Empty the Universities: A Red-Red Alliance to Reform the Real Property Tax
New York's elite universities are displacing the poor and promoting PMC quackery on the government dime. Republicans & socialists should make them pay - literally.
Last week, the New York Times reported on the long simmering tensions between Columbia University and nearby communities in Upper Manhattan. Columbia has acquired huge swaths of real estate from surrounding neighborhoods over the years, fueling gentrification but investing little in public infrastructure. Now it’s in the midst of yet another multibillion-dollar expansion. This growth isn’t merely enriching the university - whose mammoth endowment now stands at $14 billion - it’s shrinking the city’s tax base. Once acquired by a registered 501(c)3 nonprofit organization such as a university, all of that real estate becomes tax exempt.
Columbia is hardly unique. Despite their nonprofit status - but also because of it - many universities have grown scandalously rich owing to their usefulness as tax shelters and investment vehicles for the ruling class, as well as sites of elite social reproduction. The wealthiest have been described as hedge funds with colleges attached. Many have amassed sprawling real estate portfolios that have displaced poor and working-class residents in surrounding neighborhoods. And as the cost of higher education has exploded, universities have become the engines of a trillion dollar student debt crisis that imperils the broader economy.
Socialist writers and politicians have been among the most vocal critics of this state of affairs. Just this month, Paul Prescod - a DSA-endorsed candidate for State Senate in Pennsylvania - penned a piece in Jacobin arguing that private universities should be stripped of their 501(c)3 designations and made to pay taxes on their endowments and real estate holdings. Due to the high level of influence this sector exerts over both parties, these appeals have typically fallen on deaf ears. But could the role that college education now plays in the culture war - and more importantly, partisan realignment - mean that socialists’ best partners for such a policy could be Republicans?
Well, that depends on which Republicans you’re talking about. Earlier this year, Senator Tom Cotton introduced a bill to impose a one percent tax on university endowments over $2.5 billion in support of job training initiatives. His reasoning: “Colleges and universities have amassed billions of dollars, virtually tax-free, all while indoctrinating our youth with un-American ideas. This bill will impose a tax on university mega-endowments and support vocational and apprenticeship training programs in order to create high paying, working-class jobs.” A noble goal, to be sure. But two problems are immediately obvious.
First, Republicans are so triggered by the exotic vernacular now popular on college campuses that they fail to see how ordinary its message really is. Hiding behind rhetoric about a diverse and inclusive meritocracy while breeding intense human misery in pursuit of profit - as these universities do - isn’t un-American, it’s the most American. It’s practically America itself. Second, Cotton’s bill would raise just $2 billion per year - totally inadequate for its stated purpose. Though credit where it’s due: it is an improvement over the 1.4 percent levy on big endowments from the GOP’s 2017 tax bill, which raises a paltry $1.8 billion over ten years and was offset by so many other tax cuts that universities will still come out ahead anyway.
Like most of their attempts to embody the home-spun, corn-fed spirit of Real America, national Republicans’ “war on college” has been all hat and no cattle. But what do you expect from the likes of Tom Cotton (Harvard Law, Harvard BA), Josh Hawley (Yale Law, Stanford BA), and Ted Cruz (Harvard Law, Princeton BA) - hardly suitable allies against the professional managerial menace. For more promising right-populist partners, socialists must turn to the real Real America: New York fuckin’ City, baby. In 2021, GOP mayoral candidate Curtis Sliwa (high school dropout) ran on revoking property tax exemptions for our richest universities, which would generate hundreds of millions in revenue every year in New York City alone. Now we’ve got a stew goin’.
Most universities are designated as 501(c)3 nonprofit organizations by the IRS, exempting them from the federal income tax. Typically, state and local governments also exempt such organizations from a variety of other taxes, though federal law doesn’t require them to do so. The benefits enjoyed by 501(c)3s vary somewhat across jurisdictions, but one practically universal feature is exemption from state and local property taxes. In New York, property taxes are levied by municipal governments - such as cities, counties, and school boards - which have wide discretion to set rates as they see fit. However, they are subject to certain state-level constraints, such as that no local government may tax any real property owned by a 501(c)3 organization.
Though the cost of these exemptions isn’t enormous, it isn’t negligible either. In fiscal year 2020, real property in New York owned by 501(c)3s was valued at $142 billion, representing 13.5 percent of the value of all tax-exempt property in the state. Real property in New York City accounted for $66 billion of that total. If these assets were taxed normally using the rates set in 2020, they would generate about $2 billion in additional revenue upstate and $2.7 billion in additional revenue for New York City.
Many of these exemptions are politically non-controversial, such as those granted to churches, charitable organizations, and social service providers. And while much has been written about the corruption, exploitation, and lack of transparency in the nonprofit industrial complex - even among organizations that do important work - from the point of view of the state, giving tax breaks to private service providers is still cheaper than providing the services itself. But what share of these exemptions are going toward private universities? The state comptroller’s office, which publishes the information referenced above, doesn’t say.
However, New York City’s Independent Budget Office does publish this information for the five boroughs. Over the past decade, the cost of the property tax exemption enjoyed by the city’s private universities has ballooned from $344 million in fiscal year 2013 to $582 million in fiscal year 2022 - an increase of 69 percent. The IBO was kind enough to provide me with the underlying data for their most recent calculations, allowing us to see which universities are benefiting the most from this arrangement. Columbia and New York University alone account for nearly half of the citywide total, with Columbia set to receive $149 million in property tax relief and NYU looking at $128 million for the upcoming fiscal year.
