The economic turmoil following the pandemic has reached the University of Delaware and the surrounding city of Newark. And it brings college towns to the final stage of a long debate over the financial contours of town-gown relationships.
UD President Dennis Assanis said earlier this month that inflated employee health care costs were behind the university's hiring freeze and consideration of additional “draconian measures” to balance the budget. But Newark, home to about 31,000 residents, including 23,613 UD students, faces budget challenges, with a projected $8 million revenue gap in 2025. Newark City Council wants to charge up to $50 per student. A semester tax is levied on universities to offset the shortfall.
Students and administrators oppose the levy, arguing that the university already pumps millions of dollars into Newark's economy each year and that the added tax would burden students. But local politicians say it's time for the university to be exempt from paying property taxes, contributing to the city's rising costs of operating.
“The university is not paying its fair share,” Newark City Council member Corinth Ford said in an email after the council unanimously approved the proposal last week. “We didn’t tax UD students. “We are charging universities a per capita fee to offset the impact of a growing student population on city infrastructure, particularly police and fire services.”
The tax is expected to generate between $2 million and $2.4 million annually. But in order to become law, the proposal must pass the Delaware Legislature, get the governor's signature and then be sent back to the Legislature for a final vote.
Experts say it's an unusual approach to raising revenue for a university.
“I’m a little skeptical that this proposal will pass,” said Adam H. Langley, deputy director of tax policy at the Lincoln Institute of Land Policy, adding that legislative attempts to tax nonprofits are common in other states. He said he was not successful. In part, this is because nonprofits, especially universities, wield powerful lobbying power. “If that were to actually happen, it seems like a reasonable middle ground between raising significant revenue for the city without placing a particularly large burden on the university.”
Council members made it clear that if the state approves the tax, colleges can decide whether to pass it along to students, but “the money to pay for the new tax is going to have to come from somewhere,” Langley said. she said “This could result from increases in tuition fees charged to students or cuts to university spending. “Between these two responses, we suspect higher fees will result in more revenue.”
Property tax hike 'isn't fair'
A much more common approach for municipalities to collect revenue from other tax-exempt nonprofits, such as local colleges or hospitals, is to arrange payments in lieu of taxes, or PILOT.
Nonprofits in at least 28 states, including Delaware, have set up PILOTs with surrounding municipalities, according to a 2012 study by the Lincoln Institute (the most recent data available). And higher education institutions accounted for about two-thirds of the total revenue generated by those contracts.
“The approach of seeking a voluntary PILOT seems more promising for local governments and can be done in a way that does not cause significant harm to nonprofits,” Langley said. “PILOT revenues may not be as reliable as tax revenues, but they are still a valuable source of revenue, even if only marginally.”
Newark and UD have had voluntary PILOT agreements since the 1960s (annual value of $180,000), but that amount has not changed since 2001. The university's enrollment and assets have expanded during that time, and as of this academic year, about 63% of UD students live off campus.
The PILOT would increase to nearly $1.2 million when adjusted for inflation, according to city data. But the city's attempts to increase that have not been successful, according to Newark City Manager Thomas Coleman.
“If we can’t have police on the streets and college students aren’t safe off campus, that’s a problem for both the city and UD.” He added that the city would prefer to update the agreement rather than impose new provisions. count. “None of us wanted to do this. We would be much better off working something out with the university.”
But that hasn't happened, so the per-student tax plan is part of the city's attempt to find new sources of revenue to support the college town's infrastructure. The city is also exploring levying a tax of up to 5% on gross rent or rent and participating in the statewide PILOT program.
Newark's budget shortfall is largely due to a competitive labor market and staffing shortages that require cost-of-living increases for city employees, especially police officers. The city has already raised utility rates, doubled city parking costs and deferred infrastructure maintenance to close recent budget gaps. However, property taxes are one of Newark's main sources of revenue and have increased each year since 2020, including a 7.5% increase in 2024.
However, about 42% of Newark's real estate is tax-exempt, and nearly 35% of that is part of the UD campus. If the city were able to collect property taxes from UD, it would generate approximately $5.5 million in revenue per year.
Coleman said that if the city can't find another source of revenue, like the proposed per-pupil tax, it may have to increase property taxes by as much as 45% to close the looming budget gap.
“This wouldn’t be fair to our residents,” Coleman said. “We are at a critical point where we need to find new revenue streams, and we can’t do that as things stand.”
But some students don't think it's fair to even raise tuition by $100 a year.
“College-aged young adults are one of the most financially vulnerable populations and it is disappointing to see the city of Newark attempting to take advantage of this.” A student union-led online petition opposing the proposal had 3,810 signatures as of Sunday afternoon. .
Rhett Ruggerio, UD's interim director of government relations, said university administrators are waiting to see if the proposal becomes law before deciding how to pay the taxes. But he pointed out that, as written, it was “clearly aimed at students.”
Ruggerio said tensions over the per-pupil tax proposal would not weaken the historically “strong” relationship UD maintains with Newark, but UD does not want to do anything, no matter how small, that would increase student costs.
He said university officials support students' opposition to the tax.
“Every little bit counts,” Ruggerio said. “We want to go to Dover, the capital, to work with the city and students to find solutions.”
The proposal does not yet have a legislative sponsor, but state Rep. Cyndie Romer, a Democrat from Newark, said she is considering it. “We need to address the fiscal issues associated with the city, but we also need to protect our residents from additional property taxes,” she said.
“I would like to see some kind of memorandum of understanding or agreement between the city and the university,” Romer said. “But if not, I’m open to legislation.”
Richard Auxier, senior policy associate at the Urban-Brookings Tax Policy Center, said there are no easy solutions to Newark's budget problems. He understands students' concerns that the tax could increase the cost of education, but condemning the proposal does nothing to address the larger problem.
“Any policy lever Newark could use to raise taxes would hit low-income residents the hardest,” Auxier said. “This proposal is at least one way to expand that burden.”