Paul Bass Photo
Mixed Bag? 433 Temple.
Yale has enlisted its community to lobby legislators to kill a bill that scrutinizes a portion of the university’s tax exemptions, leading New Haven State Rep. Roland Lemar to accuse the school of waging a misleading campaign based on “inaccurate” and “unsubstantiated scare tactics.”
“The bill would make Connecticut the first state in the country to tax academic property of a non-profit university,” the university’s lead state lobbyist, Associate Vice President for State and Federal Relations Richard Jacob, wrote in a campus-wide email.
“It is quite embarrassing how Yale is engaging on this issue. They’ve sent out numerous inaccurate emails. Their statements to press outlets are just wrong,” Lemar, a sponsor of the bill, responded in an interview. “They’ve chosen … this inaccurate and unsubstatinated scare tactic. I’m shocked that they would stoop to this level.”
Those are the latest developments in the saga of Senate Bill 414, one of two proposals the state legislature considered this session related to Yale and taxes.
One of those bills died in committee. It would have required Yale to spend more of its endowment in the local economy or face an $83 million new fee.
The other bill, SB 414, is on its way to full Senate debate after emerging last Thursday from the legislature’s Finance, Revenue and Bonding Committee with a 28 – 22 vote.
Along the way, it has generated two polar-opposite interpretations. To Lemar and fellow legislative backers, the bill seeks simply to “clarify” how an archaic “super-exemption” should apply to Yale in the 21st century. Yale argues that the bill illegally singles out the university for political purposes.
Which Buildings Apply?
The bill doesn’t seem so controversial at first glance. It doesn’t call for new taxes on Yale. It doesn’t call for repealing or changing any of Yale’s tax exemptions. It doesn’t touch the general exemptions that Yale and other colleges and universities and not-for-profits in general enjoy under the tax code.
Instead, the bill focuses on a special tax exemption the state granted to Yale and four other Connecticut schools 182 years ago, back when they were small institutions. That special exemption allows the schools to avoid paying taxes on buildings that generate for-profit operating revenue of less than $6,000 a year. In other words, Yale doesn’t have to pay taxes on a building that houses a for-profit business venture, as long as the profits remain under that $6,000 cap.
New Haven’s Harp administration asked the state to “clarify” that 182-year-old tax exemption. Harp said in a recent interview that not many buildings if any would be affected, and thus not much if any tax revenue is at stake, but that the law leaves some buildings in a gray zone. She cited, for instance, a travel service Yale runs out of one of its buildings.
The city of West Haven has asked for similar clarification about a Center for Genome Analysis that does contract work for private companies similar to work performed by taxable for-profit businesses that may not fit under the definition of “academic” work. Lemar also questioned whether Yale’s real estate arm, University Properties, generates enough commercial revenue on its stores and offices and apartments to render taxable the 433 Temple St. building that includes its headquarters (along with Yale’s Office of Cooperative Research).
The bill does not affect those Yale-tenant stores and offices themselves. Yale already pays taxes on them, as part of $4.5 million overall it pays in annual property taxes to New Haven. Yale also makes $8.5 million in voluntary payments, a process begun when an earlier version of SB414 (written by State Rep. Pat Dillon) was debated and killed at the Capitol back in 1990.
The bill seeks to clarify what revenues can be counted toward that $6,000 profit threshold by adding this language to subdivision (8) of section 12 – 81 of the Connecticut General Statutes: “(I) rents or other payments for the use of all or any part of real estate exempt from taxation pursuant to subsection (a) of this section, or any fixtures or equipment permanently installed thereon, received or due from any for-profit entity, but not including individuals for personal use; (II) fees collected for admission or use of any sports or entertainment facility located on such real estate, except for fees collected for admission or use from faculty, employees or enrolled students, or events in which substantially all of the athletes or performers are faculty or enrolled students; (III) fees, charges or royalties for any goods designed, produced, manufactured or generated on all or any part of such real estate, provided such goods are for sale to the public and to for-profit entities; and (IV) fees or charges for any services rendered on, or from, all or any part, of such real estate to the public or any for-profit entity; and ‘for-profit entity’ means corporations, partnerships, joint ventures, sole proprietorships or any other business entity.”
If this bill passes, State Rep. Lemar said, New Haven’s government will have a clearer process to determine whether some of those nebulous properties should be taxed. The city assessor would have the clear legal ability to decide how to classify a building, as tax exempt or taxable. Then Yale, like “any other property owner,” would have the right to challenge that determination. Right now, the city has to rely on Yale to decide whether individual buildings with mixed for-profit and not-for-profit uses should be taxed, Lemar said. This bill provides “clarification” for all parties, he argued; it doesn’t make new law.
