N.Y.U., Columbia Make A Mint on Real Estate

050106 article schuerman N.Y.U., Columbia Make  A Mint on Real EstateAbout once a year, New York University president John Sexton offers himself up like a martyr to a crowd of sneering, menacing Greenwich Village residents. These so-called town meetings follow a standard format: the Villagers ask him whether N.Y.U. plans to buy this or that property or, if it has already, what it plans to do there. And the shaggy-haired Mr. Sexton responds with some variation of: “We don’t know.”

But build something they will—and have. An undergraduate dorm went up where Palladium dance-club customers used to groove; a law-school building took over the house where Edgar Allan Poe used to brood. Its campus, once confined to Washington Square, now includes more than 100 buildings, extending from Union Square south all the way to Water Street in the Financial District. It rents classroom space as far north as 42nd Street.

The value of N.Y.U.’s property has almost tripled since 1992. It is now worth half a billion dollars, according to a study to be released April 26 by City Project, a nonprofit budget-watchdog group.

Columbia University is even richer. Its holdings have grown more than four times over the same period, to $623.6 million. This number excludes the value of banked property it has not yet converted to educational use, including many of the properties within its proposed 18-acre campus in the Manhattanville section of Harlem, which would be used primarily for research facilities.

“Twenty-five years ago, there was a fairly discreet portion of Greenwich Village which you walked about and was N.Y.U.,” said Andrew Berman, executive director at the Greenwich Village Society for Historic Preservation. “Now there are blocks and blocks of it. We are located in the middle of N.Y.U. as opposed to N.Y.U. being located in the middle of the Village.”

But aside from complaints about the bulk of these buildings or their questionable architectural style, it is hard to begrudge an institution for being too successful, right? After all, Columbia and N.Y.U. apparently believe in the city’s future, and anyone who has spent $1 million on an apartment recently has gotta love that.

The problem comes, according to City Project, when these private institutions buy property and take them off the property-tax rolls, depriving the city of funds to pay the Police Department, the Fire Department, the public schools and universities, and all the other things that are going to keep the value of that $1 million apartment from plummeting into a 1970’s redux. All told, if private education facilities were taxable, the city would be $386 million a year richer, the report finds—pocket change for a city with a $50 billion budget, perhaps, but an amount that’s growing by over 30 percent a year.

“All of these tax exemptions are coming out of the pocket of public institutions,” said Bonnie Brower, the executive director of City Project. “They are not providing a unique service; they are providing a service that government is already paying for with public universities. They don’t even provide education primarily to city residents.”

Private universities, especially N.Y.U. and Columbia, are engaged in “real-estate empire building,” Ms. Brower said.

In comparison, her organization, City Project, is sort of the opposite of these elite institutions: While the universities have beefed up their endowments and gotten all glamorous hiring Harvard professors, this scrappy 22-year-old muckraking organization has seen its funding dry up. The report, “Fatal Subtraction,” provided exclusively to The Observer in advance of its official release, was intended to be the second installment in a series on fiscal drains on the city treasury. But it will be City Project’s last publication ever.

At one point during a telephone interview on the report, Ms. Brower interrupted herself to take a call on the other line. “That was someone who wanted to give a donation so that we could send out more of these reports,” she said delightedly when she switched back.

Much of the tripling and quadrupling in value of these universities’ holdings stems from general property appreciation in New York City, but neither institution denies that it is growing. In N.Y.U.’s case, it has much to do with providing university housing needed to attract a national and international student body—part of a strategy, devised in the 1980’s, to move into the “first rank of universities,” said Lynne Brown, the senior vice president for university relations and public affairs.

“We were not sustainable in the current model,” she said. “There is always a problem with nonprofit institutions that if you are not moving ahead, you will move backwards. We were teetering on the edge of bankruptcy.”

