NYU real estate was worth approx 15 billion dollars in 2018. These include classrooms, offices, and residential spaces in the prime boroughs of Manhattan and Brooklyn. However, the university does not pay property tax on these buildings.
NYU is not alone. Columbia University, Fordham University, and Cornell University also pay no property taxes. Educational nonprofits, including NYU, are, believe it or not, exempt from property taxes in New York.
“There’s a certain dollar amount that the city doesn’t collect in property tax revenue, and that’s a significant amount, even an understatement,” said Elizabeth Brown, director of communications for the Independent Budget Office.
It is difficult to determine exactly how much money it is, but public data shows us the estimate. For the current fiscal year, New York’s Independent Budget Office estimates the amount at $141 million. During this time period, which runs from July of this year to June 2023, 142 NYU properties are completely exempt from property taxes.
Those hypothetical taxes are likely understated, according to Yaw Owusu-Ansah, an economist at the Independent Budget Office who specializes in New York’s property tax policy. Because NYU is tax-exempt, there is no reason for the city to make a significant effort to accurately assess the property’s value.
In New York and many other states, property used for certain non-commercial purposes is exempt from property tax. However, it is not enough that the building belongs to a non-profit institution. To qualify for the tax exemption, the building must be used for the primary function of a nonprofit organization—in New York University’s case, for education.
Without that requirement, universities would be incentivized to buy conventional businesses and housing to operate the property tax-free, said Daniel Shavira, a leading tax policy scholar and law professor at New York University. The state wants to avoid such an outcome.
Under state law, uses eligible for the exemption include student housing, faculty apartments, administrative offices and classrooms. Plots of land intended for development or unfinished construction also meet the intended purpose.
“The tax-exempt laws for nonprofits were designed to recognize the special mission they serve in society and the positive impact they have on the communities they serve,” university spokeswoman Shaunna Keoghan wrote in a statement.
If the state wants to help certain types of institutions—say, universities—tax exemptions can be an effective way to do so.
“Tax spending is a departure from normal rules in favor of a certain activity,” Shavira said.
So the eligibility for tax exemption comes down to what kind of activity we want to encourage. When it comes to how it’s done, policy decisions are made based on the optics of the problem, not just the substance, Shavira said. It seems better to exempt the institution from paying taxes than to cut checks for the same amount.
Owusu-Ansah said the policy allows states like New York to financially support institutions in a stealthy way. Universities are an asset of a city that is difficult to appreciate. This is the idea behind offering them tax breaks.
“The idea is that these institutions make an additional contribution for the services they consume,” said Ana Champeni, a tax policy researcher at the Citizens Budget Commission. She added that one of New York’s greatest assets is the number of educated young people.
Other Northeastern cities with a significant number of universities have agreements with tax-exempt institutions for payment in lieu of taxes or the PILOT program.
Boston had schools, hospitals and cultural institutions asked to make PILOT payments since 2012 to help offset the financial burden of their release (although universities like Harvard often do not pay the recommended amount). in providence, Brown University pays about $4 million annually in lieu of about $47 million in property taxes.
Included is Republican mayoral candidate Curtis Sliva steep PILOT payments it would have effectively revoked the tax exemption from his failed 2021 campaign for mayor of New York. Socialist writers love Paul Prescod and Matthew Thomas also argued on various grounds that universities should lose their tax-exempt status.
New York’s corporate tax breaks have also come under fire in recent years. In 2018, New York and New York State offered Amazon $1.2 billion in tax incentives to build its headquarters in Long Island City, Queens. These proposed costs were one reason the deal was unpopular ultimate failure. Google refused similar tax benefits for its new Manhattan offices in 2021.
Brown noted that the Independent Budget Office does not make policy recommendations. However, she believes that political decisions such as tax exemptions deserve periodic reassessment.
“Thinking about whether the incentives are working as intended, whether they’re effective, is very important,” Brown said.
Universities are expected to return value to their communities in exchange for tax incentives; Keoghan pointed to scholarships, jobs, research, community service and local business spending as examples of the benefits NYU provides. She added that NYU pays nearly $15 million annually in property taxes from non-exempt facilities and more than $100 million annually in payroll and income taxes.
However, NYU’s increase raises questions about whether the university is holding up its end of the bargain when it comes to property tax exemptions.
“As their real estate holdings grew and the value of the exemption increased, there was increasing concern that the foregone tax revenue was greater than the value of the benefit,” Champeni said.
While it’s possible to estimate the amount of tax revenue lost as a result of this policy, it’s much harder to quantify the benefits the city creates by exempting universities from property taxes. Without millions in dorm tax breaks, New York University, for example, could try to make up the difference by raising rates for students living in university housing. Paying auditorium taxes could cause NYU to raise tuition.
At the same time, universities like New York University benefit from essential city services—garbage collection, police, public transportation, and road maintenance—without counting taxes into their funding.
“They’re still using tax-funded city services, but they’re not being asked to pay a prorated share or pay their share based on the value of their property,” Champeni said.
For example, when firefighters respond to a call at a NYU building, the university consumes city resources that they do not pay for through taxes.
“Tax policy affects the success of the institutions that affect you because taxes provide funding for virtually every government service,” Shavira said.
For universities, tax exemption is its own form of funding.
Update, 12:42 p.m.: This story has been updated to include a statement from an NYU spokesperson.
