Princeton Will Pay $18 Million to Settle Residents’ Tax Case

  • Homeowners claimed patent profits defied non-profit status
  • Millions are offered to ease property taxes for next six years

A statue of former Princeton University president John Witherspoon outside the East Pyne building on the Princeton University campus, New Jersey.

Photographer: Emile Wamsteker/Bloomberg

Princeton University agreed to pay more than $18 million to settle a lawsuit by local homeowners who claimed the fifth-richest U.S. school should be paying property taxes on its New Jersey campus.

The settlement, announced by the school, came days before the scheduled start of a trial between the Ivy League university and local homeowners. A ruling against Princeton may have had far-reaching implications, upending the relationship between local communities and non-profit schools, hospitals and other organizations that don’t pay property taxes but put a strain on roads, emergency operations and other municipal services.

The residents who sued sought to revoke the school’s property-tax exemption, in part because Princeton shares commercial royalties with faculty from a patent that Eli Lilly & Co. turned into the cancer drug Alimta. The plaintiffs said the university had gained $524 million in licensing income and that it uses some buildings for commercial purposes. The average homeowner in the local community pays $17,699 in annual property taxes.

Under the settlement, 869 homeowners will share a pot of $10 million, intended as property-tax relief, from 2017 through 2022. The borough government will receive additional payments totaling almost $7 million, and a non-profit group, the Witherspoon Jackson Development Corp., will receive $1.25 million to meet the housing needs of poorer residents.

“It really should be looked at as a model for other communities with large non-profits,” said Bruce Afran, a Princeton-based attorney who represented the 26 plaintiffs, from an historically black neighborhood of modest homes. “We want to keep that diverse socioeconomic background in the community. We don’t want Princeton to be solely an elite and exclusive town.”

Annual Levies

The university, with an endowment of $22.2 billion, already pays its hometown of Princeton about $8 million in annual levies toward a budget of about $62 million. It kicks in another $3 million voluntarily, a boost for emergency services and public works, and doesn’t charge non-student residents of the town to attend lectures, athletic games and concerts.

“Princeton University cares deeply about preserving the diversity of the Princeton community,” Christopher L. Eisgruber, the school’s president, said in a statement. “We have a long history of contributing to the well-being of our community, not only through our annual unrestricted contributions and targeted contributions for affordable housing, the schools and the library, and community services of various kinds, but in the educational, cultural and other opportunities we provide.”

In Connecticut, lawmakers are to consider a plan to tax property owned by Yale University, the New Haven-based Ivy League cousin to Princeton. In Maine, Republican Governor Paul LePage last year proposed allowing municipalities to extract taxes from non-profits. In July, the city of Boston reported that non-profit institutions had come up at least $15 million short of what they promised in payments in lieu of taxes.

Two Congressional committees are interested in the tax status of private schools, and earlier this year asked the 56 richest schools a series of questions about their endowments.

At a time when some schools have decreased their annual endowment spending, Princeton’s trustees voted to allow a larger increase in endowment spending than in past years -- about $100 million to be spent over the next few years.

One reason the school will spend more is because the undergraduate population
will grow by 500 over the next decade, according to Bob Durkee, vice president and secretary of the university. Spending from the endowment will help fund construction such as dorms to house students, he said.

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