The Politics of Neighbors: You Don’t Get What You Deserve. You Get What You Negotiate.

This piece was originally published in February 2009 by the Ann Arbor News.

In January 2009, the Ann Arbor News reported that: “The University of Michigan wants to help the local economy, but giving the city an in-lieu-of-tax payment isn’t the way to do it, U-M President Mary Sue Coleman said.” Mayor John Hieftje responded to Coleman’s comment by assuring taxpayers: “We’re going to continue to work on that.” He’s had a decade to “work on that,” however. Other members of City Council, such as Fourth Ward’s Council member Marcia Higgins, and Margie Teall and Second Ward’s Steven Rapundalo have had almost that long to “work on that.” 

While the current administration accepts fiscal policy dictates from Dr. Coleman, Ann Arbor taxpayers pay for the bulk of municipal services provided to the University of Michigan. To be fair, U of M does pay for a fraction of some of the services it receives. For instance, in 2008 U of M paid $808,232.78 for fire protection. That amount reimbursed taxpayers for about six percent of the total $13 million dollars spent on fire protection.

Pushing nonprofits to make payments in lieu of taxes (PILOT) is nothing out of the ordinary. Around the U.S., college leaders and city councils have hammered out agreements—under the auspices of so-called PILOT Programs—that provide those communities with millions in annual payments. In some communities, PILOT payments are adjusted annually for inflation. Harvard contributes yearly PILOT payments to the cities of Cambridge, Boston and Watertown. The annual $2.8 million dollar Cambridge-Harvard PILOT payment agreement has been renewed every decade since 1968. MIT has made PILOT payments to Cambridge since 1928.

Nearby Boston has one of the most aggressive PILOT programs in the United States. Officials there believe that if nonprofits can afford to build or expand, they can afford to contribute generously toward municipal services. Over 50% all land in Boston is controlled by non-profits, and in 1999 Harvard agreed to pay that city $40 million dollars over the next 20 years in PILOT payments. In smaller cities, such as Urbana, Illinois, elected officials have crafted PILOT programs to counteract the erosion of their tax bases when colleges and other nonprofits purchased additional property. This is what recently happened when U of M purchased the Pfizer buildings and land, a 170-acre parcel; officials estimate that the city will lose 4-5 percent of its total tax base. The $83.7 million dollar general fund, from which our municipal services are funded, will lose $1.4 million per year in tax revenue beginning in 2010. 

Dr. Coleman suggests the Pfizer facility may create 2000 new jobs over the next ten years. However, before the city recoups any lost property tax revenue from home buyers who may move to Ann Arbor for those jobs, the purchase will allow University of Michigan to expand opportunities to increase revenue from patents and licenses that result from its research activities. 

In 2004, U of M spent $752,527,056 dollars on sponsored research expenditures, according to the Association of University Technology Managers (AUTM). That same year, U of M filed 149 patents, executed 73 licenses and options, and took in $10.6 million in patent revenue. That revenue places U of M solidly among the top 20 university patent revenue earners in the U.S. Thus, the Pfizer facility purchase has the potential to catapult the University of Michigan further up the AUTM’s patent revenue list, perhaps closer to the University of Wisconsin-Madison, which earned $47.6 million dollars in revenue from patents and licenses in 2006. 

John F. Ryan is a Property Tax Policy consultant who helped the city of Springfield, MA craft its PILOT program in 2005. Ryan says, “Some organizations recognize the value of services they receive from the local government and are willing to pay their fair share of those costs.”

According to Mr. Ryan, Dr. Mary Sue Coleman’s response to elected officials who recently called for U of M to make payments in lieu of taxes was, well, predictable. Dr. Coleman insists, “the best way for the university to help the city and local economy is to attract new employees who will buy homes in the area and boost business near the Pfizer property.”

Mr. Ryan explains: “For their part, tax exempt entities generally resist calls to begin or increase their contributions to local jurisdictions. They often respond by enumerating the positive beneficial impact they have on the locality, including creating jobs, making local purchases and paying miscellaneous taxes and fees….” 

In Providence, Rhode Island, elected officials aggressively pursued PILOT agreements with four local universities while lobbying for legislation that would have changed the state’s tax-exemption law. Today, Providence collects $3.8 million annually from the University of Rhode Island, Brown, and the Rhode Island School of Design.

