It’s Time For Wash U To Pay University City

Last month, Dean of Students Rob Wild sent out an email about students acting disruptively during Mardi Gras at parties that students held in University City. University City police struggled to handle the rowdy students: according to Councilman Jeff Hales, it took all of the on-duty officers of the University City police department to disperse the crowd when one of the parties grew too large. At the next city council meeting, residents expressed frustration with trash and noise. Several students will face legal action. While this might seem like a silly instance of a party gone out of control, it is also indicative of larger conflicts between Washington University and its neighboring communities. These communities are forced to support the school and its students, but they often seem to get little in return.

Like many universities, Washington University qualifies as an educational and charitable organization under section 501(c)(3) of the Internal Revenue Code. This means that Washington University is exempt from paying federal taxes and generally also exempt from paying Missouri state and local taxes. There are many reasons why it is beneficial for universities to be tax-exempt. Universities contribute research and develop technologies that provide benefits to society, and tax exemption allows schools to dedicate more resources to this research. The additional money also means that universities can spend more on financial aid, helping lower-income students pursue higher education. Many smaller colleges and universities in the United States also have financial troubles, and their tax-exempt status allows them to remain solvent.

While these tax rules are beneficial for universities, they can lead to problems for the surrounding communities. Going back to University City, Wash U is the largest landowner in the entire city, owning roughly five percent of the city’s total property value. When University City did an assessment of property values in 2014, it estimated that Wash U owned roughly $130 million in tax-exempt property within the city. That means that every year, University City misses out on about $2 million in Wash U property taxes.[su_pullquote align=”right”]Every year, University City misses out on about $2 million in Wash U property taxes.[/su_pullquote]

Although the lost tax revenue is already painful for University City, the deal gets even worse, since these properties still get city services. Over 1,000 students live in Wash U-owned off-campus housing in University City. These students benefit from the public services offered by University City: firefighters, police, street maintenance, sewage and sanitation, and the library. In that same assessment, University City estimated it spends around $3 million a year for services to properties that will never contribute tax revenue to the city.

How can this problem be solved? First of all, it’s obvious that there is no way to legally require Wash U to pay taxes. A measure that extreme would require rewriting the tax code, which is unfeasible. While paying taxes is out of the question, the actions of other cities and universities show how Wash U can still contribute to the community. For example, Boston deals with similar issues on an even larger scale: major universities like Harvard and Boston University own billions in tax-exempt property. To help deal with the costs of providing services to these properties, Boston created a “payment in lieu of tax” (PILOT) program. Under the program, Boston requests voluntary payments from tax-exempt organizations. This program helps the city recover over $30 million every year. Similar arrangements exist in other cities with wealthy universities: Yale provides payments to New Haven, and Brown gives money to Providence.

In the past, University City has considered a PILOT program. A 2015 city council study session discussed the concept, but nothing else developed. In late 2018, Mayor Terry Crow called for the creation of a new study session to revisit these ideas. However, this is not just University City’s responsibility. Even if University City asked for a PILOT, it would ultimately be Wash U’s decision whether to pay. This is why Wash U should be proactive in helping other cities in the St. Louis community. Wash U needs to take further steps to help improve and contribute to the cities in the area. A firm commitment would improve relations with the city, as well as improve services to the many students and faculty who live in University City.

While they do give money back to cities, PILOT programs are not perfect. Boston, for example, asks for payments that are heavily discounted from the actual tax value of university-owned land. Even then, the payment requests are not fully met. Harvard, despite having a $38 billion endowment, still only pays half of the $6 million that Boston asks for. While these numbers are not encouraging, they are an improvement to the previous status quo, where Boston got nothing. While there is no easy way to reconcile Wash U’s tax-exempt status with the fundraising needs of neighboring cities, a PILOT program would be a step in the right direction and would signify a meaningful commitment to improving relations between the university and its neighbors.

Alexander Newman ‘20 studies in the College of Arts & Sciences. He can be reached at newmana@wustl.edu.