Cash-short Illinois college community proposes a tax on student tuition

In the ongoing search for revenue by hard-pressed cities, the Evanston City Council is eyeing a possibility that would mark a nationwide ''first.''

At issue is a proposed tax of just over 1 percent on the tuition paid by college students in this community.

For Northwestern University, the largest and most expensive of the five colleges here, the tab would come to about $120 a student. In all, the revenue would more than make up for the expected $700,000 shortfall in Evanston's 1983 budget.

Town-gown relationships have always been delicate, but the proposal being advanced under Evanston's home-rule power strikes at the heart of a concept - the tax-exempt status given most nonprofit institutions - that universities have long regarded as sacrosanct.

''We're concerned that this could create a national precedent . . . and spread like wildfire,'' confirms Shelden Steinbach, general counsel for the American Council on Education (ACE).

''Northwestern would like to portray itself as leader of the valient fight to protect not-for-profit institutions around the country,'' says Evanston Alderman Jack Korshak, the Northwestern alumnus who is proposing the measure. ''But many of the others do recognize the interdependence between university and city. . . . Several are making a contribution in lieu of property taxes. . . . My longstanding feeling is that universities have an obligation to share in the costs of providing services they enjoy.''

One problem in this case is that the city and the university do not speak the same financial language. By Northwestern's count, the university - through local spending by faculty and students, jobs provided, cultural offerings, payment of other user taxes, and the institution's positive effect on property values and as a tourist and visitor drawing card - produces $1.6 million more revenue for the city than it takes in. By Evanston's calculator, the university costs the city at least $600,000 a year more in services than it contributes.

''We should and do make every attempt to minimize any burden on Evanston,'' insists Peter Tyor, Northwestern's assistant director of institutional relations. He notes that the proposal was first advanced locally in 1972 when campus disturbances nationally were at a peak. In recognition of its strain on city resources, he says, Northwestern has presented the city with a fire truck; supports its own campus police system; pays hefty charges for water, sewer, and utility use; and figures over the years that it has turned back at least $2 million worth of property to people or businesses who pay taxes on it.

Still, Northwestern is in a somewhat unusual situation. While many colleges pay property taxes at least on that part of their acreage that produces income, Northwestern's mid-19th-century charter from Illinois grants it the right to own as much as 2,000 acres (it now owns 250), tax free, that can be used for any purpose.

Use of that immunity and the university's adamant refusal to make any voluntary contribution to the city in compensation are what particularly nettle Alderman Korshak. ''The university says, in effect, 'We won't talk about it,' '' he says. ''It's like dealing with Russia. If you suggest . . . discussing the matter, it's taken as a sign of weakness.''

But as Northwestern sees it, even a voluntary contribution would set a precedent that could result in a never-ending proposition.

''It might be good public relations [to talk about it], but it might not be the right thing to do,'' Tyor explains. ''We've done any number of positive things to benefit relations, but we haven't done exactly what Evanston wants. It's a little like a parent who says, 'You can grow up to be anything you want as long as I approve.' ''

Indeed, officials of those universities that hand over dollar gifts to their communities in lieu of property taxes concede they are trying to recognize the added burden on the community but also to ward off any effort to legalize the obligation.

''It's one reason we insist the payment be voluntary,'' says Robert Byers, a spokesman for the Massachusetts Institute of Technology. ''We don't negotiate in the classic sense, and we don't recognize the city's right to send us a bill.''

MIT and Harvard last year each paid the City of Cambridge well over a half-million dollars in lieu of taxes on property used for educational purposes. Both have made some payment on that order since 1928, and both also pay taxes (as do many other universities) on income-producing property. MIT, for instance, paid Cambridge well over $2 million last year as a taxpayer.

Cornell University annually pays Ithaca and Tompkins County dollar compensation for fire protection, a share of the transit system's operating loss , day-care services, and for the cost to schools of educating children of out-of-state parents who live in tax-exempt married-student housing.

''There's no obligation to make or continue these payments - everything is voluntary,'' stresses Randy Shew, Cornell's director of Community Relations.

''There really is no national pattern [of reimbursement] - there isn't even a prevailing thread,'' ACE's Mr. Steinbach notes.

Still, the question of whether or not the general taxpayer is unfairly being asked to subsidize what appears to be a growing trend by nonprofit institutions of all kinds to acquire more city property remains a live issue. Many taxpayers chafe at what they see as a drain on their own wallets.

For the moment in Evanston, the issue is under study by a budget subcommittee. Alderman Korshak says at least 11 of the council's 18 members say they are giving the measure serious consideration.

If the move should pass, it is almost sure to face a strong legal challenge. But some law experts note that while a head tax or a tax on an education institution would clearly be illegal, the principle of a tax on a transaction (such as tuition) is fairly well established.