Should Urban Anchor Institutions Pay More for Government Services?

Hospitals, museums and education institutions have become important parts of a city's economy. They also consume government services, but pay little, if anything in return. It's time to rethink the relationship.
December 9, 2013

Cities are known for their anchor institutions. The Smithsonian museums in Washington, D.C.; the Metropolitan Opera House in New York City; Millennium Park in Chicago; the University of Texas at Austin; the Mayo Clinic in Rochester, Minnesota; the various Children’s Museums in most major cities; the list goes on and on. Residents take deep pride in “their” institutions, whether owned by a government agency or a tax-exempt organization. 

Take the Detroit Institute of Art. It’s city-owned institution, a civic anchor on Woodward Avenue for over a century and a symbol of a great city.  The Institute is also a rallying point for city residents who fear that Detroit’s climbing into the Chapter 9 ambulance might require liquidating a few prized assets, like the artist Diego Rivera’s famous Detroit Industry Fresco cycle of paintings. Would Detroit appeal to the sense of belonging or to one’s identity if it no longer had a publicly-owned museum? 

Anchor institutions also include hospitals, educational institutions (especially higher education), government facilities, museums, and cultural facilities. All of these anchor institutions bring a vibrancy and dynamism to municipalities and metropolitan regions that everyone appreciates. And, they bring a sense of personal and social identity and connection located in space.

When these institutions are privatized (or leased long-term), it raises issues of identity and connection to an important symbol of the place. The Indiana Toll Road, for example, was leased for 75 years much to the dismay of some citizens who thought—and who truly believed—that the turnpike was “ours.”

Or, take your city’s vaulted institutions of higher education. These colleges and research universities are deeply ingrained in the economic fabric of the metropolitan region and yet questions and fears have been raised about their permanence with the rise of Massive Online Open Courses (MOOC). University administrators worry about their future in light of challenges to traditional, classroom-centered instruction.

Anchor institutions are interconnected to the community and the broader metropolitan area, creating a social environment in which proximity, exchanges and interactions can occur on a frequent--and sometimes unpredictable--basis in a learning environment for the purposes of advancing knowledge, creativity, and the human condition. This type of anchor institution will probably not be threatened by new trends in online learning. The interior spaces of the institutions' physical presence may be repurposed, but the structures that invite communities of individuals together, to explore, to share, to create, to debate, to learn, will continue to thrive in the future.

Higher education as an anchor institution is not only the "materials" or bricks and mortar, ivy, green campuses and fixed classrooms. It's much more. It is indeed "physical", but it is also integrated with the urban fabric of great metropolitan areas. To be integrated means to be 'on the grid' with the streetscape of the city, with the overlapping neighborhoods, transportation networks and interactivity that takes place there. This type of anchor institution, then, is part of the metropolis, not separated or walled off from it and not of the type that does research "on" the community but one that partners “with” the community in the pursuit of knowledge.

Besides being something other than what they thought they were, anchor institutions pose two other issues under the rubric of “800-pound gorillas in the room.” First, anchor institutions are now one of the fastest growing economic sectors in the country. They are the engines of growth of the new economy and are well-located within metropolitan regions.

The second issue is that these anchor institutions demand government services but, unlike other sectors of the economy, they provide few resources in return, due to their tax exempt status. The asset value of priceless art is, well, priceless, but the question remains how much the art institute’s payment to the city supports city services it receives, such as fire suppression.

The asset value of anchor institutions’ land and structures is staggering. Some university presidents will tell you the value of a century-old facility, the iconic building that brands the university, is incalculable. They would certainly dispute any assessment officer’s best guess based on comparable properties. But since these tax-exempt anchor institutions aren’t assessed anyway, the debate about comparable value is moot. What is not in dispute, however, is that the service-delivery costs to the iconic structure certainly exceeds the taxes paid by the institution for such services as police protection, street sweeping and snow removal, fire protection, and criminal justice costs, not to mention ‘basic administration’ costs of the local governments.

The economic engines of our nation's anchor institutions are roaring, but, with the exception of a few jurisdictions (notably in Ohio) they are not fueling government services from which they directly benefit.

Anchor institutions certainly undergird the new economy. As centers of innovation and magnets for talent, metropolitan regions have demonstrated that they are where the action is.  What is in question and in need of being sorted out is the relationship between the nation’s great anchor institutions-cum-engines of growth and the service delivery system that has traditionally relied on charging beneficiaries a price based on the value of their properties.

The bonds that connect anchor institutions to the social fabric of a city are strong and enduring. Finding an appropriate balance between strengthening anchor institutions and ensuring that they are shouldering their fair share of the costs of government service provision will not be easy, but it will shape the identity of the region for years to come.

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