Monmouth College’s tax-exempt status explained

From time to time, I have heard criticism about Monmouth College’s exemption from paying property tax and allegations that it hurts the local economy. It is sometimes argued that Monmouth College and Northwestern University are the only two colleges in Illinois that have this exemption built into their charters, and they therefore have an unfair economic advantage within the community.

The property tax issue vs. economic impact is a complex argument that can be difficult to explain. One of the clearest explanations I have seen was an op-ed piece written in 2006 by Don Gladfelter, Monmouth College’s now-retired vice president for finance and business. I think it’s worth rereading:

It is simply not true. Monmouth College and Northwestern University are not the only two colleges in Illinois exempt from property tax. This rumor has circulated in the City of Monmouth for as long as I can remember. Why it continues I do not know.

Every private not-for-profit institution of higher education in the State, like Monmouth College, is exempt from paying property tax on their campus properties. Augustana College, Knox College, Bradley University, Illinois Wesleyan University, Millikin University are all exempt. However, by virtue of their charters, Monmouth College and Northwestern University do have one historical distinction from these other institutions. At the time when Monmouth and Northwestern were founded (1853 for Monmouth), it was common practice for the State legislature to individually approve the charter issuance for each college and university in the State. Whereas the legislative language in most charters granted property tax exemptions to the land on which these schools were establishing their campuses, the Monmouth and Northwestern charters granted tax exemptions on all the lands they own, not just their campus lands. This means that if another college were to buy a business property in their local downtown for non-educational purposes they would have to pay property tax on that property but Monmouth and Northwestern would be exempt from the tax. In practical terms this is a very small distinction as neither institution is in the business of buying property for non-educational purposes. And yet this slight distinction fuels the impression that Monmouth and Northwestern benefit from a huge tax advantage over other colleges and universities. It is simply not true.

What is the basis for granting tax-exemptions to institutions of higher education? At the federal level, the Internal Revenue Code section 501(c)3 grants exemptions to not-for-profit institutions whose service advances charitable, religious, educational, scientific, and literary purposes. The same code section that grants exemptions to your local church, hospital, and library applies to Monmouth College.

A recent letter to the editor of the Monmouth Daily Review Atlas argued that Monmouth College should pay property tax to support the expansion of a waste water treatment plant for Farmland Foods. The letter sought to draw an analogy between the College and the local hog slaughtering plant. While it is true that both institutions contribute significantly to the local economy, the purpose and organizational structure of these entities could not be more different. While Farmland Foods is an important investor in the community providing significant local employment opportunities, the profits they generate accrue primarily to out-of-town stockholders and board members (there is nothing wrong with that, its business). In contrast, at the College there are no profits accruing to stockholders. Any financial gain the College is able to achieve is reinvested in the education of its student body and College Board members are generally expected to contribute their own resources to the institution, bringing much needed cash flow into the community, facilitating the creation of local employment opportunities. To argue that those contributions intended to support the education of our youth should be redistributed via a property tax to build infrastructure to benefit the stockholders of a for-profit corporation makes no sense.

The root of the question is not whether Monmouth College should be exempt from property tax, but whether there are basic societal purposes that should be exempt. If one wants to argue that education is not a cause worthy of public support that is fine, but argue the point for all of education. There is no reason to single out Monmouth College. She already operates without taxing the public for her operating expenses as the public universities do.

I suspect that the argument for taxing the College stems in part from its recent prosperity. If so, I would suggest that the time horizon being considered is too short. Monmouth College, like most small colleges, has at one time or another been on the brink of financial failure. Many small colleges like Monmouth have failed to survive, particularly in small rural communities. Not that many years ago we had Carthage College and the Roosevelt Academy in Aledo. Both institutions were exempt from property tax and both failed financially. Would the City and the County be better off today if the College had failed like these other institutions? After all, if that had happened the City would be out from under the weight of providing free fire and police protection.

I don’t hear the people of Galesburg complaining about the tax-exempt status of Knox College. I don’t hear the people of Bloomington complaining about the tax-exempt status of Illinois Wesleyan. I don’t hear the people of Rock Island complaining about the tax-exempt status of Augustana College. I think most of these communities feel fortunate to have the distinction of being “college towns”, even though they are unable to collect property taxes from them.

Editor and historian for Monmouth College. Avid researcher of western Illinois history for 40 years. FB and Twitter. jrankin@monmouthcollege.edu

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store