Cambridge Mayor Michael A. Sullivan insisted at last night’s Undergraduate Council meeting that town-gown relations are on the upswing, even as he warned of future tension with the city as Harvard expands.

“It hasn’t been a good relationship, but one that’s building,” Sullivan said.

Afterwards, the council debated grant allocations to student groups (please see related story) and passed a resolution calling for first-year keycard access to upperclass Houses.

Dwindling city revenues and encroachment upon residential property will continue to generate tension with neighbors, Sullivan warned.

He said 51 percent of Cambridge land is already tax-exempt and that as the University grows, the city loses funds from property taxes.

He called Peabody Terrace “a disaster” and said the construction of Mather House resulted in the destruction of some of his friends’ houses.

He alluded to more difficulties looming on the horizon.

“If [Harvard’s] science programs are going to grow, one of the graduate schools will have to go,” the mayor said.

He added that a move to Allston will not solve the problem.

“Nobody wants an Allston address,” he said of Harvard’s expansion across the Charles. “There’s nothing over there.”

Sullivan added perspective to current tensions with colorful anecdotes from his family’s four generations of political involvement in Cambridge.

He said that during World War II, one of his ancestors in City Hall pushed for an ordinance to melt down the John Harvard statue for the war effort.

The animosity, he said, was mutual.

He recounted how some Harvard students gleefully heated pennies in their dorm rooms and tossed them to poor Cantabrigians outside, whose hands were then burned.

After Sullivan’s exit, the council debated its process for funding student groups. The matter was not settled until a separate Finance Committee (FiCom) session later last night, in which a project-based grant application system was implemented. The new system replaced one that awarded student groups a lump sum at the beginning of each semester.