Cornell’s Tax-Exempt Status & Ithaca’s Bottom Line

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This is a big year for the city of Ithaca, a community heavily taxed though perennially cash- strapped, partially due to the tax exemption of 60 percent of its property. This year is the last of a Memorandum of Understanding signed twenty years ago, laying out Cornell University’s cash contribution to its host city.

This annual payment has been made in lieu of property taxes otherwise collected to cover fire, police, water and sewer, garbage collection and disposal, snow removal, roads and bridges, parks, youth services, and other amenities which make Ithaca an attractive community in which to live. Under Federal and State law, colleges and universities, because of their educational purposes, receive tax-exempt status.

Tompkins County 2022 assessment data shows Cornell’s city property exempted from taxes totals more than $2.7 billion. Cornell pays city taxes on only about $8 million worth of property.  Cornell’s operating budget is currently $5.5 billion and its endowment is $10.5 billion.

According to Jay Franklin, Tompkins County Assessor, “The bookstore, Statler Hotel, dining halls, and residence halls are all considered in furtherance of educational purpose, and are thus, not taxable. Additionally, all property within the statutory college, regardless of its use, is exempt because of NYS ownership interest in it.”

THE HISTORY

In 1995, former Ithaca Mayor and Cornell professor Ben Nichols, worked to increase Cornell’s contribution for basic services provided to both campus and the university’s 25,000+ students living in its neighborhoods. Through what Nichols’ obituary referenced as a “creative use of building permits,” he secured an agreement for funding to move from $143,000 to $250,000 the next year, and then to $1 million by 2007.

Nichols estimated, nearly 30 years ago, that the actual cost for services provided to Cornell was millions of dollars. In 2003, the agreement was reviewed and approved to run through June 30, 2024. In this final year of the agreement, Cornell will contribute $1,575,204. Over $900,000 is obligated to the fire department budget.

Without a significant voluntary contribution to the city, wealthy institutions, especially in small cities, are being subsidized by a small number of taxpayers. Cornell pays $96,307 on a small amount of taxable city property and $1.6 million in taxes to the Ithaca City School District. They also pay taxes to Cayuga Heights, Town of Ithaca, and Tompkins County, making their total tax bill about $2.8 million.

The year ahead offers the possibility of working toward better compensation for city services the university campus and its students require. In recent years, communities hosting Ivy League schools with multi-billion-dollar endowments are more emphatically demanding institutions pay an amount, that at a minimum, covers services received. Many are demanding that they do even better than that to help ensure their communities thrive and taxes are less onerous.

Residents and government do not dispute the many ways that universities contribute to host communities. Cornell is the county’s largest employer. Student spending is in the hundreds of millions annually. Cornell’s contribution to visitor spending is huge. The university spends millions on construction and purchasing annually. Thousands of student volunteers provide extraordinary assistance from community engaged coursework to academic support for grades K-12 and more.

The university makes Ithaca a uniquely international destination in upstate New York. Many residents choose to live in college towns like this because of their many free, cultural amenities.

But with university ownership of billions of dollars of tax-exempt property, how do college towns balance their books, provide basic services, and keep taxes manageable, let alone be visionary. The fact is, Ithaca is becoming more and more unaffordable every year despite it being the envy of other municipalities for its seemingly endless building spate of luxury and affordable housing projects.

THE HARD NUMBERS

As reported by Ithaca’s local radio station, WRFI, February 1, 2023, “according to the rental real estate listing service Dwellsy, Ithaca has the highest rent of any small city in the U.S. The study shows the average price for a one-bedroom was $1908 per month in 2022, up 4.5% over 2021. Only eight cities had higher average rents…New York, Boston, San Francisco, San Jose, Washington DC, Santa Barbara, Los Angeles, and San Diego.”

Sometimes forgotten in high rent areas, is that rents and property taxes are connected. Some assume landlords wanting to maximize profits are behind high rents, but landlords must pay local taxes, too, and this is a large factor in establishing rents. Ithaca and Tompkins County taxes are exorbitant by many standards across the country.

According to realtor.com, the median sold home price in Ithaca was $337,500 in 2022. This equates to a 2023 city tax bill of $4,043, county bill of $1,909, and school tax bill of $5,683. Additionally, city residents minimally pay $851 per year for water, $80 to a sidewalk repair fund, an $80 solid waste fee, and $4.50 and $1.50 for each garbage and yard waste collected curbside. The bill is about $13,000 though many pay more. By contrast, the average American household spends $2,471 on property taxes each year for a median home valued at $268,800, according to the U.S. Census Bureau, as reported by WalletHub in March 2022.

