Two higher education analysts offer a viewpoint related to the debate over the nation’s tax policy on private university endowments.
By Mark Schneider and Jorge Klor de Alva
Fifty-six private universities in the United States have endowments of more than $1 billion. Concentrations of wealth that big periodically attract the attention of state legislators and Congress because they can avoid federal, state and local taxes. Congress last sought to address this issue in 2008, but the effort was derailed by the Great Recession.
Now the spotlight is back on these gold-plated ivory towers.
Recently the Senate Committee on Finance and the House Committee on Ways and Means and its Oversight Subcommittee sent a joint letter to the 56 billionaire campuses asking for detailed information on the size and use of their endowments.
Most of the information requests zeroed in on the flow of money into and out of endowments and on such practices as naming rights and endowment fund managers’ fees. But the universities were also asked the size of their tax-exempt property holdings and the extent to which they were making payments in lieu of taxes (“PILOTs”) to their local communities to help meet the public cost of supplying police, fire and other municipal services to these institutions. Congress now has those letters in hand, and its staff is sifting through them.
Some of the 56 schools made their responses to Congress public. While we wait for Congress to release its analysis of all the responses, these public documents give us an initial peek at the practices common among rich schools.
As the following list shows, many of these wealthy universities hold extensive real estate, most or all of it beyond the reach of taxing authorities.
- Harvard: 650 buildings, 25 million square feet. Annual “payment in lieu of taxes,” or PILOT: $5.9 million.
- Brown: 236 buildings, 6.8 million square feet. PILOT: $6.5 million.
- Duke: 14.6 million square feet. PILOT: $750,000.
- Columbia: More than 12 million square feet. PILOT: $7,500
- NYU: 172 buildings, 14.9 million square feet. PILOT: $0.
- Washington U. in St. Louis: 250 buildings, 2,370 acres. PILOT: $0.
The schools’ responses are not the sole source of information on tax exemptions. Thanks to the Santa Clara County assessor, we also know that Stanford University holds one of California’s largest property tax exemptions, with about $8 billion worth of property removed from the tax rolls. Since tax-limiting Proposition 13 was passed, California communities are generally held to a 1 percent property tax rate. In Santa Clara County the average is closer to 1.1 percent, but even at the lower rate Stanford is enjoying a tax break worth about $80 million a year.
In the nation’s capital, the D.C. Office of Tax Assessment provided a list of all properties on the tax rolls owned by Georgetown and George Washington universities, as well as their assessed value. We excluded all fully taxed property from our calculations, keeping only educational tax exempt, partially tax exempt, and non-taxed miscellaneous properties.
Below are the value of the land and buildings reported in 2015 for each school, along with our calculation of what potentially would be owed if the holdings were fully taxed at the D.C. property tax rate, as well as what the schools actually paid in property taxes.
- GWU: $1.7 billion in assessed value, $31.6 million in potential property taxes, $224,000 actually paid.
- Georgetown: $397 million in assessed value, $7.4 million in potential property taxes, $16,000 actually paid.
The actual taxes these two schools paid were on the commercial value of mixed use (partially tax exempt) real estate. The District of Columbia doesn’t have a PILOT program, so it’s fair to say that for the most part little of the $39 million in potential property taxes is being collected.
You would expect university leaders to excel at making the case for this largesse and why they shouldn’t be paying property taxes. Indeed they do. Most argue that their schools are engines of innovation, that they contribute greatly to the local economy, and that they offer their neighbors access to on-campus concerts, art shows, lectures and so on. But does this side of the ledger equal the value of foregone tax revenues? Do local taxpayers agree with university presidents?
A recent Bloomberg story headlined “Princeton’s Neighbors Say to Heck With Freebies — We Want Cash,” sheds light on the benefits of living in the shadow of such a rich university as Princeton. After all, what’s not to like about such perks as free lectures, admission to athletic games and concerts, and, yes, even shuttles to Trader Joe’s? Well, it turns out that these “freebies” are very expensive for local property owners. Because all that university property is off the tax rolls, the average property tax bill (around $18,000) in the rest of Princeton is about a third higher than it otherwise would be.
Responding to the congressional inquiry, Duke notes it contributed $7.5 million toward the eponymous Duke Performing Arts Center. Amherst says it “readily consents” to town gatherings and events on its campus. Harvard says it contributes to its host communities “through a broad array of direct programming, supportive services, and civic collaborations” and that such programs in Cambridge and Boston had an estimated value of more than $18 million annually. All good, except that Lincoln Institute of Land Policy researchers note that in 2009 Harvard had almost $1.5 billion in property in Boston proper, on which it would have had to pay $40 million in property tax for the year, if it did not have an exemption. So all of that “free” access to campus facilities and community support services may not be so free after all.
In their responses to the congressional inquiry, many of these rich universities touted their role as engines of innovation — and there is probably no place in the country (or in the world) that would not like to have the economic growth that Stanford, Harvard and MIT have spurred. But Google, Microsoft, Uber and other tech giants are also engines of innovation — and, guess what, they all pay property taxes.
To us, the numbers speak louder than the justifications. Solidly comparable numbers for all these rich universities would let us see exactly how much their tax-exempt status is costing taxpayers. But such numbers are not available in the universities’ less-than-candid responses to the congressional letter of inquiry. Some listed (as was requested) their actual real estate holdings, others didn’t. Some addressed PILOTS, others didn’t. And some recited their contributions to their local communities (which was not requested), others didn’t.
We are not suggesting that the communities housing these rich universities don’t benefit from their presence. But free shuttles or free concerts are mere goodwill gestures compared to the costs that communities are absorbing through higher bills on their taxpayers and foregone tax revenue from universities.
In short, the automatic exclusion of such extensive real estate from the tax rolls is an issue that a democratic society should debate. And thanks to the latest congressional probe, maybe it will.
Mark Schneider is vice president and institute fellow at the American Institutes for Research. He is also the president of College Measures. He served as the U.S. commissioner of education statistics from 2005 to 2008 and is a distinguished professor emeritus of political science at the State University of New York, Stony Brook.
Jorge Klor de Alva is president of the Nexus Research and Policy Center. He was previously president of the University of Phoenix and a senior executive at Apollo Group Inc., and he also held faculty positions in anthropology at Princeton University the University of California at Berkeley.