Clubs Follow Many Roads To Arrive at Lower Taxes

The year 1984 wasn't a great one for George Orwell, and it wasn't so hot for the University's nine all-male final clubs.

Four years ago, Harvard severed its ties with the clubs, depriving them of the right to use low-priced University steam heat and Centrex phones.

At nearly the same time, the clubs--as well as many other Cambridge property holders--were informed that their taxes were going up.

Starting with fiscal year 1984, Cambridge changed the way it taxed property, establishing separate tax rates for residential property and commercial holdings. The commercial rate was made significantly higher than the residential rate.

The city also decided that the nine all-male clubs should be taxed at this commercial rate, currently about double the residential rate.

Unlike businesses, which can pass on a change in their tax payments to customers, the clubs' endowments had to absorb the additional losses.

Records obtained by The Crimson show that since that time, the clubs have used a variety of means to lower their taxes. They include: seeking permanent and annual tax adjustments, trading the promises not to change the facades of the clubhouses for lower estimated values upon which property taxes are based.

The clubs also appealed the city's decision to call the properties commercial but lost their case in 1986.

And in the past two years, the clubs appear to have stepped up such efforts, which often translate into thousands of dollars in savings each year.

Some of the clubs have agreed not to change their facades--a promise which is called an easement--in order to be permitted to rent out part of the building to private businesses. The four clubs which received the easements are the Spee, D.U., Phoenix and Fox. (See chart.)

Two clubs have gotten their assessed value--which serve as the basis for tax charges--lowered because of them.

Easements, however, do not always lower the value of a property and may actually increase it, some experts say.

In part, the experts say, the reason why the easements do not necessarily lower value is that the Cambridge Historical Commission has the power to postpone the demolition of any building more than 50 years old.

One local realtor, though not an expert on this type of property, says, "I think it's pretty difficult to tear down a building." The realtor said both the historical commission and the neighborhood would probably act to prevent such a demolition.

Two of clubs that signed easement agreements received in exchange for permission to house a profit-earning business in their basement. A former trustee of one of the clubs has said that the business brought in "a lot" of money.

City records seem most up-to-date for the Fly Club, showing that the club has sought tax reductions in several ways, at least one of which capitalizes on the club's promixity to Harvard.

In 1984, the Fly Club divided up its property into three parcels, two of which are taxed commercially. The Fly Club separated its garden property from the clubhouse and parking lot, selling the land to a Harvard alumnus linked to the club for one dollar.

By doing this and by claiming that the garden property is not a part of the club, the Fly Club was able to get the land classified at the lower residential tax rate. City officials agree that had the club not subdivided the property, it would have paid the commercial rate on all of it. The club would have to pay several thousand dollars more in taxes if the garden property were considered commercial.

Some tax experts--including Hand Professor of Law Oliver Oldman--have said that this sort of trust is unusual. Oldman said that if the land is really used primarily in connection with adjacent commercial property, it should be taxed commercially. The Fly Club uses the land for parties and receptions.

But some experts say that dividing land into small plots may not be all that strange. The tax assessors say that the city taxes land based on what it is used for, not on who owns it, adding that the building department would not have allowed the club to subdivide the land if they thought it were really a part of the club.

And Director of Reevaluation Peter Helwig says, "The more valuable land is, the more it gets chopped up." Helwig says that since land prices in Cambridge are "so collossaly high," many business are investigating fancy tax loopholes, like those the clubs have used. And Helwig says this is particularly true of non-profit organizations.

The final clubs are registered as "charitable" organizations, though they do not hold tax-exempt status.

Two years ago, the Fly Club tried to get its parking lot classified as residential property, claiming that the spaces were used primarily by Harvard students living in dormitories near the lot, and not for club use.

"This property is used for parking cars by some of the resident undergraduates at Harvard," wrote the club, adding that the parking lot is next to the land where the students live. The club also said it should pay the lesser rate because the parking lot is next to the University-owned portion of the garden, which is zoned residentially.

However, the Board of Assessors, which assesses property for tax purposes, did not place much credit on the club's argument. In fact, Assessor Faith McDonald said of the club's claims, "Evidentally, we didn't pay them any attention." She added, "What you get may not be what you want."

It is unclear how the club wants to be perceived by government agencies, because in arguments about tax rates, it cites its affiliation with Harvard, while in legal arguments about the club's all-male admissions policy, it asserts that it is unrelated to the University.

Lisa J. Schkolnick '88 filed a complaint with the Massachusetts Commission Against Discrimination last December charging the Fly Club with gender discrimination.

A Final Assessment

City records reveal a detailed history of Harvard's nine all-male final clubs asking for--and sometimes receiving--tax deductions from the city

Year  CLUB / Request  Approved  Reason for City's Decision 1988  FLY / temporary property assessment adjustment from $922,300 to $779,600, saving more than $3000 in taxes  Yes  The clubhouse does not make highest and best use of the land 1987  FLY / temporary property assessment adjustment from $922,300 to $799,000, saving approximately $2600  Yes  The clubhouse does not make "highest and best use of the land" 1987  FLY / general lowering of tax rates because the club claims that it operates at "a substantial loss, mainly because of city taxes."  No  The club, like any "fraternal organziation" must pay the higher comercial tax rate 1987  FLY / lowering taxes on the parking lot because it is used by Harvard undergraduates who live nearby  No  The parking lot should be treated like the rest of the club 1987  PHOENIX / permission to house a business in the basement in exchange for not changing its facade  Yes  The building contributes to a historic district on the national register of historic places 1987  DU / lowering property assessment in fiscal 1987 and 1988 in exchange for not changing its facade  Yes  Preserving the historic facade of the building lowers the club's property value 1986  FOX / temporarlly lowering property assessment from $1 million to $825,000 in return for not changing its facade  Yes  Preserving the historic facade of the building lowers the club's property value 1984  SPEE / permission to house a business in thebasement in exchange for not changing its facade  Yes  The building contributes to a historic district on the national register of historic places   Graphic/Jonathan S. Cohn