TRENTON, N.J. �� Princeton University agreed to pay more than $18 million to settle a lawsuit by homeowners who said the fifth-richest U.S. school should pay property taxes on its New Jersey campus.
The settlement, announced by the school, came shortly before the scheduled start of a trial. A ruling against Princeton may have had far-reaching implications, upending the relationship between local communities and nonprofit schools, hospitals and other organizations that don't pay property taxes but put a strain on roads, emergency operations and other municipal services.
The residents who sued sought to revoke the school's property-tax exemption, in part because Princeton shares commercial royalties with faculty from a patent that allowed Eli Lilly & Co. to make the cancer drug Alimta. The plaintiffs said the university collected $524 million in licensing income and that it uses some buildings for commercial purposes.
Under the settlement, 869 homeowners will share $10 million, intended as property-tax relief, from 2017 through 2022. The borough government will receive additional payments totaling almost $7 million, and a nonprofit group, the Witherspoon Jackson Development Corp., will receive $1.25 million to meet the housing needs of poorer residents.
"It really should be looked at as a model for other communities with large nonprofits," said Bruce Afran, a Princeton-based attorney who represented the 26 plaintiffs from a historically black neighborhood of modest homes. "We want to keep that diverse socioeconomic background in the community. We don't want Princeton to be solely an elite and exclusive town."
The university, with an endowment of $22.2 billion, already pays the borough of Princeton about $8 million toward a budget of about $62 million. It pays an additional $3 million voluntarily for emergency services and public works, and doesn't charge nonstudent residents of the town to attend lectures, athletic games and concerts.
In Connecticut, lawmakers are to consider a plan to tax property owned by Yale University, Princeton's fellow Ivy League school. In Maine, Republican Gov. Paul LePage last year proposed allowing municipalities to collect taxes from nonprofits. In July, the city of Boston reported that nonprofit institutions had paid at least $15 million less than what they promised in payments in lieu of taxes.
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(Janet Lorin contributred to this report.)
