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Tax-exempt universities are buying up NYC real estate

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Princeton University is one of the wealthiest colleges in the country, with an endowment of $22.72 billion—which may be why neighbors of the Ivy League school are growing increasingly irate that it doesn’t pay property taxes. Thanks to its nonprofit designation, Princeton has tax-exempt status, but locals are suing to change that, reports Bloomberg. Residents of the college town say they’ll no longer be appeased by freebies like admission to the school’s lectures and events—instead, they want Princeton to pay its property taxes, which could help boost public services and relieve their own tax burdens.

New Jersey locals aren’t alone in taking umbrage at how universities prosper from real estate investments. New Yorkers have seen some of the city’s private colleges undertake dramatic expansions in recent years, snatching up coveted real estate and converting it to dormitories, classrooms, and research space, and many aren’t thrilled that parts of their communities are becoming campuses. Last year, per Metro, hundreds turned out to protest New York University’s plans for growth; one Greenwich Village resident referred to the school as an “evil empire.”

NYU's proliferation is a direct result of its tax breaks, writes Reuters finance blogger Felix Salmon; the school's expansion "is driven in part by the fact that it can extract more economic value out of property than other actors, thanks to all property it buys automatically becoming tax-exempt." Salmon goes on to assert that eliminating universities' exemptions would benefit "pretty much everybody" by encouraging state and federal governments to subsidize education directly rather than through tax breaks. 

As the Observer reported back in 2006, when tax-exempt universities like NYU purchase real estate, the city can no longer collect property taxes on those buildings—and those funds go in part to supporting civil services like the fire and police departments. According to the Association of American Universities, the majority of both public and private colleges are classified as charities and are granted tax exemption for “fostering the productive and civic capacities of citizens” by providing them with a higher education. But some critics see NYU operating less like a nonprofit, and more like a business focused on growth for growth’s sake.

“It’s very much a corporate mentality of ‘We must get bigger and bigger,’ and that’s really driven by the board and administration,” says Andrew Berman, executive director of the Greenwich Village Society for Historic Preservation. Berman, a lifelong New Yorker, says that the biggest change he has observed in the city over the past 30 years is the way that NYU has taken over large swaths of Greenwich Village and the East Village.

“Increasingly, we’re seeing traditional kinds of activities and people being pushed out by a variety of forces, and there’s no denying that the university has been the single largest contributor to that effect,” he says. 

Meanwhile, Columbia University has its own plans for growth uptown: This year, the first buildings on its 17-acre Manhattanville campus will open. According to an in-depth report from the Columbia Spectator, when the expansion was first announced in 2003, it was met with opposition from residents and community board members. A lawsuit ensued, contesting the university’s rights to buy the land, but it was overturned. The university later negotiated an agreement to give $150 million back to the community, distributed through four funds, but the report characterizes Manhattanville as still “a neighborhood divided.”

Elsewhere, Cornell University will complete the first phase of construction on its Roosevelt Island campus next year; the development necessitated the demolition of a hospital, which the New York Times reported left some residents feeling anxious about changes to their neighborhood.

When private, tax-exempt universities with large endowments make significant real estate investments like these, some question whether they shouldn’t be giving back more. In a Fiscal Times article, a Smith College economics professor says that when colleges become as wealthy as private institutions like NYU have, it’s “obscene” to exempt them from paying taxes.   

Berman acknowledges that NYU and other New York universities make significant economic, intellectual, and cultural contributions to the city. But at the same time, he argues, there are many other contributors that ought to be preserved—something that can be a challenge to do, given the amount of influence NYU wields.

Berman compares a thriving urban community to a rich stew: “There are a lot of wonderful ingredients that come together to make a whole greater than the sum of its parts,” he says. But with the intense growth of the university, “that’s no longer the case for significant chunks of the neighborhood.”  


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