Concerns... Does CPI-U Make Sense?

Does CPI-U make sense?  Does Duration? Does Gag Clause?   

Letter to Common Council - September 19 - From Jason Houghton 

Dear Common Council Members:

I am an Ithaca resident and property taxpayer, and I am writing to encourage you to reject the proposed Memorandum of Understanding regarding Cornell’s monetary contributions to the City of Ithaca. 

 

While we all recognize that the proposed MOU is an improvement over the current one, it falls short of a supportable agreement for three reasons:

1) 4 Million is insufficient, especially in light of the duration of the agreement,

2) Cornell’s contributions relative to that of Ithaca taxpayers will diminish over time (see below),

3) The MOU will significantly hinder any future effort to formalize a more reliable and equitable financial relationship.

As we have seen time and again, Cornell’s current financial contribution to its home community lags far behind that of its peer institutions in the Ivy League and beyond.  This lag will endure under the proposed agreement.   

As former city attorney Charles Guttman recently highlighted in the Ithaca Voice, several of Cornell’s peers are currently contributing between 10 million and 14 million to their local governments, and in some cases with plans for substantial future increases.  The proposed MOU keeps Cornell’s contributions at less than half those levels.  Even if the Consumer Price Index rises each year by an historically high 4%, Cornell’s annual contribution after 20 years will be $8.76 Million per year - still below those current contributions of its peers.

And if the past is any indicator, I assert that increases in city residents’ tax bills will outpace increases in the Consumer Price Index and Cornell’s future payments - substantially. 

-        According to the Federal Reserve, the average home sale price in Ithaca 20 years ago was $132,000.  At that time, the tax rate was $11.69 per $1000 of assessed value, resulting in an annual city tax bill of $1,543 on new sale homes. 

-        Today, the average sale price is $323,000 with a city tax rate of $11.98.  The resulting average bill is thus $3,870.  This represents a 145% increase in the average home sale price and a 150% increase in the city tax bill. 

-        By contrast, the Consumer Price Index referenced for Cornell’s future payments has increased 60% over the same period.  While increases in individual tax bills can vary greatly, and assessed values may not directly reflect sales prices, these averages are nonetheless informative.  To commit the city to a 20 plus year agreement in light of these data nearly assures that Cornell’s contribution relative to those of Ithaca residents will diminish over time, and the longer the time, the greater the disparity.

Finally, Clause  6 – UNDERTAKINGS of the MOU precludes the city from supporting any efforts to alter Cornell's vast tax exemptions or to formalize Cornell’s contribution beyond the MOU itself.  While this does not prevent outside groups from pursuing legislative or other changes, a two-decade agreement with such a provision signals to legislators that Ithaca is content with relying exclusively on Cornell’s generosity, and change in the status quo is not a priority. 

 

Ultimately, I would argue that this city needs to obtain a more binding Payment in Lieu of Taxes agreement from Cornell to secure a reliably equitable relationship.  Models to achieve this exist.  Supporting the proposed MOU in its current form and twenty year duration would make this option far less attainable.

The structure of prior agreements need not dictate how Ithaca proceeds.  In addition to a higher contribution, I would urge the city to seek a shorter term MOU. 

 

Pegging future payments to the Consumer Price Index will almost assuredly exacerbate an inequitable relationship over time.   And while the legal framework to secure a more reliable and fair payment may not currently exist, the city should not bind itself for two decades to a document that precludes that outcome.  Current and future Ithaca residents deserve better.

Sincerely,

Jason Houghton