The single worst mistake in Connecticut’s legislative history has to be the passing of one particular bill in 1872. That year, representatives of the Constitution State eliminated the cap on Yale’s tax-exemption status. For the previous 127 years, since Yale’s first charter was ratified by the colonial government, the College had but limited protection from the taxman. The charter defined as nontaxable entities: “Lands and Ratable Estate belonging to ye said College not Exceeding ye Yearly Vallue of five Hundred Pound Sterling.” Anything above that was fair game. The bill in 1872, however, combined with Connecticut’s constitutional obligation to obtain permission from the Yale Corporation before changing the College’s charter, meant that the state practically forfeited in perpetuity the right to tax Yale. Talk about a screw-up.
But as Noah Feldman’s recent article in Bloomberg suggested, the state of Connecticut might have the law on its side. Changing Yale’s charter unilaterally would constitute a breaking of contract between the state and a private entity. Modern contract law, however, recognizes the right of a state to impair contracts if “the impairment is reasonable and necessary to serve an important public purpose” (U.S. Trust Co. v. New Jersey, 431 U.S. 1).
As Yale students, we are complicit in one of the most scandalous tax exemptions in American history, at the cost of almost everyone around us. This is the case across Connecticut: The wild disparities in tax revenue between municipalities are creating ever larger cycles of poverty, poor quality of education and low social mobility for most — all while enriching the quality of life for the already well-off. F. Scott Fitzgerald’s original name for “The Great Gatsby” jumps to mind: “Among the Ash Heaps and Millionaires.”
Let’s try to understand how Yale directly undermines the tax system, at least with respect to New Haven. When it comes to education, 54.6 percent of funding comes from local property taxes, according to the State Department of Education, Digest of Education Statistics 2011–12. Similar rates hold for other municipal programs like general government administration, public works and public safety. Yale’s tax-exempt status thus spells disaster for New Haven. Look around. New Haven’s low tax base means schools are chronically underfunded, overcrowded and provide poor-quality education. The city is dilapidated outside of Yale’s immediate vicinity, and crime levels are shockingly high. And this all affects the Elm City’s poorest residents. Those able to live in wealthy suburbs send their children to well-funded high schools and lounge in their crime-free neighborhoods. Regardless of your socioeconomic background, as a Yale student you are part of this privileged latter group.
In this context, most of Yale’s defense for tax-exempt status just doesn’t hold. Admittedly, Yale does great things for the economy: The University brings in a ton of tourism, is the city’s main employer and makes annual multi-million dollar “voluntary” donations to the city. But all of that tourism takes place in the immediate vicinity of Yale, furthering inequality between the University and the rest of the city. Very few students venture far into New Haven, preferring to spend most of their money on businesses near to them yet far from most residents. Employees that are paid by Yale must still send their children to dilapidated schools — which might be in better shape if Yale would pay a property tax. And for analogous reasons we should view voluntary donations as red herrings. A donation here and there does not absolve Yale of its systemic culpability in the city’s pervasive economic inequalities.
The sad truth is that Yale’s economic interests actually align with New Haven’s. As a former Yale Law School student, who is currently involved in Connecticut politics, put it over the phone to me, “ A stronger community creates a stronger Yale. They are in a symbiotic relationship.” If Yale were to pay its taxes, it would alleviate the tax burden for the rest of New Haven. Attractive tax rates could bring more and higher tax-paying citizens into the city. In the same vein, more businesses could open and take advantage of the low tax rate. Remember also that the attractiveness of New Haven affects Yale’s admissions yield. It’s tough to convince the brightest students in the world to attend Yale when New Haven is in such poor shape. A New Haven with better schools and neighborhoods, and more businesses and jobs, could go a long way toward reducing crime, invigorating the city and ultimately enticing more brilliant students. Everyone’s lives are better off when Yale remembers it is part of New Haven, and not just in New Haven.
This same logic should apply to Yale’s endowment. Revenues from such a tax will be better spent around the state than locked away in bank accounts. Ultimately it boils down to this: Yale has become a quasi-republic of finance with its own sovereign wealth fund to boot. Should it continue to systemically harm New Haven, Connecticut, and even its own economic interests? The law, our consciences and true love for Yale command us to say no.
Adam Krok is a freshman in Ezra Stiles College. Contact him at firstname.lastname@example.org .