Yale Tax Fight Turns To Tech

With the support of local business leaders, Yale President Peter Salovey called an unprecedented press conference to oppose the proposed law, State Senate Bill 414. The bill seeks to clarify how a law passed in 1834 applies today; that 1834 law granted a special tax exemption to Yale and four other then-small Connecticut college and universities, over and above the general tax exemptions enjoyed by not-for-profit educational institutions.

The State Senate is expected to debate and possibly vote on the bill, which passed a legislative committee, some time this week.

Never before in recent memory have Yale’s president and vice-president conducted a press conference about a local issue to attack leading elected officials rather than standing alongside them.

In the President’s Room on the second floor of Woolsey Hall Wednesday morning, Salovey and Yale University Vice-President Bruce Alexander accused two of the bill’s most prominent New Haven supporters — State Senate President Martin Looney and Mayor Toni Harp — of seeking to jeopardize the city’s burgeoning ​“eds and meds” biosciences and tech industry in order to satisfy political demands from Yale’s labor unions. They argued that contrary to the statements of the bill’s proponents, SB 414 would end up taxing, and therefore endanger, purely academic research that eventually leads to life-saving medicines and other breakthroughs that produce jobs and taxes when developed by separate commercial enterprises.

Connecticut, Salovey said, should continue finding ways to support that research rather than to tax it. Bill supporters continue to argue that they’re not seeking any taxes on research.

“To me it was so troubling to see some legislators pursuing a political act that singles out Yale and would harm New Haven’s ability to grow its economy,” Salovey said.

In arguing against the bill, Alexander quoted Looney and Harp in this New Haven Register article by reporter Mary O’Leary, stating that the idea for SB 414 originated with UNITE HERE, which represents Yale’s blue- and pink-collar workers and seeks union recognition for graduate student workers.

“It is interesting to note from whom some elected officials are taking direction and to ask if they are acting in the interest of all citizens in the state of Connecticut,” Alexander said. “… These legislators apparently are choosing to discourage the kind of research and educational institutions that create biotech companies like Alexion,” a Science Park-spawned pharmaceutical company that just opened a 14-story office tower on College Street with more 1,200 employees.

“We’re going to continue to fight this bill,” Alexander vowed, ​“because it’s the right thing to do.”

Looney shot back in an interview following the press conference.

He branded ​“absurd” Alexander’s and Salovey’s accusation that he’s acting at the behest of unions’ self-interest rather than in the public interest.

“And they know better than that. That’s a deliberately false statement,” Looney said.

He said SB 414 enjoys grassroots community support well beyond labor. And he said SB 414 does not impose any new taxes on academic research, but rather ​“updates to modern times an exemption that has existed for so long.” This special exemption allows the five schools to avoid paying taxes on buildings that partly house commercial activity, as long as that activity produces less than $6,000 in annual unrelated business income. The economy has changed over 182 years, so legislators need to fix the language so it can clearly apply to commercial activities that occur today, including businesses spawned by Yale research, Looney and Harp argued.

Moving Target

For observers of the intense wrangling over SB 414 —at a time when legislators are scrambling to plug a $900 million state budget deficit in the session’s waning days — the broader public issues at stake have proved a moving target.

Proponents of the bill have acknowledged that little if any new revenue will come to the city as a result of the bill. Mayor Harp said in fact Yale could benefit if an updating of the measure significantly raises the $6,000 minimum income threshold for taxing buildings.

Yale has shot back that the language of the bill would require it evict the New Haven Symphony from Woolsey Hall, youth hockey teams from Ingalls Rink, and arts groups from the Yale Repertory Theatre in order to avoid taxation. But legislators — who all along denied that aim —this week wrote an amendment specifically to exempt university athletic and entertainment facilities.

Yale continues to argue that SB 414 ​“taxes” new property and upends centuries of established Constitutional law. Proponents continue to argue that the bill merely updates language about an existing exemption. 11 law professors, including four from Yale, wrote a letter dismissing the Constitutional arguments.

Yale officials — including Salovey on Wednesday — note that the bill was written to single out Yale (by limiting it to institutions with endowments exceeding $2.5 billion). They argue that the bill could destroy decades of town-gown cooperation that has enabled New Haven’s biosience and tech sector to create new jobs and taxes while other Connecticut cities have seen their rolls shrink. Bill proponents argue that a cooperative relationship doesn’t involve Yale dictating the terms.

New Haven State Rep. Roland Lemar has argued that the city should be able to independently assess whether its buildings fall under the 1834 exemption rather than rely on Yale. Alexander argued Wednesday, in response to a question (see the response in the above video), that Yale and city assessors already cooperate in that determination process.

