Universities and Cities: Why We Must End the Nonprofit Path to Wealth Hoarding

 

Right before our eyes, many of our nation’s leading universities have become our biggest employers. They are also real estate owners, health care providers, and policing agents. In New York City, NYU and Columbia are two of the largest property owners in Manhattan—so large that, at one point they were number two and three, only behind the Catholic church. UCLA is the biggest private employer in Los Angeles County. The University of Chicago has the second largest security force in world, next to the Vatican; more than 50,000 non-university residents fall within its jurisdiction.

We have allowed that influence to take shape. In a world without factories, we need some form of economic revitalization. But what we have witnessed is the rise of higher education’s control over both the economic development and political governance of our communities—the rise of what I call UniverCities.

Across America, universities have become today’s companies. And the cities and towns in which they are located have become modern-day company towns. But there is a cost to those who live in the shadows. Campus expansion can raise housing costs for homeowners and renters which has displaced residents in surrounding neighborhoods. Colleges and universities dictate and control the wage ceiling in the communities they inhabit. In some cases, they suppress collective bargaining. Often, to reduce labor costs, they shift workers from direct employment to subcontracts.

The same residents who live and work in those neighborhoods also face greater surveillance at the hands of campus police, many who hold public authority and carry guns. And in the case of private nonprofit schools, these institutions, even as they carry out public functions, are not subject to the Freedom of Information Act. So, in these cases you have private police with public authority but no public accountability. This has nothing to do with teaching classes or running research laboratories.

How did our cities become campuses and what does it mean for our public good? The governing structures, the economic priorities, and the built environment are reorganized to serve university interests when our cities become campuses.

 

How We Got Here

The origin of the UniverCity dates back at least to the 1950s, a period that in US urban history is often referred to as the era of “white flight.” But white flight is really a misnomer. White families were chasing capital—factories, wealth—that was moving to suburban areas. Because of racial restrictions, they were the primary ones allowed to follow the resources.

But universities are not as nimble as individual families. They had to stay in cities, so they lobbied the federal government to make universities the friendly face of urban renewal to help protect their assets. A group of urban schools lobbied to change the 1949 Housing Act, so that the federal government would double the money for any development project tied to a university. Colleges as diverse as the University of Pennsylvania, the University of Alabama at Birmingham, and Denver’s Auraria Campus demolished Black and Brown neighborhoods to create security around their campuses. They bunkered in behind white residential and research campus islands amid the so-called “urban crisis.”

 

Agents of Gentrification

Of course, in recent decades among white Americans there has been a “back to the city” movement. In New York City, then-mayor Rudolph Giuliani in the 1990s implemented policing, housing, and economic policies designed to clear ground that made way for luxury amenities to attract both young professionals and empty nesters desiring an urban experience. We now see individual cities compete with each other for this returning tax base. At the same time, public funding both for public universities and private nonprofit schools was declining. State higher education budgets were shrinking.

So, you had new urbanites moving back to cities, and cities trying to compete for those new residents, even as universities were trying to find new ways to generate revenue.  The results we can see today in river walks, fully wired downtowns, new libraries, and new public transit light rail lines.

But what kind of urban development was this? The new idea of urbanity offered by urban developers was largely a campus. There was a convergence in the needs of city and the university.

The ivory tower is, in fact, the new smokestack of America’s 21^st century economy—the knowledge economy. Here, academic research is being used to produce goods in a variety of industries, including pharmaceuticals, software technology, and military weaponry. The goods are sold on the market to private companies, with royalties coming back to universities, either through direct research or ancillary industries—such as restaurants, cleaning crews, waste management organizations, and biohazard companies. But the prosperity of this new economy is not being enjoyed by everyone.

 

Understanding the System of Public Subsidy and Private Gain

It is hard to get people to come back to Chicago’s South Side, Roxbury, or South Los Angeles where these universities sit. So, schools build out what they call innovation districts or knowledge communities right in the middle of once-struggling neighborhoods. These are clusters of housing, retail, and nightlife. They are surrounded by private security, signaling to students, researchers, and investors that these neighborhoods are open for business. What results are fake or simulated urban neighborhoods. Their entire sense of existence is driven by the interests of higher education and specifically the desire to churn out for-profit wealth. These campus environments also receive and benefit from higher education’s tax-exempt status as 501c3 non-profits. Under the guise of “educational purposes,” the partnerships effectively create makeshift tax shelters. You find higher education institutions linked to private partners in land, labor, healthcare, and policing.

Consider land: The presumption is that universities are inherently a public good—offering us education and what they call lifesaving research. But there is also a financial component to this educational status. Since universities are designated as nonprofits by our tax code, their properties are largely tax exempt. With many universities holding the most land in the surrounding areas, they are also real estate companies. What takes place on that land? These campuses become knowledge factories—science; technology; design; and in some cases, hoteliers, residential, and retirement community property managers. The for-profit money generated is underwritten by the tax exemption.