In the Midwest, according to a piece in the New York Times, the City Council in Evanston, Illinois “caused a stir when it adopted a tuition tax of $15 a quarter on students at Northwestern University and three other colleges to help pay for city services.” Northwestern officials immediately met with city council members to devise other ways the university might help defray costs associated with the municipal services it receives.

“In many cases…a nonprofit only negotiates a PILOT or some other voluntary contribution after being…faced with the prospect of some other, mandatory tax or payment levied by the local government,” says Mr. Ryan.

Strategies used by elected officials in Cambridge, Providence, Boston and even New Haven, CT, where Yale officials make annual PILOT payments of $2 million per year, demonstrate that Ann Arbor needs elected leaders who can and will craft an aggressive PILOT program. For many years, we’ve been misled into thinking that it simply cannot be done because, according to the fractured logic circulated, the University of Michigan cannot be taxed thanks to its autonomy granted by the state’s Constitution.

A PILOT program is not a tax. It would allow our city government to pursue “good neighbor” payments not just from the University of Michigan, but from other large non-profits in town, as well. For Ann Arbor taxpayers, a PILOT program could very well mean we could see some respite from shouldering the heavy financial burden of having nonprofit neighbors with big plans for everything, in particular, expansion. PILOT payments are voluntary payments, and a PILOT program could bring in $4-$6 million dollars in additional revenue to Ann Arbor. 

A little bit more….




The simple truth is that a PILOT can be negotiated. 

It has been asserted that Ann Arbor has no leverage to negotiate a PILOT. As someone who has spent two decades negotiating agreements with colleges and universities, as well as Fortune 100 companies, I can tell you that’s simply untrue. The truth is that negotiating with the University presents difficulties to certain Council members, and especially the Mayor: they are employees of the University. The Mayor, for instance, is employed as a temporary, part-time lecturer, his wife as a part-time accompanist at the School of Music. Exerting the necessary leverage to win a yearly $4-$6 million dollar payment from the University might very well cost them their part-time, temporary jobs, and the almost $40,000 U of M pays them each year. 

I taught at U of M many years ago after graduate school, and after several years of teaching in Italy. It was a wonderful experience that I have no desire to pursue again, and certainly not while Mayor. Ann Arbor desperately needs a PILOT program, and has needed one for a decade. Our city can have one when the roadblocks to exerting the necessary leverage needed to negotiate one are eliminated.

Short URL: http://www.a2politico.com/?p=2903

36 Comments for “The Politics of Neighbors: You Don’t Get What You Deserve. You Get What You Negotiate.”

  1. Candidate Lesko, don’t let the “we’re powerless” crowd deter you. Take action. There is powerful dynamic in action.

  2. @Bob,

    I don’t work for the university. But I have lived in Boston and worked in a non-profit there, and now live in Ann Arbor.

    To negotiate a PILOT, you need leverage. Do you think the non-profits in Boston just lined up to provide the city with in-lieu of tax payments?

    In Boston and Cambridge, and all Massachusetts communities for that matter, the municipality retains authority over the zoning, and use of properties owned by universities and hospitals. What does that mean? If MassGeneral or Harvard Business School wants to expand, they may need a zoning change to do it. They certainly need a building permit, and then an occupancy permit.

    In Ann Arbor, what does the University of Michigan need to expand? NOTHING! It is constitutionally autonomous from the city of Ann Arbor, meaning Ann Arbor has no leverage.

    U-M can build what it likes, when it likes, without the city having any say.

    Oh, you’re going to cut off the university’s water and sewer service? Good luck to you. Those charges are paid by the university, just like anybody else who uses water and sewer. Do that and you’ll be laughed out of court and look spiteful. Ann Arbor can deny permits to close streets temporarily, and briefly did so when U-M needed to close Main Street as part of its ongoing construction at Michigan Stadium. But really, that’s small beans.

    Talking about PILOTs here, especially in an antagonistic way, is really counterproductive because of the way the university is autonomous from the city.

  3. # 32/33 PILOT payments are voluntary contributions. You U of M people might have Ph.D.s but you are awfully thick about the difference between mandatory and voluntary. U of M’s constitutional autonomy has nothing to do with whether a PILOT payment could be negotiated. U of M’s status as a public institution has nothing to do with it either. What has been negotiated in Cambridge can be negotiated in Ann Arbor. We do know for sure that the current Mayor and Council haven’t had the stomach to get it done. Time for change. If this blog is any indication, this woman will do what it takes to get us more than the $8 million U of M pays to have water to drink and to be able to flush their toilets. My guess is that the city should be getting three times that amount. Either that, or cut off their water and sewer service. Let them have their own landfill on North Campus.

