Property owners paid their annual real estate taxes to the City of Lexington on December 5. But there is tension over whether everyone is paying their fair share. 

Washington and Lee University holds a 501(c)(3) tax exempt status, and therefore does not have to pay real estate tax on properties that serve its educational mission. This has caused some to question the impact that the school has on the small city. 

“The town and W&L are symbiotic. They need each other,” said Charles Aligood, a member of Lexington’s City Council. “The problem that townspeople have is the shrinking tax base and the need to maintain services.”

Aligood worries that both the Virginia Military Institute and Washington and Lee’s holdings in the downtown area hurt the city by shrinking its limited tax base.  

“The City of Lexington is not able to annex property,” Aligood said. “That means that the city cannot expand.” 

If the city can’t expand, then neither can its tax base.

Councilman Charles Smith said that two-thirds of the city’s assessed real estate value is tax-exempt. Churches and nonprofits contribute to that percentage, but the Virginia Military Institute and Washington and Lee possess most of the tax-exempt real estate.

“That is unusual, especially for a city the size of Lexington. That number has continued to increase,” Smith said.

As of July 1, 2022, the total assessed value of the real estate owned by Washington and Lee in Lexington, including the campus, is $593,137,500. 

Washington and Lee’s Share of Taxes

Steve McAllister, treasurer and vice president for finance and administration at Washington and Lee, believes the university pays its fair share.

“There is a common misconception that we don’t pay anything. I often hear that,” McAllister said. 

McAllister said that the misconception comes from the fact that Washington and Lee has a tax exemption, but the exemption does not apply to all university-owned properties.

The value of Washington and Lee’s off-campus real estate in Lexington totals to $57.6 million. Of that $57.6 million, only $9.9 million is taxable. 

The $9.9 million includes properties leased by the university as well as the assessment for taxable off-campus properties, which total $3.9 million. 

“Our current leases on the properties all have it where we’re paying the real estate tax,” McAllister said. 

Washington and Lee pays the real estate taxes on its leased properties indirectly when it pays the leases on buildings such as the Business Office at 2 S. Main St.

In total this year, Washington and Lee paid $91,000 on its taxable and leased properties. The taxable properties aren’t directly linked to the furtherance of the school’s mission or educational purpose. 

Newly acquired properties on McLaughlin Street qualify as taxable properties, said Karen Roundy, Lexington’s commissioner of revenue. 

Washington and Lee is not currently trying to expand its holdings in Lexington, according to McAllister.

“We are not out there looking to lease additional properties or purchase land at this point,” McAllister said. “That doesn’t mean that there won’t be an opportunity that we view as an attractive opportunity that we should pursue, but at this point there is not.”

Annual Payments

Twice a year, once in June and once in December, the university makes payments in lieu of taxes (PILOT) on its off-campus real estate holdings that have moved off the tax rolls. These holdings are currently assessed at $41.1 million. The biannual PILOT grants are consistent with Lexington’s .92% real estate tax rate. 

McAllister said the PILOT program began in the 1980s under President John D. Wilson. 

In total, Washington and Lee gifted the city $378,000 total in PILOT grant funding this year. The Virginia Military Institute does not contribute a similar PILOT grant to the city.

“As much emphasis needs to be placed on both universities and both of their impacts on the city. Instead, W&L seems to be carrying more of the load,” Smith said. “They’re now expanding their tax-exempt footprint more so than W&L is.”

Washington and Lee also gives a $200,000 yearly unrestricted grant to the city. The unrestricted grant has increased over time in response to inflation.

“It is a recognition that we rely on city services and we are grateful,” McAllister said.

The city is also entitled to one-half of the tax rate on properties with service designations, which include properties rented to the faculty and staff. The sum paid totaled to $30,000 this year, which Washington and Lee matched with an additional $30,000 payment to the city. The university matches the payments on a yearly basis.

The university also gifted the city a $35,000 grant this year to help the fire department finance a new truck. The university will repeat this grant on an annual basis for the next nine years.

What else could W&L be doing?

Washington and Lee’s presence in the town is causing gentrification, Aligood said. He cited a recent initiative at the University of Virginia as a way to address the problem. 

In 2020, James Ryan, the president of the University of Virginia, announced his support for the development of 1,000 to 1,500 affordable housing units in Charlottesville and Albemarle County over the next decade on land owned by the university and the UVA Foundation.

“I would like to see W&L enter into some type of program as well to help the affordable housing question in Lexington and Rockbridge County,” Aligood said.

Thomas J. Tremmel, a Lexington resident and sculptor, has written letters to The Advocate criticizing Washington and Lee and the Virginia Military Institute’s encroachments into the city. He doesn’t think either college should enjoy a tax exempt status on their off-campus real estate, citing the need to strengthen the city’s tax base.

“I don’t have a problem with Washington and Lee and all that. I wouldn’t be here in a small town like this without a university like Washington and Lee,” Tremmel said. “I just worry about the long-range tax base.”

 Most residents agree that the wealth of the city is closely tied to the wealth of the two colleges within its borders. But they will likely continue to quarrel with the two institutions over whether that wealth is being spread evenly.