Princeton University's settlement to end litigation claiming it should pay property taxes on certain Princeton, N.J. properties is a credit positive for both the Ivy League school and the local government, according to Moody's Investors Service.
Under the Oct. 14 settlement, Princeton will contribute a total of $6.96 million to its home locality in 2021 and 2022. The private university will also pay $10 million over six years beginning next year to a fund that will make annual distributions to Princeton residents eligible for a New Jersey Homestead Property Tax Credit. It also has agreed to donate $1.25 million in the next three years to the nonprofit Witherspoon-Jackson Development Corp. to assist economically disadvantaged residents.
"From the perspective of the university, the settlement is affordable and eliminates uncertainty and negative public relations," said Moody's analyst Eddie Behr in a Oct. 21 report. "The municipality too will benefit from the added funds and extension of voluntary contributions, which are projected to increase."
Moody's rates both Princeton University and Princeton, N.J. bonds Aaa.
Behr noted that total new contributions to the municipality for calendar year 2017 will amount to roughly $2.4 million, which equates to less than 0.2% of the university's fiscal 2015 operating expenses. If more funds are available than needed for property tax subsidies, the balance of the university's annual distribution will be donated to 101: Inc., a nonprofit that gives need-based scholarships to Princeton High School graduates to continue their education.
"The settlement ends a period of uncertainty and negative public relations for the university with an affordable solution," said Behr. "Under the settlement, the university has made several financial commitments to the municipality and its low-income residents."
Behr added that the settlement also extends the university's voluntary payments to the municipality by an additional two years to 2022. She stressed that this is important for the locality given that 25.5% of its real property is tax exempt. The university's $3.48 million annual contribution promised for 2021 and 2022 is only 5.9% of 2015 municipal revenues and replacing these funds would require a tax increase of approximately 10.8%, according to Moody's.
"Like other municipalities with a large proportion of tax-exempt property that fund municipal services with property taxes, tax rates need to be comparatively high to make up for the revenue those properties would generate if not tax exempt," said Behr. "In Princeton's case, this is partially offset by a number of payments in lieu of tax agreements and voluntary payments from not-for-profits including Princeton University."
