LPE Blog on Universities’ Exploitation of Their Tax-Exempt Status

Over on the Law & Political Economy Blog, Davarian L. Baldwin has a new post up about how universities exploit the tax-exempt status of their land.  It’s a fascinating topic and it revisits topics that he explored in his book In the Shadow of the Ivory Tower.

The post highlights the fact that universities are major economic forces in their communities, and they don’t always use their market power for the common good.  Professor Baldwin begins the post with a useful example of how Duke University vetoed a light-rail project that it had originally endorsed, prioritizing high-tech research facilities over the needs of the workers who cook, clean, and serve food in campus facilities.  Duke claimed that vibrations from the rail would interfere with scientific research, but that seems a rather lame excuse for terminating a project that would have made Duke’s campus more accessible to low-income workers.

However, the main focus of the post is how universities exploit their tax-exempt status to extract excess profit out of land deals.  They take over properties, gentrify neighborhoods, and then build luxury dorm buildings in the place of affordable housing. They allow their property to be used by private corporations, such as Lily Pharmaceuticals (Princeton) and All-State Insurance (Arizona State).  The corporations get cheap graduate student workers as well as reduced leasing costs, as the price is discounted to account for the landlord’s tax-exempt status.  

Professor Baldwin details various attempts to hold universities accountable, some of which have resulted in large payouts to communities that have been harmed by the universities’ rapacious conduct. Some of these projects have uncovered new details about the role of  universities in the displacement of stable communities as part of the urban renewal movement after World War II, and so calls for universities to pay reparations for their exploitation of enslaved people are now supplemented with calls for reparations to the communities they displaced.

I wonder about the path forward.  Professor Baldwin seems focused on the restorative justice component of the problem, but I also would like to hear ideas about how universities can create better models going forward.  Given the collapse of government support for education and high tuition costs, small colleges especially may have no choice but to exploit their tax exempt status to seek income streams that reduce their reliance on tuition. 

Does the university want to strike a deal with Lily? Why not demand co-ownership of patents of innovations created on university property?  Why not further demand that graduate students who have a role in such innovations be appropriately compensated?  I don’t know how to make a silk purse out of the sow’s ear of allowing All-State to build a regional headquarters on tax-exempt property.  But I can imagine universities working with faculty and alumni to invest in neighborhood development, getting a return on their investments while also benefitting the communities of which they are a part. 

Universities should become a model for responsible, sustainable, economic development.  They have the resources, and they have the expertise, if they tap into their captive talent pool and their alumni.  Perhaps the sequel to Professor Baldwin’s book can be not only about righting past wrongs but about mapping a path forward in which universities transition away from state funding to financial independence through cooperative, community building endeavor.