How Yale destroyed New Haven’s economy

In an interview on National Public Radio Sept. 13, Yale President Richard C. Levin asserted that Yale had been unfairly targeted by organized labor because, with the disappearance of the city’s manufacturers, the University was the only remaining large employer with a union work force.

The destruction of New Haven’s commercial and manufacturing economy was no accident. It was a result of the growth of Yale and other tax-exempt institutions on what had been a flourishing free-enterprise economy.

In 1950, 27 percent of New Haven real estate — the chief source of municipal revenues — was exempted from taxation. A decade later, this had risen to 43 percent. By 1990, 65 percent of New Haven’s real estate was tax exempt, meaning the owners of the remaining 35 percent of taxable property had to make up the difference through steep increases in taxes.

The erosion of the tax base was not merely a byproduct of Yale’s expansion. It was the direct result of actions taken by the University.

Before the 1890s, most Yale students lived in boarding houses and rented rooms and ate in restaurants — all owned by tax-paying citizens. When Yale began to implement a plan to house and feed students on campus, city officials, recognizing the impact on the tax base, went to court, arguing that providing room and board was not a tax-exempt activity. The state Supreme Court, all of whose justices were either Yale alumni or would shortly receive honorary degrees from the University, was predictably unsympathetic and dealt a blow to the local economy.

Exempting commercial activities from taxation gives nonprofit enterprises an unfair competitive edge over businesses that have to pay taxes. And as taxes increased as they did as the university continued to expand, the burden on businesses and homeowners became correspondingly heavier.

Yale long has argued that its spending, salaries paid to faculty and staff, and student spending more than make up for revenues lost because of the tax exemption. While this might have been true in 1910, it has become less true as Yale has depended less on local suppliers (who bore an increasingly heavy tax burden) and as employees have fled the city to avoid high taxes and declining city services. Today, over 60 percent of Yale’s employees live outside the city.

It is undoubtedly true that student spending played a major role in the local economy. But because Connecticut municipalities are limited by law to taxing real estate and certain items of personal property, this has done little to increase municipal revenues.

And, to the extent student spending is significant, it has diminished as — thanks to Yale’s property management policies — local businesses have been replaced by national chains. In 1980, Broadway boasted more than two dozen businesses, all locally owned. Today, many are outlets of national chains, and profits go to their absentee owners, not into the city’s economy.

Yale’s treatment of Barrie Ltd. Booters is emblematic of the University’s failure to understand its responsibilities as a corporate citizen. Because its owners — who had been there for more than half a century — would not accede to the University’s demand that it remain open well past the time when its largely suburban clientele had left Broadway, the city is losing yet another locally owned establishment.

Yale was not being targeted by unions because it is the only game in town. It was targeted because its labor relations, like its property management, are based on the University’s failure to grasp its responsibilities as the city’s largest employer and property owner.

As a responsible corporate citizen, Yale should understand, as Harvard does, that paying living wages and adequate pensions, curbing its physical expansion, and making contributions to municipal revenues commensurate to the demands made on them by nontaxpaying students, faculty and staff, is far less costly than the ill will its current policies engender. Moreover, it should appreciate the direct benefits that come from a vital free-enterprise economy based on locally owned businesses and the flourishing civil society that such economies produce.



Peter Dobkin Hall is the Hauser lecturer on nonprofit organizations at Harvard’s Kennedy School of Government. His study of the history of the tax treatment of New Haven’s nonprofit institutions appears in “Property-Tax Exemptions for Charities: Mapping the Battlefield.” This editorial first appeared in the New Haven Register.

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