Between Town and Gown

Continued from page 2

By Sally Atwood

June 2003

The Double-edged Sword

MIT's role in the city's success is undeniable. Its presence alone has stimulated commercial growth in Cambridge and contributed to the city's renown as one of the leading technology centers in the world. Marsh, who is responsible for buying and renting MIT's commercial space, says being close to campus appeals to companies because it creates a collaborative environment in which they can apply basic science to their cutting-edge products. "They need to be near the source of idea generation," he points out. It's no surprise, then, that more than 70 biotech companies are now located within one mile of campus. And it's also the major reason, Marsh says, that MIT has invested so heavily in commercial properties adjacent to campus. Today, the Institute is the city's single biggest landowner, and its commercial real-estate holdings, on which it pays taxes, have made it the city's largest taxpayer. Last year, the Institute paid $9.2 million in taxes on nonacademic properties and was responsible for generating another $5.9 million from commercial properties on leased MIT-owned land.

Although the Institute had been slowly adding to its real-estate portfolio over the last decade, its 2001 purchase of Technology Square, a complex of commercial buildings in Kendall Square, set off warning bells around Cambridge. That purchase bumped MIT's share of the city's property tax base to about 8.7 percent. Since Cambridge derives more than half of its income from the commercial sector, the purchase sent the anxiety level of city councilors and residents soaring: as a tax-exempt nonprofit, MIT pays no taxes on most of the holdings it uses for educational purposes. Thus, if it converts any of its commercial holdings to academic use, those properties could come off the city's tax rolls.

Mayor Michael Sullivan notes that 51 percent of the city's property is now held by tax-exempt entities. If MIT were to convert a substantial portion of its commercial space to academic use, he says, the loss of revenue for the city would be staggering. In an effort to head off this loss, the city is seeking assurances from MIT that it will continue paying taxes for a specified period of time on any commercial property it converts to educational use. "The city is looking for a long-term agreement-50 years at the least," councilman David Maher said last spring in a program on Cambridge Community TV.

Marsh says the city need not worry: it is in MIT's own financial interest to maintain the properties' commercial status. "MIT relies on the income flow from these properties to support operations," he says. "It's essentially part of our endowment, and it needs to generate returns." 

But the city is not mollified. Since the purchase of Tech Square, the two entities have been renegotiating a long-standing arrangement, known as the "payment in lieu of taxes agreement," which specifies how much the Institute will voluntarily pay on its academic property. In 2002, the figure was $1.1 million. In the revised agreement, the city wants to include a provision that would commit MIT to paying taxes for a prespecified number of years on any commercial property it converts to academic use. At press time, no compromise had been reached, but a final agreement is expected soon.