Law Profs Dispute Yale’s Tax Arguments

Eleven law professors have reviewed Yale University’s arguments that a pending state bill affecting a small portion of the school’s tax breaks is unconstitutional. The professors gave Yale an F.

“As lawyers and professors who practice and teach community and economic development, land use, state and local government, and constitutional law, we have examined Yale’s constitutional concerns and conclude that they are significantly overstated. The legislature is fully empowered to clarify, by legislation, that university property on which certain commercial activities occur is not exempt from real estate taxation. In fact, we believe the legislature has the authority to go substantially further than the proposed legislation in providing for the taxation of university property,” the 11 professors argue in a letter sent Monday to State Senate President Martin Looney and State House of RepresentativesSpeaker Brendan Sharkey. The group includes four current Yale law profs — Munner I. Ahmad, Jonathan Brown, Amy Kapczynski, and MichaelJ. Wishnie — as well as a former faculty member there, Robert Solomon (who currently teaches at the University of California).

“Yale’s primary contention – that the language of pending legislation is unconstitutional – is without merit,” they wrote.

The professors were responding to forceful public arguments Yale has been making against Senate Bill 414. The bill seeks to clarify how a law passed in 1834 applies today. That 1834 law granted a special tax exemption to Yale and four other then-small Connecticut college and universities, over and above the general tax exemptions enjoyed by not-for-profit educational institutions. This special exemption allows the five schools to avoid paying taxes on buildings that partly house commercial activity, as long as that activity produces less than $6,000 in annual unrelated business income.

The bill passed the legislature’s Finance, Revenue and Bonding Committee earlier this month on a 28 – 22 vote. It heads next to the full State Senate for debate and possible vote.

Proponents say the bill would enable New Haven and West Haven to figure out whether they should be taxing, say, Yale’s genome center, where some for-profit contracting is done. The bill does not call for creating new taxes on the university or removing its 182-year-old special tax exemption.

Yale has lobbied hard against the bill since a legislative committee approved it the week before last. The university argues that the bill is unconstitutional for several reasons: it targets tax exemptions enshrined in state law and Yale’s charter and because it singles out Yale. Yale also argued it would open the door to years of lawsuits. (This previous article details the arguments on both sides.)

In public statements sent to the Yale community as well as in interviews with the Independent, officials have argued as well that the law would force Yale to evict community groups like the New Haven Symphony or the International Festival of Arts and Ideas from Yale buildings in order to preserve tax exemptions on them.

Yale has cited a string of court rulings upholding its exemptions when New Haven or others challenged them.

Those rulings — including Yale Univ. v. New Haven (1899) and Yale Univ. vs. New Haven (1975) — preserved the right to tax universities’ ​“commercial dealings.” Another case, Yale Univ. v. West Haven, made clear that sports facilities are exempt under the law. So that threats to, say, evict community groups from Payne-Whtiney Gymnasium to avoid taxation if the bill becomes law would be a hollow threat, under this analysis. Legislative sponsors of SB 414 have said they are open to exemption Yale Repertory Theatre and Woosley Hall, as well; Yale argues that plain language of the law as written clearly targets those facilities. Yale would end up having to $760,000 a year on Woolsey if it continued renting it out, according to the university’s lead state lobbyist, Richard Jacob.

The professors’ letter also argues that Yale University Press, considered exempt in a previous court challenge, may be fair game for reexamination under the proposed law.

SB 414 does not seek to impose new taxes on Yale, though Yale argues that because new buildings might be added to the rolls, improperly in its view, that constitutes a new taxing of ​“academic” property.

“Yale has also objected that the Contract Clause of the U.S. Constitution divests the legislature of all power to clarify what constitutes ​‘educational’ and ​‘commercial’ activities. This objection is unfounded. In fact, even if the state went beyond clarifying Yale’s charter to modifying it outright, it could do so in service of a legitimate public purpose,” the professors wrote.

“In modern jurisprudence, the Contract Clause does not pose an absolute bar to contract modifications; rather, its scope is limited by each state’s authority to ​‘safeguard the vital interests of its people.’”

Click here to read the full letter.

The letter does not address Yale’s argument that the bill unfairly singles out the university by limiting its scope to universities with endowments above $2.5 billion — i.e., just Yale.

R. Henry Weaver, one of the Yale law students who helped research the letter, responded to a question about that claim.

“We do not address this question in our letter because Yale has not clearly articulated why the bill’s specificity raises constitutional questions,” Weaver responded by email. ​“One possible claim could arise under the Equal Protection Clause of the Fourteenth Amendment. But Yale would be highly unlikely to succeed with such an argument. Since Yale University does not belong to any protected class, the legislature would need only to articulate a ​‘rational basis’ for its action, which they surely could. As for the inclusion of a handful of other institutions in the 1834 law, they are unrelated third parties with respect to Yale’s contract with Connecticut.”

Update: Monday afternoon, Yale University Press Secretary Thomas Conroy reached out to the Independent with this response:

“A national law firm has advised, based on five Connecticut judicial decisions and two centuries of Supreme Court rulings, that the proposed legislation would violate Yale’s charter and violates both the federal and state Constitutions. We respectfully disagree with the law professors and students who have argued otherwise. Ultimately the courts would resolve the issue and we have every confidence that Yale would prevail just as Yale has prevailed in every case attacking its charter rights over many decades.”