Recent public discussion over the future of Durham Regional Hospital has highlighted once again relationships between Durham and Duke University. The County Commissioners faced a challenging assignment to find the right partner for Durham Regional in a volatile, changing health care environment to ensure access to high quality health care by people in our community. Members of the county board and County Manager David Thompson conducted an open process to provide appropriate due diligence to ensure that the needs of our community were well served. The decision to go with the Duke proposal reaffirms a fact we often forget the genuine partnership between Duke and the Durham community.
Of course, occasional tensions surface between town and gown, in Durham and wherever universities are located. In earlier days, tensions tended to focus on such annual rites as panty raids and happenings that dinosaurs like me remember. Some persist in terms of students and alcohol, noise and parties in neighborhoods, etc. But today tensions tend to develop most noisily around municipalities' need for money and the property tax-exemptions of colleges. It is not surprising that questions about tax-exempt status of universities have arisen, given increasing demands on municipal budgets and services, and a corresponding decrease in taxpayers' willingness, which correlates directly with elected officials' reluctance, to support increased taxes. The courts' refusals to overturn the legal protections provided to tax-exempt organizations have led municipalities to seek voluntary payments "in lieu" of taxes. Indeed, if I were an elected official, I might find a certain attractiveness in trying to stake out political turf (and arguably political advantage) by going after the largest local tax-exempt entity I could find. On the other hand, there are very good reasons why society grants tax exemptions to nonprofit institutions such as churches, educational institutions, cultural and social service groups, and hospitals.
Duke is exempt from property taxes on those aspects of its activities that fall under its principal missions of education, research, medical care, and service. The exemption reflects a judgment, both in public policy and in law, that the services and benefits provided to a community by such nonprofit organizations are of sufficient importance, and in many cases would otherwise have to be provided by government, that they merit a special exemption from property taxes. Notwithstanding that exemption, Duke paid some $4.1 million last year in support of city and county government through a wide range of municipal fees and taxes on those properties owned by Duke which do not relate to its educational mission. While one local elected official has castigated Duke in recent days for "not paying one cent" in taxes, the fact is that Duke paid in 1996 more than $265,000 to Durham in taxes alone on those components of its real estate not used principally for educational purposes, most notably the Washington Duke Inn. Duke also pays its fair share of municipal fees that are allocated to both the for-profit and non-profit sector. In 1996, we paid more than $3 million to the city for water and sewer, landfill, and fire inspection and permitting fees. Indeed, the combination of taxes and fees paid by Duke to the city and county roughly equal or exceed the voluntary in-lieu payments made by some other universities to their communities, but who don't pay fees or taxes at all!
A study in the 1980s by researchers at Cornell University showed that the financial relationships between municipalities and their universities reveal no clear pattern but do reflect their peculiar traditions. Thus, while Duke pays taxes on the Washington Duke Inn, Cornell does not pay taxes on its campus hotel. Duke is exempt from paying taxes on its golf course, but Yale does. Those who cherry-pick specific payments frequently end up comparing apples with oranges. By the time they're done, they have created a fruit salad which, while tasty from a political perspective, really provides little nourishment for understanding the unique relationship each institution has with its community.
It is worth remembering at this point that Duke operates with a finite pool of resources. Every dollar spent on one function of Duke is a dollar not available for other worthy programs. Any new dollars can come from limited numbers of sources, including tuition. Our fundamental purpose and service to society is provided through education, research, and health care of the highest quality. While Duke appears to be a relatively wealthy institution, our endowment on a per-student basis is among the lowest of the national private institutions with which we compete for students and faculty; it also is lower than those of Wake Forest and Davidson College in North Carolina. That is why we give high priority in planning the upcoming capital campaign to building endowment support for faculty and financial aid, and to relieve the burden on our operating budget. Duke expects to spend some $23 million next year from its operating budget for financial aid; Princeton can afford to cover virtually all of its financial aid commitments from endowment income! We simply do not have that luxury.
Duke is not opposed to the principle of fees for municipal services or in-lieu payments so long as they are applied equitably. We have indicated to city leaders that if a policy could be established that would cover all nonprofits, Duke, as the largest nonprofit entity, would be willing to pay its fair share. But, Duke should not be singled out for specific in-lieu payments separate and apart from other entities which, like Duke, also are legally entitled to this tax exemption.
We have said that if the city could document that the benefits Duke brings to Durham in terms of services we provide (relieving the city of responsibility for such services) fail to exceed the costs of our presence in municipal services provided to Duke at taxpayer expense, we would be willing to consider the possibility of an in-lieu payment arrangement. A 1997 study of Duke's economic impact on the Durham community estimated that Duke's presence generates nearly $2 billion annually in the local economy. Duke is the largest private employer in the Triangle, generating some $507 million in wages and benefits for more than 16,000 Durham residents. Such benefits put a fresh perspective on efforts by local and state government to provide more than $100 million in tax and other incentives to attract Federal Express and the 1,500 jobs it is projected to bring to its new operations base to the area. It is interesting to think how this state and this community might react to the prospect of attracting an entity even remotely as large as Duke. Methinks that local elected officials would be doing virtual handstands if James B. Duke had to decide today where to locate the university that bears his name!
While it is fairly straightforward to assess Duke's economic impact and the benefits Duke brings to Durham, it is somewhat more complicated to assess the exact dollar amounts a municipality theoretically loses in providing services to tax-exempt institutions like Duke. This year, we made an effort to determine what the taxable base of the university might be. Based on a reasonable set of assumptions, the analysis showed that the total value of buildings (exempting the Medical Center, the Divinity School, the Chapel, etc., all of which would be tax-exempt because of other state tax exemptions) would be somewhat over $900 million, theoretically obligating Duke to pay some $15 million in taxes across the county and the city. Of that, some $6 million would be payable to the city.
But we also know that Duke provides more than $42 million a year in uncompensated hospital care to the people of Durham (which otherwise would have to be borne by taxpayers), a figure more than seven times that which would be generated for the city were Duke taxable. Of course, the benefits Duke brings are much greater than that. Thousands of students volunteer in Durham through our Community Service Center. Duke is actively involved in a Neighborhood Partnership Initiative with 12 Durham neighborhoods and seven public schools in a variety of programs designed to strengthen the quality of lives of Durham residents. Duke has invested more than $2 million in an affordable housing loan fund administered by the nonprofit Self-Help Credit Union, and has helped raise in the last 14 months alone some $2.5 million in support of community partnerships and public education generally. By virtually any measure, the actual benefits of Duke's presence greatly exceeds the theoretical lost revenue that in concept the city might get if Duke were taxable.
Of late, the focus of attention has been on fire service. While Duke provides its own police force, maintains its own roads, and provides a variety of other services valued at some $10 million a year (which legally the city would be responsible for providing otherwise and thus we save the city the cost of those services), the one area of service the university receives from the city for which it does not pay either taxes or fees is fire protection. While we see no prospect of establishing an annual in-lieu payment policy, we have indicated to city leaders that we would be willing to consider a targeted payment to the city if, for example, it needed to purchase specialized equipment exclusively to deal with providing fire service to Duke. Short of that circumstance, however, we believe the $4.1 million of payments we already make in taxes and fees, the tens of millions of dollars in indigent health care and direct services Duke provides in support of the people of Durham, and Duke's developing partnerships with neighborhoods and schools, provide far more to enhance the quality of life in our community than would an arbitrary in-lieu payment arrangement.
John F. Burness Senior Vice President for Public Affairs
Get The Chronicle straight to your inbox
Signup for our weekly newsletter. Cancel at any time.