City Project’s Ms. Brower contends that such a strategy of prestige building means that the public is paying for N.Y.U.’s prestige. The same can be said for the growth of faculty housing—a perk that Columbia and N.Y.U. have offered new recruits to counter the high cost of living in New York City, and which accounts for some of the campus growth. It undercuts one of the universities’ strongest claims for why tax breaks are worth it: What’s the point of creating jobs if the people filling them come from Boston, are most likely Red Sox fans, and won’t even pay property taxes on their homes?

N.Y.U.’s Ms. Brown argues that university employees pay $114 million in federal, state and city income taxes, and that new students come to school, graduate, stay in New York and create “whole new industries.”

David Stone, Columbia’s executive vice president for communications, said that the city benefits more from having first-class universities than from having mediocre ones.

“Every person talking about great cities is talking about the knowledge economy,” he told The Observer. “And where is the knowledge economy going to start—where are you going to have it in New York City, being as expensive as it is—except for at universities or other great cultural, scientific, intellectual institutions?”

Still, education jobs in general are not huge generators of city tax revenue, in part because of the tax exemptions. The city’s Department of Finance reports that the average education worker—which includes public-school teachers as well as university administrators—contributed $2,451 in city income, sales and property taxes, which is 35th out of 46 different job categories. Jobs in clothing and accessory stores, by comparison, contributed an average of $3,450.

Ms. Brown said that it’s unfair to set off in a double-ledger column, calling universities “one of the most important niches in one of the most stable and robust sectors of the economy.”

And yet if universities don’t pay taxes, someone else will have to. Combine the education tax breaks with all of those that for-profit businesses—the Yankees, the Mets and Goldman Sachs—have lately received for new real-estate projects, and pretty soon no one will be paying taxes at all except the poor schnooks who work at those places and go to their games.

Indeed, the City Project report found that only 42 percent of New York City’s real estate is taxed at the full amount, accounting for a loss of $7.3 billion a year.

Private universities, like nonprofit institutions, enjoy property-tax breaks throughout the country, generally conferred by state laws, even though it is the locality that must carry the burden. But in some places, elite universities at least make a token contribution to offset the wear and tear they cause on city streets, parks, public elementary schools and the like. Princeton pays $2 million, which is about what it estimates its faculty, staff and graduate-student housing is worth, and when it takes property off tax rolls entirely for educational purposes, it phases out tax payments gradually. Harvard pays $4.2 million.

The state government in Connecticut actually steps in and makes payments in lieu of taxes (also known as PILOT’s) to host municipalities, so that New Haven received $30.2 million this year, plus another $4.2 million chipped in by Yale.

If Columbia and N.Y.U. were to pay taxes just on faculty and student apartments (excluding dorms), their payments would be $16 million and $8.7 million.

Ms. Brown demurred when asked about PILOT’s, saying that these other cities “are in different positions and situations.” But any payments that N.Y.U. would have to make, she said, would create the pressure to raise tuition, which would keep out poorer students.

“If you are talking about a major university in a much smaller borough or township and you are talking about a major university in New York City, that’s like comparing a little kumquat to a grapefruit,” Columbia’s Mr. Stone said. “The Princeton endowment per capita is so much larger than any other university in the country that it can’t be compared.

“You are talking about a university that has no hospital or public-health facilities. It’s a different scale of institution.”

Hmmm—so when talking about all the good impacts, Columbia and N.Y.U. are large enough to save New York from mediocrity; but when talking about the negatives, these universities are too small to damage the tax base?

Modest changes to New York State’s tax exemptions have been sought before, according to City Project’s Ms. Brower. A commission created by then-Governor Mario Cuomo—which included none other Martha Stark, now Mayor Bloomberg’s finance commissioner, and Linda Gibbs, a deputy mayor—admonished municipalities to view tax exemptions as a form of spending.

In 1991 and ’92, the State Assembly considered a bill that would have excluded exemptions for faculty housing and “social relations.” The State Senate considered a similar bill two years ago. Neither came to a vote. Mark Hansen, spokesman for Senate Majority Leader Joseph Bruno, told The Observer that the idea for some tax reform is still out there, but that it is “very complicated.”

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