A tax break is saving NYU $141 million this year. Here’s how.

Universities in New York are exempt from paying property taxes. Here’s how much NYU saves.

How NYU is saving $141 million this year

Universities in New York are exempt from paying property taxes. Here’s how much NYU saves.

The facade of 90 Franklin Street is pictured.

A three-bedroom, three-bath condominium on 90 Franklin St. in Lower Manhattan that NYU purchased for $4 million in 2013 would have cost the university about $320,000 in property taxes for the current fiscal year. (Alex Tey for WSN)

Alex Tey, Editor-at-Large | Nov 23, 2022

NYU’s real estate holdings were worth around $15 billion in 2018. They include classrooms, offices and residential units in prime areas of Manhattan and Brooklyn. The university, however, doesn’t pay property taxes on these buildings.

NYU isn’t the only one. Columbia University, Fordham University and Cornell University don’t pay property taxes either. Educational nonprofits — which include NYU, believe it or not — are exempt from property taxes in New York.

“There’s a certain dollar amount that the city is not collecting in property tax revenue that, even as an underestimate, is a substantial amount,” said Elizabeth Brown, the Independent Budget Office’s communications director.

It’s difficult to pin down precisely how much money that amounts to, but publicly available data shows us an estimate. For the current fiscal year, New York City’s Independent Budget Office puts that dollar amount at $141 million. During that time period, which runs from July of this year through June 2023, 142 NYU properties are completely exempt from property taxes.

Those hypothetical taxes are likely an underestimate, according to Yaw Owusu-Ansah, an economist at the Independent Budget Office specializing in New York City property tax policy. Since NYU is exempt from paying the taxes, the city has no reason to devote a significant effort to accurately assessing its property value.

In New York and many other states, property used for certain nonprofit purposes are exempt from property tax. It’s not enough that the building is owned by a nonprofit institution, however. In order to qualify for tax exemptions, the building must be used for the nonprofit’s core function — in NYU’s case, education.

Without this requirement, universities would be incentivized to buy up normal businesses and housing to operate the properties tax-free, said Daniel Shaviro, a leading legal scholar on tax policy and an NYU Law professor. The state wants to avoid that outcome.

By state law, uses that qualify for the exemption include student housing, faculty apartments, administrative offices and classroom spaces. Land slated for development or in-progress construction sites also qualify on the basis of their intended use.

“The laws making not-for-profit organizations tax exempt evolved in recognition of the special mission they serve in society, and positive impacts they have on the communities they serve,” university spokesperson Shonna Keogan wrote in a statement.

If the state wants to help certain types of institutions — say, universities — tax exemptions can be an effective way to do so.

“A tax expenditure is a departure from normal rules to favor a certain activity,” Shaviro said.

Eligibility for tax exemptions, then, comes down to which activities we want to encourage. When it comes to how it’s done, policy decisions are made on the optics of an issue, not just the merits, Shaviro said. It looks better to grant an institution tax exemptions than to cut it checks for the same amount.

Owusu-Ansah said these policies allow states like New York to financially support institutions in an inconspicuous way. Universities are an asset for the city in ways that are hard to quantify. That’s the idea behind offering them tax breaks.

“The idea is that there is some additional contribution from these institutions for the services that they’re consuming,” said Ana Champeny, a tax policy researcher at the Citizens Budget Commission. She added that one of New York City’s greatest assets is its population of educated young people.

Other Northeast cities with significant university presences have agreements with tax-exempt institutions for payments in lieu of taxes, or PILOT programs.

In Boston, schools, hospitals and cultural institutions have been asked to make PILOT payments since 2012 to help offset the financial burden of their exemptions (though universities like Harvard often fail to pay the recommended amount). In Providence, Brown University pays about $4 million annually in lieu of around $47 million in property taxes.

Republican mayoral candidate Curtis Sliwa included steep PILOT payments that would have effectively repealed tax exemptions in the platform of his failed 2021 campaign for New York City mayor. Socialist writers like Paul Prescod and Matthew Thomas have also argued, on different grounds, that universities should lose their tax-exempt status.

Tax breaks for corporations in New York have come under criticism in recent years as well. In 2018, New York City and New York state offered Amazon $1.2 billion in tax breaks to build a headquarters in Long Island City, Queens. That proposed expenditure was among the reasons for the deal’s unpopularity and eventual failure. Google turned down similar tax breaks for its new Manhattan offices in 2021.

Brown noted that the Independent Budget Office does not make policy recommendations. She does, however, believe that policy decisions like tax exemptions deserve periodic re-evaluation.

“Thinking about whether the incentives are working as they were intended, are efficient, is really important,” Brown said.

Universities are expected to return value to their communities in exchange for tax breaks; Keogan noted scholarships, jobs, research, community service and spending on local businesses as examples of benefits that NYU provides. She added that NYU pays nearly $15 million annually in property taxes on non-exempt spaces, as well as over $100 million annually in payroll and income taxes.

NYU’s growing footprint, however, raises questions as to whether the university is holding up its end of the bargain when it comes to the property tax exemptions.

“As their real estate holdings have grown, and the cost of the exemption has increased, there have been more and more concerns that the foregone tax revenue exceeds the value of the benefit that’s being received,” Champeny said.

While it’s possible to estimate the amount of tax revenue lost by these policies, it’s much more difficult to tabulate the benefits the city creates by exempting universities from property tax. Without millions of dollars in tax exemptions on dorm buildings, for example, NYU might try to make up the difference by raising rates for students living in university housing. Paying taxes on classrooms might lead NYU to raise tuition.

At the same time, universities like NYU consume essential city services — garbage pickup, police, public transit and road maintenance — without contributing tax revenue to their funding.

“They’re still consuming city services that are funded through taxes, yet they’re not asked to pay a proportional share, or to pay their share of it based on the value of their property,” Champeny said.

When firefighters respond to a call at an NYU building, for example, the university is consuming city resources that they aren’t paying for through taxes.

“Tax policy affects the success of the institutions that affect you because taxes provide the funding for essentially every public service,” Shaviro said.

For universities, tax exemptions are their own kind of funding.

Update, 12:42 p.m.: This story has been updated to include statements from an NYU spokesperson.