U-M Continues to Stiff Ann Arbor While Colleges Across the Country Make Voluntary Payments in Lieu of Taxes

11/1/23: Updated with comments from former City Council member Jeff Hayner.

by P.D. Lesko

Nonprofits in at least 28 states contribute what are often known as payments in lieu of taxes, or PILOTs, to the localities in which they are based, according to 2012 research from the Lincoln Institute of Land Policy. At the time of the study, payments by institutions of higher education made up about two-thirds of all revenue generated from PILOTs, and eight of the 10 biggest annual payments came from highly selective universities, including Harvard University, Yale University, Dartmouth College, Princeton University and the Massachusetts Institute of Technology. In Ann Arbor, the University of Michigan continues to pay nothing to support the municipality.

Former City Council member Jeff Hayner spearheaded an effort to implement a PILOT program while on City Council.

“In June of 2021 the Ann Arbor City Council passed a resolution (#R-21-213) calling for a Council task force to be formed to consider implementing a PILOT program in A2, based on the successful program used by Boston,” said Hayner in an email.

Hayner explained why implementation of the resolution stalled: “The City Administrator failed to start the process, and failed to bring the names of potential task force members forward to a meeting. The resolution was just ignored, like the resolution to create an office of the Ombudsperson.  That seems to be the M.O. for anything that is not wanted by the ‘powers that be.'” 

Universities and their medical centers are registered with the Internal Revenue Service as 501(c)(3) charitable nonprofit organizations. Because higher education institutions provide the public good of education to surrounding communities, their property holdings are exempt from taxation in all 50 states. But classes with professors and students are a minor side business on college campuses today. The greater value of campuses is their ability to use the nonprofit tax exemption as a tax shelter for profitable research and private investors.

In 2022, the University of Michigan spent $1.5 billion on research and brought in $22.4 million from licenses and patents. According to a 2022 study by the non-profit Heartland Forward, Michigan ranks fourth in invention disclosures and fifth in licenses and options issued.

In a 2014 article in the Michigan Daily, University of Michigan spokesman Jim Kosteva summed up the U.’s argument against making a payment in lieu of taxes to the City of Ann Arbor. “Students do not give the University of Michigan their tuition dollars and taxpayers from across the state do not give the University of Michigan their tax dollars just so we can turn that money over to the city of Ann Arbor so that they can fix their pot holes,” Kosteva said.

However, this is exactly what happens at universities across the United States. In addition to mayors who push for PILOT programs between their cities and the universities that reside tax free in those communities, state representatives have proposed the codification of PILOT payments. For the second time, in August 2023 Massachusetts State Representative Erika Uyterhoeven (D-Somerville) filed a bill concerning payments in lieu of taxes to cities and towns. This bill would strengthen and codify a Boston program, which requests payment from certain institutions that do not pay property taxes.

Since 2000, none of Ann Arbor’s state representatives has introduced any legislation to support the use of PILOT programs.

The truth of the matter is that thanks to the inaction of elected officials, Ann Arbor residents subsidize the University of Michigan in a myriad of ways, including paying higher property taxes to make up for the property owned by the university. Presently, U-M owns 9.2 percent of all of the land in the city. That amount of property owned by U-M is up from 8.4 percent (2.39 square miles) in 2013. The university owns 22 percent of the downtown acreage and of the 30 properties purchased by U-M between 2013 and 2019, 27 of those parcels were in the downtown area; U-M owns 42 acres out of the 191 acres that comprise the Ann Arbor downtown boundary.

The editors of Dome, the publication of the Boston University Law School editorialized: “It is important that this bill [Erika Uyterhoeven’s PILOT legislation] passes during the 2023-24 session because, without it, Boston (and other municipalities) will continue to subsidize large, private organizations at the expense of its own residents.”

