Providence to College: Pay Up

By JENNIFER LEVITZ

PROVIDENCE, R.I.—As a nonprofit, Brown University has long enjoyed broad property-tax relief on its regal cluster of brick buildings in the state capital's best neighborhood.

Now, Providence says it's broke, and City Hall is pointing up College Hill at the Ivy League university, the city's largest landowner. Mayor Angel Taveras, a Democrat who took office a year ago, has already raised taxes and fees on local residents and businesses, renegotiated labor contracts, and closed four public schools seeking to close a budget gap that amounts to $22.5 million for the fiscal year ending in June.

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Brown students protested Friday for the university to step up payments to financially strapped Providence.

But at a recent news conference, Mr. Taveras accused the city's biggest tax-exempt nonprofits—singling out Brown—of a "failure to sacrifice." He has been pressing the university to pay millions more in voluntary payments in lieu of taxes.

Brown now pays the city a total of about $4 million a year, which is made up of $2.5 million is voluntary payments and $1.6 million in fees on land it leases or owns but doesn't use for educational purposes. The city wants Brown to pay an additional $40 million over the next decade, which would effectively double the university's payments to Providence.

The university, which has an endowment of $2.5 billion, has said it is willing to pay more but it is sparring with Providence over how much. One of the city's largest nonprofits, it owns 200 buildings valued at more than $1 billion in total, which if taxed would bring in $38 million annually, according to the city.

After taking a hit, losing nearly a quarter of its value between 2008 and 2009, Brown's endowment has been making its way its back and posted a return of 18.5% for fiscal year 2011, according to the university.

WSJ's Michael Corkery visits Mean Street to take a look at Providence, Rhode Island, a city on the verge of bankruptcy hoping to hit up Brown University for more tax payments. Photo: Getty Images.

Mr. Taveras, who is also fighting to suspend annual cost-of-living increases for retirees, says he will go to the state legislature if talks with Brown don't work out.

Rhode Island's governor has stepped in to help negotiate. The Corporation of Brown University, the board that oversees the school and includes Bank of America Corp. Chief Executive Brian Moynihan, met this weekend to "determine the best way we can support Providence without undermining our own capacity to fulfill our mission," though no decision was made, said Brown spokeswoman Marisa Quinn.

One reason that talks are still continuing is that Brown wants to make sure any additional payments are tied to an area, such as education, that is aligned with the university's mission, Ms. Quinn said.

Town-gown conflicts are nothing new, but confrontations between local officials and private campuses over property taxes are ticking up amid the local municipal fiscal crisis, particularly in the northeast, which is packed with college towns, said Daphne Kenyon, a visiting fellow at the Lincoln Institute of Land Policy in Cambridge, Mass. Property taxes are the linchpin for most local finances, she said, but "there is a strong antitax climate. No politician wants to raise taxes ... so more and more asking, 'If we can't raise taxes, what can we do?'"

A "significant minority" of colleges and universities make voluntary payments in lieu of taxes, Ms. Kenyon said. Six of the eight Ivies do; Yale University pays more than $8 million in lieu of taxes to the city of New Haven, Conn., along with paying $4 million on some nonexempt property, according to New Haven.

The pressure is on for others to do more. Princeton University boosted its local voluntary payments and contributed $300,000 toward a new firehouse late last year after a debate with the New Jersey community over how much it should pay in place of property taxes. Boston said in January that voluntary payments from nonprofits, including Harvard University, are up a total of 24% this year after a city program launched last year to lobby the nonprofits to pay more—although 17, including several colleges, still paid nothing.

Cities are hitting up hospitals and other nonprofits for voluntary payments, too, but wealthy colleges and universities are prime targets because they often serve students from all over the world, raising perennial questions about how much they give back to the local communities compared to what they get in services, Ms. Kenyon said. Higher-education institutions argue that they bring jobs, and add cultural and social value, making communities more livable.

Cities say campuses cost a lot in services. Once a manufacturing hub, Providence now has hospitals and colleges as its economic engines, and about half of assessed land is tax-exempt, the city said. Providence spends more than $36 million annually providing public services to nonprofits that collectively own $3 billion in tax-exempt property.

Write to Jennifer Levitz at jennifer.levitz@wsj.com

Corrections & Amplifications
The last name of Providence Mayor Angel Taveras was misspelled as Taveres in one reference in an earlier version of this article.