Taxing Tuition: The Future of Higher Education?

With Pittsburgh on the brink of bankruptcy thanks to its continual out-of-control spending, Mayor Ravenstahl and his allies on City Council have hatched a new scheme to collect more money to pay for their profligate ways: a 1% tuition tax on the city's financially-strapped college students.

To justify this troublesome proposal, these elected officials have concocted the claim that Pittsburgh's 10 colleges are not paying their "fair share" for public services, noting their nonprofit status exempts them from property taxes. The Pittsburgh Council on Higher Education questions this bogus motive by noting that the schools pay for many of their own services and contribute $23 million a year in payroll taxes, parking fees, business privilege taxes, and taxes on property not related to their educational mission.

The tuition tax is inherently unfair, in that it would extract $403 from Carnegie Mellon students and only $27 from Community College of Allegheny County students, who use about the same level of city services. It also represents double-taxation of students who attend Pittsburgh universities but live off campus. The idea of taxing tuition, which taxpayers subsidize at both the federal and state level via student aid, is also disconcerting.

The politicians' real motivation for this plan is clear: they see taxpayers as an endless source of money for unsustainable government spending. Without spending reductions and public employee pension reform the city will never have enough revenue to cover its obligations. If for no other reason, Pittsburghers should feel conflicted about taxing college kids to pay for the fiscal irresponsibility of the city.

Of course the question of universities not paying their "fair share" has some merit. Why do public and non-profit universities enjoy a tax-exempt status when proprietary colleges receive no such exemptions, even while offering the same services to students? Additionally, the community aspect of university education has lead many institutions to manage operations not directly associated with their educational mission - such as dormitories, food services, and recreation facilities. Competing restaurants, apartment buildings, and fitness centers do not enjoy the tax exemptions bestowed among public and many private colleges.

While students can ill afford a new tax on their tuition, they are also faced with unnecessary financial burden brought on by university leaders endlessly hiking tuition and fees to pay for non-instruction costs. Colleges, like cities, are bloated institutions managing services that are more efficiently run by the private sector. Dr. Mary Hines, spokesperson for the PCHE explained, "We're like little municipalities. We have our own police forces. We have our own contracts with city trash collectors. We do our own snow removal. We maintain our own fire systems and fire hydrants." But should they?

By privatizing services unrelated to education, universities could both cut costs to students, and erode the city's "fair share" argument. In the occasional instances when university students are directly consuming city resources, such as police calls caused by unruly students, the city should directly bill the university or the students themselves.

The Pittsburgh tuition tax controversy shines a spotlight on two realities. First, universities are focused on rent-seeking rather than on serving their customers-the students on which their livelihood should depend. Indeed, while universities are fighting the tuition tax to subsidize Pittsburgh's pensions, state-related schools support taxation on gambling to subsidize higher education. Second, the city of Pittsburgh cannot tax its way to fiscal health, but must instead reduce spending and stand up to Big Labor by reforming the unaffordable and nearly bankrupt pension plan for municipal workers.

The ill-advised tuition tax illustrates the need for reform both in our higher education structure, and in our cities' fiscal management.

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Elizabeth Bryan is a Research Associate and Nathan Benefield is Director of Policy Research with the Commonwealth Foundation (CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.