Just a few days before it was headed to trial, a case in which 27 Princeton residents were suing Princeton University over property tax exemptions was settled last Friday. The school will pay out $18.2 million over the next six years to help lower-income residents of the town pay their property tax bills.

The plaintiffs had claimed the school was profiting from research and development in certain campus buildings and should therefore be taxed. The University maintained that educational purposes were the focus. The suit has been dropped.

“When we first conceived of the lawsuit in 2011, our focus was on how to reduce the tax burden on these people in need,” said attorney Bruce Afran, who represented the plaintiffs on four lawsuits and worked with the University on the agreement. “These are people who have struggled to keep up with their taxes but can’t take care of their homes. This fund will help them in those directions.”

Under the agreement, the school will contribute $2 million this year and $1.6 million a year for the next five years to a fund that will distribute annual payments to Princeton homeowners who are beneficiaries of the New Jersey Homestead Property Tax Credit Act. The 2017 distribution will establish a maximum amount for each household. Anything left over will go to 101:Inc., a non-profit organization that provides need-based scholarships for Princeton High School graduates attending colleges other than Princeton University.

The University will also make three contributions of $416,700 to the Witherspoon Jackson Development Corporation, spread out over three years, to help with housing needs in that neighborhood. The school also agreed to make an annual
voluntary contribution to the town of $3,480,000 in 2021 and 2022, the same amount it is scheduled to give in 2020, which is the final year of its current agreement with the municipality.

“This is probably the most successful outcome of this nature to any tax exemption case in the country,” said Mr. Afran. He added that if the case had gone to trial, the plaintiffs likely would have won a judgement of $8 million paid by the University. But that would only have yielded about $400 in benefits for each household.

‘We felt most people in Princeton aren’t in need of that money. It would be giving ‘latte money’ out to people. It didn’t seem, in this community, to be a worthy way to go.”

The settlement grants an average payment of about $2,000 a year for six years to those eligible. “We don’t want Princeton to be just the preserve of the well off,” Mr. Afran said. “We want economic diversity and we designed the settlement to achieve that. Hopefully, other people in the community will want to find a way to expand this fund and add to it. We want to further this aid.”

 In a prepared statement, University President Christopher L. Eisgruber said, “Princeton University cares deeply about preserving the diversity of the Princeton community, and the contributions we have agreed to make will help to achieve that. “We have a long history of contributing to the well-being of our community, not only through our annual unrestricted contributions and targeted contributions for affordable housing, the schools and the library, and community services of various kinds, but in the educational, cultural and other opportunities we provide to members of the community.”

Mr. Eisgruber added, “We had every confidence that the courts ultimately would have affirmed the University’s continuing eligibility for property tax exemption on buildings and facilities that support its educational, research and service missions, but we concluded that the contributions we will make under the settlement agreement are a better expenditure of funds than continuing to incur the considerable costs of litigation.”

Negotiations with the University were friendly and went well, Mr. Afran said. But if the school opts not to continue the arrangement once the six years are up, the lawsuits will be brought again. “Hopefully, we won’t have to,” he said. “Hopefully, it’s the beginning of a new era.”