Harvard’s voluntary tax spurs ailing Providence to press Brown

BROWN University, the Ivy League school whose endowment grew to $2.5 billion last year, may boost voluntary tax payments to Providence after the city said it was nearing bankruptcy.
Posted 2/8/12

NEW YORK - Brown University, the Ivy League school whose endowment grew to $2.5 billion last year, may boost voluntary tax payments to Providence after the city said it was nearing bankruptcy.

Gov. Lincoln D. Chafee last week intervened to restart talks over the university’s so-called payments in lieu of taxes after Mayor Angel Taveras, 41, said Providence was about to run out of cash. While Brown is tax exempt, it has been paying more than $1 million a year since 2003 to help compensate for public services it uses. 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 Tuesday by email.

Harvard, the world’s richest university, makes voluntary payments to local governments and also pays some property taxes, according to Lauren Marshall, a spokeswoman. Last year, it paid a combined $21.3 million to Boston and Cambridge, Mass., where it’s based, as well as to neighboring Watertown, she said.

Since charities are exempt from most state taxes, lawmakers from Palo Alto, California, to Pittsburgh have 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.

“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.”

Difficult Straits

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 public schools, renegotiated union contracts, and lifted 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 and called on nonprofits to contribute more money 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.

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