Something unprecedented happened Monday at the State Capitol: two New Haven state legislators advocated cuts in state payments in lieu of taxes (PILOT) for New Haven.
They were joined in their advocacy by the Connecticut Center for a New Economy, the union-funded nonprofit political advocacy group that rents offices with the unions at a local church. CCNE is pushing legislation to tax Yale. Some New Haven aldermen, including aldermen representing Yale students, endorsed their bill.
Connecticut’s policy of tax exemption is long-standing, with a foundation in the state constitution and the Connecticut General Statutes tested over the centuries. This treatment of higher education is broadly held throughout the country. It has served the state and the nation well. The American system of higher education is both the model for and the envy of others and has been key to our nation’s economic success over time.
Connecticut’s PILOT program is a progressive national model established in 1978. It was created in recognition of the fact that nonprofit educational and health care institutions tend to concentrate in urban centers and so the state policy of exemption affects them in particular. The PILOT program is designed to support municipalities whose nonprofit institutions serve not only the local population but also that beyond their borders. It makes payments to all cities home to nonprofit colleges, universities, or hospitals and is virtually unique in the country.
At the creation of this progressive program, University of Connecticut law professor Richard Pomp testified in favor and noted an important policy goal: “It’ll finally free municipalities and the tax exempts from their existing adversary roles.” It has succeeded in all aspects very well.
Now a few want to bring back the adversity left behind three decades ago. The “tax Yale” proponents say the city faces tough times and needs money. At the hearing, it was noted that New Haven’s budget has been hurt by federal and state cuts and expansion of state-owned property. Their logical conclusion: make Yale pay.
This conclusion is, of course, not logical. It is also out of step with a consensus that the challenges cities face derives from a system with over-reliance on property taxes. In November, Mayor DeStefano said at the National Press Club, “The problem though, I’ll tell you, isn’t the exemptions, although don’t tell that to Yale when I go back to New Haven. The problem is not the exemptions. The problem is the tax structure.” The Mayor has been providing leadership to focus on the real issues statewide.
The conflict created by the tax Yale proponents is thus all the more unfortunate. They single out Yale even though it already pays full property taxes on all commercial properties, is the city’s single largest real estate taxpayer, has its own police force and trash services, and is Connecticut’s only nonprofit that makes a multi-million dollar voluntary payment each year to its hometown.
Their bill seeks to redefine well-established statutes to permit the city to tax sports facilities like the hockey rink because it has users unaffiliated with Yale, cultural venues such as the Peabody Museum or Yale Rep because they admit the general public, and scientific research laboratories that are the basis for economic growth in our region. Apparently taxing theaters, labs and hockey is their idea of a “new economy.”
If the city somehow were able to single out Yale and force it to pay taxes on currently exempt property, it would give up PILOT funds it now receives on that property, which are 75 percent of the hypothetical taxes. In other words, any new dollar forced from Yale nets only a quarter and to get a buck Yale would have to pay $4.
Say their advocacy to cut PILOT and make Yale pay succeeds and they want $6 million for the city. That would require forcing Yale to pay $24 million in new taxes, which in turn would require taxing $600 million of currently nontaxable Yale property, such as residential colleges, laboratories and other facilities.
Where would their money come from? A good question, especially when the University has had to raise tuition 5 percent and has had to cut 200 staff positions, including some layoffs beyond savings through attrition. The average financial aid award for Yale College students with University aid is about $20,000 and let’s assume the average staff position is $50,000 in salary and benefits.
Do the math and you see the consequences. If the two legislators and CCNE want $6 million in new revenue, they would have to try to force Yale to pay funds equal to the financial aid awards for 1,200 undergraduates or equal to the salaries and benefits of 480 Yale employees.
Their bill itself likely will go nowhere, because legislatures do not generally undo centuries of settled law at a moment’s notice and it is clear that their scheme would raise troubling precedents for nonprofits across the state.
But their unprecedented advocacy to cut PILOT may go somewhere. In their zeal to single out one institution and “make Yale pay” the backers of this bill may have stirred a legislative hornet’s nest. For the first time, two legislators in New Haven have gone on record saying the City receives too much PILOT.
Let’s hope that the majority of New Haven’s legislative delegation can undo that damage and that reason will prevail over the few whose obsession with Yale leads them to advocate cuts to PILOT for New Haven.
Michael Morand is associate vice president of Yale University and served two terms on the New Haven Board of Aldermen.