CAMBRIDGE, like many other old industrial towns in the Boston area, must combat the increasingly serious problem of an ever-shrinking tax base. As more and more of the taxable property in the city shifts from private residential and industrial ownership to non-profit, tax-exempt institutions, the city loses large amounts of its potential tax revenue. A shrinking tax base and an increasing city budget add up to a greater and greater tax burden that must be born by Cambridge homeowners and businessmen. And, in the last few years, these individuals have placed mounting pressure on the city government to do something to ease this burden.

Enter Harvard. At the present time almost 40 per cent of the land in Cambridge is owned by tax-exempt institutions. And Harvard is by far the largest of these institutions. Harvard pays taxes totaling about $900,000 to the city of Cambridge for land and buildings it owns that are not used exclusively for educational purposes. But it does not pay taxes on most of the property and buildings located in the general area classified as the Harvard-Radcliffe campus.

The greater attention that has been paid in recent years to the high taxes placed on homeowners and businessmen in Cambridge, has caused an intensifying debate about that large chunk of tax revenue that Cambridge does not get as a result of Harvard's tax-exempt status.

Several Cambridge city councilors have been very outspoken at times in directing criticism at Harvard for "not paying its share" and it is not unusual for residents to revert to the "look at all the billions Harvard and those spoiled rich kids who go there have" line. Of course, all educational and other tax-exempt institutions in the city have faced the same pressures, but Harvard seems to take the brunt of the heavy artillery.

In lieu of tax payments are the monies that Harvard pays to the city "voluntarily" to offset some of the cost to the city and to pay for some of the vital services provided to Harvard by the city. The annual figure has increased dramatically from $283,095 in 1971 to about $500,000 for 1973. But this large increase has not solved the problems the city faces nor relieved the pressure the city council and city manager place on Harvard.

HARVARD first agreed to pay in lieu of tax payments to the city in 1928. At that time the university agreed to continue to pay the taxes on the new land it acquired on a decreasing basis for 20 years. So as Harvard bought up additional land--and removed it from the tax rolls--Cambridge would receive an increasingly smaller payment on that land. This was initiated by both Harvard and the city to help ease the impact any large purchases by the University would have on the city tax revenues.

In 1948, the city and Harvard renewed the 1928 agreement for another 20 years, but when the agreement expired again in 1968 it was not renewed. Nevertheless, during the years 1968 to 1971, the University continued to pay in lieu of tax monies on the same basis, just as if the agreement had not expired.

In 1970, MIT paid about $229,000 in lieu of taxes monies because of its large growth since the original 1928 agreement, while Harvard, which had not acquired as much land in that time period was only paying about $104,000.

Together Harvard and MIT own almost a third of the land in Cambridge and the doubling of taxes to about $150 per $1000 of assessed valuation from 1967 to 1972 finally caused the city council to try to drastically increase the in lieu of tax payments.

In April 1972, the Cambridge Board of Assessors submitted a proposal to the council that requested payments from all educational institutions on the basis of total square feet of property owned.

The proposal suggested that the institutions pay the average return on land in Cambridge--5.2 cents per square foot at the time--with the payments increasing along with the city tax rate.

When the proposal was submitted, then City Manager John H. Corcoran told the council that "one of the academic institutions [Harvard or MIT] is amenable to our formula but the other is still reluctant to enter into the agreement."

HARVARD'S reasons for opposing the plan surfaced shortly thereafter. Since MIT had acquired much of its land since 1928 its payments would not drastically increase with the new formula, but Harvard's would have immediately quadrupled. Harvard was willing to talk, Donald C. Moulton, Harvard coordinator for community affairs, said, but the square-foot basis was an arbitrary method of determining in lieu of tax payments. "We're not legally obligated to make the payments, but we recognize the services the city provides Harvard," he added.

Negotiations between Harvard and the city broke down after several months as a result of the then continuing city manager-city council squabble. Moulton said that he was told by members of the city council not to make any agreements with the soon-to-be-replaced Corcoran.

Harvard obligingly broke off negotiations and sent in its 1971 money on the basis of the old agreement plus an increase far below that desired by the city. The burdens of the increasing costs of the city's operations continued to fall more and more heavily on the owners of taxable property.

In January 1973, Harvard agreed to substantially increase in lieu of tax payments to $410,000 for 1972 and $500,000 for 1973. The agreement was signed by Corcoran--who remained as city manager despite CCA ouster efforts until this year--Moulton and Charles U. Daly, vice-president for government and community affairs.

At the same time the University also rejected the bill for about $400,000 that the city had submitted in October 1972 on the total square foot formula. Moulton said then that even though Harvard would now pay a figure comparable to the one arrived at by the square footage calculation, they would not make payments that were based on a specific formula.

Harvard objected to the formula for two reasons. First, any formula might jeopardize the tax-exempt status of the University's property; and, secondly, any precedent set by Harvard could be harmful or even fatal to other non-profit organizations that could not afford to make such high payments.

Moulton said then that the size of the increases over the next two years were a result of Harvard's desire to "clean up loose ends" and not of pressure applied by the city council.

Despite the large increases that the Harvard agreed to, three members of the council immediately condemned the new agreement as unsatisfactory and showed their dissatisfaction by convincing the council to defeat a Harvard petition for minor street repairs that had been before the council since October. Daniel J. Clinton, Saundra Graham, and Henry F. Owens III said in no uncertain terms that Harvard should be forced to make much higher payments to the city.

IN THE YEAR and a quarter since that blow-up, the in lieu of tax question has smoldered threateningly under the surface, but never quite exploded. Harvard continues to stand by its anti-formula policy and city councilors blast Harvard for low payments whenever the mood seizes them.

Harvard had cooperated with other institutions since 1972 in an attempt to re-evaluate tax exemptions for institutions on higher education and the basis for in lieu of tax payments. An October 1972 report to the Cambridge community from the Office of Government and Community Affairs assured the city that although Harvard will "work to protect the tax exemption of educational institutions, it will work with equal energy to see that the courts, legislature and executive branch officials devise ways to spread the burden of these exemptions more fairly."

To this end, Harvard joined other institutions in asking the Federal Reserve Bank of Boston to undertake a study entitled, "College and University Tax Exemption and the Need for Tax Structure Reform in Massachusetts." In its preliminary description of the problems, the FRB said that "we believe that the real villain is Massachusetts' extraordinary reliance on the local property tax. We hope to show that a general overhaul of the tax structure would be mutually advantageous to the universities and colleges, to their host communities, and to low and middle income citizens as well."

The rough draft of this report is now being reviewed by the bank, and the final report should be available in several months, Moulton said last week.

But report or no report, the present two year agreement on the level of in lieu of tax payments between the University and Cambridge comes up for renegotiation next December or January when a figure for 1974 payments must be agreed upon.

Cambridge has a new city manager and a few new faces on the city council. Harvard has taken an increasing responsibility to the community, in recent years. But basically, the city still adheres to its contention that Harvard should pay by the square foot and Harvard insists it will not pay according to any set formula. That basic difference in philosophy could lead to another round of heated negotiations and increased pressure from city politicos and residents who see at least some tax relief coming through higher payments made by Harvard.JOHN H. CORCORAN