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Exempt from paying property taxes, Duke aims to contribute to Durham elsewhere

"Payment in lieu of taxes" programs are gaining steam across the country, but not in Durham

Universities not paying property taxes on their land have sparked discussion lately, but Duke continues to contribute to Durham through various other ways. 

The Washington D.C. Tax Revision Commission recently considered 63 proposals requiring not-for-profit universities—exempt from property taxes by law—in the District of Columbia to issue some form of payment instead. This came after D.C. universities avoided approximately $111 million in property taxes in 2015—including American University, Georgetown University, George Washington University and Howard University. 

Although those proposals failed, at least 218 municipalities in 28 states currently collect payments in lieu of taxes from nonprofit organizations. Colleges and universities contribute approximately 68 percent of these payments.

Duke does not pay property taxes to Durham County, and unlike those 218 municipalities in other states, North Carolina does not assess any “payment in lieu of taxes” programs on Duke. That being said, the University has not shied away from giving back to Durham, said Michael Schoenfeld, vice president for public affairs and government relations. 

Schoenfeld said the University leases significant amounts of commercial office space in Durham for non-profit purposes such as education and health care. For example, the Innovation and Entrepreneurship initiative leases space at the Imperial Building downtown.

Although not required to do so by law, the University voluntarily keeps these properties on the tax rolls, Schoenfeld said. 

These properties, plus contributions to the Durham County fire service, the Bull City Connector and other civic projects, sum up to about $8 million a year, Schoenfeld said. Duke funded approximately $7 million for the construction of Durham Performing Arts Center, he noted. 

An alternative to taxes

“Payment in lieu of taxes” programs are a growing trend across the country, said Richard Schmalbeck, Simpson Thacher & Bartlett professor of law. Several host cities—Durham not included—have payment agreements that universities must abide by to maintain exemptions from state and local property taxes, he explained. 

For example, Illinois and Pennsylvania have enacted legislation calling for similar negotiations with universities, hospitals and other tax-exempt nonprofits they host.

Although Duke is currently not subject to these payment agreements, it is not impossible that North Carolina could implement one in the future, Schmalbeck said.

Duke and other private institutions with large endowments are the most likely targets for states looking to create new “payment in lieu of taxes” programs. Public institutions would have to rely almost exclusively on increasing tuition prices, which state legislatures are unlikely to recommend. 

Due to the voluntary contributions it already makes, Schmalbeck said, Duke could argue against being made to participate in a “payment in lieu of taxes” policy in North Carolina. Such a policy could be portrayed as counterproductive, he explained. 

Steve Schewel—a Durham councilman and visiting assistant professor in the Sanford School of Public Policy—wrote in an email he did not have enough information to comment on whether he felt Duke was contributing its fair share. He did note, however, that “Duke does a lot of this now” and that universities do have a responsibility to their communities. 

“Since the universities are not paying property tax which supports essential city services, they should be making substantial payments in lieu of taxes to compensate cities for the services they use including police protection, fire protection and more,” Schewel wrote. 

A better city

Duke’s ongoing efforts to contribute to Durham could be motivated by a desire to make Durham seem a more attractive place to live, Schmalbeck said. 

The impact of Duke’s participation in several small, civic projects over the last few decades has changed how Schmalbeck himself advertises Duke to incoming law school students and faculty. Durham has changed from a subject he avoided to an integral component of Admitted Students Weekend, he said. 

Schoenfeld echoed the importance of attracting students and faculty from around the country to Durham—noting the indirect contribution Duke makes when students and faculty find new homes and start new businesses. 

“When you look at the impact of a University on its community, you can start with dollars,” Schoenfeld said. “But what value do you put on having one of the top hospitals in the world, a billion dollars of funded research annually or Nobel Prize-winning faculty to bring international awareness to today’s most pressing issues?”


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