University Host Communities Face Financial Challenges

by Doby Fleeman

Across the globe, communities that host world-class research universities share much in common.

Most obvious is the outsized role of the university and the influence it exerts on the economy and culture of the host community. Perhaps the most common denominator is found in the shared culture and values that often emerge in such communities.

It is not surprising that most host communities are very desirable places to work and live — offering a very high quality of life, beautiful surroundings, recreational amenities, great schools and gathering places, often anchored by charming and vibrant town centers.

It is important to note that these unique community characteristics often play a major role in career decisions of senior researchers and administrators as they compare between different universities.

As a host community, Davis ranks near the top on all these key points. No wonder it’s such a great place to grow up, live, work, play and retire.

Location also plays an important role. Many important university communities are co-located in beautiful resort-like destinations (La Jolla, Santa Barbara, Santa Cruz, Boulder, Colo.), others serve as cornerstone institutions and cultural centers for regional economic hub communities (San Luis or Chico), while others serve as cultural and learning oases located in otherwise dense, urban centers (Chicago, Los Angeles, Seattle, Boston) — with the common denominator being diversified and vibrant local economies.

These distinctions are important to the financial success of the local host community, because a university — of its own accord — is generally not a great contributor toward local taxes upon which these communities rely. Given what it takes to maintain the services and amenities expected in these world-class host communities, how they are financed becomes an important conversation for the community.

In that context, one doesn’t expect anybody to have much sympathy for fiscal woes of our vibrant and bucolic college town here in Davis — home to the ninth-ranked public research university in the United States. Nor should they, for that matter, when Davis likely ranks near the top of per-capita state spending (given that half of our employment is based at UC Davis).

But unlike most of the other towns noted above, where the general economy gives rise to significant, additional per-capita property and sales taxes, Davis has not evolved a broad-based and diversified economy. As the result, the community faces some very real, long-term fiscal challenges.

For some context, UC Davis, like other UC universities, is exempt from property taxes — including all the buildings it leases in the city of Davis — whether for research, housing or retail. Further compounding this property tax shortfall is that all on-campus taxable sales accrue directly to the county rather than to the city.

In addition to these two important tax-related distinctions, university host communities are frequently home to large student populations. They are reliable, valued customers, but not big spenders — compared with typical employed residents in technology-intensive communities.

Percentages also matter. In Palo Alto, roughly 12 percent of residents are students, compared with Davis, where fully one-third of our population is made up of student residents — leading to lower per-capita sales tax revenues.

Desirable university communities often become the first choice for active retirees. Whether it is the next step in matriculation for a retiring professor, or suburban evacuees, there is growing interest in university communities as retirement destinations.

Retirees are great additions on the one hand, but also a demographic with their own particular community service needs — often combined with decreasing needs for material acquisitions, often downsizing and frequently focused on reducing household expenditures.

It’s more of a cumulative issue, but there is no denying that these demographic factors combine and lead to lower, per-capita sales tax revenues for the city.

Many figure that university towns, with their trove of well-paying university jobs, have it made in the shade when it comes to community finances. However, without a year-round tourist trade, or the reliable purchasing demand of a regional economic hub or large, adjacent metroplexes, many university towns would struggle to cover expenses.

It is not surprising, then, that most research-based university towns make a concerted effort to attract and retain applied-technology-based companies whose work directly or indirectly reflects the research efforts underway at the university.

Next week, I’ll focus on the many benefits to the university and the host community that are possible with a more diversified base of local technology employment.

Doby Fleeman is a co-owner of Davis Ace Hardware. This editorial originally appeared in the Davis Enterprise and was submitted to the Vanguard by its author.

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