In early December, bills were introduced in the New York State Assembly and Senate that propose the repeal of property tax exemptions for private universities. Under the potential new law, universities with property tax obligations exceeding one hundred million dollars would be prime targets. The legislation is flexible, however, and would permit adjustments or complete repeals of these exemptions for other institutions as well.
At first glance, such a proposal seems reasonable. New York University and Columbia University—those primarily affected—possess substantial endowments amounting to $5.9 billion and $13.64 billion respectively. Additionally, each university sees annual property tax savings exceeding $145 million. However, other overarching reforms are required, as the proposed property tax bills may result in tuition hikes to compensate for the additional expenses.
Hence, a progressive tax solution that ties university endowment taxes to tuition rates has been suggested. This innovative approach would essentially force private universities to effectively manage the cost increases related to property tax reforms, while also curbing the surge in tuition fees. Without such a solution, the costs of these tax bills could inevitably be passed on to students, leading to an increase in tuition fees reminiscent of the knock-on effects of landlords passing on hiked property tax rates to their tenants in the form of increased rent.
Increased costs could undoubtedly deter prospective students from lower-income backgrounds—already a seemingly underrepresented demographic within universities—thereby reshaping the demographic composition of university campuses. This could well impact diversity, equity, and inclusion endeavours, particularly following the recent Supreme Court ruling curtailing the use of affirmative action in university admissions.
To counter these potential issues, a two-pronged policy reform has been proposed. Mirroring a policy introduced on a federal level by the Tax Cuts and Jobs Act of 2017, the idea of a 1.4% tax on net investment income for universities with an endowment exceeding $500,000 per student is being examined. This strategy, combined with a repeal of property tax exemptions, could help offset the pressure to increase tuition rates in the face of higher property tax liabilities.
The proposed tax reforms, should they go ahead, would use the accrued revenue to fund New York City’s public university system. Specified planning and careful setting of the tuition threshold and corresponding endowment tax rates is essential to ensure success. The ultimate goal is to deter universities from raising tuition fees, while promoting reorganisation and funding through endowments to meet the financial requirements.
Introducing such reforms serve an admirable purpose. Nonetheless, considerations need to be made so as not to inadvertently disadvantage private university students. The reforms need to ensure that a balance is struck between supporting public universities and not placing undue financial strain on students of private universities.
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