  4. Oh, by the way, PILOTs in boston are politically popular because the land owned by PRIVATE universities vastly outweighs the land owned by PUBLIC universities. Remember, BU, BC, Northeastern — all sizeable and all private. UMass Boston. Tiny.

    Do you think people in Grand Rapids, Flint and Muskegon want their tax payments to U-M to go to Ann Arbor in the form of a pilot so Ann Arbor doesn’t have to make more drastic budget decisions? I think not.

    And anyway, Lesko, when Mary Sue Coleman says No. What can you do? Because that’s what she’s going to say. The answer: Nothing.

  5. All of you have forgotten that the university is constitutionally autonomous, like MSU and Wayne and others in Michigan.

    Ann Arbor has No leverage, aside from holding up a street closing permit, or balking at closing a lane on Main Street for the stadium construction.

    This isn’t Boston, where the mayor and city council can bully BU into building more dorms for students.

    And quoting the amount of money spent on research is misleading. That money is mostly grants from NIH, and NSF. It has to be spent on research (this can include the salaries of people doing the research and indirect costs such as heat and lights). It can’t be given to the city. And in any case, it is supporting the community. That’s millions of dollars paying for people to live here, to buy houses here, to spend money here.

  6. @28: The number I’ve seen for the former Pfizer property is 174 (or 173.5) acres. It doesn’t look like that affected your calculations, though.

    “U of M has taken 1,728 acres of land off of the tax rolls.”

    How much of that was actually ever on the tax rolls?

    The dollar amount per land area numbers are of somewhat limited value absent information about what benefits those universities receive that they don’t otherwise pay for. The Cambridge report breaks out “Real Estate Taxes” and “Water & Sewer Fees” in addition to “PILOT”. The only other category is “Other Fees and Permits”, which isn’t broken out so that a comparison can be made with the categories and associated numbers that Jim provided for U-M.

    Not that I think it’s necessarily the thing to pursue, but why aren’t you trying to compare property values (including buildings) instead of just land area? (I can imagine it wouldn’t be as easy.)

    Up to this point, most of my questions have been about clarification. Here’s what I really would like to know: if the U buys a property, like the Pfizer site, and won’t be paying property taxes on it but will be paying all the fees for the services provided to it from the city in the future (or otherwise doing the maintenance, etc. themselves), what’s the justification for them giving the city more money? Is it because they can afford to? The hit to the city budget is a strain, yes, and maybe a one-time ‘impact fee’ (possibly over several years) would be reasonable to charge, but once the U has taken on all the costs of the site and the city no longer needs to provide it services that property tax payers receive, what’s the justification for wanting an ongoing annual PILOT?

    I really appreciate (and enjoy) all this exploration. I wouldn’t be surprised if it finds that the U ‘owes’ the city something, regardless of whether a PILOT would be a more effective and appropriate means of obtaining it than an income tax or some other (like increased or modified fees.) Thanks for the effort.

  7. So, at $17K per acre, U of M would pay $20 additional million per year. That works for me. I’m sure it would work for the city’s General Fund, as well. I agree with Pat that we can get this done with a Mayor who is not in love with social climbing at the U. If this blog is any indication, Lesko is anything but a social climber.

  8. Just for the sake of comparsion:

    Ann Arbor occupies 27.7 square miles of land. If U of M occupies 10 percent of that land, then it occupies 2.7 square miles of land. 1 square mile = 640 acres. Then, U of M has taken 1,728 acres of land off of the tax rolls. The Pfizer property at 30+ acres or so was valued at $147,000,000. That single property contributed almost 5 percent of Ann Arbor’s total tax base ($14.1 million dollars in taxes in 2007). U of M’s $8 million dollar contribution, in light of these figures, would appear to leave room for some significant negotiation.

    In 1928, Cambridge pushed for a PILOT with MIT because the college bought a large parcel of land and removed it from the tax rolls.

    This 2008 report to the city of Cambridge from its three university neighbors is very comprehensive (http://www.cambridgema.gov/~CDD/data/educ/towngown_2008.html). Harvard, you will note occupies 227 acres and pays $4 million dollars per year in PILOT payments, or $17,000 per acre. U of M pays $4,600 per acre. U of M’s voluntary contribution, if calculated per acre, then, is just 27 percent of what Harvard pays.

