Newark Weighs Per-Student Tax To Address Budget Gaps Caused by University of Delaware's Tax Exemption


The University of Delaware (UD) and the city of Newark find themselves in the throes of financial turmoil, prompting a contentious proposal that could reshape the financial dynamics of their longstanding relationship.

As both entities grapple with budget shortfalls, a per-student tax on the university has emerged as a solution proposed by the Newark City Council. However, this unconventional approach faces staunch opposition from students, administrators, and the broader university community.

(Photo : UNSPLASH / Kelly Sikkema)

Financial Strains at UD and Newark

UD's President, Dennis Assanis, recently attributed the university's budgetary woes to escalating employee health-care costs, leading to a hiring freeze and contemplation of severe measures to restore fiscal equilibrium. Simultaneously, the city of Newark, home to a sizable student population of 23,613 at UD, faces its own fiscal challenges, with a projected $8 million revenue shortfall in 2025. This confluence of financial struggles sets the stage for a contentious debate over the fiscal responsibilities of the university in its relationship with the city.

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City Council's Proposal: A Per-Student Tax

In response to the fiscal imbalance, the Newark City Council has proposed a per-student tax, seeking up to $50 per student per semester from UD. With the university owning nearly 35 percent of tax-exempt property in Newark, the council contends that such a tax is warranted to offset the impact of the growing student population on the city's infrastructure, particularly police and fire services. The tax is projected to generate $2 to $2.4 million annually, providing a potential lifeline to Newark's strained budget.

Opposition and Unusual Revenue Collection Methods

The proposed per-student tax has sparked opposition from students and university administrators who argue that UD already contributes significantly to Newark's economy. They assert that imposing an additional tax on students would unduly burden an already financially vulnerable demographic. However, local politicians argue that it is time for the tax-exempt university to contribute financially to the rising costs of running the city.

This proposed tax stands out as an unusual method of revenue collection from a university. While municipalities often negotiate Payments in Lieu of Taxes (PILOTs) with local universities, Newark's proposal takes a direct approach by targeting students. While acknowledging its unorthodox nature, proponents argue that it strikes a reasonable middle ground, generating revenue for the city without imposing an excessively large burden on the university.

Exploring Alternatives and Legislative Hurdles

Despite the city's efforts to address the financial strain, experts remain skeptical about the proposal's viability. Legislative attempts to tax nonprofits, especially universities, have historically faced resistance due to the lobbying power wielded by these institutions. However, if approved, the tax could provide a compromise solution that supports the city's infrastructure without unduly burdening the university.

To become law, the proposal must navigate the legislative process, requiring approval from the Delaware General Assembly, the governor's signature, and a final vote by the Newark City Council. While city officials assert that the university can decide whether to pass the tax along to students, the ultimate financial impact remains uncertain, prompting concerns from both students and university administrators.

Charting a Path Forward: Collaboration and Creativity

As Newark seeks new revenue streams to address its budgetary challenges, the city is also exploring other options, including a potential tax on gross rents or lease payments and participation in a state-level PILOT program. The ongoing negotiations underscore the complexity of town-gown relationships, requiring creative solutions to balance the financial needs of both the university and the city.

The proposal for a per-student tax in Newark adds a layer of complexity to the intricate relationship between UD and the city. The debate highlights the financial strains faced by both entities and underscores the need for collaborative, innovative solutions to address budget challenges while maintaining a balance that does not unduly burden students pursuing higher education in the college town.

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