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MIT, City to Sign Payment Agreement

By Frank Dabek


MIT and the City of Cambridge expect to reach agreement soon on the first-ever formal agreement binding the Institute to make payments in lieu of taxes to the city.

Cambridge City Manager Robert W. Healy said that the “groundbreaking” agreement will likely be signed in the next month and will likely include a requirement that the Institute make a “payment of what taxes would have been” if a commercial property is converted to tax-exempt status.

The immediate impetus for the formal agreement was MIT’s purchase of Technology Square. Healy said the possible loss of revenue that would result if MIT removed the buildings from the tax rolls made the city “a little nervous.”

MIT purchased the complex of research buildings for $278 million in 2001. The agreement will provide the city with “fiscal predictability,” Healy said.

Sarah Gallop, co-director of the MIT Office of Government and Community Relations, said that the “real catalyst [for the agreement] was the purchase of Tech Square.” Gallop said that MIT depends on the revenue generated by renting Technology Square and it would not be financially feasible to remove the property from Institute’s commercial portfolio and thus from the city’s tax rolls. Any property moved to tax-exempt status must be used for academic purposes.

However, the city and other groups don’t know what MIT’s position on the property is, Gallop said. The agreement is designed to allay concerns that the MIT will move the property to its tax-exempt portfolio.

Gallop would not discuss the specifics of the negotiations, citing a confidentiality agreement with the city.

Previous agreement informal

MIT has made payments to the city on a voluntary basis prior to this agreement; last year the Institute paid $1.164 million in lieu of taxes. Payments in previous years were based on an informal agreement that calculated the payment amount on the square footage of MIT’s tax-exempt land and grew by 2.5 percent per year, Gallop said.

MIT is not legally obligated to pay taxes to the city and has not previously signed any agreements related to taxes. “Nobody wants to give up their legal rights,” Healy said.

City Councillor Brian Murphy, who serves on the council’s finance and university relations committees, said that “MIT recognized that this was a different situation.” The agreement will allow the Institute to preserve its right to convert property to tax-exempt status while giving the city assurances of steady tax revenue, Murphy said.

Harvard signed agreement in 1990

In 1990, Harvard signed an agreement with Cambridge that is similar to the one MIT will sign. That agreement came about as part of the settlement of a dispute over Harvard’s treatment of housing for its affiliates, Healy said. By contrast, MIT is entering into the new agreement voluntarily.

Harvard also recently signed an in lieu of taxes agreement with the city of Watertown. That agreement guarantees Watertown $3.8 million dollars in tax revenue on a 30-acre tract of land that Harvard purchased.