American colleges and universities face controversy over municipal payments

In recent years, cities have implemented or are increasing the PILOTs — payments in lieu of taxes — paid by institutions of higher education. While cities claim that they face financial shortfalls and need support from the wealthy schools housed within their borders, many colleges protest that they cannot afford the additional expenditures.

According to Swarthmore Vice President of Finance and Treasurer Suzanne Welsh, increases in PILOTs can’t be classified as good or bad. “It’s a very local decision,” she said. It’s a negotiation between the locality and the institution and each one is totally different than the other. The services going both ways are totally different from one place to the next.”

Non-profit organizations pay few taxes to the municipalities in which they are located. These tax-exempt institutions often hold economically valuable land, and cities have sometimes chosen to require some additional form of financial assistance from the non-profits. These include so-called PILOTs. These payments are often calculated on the basis of the property values of the non-profits or some other set criterium and can take the form of long-term payments or stable annual contributions. Services in lieu of taxes (SLOTs) can sometimes contribute to the PILOTs.

According to the Lincoln Institute survey of 599 jurisdictions with large non-profit sectors, at least 218 municipalities had received PILOTs since the year of 2000. These payments were valued at more than $92 million annually. While 420 non-profits contribute to this sum, colleges and universities contributed about two-thirds of these funds. Harvard, Yale and Stanford are the top three contributors.

These negotiations have not always led to peaceful compromise. Providence, Rhode Island faces bankruptcy and has asked non-profits to increase their annual contributions to the city by $7.1 million. This increase would fall largely on Brown University, whose payments would increase by $5 million with the plan’s implementation. The University has not supported the proposition, and the city has threatened to remove its tax-exempt status.

In financially-struggling Philadelphia, politicians have also put the possibility of creating and expanding PILOTs to be paid by institutions of higher education and other non-profits on the table. According to Lincoln Institute, the city currently only receives about $491,869 of revenue from non-profits’ PILOT payments. Some of these institutions who would be financially impacted by this change have preemptively attempted to show that they are already beneficial financial neighbors for the Philadelphia area.

Twelve Philadelphia colleges and universities, including the University of Pennsylvania and Drexel University, recently hired the consulting firm Econsult Solutions to investigate the financial contributions of their institutions to the city of Philadelphia. The resulting report, released in October, calculated that these schools provide over $850 million dollars to the city.

In the Borough of Swarthmore, the financial relationship between the college and the municipality is not contentious. According to Swarthmore Borough Manager Jane Billings, “The college is a good neighbor, a better neighbor that pays more than almost any comparable academic institution.”

Swarthmore college is the Borough’s largest taxpayer. In 2012, it contributed $114,500 to the Borough to fund one-half of a police officer’s salary and cover the fees related to Borough-financed tax-exempt loans that the college uses to finance capital projects. According to Billings, the college also paid $67,876 in real estate taxes on off-campus, college-owned property, $32,320 for trash fees and slightly less than $200,000 in sewer fees.

According to Welsh, the college’s contributions are  “very consistent by design” because the Borough “doesn’t want a lot of volatility in their budget.”

Both Welsh and Billings don’t refer to the college’s contributions to the Borough as PILOTS. “We never pushed the word PILOT,” Billings said. “The college prefers not to call it that.”

Instead, they emphasized that the payments were based off of services that the college receives from the Borough and not a fixed metric like property values.

“I don’t have an opinion on the fairness,” Welsh said about Swarthmore’s contributions to the Borough. “The taxes we pay on the houses we own are the same as everyone else pays. The Borough decides that.” She also noted that a significant portion of the school’s contributions come from the Borough’s tax-exempt bonds, bonds that she believes are competitive in the market.

“The college goes above and beyond the minimum that it would have to provide to the Borough,” Billings said. “When times are tough, some argue that the college has a lot of money [and] should be paying more. I’m not in favor of that argument. It’s like saying if someone owns a small house but is really rich, [they] should pay more property taxes. That’s not how it works. [Their payments] should always be related to the services they receive.”

“We have developed good working relationship with the college,” Billings said. “If we ever felt that there were significant needs, if we thought it was fair for the college to pay more, we would initiate the discussion.”

Welsh also spoke about the good working relationship between the two parties and about the mutually beneficial nature of the college’s investments in the Borough, like planned construction of an Inn and Restaurant in the Borough of Swarthmore.

“It’s a tremendous thing for the college to be willing to commit those kind of resources,” said Billings. “I’m kind of speechless sometimes.”

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