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WATERTOWN, MA-After over 18 months of negotiations, Harvard University and the town finally reached an agreement over how the Cambridge-based school would compensate the town for its use of the Arsenal on the Charles, a 30-acre commercial office center.

When the university purchased the Arsenal, a former military base, the town was furious. It had spent years, and millions of dollars cleaning up the site in hopes that the renovated center would bring in much-needed tax dollars. But after developing the site, O’Neill Properties sold the complex to Harvard for $160 million, which, as an educational institution is exempt from paying property taxes.

Harvard initially offered the town a complicated 20-year payment in lieu of taxes, which the town rejected, contending that the offer did not come close to what the town would lose were Harvard to occupy the site. At the time, the town estimated that the Arsenal would generate approximately $4.8 million in taxes once it is fully leased, a figure which officials at Harvard dismissed as too high.

Harvard’s purchase of the property so angered local officials that Watertown’s representatives filed a bill in the state Legislature calling for nonprofit organizations to pay taxes when they buy large properties and take them off a municipality’s tax rolls.

But Greg Watson, director of development and community planning for Watertown, tells GlobeSt.com that everyone is “very excited” about the deal the town worked out with Harvard. He says that the deal is a combination of taxes and payment in lieu of taxes that will extend over a 52-year period. Specifically, the initial rate of payment will be $3.8 million for 2002 and will increase by 3% each year until it will reach $17 million by 2054.

“It certainly takes away many of the concerns related to the presence of a non profit on a site the town worked so hard to develop,” notes Watson, who adds that “in a lot of ways [this deal] exceeds” what the town would get were the Arsenal owned by a commercial developer because of the “guaranteed escalator. We get to that point more quickly,” he explains.

As part of the deal, Harvard can use the space however it wants and the town will make amendments to the zoning law to allow for educational use on the site, with the exception of undergrad dorm use. Harvard agrees to maintain the setbacks, heights and density of the project. “They can’t run in and rebuild it as they see fit,” points out Watson. Educational institutions are generally exempt from many local ordinances.

Harvard University representatives confirmed that a deal was reached with Watertown but could not be reached for comments before press time.

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