Days before the scheduled start of a trial, Princeton University announced a six-year private settlement with town residents who had challenged the school’s property tax exemption status in state Tax Court. The plaintiffs were represented by solo practitioner Bruce Afran. The overall question of a modern university’s tax liability is not definitively resolved, but for now the settlement represents a peace agreement in response to a series of property tax suits initiated in 2011.
The settlement figures to be $18 million split among three pools of beneficiaries. The first two had immediate and obvious reasons to celebrate. The third was the town government, which had declined to participate in the Afran lawsuit and seemed guarded in its response to the settlement, in which the university pledged to continue its payment-in-lieu-of-taxes, or PILOT, in the years 2021 and 2022 at the same amount paid in 2020.
The university will contribute $10 million, spread out over six years, to a new charitable fund that will distribute monies to homeowners who received a Homestead Property Tax Credit, a state program. (Households making less than $75,000, or senior citizens and disabled individuals earning less than $150,000 in income are eligible.) The university will pay $2 million in 2017 and then $1.6 million a year through 2022.
The university will also contribute $1.25 million to the nonprofit Witherspoon Jackson Development Corporation, in the form of three $416,700 payments paid annually from 2017 through 2019. The development corporation was initially established as a response to redlining, and it has been recently resurrected to assist residents who wish to live and remain in Princeton, primarily those living in the Witherspoon-Jackson neighborhood.
The third component of the settlement is a $3.48 million annual voluntary payment-in-lieu-of taxes (PILOT) contribution to the municipality in the years 2021 and 2022. This is the same amount the university agreed to pay in 2020, the final year of a seven-year agreement with the town that is due for renegotiation in 2019.
Thanks to Afran’s settlement, nearly 900 homeowners will receive about $2,000 a year in tax relief for the next six years.
Of the three recipients of funds, the town was the only one that expressed reservations. Ten days after the university announcement, Mayor Liz Lempert and Council president Lance Liverman stated that the announced PILOT is “likely to be interpreted by the municipality as a floor to discussions.” The town decided to take a neutral position during the course of the litigation and was not involved in the settlement negotiations. Council members Bernie Miller and Patrick Simon, who previously represented the town in negotiating the seven-year PILOT agreement, declined interview requests in testy e-mails emphasizing the settlement had not been shared with the town or the public.
The university owns more than 1,035 acres of land in Princeton. According to the tax assessor’s office, the total 2016 assessment of university property is $1.889 billion. Of that total assessment, 21.2 percent, or $400 million, is taxable. The 2016 property tax bill for the university is $9.06 million, 22 percent of which goes to the municipality itself. This year’s voluntary contribution is $2.97 million.
Afran had called the university’s tax exemptions into question by pointing out the school’s investment and science patent licensing revenue, income earned at virtually every U.S. research university. University representatives countered that the revenue goes to educational purposes and so the tax exemption is valid.
None of these issues will be aired out as a result of the private settlement.
Lead plaintiff Ken Fields, a retired Rider math professor who lives on Linden Lane, was convinced the case was going to trial because the university adamantly opposed adding any portion of an academic building onto the tax rolls. From the plaintiffs’ perspective, a total elimination of the exemption would have added more than $30 million in annual revenue, which would have averaged out to $4,000 of relief to the more than 7,000 households in town. (These estimates assume the university’s property assessment values are accurate.)
However, a total victory was unlikely. Moreover, any large scale relief would be regressive and require lengthy litigation.
“The more house you have, the more rebate you would get,” Fields said. “The people we were worried about, people who were paying around $10,000 a year, might get $2,000. That’s what they’re getting right now.”
What led to common ground between both parties was the concept of directing monies to homeowners most in need.
“We could have gone to trial and in my view we would have won the case had we done so. That would have resulted in, say, another eight million a year in taxes,” Afran said. “When you spread that over all of the homeowners and businesses, that would have resulted in maybe six, seven hundred dollars per homeowner. The settlement gives the greatest amount for those in greatest in need, as opposed to a nominal amount for everyone.”