It is not unheard of for houses in the city to sell as much as $100,000 over the asking price and with the county performing yearly assessments to ensure current market values are reflected in assessments, homeowners may see assessment increases of $40,000 or more in one year, sometimes in consecutive years in the most popular neighborhoods, potentially further increasing tax bills.

State school aid, abatements, county, federal, and other state funds also determine tax rates, as do local legislators. In fact, adding to the homeowner’s tax bill, Ithaca’s Common Council approved a 2023 budget of $89.9 million, an increase of 9.47%, or more than $2.3 million over 2022’s tax levy. The Ithaca city tax rate is currently more than twice the county’s and nearly 5x the neighboring Town of Ithaca. Though taxpayers are feeling maxed out, workers are still feeling underappreciated and underpaid.

The city’s 2023 budget allocation for road maintenance is $6 million, though the city’s potholes are legendary. While a community-wide resource, the city’s street maintenance is not paid for by any funds other than city taxes. Ithaca’s small tax base frequently finances at 100% or at a very disproportionate share, many such resources including its parks ($1.6M) and youth services ($10M). The city receives less than $700,000 from other municipalities for the Youth Bureau, seen by some as an example of the city taking on more than its fair share.

The city’s public safety budget is $14.8 million. Ithaca is an equal partner with Cornell University and Tompkins County in the local bus system, TCAT. Some residents see this plus other expenditures (like a sheriff’s department and a police department, a city prosecutor and district attorney’s office), as a sort of “double taxation.” City residents pay for TCAT as city and as county taxpayers. Though residents overwhelmingly support public transportation, TCAT funding is contentious. According to TCAT staff, 70% of its users are associated with Cornell, though Cornell only pays 1/3 of the cost. Another pricey community-wide service is sewage treatment and disposal, budgeted at $7.4 million.

The fire department budget totals $12.2 million with a small percentage coming from neighboring communities for services received.  According to Interim Chief Rob Covert, “Downtown and Collegetown [housing] developments have increased demands on the fire department. As the Ithaca Fire Department operates today under its current staffing model, we do not meet nationally recognized standards for fire department staffing.”

Running a city is clearly no cheap proposition, especially when a majority of the city’s total assessed properties are tax exempt. To help understand how billions of dollars of tax-exempt property affect the cost of living, Assessor, Jay Franklin, estimates that if all property were taxable in Ithaca, the city tax rate would drop more than 50% and the Ithaca City School District tax rate would decrease 45%. If all Cornell property was taxable at the same rate as all homeowners pay, Cornell would owe the city $33 million, the county $15 million, and the school district $46 million.

Knowing this, how does a community calculate an equitable number for the next agreement. Cornell’s 2023 contribution of $1,575,204, as stipulated in the current Memorandum amounts to just a bit less than the amount collected by the city for dog and other licenses and permits.

There are examples within the Ivyies worth reviewing. One is for institutions with property valued over $15 million, to pay 25% – 40% of the property taxes they would owe if they did not have tax exempt status. This is done in the form of a PILOT (Payment in Lieu of Taxes). For Cornell with nearly $3 billion worth of city property, the 25% minimum would equal $8.25 million for the city. The county would receive $3.8 million and the school district $11.5 million.

COMPARING IVYIES

A review of the last several years shows this long-smoldering issue between host cities and Ivyies has built momentum and resulted in more positive partnerships. Many Ivyies have stepped up. State legislatures are also looking at how to implement mandatory contributions.

In 2021, after years of pressure culminating in a “Respect Caravan” which clogged traffic in downtown New Haven, Yale significantly increased its contribution to the city, from $13.2 million annually in 2022 to over $24 million annually by year 5 of the agreement. Their total pledged contribution over a 6-year period will be $135.4 million. This is in addition to other voluntary contributions plus funds for fire services.

The University of Pennsylvania is the largest private landowner in Philadelphia, holding more than $5 billion in tax-exempt property. Activists there questioning whether wealthy universities should be exempt from property taxes also won an historic agreement in 2020 when the university pledged to donate $100 million in lieu of taxes to help Philadelphia public schools in the form of $10 million per year for 10 years.

Despite this win, according to the Penn for Pilots website, “While this gift is a step in the right direction, Penn has further to go. …We have called on Penn to pay 40% of what it would owe in property taxes every year… approximately $40 million per year—four times what the university has offered.”