Laboratories at Princeton University were producing millions of dollars in research for their partnership with the multinational pharmaceutical company Eli Lilly. But under the cover of educational purposes, neither the money generated from this research nor the properties where it took place were being taxed. Residents alleged that their property taxes were kept artificially high not only because this school’s wealth inflated land values but because university properties were kept off the tax rolls. In 2016, the residents won an $18 million lawsuit.

Universities also require public services such as secondary schools, trash removal, and maintaining the electrical grid, but because they are tax-exempt, this can strain city finances. There is a direct correlation between the struggling budgets of cities that host prosperous universities and the taxes those institutions aren’t paying.

Consider graduate students: They produce value and wealth. They just get, on average, a $20,000 annual stipend, even as they could earn $60-100,000 on the private market in the science and technology sector. This is a phenomenal benefit to the private company when they partner with a school to conduct their research and development. Take Google, Bombardier, or General Motors. They can write off their donation to the school. The university can pay for the principal investigator and their graduate students and put a bunch of the corporate money they receive in the amorphous category of “overhead costs.”

The students get the shaft under the name of being an apprentice, even though they are doing private market work. Black and Brown low-wage workers keep universities running in key areas, such as food service; buildings and grounds; and as support staff. And if they aren’t supported by a union contract, their benefits end for three months in the summer; their wages are reduced. And even if they are protected by a union contract, that protection is waning, because more and more of the labor is subcontracted.

Consider policing: Roughly 75 percent of colleges and universities have police forces. Of those that do, nearly all have officers that carry guns and about nine in 10 have jurisdiction beyond the campus. Especially in Black and Brown neighborhoods near campuses, what this has meant is a two-tiered judicial system. In many cases, for the same infraction, students are prosecuted by the Dean of Students, while the non-student resident goes through the criminal justice system.

Does public safety benefit from these police forces? Often it does not. Campus police are typically reactionary. Their job is not to police to reduce crime. Why do I suggest this? Well, consider the biggest crimes on campuses—namely, sexual violence and substance abuse. Campus police do a horrible job in these areas. Is it by design? Well, what university wants to advertise that it is a campus filled with white criminals? But we see a ramped-up show of force in surrounding neighborhoods. Ultimately, the campus police aim to soothe any anxieties of the primary investors (student families, researchers, private partners) by protecting the public image of the university brand. Policing here is not preventative: it is reactionary and largely symbolic.

 

Public Policy Solutions

There are solutions. One public policy solution involves Payment in Lieu of Taxes (PILOT) programs. PILOTs are voluntary. Many state constitutions have university tax abatement written into their constitutions. For example, in Massachusetts, Harvard is older than the Commonwealth and its rights are set forth in the constitution by name. In Boston, the city currently asks universities if they would please give 25 percent of what they would pay in property tax if they were for-profit entities. Now there is an effort to make that 25 percent mandatory and make it apply statewide.

In my work at Trinity College in Connecticut, I’ve used my research to build out a Smart Cities Lab to identify best practices for building equitable urban communities. During the pandemic, people reached out. They told me that, “We don’t just want observation; we need advocacy.”

We’re working in West Philadelphia, which lies at the convergence of Penn, Drexel, and the University City corporation that rocked that neighborhood in the 1950s and 1960s.  In the original plan for University City, there was an agreement to create an area that would be a mixed zone of affordable housing, university research, and private partners. That didn’t happen. We are now demanding that University City honor its 1969 commitment—Jamie Gauthier, a current city councilperson in Philadelphia, is working to build out a inclusionary zoning overlay pilot to help compensate for the continued destruction of affordable housing in this targeted revitalization area based on the original commitment. Research matters.

In Berkeley, California, the university is a rapacious landowner. The University of California also benefits from a clause in the state constitution, which empowers the university authority to usurp municipal authority. Indeed, the university in California is frequently referred to as a “fourth branch of government.”

There are, however, many policy levers available to hold universities accountable. These can include community benefits agreements that mandate zip-code-specific job training and support affordable housing—not at 80 percent of area median income, but 30 or 40 percent. These agreements can also support the work of community centers.

Cities can also create community-based planning and zoning boards. In New York City community boards are only advisory; they need to have veto power. Harvard’s endowment is $53 billion, and it is tax exempt. What if a small percentage of that endowment—say, three percent—was used to support community organizations?

In fact, the Smart Cities lab worked with the longstanding New Haven Rising coalition of students, labor unions, and residents to push Yale to do better. Their relentless campaign just recently forced the university to add $52 million, over the next six years, to the city’s budget in compensation for property tax loss. Now of course, for a school with a $40 billion endowment, $10 million a year is little. But the victory demonstrates that schools do have a fiscal responsibility to their host communities.

State and local officials have the power to control campus encroachment into our lives that offers little public good, instead of acting as a rubber stamp. We need to push and lobby and prod our officials to create stronger protections in moments of expansion, development, and growth. This needs to occur because universities are so embedded in all our systems—labor, policing, health care, employment, and land ownership, among them. There must be a reciprocal system of oversight and governance that engages what universities do beyond the classroom.

The tag line for many universities is, “We solve problems.” If we take that to its logical conclusion, why wouldn’t they begin solving problems in their own backyard?