  9. “That’s pretty paltry compared to…”

    We could go round and round about what it’s less than. Until it’s put into the relevant context of what we think they should be paying for and then check how it compares to THAT, other comparisons only confuse matters.

    So far, Karen, you’ve identified a few possible areas of discrepancy between costs and benefits: fire protection wages and benefits, the use of city parks by U students, etc, and the U’s use of the recycling center. Maybe you can suggest a ballpark number based on those.

    As Jim pointed out, though, “U of M has its own waste management collection system, and contributes that waste stream to the recyclables at the city materials recovery facility.” So it seems that the city benefits from that arrangement (from the proceeds of the recyclables) at the same time that the U benefits from not paying tipping fees for those materials at a landfill. The unknown is whether or not the U pays a tipping fee at the MRF. Maybe Jim can tell us.

    All this has me wondering just what the mayor (or others in city administration) went to Coleman with in terms of a number and a justification. The fire truck being the only thing the U has given (as opposed to made payments for services provided by) the city, I imagine that fire services was one part of it. And Pat cited a payment made for fire services in 2008. Was that the only year?

    Pat, from your research do you know what the basis is for the payments made by Harvard and the other universities? For example, if it was “to counteract the erosion of their tax bases when colleges and other nonprofits purchased additional property”, what were the formula and the duration? Did the examples you cited threaten their communities’ governments with an income tax or some other mandatory tax as Mr. Ryan suggested? Did he give examples of the “many places” where that was done? Did he mention examples of the sorts of benefits that universities get that they don’t compensate the community for that would be helpful in our situation?

  10. Materials provided to Council for tonight’s work session list payments received from the UM for FY09. The total for streets is $30,720.39. That’s pretty paltry compared to the $800,000 per year the DDA parking fund pays to maintain the streets around the parking structures and lots in the DDA district.

    Here’s the list
    Rental for Mary Street 2,700.00
    Safety Services-Plice services football/other 210,184.96
    Streets 30,720.39
    Annual right of way license fee 5,135.00
    Utility inspection and testing 50,371.66
    Project management 113,094.00
    Property rental 28,890.00
    Solid Waste-compost center 2,709.99
    Water-Misc 4,033.33
    Water connection-primarily UM Stadium 674,869.50
    SUBTOTAL 1,122,708.83
    Total water,sewer,stormwater charges 7,656,583.99
    Total cash payments for services rendered 8,779,292.82
    Non cash payment-use of UM facility for city detectives 120,000.00
    TOTAL 8,889,292.82

  11. Janelle, I understand and agree about the lack of rationality in many decisions (and that I didn’t mention that previously.) Whatever path we take will be more successful if we understand that and make good efforts to help people think more clearly, in addition to acknowledging and addressing the valid (i.e., rational) concerns that they have. This relates somewhat to my comment on another thread about my preference for non-partisan over bipartisan approaches, where the latter tends to limit options based on a process that builds in the division between the sides rather than working to eliminate the division through an educational, information-sharing, alternative-exploring process.

    @22, that’s an interesting idea to make a distinction between land uses. I wonder if it might have any traction.

  12. In the interest of addressing a few questions raised in comments, let me offer the following:

    The University pays for the municipal services it uses at rates set by the city, which are the same rates charged to all non residential customers. There is no discount to UM, the School District or any other non-profits. The $8 million that was paid was 100% of the city’s commercial rate charge to provide water and sewer service. See: http://www.a2gov.org/government/publicservices/customerservice/

    When I indicated that the University pays “up to 50%” of the costs associated with improvements to local city streets adjacent to campus, the percentage is based upon the linear frontage of the adjoining property owned by the University within that particular street project. Allow me to add that the University controls about 12 miles of roadway in the community; streets like Murfin, Hubbard and Bonisteel. The University takes full responsibility for plowing, repairing and maintaining these roadways.

  13. @Steve Bean

    I primarily see it as a tool to institute a PILOT program. I checked out your comments on AU. I think there’s one important thing you forgot to factor in- people do not always behave rationally. Perception often trumps reality. And the word “Tax” does not give people the warm-fuzzies.

  14. time waits for no person

    Or that the UM pay property taxes on land they own that doesn’t have anything to to do directly with education.

  15. time waits for no person

    I’m just saying that Ann Arbor may have a population of 112,000 or so, but the folks who really want to be here (and active/involved citizens here for more than 4 years) is far fewer than 100,000.

