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What NU pays: A recurrent debate resurfaces

Aug 06, 2023

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Editor’s note: This is part one of a three-part RoundTable special report, with part two – on the dollars Northwestern has paid to the community in the past – coming Thursday. We’re publishing this coverage ahead of next week’s Land Use Commission hearing on the Ryan Field redevelopment project, which is scheduled for Sept. 6.

Northwestern University’s stadium redevelopment proposal and request for a zoning change to hold up to six concerts (reduced from 10 in mid-August and from 12 originally) at a rebuilt Ryan Field has rekindled longtime demands from some community members that NU provide a payment in lieu of taxes (PILOT) or other compensation to the City of Evanston.

These sentiments have bubbled up due to a combination of the additional events beyond football that NU is hoping to host and the resulting noise, pedestrian and auto and bus traffic and other neighborhood disruptions. Some parts of Evanston have also talked about a broader, historical sense that Northwestern does not “pay its fair share” given the police, fire and Emergency Medical Services personnel it consumes for some events and the prime but tax-exempt land it occupies.

This debate is set to play out in a series of hearings covering both the stadium proposal itself and the zoning changes requested to host concerts, starting with the Land Use Commission meeting on Wednesday, Sept. 6.

Northwestern’s latest proposal, unveiled Aug. 17, includes a guaranteed $2 million commitment annually to the city from event revenue, another $500,000 per year from a concert ticket surcharge for Evanston public schools and a one-time $10 million donation from the Ryan family, for whom the stadium is named, for a “workforce technology upskilling program.” These proposals are offering a cut of the money made through ticket sales and a ticket surcharge, rather than paying Evanston directly with university dollars.

Although it has never agreed to a PILOT, in the past Northwestern has provided annual contributions to the city and other entities, including about $2.2 million in donations to Evanston nonprofits and schools in fiscal year 2022, according to university figures. NU also purchased a fire truck for $800,000 at the city’s request, in addition to making a total of $5.3 million in reimbursement payments for using police, fire, water and sewer services.

But aside from the Good Neighbor Fund that existed between 2016 and 2021, which involved NU providing around $1 million per year for various city projects, the university does not have any written, legally enforceable multiyear agreement with the city covering the contributions it is expected to make. (More details on what Northwestern provides will be in part two of this three-part report.)

Among similarly midsized, wealthy universities that make PILOT payments, Yale University provides nearly $23 million a year to New Haven, Connecticut; Massachusetts Institute of Technology gives about $2.3 million a year on Cambridge, Massachusetts; and Brown University has paid about $3.4 million a year to Providence, Rhode Island, in recent years, although that arrangement is currently up for negotiation. (More details on what other schools pay to their municipalities will be in part three of this report.)

The debate about whether Northwestern pays its fair share is almost as old as Evanston itself. Like most nonprofit institutions, the university is exempt from property taxes. And it’s one of a small number of academic institutions that received charters from Illinois prior to the establishment of the University of Illinois, although the original charter left silent the question of Northwestern’s tax-exempt status.

In 1855, Northwestern successfully received an amendment to its charter from the state legislature stating that “all property of whatever kind or description, belonging to or owned by said corporation, shall be forever free from taxation for any and all purposes.”

The U.S. Supreme Court upheld Northwestern’s exemption in an 1878 decision, University v. People, after the City of Evanston attempted to bill the university for more than $10,000 in property taxes. (For more on the early history of town-gown relations, see this timeline).

In the almost 150 years since that ruling, Northwestern has made a number of contributions to the city for specific purposes, and more recently has made payments when land in Evanston was purchased and removed from the tax rolls.

For example, Northwestern paid the city $350,000 a year after buying 1840 Oak Ave. in 2017, though it’s unclear if that donation is still ongoing, and it made now-expired annual donations to Evanston for an office building on Clark Street and Sherman Avenue for several years. But the university has historically resisted entering into an agreement for a defined PILOT.

Organized groups have floated the idea of a PILOT frequently in this century. In the early 2000s, a Fair Share Action Committee formed by residents lobbied the university to pay $15 million annually to Evanston. And in a nonbinding referendum, 80% of residents voted in favor of asking the city to negotiate for a “fair share” from the university. City Council members discussed the idea as a way of raising revenue in 2008. And now proponents of payments are once again pressing their case.

