significantly increase their payments in lieu of taxes (PILOTs).

In Boston, a mayoral task force has just wrapped up a two-year process of determining the PILOT contributions that the city's nonprofit institutions, including universities and hospitals, will make over the next 20 years. The increases will bring $20 million annually to the city, compared to the current level of $8 million.

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And the increase in PILOT payments is not limited to the Bay State. Last year, Yale University responded to the recession-induced deficits of host city New Haven by increasing its contribution by 50 percent, to $7.5 million a year. In Philadelphia, which receives barely $1 million annually from all of its nonprofits combined, discussions have begun between leaders on both sides on raising that amount.

Worcester Polytechnic's Bold Initiative

"What's at stake is the quality of the relationship between the institution and the community," says WPI President Dennis Berkey of the decision to enter into a 25-year agreement, which he punctuated on the day of its announcement with an additional $50,000 contribution to the fund supporting a local park. "For WPI, there's been a long tradition of service, including community service, and the new PILOT fits into the larger context."

Berkey, who is in his seventh year at WPI's helm, adds that the school was already making substantial payments in lieu of taxes and paying $180,000 in real estate taxes on 28 buildings. When WPI recently constructed a new dormitory to replace an apartment house, for example, the school proactively committed to pay the same amount of property tax the city was generating from the former building. …

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