Pa. State Univ. v. DERRY TP. SCHOOL DIST.

• Decision Date: 22 June 1999
• Citation: 557 Pa. 91,731 A.2d 1272
• Parties: The PENNSYLVANIA STATE UNIVERSITY, the Milton S. Hershey Medical Center, Appellee, v. DERRY TOWNSHIP SCHOOL DISTRICT and the County of Dauphin, Intervenor, Appellants.
• Court: Pennsylvania Supreme Court

731 A.2d 1272

557 Pa. 91

The PENNSYLVANIA STATE UNIVERSITY, the Milton S. Hershey Medical Center, Appellee, v. DERRY TOWNSHIP SCHOOL DISTRICT and the County of Dauphin, Intervenor, Appellants.

Supreme Court of Pennsylvania.

Argued April 28, 1999.

Decided June 22, 1999.

Kenneth D. Chestek, Erie, for intervenor-appellant, County of Dauphin.

John W. Beatty, Erie, for appellant, Derry Tp. School Dist.

James M. Horne, R. Mark Faulkner, State College, for appellee, Penn State University. Carl G. Wass, Harrisburg, for appellee, Dauphin County Bd. of Assessment Appeals.

Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE, NIGRO, NEWMAN and SAYLOR, JJ.

OPINION OF THE COURT

FLAHERTY, Chief Justice.

This is an appeal from an order of Commonwealth Court which affirmed a decision of the Court of Common Pleas of Dauphin County holding that the Milton S. Hershey Medical Center (HMC) is immune from real estate tax on the basis that its owner, the Pennsylvania State University (PSU), is an instrumentality of the Commonwealth. Challenging PSU's status as an agent of the Commonwealth, the County of Dauphin and the Derry Township School District, appellants, contest HMC's tax-free status.

PSU is the owner and operator of HMC, which is located in Derry Township, Dauphin County. HMC encompasses PSU's medical school, its dormitories, various related research facilities and two hospitals.

This case arose when taxing authorities of the county and school district notified PSU that, as of January 1, 1993, the property of HMC would be placed on the tax rolls. Real estate tax bills were later issued for the years 1993, 1994, and 1995.¹

It is well established that real estate owned by the Commonwealth cannot be subjected to taxation by political subdivisions absent express statutory authority. Appeal of Board of School Directors of Owen J. Roberts School District, 500 Pa. 465, 467-68, 457 A.2d 1264, 1265 (1983). The immunity from tax extends to property owned by agencies of the Commonwealth. Id.

In Pennsylvania State University v. County of Centre, 532 Pa. 142, 615 A.2d 303 (1992), we discussed, but did not decide, whether PSU is an agency of the Commonwealth. The issue in that appeal was simply whether the doctrine of issue preclusion prevented the trial court from determining PSU's status as an agent, since, many years before, in 1939, there had been a determination of the same question by a trial court of the same judicial district. Nevertheless, we noted that significant changes have taken place in the university over the past fifty or more years, and that:

To begin with, University students now pay tuition, unlike their counterparts in 1939, and state appropriations have decreased as a percentage of total University revenues, resulting in the fact that the University's principal means of support are no longer state and federal funds but private and federal funds. In addition, the composition of the Board of Directors is no longer public—much less governmental—in nature, and therefore, authority to dispose of University property is not within the purview of the Commonwealth. Appellate courts in this Commonwealth have found these and similar factors to be characteristics of a nonprofit corporation chartered for educational purposes—not an agency of the Commonwealth.

The University ... is no longer the same institution that it was in 1939. In view of the wholly changed circumstances and the significant passage of time, the first decision [of the trial court holding that PSU is an agency of the Commonwealth] is marginal at best.

532 Pa. at 149-50, 615 A.2d at 306-07 (footnotes omitted). These factors lead us now to conclude that PSU is not an agency of the Commonwealth.

In contrast to the fourteen universities that are owned and operated by the Commonwealth as the State System of Higher Education, the latter being a public corporation that has been statutorily designated a government instrumentality, 24 P.S. § 20-2002-A(a), the relationship of PSU to the Commonwealth is far more autonomous.

PSU is a state-related institution of higher education that traces its roots to a legislative enactment that created and designated it, in 1855, the Farmers' High School of Pennsylvania, for the education of youth in science, agriculture, and other fields of learning. 24 P.S. § 2531. The intent was to prepare youths to pursue occupations in farming. 24 P.S. § 2542. In 1862, the institution was renamed the Agricultural College of Pennsylvania. That same year, the federal government, pursuant to the Morrill Land Grant Act, 7 U.S.C. §§ 301-308, made available to each state land to be sold to support at least one college providing instruction in both agriculture and mechanical arts. In 1863, the Commonwealth received property under this act and directed that funds derived therefrom be paid to the Agricultural College of Pennsylvania. The college was renamed the Pennsylvania State College in 1874, and, in 1953, the name was changed to PSU. Ever since 1863, the Commonwealth has made annual appropriations of funds to support the institution. For example, in the fiscal years 1994-1995 and 1995-1996 respectively, appropriations totaled approximately $256.8 million and $275 million. In addition, the Commonwealth has constructed many of the educational facilities at PSU, these being buildings valued in the hundreds of millions of dollars. A further benefit has been provided via an exemption from tax within the Commonwealth for bonds issued by land grant institutions of learning. 24 P.S. § 2575.1. These benefits have allowed PSU to provide lower tuition and fees for students who are residents of Pennsylvania.

The mere funding of an institution does not, however, make it an agency or instrumentality of the state. Mooney v. Temple Univ. Bd. of Trustees, 448 Pa. 424, 429-30, 292 A.2d 395, 398-99 (1972). The...