Anchor institutions may be called on to do more

A New York Times article yesterday noted that financially-challenged municipalities across the country are calling on land-holding non-profit/tax-exempt organizations to make larger contributions in lieu of property taxes. These organizations, usually college campuses or hospital facilities, might represent a significant portion of a municipality’s property tax base. These “eds and meds” thus represent a potential drag on city government finances by requiring considerable city services but paying no property taxes.

Viewing education and medical campuses as drains on the tax base is hard to resist during tough budget times, and Milwaukee itself budgeted an 8.4% increase in payments in lieu of taxes for 2011. Yet some are able to see these organizations as assets in economic development. From that lens, the eds and meds are “anchor institutions” serving as resources for local economic development. These institutions are neighborhood anchors due both to their size and resources. They are often among a city’s largest employers, but unlike a private business, they are unlikely to relocate.

It is obvious how these institutions can assist in economic development: by employing significant numbers of resident workers, investing in neighborhood infrastructure, and purchasing goods and services from local vendors. What is less obvious is why they may wish to do so. Lacking a mission to serve local residents, why should an institution implement preferences for local employees, goods, or services?

A report from Chapin Hall at the University of Chicago analyzes the costs versus the benefits of local investments by anchor institutions and concludes that, while it will differ by institution, in general the benefits to the institution will outweigh the costs. For example, investing in streetscaping and lighting beyond the campus may bring about a measurable decrease in crime or vandalism on campus. But more often, these benefits can be somewhat intangible, arising from the goodwill, trust, and knowledge gained by partnering with local government and/or community organizations.

Many of the anchor institutions in Milwaukee practice local investing. Marquette University, for example, has helped lead the redevelopment of the neighborhoods on the city’s near West Side. UWM and Aurora Health Care have “walk to work” programs that provide faculty and staff with home-buying assistance when purchasing homes in the neighborhood.

Never the less, while it is likely that these investments have improved property values in the neighborhood, when a local government is faced with an unsustainable structural deficit, the tax-exempt property owned by an anchor institution may feel more like an anchor around the neck.