The Dead Hand of Harvard

It all started simply enough: a tax-exempt corporation had purchased some of the most valuable property in the area. The loss to the tax base was substantial, and it threatened the provision of basic services. The dispute was followed by others like it, and the controversy quickly became a hot political issue. Finally, the government stepped in and started to consider legislation that would restrict the ability of non-profits to buy property tax-free.

The story could be about Harvard and the Arsenal on the Charles, the $163 million Watertown office park that the University purchased last spring to the city’s great dismay. Alternatively, however, it could be about the Catholic Church and the nature of lordship in 13th-century England.

Back then, the Church was a highly undesirable tenant, perhaps even more than Harvard is today. A religious corporation like an abbey or monastery never made the standard payments for inheritance, marriages or felonies—instead, it evaded its taxes in perpetuity, controlling properties from beyond the grave with a “dead hand” (“mortmain”). The landowners complained bitterly of losing “the services which are due of such fees,” which after all were provided “for the defense of the realm.” And in 1279, King Edward I consented to the Statute of Mortmain, which forbade religious institutions from acquiring any land from a tenant without the lord’s permission.

The problem hasn’t changed much in the intervening seven centuries—or at least in the last 365 years—as more and more land has found its way into John Harvard’s cold, clammy fingers. The secret purchase of 58 acres across the river caused widespread unease among Allston residents; they also evoke Mortmain’s prohibition on acquiring lands “by art or wile.”

But no recent purchase has brought criticism that rivals the condemnations streaming forth from Watertown. The Arsenal, a former military base that once required $100 million in toxic waste clean-up before it could be converted into offices, was viewed as the fiscal savior of the mostly residential suburb. The millions of dollars in taxable property it represented were already being considered for school improvements, library renovations and road repairs. But under an 1830 Massachusetts law creating special privileges for non-profits, Harvard, as the new owner, is not required to pay any taxes on the property.

Of course, the profits that Harvard makes from leasing the Arsenal will be taxed. (This wasn’t the case in England, where tenants had discovered that they could sell their lands to the Church and then rent them back tax-free—a practice banned in the 1217 reissue of Magna Carta.) Also, the University still plans to establish a payment-in-lieu-of-taxes (PILOT) agreement with the city to compensate it for some of the loss. But as long as Harvard doesn’t pay the full rate on its property, the resulting shortfall could leave Watertown in the lurch.

It’s easy to sympathize with the Watertown schoolchildren whose education might suffer due to the Arsenal purchase. It’s not their fault that the city’s tax base is small. But at the same time, it’s hard to see why Harvard should be obliged to pay what it doesn’t owe. The tax laws of the U.S. government and each of the 50 states give tax-exempt status to many non-profits. They do so because we consider charitable, educational, scientific or religious institutions to serve a valid purpose and to contribute to society in a way that for-profit corporations do not. Under this view, soup kitchens should use whatever money they have to buy more soup, not to pay taxes; the services they would provide the community are considered as valuable as whatever the taxes might buy.

And despite the rhetoric that Harvard acts more like a business than a school, the education the University provides and the research it supports is of immense value to the nation and the world—and there’s no serious argument that Harvard Corporation members are skimming off the top. Yes, Harvard is a large institution, but it still needs money to function, and to get money it sometimes invests in taxable real estate. The sheer scale of its $19 billion endowment just makes the University more impersonal (and not less effective) in the course of doing good.

The problem is that the benefits that Harvard produces are benefits to the nation and to the world as a whole, not necessarily to Watertown. The residents don’t have anything against universities; they just don’t want to pay to host one. The decision to exempt Harvard from taxation was made by the Commonwealth of Massachusetts, which does not bear evenly the cost of its decision. Thus, cities like Watertown have reason to adopt an attitude of “Not In My Backyard,” something more frequently encountered in discussions of nuclear plants than institutions of higher learning.

So far, the main result of the conflict is a bill sponsored by Rep. Rachel Kaprielian (D-Watertown) that would allow a city to collect property taxes when a non-profit purchases more than 2.5 percent of the tax base. The bill would discourage the founding of large charitable institutions in Massachusetts or the expansion of old ones, and all in all it’s a terrible idea. What the state government should be considering instead is a bill that would reimburse municipalities for the losses that large tax-exempt institutions create. That way, the reward for charitable work is preserved without placing a truly unequal burden on small towns. Such a system would also reduce the constant bickering over expansion and PILOT agreements that plagues Harvard’s relationships with its neighbors.

Given that the Kaprielian bill would have to overcome the lobbying strength of Harvard and other Massachusetts universities, the current system of unequal costs, unshared burdens and unceasing strife seems likely to continue. After all, there’s historical precedent—acquisitions of land by the Church continued almost unabated after 1279. Undying corporations do tend to stick around, especially ones that are already many centuries (or millennia) old. But it’s about time that the people of Massachusetts took the responsibility to preserve the local tax base out of Harvard’s dead hand and into their own.

Stephen E. Sachs ’02 is a History concentrator in Quincy House. His column appears on alternate Tuesdays.