U-M Hands Out Jobs to Elected Officials

Unlike Ann Arbor’s mayors and City Council members, city leaders throughout the nation have worked to push local universities to participate in PILOT programs. In Ann Arbor, elected officials have accepted jobs from U-M and then publicly said nothing could be done to get a PILOT agreement. For example in 2013, then mayor John Hieftje reportedly said: “I don’t think there’s any way that the university will ever participate in a PILOT program. It’s written into the constitution that they don’t have to pay taxes.” Hieftje, with a B.A. from Eastern Michigan University, was hired by U-M to teach graduate school and made one of the highest-paid lecturers at the university. Hieftje’s wife was also given a job at U-M.

After their elections, multiple City Council members were offered jobs by the University of Michigan. The present Ann Arbor City Council is populated by U-M employees. In 2019, Ward 3 Council member Ayesha Ghazi Edwin worked as a LEO Intermittent Lecturer in the School of Social Work and earned $12,378. In 2020, after she was elected to City Council, she landed a full-time job as a Program Manager at U-M with a $50,000 salary. By 2022, according to U-M salary data, Ghazi Edwin was again offered a position as a LEO Intermittent Lecturer, and her Program Manager salary had been increased to $53,302.50. Ward 3 Council member Travis Radina works for the U-M Alumni Association and is paid $82,000 per year. Ward 1 Council member Lisa Disch is also a U-M employee. Dish, a faculty member, is a tenured professor who earns $216,000.

In 2014, when current mayor Chris Taylor was first elected, in an interview with the Michigan Daily Taylor told the U-M student newspaper: “I believe that the city should do all it can to preserve its tax base. As to a PILOT, I would love to see the University provide a payment in lieu of taxes to the city of Ann Arbor, other universities throughout the country do so, and it strikes me as appropriate and reasonable.”

In his 14 years on City Council, Chris Taylor has never brought forward a resolution to formally ask the University of Michigan to make a payment in lieu of taxes. Between 2013 and 2019 alone, U-M took almost 30 properties off the city’s tax rolls, including the former Pfizer complex. With that one purchase by U-M, Ann Arbor lost 4 percent of his property tax base, $4.8 million.

The Ivy League Difference

Two Ivy League universities recently renewed agreements to voluntarily pay their surrounding cities sizable sums to help compensate for the fact that, as nonprofits, they don’t pay property taxes.

Brown University signed two agreements to pay Providence, R.I., a total of just under $175 million over the next 20 years, more than doubling its contributions under a previous deal. The two agreements run concurrently: in one, Brown alone pays the city $46 million over 10 years. In the other, which spans 20 years, Brown will pay a total of roughly $129 million and the other three private institutions in Providence—Providence College, the Rhode Island School of Design and Johnson & Wales University—will contribute smaller sums totaling about $48 million.

“Investing in the success of our home city is embedded in our mission of education, research and service,” Brown University president Christina H. Paxson said in a statement announcing the deal. “The commitments reflected in these agreements will have a meaningful and positive impact in our local community, and will enable Brown and city leaders to address common challenges, foster community and economic development and improve the quality of life for those who call Providence home.”

In 2014, former U-M President Dr. Mary Sue Coleman, when asked if the University would participate in a PILOT program, said this: “No. Are we going to go to the public schools? The churches? Are we going to treat everybody the same?”

Then City Council member Chris Taylor was quoted as saying in response to Coleman’s refusal, “Anybody interested in the city’s well-being would love a PILOT program. The city needs to speak up for itself and to push back where appropriate. But the notion that we are going to convince the university to do a 180 is just not realistic.”

Jeff Hayner disagrees. “There was a decent framework in place to implement one, a lot of background work went into bringing it, and even after the [June 2021] resolution passed, a staff meeting was held where the path forward was all laid out, and nothing happened after that. It just went away, despite repeated public requests for action on the approved resolution. We had at the time of the resolution a U-M president in Dr. Schlissel, who had participated in a PILOT at Brown, and at least two U-M Regents who were open to the idea.”