The Greater Boston Chamber of Commerce is not typically embroiled in City Council deliberations and rarely has such a strong voice on the city's budget. The chamber typically focuses its lobbying efforts on Beacon Hill, not City Hall. And Rooney is one of the few prominent business leaders who speaks regularly one-on-one with Wu. He still keeps the lines of communication to the 5th Floor open, unlike developers who have had less access since Wu took office.
Taking on Wu so boldly speaks to how strongly Rooney and his colleagues feel about the thorny issue of city tax policy, but also to the region's overall business climate: Despite low unemployment, there is growing concern among local business leaders that Greater Boston is becoming less competitive in a post-pandemic, hyper-mobile, work-from-anywhere world.
Indeed, that same threat to Boston's competitiveness is fueling Wu's reclassification push. Currently, commercial property owners in Boston pay 2.5 times the tax rate of residential property owners. Wu's plan could raise that multiple to nearly three times. Wu and her advisers worry that stubbornly high post-COVID vacancy rates will cause office building values to plummet, and so will taxes collected from commercial buildings. Homeowners and apartment landlords would then have to pay more to make up the difference, making life even more expensive in the expensive city and potentially driving residents away.
Residential taxes have risen an average of 9 percent per year over the past five years, according to city officials. But if Wu's efforts fail, under one possible scenario, average taxes could rise 16.5 percent in early 2025, which happens to be an election year in Boston. Ugh, that's tough.
Boston Mayor Michelle Wu and Boston Chamber of Commerce President and CEO James Looney at a 2022 event. Jonathan Wiggs/Globe Staff
Wu still needs City Council approval to get ahead with the tax overhaul, which expires in five years. It's hard to say for sure. A second hearing is scheduled for May 30. After that, the bill needs approval from the House and Senate, and of course from Governor Maura Healey. So far, the response from the state Legislature has been lukewarm at best.
Wu had been hinting at his tax plan to business leaders for some time, but when he formally unveiled it in late March, he drew housing advocates and other supporters.
But the criticism is louder. NAIOP Massachusetts, a trade group for office owners and developers, is staunchly opposed. Not surprising. The business-backed Boston Department of Municipal Research has also launched its own campaign against Wu's plan, arguing for options like budget cuts and diving into Boston's $1.2 billion rainy day fund. Not surprising, either: More than a third of the department's executives have ties to the real estate industry.
Meanwhile, Rooney's board is far more diverse, a sign that the unrest extends beyond the commercial real estate industry. Rooney did not name Wu in his letter to the council. But he called for a budget with “modest spending increases” at less than half Wu's proposed 8% inflation rate, saying increasing the commercial property tax burden would “additionally burden already-struggling downtown businesses” and would force landlords to pass the costs on to tenants in the form of rent increases.
Mr. Looney said in an interview that no one was calling for deep cuts. But many chamber members were unhappy that Mr. Wu's tax proposal was announced just days after the 8% budget increase, a combination that was “frankly a head-scratcher for some,” Mr. Looney said.
Looney says he's not worried about losing access to the mayor — in fact, he said he recently spent 30 minutes on the phone discussing the issue — and that the mayor is in a tough position. He understands the desire to protect residents from steep tax hikes. He says indignant business leaders simply want to see more evidence of discipline applied to their companies.
Wu administration officials are pushing back. They point out that the bulk of the 8 percent budget increase comes from mostly fixed costs. About a third, or about $100 million, is related to pay raises for city employees, and $60 million is related to pensions and debt payments. The remaining $40 million or so is a zero-sum accounting because of funds held by the Boston Planning and Development Agency that will be transferred to the general fund.
The COVID-19 pandemic has caused many downtown office buildings to fall in value, raising concerns the city may have to raise taxes on residential property to balance the budget. David L. Ryan/Globe Staff
City officials point to increased food and hotel tax revenues, as well as increased interest income from city savings. They also say they're simply trying to stay within the bounds of Proposition 2½, a state law that limits the annual growth rate of community property tax revenues to 2.5 percent, without raising housing costs too sharply. Even with the proposed changes, they say taxes on most older office buildings would fall because declining property values would cushion the tax hike. The mayor could choose not to seek the full 2.5 percent, but her aides say that's never happened before in Boston, and such a reduction could be baked into the budget for years to come.
Wu's approach to commercial real estate and development has infuriated many in the sector, including new regulations on environmental protection and affordable housing, rent control (unlikely to be approved by the Legislature), and a new transfer tax on high-value property sales (more likely). Reclassification would only add to the problems. Meanwhile, high interest rates have stalled most new construction.
But as the Chamber of Commerce's efforts show, this isn't just a real estate issue.
Most employers are renters, property owners or both, and while overall property tax bills may go down, Wu's plan feels like a business tax increase to many.
That recognition alone is meaningful, especially in a city that's still reeling in after the pandemic changed office life, perhaps forever.
Contact Jon Chesto at jon.chesto@globe.com. Follow us John Chest.