Hidden Link

May 9, 2024

By Michael Jonas

Forget the green eyeshades and poring over boring budget details. Boston’s debate over how to deal with declining office building values is quickly looking more like a political donnybrook, with a volley of sharp words that underscores deep divisions over an issue that has to get resolved to keep the city on sound fiscal footing. 

At the center of the debate is falling values of commercial property, as a resetting of work patterns following the pandemic is permanently lowering demand for office space. Those lowered assessments will mean less property tax revenue for the city, whose $4.3 billion budget is heavily dependent on property taxes. 

Less revenue from commercial property could lead to a big hike in residential taxes to make up the difference. To head off a spike in residential taxes, the Wu administration wants to raise the tax rate on commercial property.

But the city already taxes commercial owners at a much higher rate than residential taxpayers – the highest level allowed by law – so it needs approval from the Legislature to raise that rate further. The administration filed a home-rule petition to temporarily go beyond the currently allowed ceiling on commercial rates, and that proposal has become the flashpoint for an increasingly acrimonious debate. 

Two different policy organizations have issued reports in recent months on the looming crisis. In February, the recently launched Boston Policy Institute, in a report prepared for the organization by the Center for State Policy Analysis at Tufts University, said falling office building values could translate to a decline of $400 to $500 million a year in commercial property tax revenue by 2029. The following month, Mayor Michelle Wu announced she was filing the home rule petition to address the situation. 

Last week, the Boston Municipal Research Bureau, a nearly 100-year-old business-funded watchdog group, issued a report warning against raising tax rates on commercial property as building owners struggle with high vacancy rates. The group urged the city to instead consider a range of options, including dipping into Boston’s $1.2 billion reserve fund, reining in city spending, raising the exemption granted to owner-occupied homes, and seeking authority to tap other sources of revenue. 

The city did not respond to the report at the time, but a strong counterpunch from the administration arrived a week later in a curious form: In a letter to the editor of the Globe yesterday, Kenzie Bok, the CEO of the Boston Housing Authority, denounced what she called the Research Bureau’s “misguided advocacy for city budget cuts.” Because the state’s Proposition 2½ tax law limits the total increase of any community’s annual tax levy to 2.5 percent, Bok said any spending cuts would reduce the city budget “by that amount for every year thereafter.”  

Bok then laid down the class card in a way that might have made James Michael Curley proud, saying as the leader of the city’s public housing agency, “I’d also like to think the bureau does not intend to protect large commercial real estate interests at the expense of Boston’s most vulnerable residents.” 

Bok, a former city councilor who hails from a long line of Boston civic leaders, wasn’t done, adding that when her grandfather served as chair of the Boston Municipal Research Bureau, “he believed it could be a vehicle for Boston’s wealthiest to work in the interest of the city they love, not one to safeguard their own investments at the city’s expense.” 

Ouch. 

Marty Walz, the interim president of the Research Bureau, said the attack mischaracterizes the organization’s report as solely focused on spending, and she said it doesn’t call for a cut in the annual budget but only urges fiscal “restraint” in the face of the Wu administration’s proposed 8 percent increase in the 2025 budget.

“The Research Bureau’s report looks at the problem and identifies a range of potential solutions the city should consider,” she said. “Slowing the pace of budget growth is but one of the ideas.” 

The Research Bureau report also emphasized that the city tax proposal wouldn’t just hit big building owners, but would affect struggling ground-floor tenants – often small retailers who are struggling with decreased foot traffic after the pandemic – whose leases allow landlords to pass through property taxes. 

The watchdog report got backing on Wednesday from Jim Rooney, CEO of the Greater Boston Chamber of Commerce, who, in a letter to the leaders of the City Council’s budget-writing Ways and Means Committee, also urged them to tap the brakes on city spending and limit growth in next year’s budget to the rate of inflation, or 3 to 4 percent. 

“Additional spending beyond normal inflationary adjustments will only exacerbate potential tax increases on both residents and businesses,” wrote Rooney, who echoed the Research Bureau’s call to also consider using some of the city’s $1.2 billion reserve fund and temporarily increase the exemption for owner-occupied residences. 

“A lot of this is about messaging as well as arithmetic,” said former city councilor Larry DiCara, highlighting the value of the city showing it will make some sacrifices if it’s also asking more of taxpayers. 

Cutting spending alone can’t solve the budget pickle, said Sam Tyler, the former president of the Research Bureau. But reining in the administration’s proposed budget increase, he said, would “show that the city is taking steps to try to solve the problem with its own actions.” 

The most important thing, he said, is to get everyone on the same page as the city works its way through a challenging situation no one anticipated or is to blame for. “What’s missing,” he said, “is the city and business community sitting down together to try to figure out what the options are and what makes sense.”