In examining the data provided to me by the IBO, these appear to be conservative estimates based on the value of properties coded as having one of three “exemption types” on the city’s books: “college-university,” “faculty/student housing,” and “student dormitory.” They don’t factor in university properties that may be coded differently for administrative purposes, such as hospitals (though they do include administrative facilities associated with hospitals). In the New York Times last week, an economist estimated that if every square foot of real estate somehow or another owned by Columbia University were taxed normally, that alone would generate more than $300 million in additional revenue every year.
Amid growing public skepticism of providing such generous benefits to wealthy universities, jurisdictions across the country have sought ways to recoup some of that money without formal changes to their tax codes. One popular innovation is so-called PILOT programs, or “payments in lieu of taxes.” These are voluntary agreements in which universities remit a portion of the amount they would pay if their assets were taxed normally. They’re motivated by some combination of the universities’ desire for good public relations and the government’s implicit threat to come to unfavorable decisions in other areas of concern to the universities, such as zoning, land use, and any business transacted with the state.
Why would a jurisdiction choose to negotiate voluntary payments rather than simply impose taxes? For starters, they have strong incentives to maintain the inviolability of the 501(c)3 designation, which has been an important mechanism for the privatization of public services. Moreover, in good governance circles, the idea that the state must maintain a quasi-libertarian posture toward the nonprofit sector is deeply ingrained - not least because nonprofit think tanks have played a major role in defining what “good governance” means in the first place. This is usually justified on the grounds that civil society must be protected from undue political interference, but it’s also about protecting their place in the neoliberal mode of governance.
But legally speaking, there’s nothing stopping a jurisdiction from simply revoking the property tax exemption for universities altogether - which is exactly what Curtis Sliwa proposed during his campaign. Well, sort of. According to his website, Sliwa wanted to institute mandatory PILOT programs for the city’s wealthiest universities, with payments equal to 100 percent of the amount they’d owe in property taxes if their assets weren’t exempt. He envisioned this as a bridge measure until he could convince Albany to eliminate the exemptions entirely from the state tax code:
Unfortunately, there are a number of problems with this approach. First, it’s unlikely that the city could impose mandatory payments on universities based on the value of their real property without changes to state law first. I contacted Yaw Owusu-Ansah - the economist at the IBO who authored its most recent memo on the exemption issue - to ask him about the legality of mandatory PILOT payments. His analysis: “Because these exemptions are in the NYS Real Property Tax Laws…the universities could challenge the PILOTS if they are enacted by NYC City Council. For it to have teeth, I believe that the state legislature would have to pass a legislation to amend that section of the RPTL. Any law passed by the City Council would have to be voluntary.”
Second, Sliwa clutters up his proposal with unnecessary exceptions that let a number of wealthy institutions off the hook - specifically, religiously affiliated ones. Sliwa would let them retain 100 percent of their current property tax exemption, even though universities like Fordham and St. John’s are sitting on almost a billion dollars of valuable New York City real estate, and are among the city’s top recipients of property tax relief. As the beneficiary of 12 years of Catholic education, I appreciate the difficulty these institutions face in doing the Lord’s work in a country animated by so many wicked Protestant heresies. But the worst one by far is the idea that any of us are “exempt” from our communal obligations, which the Church has made clear includes paying your taxes. The time has come to render unto Caesar.
In a profile published just before the mayoral election, Sliwa remarked that the political figure with whom he most closely identifies is the great Huey P. Long, the populist governor and senator from Louisiana. The day before, I myself published a take about how a figure like Huey Long is exactly what New York needs right now to address the intensifying wealth inequality that our political class is only too happy to preside over. So in the spirit of the man whom we both admire, let me propose some amendments to Sliwa’s plan that would echo some of his biggest achievements.
Forget the carve-outs for universities that are small, religiously affiliated, or those with programs “uniquely benefiting New York City residents.” Albany should pass legislation eliminating the property tax exemption for every private university in the state. According to the IBO, this would generate at least $582 million in new annual revenue for the city. What should this money be used for?
The Kingfish was a great believer in the value of education - public education. He eliminated textbook fees at Louisiana’s K-12 schools and invested deeply in state-run universities. Here in New York, the CUNY system has suffered for decades under brutal austerity that obliged it to start charging tuition in the 1970s. That still wasn’t enough to preserve its physical infrastructure, which has reached an unconscionable state of disrepair. Investing just half of the annual savings from making private universities pay their taxes would not only be enough to make CUNY free again, it would leave $130 million left over every year to begin upgrading its ailing facilities.
Another of Long’s victories was eliminating taxes on the first $2,000 of value of a homeowner’s property. An equivalent measure would be a little steep for New York, but we can still let it inspire us. Our state offers a property tax exemption to homeowners age 65 and over with incomes under $58,399 per year, which cost New York City $156 million in 2021. With the other half of the savings from taxing universities, we could almost triple that relief for low-income seniors. Cutting taxes for older homeowners should be an attractive prospect for Republicans, but it’s also something that even our socialist lawmakers could get behind. State Assemblyman Zohran Mamdani and former City Council candidate Jaslin Kaur ran on protecting the many older, working-class immigrant families here in Queens who managed to get a mortgage years ago but who now face foreclosure and destitution.
The second-campiest mayoral candidate in New York history might have lost in a landslide to its first, but that doesn’t mean his campaign need have been for naught. New York’s socialist lawmakers should fight for this improved version of his plan to tax the state’s rich universities, and any Republicans who’d like to prove their populist bona fides should join the effort. Unless you’re an Ivy League striver like Tom Cotton.