Council Decries Tax Holes

City councillors accused Cambridge universities of cheating the city out of tax revenue by conducting for-profit research on tax-exempt property at a meeting of the council’s University Relations Committee yesterday.

While Vice Mayor Marjorie C. Decker directed her comments at MIT during the meeting, she said afterwards that she harbors similar concerns about Harvard researchers. University property is exempt from taxes if it is used for educational purposes, but Decker said activities conducted in these buildings are not always closely monitored.

“Let’s not lie to ourselves. It’s being done,” Decker, who co-chairs the committee, said during the meeting. “That kind of work is not acceptable.”

Officials from both Harvard and MIT defended their research practices yesterday.

MIT Office of Government and Community Relations Co-Director Sarah Gallop said the City Council had already held comprehensive hearings on the subject in 1999, before Decker joined the group.

“The questions that were posed today are the subject of extensive regulation,” Gallop said. “While we can certainly appreciate the City Council’s concern, the federal government and our industry agreements squarely address the issues that were being raised today.”

Representatives from MIT attended the meeting, but no Harvard officials were present. Harvard’s Associate Vice President for Government, Community and Public Affairs Jane Corlette said in an interview that she believed Decker’s assertions of tax avoidance were uninformed.

“I think that this is a red herring,” Corlette said. “I suspect that the councillors do not really understand what they are talking about.”

According to Corlette, Harvard researchers often receive private funding, but the funding only covers research expenses. Most research does not result in marketable inventions, she said.

Corlette added that when Harvard research does lead to profit for a private firm, the University follows longstanding federal regulations that require it to devote the money to research and education.

“There’s no profit to the University,” she said.

The committee meeting was slated to focus on MIT’s recent agreement to increase its annual payment to the city, and Gallop said she was surprised the tax evasion allegations were raised at all.

In the past two months, Cambridge has made long-term financial arrangements with both Harvard and MIT in which the universities will each make an annual payment in lieu of taxes (PILOT) to compensate the city for services such as fire protection and garbage collection.

In 2006, Harvard will pay Cambridge about $2.4 million for its tax-exempt property. City officials estimate that Harvard would pay about $33 million for that property if it were not exempt from taxation. MIT will increase its payments by 20 percent to $1.5 million next year. Both agreements call for a fixed annual increase in payments over the next several decades.

Several councillors—including the members of the University Relations Committee—have said they believe the levels of compensation in both the Harvard and MIT agreements to be insufficient.

Since both PILOT agreements have already been signed, Decker said at yesterday’s meeting that she would shift her focus to an “aggressive” investigation of activities conducted on university campuses. She said she wants to make sure the city collects “the money that we are entitled to.”

“We wouldn’t be having this conversation if we thought the university is paying what it should be paying,” Decker told the committee. “I’m interested in making sure my community gets every cent it deserves.”

Councillor Henrietta Davis told the MIT representatives, “If you’re making money, we want a piece of it.”

—Staff writer Alan J. Tabak can be reached at tabak@fas.harvard.edu.