Due To Drop In Values, Mayor Wants To Shift Burdens From Residential to Commercial Tax Base
STATE HOUSE, BOSTON, APRIL 9, 2024…..After filing a measure with the city council last week, Boston Mayor Michelle Wu continued her campaign Tuesday to increase taxes for commercial properties, in an effort to protect residential owners from seeing a substantial increase in their own taxes.
Commercial values in downtown Boston are declining as more businesses have adopted work from home, leaving offices vacant. That trend could lead to a cumulative revenue shortfall of over $1 billion for the city in the next five years, Boston Policy Institute and The Center for State Policy Analysis estimated in their recent report “The Fiscal Fallout of Boston’s Empty Offices.”
Wu warned Tuesday that a decline in commercial real estate value, which spins off tax revenues that fund a large part of the city’s budget, would shift that tax burden onto homeowners and landlords.
“Even small shifts can have an impact on the residential side, because commercial properties end up making up so much of our tax base,” Wu said on GBH’s Boston Public Radio on Tuesday. “So commercial properties paying a little bit less in taxes ends up being a lot more per resident in an increase.”
The mayor’s proposal would allow the city to lessen increases in residential property tax bills by temporarily levying that increased tax on commercial real estate for up to five years, according to the mayor’s office. It would need to be approved by both the council and the Legislature to go into effect.
State law allows a city to shift a maximum 175 percent of the tax levy to commercial real estate. According to Wu’s office, the mayor’s proposal would give the city the option to increase that shift to 200 percent following a significant drop in commercial assessments. The 200 percent shift would gradually return to 175 percent over five years.
“Because the impacts are felt so differently, because we’re in the middle of a housing crisis, in order to avoid the default of doing nothing and having residential taxes go up, exacerbating the burden on residents, we are getting this tool to have if we need it,” Wu said on the radio.
Wu is proposing an 8 percent, $344 million increase in the city budget. She said about a quarter of that increase stems from dismantling the Boston Planning & Development Agency, which was self-funded, and putting it more directly in the city’s budget. The significant budget increase comes at a time when state revenues are struggling and the economy is uncertain.
Talking about looking to plug a “hole” in the budget left by declining commercial property value, Wu said she’s started to have “some early conversations” with lawmakers about her home rule petition. First, however, it would need to make it through the city council.
Council President Ruthzee Louijeune referred the petition to the Government Operations Committee last week.
The Boston Herald reported Councilor Ed Flynn has opposed the proposed plan to raise property taxes on businesses, saying it would negatively impact an already struggling downtown office market
“Councilor Flynn, the District 2 councilor who represents parts of downtown Boston and the South Boston waterfront, is concerned about whether an increase in commercial property taxes will negatively impact the already struggling downtown office market, where 20.1% of offices have become vacant with post-pandemic challenges and shifts to remote work,” his statement said, according to the Herald.
The Republican Party said Tuesday that Wu’s budget aspirations shouldn’t be subsidized by a take hike on businesses.
“The Mayor’s perceived ace in the hole is her effort to persuade Beacon Hill to permit her to increase commercial real estate prices. However, a hike in commercial real estate rates will only result in fewer businesses operating in the city, reduced revenue for the ones that remain, and diminished income for their employees as businesses struggle to balance their books. It’s entirely counterintuitive,” MassGOP Chair Amy Carnevale said. “Mayor Wu needs to reassess her budget and city operations to identify areas where cuts can be made and savings achieved to rectify the shortfall before considering budget increases.”
Former Mayor Thomas Menino tried a similar approach in 2003, signed into law in 2004, to take pressure off of residents by shifting to a higher tax on businesses.
Wu said on the radio Tuesday that when Menino applied a similar tactic, the Legislature was not meeting in formal sessions when the city finished its property revaluation. They had to wait for lawmakers to return in January to see if the tax rate change would be approved.
“People got two bills in the mail because they didn’t know if this legislative item would pass or not,” Wu said. “People had two bills, one that said ‘If it passes you pay this,’ ‘If it doesn’t pass, you pay that.’ We don’t want to be in that situation at all. To have the maximum stability and certainty, we need this tool proactively while we’re still on this year’s legislative cycle, versus waiting until it’s too late.”
