But under current state law, 501(c)(3) nonprofits such as colleges and universities, do not pay property taxes. In 2012, the four schools agreed to voluntary contributions to city coffers through a Payment in Lieu of Taxes (PILOT) agreement. These contributions are strictly voluntary and amount to a small fraction of what they would be if they paid the same tax rate as most property owners.
When a student living in a dorm at Brown University or Providence College calls 911, employees of the City of Providence respond, just like they would for any other resident. But because these private universities only pay a fraction in taxes, compared to most Providence residents and small businesses, providing these services can be a drain on city finances.
Separate from the PILOT agreement, Senator Tiara Mack (D-Dist. 6, Providence) and Rep. David Morales (D-Dist. 7, Providence) have introduced legislation (2023-S 0859, 2023-H 5603) that would enable cities and towns to tax private college and university endowments up to 2% of the school’s endowment, with money directed to that city’s public schools. The city or town would have to proactively pass an ordinance to levy the tax.
“While our Providence public schools have continued to struggle in terms of academic outcomes, a growing staffing crisis among educators, and crumbling infrastructure, most of our private universities, located just miles away from our public schools, have been financially thriving. Year after year, these private universities continue to rapidly grow in terms of property ownership, institutional wealth, the hiring of six-figure administrators and the massive size of their endowments. During a time where our city’s property tax base is limited, given that more than 40% of our land is exempt from taxation, and we continue to have a state education funding formula that does not adequately fund urban school districts, cities like Providence need to demand more accountability from the universities that we host,” said Representative Morales, a Brown University graduate. “In many ways, Brown University operates like an investment bank with a school attached. Meanwhile, Providence residents, business owners and students are struggling to get ahead. Therefore, we should allow the city of Providence and other municipalities the freedom to tax these enormous assets, separate from just negotiated PILOT agreements.”
Brown’s endowment has more than doubled since the last time the PILOT was negotiated and peer institutions have dramatically increased their PILOT payments recently. Yale, for example, now pays over $23 million to the city of New Haven each year compared to the $4.5 million Brown paid Providence. Under New Hampshire law, Dartmouth College pays property taxes on much of its real estate.
“Brown was founded in 1764, more than a decade before the United States declared independence,” said Senator Mack. “It is a staple of the city and while current law may exclude its endowment from being fully taxed, we must acknowledge the costs for taxpayers. The city of Providence and Mayor Smiley will start negotiations this year with Brown and other private institutions to update their financial payments. Brown’s endowment has more than doubled since the last negotiation, and we hope to see the conversation around PILOT payments reflect this increase. Similar institutions Harvard and Yale pay their local municipalities $15 million and $23 million respectively and have increased their commitments in recent years. I am a proud 2016 Brown alum, and my time on campus as an undergrad was defined by serving the community and a commitment to equity and justice. The conversations ahead of Brown and the mayor, and the other institutions, will test if the ethos of Brown—to serve the community, nation and world— is embodied in full by its students and leadership alike.”
Advocates say colleges are quick to discuss the benefits they bring but slower to acknowledge the harms. Students can drive up housing costs and price out long-term residents. And as schools grow, they take more and more land off the tax rolls, putting a bigger burden on private property owners.
“As students, many of us are here thanks to key educational supports, and we know that a well-funded education system is a cornerstone to personal success and community growth,” said Carina Sandoval from the Coalition for University Accountability. “When there are such prosperous universities with growing endowments in the same neighborhoods as underfunded or closing schools, the apparent disparities demand action in the form of greater financial contribution. The Coalition for University Accountability is in support of the endowment tax because we recognize universities’ responsibility to support the communities that they call home and the people they call neighbors.”
“It’s true these colleges bring a lot of benefits to our city,” said Senator Mack. “But they bring costs, too. They drive up housing prices and use city resources. They should contribute just like the rest of us do.”
The House bill has been assigned to the House Committee on Municipal Government and Housing and will be heard today, March 19 at 4:30 p.m.