Income Inequality in “College Towns”

Last November, Business Insider published a list of the 18 metro areas in the U.S. with the highest levels of income inequality.

The rankings were based on the following methodology:

“The Census Bureau makes annual estimates of a standard measure of inequality for US metropolitan areas. The Gini index is a measure, ranging between 0 and 1, of inequality. The Gini index measures how much the distribution of income or wealth in an area differs from a completely equal distribution. A Gini index of 0 indicates that everyone has the same income; an index of 1 means one person has all the money and everyone else has nothing.

“We ranked 382 metropolitan areas with populations of at least 65,000 using Census estimates from the 2013 American Community Survey, and found the 18 areas with the highest Gini indices. We also included the income shares of the ends of the distribution: the top 5% and the bottom 20%, also from the Census Bureau.”

The metro areas identified as having the highest levels of income inequality seem to fall largely into five categories: 1. those that are very large and have a high cost of living, such as New York and Miami; 2. those that have had longstanding problems with endemic poverty, under-education, and under-employment, such as New Orleans-Metarie and Monroe, Lousiana, and Texarkana and Brownsville, Texas; 3. Those that have very narrow economic bases, with a large percentage of jobs in the retail sector, such as Staunton-Waynesboro, Virginia, and Jackson, Tennessee; 4. those that have high percentages of elderly residents such as Port St. Lucie, Florida, and Grants Pass, Oregon; and 5. “college towns.”

Indeed, the “college towns” constitute the largest single category on the list: 14. Athens-Clarke County, Georgia; 10. Bloomington, Indiana; 9. Greenville, North Carolina; 6. College Station-Bryan, Texas; 4. Gainesville, Florida.

The income inequality in each of the college towns is explained in essentially the same way. To illustrate, here is the comment on Athens-Clarke County, Georgia: “A number of the metro areas on this list, including Athens, are home to large universities. The University of Georgia is based in Athens, and so the population of the metro area contains a much higher share of college students than most towns: about 19% of the population of the Athens metro area are college students, according to Census Bureau data. Since many college students either aren’t working or are only working part time, they tend to have low incomes, skewing measures of inequality like the Gini Index.”

That seems a reasonable explanation. But in an article published more recently on AlterNet, Zaid Jilani offers a much more complex and troubling explanation. The article is titled “How Parasitic Universities Drain Towns All across America.”

Here are the opening paragraphs of Jilani’s substantial article:

“With 21,000 students, Syracuse University is one of upstate New York’s flagship universities, and is considered one of the main drivers of economic activity in the region, regularly producing some of the state’s top academics, lawyers, businesspeople, and politicians.

“Yet the city it is located in was named the 23rd most impoverished city in America in 2014, with a third of its population in poverty. Outside the grounds of the university, the area is marked by boarded-up homes, potholed streets and public services that struggle to respond to demands (in Syracuse’s brutal winters this means public transit and snowplows).

“Syracuse is not unique. Many college towns face a similar situation: they house a famed and prosperous university residing in a location that is mired in poverty and poor public services. These universities largely hire skill staff who commute in from outside the immediate vicinity, and only a small portion of their wealth trickles down to the general public.

“There are a number of explanations for why this happens, but one of the most important is that America’s nonprofit universities, public and private, are beneficiaries of a blanket tax exemption from property taxes. This huge tax break drains communities of needed revenue, creating a perverse situation where students who will go on to make decent incomes post-graduation are benefiting from universities that pay nothing to support services in cash-strapped communities. Welcome to America’s most unexpected tax havens.”

In a later section of the article on the impact of tax emptions, Jilani comes back to Syracuse:

“The tax exemptions in Syracuse are so vast that 51 percent of property is actually exempt from any property taxes, thanks to a plethora of universities, hospitals and religious institutions that are registered as nonprofits. If SU, the star institution of the city, were not tax-exempt, the university would pay $24 million annually in taxes.

“The city did strike a deal with SU where it offered to pay a PILOT, or a payment in lieu of taxes, with the city on a voluntary basis. This deal amounted to only $500,000 a year for five years (in addition to a small amount of revenue from ticket sales from sporting events), a fraction of what the prosperous university would pay if it did not get a blanket property tax exemption. Interestingly, Syracuse’s budget deficits in recent years level out at around $23 million.”

If one considers just the endowment income of many of our largest and most elite universities, it is hard to take issue with Jilani’s argument. In fact, Jilani does not even address one of the major ironies in such situations: namely, that as the neighborhoods around universities or large medical centers degrade, those institutions can purchase more and more land at less and less cost. So the degradation caused by the erosion of the tax base, in effect accelerates the erosion of the tax base. And the institutions can—and typically do—claim that they are providing a civic service by upgrading those degraded properties to much more desirable uses.

Still, despite Jilani’s very persuasive argument, I am guessing that many towns with smaller colleges and universities may be very glad to have those institutions located in them. To cite the most salient, recent example, Sweet Briar, Virginia, has clearly been rocked by the sudden closure of Sweet Briar College.

Moreover, although Jilani reports that the PILOT agreements with universities and large hospitals are becoming more and more common, those agreements seem, at best, a very marginal stop-gap to an increasingly serious problem with municipal revenues.

So, given that challenging institutions’ non-profit tax status is very likely to lead to protracted and expensive legal battles, there seems to me to be a simpler solution to the problem: increase the local income tax and provide a deduction for local property taxes. In this way, those who commute to work at large non-profit institutions will help to support public services in the cities in which those institutions are located, and those who live in those cities will not be penalized (especially if a tax credit for those below a certain income, or some comparable protection against regressive taxation, can also be put into place). Ideally, the employees of the non-profits will demand higher compensation to offset the taxes, and the institutions will, in effect, be paying those taxes.

The full article in Business Insider is available at: http://www.businessinsider.com/most-unequal-cities-2014-11?op=1#ixzz3at80TmHg.

Jilani’s complete article is available at: http://www.alternet.org/education/how-parasitic-universities-drain-towns-all-across-america.

 

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