Photo illustration by Justin Morrison/Inside Higher Ed | Getty Images
Two Ivy League universities recently renewed agreements to voluntarily pay their surrounding cities sizable sums to help compensate for the fact that, as nonprofits, they don’t pay property taxes.
And while some community members see the payments as generous and beneficial, students are among their harshest critics, arguing that the wealthy universities are capable of paying their host cities much more.
Brown University signed two agreements to pay Providence, R.I., a total of just under $175 million over the next 20 years, more than doubling its contributions under a previous deal. The two agreements run concurrently: in one, Brown alone pays the city $46 million over 10 years. In the other, which spans 20 years, Brown will pay a total of roughly $129 million and the other three private institutions in Providence—Providence College, the Rhode Island School of Design and Johnson & Wales University—will contribute smaller sums totaling about $48 million.
“Investing in the success of our home city is embedded in our mission of education, research and service,” Brown University president Christina H. Paxson said in a statement announcing the deal. “The commitments reflected in these agreements will have a meaningful and positive impact in our local community, and will enable Brown and city leaders to address common challenges, foster community and economic development and improve the quality of life for those who call Providence home.”
Nonprofits in at least 28 states contribute what are often known as payments in lieu of taxes, or PILOTs, to the localities in which they are based, according to 2012 research from the Lincoln Institute of Land Policy. At the time of the study, payments by institutions of higher education made up about two-thirds of all revenue generated from PILOTs, and eight of the 10 biggest annual payments came from highly selective universities, including Harvard University, Yale University, Dartmouth College, Princeton University and the Massachusetts Institute of Technology.
Such arrangements are especially common in the Northeast, where sales and income taxes typically go exclusively to the state, leaving little tax revenue for cities that host tax-exempt nonprofits with a huge physical footprint.
According to Adam H. Langley, associate director of tax policy for the institute, PILOTs emerged about a century ago as a way for nonprofits to express “a sense of community responsibility whereby these institutions may not be legally required to pay property taxes, but they feel as a member of the community that they should volunteer to make some contribution.”
Though the payments to Providence are unrestricted and go into the city’s general fund, the memorandum of understanding between the four colleges and the city outlines areas of shared interest where much of the money will be spent: “pre-K-12 education; equity, diversity and inclusion; community safety and well-being; promotion of the City of Providence as a safe, vibrant and inviting place to live, work and learn; and climate change and resiliency and adaptation infrastructure and policy.”
The agreement has some caveats, including the transfer of 27,550 square feet of land from Providence to Brown, for example.
But Mayor Brett Smiley said the deal also includes some significant wins for Providence. Among other things, it incentivizes Brown to get rid of buildings it no longer uses and return them to the city’s tax rolls and to rent office space instead of building new buildings.
“I’m very satisfied with the end result,” Smiley said. “Like any negotiation, both sides had to compromise and sacrifice some things they didn’t want to—certainly true for myself—but the end result is very good for the city of Providence.”
Students Demand More
A number of Brown students and community members have expressed disdain for the deal, arguing that Brown owes more to the city.
Michael Ziegler, a graduate student at Brown and the political director of its graduate student union, the Graduate Labor Organization, argued that Brown—which has an endowment of $6.5 billion—is capable of paying a sum closer to what its property taxes would be valued at if it weren’t tax exempt.
He also believes it would ultimately benefit Brown to do so.
“If Brown wants to be able to attract people to Providence, that has to mean the city is able to provide the services people need to be able to live here,” he said. “I recognize this is voluntary on [Brown’s] part, but I feel it’s in their own best interest to be able to pay more.”
Other students made similar arguments in a Sept. 26 hearing on the voluntary payment agreements, which were approved by Providence’s mayor earlier this month. Some also said they believed the city government was diminishing its own democratic power by committing to a two-decade agreement, which would prevent future city councils from negotiating with the university.