The Backlash
Rather than “clarify,” the bill, if passed, would ignite years of litigation and confusion over what buildings, if any, would be covered, Yale’s Associate Vice President for State and Federal Relations Rich Jacob countered in an interview Tuesday. (Watch Jacob and Lemar debate the bill at the recent legislative hearing in the above video, courtesy of CT‑N.)
After last week’s committee vote, Jacob sent the campus-wide email directing Yale staffers to their state legislators to write in opposition to SB 414.
The email included the line, quoted at the top of this story, that most outraged Lemar, about the bill seeking to make Connecticut the “first in the country” to “tax academic property.”
“Furthermore, while the bill targets just Yale, its proponents have said other cities would also like to begin taxing academic property of other non-profit universities in Connecticut,” Jacob wrote.
“Yale is also making clear that SB 414 violates the U.S. and the Connecticut Constitution, and Yale is prepared to defend its constitutional right of non-taxation.“
Yale Vice-President Bruce Alexander chimed with similar arguments in a Hartford Courant op-ed.
“The proposed bills [SB 414 and the failed effort to charge fees based on the endowment], raised at the request of Yale unions and advocacy groups to promote graduate student unionization, reflect short-sighted politics. The bills do not pass constitutional muster,” Alexander added in the article.
Yale’s UNITE HERE! locals did support both Yale-related bills at the legislature. They do have a campaign to push Yale to recognize its graduate-student teachers as a unionized workforce.
According to Lemar, that doesn’t change the fact that the New Haven and West Haven mayors were asking the legislature for help with the legislation, nor does it change the merits of the arguments. “They’ve indicated that Mayor [Harp] is being led on the unions on this policy — as though there hasn’t been a four-decade conversation about this” at the Capitol. “I found it offensive to suggest that Mayor Harp is pushing the delegation on a bill she doesn’t care about. It has actually been a source of contention for 40 years.” (Mayor Harp did not publicly endorse the other bill concerning Yale’s endowment.)
The Fine Print
Lemar: Blue overkill.
Conversations with Lemar and with Jacob and Deputy Chief Communications Officer Michael Morand of Yale produced starkly divergent interpretations of the bill’s actual content, as well as its context.
“We’re not talking Yale the academic institution. We’re talking about Yale the landlord,” Lemar said. “Under no circumstances are we attacking the bedrock principals of nonprofit treatment. What we’re talking about is Yale’s super-exemption. It goes further than almost all exemptions in the world.”
Jacob responded that it’s fair to characterize the bill as taxing “academic” property because it specifically opens the door to taxing properties that Yale considers “academic,” like Payne-Whitney Gym and the Yale Repertory Theatre. He noted that the bill does specifically mention “sports and entertainment” facilities.
Lemar responded that the bill wouldn’t cover Payne-Whitney or Yale Rep unless “they rented them out to a non-student activity. I’ve never seen them do anything that would make that a taxable entity.”
Jacob said that the International Festival of Arts & Ideas does rent the Yale Rep. He said that community groups like youth leagues pay to use Payne-Whitney and Ingalls Rink, although just to cover custodial costs, he claimed. If SB414 passes, Yale might have to curtail those rentals, which it considers a community service, in order to avoid taxation, he argued.
A better example, Lemar said, would be the international tours Yale charges high prices for alumni to attend. Jacob and Morand called those trips “educational” and “academic” under standard definitions; the trips have a “structured curriculum” and “faculty accompany” them, they said.
“It’s called ‘Yale Educational Travel’ for a reason,” Morand said.
“I know people who have been on them who feel it’s not educational in its scope or practice. You go with other Yale alums on European tours. It looks like a vacation. It’s an income stream for them,” Lemar argued.
Jacob also dismissed Lemar’s suggestion that Yale University Properties’ central office brings the tax-exemption of 433 Temple into potential question. “It is just a couple of offices in that building,” he said.
The Bigger Picture
More broadly, Morand questioned why SB414 singles out Yale. It covers only those educational institutions with endowments exceeding $2.5 billion. That means Yale, and only Yale, not the other schools covered by the original special exemption granted 182 years ago.
Lemar was asked why the bill was drafted to exempt the other four schools. (Technically the bill covers six schools, but two of them are Yale: Yale University and the Berkeley Divinity School.) He responded that he believes “only” Yale has “this type of activity” taking place on its campus, blending academic and commercial purposes. “Other cities haven’t had these conversations with assessors,” Lemar said. Morand and Jacob questioned whether legislators had sought to establish that fact, and they suggested that the singling out of Yale puts the legislation on shaky legal footing.
“There’s no way this passes a fairness test,” Jacob argued.
