Bloomberg News

Harvard’s Voluntary Payments Spur Providence to Press Brown

February 14, 2012

(Updates with university faculty vote in fifth paragraph.)

Feb. 8 (Bloomberg) -- Brown University, the Ivy League school whose endowment grew to $2.5 billion last year, may boost voluntary tax payments to Providence, Rhode Island, after the city said it was nearing bankruptcy.

Governor Lincoln Chafee last week intervened to restart talks over the school’s so-called payments in lieu of taxes after Mayor Angel Taveras, 41, said the city was about to run out of cash. While Brown is tax exempt, it has been paying more than $1 million a year since 2003 when the city sought help after a recession. In May, Taveras sought a $5 million increase.

Providence is seeking to emulate Boston, which is on pace to raise collections in lieu of taxes from Harvard University and other institutions by 25 percent to about $19 million this year, city documents show. Mayor Thomas M. Menino is trying to double the number of schools, hospitals and cultural institutions that pay by pressing more than 20 that gave nothing last year.

“The issue is how do we move beyond where we are and do something that is good for the city but not crippling for the university,” Ruth Simmons, Brown’s president, said Jan. 23 in her campus office. “Five million dollars -- that’s at the level of being crippling for the university and it’s completely out of scale with what universities do.”

Talks Continue

Officials are “continuing discussions with the mayor at this time and hope for a constructive and fair solution,” Marisa Quinn, a Brown spokeswoman, said yesterday by e-mail. Brown’s faculty voted yesterday to support the effort by Simmons to reach an agreement with the city, Quinn said.

Since charities are exempt from most taxes, lawmakers from Palo Alto, California, to Pittsburgh turned to alternative levies and fees as colleges, hospitals, and other nonprofits expand, increasing demands for public services. More than 100 communities in 18 states have collected payments in lieu of taxes since 2000, according to a report from the Lincoln Institute of Land Policy, a nonprofit group in Cambridge.

Boston reported collecting $2 million from Harvard last year in voluntary payments. Combined, the university, the world’s richest, spent $21.3 million last year on voluntary payments and property levies in Cambridge, where it’s based, in Boston and in neighboring Watertown, according to Lauren Marshall, a spokeswoman.

Court Rulings

“There are a lot of state Supreme Court decisions that have upheld the exemption” from taxation for nonprofits, said Evelyn Brody, a professor at the Chicago-Kent College of Law. “That’s why the negotiations have shifted to the case-by-case basis for voluntary payments.”

In Rhode Island, municipalities are struggling as the economy trails the national recovery. Central Falls, its smallest city, entered bankruptcy in August after being overwhelmed by pension costs. In East Providence, the state took fiscal control in November following persistent deficits.

Taveras, a Democrat, has closed schools, renegotiated union contracts, and raised property taxes in an attempt to bridge a $110 million gap in Providence’s budget. Last week he said Rhode Island’s capital city is still short of cash and called on nonprofits to contribute more and for the state to give him the authority to suspend cost-of-living increases for retirees, a change adopted for state pensioners in 2011.

Real Difficulties

“The fiscal storm we’re facing is real and it’s still strong,” Taveras, a graduate of Harvard and of Georgetown University’s law school, said last month in an interview.

Tax-exempt organizations such as Brown own more than half the land in Providence, with 41 percent of the assessed value, city figures show. Taveras says the city of 178,000 spends about $36 million a year on services for its largest tax-exempt institutions.

In 2003, Brown and three others -- Rhode Island School of Design, Providence College and Johnson & Wales University -- agreed to contribute at least $48.5 million to Providence in annual installments through 2023, with the city getting $1.9 million this year, including $1.2 million from Brown. The university, as part of the accord, will also make $2.3 million of property-tax payments on buildings it acquired since 2003, plus almost $500,000 on leased properties, Quinn said.

Brown, started in 1764 and one of eight Ivy League schools along with Harvard, owns more than 200 properties in the city, with a value of more than $1 billion, according to the mayor’s office. Most of the holdings are in the historic College Hill section near downtown.

Rising Stakes

Taveras set a goal in his budget of collecting $9 million of the voluntary payments in fiscal 2012, which ends June 30. He met with Simmons in May to ask if Brown would increase its contribution by $5 million. Last month he rejected an offer from the university for $2 million a year for five years to be used for public schools, plus a promise to keep talking about more in connection with downtown development plans.

“I feel that our taxpayers have already borne a huge burden,” Taveras said. “Everyone needs to be part of this. No one is exempt. We’ve tried to be consistent with respect to institutions so everyone sees there is some rhyme or reason for it. We believe that Brown taking the lead can help us with the others.”

David Ortiz, a Taveras spokesman, declined to comment on the status of the negotiations with Brown. He said the city is seeking increased contributions from all four schools that agreed to voluntary payments in 2003 as well as three hospitals.

Turning to Legislature

Taveras said last month that barring a deal, he’ll seek legislative authority to force nonprofit organizations to make payments in lieu of taxes. He also wants the state to increase local aid in recognition of the services the city provides while permitting him to levy property taxes when nonprofits start for- profit ventures. Governments in Connecticut and Massachusetts have that power.

While Rhode Island has reduced local aid, it still gives money to some municipalities to offset the cost of nonprofits, allocating $23.1 million to Providence in August, Ortiz said.

Even with recent endowment gains, Brown is still recovering from steep investment losses in 2009, said Simmons, who became the school’s leader in 2001 and at 66 years old is stepping down this year. The university also deserves credit for proceeding with capital projects and holding down job cuts through the financial crisis, she said.

Economic Engine

The school has more than 8,000 students this year and in 2009 employed almost 4,500 people in Rhode Island, according to its website. Brown was the state’s sixth-largest private employer that year, with an estimated economic output of $660 million. The university said it spent $65 million with local vendors for goods and services in 2009, supporting 690 jobs.

The Corporation of Brown University, the 54-member board that oversees the school and includes Bank of America Corp. Chief Executive Officer Brian Moynihan, meets later this week. Quinn, the spokeswoman, said yesterday there is no expectation the group will approve any additional payments because there is no proposal yet for them to consider.

“It was never our intention to not keep moving toward a solution,” Simmons said last month. “We really have to think about what’s reasonable.”

--With assistance from Andrew Theen in New York. Editors: Ted Bunker, Pete Young.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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