“This agreement would tie Brown’s hands for 20 years, taking your ability as council members, as legislators who govern the city and its institutions away from you. Half of us who are here from Brown weren’t even alive 20 years ago and you’re handcuffing yourselves until none of you will be in office and we’ll have an entire next generation of students, of city leaders, of residents,” said Isaac Slevin, a Brown student.
The city of Providence itself has pushed for increased funding since the colleges first began contributing voluntary payments in 2003. In 2012, Providence asked Brown to increase its financial contributions as the city faced severe budget shortfalls and even bankruptcy, leading to a separate 10-year deal on top of the existing 20-year arrangement the city had struck with its four private colleges. In May 2022, the city also asked the four institutions for a one-time payment—of $2 million, in Brown's case—to fill the gap until the current agreement took effect, The Boston Globe reported earlier this year. The universities declined the request.
Smiley admitted he struggled with the question of what would be “fair” for Providence’s universities to pay. But in the end, the new agreements with Brown and the other three institutions were not intended to be as transactional as the 2012 agreement, which was reached “on the heels of the Great Recession” and sought only to “solve a short-term financial crisis.”
These days, “the city has some deeply rooted financial difficulties, but they are neither the problem of the colleges nor are they going to be solved by this agreement. We wanted to set the stage for the next 20 years—something that was durable, long-lasting … instead of haggling over cash payments every year,” Smiley said. The ultimate goal is long-term economic gains and job growth.
Dan Egan, president of the Association of Independent Colleges and Universities of Rhode Island, doesn’t think universities should be obligated to pay more than they already do.
“For the people that are surrounded by those institutions, I think that they’re all looking for resources to support the community,” he said. “Brown tends to have a bigger target on its back because of the size of the operation. I do think that Brown receives the bulk of the comments and potentially criticism, but, quite frankly … I think the criticism is probably unfounded relative to their commitment in the past and their commitment going forward.”
This isn’t the first time the constituents of a selective university have advocated for higher voluntary payments to the city; students and employees at the University of Pennsylvania urged administrators for years to start making payments to Philadelphia—a request the university denied until 2020, when it finally agreed to do so.
Payments to Ithaca
Cornell University, which finalized its newest agreement with the city of Ithaca, N.Y., on Oct. 13, has faced similar backlash; student activists argue that the agreement to provide $4 million annually through June 2039—with adjustments for inflation—is insufficient.
“There’s kind of a lack of empathy towards the city of Ithaca and a lack of understanding that Cornell students, Cornell staff, Cornell faculty rely on the city of Ithaca,” said Kieran Adams, a senior at the university.
But according to Joel Malina, vice president for university relations, “The voluntary contribution is just one component of the more than $30 million in annual Cornell financial expenditures that directly impact the city and its residents.” That includes a $5.8 million contribution to community resources such as local development organizations, $650,000 to the Ithaca City School district, and $20 million toward municipal services like snow removal and streetlight maintenance. Malina also cited “indirect financial benefits” to the Ithaca community that he said total over $2.4 billion annually, “stemming from payroll, visitor and student spending, purchasing, construction, research funding spent locally, and capital raised by our incubators, to name just a few.”
The agreement grew out of discussions with city representatives.
“During those negotiations, the city and Cornell offered numerous proposals and counterproposals. The final terms were not offered by either party; rather, they were a middle ground,” Malina wrote in an email to Inside Higher Ed. The agreement was approved by the governing bodies of both.
Though the voluntary payment deals are solidified now, student activists at both Brown and Cornell have proposed another way the cities could extract money from the universities: pass legislation allowing them to tax the institutions’ endowments. Rhode Island state representative David Morales, who represents Providence, proposed a bill last year to allow cities to impose a tax of no more than 2 percent on private universities’ endowments. He also submitted a bill to tax university properties. Neither was successful.
Smiley said there was no talk of an endowment tax in the city’s negotiations with Brown or the other three private Providence colleges.
“The only way this works is through negotiation,” he said. “There is no actual legal leverage the city has, and it is such a hot-button topic for the institution, I didn’t feel it was constructive to broach that issue.”