Cambridge Looks for PILOT

City councillors in Cambridge are thrilled for their neighbors down the street in Watertown.

Last week, city officials in Watertown celebrated a deal they struck with Harvard. The University will pay the city $3.8 million this year—and will pay that, and more, every year for the next 52 years.

In return, the University gains the right to develop a thirty-acre tract known as the Arsenal.

The deal will protect Watertown’s property tax base for a half century. Local politicians and newspapers hailed it as generous and precedent-setting.

And now Cambridge wants to share in the celebration.

“[Harvard has] clearly decided to mitigate any injury to Watertown’s tax base. I think that that’s wonderful,” says city councillor Anthony D. Galluccio. “I would be very interested to hear Harvard explain why these same principles are not equally important to its home city.”

Harvard owns 189 acres of land in Cambridge that it doesn’t pay taxes on. But even though the University maintains its tax-exempt status, it makes voluntary contributions on an annual basis.

These payments in lieu of taxes (PILOT) are intended to make up for removing significant acreage from city tax rolls, but the amount of the payments has created a perennial dispute in town-gown relations.

Some University land is on the tax rolls, ownings for which Harvard pays $4.3 million a year. But the current PILOT contributions to Cambridge for the rest of its land—the 189 tax-exempt acres—stand at just $1.5 million.

Now, following the Watertown deal, city leaders in Cambridge are renewing their calls to Harvard to renegotiate its PILOT agreement.

The dollar amount in the Watertown agreement is significant because it represents a payment about equal to the Arsenal’s full taxable land value.

Harvard officials say this represents a policy of offering significant PILOT payments for each acre taken off the tax rolls. But since this only applies to new purchases, the question remains whether Harvard will use the same standard for the land it already owns in Cambridge.

According to Cambridge Mayor Michael A. Sullivan, the full taxable value of Harvard’s tax-exempt ownings totals $34 million—more than 20 times the amount of Harvard’s current PILOT agreement.

“Communities that are becoming new host cities will get a better deal than communities that have hosted the University for 366 years,” Sullivan says. “I think there has to be some retroactivity as to how you base the PILOT.”

Harvard agreed to the current arrangement in 1990. That agreement served as the framework for the Watertown deal, but now both Sullivan and Galluccio hope Harvard’s dealings in Watertown will serve as the “benchmark” for future negotiations between Cambridge and the University.

“My hope is that Harvard is planning to use Watertown as a new baseline for renegotiating our PILOT agreement,” Galluccio says. “My hope is that Harvard is immediately going to contact city officials.”

But Harvard officials say the Watertown agreement represents a special case, since Harvard’s holdings constitute about one-third of that town’s tax base and were purchased in one fell swoop. An agreement like the 1990 deal would have had catastrophic effects on Watertown’s city budget.

“We did agree with our counterparts who were negotiating for Watertown, that the case of the Arsenal was different,” says Harvard’s Associate Vice President for Planning and Real Estate Kathy A. Spiegelman.

The Watertown negotiations, which took a year and a half, also subjected Harvard to intense pressure to make a deal that would satisfy all parties. The University’s purchase of the Arsenal had been controversial, sparking protests by local children and a response from the state legislature, which considered passing a bill to limit the tax-exempt holdings of non-profit institutions.

From Galluccio’s point of view, PILOT payments are not only an issue of money, but also one of the fundamental relationship between Cambridge and the University.

Rather than adopting “reactionary” financial policies, Galluccio says, Harvard should actively seek to compensate the city adequately.

“Unfortunately Harvard has really decided to make all negotiations part of a quid pro quo,” he says. “All relations start with building a foundation of being a good neighbor.”

Harvard is ready to go to the table, according to Vice President for Government, Community and Public Affairs Alan J. Stone, who says he has indicated to most city councillors personally that he is willing to sit down and negotiate.

“No one’s said to me, ‘Come in tomorrow and let’s do it,’” he says.

While Stone declines to say that the Watertown deal would serve as a new baseline, he does say that Harvard is willing to “have a lot of things on the table.”

Even though Harvard officials called Watertown a special case, they also say they know that deal will influence future negotiations with other cities—including Cambridge.

“I think we were aware of the fact that the principle we adapted would apply to each of our host communities,” said Director of Community Relations Mary H. Power.

—Staff writer Lauren R. Dorgan can be reached at dorgan@fas.harvard.edu.

—Staff writer Christopher M. Loomis can be reached at cloomis@fas.harvard.edu.