Why Should Delaware Care?
After decades of discussions between the City of Newark and the University of Delaware about how the school can better support the city financially, lawmakers are once again proposing a per-student tax on the university. Supporters argue the additional funds will help close the city’s budget deficit, while opponents believe it will only add to students’ financial burdens.
Newark officials say the city is losing revenue, in part, because of its tax-exempt neighbor, the University of Delaware.
As a result, a new state bill has been re-introduced to let Newark establish a “per-student” head tax on UD, which aims to have the university chip in for the city resources that both the school and its students rely on.
City officials argue that the university’s presence, with around 24,000 students and its large domain of tax-exempt property, significantly impacts the city. Tom Coleman, city manager for Newark, said it has contributed to rising rent prices, lower vacancy rates, and higher taxes for residents.
The city is currently facing a $6 million deficit in its annual budget that could be offset by property taxes from the university. And each year, city officials have to cut back on city projects and maintenance, Coleman said.
“Since there is no sales tax and there is no local share of an income tax, the economic activity that they bring, which is legitimate, does not flow to the city to help us pay our bills,” said Coleman during last week’s House Administration Committee meeting.
The bill, which was originally introduced last spring by Rep. Cyndie Romer (D-Newark) and re-proposed early this year, would authorize a charter change allowing the city to tax the University of Delaware up to $50 per student, per semester, for those taking classes at the Newark campus.
It also includes a provision to adjust the fee based on inflation, each year.
Romer and Newark city officials stress that the tax is on the university, not the students. However, the university can pass the fee down to its students, which came up as a concern for legislators and students during last week’s House Administration Committee meeting.
Opponents of the bill say it will only burden students like graduate students who already pay taxes while living off-campus in the city as well as students who are already living below their means to pay for school.
“What this bill would do is punish graduate students for attempting to attain a higher education,” said Max Bobin, president of the Graduate Student Government at UD, during the Committee meeting.
The bill passed the House Administration Committee last week, though some legislators, like House Minority Whip Jeff Spiegelman (R-Clayton), expressed hesitation.
Spiegelman argued that the fee, which increases with inflation, could become a financial burden for students — especially without the university’s involvement in the decision.
The bill will now head to the full House chamber for a vote.
Romer is confident that the bill will fare well, given the lengthy history of the situation between UD and the city, in addition to the data she and the city have to account for Newark’s concerns.
“I expect it to go through,” Romer told Spotlight Delaware.
A tax-exempt origin
The University of Delaware became tax-exempt in 1915, meaning from that point forward, any property owned by the school was not subject to property taxes or property assessments.
To account for its growth and impact on the city, the university began making annual payments of $120,000 to Newark in 1965. In 2001, it added a yearly $60,000 contribution to support public safety efforts.
Neither of those amounts has changed since.
But university officials say they contribute millions of dollars to the city in utilities, stormwater management expenses, rental property taxes, and building and rental permit fees.
“Additionally, the university attracts short- and long-term residents to Newark, as well as the businesses and researchers who directly contribute to the city’s budget revenue,” wrote officials from the University of Delaware in a statement to Spotlight Delaware.
Since the 1950s, the university has more than quadrupled its size and now owns about a third of the land that encompasses Newark, according to city officials.
UD presence inflates housing prices
Coleman says the greatest impact UD has on the city is Newark’s housing costs.
More than half of the university’s students commute to Newark’s campus for class and with the influx of students living in Newark’s residential areas, rent prices have spiked and vacancy rates have dropped, Coleman said.
According to the Delaware Housing Authority 2023 Assessment, Newark had 96 for-sale vacant housing units, the lowest compared to Wilmington and Dover. The city also had the highest median housing costs compared to both cities.
“I’ve got some coworkers that have been trying for years to buy a place in Newark, and they either get outbid by investors’ all-cash offers, people who want to buy it and rent it out because they can rent three- or four-bedroom house for $4,000 a month,” Coleman explained.
Between 2020 and 2024, property taxes have increased by 34% for city residents and have increased by 2.5% for this year.
During the committee meeting, Coleman highlighted the Chrysler Newark Plant and University Courtyard apartments, both bought by the university in the last 15 years and removed from the city’s tax rolls. Over that same period, property taxes for residents rose by 13% to 16%.
“It’s hard to ignore the correlation,” Coleman added.
Because of the land acquired by the school, Newark is missing out on about $5.8 million in property taxes, which Coleman said is a misleading figure, since many of UD’s buildings haven’t even been assessed.
Newark’s annual budget for this fiscal year is about $123 million, which mostly comes from utilities, and every year the city operates in a $6 million deficit, which property taxes from the university would nearly make up, Coleman said.
As a result of the deficit, Newark has to make decisions each year to defer city projects like water pipe replacements, road maintenance, and funding for their police department, which is currently understaffed.
Coleman recalls that about 20 years ago, the city proposed a $10 student head tax, but the idea faced pushback from the university and never gained much traction.
He said that after years of trying to negotiate with the school, Newark City Council felt the need to pass a resolution last year to ask the state to propose the charter change to allow the city to tax the school.
If the current bill is passed, Newark would be able to generate an annual revenue of $2.4 million for the city.
Other options explored
The first bill to enable the charter change was proposed last spring by Romer but was pulled before it went to a House committee after Newark and UD decided to continue conversations after session and consider the possibility of entering Newark into the state’s payment in lieu of taxes (PILOT) program so that they wouldn’t have to tax the school.
Per the Delaware code, the state’s PILOT program provides dollars to the state’s county seats – Wilmington, Dover, and Georgetown – for state-owned properties that are not taxable, like courthouses, prisons, and public schools.
However, the law specifically excludes property owned by the Delaware Housing Authority, Delaware Solid Waste Authority, Delaware State University, and the University of Delaware.
A task force was created to look into the issue, but Romer said the state officials did not want to alter the PILOT funding structure since properties throughout the state were still being reassessed.
“I think it was pretty clear from probably the first or second meeting that the overall ask from everyone was just going to be really too high for the state to be able to handle,” Romer said.
Although discussions didn’t get far, the city received $2 million in one-time funding from the state as an interim fix, which was also a boost from the $450,000 they have been receiving from the state’s bond bill for the past few years as PILOT payments.
But Coleman noted that there’s no guarantee Newark will receive that money from the state in subsequent budgets, making it difficult to budget for the future.
Debate pits residents versus students
During the committee meeting, residents voiced their support for the bill, citing the need for the university to pay for the city resources they use like roads, bike lanes, recreational facilities and police presence.
“I’m a city resident. I gladly pay my property taxes, they’re well used, and I think the university should pay their fair share for being in the town also,” said Robert Serge, a local Newark resident.
School officials say that they are sympathetic to the city’s needs and are currently in conversation with city leadership to look at different solutions that could rectify the issue.
The university currently enrolls 3,565 students who receive Pell Grants, a type of federal funding awarded only to undergraduate students with exceptional financial need. Meanwhile, about 6% of incoming students cover their educational expenses without any financial assistance, which includes federal work-study, grants, or loans from federal, state, or private sources, according to university officials.
Such students could potentially be impacted by the tax.
“Our goal is and remains centered on providing an accessible and affordable pathway to a UD education for our students — those who contribute social, cultural, and economic value to the City of Newark,” UD officials wrote.
But Coleman said if the bill doesn’t go through the city will have to continue to “do more with less” and may resort to more spending cuts, deferred maintenance, and increases in utilities and taxes for residents.
The post Newark tries again to enact UD student head tax appeared first on Spotlight Delaware.