Boston Mayor Michelle Wu plans to introduce legislation that would allow the city to raise property tax rates on businesses above the cap set by the state, city officials told reporters Thursday.
The move comes as commercial real estate values in the city are declining due to the post-pandemic shift to remote and hybrid work, inflation and other economic impacts. A recent report from the Boston Policy Institute said Boston could lose $1.4 billion in tax revenue over the next five years due to vacant office space. The report said Boston could still be in the red about $500 million annually after the first five years.
Wu said Thursday that if state law isn't changed, the real estate tax burden could shift to residential properties.
“What we're trying to avoid here is a more sudden, dramatic and concentrated shock to homeowners, which would hurt both residents and businesses,” Wu said.
Wu said he plans to submit a self-governance petition to the City Council next week, with the goal of getting the bill to the council as soon as possible. The bill would give the city the flexibility to temporarily pass on much of the property tax levy to commercial and industrial property owners. If approved, the new tax rates would only apply if commercial property assessments are predicted to be lower, Wu said.
Wu added that the measure gives the city a three-year grace period to implement the tax changes because the city won't know the assessed values until later this year.
An analysis by the Boston Institute for Policy Studies argued that falling commercial property values would reduce tax revenue and give the city less money to fund essential services, but city officials disputed that part of the analysis.
” [property] “Increasing property values will result in higher tax rates, not a decrease in property tax revenue,” said Ashley Grofenberger, the city's chief financial officer.
“The service will be fully funded,” Wu added.
Tom O'Brien, CEO of HYM Investment Group, who attended the briefing on Thursday, said Wu's proposal is a “really important step” to reduce residents' tax burdens and “will be a huge help in a city where the housing crisis continues.” O'Brien also said he hopes the proposal will lead to “potential new growth and new projects.”
Trevor Samios, vice president of Winn Companies, which builds affordable housing in Boston, called Wu's move “thoughtful” and said it would “provide financial stability for the city of Boston in the short term and allow us to sustainably stabilize and expand services that are so important to the quality of life for the people who live and work here.”
But some argue that shifting more of the property tax burden onto commercial property is no solution at all.
“We are deeply concerned that raising commercial tax rates to replace lost revenue will only bring us closer to the urban doom loop we've seen in so many other American cities,” Greg Basil, CEO of the Greater Boston Association of Realtors, said in a statement. “Businesses carry a huge financial burden for the city, and putting even more pressure on them at a time when their buildings are declining in value is fiscally irresponsible.”
The Boston Institute for Policy Studies report also raised concerns that imposing higher taxes on commercial property would create additional hardship for those businesses.
Boston Taxation Department Director Nick Arniello said the city's proposal would not be a “shock” to the taxes commercial property owners are already anticipating.
“We don't anticipate this causing any commercial damage whatsoever,” Ariniello said.
Declining commercial property values are a challenge for cities across the country. But Boston relies more on commercial property tax revenue than many other cities, according to a report from the Boston Policy Institute. Cities in other states rely less on property taxes because they can impose local sales and income taxes. State law prohibits the practice in Boston.
At a WBUR town hall meeting last week, Wu suggested he may ask lawmakers for help in mitigating the impact of the commercial property tax shortfall, noting that the city faced a similar situation in 2003 but received legislative relief to avoid a big tax increase on homeowners.
But even with support from Congress, the long-term challenge remains how to avoid a continued decline in commercial property values, Wu noted at the town hall — a point he reiterated Thursday, saying revitalizing downtown and rethinking how office buildings are used are key.
“Ultimately, we know that increasing pedestrian traffic downtown is going to require some big changes in terms of public transportation and its reliability, housing and moving toward a more residential mix of units,” Wu told reporters.
Boston has been helping businesses fill vacant storefronts as part of a broader strategy to transform its downtown and attract more tourists. Foot traffic downtown has steadily increased but has yet to return to pre-pandemic levels. The number of vacant storefronts is down about 17% compared to the same time last year, Wu said.
The city is also offering tax breaks to developers who turn vacant offices into apartments, and Wu said the residential conversion plan already has 200 homes in the works.