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When Universities Swallow Cities

In March 2016, as New Haven struggled to balance its shrinking budget, Mayor Toni Harp joined alders and local unions calling for a State Senate bill to help fine-tune Yale University’s property-tax-exempt status. Universities and their medical centers are registered with the Internal Revenue Service as 501(c)(3) charitable nonprofit groups. Because of the public services that higher-education institutions provide to surrounding communities, their property holdings are exempt from taxation in all 50 states. The Connecticut bill, SB 414, would allow the state to tax university properties that generate $6,000 or more in annual income. Another bill, SB 413, which died in committee, sought to tax unspent returns on Yale’s endowment.

Over the past 40 years, Yale had become the single largest commercial power in New Haven, as part of a national urban economy largely driven by universities and hospitals. Harp celebrated Yale’s central role “in the city’s transformation,” but she warned that while cities rely “more and more on eds and meds,” New Haven leaders must “be clear as a policy matter about the fiscal impact of this transition.” New Haven felt the need to adjust its relationship with Yale University, which had gone from an influential urban stakeholder to a tax-exempt municipal powerhouse.