Public officials in Fayette and Madison counties were right to pursue property taxes on privatized university dormitories.
The law is unclear, probably because lawmakers had not anticipated this relatively new way for universities to finance student housing and dining facilities.
But the future seems sure to hold more public-private partnerships, and not just in higher education.
Legislation to encourage more such partnerships for building roads and bridges has twice stumbled in the General Assembly but will return. This trend will produce better results if someone is strongly advocating for the public's interest.
In Richmond, the dispute involves a 20-year lease between private developers of an apartment complex and Eastern Kentucky University. As private property, the apartments would generate about $90,000 a year in property taxes for public schools and other services. As a governmental nonprofit, EKU is exempt from paying property taxes on its buildings and land.
Madison County Property Valuation Administrator Billy Ackerman says the complex is still subject to property taxes because it's privately owned. EKU and the state Department of Revenue disagree.
The controversy is on administrative appeal, but the county school board, fiscal court, library and other local agencies have said they are willing to take the fight to court, depending on how the appeal goes.
In Lexington, where the University of Kentucky is part of probably the biggest privatized dorm deal ever, much was made of the willingness of a Memphis-based company, EdR, to pay property taxes of about $280,000 a year on the first two dorms it built on land leased from UK for 75 years.
But then UK and EdR changed the terms of their agreement so UK retained ownership of the dorms, thereby exempting EdR from paying property taxes on the rest of the dorms it is building and operating — about $323 million worth of real estate, so far.
"I will stop short of calling it tax evasion, but they did restructure the deal so that ownership of the buildings went to UK," Fayette County PVA David O'Neill told reporter Linda Blackford.
The universities offer the reasonable defense that they are trying to hold down costs for students. But not paying property taxes also pushes up profits for the private developers, who win these contracts by promising to operate student housing more efficiently and therefore more cheaply.
The capacity of Kentucky's public universities and colleges to finance construction is severely pinched by the state's revenue crunch and debt, and by outdated laws that restrict universities from issuing bonds even when they have a sure revenue stream, such as fees paid by dorm residents, for paying off the debt.
Under those circumstances, universities are forced to seek new ways to finance construction.
The questions about property taxes and other issues finally might have to be answered by the legislature in the form of new laws to protect the taxpaying public. If public-private partnerships result in privatizing the profits while the public absorbs the losses, they won't be such great deals after all.