According to Afran, it was his idea to redistribute the settlement money directly to the 869 Princeton homeowners who received a 2013 homestead rebate, which was credited this year. He and the university will work together to find managers for the charitable fund, and Afran said more than 90 percent of the fund must be paid to the people who will get the aid.
Because the number of homestead rebate recipients is expected to down in the future, surplus monies will go to the 101: foundation, an organization for PHS graduates in need of college financial aid.
University vice president Bob Durkee was quoted in the student newspaper as saying that most of the $10 million to be given comes from money that otherwise would have been spent on litigation. The fund is expected to send $2,000 checks to eligible families by next fall.
‘The settlement gives the greatest amount for those in greatest in need, as opposed to a nominal amount for everyone.’
The Tax Court lawsuit was initiated by four fixed-income retirees residing in Princeton and the estate of public interest attorney Eleanor Lewis, who left $100,000 for a public advocacy legal fund. Afran is the executor and legal director of the fund.
“The only reason we could do it is because of the Eleanor Lewis fund. I had to review 100,000 documents, it took months to review all that,” Afran said. (He confirmed the settlement with the university includes the payment of legal fees, but he declined to disclose the amount.)
In addition, this year 23 residents from the Witherspoon-Jackson neighborhood joined as plaintiffs. “That part of the community supported us and it’s only fair they benefit,” Afran said. “They lent their name, their reputation, and their community image to the lawsuit.”
So where’s the municipal government in all this?
Fields attended the final pre-trial hearing in late September. Sitting alone at one table was Afran, and on the other side were half a dozen lawyers. Between them, the town’s special counsel for the case, Martin Allen, could not find a place to sit. Afran offered a seat at his table, but Allen declined out of neutrality.
The town was listed as a defendant in the Tax Court case since the legal complaint involved property tax assessments, and Allen says the town decided to take a neutral position.
“My obligation was to keep the municipality advised as to the progress of the case, to make sure the municipality’s position in the case was neutral,” Allen said. “We offered to be involved. The university and plaintiffs decided to negotiate on their own.”
Princeton brought in Allen at the end of 2015, which came after Tax Court judge Vito Bianco ruled the burden of proof lies on the entity claiming exemption. At the hearing, the town’s tax lawyer did not want the burden of proof to fall on the town and supported the university’s motion to place the burden onto the residents.
Allen represented Morristown as the town took on its largest employer, Morristown Medical Center, in a property tax suit and won. Morristown sparked the legal battle in 2007 when the town’s tax assessor office denied municipal property tax exemptions for portions of the hospital. Morristown also argued later the hospital’s assessed values were too low.
In contrast the town of Princeton remained silent as residents filed multiple complaints in Tax Court.
The two-year extension of the seven-year “voluntary contribution” agreement between the university and town was included in the settlement, despite the town not being party to the negotiations. In addition, the two-year extension will give the same annual sum, while the previous agreement contained 4 percent annual increases. Negotiations were previously due to begin in 2019, and it’s not unreasonable to expect that the $3.48 million in 2020 would serve as the floor for future years.
Fields says the two-year extension is a baseline figure, and the idea was to give legal protection to the town.
“Our reading of it is, the way it was written, is it was a payment the university could walk away from,” Fields said. Now “the university is obligated to pay the voluntary agreement and not to remove properties currently on the tax rolls.”
“The town is free to do anything it wishes,” Afran said. “I assume the town will expect that money.”
The settlement as a whole concludes in 2022. It includes a clawback provision, in which the university can withdraw half of its contributions if any party initiates tax litigation before then.
For his part Afran says he hopes the partnership can continue. “The university demonstrated a strong willingness to work with me in framing and arriving at the settlement,” Afran said. ”If there’s no permanent solution, the litigation can start again.”
Lawyer Bruce Afran,
