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Students walking on the campus of the University of Delaware

Both the University of Delaware and the surrounding city of Newark are facing budget challenges.

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The chaos of the post-pandemic economy has reached both the University of Delaware and the surrounding city of Newark. And it’s made the college town the latest stage for a long-standing debate about the financial contours of town-gown relationships.

Dennis Assanis, UD’s president, said earlier this month that inflated employee health-care costs are behind the university’s hiring freeze and consideration of further “draconian measures” to balance its budget. But Newark, which is home to some 31,000 residents, including 23,613 UD students, is facing its own budget challenges, including a projected $8 million revenue gap in 2025. The Newark City Council wants to levy up to a $50 per-student, per-semester tax on the university to help offset the shortage.

Students and administrators oppose the levy and argue that the university already pumps millions into Newark’s economy each year and the added tax would burden students. But local politicians say it’s time for the university, which is exempt from paying property taxes, to contribute to the rising costs of running the city.

“The University is not paying its fair share,” Corinth Ford, a member of the Newark City Council, said in an email after the council unanimously approved the proposal last week. “We did not levy a tax on UD students. We are charging a per capita amount to the UNIVERSITY to offset the impact of the increasing student population on the City’s infrastructure, particularly police and fire services.”

The tax is projected to generate $2 million to $2.4 million annually. But to become law, the proposal has to pass through the Delaware General Assembly, get the governor’s signature and then come back to the council for a final vote.

Experts say it’s an unusual approach to collecting revenue from a college or university.

“I’m a little skeptical that this proposal would pass,” said Adam H. Langley, associate director of tax policy at the Lincoln Institute of Land Policy, noting that legislative attempts to tax nonprofits haven’t typically been successful in other states, in part because nonprofits—especially universities—wield strong lobbying power. “If it actually happened, it seems like a reasonable middle ground between raising some significant revenue for the city without imposing a particularly large burden on the university.”

Although members of the council have made clear that if the state approved the tax, the university can decide if it wants to pass the tax along to the students, “the funds to pay for that new tax would need to come from somewhere,” Langley said. “It could come from an increase in fees charged to students or a cut in spending from the university. Between those two responses, I would suspect that more of the revenue would come from increasing fees.”

Property Tax Hikes Not ‘Fair’

The far more common approach for municipalities to collect revenue from local universities or other tax-exempt nonprofit such as a hospital is to arrange payments in lieu of taxes, or PILOTs.

Nonprofits in at least 28 states, including Delaware, have set up PILOTs with their surrounding municipalities, according to a 2012 study (the most recent data available) from the Lincoln Institute. And higher education institutions made up roughly two-thirds of all revenue generated from those agreements.

“The approach of seeking voluntary PILOTs seems more promising for local governments and can be done in a way that doesn’t seriously harm the nonprofit,” Langley said. “While PILOT revenue can’t be counted on to the same degree as tax revenue, it’s still a valuable revenue source, even if it’s fairly modest.”

Although Newark and UD have had a voluntary PILOT agreement in place since the 1960s—it’s valued at $180,000 annually—the amount hasn’t changed since 2001. In that time the university’s enrollment and property footprint have expanded, and as of this academic year, about 63 percent of UD students live off campus.

If the PILOT were adjusted for inflation, it would increase to almost $1.2 million, according to city data. But the city’s attempts to increase it haven’t been successful, according to Thomas Coleman, Newark’s city manager.

“If we can’t put police on the streets and university students aren’t safe off campus, that’s a problem for both” the city and UD, he said, adding that the city would prefer to update the agreement rather than impose a new tax. “None of us wanted to have to do this. We’d much rather work something out together with the university.”

But since that hasn’t happened, the per-student tax plan is part of the city’s attempt to find new revenue streams to support the college town’s infrastructure. The city is also exploring imposing a tax of up to 5 percent on gross rents or lease payments and becoming part of a state-level PILOT program.

Newark’s budget shortfalls are largely driven by a competitive labor market and worker shortages that are necessitating cost-of-living raises for city employees, especially police officers. The city has already increased utility rates, doubled the cost of city parking and deferred infrastructure maintenance to help close recent budget gaps. But property taxes are one of Newark’s primary revenue sources, and they’ve increased every year since 2020, including by 7.5 percent in 2024.

However, about 42 percent of property in Newark is tax-exempt, and nearly 35 percent of that is part of the UD campus. If the city were able to collect property taxes from UD, it would generate approximately $5.5 million annually.

Coleman said if the city can’t find another revenue source—such as the proposed per-student tax—it could have to increase property taxes by as much as 45 percent to close its looming budget gap.

“That wouldn’t be fair to the residents,” Coleman said. “We’re at a critical juncture where we’ve got to come up with a new revenue source, and the status quo isn’t going to do it.”

But some students think the possibility of increasing the cost of their education, even by $100 a year, isn’t fair, either.

“College-aged young adults are among the most financially vulnerable populations and it’s disheartening to see the City of Newark attempting to take advantage of this,” reads a student government–led online petition opposing the proposal, which has 3,810 signatures as of Sunday afternoon.

Rhett Ruggerio, UD’s interim director for government relations, said university administrators are waiting to see if the proposal becomes law before deciding how the tax will be paid. He noted however, that as written, “it’s certainly directed at the students.”

While Ruggerio said the tension over the per-student tax proposal won’t diminish the historically “strong” relationship UD maintains with Newark, UD doesn’t want to do anything that would increase student costs, no matter how small.

He said university officials support students’ opposition to the tax.

“Every little bit counts,” Ruggerio said. “We would rather go to Dover, our state capital, and jointly push for a solution with the city and our students.”

The proposal doesn’t have a legislative sponsor yet, but state representative Cyndie Romer, a Democrat from Newark, said she’s considering it. “While we have to address the financial issues concerning the city, we have to protect the residents from further property taxes,” she said.

“I’d like to see some sort of memorandum of understanding or agreement between the town and the university,” Romer said. “But if they don’t, I’m open to the legislation.”

Richard Auxier, a senior policy associate in the Urban-Brookings Tax Policy Center, said there are no easy solutions to Newark’s budget problems. While he understands student concerns that the tax could increase their education costs, maligning the proposal won’t do anything to solve the larger issue.

“All of the policy levers available to Newark for them to raise taxes will hit low-income residents the most,” Auxier said. “This proposal is one way where they could at least broaden that burden.”

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