    I have no idea what UM’s fair share would be but If we’re talking about paying something for the land they occupy and the services they consume and the stress that their constituency (students etc) have on the city, land that could/would/might/maybe be paying local property taxes, let’s say that maybe that they could pay 20-25% of the amount that property taxes would garner if that land were on the tax rolls.

    If Council and the Mayor are serious about finding new revenues, they could at least give it a shot and direct Postema to craft something to make the UM sit up and take notice instead of being lap dogs.

  16. @18, what do you consider to be their “fair share”, and how does that compare to what they currently contribute?

    I don’t see the relevance of your first two statements. Care to elaborate?

    @19, Pat, what other non-profits are you referring to? Do you have any info on what other communities do to put them into similar context?

  17. @18 City Attorney Stephen Postema works on behalf of City Council. So, he can’t initiate legal challenges without instructions to do so. Thus, it is really Mayor and Council who have not had the will to tackle the issue of a PILOT program. Again, as I wrote, U of M is just one of the potential non-profits that would be approached to make payments in lieu of taxes under the auspices of a PILOT program.

  18. time waits for no person

    Steve, that 100,000 is closer to 60,000 when you subtract about 40,000 students, most I would guess live in the city but have little interest being here other than proximity to the UM.

    Oh, as State of MI taxpayers we also pay for the UM campus police and other safety services as well as our own.

    Lastly, if Ann Arbor actually had a City Attorney who represented the city instead of just Fraser and council, they would come up with some sort of language to test the UM’s will in it’s lax attitude toward paying their fair share. Even if the City Attorney thought that no such law, statute, regulation or ordinance could withstand a legal challenge from the UM, at least it would be a bow shot that the UM attorneys would have to work to determine if it’s constitutional or not.

    Unless we give it a shot, we’ll never know if such a venture could be successful in it’s own right or if it might be enough to nudge the UM into doing what’s right. What’s to stop the city from attempting a tuition or ticket tax except for those who continue to say that nothing can be done?

  19. I want to correct the number I used for U ownership of property in the city. I thought I had seen it in the post or a previous comment, but it must have just been in my head from some past discussion. It might be that 40% was the number that represents the amount of land in the city that’s not taxable (e.g., U-M, parks, schools, churches), but even for that it’s probably high.

    In any case, I’ve learned that the U’s ownership of land inside the city limits amounts to less than 10% of the land area.

    Oh, and John, we forgot to acknowledge that in addition to all those people who want to live near the city, at least 100,000 of us DO want to live here.

  20. “It tells us that Ann Arbor is not the place where people want to live – it’s the place that people want to live near.”

    Well put, John. Good point also about the scale of our city and the ease of shopping close by.

    Did you read the comment on AU that I linked to? I’d be interested in your opinion on whether my logic holds up (notwithstanding other considerations that we’re discussing here.)

    The only clear example that I’ve been able to identify of what commuters receive from city taxpayers is the benefit of roads and the related infrastructure (lights, police patrol, snow clearing, etc.) That’s part of the reason I asked for details from others. Roads do degrade primarily from those things you noted, but drivers benefit from their maintenance. The park-and-ride lots are another benefit to commuters (even those that don’t use them benefit from the reduced congestion in the city) that they don’t contribute to directly (their employers might, indirectly and minimally, through property taxes), but that’s complicated somewhat by AATA being a separate entity from the city.

    If you agree that commuters benefit in at least those ways, how do you suggest that we get them to contribute? Or do you think that they already do at a level commensurate with those benefits?

    To tie that question back to the issue of PILOT, I’ll point out that not all U employees are non-resident commuters, so a PILOT isn’t a valid option for covering the costs of the services (benefits) I mention above, since it would result in resident employees and/or students subsidizing commuters. A tuition tax would be ‘unfair’ for similar reasons.

    I don’t think annexation is a positive approach. Could you flesh out your thinking on that a bit?

    What do you mean by “true mass transit”? Not buses?

  21. Steve,

    Taxing people who don’t live here, as the foundation of city revenues, is both odious and desperate.

    Everyone pays for the water and sewer they use. So what exactly is the cost to the city of dietitians from Whitmore Lake driving to work? Are we worried they might look at a park en route, or perhaps step on the grass at lunch? Will their tires erode the asphalt (road damage is caused mainly by semis & other large weight vehicles, plus frost heave)? The U has its own police force; my guess is that orderlies from Milan, or X-ray techs from Ypsilanti are not spending lots of leisure hours dining at Main St. restaurants. Taxing people who don’t live here so that the city can finance a convention center (while Stadium bridge crumbles) is unjust and immoral, hence odious.

