Testimony: S.1308, H.2642, H.2680, May 28, 2013

May 28, 2013


Opposing S.1308, H.2642, & H. 2680, which would eliminate property tax exemptions for colleges

Joint Committee on Revenue

State House – Room B-1


Opposition to S.1308, H.2642, and H.2680



My name is Robert J. McCarron, and I am Vice President and General Counsel of the Association of Independent Colleges and Universities in Massachusetts [AICUM]. AICUM is comprised of 60 colleges and universities located throughout the Commonwealth – institutions which educate 275,000 students each year and employ more than 84,000 people.


Our member colleges include large nationally renowned research universities, smaller, highly regarded liberal arts colleges, religiously affiliated institutions, and colleges with special missions focused on business or music or allied health services.


AICUM would like to express in the strongest terms possible our opposition to Senate Bill No. 1308, House Bill No. 2642, and House Bill No. 2680. All of these bills seek to eliminate the property tax exemption currently granted to all charitable organizations under §5 of Chapter 59 of the Massachusetts General Laws and instead impose a tax equal to 25% of the commercial rate. The bills seek to undue a statutory tax exemption that has been in place since 1836 – indeed since as early as 1650 the state has recognized that the value and public benefits accruing to its citizens from institutions of higher education justifies their exemption from property taxes.


Although there are multiple reasons for the tax-exemption for private, non-profit colleges, the overall public benefit derived from the educational services these institutions provide to our citizens, financed by private dollars, is the leading justification.

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The tax exemption recognizes that the government should not be, and in fact cannot afford to be, the sole provider of such services. As such, all fifty states extend tax-exempt status to qualifying colleges and universities in recognition of their public good.


S.1308, H2642, and H.2680 will not only undue long-standing public policy; they will wreak fiscal chaos on every independent college and university in Massachusetts. The consequences of pursuing such a policy would include: massive job losses; unprecedented reductions in financial aid to Massachusetts students; the elimination of critical programs and research; and, even the closure of a few tuition-dependent institutions, which in turn would place an increased financial burden on the Commonwealth to publicly finance the higher education of students whose education is currently paid for privately.


In sum, these bills would completely undermine the financial foundation of one of the most critical sectors of the Massachusetts economy. And all of this would happen at the very moment when the innovation, research capabilities, educational expertise and flexibility, and purchasing power of our colleges and universities are needed most to help drive economic recovery in Massachusetts.


The private colleges and universities fully understand the fiscal pressures that the Commonwealth and its cities and towns are facing today because these institutions confront similar economic realities. But this approach is not a solution. In fact, it is absolutely the wrong answer, and it ignores the incredible economic and competitive contributions made each day to this Commonwealth by independent colleges and universities, contributions that already include tax payments, PILOTs, scholarships, in-kind services, cultural contributions, community and economic development programs etc. It also ignores the fact that our colleges and universities weathered the recent economic crisis while still maintaining focus on its core mission of educating the highly skilled workforce of tomorrow and preserving as many jobs as possible.


What many people fail to realize is the fact that several independent colleges and universities throughout the Commonwealth do pay property taxes on their non-exempt property. Boston University pays Boston almost as much in outright real estate taxes as it does in its very generous voluntary payments in lieu of taxes. MIT is the largest taxpayer in Cambridge; Smith is the largest taxpayer in Northampton, Williams in Williamstown, etc. The general public does not realize there are already limitations to our tax-exempt status.


Any legislation that would impose such a significant economic burden on independent colleges and universities in Massachusetts must be examined against all of the relevant facts. These facts show that:


1. Massachusetts independent colleges have an annual economic impact greater than $30 billion, including, $7 billion in payroll and benefits and more than $2 billion in federal and sponsored research funding;


2. Massachusetts independent colleges employ more than 84,000 full-time and part-time employees—the second highest number in the United States.


3. The independent colleges and universities in Massachusetts awarded more than $560 million in need-based financial aid to Massachusetts residents last year.

4. Massachusetts independent colleges graduate nearly 84% of the minority students attending 4-year colleges in the Commonwealth.

5. Massachusetts independent colleges are the 2nd largest importer of freshmen students in the United States – a critical infusion of talent for our economy.

6. Massachusetts is the only state in the nation that educates more college students at independent colleges – over 275,000, 55% of whom are Massachusetts residents – than at public colleges.

7. Independent colleges account for more than 70% of all bachelor degrees and more than 85% of all graduate degrees awarded at all colleges in Massachusetts (63,000 degrees annually).


