Boston Mayor Michelle Wu spent about an hour Tuesday asking state lawmakers for the authority to impose a temporary higher tax burden on commercial properties in the city. Wu and other supporters of the bill said the change would protect residential properties and the people who live in them from suffering a sudden increase in property taxes.
The proposal comes as Boston faces a decline in commercial property taxes. If Boston is not given the power to manipulate tax rates and the predicted trends continue, homeowners could see a 33% increase in residential property taxes to make up for the decline in commercial property values, Wu said Tuesday.
“We cannot afford for the cost of living to become any more prohibitively expensive,” Wu told the Joint Committee on Revenue, linking the tax issue to the city's soaring home prices. “A 33 percent increase in residential property taxes would be devastating not only to our residents, but to all the businesses that rely on us as customers, clients and employees.”
Boston relies heavily on property taxes, with about a third of its revenue coming from commercial real estate, making it especially vulnerable when office building values fall.
Wu and the Boston City Council passed the controversial bill, but it still needs approval from state lawmakers and Gov. Maura Healey.
“Our proposal would give the city the tools it needs to protect residential taxpayers and ensure all residents, homeowners and renters can continue to live in their homes,” Wu said. “If the anticipated declines in values occur, we would temporarily shift much of the property tax burden slightly to commercial and industrial owners, and then gradually reduce it over a period of time, restoring us to where we are today.”
The average property tax on a single-family home in Boston that is exempt from the residential exemption is $5,522, according to city officials who testified alongside Wu. If the council doesn't approve Wu's request, that tax bill is estimated to rise by nearly $1,000.
Boston has just over 3,400 single-family homes, about 30,000 apartment buildings and 71,000 condominiums. If Wu's tax plan passes, it would limit residential property tax increases to a range of 3.5% to 9%, city officials estimated at a public hearing Tuesday.
Critics say the measure would increase commercial tax rates by 17% to 20%.
Wu defended the plan against fierce opposition from the business community, who argued that the tax hike would hurt the city's commercial real estate sector, which has struggled to recover since 2020 when the pandemic shifted work patterns from office buildings to remote work. Wu backed up his argument by pointing to then-Mayor Thomas Menino's push for a similar permit during the 2004 economic downturn.
Opponents from the Greater Boston Association of Realtors countered that the situation 20 years ago was caused by a temporary recession and required a temporary solution. “In 2024, Boston must adapt to a new and permanent reality: declining office values due to hybrid and remote work,” Greg Vasil, CEO of the Greater Boston Association of Realtors, said in written testimony.
“In the past, when Boston has been on shaky fiscal footing, commercial property owners have helped the city weather difficulties, but now they are in no position to bear such a disproportionate share of the city's expenses,” Vasil wrote.
The Boston Bureau of Urban Research, a sound governance organization that evaluates policy proposals from major cities, offered an alternative to Wu's tax plan through a report in May.
Boston sets its tax rates on a five-year cycle, and if this tax change bill passes, it would allow Boston to manipulate its tax rates from as early as 2025 to as late as 2031, depending on when the adjustments begin.