MIT and the City of Cambridge announced today that they have signed a 40-year agreement that provides long-term tax protection for the city by placing a cap on how much commercial property the university can take off the city's tax rolls in any given year. It includes a 20 percent increase in the base payment in lieu of taxes the university makes annually on tax-exempt property and guarantees a 2.5 percent annual increase in that payment.
The agreement was signed on Friday, Dec. 3, by outgoing MIT president Charles M. Vest and City Manager Robert W. Healy and presented to the City Council Monday evening, Dec. 6, by Healy and John R. Curry, MIT's executive vice president.
"The most important component of this agreement is that it provides the city with a revenue protection program well into the future," Healy said.
The new agreement, which will be in effect for 10 years and is automatically renewable for up to 30 additional years, protects the city's tax base by requiring MIT to pay taxes if the Institute removes commercial property over a certain dollar amount from the tax rolls.
MIT owns 157 tax-exempt acres in Cambridge that are used for educational purposes and 84 acres of commercial land, making a total of 241 acres or 5.29 percent of the city's total land area.
"We at MIT care deeply about the health and future of this city and believe that our investment in property here is a very positive factor for the Cambridge economy," said Vest, who was president of MIT for 14 years, ending his tenure Dec. 5. "I am delighted that we were able to reach an agreement with the city, something we have worked on for several years, before my tenure as president ended."
MIT is the largest taxpayer in the City of Cambridge, paying more than 10 percent of the total taxes levied by the city. In fiscal year 2004, MIT paid $23.5 million in real estate taxes on its 84 acres of commercial property in Cambridge.
"Under law, those properties could be converted to tax-exempt educational use," said Healy. "The agreement insures that the city will not be left hurriedly reacting should MIT decide to invoke its legal right to convert any of its currently taxable property to tax exempt status."
MIT paid nearly $30.7 million to the city in fiscal year 2004--the $23.5 million in real estate taxes, $6 million in fees, and a $1.2 million contribution in lieu of taxes.
Under the new agreement, MIT will continue to pay the real-estate taxes and fees, and will increase its base payment in lieu of taxes to $1.5 million in FY 2005. This amount will continue to increase in each successive year by 2.5 percent. The Institute has made annual voluntary payments to the city since 1928; the new agreement increases and formalizes that commitment.
"For the first time, these contributions have become binding by written agreement," said Healy.
The base annual payments will total $101.4 million over the 40-year term of the agreement. If MIT exceeds the cap allowance by taking taxable property off the rolls, the Institute will pay the city the equivalent of the tax payment in the year when the property becomes exempt and for each year thereafter. That amount will increase by 3 percent for 39 years. Even if MIT does not exceed the allowance, MIT must pay the city a portion of the taxes previously owed on converted property for the first three years after the property is removed from the tax rolls.
Mutually beneficial relationship
MIT and Cambridge have a long history of working together on issues that are of mutual benefit to both parties, and the Institute is a generator of jobs and revenue in Cambridge, both directly and indirectly.
MIT has contributed to the economic stability of Cambridge over the past 15 years by helping to keep unemployment rates significantly lower in the city than the national and statewide averages. The city's economic strength surpasses all other comparable Massachusetts cities. Of all Massachusetts urbanized centers with populations over 65,000, Cambridge has the highest per capita commercial tax levy, even exceeding Boston.
The Institute has been a catalyst for economic activity in Cambridge. More recently, the Institute has helped to create and sustain a biotechnology boom, particularly in the 02139 zip code area. More than 70 biotech firms are located within one mile of the MIT campus, and global companies like Novartis have chosen to make Cambridge their home.
MIT's "Cambridge First" purchasing policy resulted in purchases of $39.5 million in goods and services from local vendors in FY 2004. In addition, MIT has contributed more than $18.9 million to major public improvement projects in the city over the past five years.
MIT's presence has a very positive effect on the city's bond rating. In its preliminary bond prospectus, the city states that the presence of MIT and Harvard "within the city's borders contributes significantly to its vitality and growth."
"We have been good neighbors with Cambridge since 1916 when the city invited MIT to relocate from Boston to Cambridge. We plan to work closely with the city on mutually beneficial projects for many, many years to come," said Vest. "There is no place else MIT would rather be."
A version of this article appeared in MIT Tech Talk on December 8, 2004 (download PDF).