    Taxing people who don’t live here to provide services for those who do is also desperate. It tells everyone that the city is unwilling/unable to keep spending in line with revenues. It tells people that the city is no longer a viable economic entity. It tells us that Ann Arbor is not the place where people want to live – it’s the place that people want to live near.

    The strongest argument for an income tax is that it is a kind of surrogate tax on the University, which has taken so much taxable property off the tax rolls. Taxing the people who work at the U – secretaries, graduate assistants, librarians, grounds keepers, post-docs, lab techs, publications staff – as a surrogate for taxing the institution only makes sense if the U holds these employees more-or-less harmless from the tax by raising their pay. Otherwise, you’re merely taxing nurses from Grass Lake or Jackson for the privilege of having a job. They get nothing for their tax, and the U is held harmless.

    The impulse to tax people who don’t live here is yet another sign that Ann Arbor is, on a small scale, becoming just another failed central city. This failure to be a place that can carry its own weight is the true crisis. The city income tax is just an attempt to avoid looking at the real issues -and is immoral, to boot.

    The fix is to re-direct city spending to things that make the city attractive to residents of Scio or Pittsfield. We should aim to be so attractive in our services-rendered-for-taxes-paid equation that people who live near us WANT to be annexed, rather than fear annexation. Subsidizing dog-and-loser “development” projects takes us further down the failed-central-city road.

    Private employers are not as location-dependent as the U. While firms might not pick up and move right away, over time, as firms come and go from existence, or expand operations, new/expanded firms will have a new strong reason to locate in Pittsfield or Scio – in addition to high land costs, and the constantly-rising fee environment of the city. That long-term erosion is the real danger. This bears repeating: new economic activity that is not dependent on UM students (think Potbellies Sandwiches at State/Liberty) will tend to locate on our fringes, not in the city. Private employment will go down, over time. Taxing auto body shop employees, CVS clerks, school teachers and print shop owners is not a surrogate tax on the U.

    Ann Arbor is, geographically, not a big town. It is quite easy to shop at Meyer’s, or Target, or Music-go-Round, all outside the city. In Manhattan, people might not go to New Jersey for everyday items. Here,’ it’s already happening – we’re not Manhattan. Heck, we’re not Chicago – we’re not even Seattle, Portland, or Boulder… Give people even more reason not to be in town, and they will leave, sooner or later. The pro-tax lobby imagines that it’s easier to go down town than to Scio – it’s not. And the taxes needed to build big-city mass transit will simply drive people to the townships even faster. Plus, you would have to build the population of the city to, say, 1/2 million people to make true mass transit viable.

    The U’s outpatient surgery center would pay no property tax wherever it is located. Putting it outside city limits insulates surgeons from any potential income tax -whether or not that was the intention when it was built. Just do’t expect it to be the last employment center for expensive people to locate outside the City of Ann Arbor limits.

    I still have to read the buy-local stuff. Be patient.

  22. Re #11. Karen, one small correction. You said “No dollar amount was provided for the 50% of street repair and maintenance paid for by the U.” Mr. Kosteva actually said “up to one-half of the cost”. That “up to” qualifier could end up representing a significantly reduced total contribution over time.

    Beyond that little quibble, your points are well taken.

  23. Yale89 I am delighted to tell you that you have posted the 2000th comment to A2Politico. Thanks for your thoughtful commentary over the past months. Your screen name has been enshrined in the A2Politico Virtual Hall of Fame.

  24. Steve, who am I disagreeing with here? Jenkins? I just don’t see flawed data as the best indicator of any plausible outcome. It is disconcerting to realize that our mayor and city ad. are out there talking up projects and promises of more money based on jibberish numbers from a study done so they could say there’s a “study” that concludes 75,000 commute into A2. In essence, your question is moot, because we have no idea what the total number of commuters might be.

    If I had a student who turned in this kind of work, I’d ask for the source. It’s the most critical part of the study. I can’t do that, so I can only say that pushing a city income tax at this point based on sketchy data isn’t responsible. It’s a snow job.

  25. Ann Arbor taxpayers have to pay for their use of water, sewer and storm water utilities and have to pay if they want to ride the AATA. They don’t get to deduct these fees from their tax bill. Many of the companies who receive SPARK’s largess are developing UM licensed technology, so the $350,000 SPARK donation is just the U helping itself.

