Originally published on Forbes.com.
Thanks to a decision of the New Jersey Tax Court earlier this month Princeton University will have to affirmatively defend its right to an exemption from local property taxes.
I’d love to cast this as kind of a David and Goliath type of struggle. According to its Form 990 Princeton University spends about a billion and a half dollars a year and has net assets over $18 billion. Princeton NJ which is the result of the merger of the Borough of Princeton and Princeton Township operates on about $60 million roughly half of which is raised from property taxes.
In the fiscal year ended June 30, 2013 Andrew Golden, President of Princeton University’s Investment Company (See note) had a salary of $2,567,482. Liz Lempert, Mayor of Princeton, has a salary of $17,500 and according to this story, there was a bit of angst about that. As it happens though it is not the borough or whatever it is you call the merged entity that is arguing with the Universtiy about its exemption. As a matter of fact it the borough is listed as a defendant in the lawsuit.
Taxpayers Fighting Princeton’s Exemption
The suit is being brought by Kenneth Fields, Mary Ellen Merino, Joseph King, Kathryn King and the Estate of Eleanor Lewis, all of whom are taxpayers in the borough. They are represented by Bruce Afran who according to this is one of New Jersey’s leading civil rights and constitutional lawyers. He ran for Senate on the Green Party ticket in 2000. He didn’t win, but you probably figured that out on your own.
According to this story, Mr. Afran estimates that if all the university’s property were added to the tax rolls, the average Princeton homeowner would see a 30 to 50% tax reduction. Although this is a bit of an oversimplification, there is a grim logic to municipal finance. You take the part of the town budget funded by property taxes and divide by the total value of taxed property and that is your tax rate (often expressed as dollars per thousand). As any bright fourth grader could tell you back in the day, lowering the denominator will give you a higher fraction. That is presumably why other taxpayers have standing to challenge the exemption. Sometimes you will find that dubious tax breaks cannot be addressed by courts because nobody has standing to challenge them. That is what happened with Freedom From Religions challenge to the parsonage exclusion.
Burden Of Proof
The New Jersey Tax Court ruling earlier this month was preliminary. It was about who has the burden of proof. The University argues that since the assessors have allowed the exemption, the plaintiffs should have the burden of proof. The argument is based on the fact that there is a presumption that an assessed valuation is correct. The Court wasn’t buying that argument.
There is, however, a clear difference between the process for valuation assessments and that of exemption determinations. While the former involves extensive experience and first-hand knowledge of the property being assessed, the real estate appraisal process, and the marketplace, the latter is an evaluation based significantly on the reliability of representations made by the applicant in the paperwork submitted in support of the application for exemption, and of the actual use of the property for which a tax exemption is claimed.
Moreover, the determination of an exemption is more properly one of statutory and case law interpretation than one requiring any special expertise possessed of an assessor.
The University also had a “public policy” argument – essentially that this could lead to lots of taxpayers suing about exemptions.
“Public policy is a very unruly horse, and when once you get astride it you never know where it will carry you . It may lead you from the sound law. It is never argued at all but when other points fail.”Richardson v. Mellish, 2 Bing. 229, 252, 9 Eng. Com. L. R. 557 (1824) . Princeton’s public policy argument here is no more convincing than its previous arguments. The court finds no foreseeable danger that there will be a mass citizen uprising to usurp every tax exemption granted as Princeton seems to assert. The context of public policy considerations at issue here is much broader than the simplistic “flood gates of litigation” fears raised by Princeton. In that regard, it appears to the court that the more compelling public policy concerns in these matters rest squarely on the side of the Taxpayer’s right to challenge the exemption, and for Princeton to prove it meets the criteria for the exemption.
I’m having a hard time deciding who to root for here. I tend to favor the underdogs, which in this case are the taxpayers challenging the exemption. On the other hand, if they won, it would be kind of a windfall benefit to current owners of property in the town, since the implicit tax benefit will likely be reflected in the value of their property.
Not Bruce Afran’s Only Rodeo
On a side note, I find it interesting that Bruce Afran has another lawsuit going against a major institution located in Princeton – the Institute for Advanced Study. The Institute is looking to build housing adjacent to Princeton Battlefield State Park. Archeological studies show that part of the battle took place on the land where the housing is proposed. The Battle of Princeton on January 3, 1777 was a good shot in the arm to General Washington’s beleaguered army. I asked my high school classmate SW O’Connell who has written several novels about the period including the Patriot Spy for his thoughts. Scott like me and Ben Carson is a product of Junior ROTC. Unlike Carson and me, he went on to be an actual officer in the actual United States Army. Among other things he was involved in counterintelligence. At any rate here is what he has to say about the Institute’s plans.
The idea that townhouses could be erected on Hallowed Ground, ground where our First Patriots fought one of the most important battles of the war; where Hugh Mercer and others gave the last full measure; and where George Washington placed himself between the thin red line of the British Army and his wavering soldiers to save a victory – is misguided and short-sighted. we need to preserve the precious few acres that remind us of those sacrifices. America needs to go about preserving its cultural heritage the way it is (finally) addressing the preservation of our natural heritage. And in the case of battlefield preservation, the two intersect.
I may not be 100% with the taxpayers on the first case, but I’m certainly not going to root against George Washington.