For two years Harvard and the City of Boston have been wrangling over what the University owes its community. They've finally come to a conclusion: $40 million over 20 years.

And the $40 million deal--an increase of some $12 million from what Harvard already pays Boston--may prompt Cambridge to seek more money by renegotiating its own agreement with the University, according to city officials.

Harvard has an understanding with both Boston and Cambridge known as "payments in lieu of taxes." Harvard does not pay taxes on any land used for educational purposes, which constitutes most of the University's property.

Following what is accepted practice for non-profit institutions, Harvard pays Boston what is approximately equal the taxes the school would pay on graduate student housing (which is not technically used for educational purposes) plus an extra voluntary payment related to new construction at the Business School.

Harvard owns a total of 226 acres in Boston.

"During the course of the negotiations it became clear that the voluntary payment would be necessary in order to reach a satisfactory agreement," said Kevin A. McCluskey '76, Harvard's director of community relations.

Similar Hopes in Cambridge

Cambridge, which also has a payment in lieu of taxes agreement with Harvard, has been paying close attention to the talks between Boston and Harvard. Its 10-year agreement with the University is due to expire this year.

Following Boston's lead, Cambridge will try to renegotiate its agreement with Harvard, said Mayor Francis H. Duehay '55. The University owns about 220 acres in Cambridge.

"We could expect in light of this to have a substantial increase," Duehay said.

He said that Harvard's increased property holdings in Cambridge since the agreement was formed and "the way that they have negotiated with Boston" are both encouraging signs that Harvard will give the city more money.

University officials, however, said they do not expect the new deal to change their agreement with Cambridge.

"I expect there to be inquiries from Cambridge officials as to what this means," said Paul S. Grogan, vice president for government, community and public affairs. "But the agreement does not trigger a change."

Under the new plan, Harvard will pay about the same amount to both cities in lieu of taxes, and Harvard officials said this should satisfy both Cambridge and Boston.

Building Tension

The $12 million increase in payments to Boston reflects an increased Harvard presence in the Boston neighborhood of Allston and a mutual desire to improve town-gown relations.

Routine discussions on payments in lieu of taxes began in October 1997, when the Business School revealed plans to build several three- to five-story buildings and renovate others on its Allston campus.

Though it has taken some time, the agreement with Boston heralds a new era in Harvard-Boston relations marked by Grogan's appointment last January and a renewed desire on both sides to settle old scores, according to Boston and University officials.

"The big breakthrough was the appointment of Paul Grogan," said Harvey V. Fineberg '67, University Provost. "He has personal experience and inclination. He knows City Hall."

"Relations with Boston are probably the best they have ever been," Fineberg added.

Grogan has held a number of senior posts in the Boston city government, where he managed housing, social services, job training and neighborhood economic development programs. He was also director of the Neighborhood Development and Employment Agency.

He assumed the Harvard post when relations with Boston were fraught with tension. Relations had gone downhill in 1997, when the University announced that it had secretly purchased 52.6 acres in Allston. Working through a Boston real estate developer, Harvard bought $88 million worth of land over nine years, concealing its real identity to prevent sellers from overcharging the wealthy University.

Thus, one of the first items on Grogan's agenda was to reach closure on the negotiations over payment in lieu of taxes.

"They were kind of waiting for me to come," Grogan said. "In theory negotiations like this could go on forever."

There was an "expectation that we would pick up the pace," Grogan added.

For two years philosophical differences between Boston and Harvard drew the discussions out and made compromise difficult, according to Ron W. Rakow, a Boston commissioner.

"Harvard feels they are not required" to make payments, Rakow said. "We feel we are impeded by exemptions."

He added that had Boston and Harvard not reached an agreement, the city would have continued to push. "It was really just getting over the hurdle of why Harvard should pay," Rakow said.

According to Grogan, however, Harvard was willing from the beginning to make the payments and just needed to work out the details.

By coming through with the agreement, the University has opened doors for the future, Grogan said.

"It's going to be easier than it would have been" to discuss the 52.6 acres in Allston when Harvard decides to develop the land, Grogan said. "We have achieved better relations, better communication with the city."

The city, meanwhile, has been forced to acknowledge the importance of the University, he added.

"The mayor and city acknowledge that higher education is a vital contributing influence to the city of Boston," Grogan said.

Planning the 52 Acres

Although on one hand, the agreement does not directly apply to the Allston land and makes no mention of future plans, "on the other hand it has everything to do with the 52 acres", Grogan said.

Discussions about how to use the land across the River are still in the preliminary stages, but some at the University have been throwing around suggestions of expanding the Law School and the Graduate School of Education to the 52 acres, according to Grogan and other officials.

The land will probably serve--at least in part--an academic purpose, officials said. A committee has been studying the University's long-term space needs and its potential for growth since 1998; in two years, it will make a recommendation to the administration, Fineberg said.

"I'd like to see [the project] move along," Grogan said. "I think it's a great opportunity. The growth in Cambridge is going to be very limited."

But Ray Mellone, chair of the Allston-Brighton Task Force, contended that the process of getting approval for construction plans could be long and arduous.

"They're entitled to own it," Mellone said. "Can they occupy it? That's another problem."

Harvard will have to apply for permission with the Boston Redevelopment Authority and submit a plan.

Now, Harvard pays full commercial real estate taxes on its Allston land. Overall, the University pays $3.9 million in taxes to Cambridge and $2.2 million to Boston on commercial and some residential property.

"We don't want to accede to any form of quasi-tax on academic property," Grogan said.

Boston began asking for payments in lieu of taxes in the 1980s, and the process has now become standard.

"Anytime that any institution expands or has new development they are approached for payment in lieu of taxes," Rakow said.

There's no exact formula for determining the amount each non-profit must pay, but generally the costs cover city services like police and snow removal that the institution benefits from.

Thanks to the agreement, the Business School has now received city support for its Institutional Master Plan. "We get clarity and approval for the HBS master plan" through the agreement, Grogan said.

It has already built McArthur Hall, a large brick building looking onto the Charles toward Cambridge, to house students in the Business School's executive education program. Construction has begun on the new student center, which will house dining and social facilities and perhaps a post office, a game room, a pub, student club offices, University Health Services, a Coop and an auditorium.

The Business School is also planning to add a four- to six-story academic building to its campus and to renovate the Baker Library.

As part of the new agreement, the University has said it will construct 288 new units of graduate student housing on the Allston campus by the fall of 2002 to free up housing in Boston--and in Harvard-owned apartments--and to bring students closer to campus. This development will house 554 students and will put 75 percent of Business School students' residences on campus.

"Business school students shouldn't need to be living in Cambridge," explained Angela Q. Crispi, assistant dean and chief planning officer at the Business School.