Princeton as `Hedge Fund' Foils Residents Seeking Relative Share of Taxes
Kevin Wilkes, an alumnus of Princeton University and a Princeton Borough councilman, stands for a photo in the Witherspoon Jackson neighborhood of Princeton. Photographer: Emile Wamsteker/Bloomberg
Tim McNulty, owner of Green Design, outside his eco-goods store near the campus of Princeton University. Photographer: Emile Wamsteker/Bloomberg
Robert Durkee, VP of Princeton University
Denise Applewhite/Princeton University via Bloomberg
Robert Durkee, vice president of Princeton University, poses in this handout photo.
Robert Durkee, vice president of Princeton University, poses in this handout photo. Photographer: Denise Applewhite/Princeton University via Bloomberg
Pedestrians walk past a statue of former Princeton University president John Witherspoon near the East Pyne building on the school's campus in Princeton. Photographer: Emile Wamsteker/Bloomberg
Pedestrians walk past the FitzRandolph gate outside the Princeton University campus. Photographer: Emile Wamsteker/Bloomberg
Pedestrians walk through arches of the East Pyne building on the Princeton University campus. Photographer: Emile Wamsteker/Bloomberg
Princeton University, the fourth- richest institution of higher education in the U.S., paid more than $10 million last year to its prosperous New Jersey community. Municipal officials and residents say the college should do more.
The university would pay about $28 million in additional property taxes if all of its land were taxed, said Princeton Borough Councilman Kevin Wilkes. The college owns 43 percent of the borough’s assessed land value and 13 percent of adjoining Princeton Township’s, Wilkes said.
“The town budget is strapped and schools are looking at laying off teachers,” said Princeton Borough resident Peter Kann, former chairman and chief executive officer of Dow Jones & Co. and the co-chair of Princeton Future, a civic organization. “Then there is this enormously rich university. They give the appearance of being wonderful donors to the town, but compared with what they would be giving if they were paying property taxes it’s really trifling.”
It’s the latest round in the town-gown faceoff, as U.S. municipalities still reeling from the economic crisis turn to their local universities, whose land holdings are mostly tax- exempt, to close budget shortfalls. Those institutions say they aren’t in a position to help: They are also scrimping to save money through program and job cuts after record endowment declines. Princeton University’s investments lost 24 percent in the year ended June 30, 2009. The total value of the endowment fell 23 percent to $12.6 billion, from $16.3 billion the previous year.
Task Force
In Boston, a task force is completing a plan to be phased in over the next five years that calls on colleges and other nonprofit organizations to make annual payments equivalent to 25 percent of what they would owe if they paid property taxes. In November, Pittsburgh’s mayor threatened, and ultimately failed, to tax college tuition. Instead, Carnegie Mellon University, the University of Pittsburgh and the health-care insurer Highmark, which has some for-profit subsidiaries, agreed to contribute an amount to be negotiated with the city.
Just one third of 30 top research universities made regular voluntary payments in lieu of taxes to their cities or towns, according to a Chronicle of Higher Education survey in January.
Tensions in Princeton have been mounting since a standing- room-only meeting in April 2009, called “Why Princeton University Should Pay Its Fair Share of Property Taxes.” About a dozen people booed Kristen Appelget, the university’s director of community and regional affairs, as she spoke about all the college had done for its neighbors, directly or indirectly, said David Goldfarb, a Princeton Borough councilman.
‘Scholarly Gentlemen’
Princeton Borough, Princeton Township and the regional school board voted in January to urge the college to boost its payments.
“Is the university some type of old-fashioned institution full of scholarly gentlemen with modest salaries and a devotion to education?” Wilkes, a 1983 Princeton graduate, said in a phone interview. “Or is it a hedge fund with $16 billion promoting an educational arm on the side?”
The booing that disrupted the 2009 community meeting, sponsored by the Princeton Citizens for Tax Fairness, was a “very unusual occurrence,” Robert Durkee, the university’s vice president, said in an interview in 254-year-old Nassau Hall. Subsequent meetings with local officials were held privately.
“Almost everyone who was in that room has come forward to apologize since then,” Durkee said. “That’s not how we conduct conversations in this community.”
Rich County
Princeton Borough and Township are part of Mercer County, one of the 100 richest counties in the U.S. with populations exceeding 65,000, on the basis of median household income, according to the U.S. Census Bureau’s 2008 American Community Survey. The median housing price in Princeton Borough was $544,950 in 2009 -- about twice the level for New Jersey overall, according to Onboard Informatics, a New York-based real estate data provider. Princeton High School ranked No. 94 in the nation in a U.S. News & World Report 2010 survey.
