A recent newsletter published by Berkeley’s Council of Neighborhood Associations says UC Berkeley has markedly increased its purchases of properties within city bounds in the past decade and has not been paying enough for city services as a tax-exempt entity, leading to millions in lost municipal revenue.
Not all university-owned properties in Berkeley are used for educational purposes, according to the October-November newsletter and an online property database. The neighborhood council alleged that those buildings are exempt from property taxes and have been directing revenue streams away from the city. The issues raised in the newsletter gesture to an ongoing debate involving the city and campus that reaches back more than a decade.
Under state law, paying local taxes is not the best use of the university’s resources, which include student tuition, according to UC Berkeley spokesperson Janet Gilmore.
A provision of Article XIII in the California Constitution states that property used for nonprofit institutions of higher education is exempt from taxation.
The six properties purchased by UC Berkeley listed in the newsletter include the Golden Bear Building at 1995 University Ave., which houses UC Berkeley Extension and brokerage firm Charles Schwab, and 2440 Bancroft Way, a three-story building that includes ShareTea, hair salons and the Career Center.
“UC is not simply buying property for its own use,” said Nigel Guest, president of the city’s Council of Neighborhood Associations. “It is buying and leasing to commercial organizations and taking the tax break.”
A ‘fair share’
UC Berkeley is not the only campus to encounter similar city-university tensions. UC Davis, for one, owns off-campus properties that are exempt from property taxes, according to Mike Webb, community development and sustainability director for the city of Davis. These properties are office buildings used primarily for administrative purposes, although some are used for research or classrooms.
“Over the years, there has always been a little animosity about the fact that they don’t pay property tax, but it’s never been a divisive issue,” Webb said. “It’s primarily because (residents) recognize the fact that the university brings so many jobs to the community and area, which contributes to the economy.”
According to Guest, the council acknowledges that UC Berkeley is the center of the city but believes the campus “has to pay its fair share.”
“If it doesn’t, the burden of paying falls on residents, who have to pay more property taxes,” Guest said. “In a sense, we’re subsidizing the university.”
UC Irvine, a much younger institution, does not own off-campus property, according to Cathy Lawhon, a spokesperson for the campus.
The University of Michigan, on the other hand, owns almost 10 percent of the property within the city of Ann Arbor, which is used exclusively for education-related purposes, according to university spokesperson Jim Kosteva. The University of Michigan, he said, pays for municipal services at full rates unlike UC Berkeley, which pays a capped annual amount.
Jacquelyn McCormick, president of the Claremont Elmwood Neighborhood Association who unsuccessfully ran for City Council this year, said the Berkeley community and students are paying the price.
McCormick believes the issue has divided the community into three camps: those who are disinterested, those who support the campus and those who see Berkeley’s financial situation “spiraling out of control,” she said.
The discussion about UC Berkeley’s exemption from property taxes and financial pressure on the community needs to be opened up again, McCormick said. The talks are “not going to come from the city,” McCormick said, but from community leaders.
The Council of Neighborhood Associations has attempted to reach the campus and the city with little success, Guest said.
The cost of compromise
Under the California Constitution, the UC Board of Regents is granted broad authority to buy, sell and own real estate for educational or research purposes or to generate income for the UC system.
According to the campus office of legal affairs, when the university leases property to other parties, the county assessor taxes the lease and sends the bill directly to the tenant, Gilmore said.
“Tenants are not exempt from taxes just because the university (owns) the property,” Gilmore said in an email. “Only the University is exempt.”
The tenant is responsible for the payment of all applicable taxes, which include sales taxes, employment taxes and property taxes, according to Gilmore.
UC Berkeley increased its purchases of city properties in the last decade, according to Guest, who hypothesized that the campus’s “buying spree” was stimulated by a legal settlement in 2005 between the city and university.
In 2004, the city commissioned a consulting firm to analyze UC Berkeley’s fiscal impact and estimated multimillion-dollar losses in city revenue as a result of growth projected in a long-range development plan drafted by the campus. The plan called for increases in campus building space, housing and parking to accommodate higher levels of enrollment through 2020.
According to the consulting firm’s analysis of the plan, the net annual cost to the city of providing public services, such as sewage and maintenance, to the campus was estimated at 13 million in 2003 dollars.
As a result of UC Berkeley’s tax-exempt status, the approximation for lost revenue in 2004 was $10.8 million, and it was estimated that the city would lose an additional $2.5 million in revenue annually as a result of growth under the plan.
City officials sued the university over the plan but dropped the lawsuit when the two parties reached a settlement agreement, which was approved by the city, campus and regents May 25, 2005.
The agreement stipulated that the university allocate $1.2 million per year to the city for sewer infrastructure, fire services, neighborhood improvements and joint transportation efforts. Payments, which increase by 3 percent every year to account for inflation, began in July of 2006 and will continue until the agreement expires in 2020.
“We have seen an amazing amount of new growth take place in the city,” said Mayor Tom Bates about the agreement’s impact.
Bates emphasized the value of the UC Berkeley Chancellor’s Community Partnership Fund, which was established by the agreement and has awarded a total of $1.86 million to fund 111 partnership projects between the campus and the city.
Still, Bates pointed to challenges the city faces as a result of UC Berkeley’s ownership of real estate.
“Every time (the campus) purchases property, it does impinge upon the city’s ability to provide services for residents,” Bates said.