    Businesses located in Ann Arbor pay taxes directly or indirectly through rent. They also have to pay an additional amount for solid waste collection. The substantial capital costs of the Materials Recovery Facility is paid for by the city’s solid waste millage. The UM benefits from this capital investment every time it drops off a load of recyclables.

    Most of the cost of providing fire protection is wages and benefits, not fire stations or equipment. The UM contributes nothing toward wages and benefits but gets the same service when they call 911 as Ann Arbor taxpayers who pay the cost of wages and benefits.

    No dollar amount was provided for the 50% of street repair and maintenance paid for by the U. Is it more than the $800,000 per year the city extracts from the DDA parking fund to pay for maintaining streets around the downtown structures and lots?

    How much does the U contribute toward maintaining our parks which are enjoyed by the large population of UM students?

  26. Janelle, do you think that an income tax would only have value as leverage to get a PILOT, or would you consider it a viable option for the city?

    People point to the U’s ownership of 40% of land in the city as reason they should make a PILOT. At the same time, the size of the U, combined with the concentration of population within the city limits seem like factors in favor of businesses staying here, in spite of predictions by some that many would leave for the townships if an income tax were instituted. (I wrote more on this topic here: http://arborupdate.com/article/1753/city-income-tax. See comment 6 in particular.) I’m not necessarily in favor of making such a switch, I just think that there are more factors to consider.

    Yale89, to get back to the question of the percentage of city services that the U uses, one thing to consider is that they provide much of their own services whereas residents and businesses don’t to such an extent. So while 6% (of fire services) might seem low compared to 40% (of land area), it’s not quite an apples-to-apples comparison. In that case, as Jim noted, the U covers the costs of a fire station that doesn’t figure into the $8 million you referenced. Street maintenance and repairs along with solid waste collection probably add up to a big figure, for example.

  27. A2Dem, why do you disagree about an income tax? (I don’t think you shared that in your comment.)

    If the number of commuters is actually lower than the higher estimates, how would that result in a more problematic revenue stream than we currently have? Obviously, it would be worse for residents than if the number were higher, but that’s not our current point of comparison — the choice is between the current revenue level from property taxes and the level that would result from instituting the income tax, not between two income tax scenarios with high and low commuter numbers. Do you think there’s a transition point somewhere between 75,000 and 50,000 commuters where an income tax would change from ‘good idea’ to ‘bad idea’?

  28. @6 “What is it you think that Ann Arbor taxpayers should be compensated for aside from the services that Jim listed?”

    I think calculating the total taxable value of the land and basing a payment on that would be infinitely more advantageous to the taxpayers. Should we promise to negotiate payments that would advantage U of M? I agree that facts should prevail, but I suspect $8 million is far short of compensating taxpayers for the total percentage of services used. I look forward to Mr. Kosteva’s answer to that question, if he does answer.

    Why not look to a benchmark that further benefits the taxpayers? The total value of U of M’s land, then, is where one begins. Surely we know exactly how much that land is worth, and how much in property taxes would be paid if it were not held by a non-profit. We know, for example, what the taxable value of the 30+ Pfizer acres when Pfizer paid taxes, $147,000,000.

    I like this idea of a PILOT, and would suggest in other cities there are a variety of ways the payments are calculated. In every case, one imagines, the method of calculation favors the city and its taxpayers.

    If U of M makes voluntary payments, wonderful. It would better advantage taxpayers for the city to decide what the payment should be, however.

  29. “In 2004, U of M spent $752,527,056 dollars on sponsored research expenditures, according to the Association of University Technology Managers (AUTM). That same year, U of M filed 149 patents, executed 73 licenses and options, and took in $10.6 million in patent revenue. That revenue places U of M solidly among the top 20 university patent revenue earners in the U.S. Thus, the Pfizer facility purchase has the potential to catapult the University of Michigan further up the AUTM’s patent revenue list, perhaps closer to the University of Wisconsin-Madison, which earned $47.6 million dollars in revenue from patents and licenses in 2006.”

    Wow!! I had no idea. Go Lesko!! PILOT? ABSOLUTELY.

  30. Yale89, why do you see land owned by U-M as “city land”? What is it you think that Ann Arbor taxpayers should be compensated for aside from the services that Jim listed? Does the city provide other services or maintenance on U-M land that it’s not compensated for? I think it would really be helpful if someone provided some specifics.

