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Princeton and Princeton Face Off over Taxes


Town-gown conflicts grow as local tax revenues shrink

Princeton University, the fourth-richest college in the U.S., paid more than $10 million last year to its prosperous New Jersey community. Municipal officials and residents say the college, with a $12.6 billion endowment, could do a lot more. The university owns 43 percent of the borough's land by value and 13 percent of adjoining Princeton Township's and would pay at least $28 million more in taxes if none of its properties were exempt, says Princeton Borough Councilman Kevin Wilkes. "The town budget is strapped," says borough resident Peter R. Kann, former chairman and chief executive officer of Dow Jones and the co-chair of Princeton Future, a civic organization. The university "give[s] the appearance of being wonderful donors to the town, but compared with what they would be giving the town if they were paying property taxes, it's really trifling."

It's the latest round in the town-gown face-off, as municipalities from Pittsburgh to Boston turn to local universities, whose land holdings are mostly tax-exempt, to close budget gaps. Those institutions say they are pressed for cash after record endowment declines. Princeton's endowment was $16.3 billion on June 30, 2008; a year later it had fallen by $3.74 billion after its investments lost 24 percent. To the locals, even the post-decline endowment is a handsome sum. "Is the university some type of old-fashioned institution full of scholarly gentlemen with modest salaries and a devotion to education?" asks Wilkes, a 1983 Princeton graduate. "Or is it a hedge fund with $16 billion, promoting an educational arm on the side?"

Princeton Borough, nestled within the 17-square-mile Princeton Township, has cut its budget by dismissing two police officers and leaving two positions unfilled. Garbage pickups have been cut back to one a week from two. Princeton Township reduced unionized public works employees to a 35-hour week from June through August. The school board, which oversees schools in both the borough and the township, whacked more than $3 million from its 2010-2011 budget and cut 24 teaching positions.

Property taxes will rise next year for some in Princeton. Leighton Newlin, 58, says he expects to pay an additional $2,000 to $3,000 in taxes on his home in the historically African-American Witherspoon neighborhood of the township. "It would be a hardship on me," he says. "The university has done some things for the community, but it needs to pay its fair share of taxes." Adds Sue Nemeth, a Princeton Township committee member: "The intangible benefits the university offers are lovely, but we can't pave the streets with them."

The university is already the largest taxpayer in Princeton Borough and Princeton Township, says Robert K. Durkee, the university's vice-president and secretary. It paid $8.2 million last year in property taxes and $1.6 million in sewer fees. It also voluntarily paid $1.2 million to the borough in lieu of other taxes. The university employs about 5,300 people and helps generate more than $1 billion in annual economic activity, says a 2008 report by Appleseed, a New York-based consulting firm. For fiscal year 2010 and 2011, Princeton has slashed a total of $170 million from its operating budget, delayed some renovations and new construction, and eliminated 43 positions. "This is not a good time to be asking the university to increase contributions," Durkee says.

Nemeth says other wealthy Ivies have been more generous. 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. Yale University, which has the second- largest college endowment in the U.S., increased payments in lieu of taxes to New Haven to more than $7.5 million in 2009 from $5 million. Tim McNulty, owner of Green Design, which sells eco-friendly products on Witherspoon Street a block from the Princeton campus, says it may be time for the university to do more. "If Harvard and Yale's contributions are higher, why not bring Princeton into line?"

The bottom line: As local governments raise property taxes to run basic services, they want endowed universities to contribute more.

Herbst is a reporter for BusinessWeek.

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