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Novel Approach to Town

Novel Approach to Town
April 14, 2005

Yale University announced this week that it would nearly double, to about $4.2 million next year, what it pays the city of New Haven annually in place of local taxes. What's perhaps most interesting about the arrangement, though, is how university and city officials chose to calculate the figure: through a formula based on the number of staff members who work on the campus and the number of students who live on it.

Many private nonprofit colleges and their communities have complex and often contentious relationships, and money is frequently at the core of the conflict. Cities and towns want the colleges and other tax-exempt entities to pay toward fire, police and other services that benefit the institutions, and the process by which nonprofit colleges decide whether to make payments, and of what size, to their local cities or towns "in lieu of taxes" has always seemed a scattershot one. Northwestern University and its hometown, Evanston, Ill., for instance, have been locked in battle for years over the issue.
 
The relationship between Yale and New Haven has not been immune from tension, but in recent years, city and university officials have worked together more closely. Yale pays about $3 million a year in property taxes on its commercial buildings, and paid another $2.4 million in permits for campus renovations and expansion, university officials said.

It began making "voluntary contributions" to the city, mostly to cover fire services, in 1991, and last year that amounted to about $2.3 million. Taken together, Yale and New Haven officials said the university pays more to its host city than any other institution in the country.

About a year ago, the two sides began talking about restructuring the university's contribution, and they settled on a formula in which Yale would pay $250 for each full-time employee and each student who lives in a campus-owned tax-exempt building. They also agreed that the payments would rise by the cost of inflation each year. 

Under those terms, the annual payment will rise to $4.18 million in 2006, and Yale will pay a total of $470 million to New Haven over 50 years, assuming a 3 percent increase in the cost of living.
"There are lots of other ways that Yale contributes to the vitality of the city and one important way is to help the city enjoy fiscal stability so it can provide the necessary services to its citizens," said Richard C. Levin, Yale's president.

Experts on higher education tax issues and town-gown relations said they were unaware of any similar formulas, and intrigued by the simplicity of the arrangement.

"These situations are essentially negotiated settlements, and you look for a reasonable basis for determining the cost to the city of providing services" to students and employees," said Sheldon E. Steinbach, vice president and general counsel at the American Council on Education. "This approach seems to make a whole lot more sense than just picking a number out of the sky. It would seem to provide for a logical, sophisticated mode of dealing with payments in lieu of taxes."

 

 

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