Strapped College Town Wants To Impose A $50 Per-Student, Per-Semester Tax

You can’t help but notice the fingerprints of the University of Delaware everywhere in Newark, Delaware. On a recent tour—my son is looking at prospective colleges—we wandered through the campus before turning onto Main Street to grab lunch. You could feel the college vibe as we passed by local shops, cafes, and entertainment venues before popping into a Vietnamese restaurant.

“Are you here to see the university?” the proprietor asked. We nodded while munching on our banh mi sandwiches. “It’s a great college town. There’s always lots to do,” he said, hastily adding, “But it’s still safe, Mom.”

The University has been connected to the City of Newark for more than 250 years. Today, nearly 31,000 residents call Newark home—and 24,000 are University of Delaware students.

That necessarily means that city services—like fire and police—are utilized by the university and its students. And, the city says, costs for those services are rising, with healthcare costs for city employees playing a particularly significant role. The problem? Revenues are not rising as quickly as costs, creating a budget hole.

Newark City Council believes they may have found a solution: a $50 per-student, per-semester tax. The tax could bring in nearly $3 million annually, about half the $6 million in real estate taxes the city would collect if the university paid such taxes. The city would rely on the university to collect the student head tax, which would presumably be tacked on to each student’s bill, along with all the other fees and charges. (The school, ranked 134th on the Forbes America’s Top Colleges list, currently charges $2,040 a year in mandatory fees to undergraduates, in addition to tuition of $14,040 for Delaware residents and $37,680 for out-of-staters. It receives financial assistance from the state, but is privately governed.)

Not surprisingly, the University of Delaware isn’t on board with the idea. Rhett Ruggerio, interim director of government and community relations, for the University of Delaware, said, in a statement: “The University of Delaware values our relationship with the City of Newark. We recognize that the city is as vulnerable as anyone else to budget pressures imposed by the volatile economy. However, we oppose any proposals by City Council that would impair affordability for our students and opportunity for our partners who contribute so much value to our city. We have already begun to engage in active meetings with the mayor and city manager to advance collaborative solutions going forward. We expect those discussions to continue.”

A key talking point in those discussions will likely focus on PILOTs, or payments in lieu of taxes.

PILOTs

PILOTs are precisely what they sound like: agreements to pay a fixed amount instead of paying taxes.

Here’s how that works. Tax-exempt status is typically granted to nonprofit organizations on the federal level. That generally happens through an application to the IRS under section 501(c) of the tax code, though some entities like churches, synagogues, and mosques that meet the requirements are automatically considered tax-exempt and are not required to apply for and obtain recognition of exempt status from the IRS.

Tax-exempt status typically applies to income taxes at the federal level. Some states automatically extend tax-exempt status to state taxes, but in other states, like Pennsylvania, these organizations may need to apply to the state to be exempt from property, sales, and non-income related taxes by demonstrating that the exemption is in furtherance of a tax-exempt purpose.

Property taxes are a significant source of tax revenue—and measures related to how they are levied are showing up at the ballot boxes. Not surprisingly, taxpayers don’t want to pay higher rates.

(You can see how your state’s rates compare here.)

In some areas of the country, universities, hospitals, churches, and other nonprofit organizations own significant amounts of land. Exemptions mean that property taxes that would have normally been due are not assessed nor collected.

However—unlike a special services district such as Reedy Creek Improvement District, which is home to Disney and provides its own services—these entities benefit from the services provided to other taxpayers. These services include fire and police, as noted before, as well as water and sewer, street maintenance, snow removal, public schools and libraries, health and safety inspections, health services, and, in the case of many urban areas, public transit.

But nonprofits don’t have Disney budgets. And many say they simply can’t afford to pay those costs. They cite their charitable status as proof that they already provide a public benefit.

