Boston Mayor Michelle Wu’s plan to temporarily shift more of the city’s property tax burden onto commercial owners to cushion the blow of an anticipated tax increases on residents appears on a glide path to passage at both City Hall and the State House, but a Tuesday hearing made clear the issue will linger into an election year.
For months, Wu and her allies have been warning that Boston residents could face a sudden, dramatic spike in the amount they owe for property taxes because of a decline in commercial property values largely fueled by changing office dynamics in the wake of COVID-19. Since the spring she has been seeking state approval to increase the share of the city’s tax levy that would come from commercial property owners to lessen the pain for residents, but has faced resistance or opposition from some business groups and city councilors.
“If the city were a human body, this is ‘do we tax the head or the heart,’ right? And it’s a hard one with both sides of these things. You don’t want to put pressure on either, as they’re vital. But at the same time, we’ve got to share the burden,” Councilor John FitzGerald said during Tuesday’s hearing of the City Council Committee on Government Operations.
Tuesday’s session was at least the fifth public hearing on the mayor’s idea, supporters said, but it was the first on the newest version of the home rule petition. Wu’s first proposal cleared the City Council (8-4 in June) and the House of Representatives (132-24 in July), but Senate President Karen Spilka never brought it up and instead urged Wu to continue negotiating with four Boston-based business groups.
Those talks led to a breakthrough last week and Wu filed a new home rule petition reflecting the compromise, which now must start anew at square one.
“It did not have to be this messy and pitting residents against businesses or public disagreements with the state and business community,” Councilor Ed Flynn, who voted against Wu’s original proposal, said at the City Hall hearing. “We should have listened to fiscal watchdog groups and experts to compromise months ago.”
Flynn, a South Boston Democrat who has been discussed as a possible challenger to Wu in next year’s mayoral election, said the larger issue is the 8 percent spending growth in the latest city budget and the lack of a hiring freeze.
“However, the long-term issue in my mind … is that we need to explore our tax structure and revenue,” he said. “In my opinion, the city of Boston faces long-term fiscal issues.”
Flynn zeroed in during his questioning of city officials on the $171 million price tag for Boston Public Schools transportation and what an increase to $180 million next year would mean for the budget. He pushed Chief Financial Officer Ashley Groffenberger on what the next city budget’s growth percentage might be.
Groffenberger said it was too early to say what next year’s city budget might look like and said the city is not considering a hiring freeze. When asked by Flynn why a hiring freeze is off the table, she said it was because “we don’t have a revenue problem in the city.”
Flynn asked, “Do we have a spending problem?”
Groffenberger replied, “No. Our spending and our revenues are matched.”
Flynn disagreed, “We do have a spending problem in the city.”
Boston Municipal Research Bureau Interim President Marty Walz, who represented the four business groups that were part of the compromise talks during Tuesday’s hearing, urged councilors to support the mayor’s proposal but agreed that there will be plenty of work left for the city council and administration to do to ensure the stability of the city’s economy.
“The home rule petition is not a solution to Boston’s complex public finance and economic development challenges. The new market dynamic for commercial real estate is not a temporary or cyclical change, which means the city — all of us — must grapple with the budget implications over the long term through responsible approaches to budgeting,” she said. “In addition, it’s critical that the city work with the business community to encourage economic growth and development, ensuring Boston’s future fiscal health and vitality.”
For Councilor Julia Mejia, the debate around Wu’s tax shift proposal presents an opportunity to deal with some of the changes that are conspiring to force out longtime city residents.
“What I heard a lot from our public testimony is some folks who bought their homes in the 70s and the 80s when nobody wanted to live in Boston. All of a sudden, everybody wants to live here and all of a sudden everybody’s trying to get kicked out, right? That’s kind of like how we’re all experiencing this conversation. It may not be that case, but that’s how those folks who grew up here feel,” she said. “I think that there is something to be said about what this moment is all about because our property values — you have folks who are building condominiums next door to us, and those condominiums are going for $800,000. We only bought our homes for $50,000. How do we grapple with that? And I think even though that’s not part of this conversation, I think it gives us an opportunity to explore that even further.”
Councilor Gabriela Coletta Zapata, who chairs the committee, said at the end of the hearing that it is “likely that I will bring this to a vote tomorrow” when the full City Council meets. A vote of the entire council could send the proposal back to Beacon Hill.
“The bottom line for me is that we are on a timeline, and if we don’t do anything right now, we help no one. And this is an opportunity to provide that soft landing for folks who are economically vulnerable, folks who are house rich and cash poor. And I consider my grandmother, if she were still around, to be in this category,” Zapata said. “And so this has real implications if we don’t do this, if we don’t move forward.”
Tax Shift Plan Version Two
State law allows cities and towns to tax residential and commercial real estate at different rates and to push the commercial rate as high as 175 percent of what a single, unified rate would have been.
Wu’s latest home rule petition would allow the city to extend to a maximum shift of 181.5 percent in fiscal 2025, 180 percent in fiscal 2026 and 178 percent in fiscal 2027, and it would be limited to that three-year period. It also seeks to give the City Council the authority to provide up to $15 million per year in small business relief during that period.
The petition would also give the City Council the ability to raise the personal property tax exemption threshold for small businesses from $10,000 to $30,000, a move that Wu’s office said would mean relief for an additional 2,183 businesses (4,718 in total).
The mayor had originally proposed increasing the maximum commercial shift to 200 percent and then gradually reducing it to 175 percent over five years. To secure support from the House of Representatives, she later pledged to limit the maximum shift to 190 percent and shorten the ramp-down to three years.
Wu’s office, which earlier this month forecast a nearly $500 increase in property taxes for the average homeowner without action, said the next steps need to happen quickly to prevent impacts on Bostonians.
“In order to apply this mechanism to upcoming January 2025 tax bills, the legislation needs to be finalized by November, so we request expeditious action to meet these tight deadlines for Council and State approvals,” Wu wrote in her filing letter to councilors.
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