City councils don't tax universities the way they tax apartment buildings. Under state law, most of them can't. The exemption for educational property is old, broad, and now contested by mayors who see universities as the largest landowners in town and the smallest contributors to the fire department, road maintenance, school budget, or pension fund.
That resentment has shifted from complaint to formal demand. In Boston, Providence, Princeton, and Philadelphia, the result is a patchwork of negotiated payments called payments in lieu of taxes, or PILOTs. Each deal has different math, different politics, and the same underlying question: should a tax-exempt campus stay tax-exempt when the city around it is struggling?
Private nonprofit universities in the United States are generally exempt from local property taxes under state charitable exemptions. Public universities are exempt because the state owns the property. No federal law creates either arrangement; the states set the rules, which is why city officials who want revenue often have to negotiate rather than send a bill.
The municipal squeeze that is driving the fight
Property tax is the largest single source of local revenue in many American cities. School districts, public safety, street repair, and debt service all depend on it. When a university owns a city block for a research lab, that block produces no property tax. If the same block held apartments or offices, it would.
The pressure has risen for two reasons. Commercial property values in many downtowns have fallen, cutting into the tax base. University endowments and building campaigns have stayed highly visible. That contrast shows up in city council hearings and in state legislation, where elected officials ask why a billion-dollar institution pays less than a corner store. The question is not new, but the fiscal anxiety behind it is.
Small cities with large research universities feel the squeeze hardest. They cannot diversify their tax base the way a major metro can. The campus is both their economic identity and a hole in the tax roll. This is why the strongest demands come from places like Providence, New Haven, Princeton, and a string of smaller college towns rather than from the largest commercial capitals.
This is also why the exemption rarely disappears outright. Instead, municipalities settle for cash, signed multi-year commitments, and a better negotiating position in the next assessment fight. The pattern matters for anyone who works on a campus, because the money a university pays in a settlement is money that doesn't go to academic operations.
Boston runs the biggest formal program
Boston has the most watched PILOT program in the country. The city created it in 2011, and it asks nonprofits with property assessed above $15 million to pay 25 percent of what a full property tax bill would be. Universities, research hospitals, cultural institutions, and some large charities all receive the request. The city's PILOT program page lays out the formula and the annual reporting requirements.
A payment in lieu of taxes is exactly what the name says. It is not a legal tax obligation. The city calculates a number and asks for it. Institutions can count a portion of their community programming against the request, which is where the arguments begin. A university may claim a free public lecture series as a community benefit, while the city counts only cash that helps close a budget gap.
Mayor Michelle Wu's administration has pushed Boston to raise the PILOT rate from 25 percent to 50 percent over a period of years. The change would mean tens of millions of dollars in additional annual requests from some of the city's largest nonprofits. Higher education leaders have questioned whether a voluntary program can become a de facto tax without new state authority. City officials answer that the alternative is a long legal fight and a worse relationship with the neighborhoods around campus.
The settlement playbook spreads well beyond Boston
Most universities never appear in a court case. They reach a deal first. The agreements follow a pattern: the city raises the threat of a tax challenge, the university agrees to a multi-year payment schedule, and both sides declare the arrangement a partnership rather than a concession.
Brown University and Providence announced a 2021 agreement under which the university would contribute roughly $46 million over ten years. The arrangement gave Providence predictable money and resolved tax appeals over university property. Princeton's dispute ended earlier, in 2016, when the university agreed to pay $21.77 million over seven years to the town and borough after a challenge to its exemption. The University of Pennsylvania committed $100 million over ten years to the Philadelphia School District in 2020, a major contribution aimed at schools rather than simply the city's general fund, as detailed by Penn Today.
These numbers look different because each city negotiated from a different position. What they share is the shift from ad-hoc appeals to long-term agreements. A city that gets a signed schedule can plan. A university that signs one buys tax certainty and avoids a parcel-by-parcel fight every assessment cycle.
| Institution | Municipality | Arrangement | Year |
|---|---|---|---|
| Princeton University | Princeton, New Jersey | $21.77 million settlement over seven years | 2016 |
| University of Pennsylvania | Philadelphia, Pennsylvania | $100 million over ten years to city schools | 2020 |
| Brown University | Providence, Rhode Island | Roughly $46 million over ten years | 2021 |
Yale University in New Haven is the recurring legislative target that has not signed a sweeping settlement. Connecticut lawmakers have repeatedly proposed letting New Haven tax some university property, though those bills have not become law. Yale makes voluntary payments and argues that its payroll, construction, local purchasing, and student spending already support the city. New Haven counters that the city's tax base remains unusually small because of the institution's footprint.
Every settlement dollar comes out of campus budgets
A university facing a new $2 million annual PILOT request has to find $2 million. It may freeze an open faculty line, defer maintenance, or trim a program. The payment competes with the same operating budget that covers salaries and student services. This pressure now lands at a time when public institutions are also coping with state funding gaps and tuition pressure, a combination covered in AcademicJobs' reporting on public university tuition increases.
The effect on hiring is direct, if not always visible. A department that loses a line because the central budget absorbed a city settlement will not announce the cause in the job ad. But the slowdown in faculty hiring at many institutions is one more symptom of the same fiscal environment, as recent coverage of faculty hiring freezes has documented.
None of this is an argument that universities should pay nothing. It is an argument that the cost should be measured honestly. A settlement announced as a civic win has a second life as a budget cut no one names.
The legal and political fights are far from settled
State constitutions protect many charitable property exemptions, so cities cannot simply change a local ordinance and start billing a private university. Some states allow municipal opt-outs or mandatory PILOTs; others leave the matter to voluntary negotiation. The legal rules vary enough that institutions with campuses in several states face different obligations in each, a point researchers at the Lincoln Institute of Land Policy have studied through their work on nonprofit property taxation.
The next wave of challenges is likely to focus on property that does not look purely educational. Assessors are scrutinising research buildings leased to private companies, medical office buildings, housing occupied by non-students, and mixed-use parcels that blur the line between campus and commercial use. A university may own the parcel, but the city argues the occupant is commercial. These parcel-level fights can be more consequential than a broad PILOT request because they create new tax liability rather than a voluntary payment.
For public universities, the exemption is even more complicated. They are state institutions, but their satellite buildings, foundation-owned properties, auxiliary enterprises, and private uses on public land can sit in local tax jurisdictions that receive no direct benefit. Some states have addressed this through fixed per-bed or per-employee payments from universities to host communities. Others have not, leaving town-gown disputes to flare up during every budget cycle.
The next fight won't wait for a legislative session
University leaders who want to get ahead of a property tax battle should not wait for an assessor's letter. The campuses that manage this well treat the city like a partner with a spreadsheet, not an opponent with a legal brief. They know their largest parcels, their current voluntary payments, the local services they actually use, and the community benefits they report.
Before the next budget season, pull the three largest tax-exempt parcels on each campus and the current payment schedule. Ask whether the community benefits being reported are new spending or programs that would exist anyway. Then put a meeting on the calendar with the city's finance director before the next assessment cycle begins. That conversation is cheaper than the settlement you'll negotiate after the lawsuit is filed.
Photo by Darya Tryfanava on Unsplash