Could Durham ask Duke for Payments in Lieu of Taxes?
Most higher education institutions do not pay property taxes, leaving the cities that host them with a gaping revenue loss, but negotiated agreements to bridge that divide are becoming more common.
This is the first of a three-part series investigating Payments in Lieu of Taxes (PILOT) programs that are expanding across the country and how a PILOT program could potentially impact Durham.
As rents continue to sharply increase across Durham and new boxy monoliths with opaque garage doors nestle in between older working-class bungalows, the pressures on the neighborhoods of Durham are building. Housing concerns have dominated the local political discussion for years, with seemingly little relief despite Durham voters overwhelmingly passing a $95 million affordable housing bond in 2019. Last month, some Durham residents and the Housing Action Team from the People’s Alliance crafted an idea to involve Duke University: they joined a petition calling on Duke to provide on-campus housing for all their undergraduate students. The petition has yet to secure 200 signatories after being in circulation for a month, but it has acquired some notable critique.
Understanding that Duke could be a partner in overcoming the current housing crisis in Durham is a very reasonable consideration. Although in the most recently reported data from our two local universities the 6,543 undergrads at Duke is quite comparable to the 6,434 undergrads at North Carolina Central University, Duke has a staggering $12.1 billion endowment (as of June 30, 2022) compared with just over $38 million at NCCU (at the last filing on June 30, 2021). According to the federal Department of Education, Duke had the sixteenth largest endowment among all post-secondary institutions in the country in 2020.
Ballasted by its billions in investments, Duke has grown to become a world-recognized research university and medical center. The school and affiliated medical center stretch across four campuses (East, West, Central and Medical) to occupy over 1,000 acres—as well as another nearly 500 acres at its golf course and over 7,000 acres of Duke Forest. The campuses (and golf course) are all within the Durham city limits, but because the vast majority of building and parcel usages are considered part of educational purposes under IRS 501(c)(3) rules, Duke has a tax exempt status and does not pay property tax on most of their properties. A Bull City Public Investigators review of 2022 property tax bills found that Duke University paid just over $240,000 in property taxes, the Washington Duke Inn paid just over $500,000 in property taxes and the Duke Health System paid over $800,000 in property taxes—$559,764.67 of which came from a single new health center on Page Road. The few Duke-affiliated properties that are being taxed are properties that are being leased, according to representatives from the Durham County Tax Office. The vast majority of Duke’s property is not subject to property tax, which means the City and County are missing millions of dollars in potential revenue.
An Old Problem with Old Solutions
It is not just 501(c)(3)-eligible organizations that are exempt from tax: property owned by any level of government is also exempt from paying property tax to localities. In communities with significant federal land, the situation became especially untenable as it put disproportionally high tax burden on the few parcels of land that were not federally-owned. Congress took this matter up in 1976 with a bill that provides Payment in Lieu of Taxes, or PILT when referencing this federal program. The Department of Interior administers the PILT program and distributed $549.4 million to over 1,900 local governments in 2022.
PILOT Programs Can Be Voluntary
Even before the federal PILT program was initiated, some major research universities had voluntarily negotiated a PILOT arrangement with their host local government as early as the 1920s according to a 2010 report from the Lincoln Institute for Land Policy (Harvard is said to have begun making payments to Boston and Cambridge in 1928.) PILOTs can be viewed as the recapture of lost revenue potential, the reimbursement for services rendered to the tax-exempt property by the local government or a blend of both intentions. PILOTs often are preceded by lengthy negotiations. Alternatively, some local governments like the City of Boston have a blanket approach where, in Boston, they request specific amounts of PILOT payments as “voluntary contributions” from any type of tax-exempt entity that owns property valued at over $15 million.
The City of New Haven, Connecticut and Yale University initiated a PILOT first in 1991, and then in 2021, the partnership accelerated with Yale agreeing to significantly increase their annual contribution by $10 million per year to bring their annual PILOT to the City of New Haven to $23 million per year.
Philadelphia City Schools now receives a $10 million per year direct PILOT contribution from the private Ivy League University of Pennsylvania after organizing efforts among UPenn staff and faculty joined a multi-year campaign by pro-labor activists and advocates.
Harvard University has been publicly lambasted in the past when they decided to shortchange the City of Boston and City of Cambridge on their requested PILOTs.
There are also several active PILOT campaigns occurring across the nation. In the St. Louis area residents and students are trying to persuade the private Washington University to enter into a PILOT to assist local governments. There is even a push at the public University of Virginia to enter into a PILOT with the City of Charlottesville, where the UVa Student Council voted just last month to tell the University that it should be voluntarily contributing at least $10 million annually to the City’s revenue.
Mayor Elaine O’Neal says she is on it
Given the flurry of successful PILOT initiatives in peer communities and the recent grassroots endeavors we’ve seen to propose solutions directly to Duke, Bull City Public Investigators summoned our Mayor, the Honorable Elaine O’Neal, to ask if anything might be brewing between the City and our devilish university friends in West Durham.
“I have been in conversations with Duke officials, and those conversations are ongoing,” Mayor O’Neal told BCPI. A native Durhamite, Mayor O’Neal explained that there are numerous points of discussion that she has been engaged with Duke. Although a champion from the ranks of our leading elected official is quite important to the pursuit of a PILOT, recently initiated PILOTs demonstrate that concerted organizing efforts that join residents with members from the university community can still take years to fully develop into a PILOT agreement.
Part 2: Coming Next Week
We will continue our investigation into what a PILOT could look like in Durham with another installment next week. We anticipate having additional interview material and will take a deeper dive into the tax valuations of Duke property.
Do you have a story lead or tip? Contact BCPI at BCPI.durham@gmail.com
Follow us on Twitter @BCPI_
The Finance Director at the time of the attempt to get Duke to agree to a PILOT was John Peterson who is not the City Manager of Myrtle Beach SC. The city manager at the time was Orville Powell who back now is living in Durham. You might try to talk to both of them for the history of that 1990s attempt.
This was tried in the early in the 1990s (not absolutely sure of the dates but absolutely sure it was tried) and met with astounding resistance from Duke. It ended with nothing. They brought out all the revenue that they "bring" to Durham. Duke at that time paid Durham some mutually calculated amount for fire service - and had been doing that for a while. Not sure if they still do. And in fairness I have to mention that Duke did, and may still, financially support affordable housing through the land bank that Self Help Credit Union managed.