Finally, there’s the question of how to refer to the special tax break Yale and the four other schools receive. Lemar and others call it a “super-exemption.” They call it misleading to characterize it, as Jacob did, as part of the tax exemptions that all academic institutions receive.
Rather than call it a “super-exemption,” Morand argued, people should refer to the 182-year-old provision a “longstanding and working exemption” that should be expanded to all academic institutions rather than removed from those that have it.
A more complicated debate awaits given the changing nature of Yale and the New Haven economy. When Rick Levin became Yale’s president in 1993, the university began encouraging researchers to turn research and inventions into commercial businesses. New Haven encouraged that effort, seeing potential local job growth. That effort has borne fruit; biosciences in particular are becoming a pillar of the city’s new economy. Whether and how to tax Yale’s part of that sector is complicated: Sometimes the same office might host purely academic research, gray-era commerce, and traditional commercial profit-making activity.
“A few research programs based in Yale laboratories, such as the Yale Center for Genome Analysis, provide research services that support university researchers. A very minor share of the services provided by the Center for Genome Analysis supports biotech startups in Connecticut that do not have the capacity in house as a service to them. Under the Yale charter this incidental use does not affect property taxes, but Yale has nonetheless reported this revenue as unrelated business income,” according to a follow-up written statement provided by Yale spokesman Tom Conroy. “The availability of this service makes Connecticut more attractive to bioscience companies, but Yale is prepared to terminate the service if the General Assembly believes it is an inappropriately commercial activity in an academic building.”
The statement noted that “no startup businesses based on discoveries or inventions of Yale faculty operate in Yale-owned space. All of them are located in commercial space that is subject to property taxes, such as 5 Science Park, 300 George Street, or Alexion’s headquarters, among other locations.”
Whatever fate befalls SB 414 this year, the debate will continue.
Text Of Jacob’s Email
Jacob: Court fights ahead.
From: Richard Jacob
Date: Friday, April 8, 2016
Subject: UPDATE: state legislation affecting Yale
To: Colleagues
Dear colleagues,
I would like to update you about a bill in the Connecticut General Assembly proposed by State Rep. Roland Lemar and a few other New Haven legislators, with the support of unions, to tax academic buildings on campus. The bill, SB 414, passed the Finance, Revenue, and Bonding Committee on Thursday by a 28 – 22 vote.
SB 414 seeks to extend property taxes to academic properties, such as the Center for Genome Analysis, Payne Whitney, the Yale Rep, and other buildings used daily by students and faculty. Most worrisome, proponents of SB 414 wish to tax the research buildings that house the faculty whose discoveries help launch biotech companies that grow beyond campus and generate jobs and taxes for New Haven.
The bill will not affect the tax treatment of commerce properties, such as the stores on Broadway, which are already subject to property taxes. (Yale is liable for property taxes on its commercial properties that earn more than $6,000 in income.) Yale paid more than $4.5 million in property taxes on its community investment nonacademic properties in 2014, and is one of New Haven¹s largest taxpayers.
The bill would make Connecticut the first state in the country to tax academic property of a non-profit university. Furthermore, while the bill targets just Yale, its proponents have said other cities would also like to begin taxing academic property of other non-profit universities in Connecticut. Earlier this week three leading associations representing all of the non-profit universities in the country expressed serious concern about this dramatic departure from bedrock policy toward charities.
In Yale’s view, this bill misses the point. Connecticut needs to grow its economy, and the partnership between New Haven and Yale shows that investing in education, neighborhoods, and research creates jobs. Taxing Yale won’t create jobs. Yale has demonstrated its commitment to New Haven by making a voluntary payment well beyond the taxes it pays to city government. Yale’s payment, now over $8.5 million annually, grows as the student body and workforce grow and we believe is the largest such payment by any university to any municipality in the nation. We have also invested more than $28 million to date in the Yale Homebuyer Program, co-founded and funded the Promise scholarship program for New Haven public high school graduates, and done a lot more.
Yale is urging the General Assembly to reject SB 414. Yale is also making clear that SB 414 violates the U.S. and the Connecticut Constitution, and Yale is prepared to defend its constitutional right of non-taxation. Others, including Trinity College, Fairfield University, the Chamber of Commerce, United Way, the Association of American Universities, the American Council on Education, and the National Association of Independent Colleges and Universities, have joined in opposition, as they recognize these bills threaten independent higher education generally and pose a threat to Connecticut’s ability to attract partners for economic growth.
If you share these concerns, you may wish to reach out to your state representative and senator. If you are unsure of your state legislators, you can search for them here. If you have already contacted your representatives, thank you for your efforts.
If you choose to contact your members of the General Assembly, I’d be grateful to receive a copy at [email goes here]
Sincerely,
Rich Jacob
Associate Vice President for State and Federal Relations