Tax-exempt designation grants university $4.36 million tax break
As the university expands, it chooses to purchase plots of land that are subjected to the property taxes of the City of Newark. However, due to the tax-exempt designation of the university, the City of Newark never sees a dime.
“We need to address the 900 pound gorilla in the room,” Chris Hamilton, representative for District 4 of Newark’s City Council, said in an interview on Thursday.
The City of Newark collects property tax to fund important services like police protection and snow removal; these are services used by both tax paying and non-tax paying members of the City of Newark. The university and a large majority of the student population are non-tax paying members of the City of Newark. To offset costs, many municipalities across the nation ask non-profit organizations to volunteer “payments in lieu of taxes” (PILOT).
“We can’t tax our way out of [the shortfall from the university] because it would essentially double the burden on the taxpayers,” Mark Morehead, representative for District 1 of Newark’s City Council, said.
Both Hamilton and Morehead have constituents in their respective districts who would not be able to afford to remain in Newark if property taxes were increased, as to offset the shortfall from the university.
However, to gain revenue, the City of Newark does not solely rely on property taxes. Within the city, Newark holds a monopoly over water and electricity, purchasing water and electricity at wholesale prices and selling them to citizens for a profit. Constituting a large source of revenue, it accounts for a large portion of the city’s nearly $50-million budget.
“The university has whole departments of people going to Dover wanting to legislate, we have one guy, part time,” Morehead said. “The reality is, if the university wants a different deal, they can either have the laws changed, or we talk and make an agreement.”
For instance, the university bypasses the City of Newark’s monopoly over water and electricity by purchasing electricity on the open market and paying the City of Newark a fee to transport electricity on power lines.
Across the nation, PILOT from non-profit organizations are becoming more commonplace. In Massachusetts, for example, Harvard University, Northeastern University and Massachusetts Institute of Technology annually pay $1.3 million, $1.1 million, and $2.5 million, respectively, to the cities of Cambridge, Mass. and Boston.
As PILOT, the university pays the City of Newark about $500,000 annually. However, every dollar above $211,000 comes back as a rebate on the electric bill of the university. Effectively, the university only pays $211,000.
“If the university paid taxes on their land like everyone else, they would owe $4.36 million dollars in our budget, can you imagine what we could do with that?” Morehead said. “Our tax income right now, without the university, is about 7 [million].”
The university turns taxable land into non-taxable land. In 2009, the university purchased the 272-acres for the Science, Technology and Advanced Research (STAR) Campus.
In the circumstance that a for-profit business purchased the land, the City of Newark would be able to continue to collect revenue on the 272-acres of land. Instead, since the university, with its tax-exempt designation, purchased the land the tax income of the 272-acres of land disappeared from the revenue of the City of Newark.
Both representatives of Newark’s City Council agree that the administration of President Dennis Assanis is much more amicable toward the City of Newark, a deviation from past administrations.
“[The university’s] budget is in the order of a billion dollars a year, our [city] budget is about 50 million dollars a year,” Morehead said, pointing out the power dynamic between the two co-existing entities.
Both representatives of Newark’s City Council agree a thriving City of Newark is an asset to the university. Drawn to Main Street, prospective students and their families often grab a meal following a walking tour of campus. The university is surrounded by primarily clean, safe neighborhoods.
Having a large university in its center brings upsides and challenges to the City of Newark. The university offers galleries, concerts and events to residents of the City of Newark, creating a kind of art and culture hub. In addition, the university brings in large amounts of students, effectively doubling the population of the City of Newark during the academic year. However, students can be nuisances, potentially lowering the quality of life for “full-time” residents of the City of Newark.
“We have a police force of 72 people for a town of 15,000 people,” Hamilton said. “On a busy weekend night during the school year, if you follow the police activity, you’ll see them take maybe one call that doesn’t involve students, which leaves taxpayers to think, ‘if we were a normal town, we wouldn’t need a police force that big.’”
Both representatives of Newark’s City Council insist that they do not expect the university to pay the entire $4.36 million owed to the City of Newark, however, they assert the university can pay find other ways to pay back the City of Newark.
“[The city] pays thousands of dollars every year to contract out firms to do research on how to solve our problems,” Hamilton said. “The university is spending thousands of dollars to send people to do research elsewhere, they can do the same thing right here in Newark, they don’t have to pay money to travel, and they get to see the outcomes of their work every time they walk outside.”