As a compromise, nonprofits enter into PILOT agreements to pay a smaller amount. According to the Lincoln Institute of Land Policy, as of 2012, at least 218 localities in 28 states had received PILOTs, amounting to more than $92 million annually. Most of that revenue, the report found, came from so-called “eds and meds”—universities and hospitals—in the Northeast.

Interestingly, PILOTs didn’t start as a local program. The idea began in 1976 under President Gerald Ford and was intended to help local governments fill revenue holes related to federal land in their jurisdictions—federal land is not taxable by local governments.

Not all charities want to participate in PILOT programs—and not all local governments offer the option.

Delaware PILOT

The State of Delaware has a PILOT program on the books, but according to Newark city leaders, the city is not included in that agreement. That’s because the agreement—formerly known as the County Seat Package—focuses on state-owned properties. It currently only serves the three county seats in tiny Delaware (Wilmington, Dover and Georgetown).

John Suchanec, who represents District 1 as a Council Member on Newark City Council, explains that Newark doesn’t receive any funding from the program, even though it’s the home of the University of Delaware’s flagship campus with the most students. Instead the state allocates $450,000 to the city in the annual grant-in-aid bill as a separate line item; “$450K in lieu of $6M,” Suchanec says, “is not a stable revenue source.”

According to the resolution, the University of Delaware has provided a separate PILOT to Newark in the amount of $120,000 each year. The payments began in 1965 to help address the financial demands placed on the City due to the presence of the University—but that amount hasn’t been adjusted in 59 years, despite the fact the enrollment quadrupled during that time. If it had been adjusted for inflation, the payment would be about $1.2 million per year. (In 2001, the University added a separate annual police support payment of $60,000, which has remained at that level for the last 23 years.)

That, Suchanec believes, needs to change. He voted in favor of the new tax—as did the other members of City Council (7-0, in favor). “The city staff and the council are in lock step to right this financial wrong,” he says.

A meeting to discuss the matter was contentious. Suchanec says the chamber was filled with University of Delaware students “ready to throw stones at the council.” But, he says, as the evening progressed, it became apparent to the students that the University was more clearly their target “for treating the City as unfairly financially as they have treated the students over the years.” He cited a lack of affordable housing, add-on fees, and poverty-level salaries for grad students as examples.

A student-led online petition opposing the new tax has garnered 3,850 students as of this posting.

Boston and Other College Meccas

Newark is not the only city struggling with this issue. Last year, Massachusetts legislators introduced a bill that would allow Boston and other local communities in the state to mandate full 25% PILOT payments instead of relying on the voluntary payment system that’s now in place.

Boston has relied on PILOT programs since the 1970s. Currently, the PILOT allows tax-exempt organizations with property valued at more than $15 million to make voluntary cash payments and create community programs to benefit the city’s residents. Because of the number of nonprofits in the state, including colleges, hospitals, and cultural institutions like museums and the city’s famous symphony, nearly half of the property in the city is tax-exempt. That’s problematic, some say, since Boston depends heavily on property tax to fund its budget: property tax will account for 72% of the city’s revenue for the fiscal year.

Even more concerning? Those nonprofits aren’t making the full PILOT payments. A study by Mike Beaudet (a reporter for Team 5 Investigates, a unit at the local ABC affiliate TV station) and students from the Northeastern University School of Journalism found that PILOT payments fell 24% short of the requested amount in the 2023 fiscal year, with academic institutions’ contributions totaling 68% of the requested amount. According to the study, more than $22 million was left unpaid by academic institutions in Boston this past year. Only four (Boston Architectural College, Massachusetts College of Pharmacy, New England College of Optometry, and Showa Institute) of 21 academic institutions in the program met 100% of their PILOT request.

The three universities that owe Boston the largest PILOT payments—Boston University, Harvard University, and Northeastern University—met 78%, 79% and 67% of the PILOT request, respectively. Those percentages include both cash payments and a “community benefit credit” which represents services provided by non-profit institutions above and beyond an institution’s existing commitments—the…