Establishing a Best Path Forward Toward Private University-Community Relations

Private universities now understand the positive shared successes interwoven between higher education institutions and their respective municipalities. Some would say the best answer to create shared prosperity lies in Payment in Lieu of Taxes (PILOT)—voluntary contributions from tax-exempt private nonprofits, serving as alternatives to traditional property tax obligations. Most PILOTs are paid by private universities to the benefit of their host localities and are naturally more prevalent in places where the only local tax of consequence is the property tax; and conversely are not prevalent in places where local taxes include income, business, and/or sales, along with property taxes. As non-profits do not pay property taxes, these mostly voluntary payments have no regular cadence; and exist as a careful song and dance between municipalities and the large, nonprofit private universities which occupy a great deal of property. On the one hand, some feel PILOTs are justified because they believe these private institutions—such as New York University, Columbia, University of Pennsylvania, and Brown—have the resources to be able to afford to pay the property taxes to their respective municipalities, just as private businesses and citizens do. On the other hand, universities have an outsized impact on their localities, in terms of community engagement—but most importantly, as economic engines fueling local economies.

PILOT is not a new concept, although much attention has been brought to this topic as of late. As universities have been in the spotlight this past year, for a seemingly endless list of challenges—including scrutiny surrounding diversity, equity, and inclusion efforts; the conflict in the Middle East; increasing financial woes; and the public’s questioning of the value of a degree, amongst many other challenges—more citizens are asking: Why do universities not pay taxes?

In the past, higher education institutions and their local municipalities clashed or simply overlooked each other while pursuing their distinct objectives. Yet, their collaboration undeniably amplifies their impact for the greater good—an awakening increasingly recognized by numerous campuses and localities alike. It is now widely acknowledged that universities and the communities they inhabit should cultivate stronger partnerships—not only because it is the right thing to do—but because their fates are interwoven.

In Philadelphia, the argument surrounding PILOTs has ebbed and flowed by administration. As the poorest big city in America—as of 2023, almost 23% of residents live below the poverty line of $25,750 for a household of four and droves more live just above it—sources of tax revenue are continually sought. Equally important to this narrative is that Philadelphia is a city of “eds and meds” dominating not only the workforce, but also property ownership. With so many universities and hospitals, Philadelphia loses hundreds of millions per year in property tax revenue. Of the funds that the financially struggling Philadelphia School District receives from Philadelphia local taxes, most comes from property taxes. In consideration of so many properties in Philadelphia owned by private, non-profit universities and hospitals, the school district misses out on funding that would have been available if those non-profit properties were occupied by tax-paying businesses and residences.

Both universities and their respective towns need to approach this conversation as carefully as one would a courtship. With their desired outcomes intertwined, and perspectives varied, it is no wonder that universities and their local cities have struggled. Universities need thriving towns to lure the best and brightest students to attend—and then their cities need these graduates to stay. Prosperity is necessarily a shared goal, and this shared objective is a rising tide that lifts all boats, creating resilient, safe cities with economic opportunities for all.

In 2020, the University of Pennsylvania donated $100 million to the School District of Philadelphia. As the school district struggled with mitigating infrastructure issues of asbestos and lead in its buildings, this sizeable donation enabled the district to address its most urgent problems. The momentum for this came from Penn’s desire to contribute not only know-how and in-kind resources but financial support to a pressing issue—and delighted not only parents of children learning in these schools with troubled infrastructure—but also positively engaged the University’s own student, faculty, and staff populations.

What can we learn of PILOTs and community engagement? First, understanding PILOTs and community engagement requires us to reject an all-or-nothing mindset. Often, conversations about PILOTs veer off course, failing to recognize that higher education institutions and their cities share common goals. Collaboration between them holds the key to progress, offering more benefits than endless debates that yield no tangible results for municipalities. Working together, they can effectively advance towards their shared objectives. Second, give these private universities some freedom over how they utilize these funds. For example, universities focused on DEI efforts can funnel some of those funds toward underfunded high schools, augmenting extracurricular and classroom activities to strengthen a pipeline of students as first-generation college students. Third, as these payments are voluntary, allow the universities to enjoy positive press and accolades from their donations, gaining positive presence in front of their constituents. Fourth, utilize universities for what they possess a lot of: expertise. Universities should offer their best and brightest to advise their local municipalities in terms of furthering strategies toward community and economic development, improved public school systems, and better economic opportunities for its citizens. Create task forces dedicated to some of the city’s issues and allow the best faculty, in the context of a student club or course, to take a shot at suggesting solutions. And last, make more effort for the universities’ and the city’s leadership to meet regularly, and engage in discussions surrounding shared purpose and solutions.

This careful rhetoric between private universities and their local municipalities is changing form as more pressure mounts from the public and their stakeholders. What else can be done to further these productive discussions? Cities should continue to broach talks with their resident private universities on how they can aid efforts to improve resources for residents. The arrangement should be viewed by both parties as a partnership toward the same end: An improved city which will ultimately benefit both the town and university. As significant economic engines, private universities and their cities should see it for what it is: A strategy toward a better city for all.

Cassandra Brown, Director | [email protected]

Cassandra Brown is a director at Econsult Solutions. She has a deep background in higher education, working in various roles with alumni, faculty, and the external business and governance community for 15 years at Drexel University. Ms. Brown received her M.B.A. at Drexel University. 

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