Northwestern expects to enter a “Community Benefits Agreement” (CBA) as part of the stadium negotiations, Jon Yates, vice president of global marketing and communications, told the RoundTable in an email.

“The University intends to enter into a binding MOU [memorandum of understanding] with the City that outlines our commitments related to the Ryan Field project,” Yates wrote. “A letter of intent has been submitted in conjunction with the planned development application, and we expect that details on any public benefits tied to the project will be included in the eventual MOU.”

PILOTs provide a middle-ground solution between universities and other nonprofits paying nothing – which is essentially what they’re legally required to pay as a not-for-profit – and paying full taxes, said Adam Langley, associate director of the Cambridge, Massachusetts-based Lincoln Institute of Land Policy, which has studied PILOTs in the past. In 2012, the institute’s research found, 218 municipalities in 28 states were receiving PILOTs from universities, hospitals or other nonprofits, totaling more than $92 million in revenue per year.

“PILOTs provide revenue that’s meaningful for cities, even if it’s far less than the nonprofit would owe if it were taxable,” Langley said. Although year-to-year payments like Northwestern’s provide some benefits, “it’s important for the city’s financial planning to have a number that they can rely upon,” he said. “It’s also advantageous for the nonprofit to have some predictability in how much they’ll be contributing in future years.”

Another advantage of PILOT agreements, which typically run between five and 30 years, is that city and university leaders don’t have to renegotiate on an annual basis, according to Langley.

“I would say schools similar to Northwestern probably, more frequently than not, make a PILOT,” he said. “But it’s certainly not universally the case that peer institutions are making substantial PILOTs to their host communities.”

PILOTs are almost never, if ever, legally binding, Langley said.

“It’s almost part of the definition,” he said. “There are places that they definitely read like a contract … and lay out a schedule of payments, yet make it clear that they’re not legally required. In practice, unless there is some cash crunch or crisis at the university [or other nonprofit], they stick to those agreements.”

Evanston Mayor Daniel Biss said the city certainly would prefer larger contributions and more predictable, long-term commitments from Northwestern.

“Any municipality would feel that way,” he said, for two main reasons: “One is the long-term nature, which allows for predictability in budgetary planning, and the other is the fact that it would be an unrestricted payment to the general fund, rather than the implementation of a specific project determined on a year-to-year basis. Both of those differences [compared with NU’s current contributions] are very relevant from the standpoint of, let’s say, doing a five-year budgetary projection that might be useful in planning various long-term programmatic or capital expenditures.”

Council Member Clare Kelly (1st Ward) said Northwestern’s amended proposal introduced Aug. 17 was “encouraging” but needs to be fleshed out. She’d like to negotiate a Community Benefits Agreement based on the stadium deal and talk separately about a PILOT agreement that would include not only Northwestern but also Evanston and St. Francis hospitals.

Kelly previously proposed creating a PILOT task force that would include council members, city staff, tax-exempt entities, community organizations, long-time residents and others. Both hospitals have signed on to the idea, while NU has not formally responded, Kelly said.

“I expect Northwestern to [agree to participate],” she said. “I hope they will understand the importance and benefit of this conversation to the community.”

Bobby Burns, who represents the Fifth Ward on the City Council, is open to an agreement that would include both monetary and in-kind contributions, and he suggested that the university create a separate endowment for its work with the city and school districts to which alumni and other donors could contribute.

“I would imagine that their alumni would support it – and also other individual donors – especially seeing as how they obviously attended Northwestern at some point, lived in Evanston at some point, and some may continue to,” he said. “Then we don’t have to focus as much on the other endowment Northwestern has.”

The university’s latest proposals, which also included $250,000 annually for a town-gown celebration, should be “a floor for us even considering this,” said Council Member Tom Suffredin (6th Ward). “A central question is, are you willing to even consider this for a university that does not make a payment in lieu of taxes, when so many other universities and all sorts of other not-for-profits do? … There are people who believe that’s a quid pro quo. That’s not it. This needs to be part of a larger conversation.”