In 2007, Brown University established a $10 million endowment goal to benefit local education. University fundraising lagged until Brown authorized $8.1 million from unrestricted University-endowed funds to complete its pledge. Now each year, approximately $400,000 to $500,000 from this fund plus an additional $800,000 directly supports Providence public schools.

Princeton University is the largest property taxpayer in its host municipality, and for decades, has made contributions to the town. In late 2020, a new agreement committing the University to contribute nearly $8.5 million in 2021 and 2022 was adopted. It also included an additional $850,000 for the Princeton Fire Department and $250,000 for Public Works. Princeton paid more than $9.8 million in taxes in 2021, which includes $6.2 million in voluntary tax payments for properties eligible for exemption.

Dartmouth is Hanover, New Hampshire’s largest taxpayer. According to the college’s Impact Statement, in 2020, they paid approximately $8 million in taxes. Unlike in NYS, Dartmouth pays taxes on all dormitories, dining-rooms, and kitchens with values above $150,000. This accounts for $6.2 million to Hanover. They also own commercial properties and pay over $1 million in taxes for these, and approximately $1.3 million for 500 off-campus rental housing units. Additionally, they have led downtown development projects and partnered on public school expansions. While Dartmouth’s endowment is the closest to Cornell’s among the Ivyies, their student enrollment is far less at only 6700 compared to Cornell’s 25,000.

According to a PQ Prime article dated March 2021, “…a spokesperson for Columbia said the university pays taxes on about 500,000 square feet of commercial property, makes payments to a Harlem development agency, and contributes to affordable housing and city parks.”

Boston and Cambridge are far ahead of Ithaca. PILOTs were first formalized there in 2010 and they now request all nonprofit organizations, not just universities, with property holdings valued at upwards of $15 million to contribute 25% of the property taxes they are exempt from paying.

Harvard, though, has not fully complied with Boston’s PILOT request, contributing $10.8 million in 2022, or 79% rather than 100% of the city’s recommended amount of $13.7 million.

For years, Harvard and other Boston schools, have been criticized for not fulfilling the whole request and this non-compliance with voluntary payments resulted in a pending Massachusetts state bill to make mandatory previously optional payments supplanting city property taxes.

The bill, H.D. 3207, mirrors Boston’s Payment in Lieu of Taxes program, and comes as part of a broader movement to get institutions to pay an entire not partial PILOT payment.

As reported in The Tufts Daily February 2022, State Rep. Erika Uyterhoeven, said it is intended to ensure that “large endowment” institutions such as Harvard are legally bound to pay their “fair share” in a way they are not currently under PILOT.

“Right now, payment in lieu of taxes is voluntary, … so some institutions just don’t pay,” Uyterhoeven said. “But this would enable municipalities to say, ‘No, this is an agreement that you actually have to abide by.’” PILOT payments would be used to fund basic services that the institutions themselves benefit from, Uyterhoeven explained.

CITIZENS UNITE

Many Ithacans feeling the weight of local taxes can envision such a piece of legislation for New York State ultimately, “if schools don’t pay their fair share. The burden is too great for the very few of us,” said a decades-long resident. “Establishing a fair payment from Cornell commensurate with all the services it and its students receive is essential. This is about Cornell investing in their home base. A PILOT should be a top priority for legislators.”

Recently published Cornell materials about their $5 billion “To Do the Greatest Good” campaign launched October 2021, stated $3 billion will be directed to the Ithaca campus. More than $3.5 billion has already been committed. According to the Cornell Chronicle September 2022, Alumni Affairs and Development staff said this is “…the highest amount raised in Cornell’s history exceeding last year’s record-setting total by 12%.”

A member of a newly formed Ithaca citizen advocacy group said, “We’re not looking for a gift. We want the university to minimally pay for what it costs the city. They should be doing beyond that. A small number of taxpayers, thousands 60 and older, subsidizing an institution with the resources and fundraising power Cornell has, is unsustainable and unconscionable.”

“Now is the time for change. Cornell is lagging way behind its peers in its financial support of its host community, but we’re hopeful they will see it’s time to be a real partner and a leader among the Ivyies. Ithaca and Tompkins County needs Cornell, and Cornell needs a healthy community that people can afford to live in.”


 See previous reporting by the Ithaca Times regarding Cornell University’s tax-exempt status online at Ithaca.com by searching “Cornell Compared: Ithaca Mayor Calls Out His Alma Mater on Financial Contribution“ & “Best Way To Get Cornell To Contribute To The City

Residents interested in joining a citizens advocacy group exploring PILOTs are invited to contact the author at fabriziomargherita@gmail.com.

Source: Ithaca.com

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