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Taxing Agreement
Cambridge and MIT settle tax payment plan
By Sally Atwood

You can always count on death and taxes, but the city of Cambridge was not certain it could count on collecting taxes on MIT’s commercial properties forever. So in January 2001, the city asked MIT to enter into a binding agreement that would specify what taxes the Institute would pay if it converted commercial property into tax-exempt academic space. Just as President Charles M. Vest HM was stepping down last December, the city and the Institute together announced an agreement that places an annual cap on the amount of commercial property the Institute can remove from the city tax rolls. It also increases MIT’s voluntary payment in lieu of taxes from $1.2 million in fiscal year 2004 to $1.5 million in 2005 and stipulates a further 2.5 percent annual increase for the life of the 40-year agreement.

MIT owns 241 acres within the city, or 5.29 percent of the city’s total land area. Of that property, 157 acres are tax exempt, but MIT is still the single largest taxpayer in Cambridge. In 2004 MIT paid $23.5 million in property taxes.

Under the new agreement, the property that MIT removes from the tax rolls in a given year must account for no more than .5 percent of the city’s total tax levy. MIT will also phase out its property tax payments over three years to help the city adjust to the lost revenue. Over the life of the agreement, MIT can remove only 2.5 percent of the city’s total tax levy from the rolls. If it exceeds that limit, it will pay full property taxes on the overage for 40 years from the year the conversion is made.

“We have to keep pace with science, so we needed some flexibility that will allow us to convert property without being penalized all the time,” says Sarah Gallop, codirector of MIT’s Office of Government and Community Relations. Cambridge, in turn, gains revenue protection and long-term predictability for its budgeting process.