Eds & Meds Threat?

On Wednesday, the debate finally pivoted fully to a question that affects the city and the state: The future of New Haven’s economy. Specifically the ​“eds and meds” — higher-education and medical/bioscience/tech — economy, the so-called ​“jobs of the future.” How to continue to grow it. And who gets to share in its benefits.

To Yale and leaders invited to the Wednesday press conference — including Chamber of Commerce President Anthony Rescigno, Webster Bank regional President Jeff Klaus, New Haven Promise President Patricia Melton — SB 414 would kill the golden egg hatched by two-plus decades of town-gown cooperation.

Yale used to resist commercializing its research. Former University President A. Bartlett Giamatti, for instance, argued that that jeopardized the academic mission. (He grudgingly helped start Science Park, but didn’t lend extensive support or go further.)

Then, when Rick Levin became Yale president in 1993 and John DeStefano was elected the city’s mayor, they agreed that Yale should encourage researchers to launch for-profit companies based on bioscience and tech research. The hope was that that companies would hire local people and create local jobs.

And that has happened, at a more successful Science Park, at 200 George St., at Alexion, around the Yale medical school area, and, potentially, in other projects on the drawing board.

Rescigno spoke of standing at his 900 Chapel St. office window overlooking the Green while visitors ask him, ​“Why is New Haven doing better than the rest of the state?” He said he points across the Green to Yale’s gothic spires and answers: ​“Who else has an Ivy League school that does the kind of things” Yale does for the economy?

“We have a protective bubble over the city. The bubble has a distinctive [Yale] blue to it,” Klaus argued. “… The eds and meds industry in New Haven is like what the steel industry was to Pittsburgh” and ​“oil and gas were to Houston.”

Looney and other SB 414 sponsors and supporters said they agree with Yale, that the state should encourage rather than tax university research that might later spawn commercial enterprises. They argued that SB 414 has from the start — and continues, with tweaks prompted by the recent debate —sought to make sure that only revenue derived from non-academic commerce leads to taxation, but also to make sure that such commerce is clearly defined. In the past, when New Haven or others have sought to put new properties such as Yale’s golf course on the tax rolls under the existing 1834 law (not under a new law or definition), the courts have rules that the law is too vague to apply or enforce, proponents argue. SB 414 aims to change that.

Mayor Harp issued this statement: ​“SB414 would simply update, clarify, and memorialize for the 21st century a distinction between taxable and tax-exempt properties – providing important modernization of the only tax tool available for municipal governments. Amended language leaves intact all current exemptions and would not target academic properties; SB414 is not a revenue enhancement bill but would serve as a useful guide for future planning.”

Subsection III

Who’s right? Does the bill change the rules about taxing academic research? Or does it preserve and update them?

The answer comes down to how one interprets a 35-word clause that SB 414 proposes adding to subdivision (8) of section 12 – 81 of the 2016 supplement to Connecticut’s General Statutes.

Alexander read the clause aloud at the press conference. It defines one type of revenue that would count toward the $6,000 threshold for taxing a building, this way: ​“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.”

He argued that proponents of SB 414 seek to cash in on royalties earned years later on blockbuster drugs, for instance, hatched in academic labs pursuing purely academic research.

Salovey cited the success of MIT and Stanford in spawning tech industry in their home cities: ​“None of these institutions elsewhere are taxed when a company licenses a university invention and develops a new product. Of course the companies are taxed, just as they are in New Haven. But the universities themselves are” tax-exempt.

And they’ll remain that way if SB 414 passes, Looney said.

From the outset legislators have made clear that they have no intention ​“to do a revenue grab… There’s no intent to make Yale subject to taxation or other research institutions that engage in technology transfer,” Looney said.

Rather, he said, the law aims to put Yale in the exact same company as MIT and Stanford — with clear guidelines on when truly commercial activity renders a building taxable.

He added that a previous paragraph in the statutes directly preceding subdivision (7) makes clear that royalties on academic labs wouldn’t lead to taxation. It states that property-tax exemptions will cover ​“scientific” and ​“educational” activities at colleges and universities.

“I think it’s a scare maneuver,” Looney said of the latest broadside in the ongoing battle over SB 414.

Previous coverage of this issue:

• Law Profs Dispute Yale’s Tax Arguments
• Yale Threatens To Evict Symphony
• Clergy Back Bill To Clarify Special Yale Tax Exemption
• Yale Fights Back; Lemar Rips ​“Scare Tactics”