Nearly 175 years after Illinois lawmakers exempted Northwestern University from paying property taxes to the City of Evanston and other taxing bodies, the school’s historic 1851 charter remains one of the biggest roadblocks for Evanston officials seeking more funds from the city’s largest employer.
And that century-old exemption again prevailed on July 27 as City Council members rejected a bid to place an advisory referendum question on the Nov. 3 election ballot asking voters if the city should require tax-exempt organizations like Northwestern to pay an equivalent amount when using their property for commercial purposes unrelated to their nonprofit missions.
As a result of the alders’ 4-4 tie vote, with Ald. Juan Geracaris, 9th, abstaining due to his employment with the university, the question will not be posed to voters come November.
Evanston Mayor Daniel Biss was not present at the Monday Council meeting and therefore could not break the tie.
Like all other states, Illinois requires that owners of real estate be subject to taxation.
The tax code, however, establishes a process that allows some entities (schools, government agencies, charitable nonprofit organizations, religious institutions, etc.) to apply for tax exemption.
Northwestern enjoys what’s called a corporate charter exemption, awarded to the school prior to the adoption of the Illinois Constitution in 1870, that allows the institution’s property to “be forever free from taxation for any and all purposes.”
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The school is one of only 80 private educational or charitable institutions to be awarded such a privilege, and perhaps the most well known, according to the city.
But even most tax-exempt nonprofits still have to pay property taxes when using their land for commercial activities unrelated to their nonprofit missions.
This has not been the case for Northwestern, as Council members reiterated Monday night, which currently operates a child care center, doctor’s office, restaurant and other commercial ventures on its property.
“So many large nonprofits and similarly situated organizations are paying property taxes in these situations,” said Ald. Parielle Davis, 7th, who has spearheaded the push to require the school to make payments in lieu of property taxes, also called by its acronym PILOT.
“What we’re really looking for is for [Northwestern] to be taxed as a nonprofit entity, which is what they are.”
The posed referendum question included language that would allow the school to avoid paying an equivalent amount in property taxes for commercial activities if it received approval from “at least three-fourths of the City Council for each such use.”
“We’re not asking for much more than what really every other university does pay the municipalities that they’re in,” Davis said.
Given the charter, “we cannot compel Northwestern to pay anything,” Davis continued, “so what we have in language here is a request for them to either willingly make a payment in lieu of taxes or they will face higher scrutiny from the City Council when they come to us with for-profit activities that would otherwise be taxed.”
While several Council members agreed that Northwestern’s state-granted property tax exemption is inequitable, some said that trying to get around it by introducing new language, and a referendum ballot question, might introduce more challenges than it solves.
“I’m going to assume that 99% of my ward will vote yes on this,” said Ald. Bobby Burns, 5th, regarding the proposed ballot question. “I don’t need a referendum for it.”
Burns added he thought it was a “better use of time” to discuss the idea first.
“The first obvious question is: Is it legally implementable? How does it change the nature of our relationship with Northwestern?…Let’s just have the discussion.”
Ald. Jonathan Nieuwsma, 4th, agreed that a referendum asking voters to decide whether the school should be taxed would likely “pass by a wide margin,” but he believed a non-binding referendum would not “advance the ball in any way, shape or form in solving a problem.”
“If that problem is that Northwestern isn’t paying us enough, what would advance the ball is an actual ordinance if it were legal… I also think we need to be smart about when we choose to challenge Northwestern University, as we have been.”
The comment was in reference to the city’s deal with the university regarding the build of its new $875 million Ryan Field football stadium, which Evanston granted zoning approval for in 2023.
“When [Northwestern] came to us to approve the stadium, we were able to get more than I thought we were going to get from the community benefits package… I just want to be smart about how we choose our engagements with Northwestern, and I don’t think this referendum is the way to go.”
“We’re not doing anything to rewrite history,” Davis responded. “What happened with Ryan Field, it is done. You’re right… but what we do need to do is be proactive about future projects because there will be more future projects, and I don’t feel very confident that we are anchoring ourselves properly.”
Evanston Corporation Counsel Alex Ruggie interjected during the alders’ discussion that the charter has been challenged in court a “few times throughout the years,” but upheld by the Illinois Supreme Court and the United States Supreme Court each time.
“We can’t institute property taxes against them, and it is a legislative charter that only Northwestern has,” Ruggie said.
“No other not-for-profit has anything like this, the University of Illinois, other universities in Illinois…. Northwestern was the first and only of its kind.”
“Can we increase the vote threshold if they don’t agree to pay taxes?” Ruggie continued, “I think that’s a different question that I don’t know that I’m prepared to answer the legality of.”
“Northwestern is the anomaly here, not the norm,” said Ald. Matt Rodgers, 8th, who added he currently works for a not-for-profit organization in Illinois that is required to pay a prorated amount when using its space for commercial purposes.
Rodgers said he would support a referendum to ask voters about this matter, in addition to introducing a later ordinance that addresses the same issue.
The resulting tie vote, however, could be emblematic of the city’s reluctance to directly challenge its wealthiest institution, or at the minimum, selective in choosing the battles it wishes to fight.
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“I don’t like it. Evanston doesn’t like it, you know. [The charter] has been a huge problem for Evanston, every year since 1851,” Nieuwsma said. “But that is the law of the land.”
“I can imagine, if we pass an ordinance that the referendum is suggesting we pass, that Northwestern would not go along with it with a smiling face and a fat checkbook, but they would fight us in court. That would cost money, and that is maybe a conversation we could have, but we don’t need the referendum to have that conversation.”