On March 30, 2020, toward the beginning of the global COVID-19 pandemic, New Haven citizens stormed the city’s Zoom budget meeting to vent their outrage at Yale University’s continued strain on city finances. Residents specifically pointed to Yale’s vast and tax-exempt property holdings compared to the deficit-ridden New Haven public schools hungry for property-tax dollars.
Four months later, on July 29, a new coalition of Yale union workers and residents followed up with a 600-vehicle “Respect Caravan” that brought downtown traffic to a halt. With signs that read “Yale: Pay Your Fair Share,” organizers acknowledged that the university offers the city voluntary PILOTS (payments in lieu of taxes) but declared these funds were “pocket change” compared to the $30 billion endowment. For the protestors, COVID-19 merely exacerbated a growing disparity between urban colleges and universities and their host cities.
Universities and their medical centers are registered with the Internal Revenue Service as 501(c)(3) charitable nonprofit organizations. Because higher education institutions provide the public good of education to surrounding communities, their property holdings are exempt from taxation in all 50 states. But classes with professors and students are a minor side business on college campuses today. The greater value of campuses is their ability to use the nonprofit tax exemption as a tax shelter for profitable research and private investors.
With the meteoric ascendance of the knowledge economy, colleges and universities have become financial titans in urban centers. After a group of universities lobbied to pass the Bayh Dole Act in 1980, schools like Stanford, MIT and Yale immediately created technology transfer offices to privatize and profit from federally sponsored research. Today universities use their academic research to create commercial goods or patents in a range of fields, from the pharmaceutical industries and software products to military defense weaponry. After the fall of factories, knowledge has become the new face of capitalism with university bell towers lauded as the smokestacks of today’s cities.
Both city leaders and administrators in education rightfully laud the “economic impact” that comes from these public-private partnerships facilitated by college campuses. The research makes life-saving discoveries, generates secondary start-up companies and jobs and attracts additional investors in related industries. We can point to the millions in revenue secured by Stanford when university researchers produced Google or the financial rebound generated for Pittsburgh when Silicon Valley companies and local universities helped revive it as a tech city.
Today’s schools bring the once suburban research parks to the city as “innovation districts” where academic research and corporate partnerships meet real estate, retail and cheap labor. Real estate developers like Wexford: Science + Technology focus on what they call “knowledge communities” and work with cities and schools to build a monied portfolio of university-affiliated projects like Philadelphia’s uCity Square, Converge Miami and Cortex in St. Louis. Urban neighborhoods are being transformed to optimize “value capture”: the conversion of city blocks into research profits. Under the cover of educational purposes, research that has the potential to produce millions in patents and revenues remains largely tax exempt while conducted in tax-exempt buildings. These financial arrangements are quite lucrative for city leaders, university administrators and their corporate partners.
But what about city residents, especially those who live in the neighborhoods surrounding the schools? A critical paradox has emerged with dire consequences for our cities. We assume that higher education is an inherent public good, most clearly marked by its exemption from property taxes. But nonprofit status is precisely what allows for an easier transfer of public dollars into higher education’s private developments. The former mayor of New Haven, Conn., Toni Harp, said such arrangements create a property-tax gray area where profitable research produced for private companies is conducted in educational buildings that are not on the tax rolls. (In 2010, the Lincoln Institute of Land Policy outlined the increased number of schools starting to pay PILOTs.) At approximately $13 million, Yale pays the largest PILOT in the country. But this is merely a fraction of the estimated $102 million in property taxes that, if Yale weren’t tax exempt, would come from the school or the additional $31 million that would come from Yale-New Haven Hospital.
Most schools also reap the benefits of police and fire protection, snow and trash removal, the maintenance of roads and the electrical grid, and other municipal services while struggling host cities pay the price. Homeowners and small-business owners ultimately carry the weight of increased property taxes caused by campuses and their knowledge communities while the owners of rental properties make units smaller and inflate their prices to prioritize the needs and financial means of those affiliated with the university.