  31. #3 Thank you for providing the information. Could you please tell us the exact percentage of municipal services U of M uses in exchange for the money paid? From your answer, one is led to conclude the $8 million is more than ample to compensate the City for the percentage of services provided.

    Perhaps, though, we might do better to base the amount U of M ought to contribute on the total percentage of city land the University has taken off the the tax rolls. In this case, double that $8 million dollars would be a more equitable contribution, yes? Perhaps we might do even better to avoid the discussion of municipal services completely, and base the contribution on the total taxable value of your land.

    Anyway we look at this, $8 million doesn’t seem nearly enough to compensate Ann Arbor taxpayers.

  32. Jenkins, I work at the University, as well, and I can say that I couldn’t disagree more with your characterization of how you and “your colleagues,” whoever they may be, would be relieved to pay a city income tax.

    Assumptions used to calculate the total revenue generated by such a tax are based on data that is unsubstantiated. Steve Kunselman brought up the same point when he ran, and told of a U of M study that concluded 25,000 fewer people commute into Ann Arbor than claimed by the Mayor, Roger Fraser and the others who’ve paid to have Plante Moran come up with data that matches the outcome they want (or so it might appear).

    It’s a simple question: How many people who don’t work at U of M commute daily into Ann Arbor? The answer? We’re still waiting for one that can be backed up by factual data. However, the Mayor and City Administrator are going around town telling people a city income tax could raise X dollars, and we need trains because 70,000 people commute into town. It’s business as usual with these guys.

    Furthermore, your argument that the PILOT program won’t work because U of M is a public institution is absurd. The post mentions Providence, Rhode Island’s four universities. The U of Rhode Island is a public institution. However, it really makes no difference whether U of M is a public or a private institution. You’re spouting the Mayor’s excuses. He’s always has excuses. Maybe you could find a new one that actually makes sense and share it with him?

    I must say that the idea and discussion of a PILOT program is way overdue. The Mayor has “been working on it” for a decade, so he thinks it’s necessary, as well. He just hasn’t got the ability to get the job done for obvious reasons.

  33. I am commenting on the reference indicated in the second paragraph, “….Ann Arbor taxpayers pay for the bulk of municipal services provided to the University of Michigan”. I thought a few facts may be helpful.

    The university pays for the municipal services it uses and provides additional support for many municipal services in the following ways:

    The University of Michigan in 2009 paid over $8 million dollars to the City for water, sewer and storm water utilities. The university has its own police force. The university provides a fire station for free that serves the entire northeastern part of town and covers all utilities and maintenance costs. U of M has its own waste management collection system, and contributes that waste stream to the recyclables at the city materials recovery facility. The university regularly contributes up to one-half of the cost of repairs and improvements to the local streets that are adjacent to campus. The university pays AATA for providing transit to students and staff. The University of Michigan contributes $350,000 annually to Ann Arbor SPARK supporting the collaborative efforts undertaken to grow existing business and attract new technology based employment. The university contributes space, security and funds toward the Ann Arbor Summer Festival, one of the community’s signature recreational events.

  34. Your post demonstrates a fundamental flaw in your logic and your understanding of government: every example you cite of other PILOT programs involves PRIVATE universities. UM is a PUBLIC State-owned institution. The City of Ann Arbor CAN find ways to charge/regulate PRIVATE non-profits, but it cannot, under any stretch of the imagination, tax or regulate the State.

    Janelle, as a UofM employee, I can tell you that many of my colleagues and I would prefer a city income tax to a PILOT. The city income tax equalizes the burden for residents and non-residents. The reduction in my property taxes offsets the increase in my income tax. Most city residents will most likely pay less under this scenario (obviously there are exceptions, I am talking averages). It should go up for a vote. Let the residents decide.

    Your PILOT program asking for $5 million dollars, if in some fantasy world actually happened, would cause the University to cut costs that would affect department budgets, spending, hiring, raises etc. It would have more of a detrimental effect on the average university employee than 0.5%-1% income tax.

  35. Thanks for expanding on your PILOT idea. When you first brought it up, I thought, “who would choose to make voluntary payments?!” But as you point out, there are ways to play hardball, if push comes to shove, and our current mayor has a major conflict of interest when it comes to UM.

    A great point of leverage to implement a PILOT program is the proposed city income tax. I’m betting UM’s workforce would gladly support PILOT payments over paying a city income tax.

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