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College towns have been clobbered by COVID-19

College towns have been clobbered by COVID-19
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Once considered largely recession-proof, college towns have been clobbered by COVID-19. Without financial assistance from the federal government, the likelihood they can recover anytime soon is dim.

Defined as communities in which an institution of higher education has a significant presence, college towns vary widely in size, location, and economic vitality. Examples include Champaign-Urbana, Ill., State College, Pa., Auburn, Ala., and Grinnell, Iowa. By some measures, Massachusetts alone has over a hundred such villages, towns and cities. What college towns have in common is their heavy reliance on a single industry — higher education.

In the past, that reliance has served college towns well. Despite the closure of some colleges and universities in recent years, higher education has been remarkably resilient over the long run. Colleges and universities, ours among them, are among the country’s oldest continuously operating institutions. These public and private institutions draw hundreds of thousands of students every year, along with parents and visitors, sometimes doubling the resident population for at least nine months. All these new arrivals spend money in local stores, restaurants, and hotels. In Blacksburg, Va., over half the local economy depends on Virginia Tech, and football games attract 400,000-500,000 visitors each fall.

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Colleges and universities provide steady employment for faculty and staff, who buy homes in the area, enroll their children in local schools, and contribute to local tax rolls. Although tax exempt themselves, a substantial number of colleges and universities make annual contributions to their local municipalities. Most important, perhaps, unlike other small or large-scale enterprises, colleges and universities cannot pick up and move to another location. 

Their economic activity has tended to insulate college towns from the swings of the business cycle. But the pandemic has turned this dynamic upside down. Almost overnight, colleges closed their doors, sent their students home, suspended construction projects, and cancelled sporting events, graduations, and reunions — at enormous cost not only to the colleges themselves but to their home communities. Canceling commencement cost South Bend, Ind., home of Notre Dame, about $17 million in lost revenue.

As Svante Myrick, the Mayor of Ithaca, N.Y., home to Ithaca College and Cornell University, notes, the pandemic has been “devastating for cities everywhere, but especially for college towns — because they have a much higher percentage of tax-exempt property.” Businesses have closed and sales tax revenues have plunged. As a result, Myrick told us he anticipates a $15 million revenue shortfall in 2020, roughly 25 percent of its budget. The city has already furloughed 97 employees — almost a quarter of its workforce — and froze hiring and salary increases. Myrick said he’s donating 10 percent of his salary back to the city.

The Village of Clinton, N.Y., home to Hamilton College, collected most of its taxes for the fiscal year before the pandemic hit, but for the coming year Mayor Steve Bellona told us he anticipates a loss of state municipal aid, a 25 percent drop in sales tax revenues, and a drop in user fees for the sewer system, "creating a deficit equal to roughly 12 percent of the village’s annual general and sewer budgets."

These deficits far exceed those created by the Great Recession. Ithaca’s projected shortfall, for example, is now five times what it was in 2009-10, at the time the largest deficit in the city’s history. Other municipalities may have the luxury of raising property taxes to make up for a loss of sales taxes and other revenues, but much of the property in college towns is college-owned and therefore tax exempt. Facing their own large deficits, colleges — and state governments — are unlikely to do much to help. 

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Ironically, the very thing that insulated college towns in past recessions — the share of their economies dependent on higher education — has rendered them more vulnerable than most communities to the economic impact of the pandemic. If colleges and universities do not bring students back this fall, there is, in Mayor Myrick’s words, “no telling how bad this will get.” More layoffs and steep cuts in services would be inevitable, delivering a body blow to the colleges as well as the college towns.

College towns cannot dig themselves out of the financial crisis they now face. Colleges and universities have received some support from the federal government through the CARES Act. Without a CARES Act providing financial assistance to state and local governments, a significant number of college towns may well face bankruptcy, an outcome that could contribute to a second wave of unemployment and underconsumption throughout the nation.

Glenn C. Altschuler is the Thomas and Dorothy Litwin Professor of American Studies at Cornell University. He is the co-author (with Isaac Kramnick) of Cornell: A History, 1940-2015.

David Wippman is the President of Hamilton College.