Private universities sued their tax exempt status? WTF?

When Dr. J. saw this article last week, it made his eyes pop out of his head, much like those of Aria Stark actress Maisie Williams’s after she watched the Red Wedding episode Game of Thrones.

The story is this, Princeton University is being sued by Bruce Afran a so-called public interest lawyer on behalf of a group of Princeton borough residents to have its state tax-exempt status revoked. Princeton, like many, if not all universities sells tickets to events in the performing arts and sports. There are retail food outlets and they provide healthcare via their student health center. Furthermore, the University brings in $120 million in patent royalties, $30 million of which is distributed to faculty.

Princeton attempted to have the case dismissed and it failed to make a sufficiently compelling case that it is in compliance with the Bayh-Dole act which allows them to do this.

What is at stake is $28 million in property tax that would be owed. Presently, Princeton pays the town $7.7 million plus an additional $2.5 million, so about $18 million dollars is the bottom line for Princeton.

Now Dr. J. finds the case to be a load of horse-pucky. Universities try to attract the best and brightest to their storied halls. They also help underwrite the research, development and patenting of ideas, inventions and innovations that come from their faculty. The same goes for book royalties. One professor of Dr. J.’s at Ivy University received a $250,000 check each year from his publisher because his book of Italian Poetry with Translation is used in every Texas Italian IV(AP) class. If Ivy U. press was the publisher, Dr. J. is sure they got their piece of the action as well.

For underwriting these costs, the University hopes to generate revenue for the University such that they can improve their facilities, recruit more outstanding faculty.

With regard to ticket sales, they are priced to cover a little more than the cost of doing business (in the arts) and sufficiently more than the cost of business (in athletics) so as to sustain the cost of these activities. The dining facilities, well, that’s a stretch.

Anyway, this strikes Dr. J. as a money grab by a bunch of ‘civic minded’ townies that are jealous that they have to pay property tax for the privilege of living in the shadow of the University that is propping up their tony property values. Would they live in Princeton if it weren’t so chic, Dr. J. think’s not. He’d suspect they’d live a little further north in Westfield or such.  Dr. J. visited Princeton once or twice during his time at Ivy U. and found the place to be one of the nicest Ivy League universities and university towns. Penn, Columbia, Brown and Yale aren’t exactly located in the nicest neighborhoods.

But back to the point, could Princeton weather losing this lawsuit? Yeah, sure it can. It has a huge endowment and a tremendous donor base. They’d have to tighten their belt a little bit, but it wouldn’t be the end of the world for them.

The problem is this, once Princeton loses its case, every private university in New Jersey becomes fair game, and you can bet there are a number of lawyers who would be going over their state’s laws to see if they can get in on the action.

So who are the losers in this? Small private universities who lack Princeton or Harvard or Yale’s resources. This would include all of division III and most Catholic institutions in states where these suits could go forward. Dr. J. wouldn’t be surprised of some of them had to shutter their doors as a consequence. The students who want to attend a smaller college, especially one with a religious affiliation can kiss that dream goodbye.

Who are the winners? Big Law, first of all as these lawyers enrich themselves for the trouble of stickin’ it to Big Skool. Secondly, state universities that live in the shadow of their private counterparts, because seriously, how’s one going to successfully sue the state for tax exempt status. Their bottom line won’t get hurt, and if it did, the state legislature can vote to offset the property tax with more money from the state coffers.

So, while on the one hand there is a little bit of Schadenfreude for Dr. J. watching Progs vs. Progs, Lawsuit edition, it does disturb him that the private university has the potential to go the way of the dinosaur while state monoliths remain for the higher education of our children. This sort of badness is a long way off, but there were other things a long way off before President Obama was elected.

Dr. J.