Brown University Taxes: Providence Takes On School In Town-Gown Money Clash
PROVIDENCE, R.I. — When Providence Mayor Angel Taveras recently warned that Rhode Island's capital could run out of cash by June and face bankruptcy, he singled out the city's largest employer and one of its most prestigious institutions – Brown University – for what he called a failure to sacrifice.
The Ivy League school, which as a nonprofit enjoys tax-exempt status, makes voluntary payments of a few million dollars a year to the city under an earlier agreement. But Taveras maintains the university should give more at a time when city taxes have gone up, services have been cut, schools have been closed – and he trimmed his own salary by 10 percent.
"Our taxpayers already subsidize the tax-exempt institutions in this city," Taveras declared at a news conference at City Hall, noting that some residents saw their taxes hiked nearly 13 percent last year. "It takes the revenue collected from 19,000 taxpayers like the one I just mentioned to account for the $38 million in property taxes not paid by Brown University."
Struggling U.S. cities are increasingly looking to private universities and other tax-exempts for cash to cover what they would otherwise fork over in property taxes on valuable parcels. That has sometimes created strained relations with those institutions, which defend their special status by saying they bring jobs, generate economic activity and offer critical services in education and health care.
But the town-gown dispute has become particularly pronounced in Providence, where the city faces a roughly $22.5 million deficit in the current fiscal year and the mayor has warned of "devastation" if Brown – and other local colleges and universities – don't contribute millions more and city pensions aren't cut.
Negotiations on Brown's voluntary payments resumed last week when Gov. Lincoln Chafee, a Brown alumnus, brought together Taveras and two of Brown's highest-ranking administrators, President Ruth Simmons and Chancellor Thomas Tisch. Representatives from both sides say they are trying to reach a fair agreement.
The city says Brown's 200-plus buildings are worth more than $1 billion and would mean $38 million in revenue if they were taxed at the regular commercial rate. Brown is hoping to continue its expansion into a key economic development parcel on the edge of downtown; the so-called Knowledge District, where Brown opened its new medical school building in August, has been identified by the city and state as critical to the fiscal recovery of both.
Brown says it gives the city $4 million a year, including $1.2 million under a 2003 "memo of understanding" as well as taxes on properties not used for educational purposes, such as its for-profit bookstore. Marisa Quinn, vice president of public affairs at Brown, said the university has offered to do more.
Taveras turned down an additional $10 million over five years to support city schools after he says Brown reneged on an agreement reached last year under which it would have paid nearly $40 million more over a decade. The university's governing board, the Corporation, never signed off on that.
Brown students held a small rally Friday to coincide with the board's regularly scheduled winter meeting, at which the payments were expected to be discussed. Senior Aaron Regunberg said the fates of the university and the city are linked.
"If we think we can sit up on our hill and thrive while the rest of the city fails, we're going to be in for a surprise later down the line," he said.
The operating budget this fiscal year in Providence – a gritty city with high unemployment that has struggled to replace its defunct manufacturing economy – is about $614 million, down 4 percent from last year. The budget of Brown – a campus of stately brick buildings in a neighborhood called College Hill – is $865.2 million for the coming fiscal year, up more than 3.2 percent. Its endowment earned an 18.5 percent return last fiscal year, growing to $2.5 billion.
Daphne Kenyon, a visiting fellow at the Lincoln Institute of Land Policy in Cambridge, Mass., said municipalities have increasingly turned to PILOTs not only because of fiscal strains, but also because raising taxes on the public has become so politically unpalatable. She said PILOTs are important in places like Providence that have lost industry, rely heavily on the property tax for revenue and where a significant portion of land is occupied by nonprofit institutions.
But a 2010 report she co-authored found that the payments can be "ad hoc, secretive and contentious" and that nonprofits may feel like they're being extorted. Princeton University clashed with two local governments over PILOTs in recent years after the university seemed to suggest it would reconsider its payments in light of opposition to a zoning change needed for a planned expansion; the change has since been approved and the university in December announced an increased contribution.
After revising its PILOT guidelines last year, the city of Boston extracted more money from its tax-exempts – nearly 25 percent more during the first half of this fiscal year, or 88 percent of what it sought, according to the city.
Providence points to Yale's agreement with New Haven, Conn., as it seeks to pressure more out of Brown. Yale spokesman Michael Morand said the university pays more than $12.1 million a year to the city, including voluntary payments and property tax.
Rhode Island and Connecticut also have state-funded PILOT programs, in which municipalities get state money to cover unrealized income from their tax-exempts. Providence received $23.1 million this fiscal year, according to Ortiz.
Michael Van Leesten, who chaired a commission on tax-exempts in Providence created by the City Council, said merely showing up on institutions' doorsteps with a tin cup isn't a good approach; it takes a partnership, ideally formed before the situation reaches a crisis point.
"There's no magical solution," Van Leesten said.
He added: "In order for change to occur, oftentimes brinksmanship – a little Cuban Missile crisis – has to happen, to take things to the point where, `Oh my God, now we have to do something."
The city is supporting state legislation that could compel the universities and hospitals to pay more. It also supports a bill that would allow the collection of property tax from nonprofits on buildings they own but don't use for educational or health care purposes. Some institutions already pay that voluntary.
Taveras stressed that he's already brought the deficit down from $110 million a year ago, and that he isn't asking only Brown to pay more.
"I do not believe that Brown should solve our problems," he said, "but I do believe that Brown should be part of the solution."
Loading comments… 
ERIKA NIEDOWSKI 02/12/12 02:48 PM ET Associated Press