With a new Ann Arbor mayor and University president set to take office within the next year, discussion will likely be sparked by a major facet of the University and Ann Arbor: land.
As the University buys up properties and takes them off the tax rolls, some city officials argue that the University should offset some of the property taxes lost due to the school’s public status.
While the adoption of a PILOT — or payment in lieu of taxes program — never gained substantial traction, with the appointment of a new University president and the approaching election of a new city mayor, discussion of such a program might not be too far off.
With the adoption of a PILOT program, the University would siphon funds to the city to make up for lost tax revenue.
Jim Kosteva, the University’s director of community relations, cautioned against the measure — one that has yet to be formally proposed by any of the members of the Ann Arbor City Council.
“Students do not give the University of Michigan their tuition dollars and taxpayers from across the state do not give the University of Michigan their tax dollars just so we can turn that money over to the city of Ann Arbor so that they can fix their pot holes,” Kosteva said.
Kosteva also said for students living off campus — a large proportion of the student population — giving part of their tuition to the city while they are already paying their own property taxes through rent payments seems unfair.
Two other concerns surrounding the implementation of such a program are that its revenue potential can be limited and unreliable, and that it could force the University to raise tuition, cut services or reduce employment to compensate for the potentially millions of dollars this program would drain from the University.
Councilmember Christopher Taylor (D–Ward 3) said he supports a PILOT program in Ann Arbor and thinks it would be in the best interest of students and Ann Arbor citizens alike.
“I believe that the city should do all it can to preserve its tax base,” Taylor said. “As to a PILOT, I would love to see the University provide a payment in lieu of taxes to the city of Ann Arbor, other universities throughout the country do so, and it strikes me as appropriate and reasonable.”
Councilmember Stephen Kunselman (D–Ward 3) said the University’s expansion will be the key issue in city-University relations over the next few years. He said he is looking forward to new efforts of collaboration between the city and the University as well as a serious discussion of the PILOT program or other potential solutions for the ever-expanding University.
“The problem with that whole effort is that the state institution is for the public good — but what are we really dealing with?” Kunselman said. “We’re dealing with U of M athletics. How is U of M athletics a public good? It’s part of the University of Michigan but it is also a huge enterprise. That’s where I think it starts making it a different issue. I think that’s when it certainly needs to be discussed.”
However, some council members doubt the possibility of a PILOT program ever being instituted.
City Councilmember Sally Hart Petersen (D–Ward 2) said the program is not practical.
“In order for the University and the city to work collaboratively, we need to begin working more outside of the box, while others argue that not wanting to act in a way that — to some city council members — is responsible demonstrates a lack of concern for the University,” Petersen said. “However, both city and University officials have said that they share similar interests in the city.”
Michigan State University has an agreement with the city of East Lansing that does not include any form of reimbursement of taxes, and at this time a PILOT program is not under consideration.
However, Yale University recently increased its PILOT payments to the city of New Haven from $1.2 million to $7.5 million.
A study by the Lincoln Institute of Land Policy found that though such programs can provide much-needed revenue for cities and towns, the downsides are also numerous.
“PILOTs can provide crucial revenue for certain municipalities, and are one way to make nonprofits pay for the public services they consume,” the report stated. “However, PILOTs are often haphazard, secretive, and calculated in an ad hoc manner that results in widely varying payments among similar nonprofits. In addition, a municipality’s attempt to collect PILOTs can prompt a battle with nonprofits and lead to years of contentious, costly and unproductive litigation.”