In-Lieu-Of-Tax Reviewed

Kennedy School Student's Report To Be Circulated Nationwide

A student at the Kennedy School of Government presented his assessment of Cambridge's in-lieu-of-tax agreements Tuesday night at City Hall, in a report that one city councillor says will affect town-gown relations nationwide.

Eric Halverson, a second-year student who completed the project this semester as part of his degree requirements, explained his 40-page report to a dozen Cambridge, Harvard and MIT officials, as well as representatives of Mayor Alice K. Wolf's town-gown committee.

The report examines Harvard and MIT's voluntary payments to the city of Cambridge, which compensate for their tax-exempt property that collectively comprise "39 percent of the current value of Cambridge's taxable real estate," it says.


A Public Good

"I investigated how much the universities do pay voluntarily, then tried to develop a framework for thinking about how much they should pay," Halverson said. "The reason the universities receive subsidies from the government in the first place is that they have historically been a public good for the community."


Harvard is now in the first year of a 10-year agreement with the city that will bring Cambridge more than $1,000,000 in lieu of taxes this year. MIT will hand over approximately $800,000 for its academic tax-free land in fiscal year 1991.

City Councillor Francis H. Duehay '55, who selected Halverson for the task earlier this year, said he was more than satisfied with the quality and content of Halverson's efforts.

"I am very pleased with it," Duehay said. "Eric did a systematic, careful job gathering data and following through with his assumptions."

Duehay, a member of a national committee of mayors and city councillors, said the committee is looking forward to reading Halverson's report.

"Mayors and councillors from other cities around the country are ravenous for information in this report which Eric spent three or four months digging out. It will undoubtedly be considered by other cities," Duehay said.

Duehay said Halverson's report will play an important role in town-gown relations throughout the country for years to come--even if it doesn't change current policies in Cambridge or other college-inhabited sites.

"Regardless of how it's used in the future by cities and universities, it will definitely serve as a useful tool to ride from," Duehay said.

Four Calculations

Halverson examined four different methods for calculating the in-lieu-of-taxes payment. Halverson said that while the different approaches failed to produce a consensus on determining a fair payment, he argued that the adnvantages and disadvantages of each method presented in the report will be useful in future town-gown debates.

According to the first approach, universities should be taxed only as much as the amount of services they receive from the city without remuneration, such as fire protection, sewer maintenance, litter removal and snow removal.

Halverson said the flaw in this reasoning is that it assumes property taxpayers should only pay according to the city services they use--which would prevent transfer of wealth from more affluent property owners to needy individuals in poorer neighborhoods.

Under the second method, universities would be charged according to the amount of money the city loses in revenues from tax-exempt land. But in the report, Halverson argues that in the case of Cambridge, the city actually benefits from the universities' presence because the remaining property values and resulting taxes, are on average "two to three times those of other suburbs around Boston."

Halverson's third approach "involves asking how much a private or profit-making owner might pay for the land." But he said that it would be too hard to accurately measure the worth of the universities' real estate when including the positive externalities such as tourism.

Halverson's final approach compares Harvard and MIT's town-gown contributions with those of other universities, requiring that universities donate as much as other schools relative to their enrollment sizes or operating budgets. But the flaws in this approach are that every school might be underpaying, and that payments for some universities, such as Yale and Brown, come from the states instead of the institutions.