The university is already the largest taxpayer in Princeton Borough and Princeton Township, Durkee said. It paid $8.2 million last year in property taxes on housing for staff, faculty and some graduate students as well as for parking lots and other commercial facilities. It contributed an additional $1.6 million in sewer fees last year, according to the university.
Free Jitney
The university doesn’t pay property taxes on academic, administrative and athletic facilities. Instead, it made a $1.2 million payment in 2009 in lieu of taxes, part of a six-year agreement that expires at the end of 2011.
Princeton University also pays $35,000 a year to support the First Aid & Rescue Squad and $100,000 a year for a staff position at the fire department, the university said. It gave $60,000 to the borough in 2008 to launch a free jitney service to the train station for residents, and community members can visit the art museum and children’s library on campus at no charge. The university helped restore the Garden Theatre, on Nassau Street bordering the college, in 2001. That same year, it gave a $500,000 gift to the school system for a new high school library.
The university employs about 5,300 people, and each year it helps generate more than $1 billion in economic activity, according to a 2008 college-issued report.
“Our sense is, if you look at everything together, the university makes a very substantial contribution to the community,” Durkee said. “We believe that we have been a very good neighbor.”
Mayor’s Deal
The university made its first voluntary contribution to Princeton Borough in 1964 for $10,000. It also started leaving housing properties for faculty, staff and graduate students on the tax rolls because families might send children to the public schools, the university said.
While residents have long wanted Princeton to pay more, many held their tongues because they depend upon the university directly or indirectly for their livelihood, Goldfarb, 56, a lifelong Princeton resident, said.
That approach changed in 2005, after the late Joseph O’Neill, who was Princeton Borough Mayor, secured the six-year payment-in-lieu-of-taxes agreement with the university. For the first time, the university’s contribution topped $1 million and was formally annualized in a contract.
“Residents sat back and said, ‘If the university gave $1 million with apparent ease maybe we didn’t aim high enough,’” Goldfarb said.
Tight Budgets
Princeton University and the surrounding borough and township are all facing budget cuts. The college slashed $88 million from its $1.3 billion annual operating budget in the fiscal year ending June 30 and $82 million from its $1.4 billion budget for 2011. Over the two years, it eliminated 43 positions and reduced hours on 18 jobs. It also postponed construction of a satellite art museum and storage facilities and delayed the renovation of a humanities and social sciences building.
“This is not a good time to be asking the university to increase contributions,” Durkee said.
The Princeton Regional School Board cut more than $3 million from its 2010-2011 budget after it lost $3.7 million in state aid, even as taxes rose by 4.4 percent. The Board cut 24 teaching positions and eliminated summer sports programs, said Princeton Regional School Board Superintendent Judith Wilson.
Borough’s Cuts
Princeton Borough, an about 2-square mile (3-square kilometer) municipality nestled within the 17-square mile Princeton Township like the hole of a donut, has made cuts as well. The town dismissed two police officers and left two positions unfilled since June 2009, shrinking the force to 30. Garbage pickup was cut back to once a week from two.
Princeton Township started a furlough program in its Public Works Department, reducing union employees to a 35-hour work week from a 40-hour work week in June through August, said Township Mayor Bernard P. Miller. The police officers’ union agreed to reductions in benefits and a changed pay scale for officers hired after January 1, 2010.
At the same time, property taxes are set to rise for many residents after the first reappraisal since 1996. Last year, residents paid an average of $15,670 in taxes in Princeton Township and $15,092 in Princeton Borough, according to Appraisal Systems Inc., a consulting firm based in Morristown, New Jersey. Residents will learn whether their property taxes will rise and by how much after 2010 municipal budgets are passed this summer, said Ernest F. Del Guercio, the firm’s chief executive.
Paving Streets
“Taxpayers are subsidizing the university,” said Sue Nemeth, a Princeton Township committee member. “The intangible benefits the university offers are lovely but we can’t pave the streets with them.”
Nemeth cites what she calls the generosity of other wealthy Ivy League colleges. Harvard University, which has the largest university endowment in the U.S., made $4.14 million in voluntary payments in lieu of taxes in 2009 to Cambridge and Boston, the two cities where its campuses are located.
Yale University, which has the second-largest endowment in higher education in the U.S., increased its annual voluntary payment in lieu of taxes to its hometown, New Haven, Connecticut, to more than $7.5 million in 2009 from $5 million.
Princeton University’s financial contributions to the town significantly exceed those of peer institutions when measured as a percentage of the municipal budget, Durkee said.
Tim McNulty, owner of Green Design, sells ecologically friendly products on Witherspoon Street a block from campus. While students and visitors shop at his store, it may be time for the university to contribute more, he said.
“If Harvard and Yale’s contributions are higher, why not bring Princeton into line?” McNulty said.
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To contact the reporter on this story: Moira Herbst in New York mherbst3@bloomberg.net
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