The City Council raises taxes and fees on residents, who have no choice but to pay them, Suffredin pointed out. “A $250,000 party – you and I can’t do that with our tax bill,” he said. “We can’t say, ‘You know what? This property tax assessment is high, but how about this: I’ll do some job training and have a party at my house.’”

The ticket revenue amounts to dollars that are “not out of their pocket; that’s out of my pocket, if I buy a ticket to a concert,” he added. “Obviously, the money they donated for a fire truck saved money. But it’s not the same thing as guaranteed annual revenue for the city.”

Council Member Eleanor Revelle (7th Ward), who represents Ryan Field neighbors, said she believes the university should make an annual, unconditional PILOT– but she does not think it should be wrapped into the stadium deal, because that could give the impression that city zoning changes are up for sale if the price is right.

“Totally independent of the stadium decision, I do think Northwestern, as a key stakeholder in the community, has a real vested interest in making sure Evanston is a strong, vibrant, thriving, equitable, wonderful community,” she said.

Biss remains noncommital on the question of whether a PILOT agreement should be tied to the stadium zoning approval. “I take the approach of evaluating any proposal that comes to me from the standpoint of what’s best for the city,” he said. “I would certainly be opposed to ‘selling’ zoning changes that we don’t believe in. … It’s a question to be answered on a case-by-case basis.”

Council Member Devon Reid (8th Ward) said he sees the stadium conversation as “a good opportunity” to gain an annual commitment from Northwestern. Reid also emphasized that he wants to see significant money from Northwestern go toward the two public school districts in Evanston, considering that they account for nearly 70% of the average property tax bill.

Former Mayor Steve Hagerty, who has supported concerts at Ryan Field as a member of the advocacy group Field of Opportunities, agreed that Northwestern should make a regular annual contribution. (Hagerty’s consulting firm advises the university on emergency management planning.)

“150 years ago, universities didn’t have multibillion-dollar endowments,” he said, referring to the time when the state provided NU’s charter. “Given the wealth of Northwestern University, the president and the board of trustees ought to take a serious look at what their commitment is to Evanston, and make sure that commitment to the city is proportionate to the wealth they have.”

The Rev. Michael Nabors of Second Baptist Church, who is also president of the Evanston/North Shore NAACP, said he sees a PILOT agreement as part of a larger conversation around how Northwestern can help the Evanston community – particularly marginalized groups like African Americans and Latinx people – especially in areas such as affordable housing and public education.

“You’re talking about an endowment where at least a part of that could conceivably do enormous things in the Evanston community,” he said.

But, like Revelle, Nabors doesn’t want any quid pro quos related to the stadium.

“If everybody can sit at the table, and everybody is open to that kind of discussion, there are some tremendous things that can happen,” he said. “But I don’t think they can happen if you sit down at a table, and put them in a straitjacket, and say, ‘This is what you’re gonna do.’ I do have hope that at the end of the day, Northwestern is going to be committed to doing some incredibly important things in the Evanston community.”

David DeCarlo, co-founder and president of the Most Livable City Association and a Seventh Ward resident, said Northwestern should already be making a PILOT to Evanston and its school districts, and he believes Evanston could tax not only tickets sold for football games and concerts, but also more lucrative broadcasting rights.

But he thinks tying a PILOT to the zoning change “would be a terrible precedent for our city. What if a casino developer showed up? … It’s a complete head-scratcher why anyone would suggest that would be a proper thing to do here.”

Like Council Member Reid, Lesley Williams, president of the Community Alliance for Better Government, said Northwestern money should also go toward the school system.

“District 65 has financial difficulties right now,” she said. “And given that Northwestern has faculty and staff who are parents and send their kids to the local schools, it seems like a no-brainer.”

Seventh Ward resident Eric Herman urged city leaders not to pass up the opportunity.

“Northwestern, which pays no property taxes, wants to build a tax-free commercial complex that would be like an ATM machine,” he said. “If our elected officials don’t have the spine to negotiate a PILOT … they are the biggest chumps of all time.”

Ed Finkel is a freelance writer who lives in the Sixth Ward, graduated from Northwestern’s Medill School of Journalism in 1989 and worked there from 1998 to 2002.

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