Universities across the country abuse their nonprofit status to compete with local business. The most obvious offenders are the many hotels and conference centers funded, built, and operated by universities. Other universities go further, creating extensive business and research parks that lease office space to for-profit companies—for the ostensible purpose of “creating synergies” and improving student education and research opportunities. Both public and private universities are guilty of abusing the public trust in this way.
But in one state, lawmakers are fighting back. In January, Mark Brnovich, the Attorney General for the state of Arizona, filed suit in state court against the Arizona Board of Regents, the body that governs Arizona State University. The charge is clear:
This case is about ending the Arizona Board of Regents and Arizona State University’s practice of using ABOR’s tax-exempt status to facilitate special property deals for favored businesses. These deals are designed to shield selected companies from property taxes while generating revenue for ABOR and ASU, at the expense of the taxpaying community.
The Arizona Tax Research Association (ATRA) has covered the issue extensively—on the website of the James G. Martin Center for Academic Renewal (here) and in a 2017 Special Report on ABOR Tax Free Zones. The report details the extent of the problem:
Between the University of Arizona (UA) and ASU Research Park, there are roughly 50 companies in 4 million square feet. Instead of paying property taxes, they pay a tariff to the University and typically a separate payment to the City. The other jurisdictions dependent on the property tax are cut out. And they appear to be growing. The UA expanded into a second Research Park in 2009 when it acquired new land dubbed “The Bridges” and is seeking new tenants at both of its parks.
As ATRA points out, these “research parks” are educational in name only. If a company claims to do anything educational—perhaps as little as offering internships—it meets the bar for entry onto Arizona’s research campus. This hurts taxpayers and local governments. Tax-paying businesses and residents near Arizona State University must pick up the tab for services and benefits of living in the jurisdiction, while ASU’s business partners act as free riders. The local government suffers because it has more consumers of its services than entities that pay for them.
A ruling in this case could encourage other states to follow Arizona’s lead.