Utilizing these facts to put the issue of tax-exemption in its proper context clearly illustrates that S.1308, H.2642, and H.2680 ought not to pass. Three reasons further demonstrate this point:


First, the purported rationale for eliminating the property tax exemption for non-profits completely ignores the incredible benefits – financial, educational, cultural, and otherwise – that flow from our college campus to their host communities. As noted above, it is estimated that the independent colleges and universities generate more than $30 billion in economic development each year. But that figure focuses on the big picture. There are countless other examples of private colleges and universities making significant and meaningful investments in local cities and towns.


You only have to look at the involvement of Boston University, Harvard University, MIT and Northeastern in partnering with UMass, Cisco and EMC to build the Green High Performance Computing Center in Holyoke; the work done by Clark University, Holy Cross, WPI, Assumption College and the Massachusetts College of Pharmacy & Health Sciences to revitalize downtown Worcester; the 53-mile fiber optic project throughout the Pioneer Valley privately financed through Five Colleges Inc., and; the $10m commitment that five Boston-area colleges and universities pledged to the City of Boston’s school system through the “Step Up” Plan, to see examples of the incredible benefits that accrue to cities and towns throughout the Commonwealth.


Second, S.1308, H.2642, and H.2680 would utterly thwart ongoing efforts to grow the Commonwealth’s economy, including the clean/green energy sector and the life sciences sector. Both the Legislature and Governor Patrick have recognized that the coordinated efforts of our public and private research universities can help spur new research, strengthen investments, create new jobs, and produce new therapies for a better quality of life. Eliminating the tax exemption currently enjoyed by independent colleges and universities will serve only to undermine these vital efforts.


If S.1308, H.2642, and H.2680 were to become law, money that our colleges and universities now invest in financial aid, scientific research, capital improvements, STEM-related teaching, and other crucial measures, would be diverted to the payment of property taxes. Who will step in to fill this void? Where will the state find other private institutions to invest their own funds for such public benefits? Presently Massachusetts spends just under 4% of its state budget on higher education; North Carolina spends 11% – nearly $3 billion more annually. The presence of our private colleges and universities allows Massachusetts to avoid multi-billion dollars of expenditures for higher education – a tremendous savings to the taxpayer which could be jeopardized if this bill passed.


U.S Department of Education data show that independent colleges and universities in Massachusetts produce between 75% and 80% of the STEM graduates, including an even higher percentage of women and minority STEM graduates. In a time when Massachusetts is fighting on both national and global fronts to remain competitive, legislation that reduces the resources that these schools can invest in STEM programs and graduates would dramatically – and unnecessarily – undermine their ability to attract STEM students and drive competitiveness.


Massachusetts private colleges and universities are the second largest importer of freshmen students in the United States, drawing young people into the region and creating a reliable source of highly educated workers who are crucial to sustaining the state’s knowledge-based economy. The independent sector’s ability to offset the exodus of young professionals from Massachusetts will be greatly diminished by S.1308, H.2642, and H.2680. These bills will put our private colleges and universities at a distinct competitive disadvantage when it comes to attracting and retaining students.


Third, S.1308, H.2642, and H.2680 would limit access to higher education for thousands of Massachusetts residents, particularly minority students and first-generation students. Last year, independent colleges and universities in Massachusetts awarded more than $562M in need-based grants and scholarships to students from Massachusetts. That is an incredible figure, and this investment helps families and students from every legislative district in the state start their college career or stay in school. Money that is now invested in financial aid would instead be spent on property taxes. The ones who will be hurt in this exchange are needy Massachusetts students, and their families, who prefer to stay here to go to college but need some financial help to do so.


Several years ago the City of Worcester asked the Worcester Regional Research Bureau to study the merits and viability of requesting payments from nonprofit institutions which are exempt from property taxes under MGL c. 59, §5. The conclusions reached by the Bureau are telling, and applicable to S1308, H.2642, and H.2680. The Bureau found that while difficult fiscal times push elected officials to consider new revenue streams, cities and towns are better served by increasing the tax base through economic development projects in collaboration with institutions of higher learning, rather than attempting to tax nonprofits. The report went on to say that colleges and universities provide jobs and economic vitality to Worcester and the surrounding region in addition to their cultural and educational contributions – so that colleges and universities should be recognized as assets that should not be taxed, but should instead become part of a strategic plan to boost economic development. These findings apply statewide, and the independent colleges and universities stand ready to work with the state to drive economic development.


Thank you very much for the opportunity to offer some comments on these bills. I urge you to give them an “ought not to pass”.