Wu, council send latest tax agreement plan to Beacon Hill

When the City Council voted on Oct. 30 to approve Mayor Wu’s compromise over tax rate adjustments, the political conversation was already shifting from meeting a short-term deadline to wrestling with a long-term dilemma.

Having reached agreement on the adjustments with local business groups, Wu hopes the new home rule petition will be approved at the State House before the next quarterly property tax bills are mailed at the end of December. An earlier version of measure that aimed to ease a spike in tax bills for residential property owners, approved by the Council in June, stalled at the State House after meeting with opposition from business groups.

In the new measure, the temporary shift in tax rates, increasing more of the burden on commercial property, would be smaller, with a duration cut from five to three years. The new measure also includes help for business owners, including tenants, with money committed for direct relief and a more generous exemption for the “personal property” tax on business equipment.

The home rule petition was modeled on a similar measure filed by former Mayor Thomas Menino and approved in modified form in 2004, during a national economic downturn. As with the current measure, the adjustment in tax rates was designed to protect homeowners from a sharp increase in bills, based on a drop or lag in commercial property values while residential values continued to rise.

Menino’s measure was also accompanied by budget cuts, as was the case during the next downturn, in 2009, when he tried to impose a wage freeze to reduce layoffs among city workers. During both downturns, Menino was confronted with a significant decrease in state aid, but he did not reduce the city’s tax levies to less than the annual increase allowed since passage of Proposition 2½ in 1980.

At the end of June, the City Council approved the mayor’s FY2025 budget of $4.6 billion, with an increase of 8 percent over the previous year. Despite council efforts to make changes in the mayor’s spending plan, there was no attempt to change the spending total, even though the budget was approved three weeks after the council had passed the mayor’s first version of the home rule measure.

Unlike what happened during the economic downturns under Menino, there was no significant fall-off in state revenue this year, and Wu had the same legal authority to increase the city’s overall property tax levy. If Menino had responded to a fiscal necessity caused by a shortfall in revenue beyond his control, Wu and city councillors were making a choice about distribution of the tax burden.

In 2003, Menino faced a similar problem, but the shift of the tax burden onto homeowners was soon be eased by national recovery. In 2024, the shift in values has been attributed to declining demand for office space, driven by the switch to remote work since the pandemic. Though city officials cite continuing indicators of economic recovery, other numbers show demand for office space in the city lagging behind levels in Boston’s suburbs.

In a remote briefing with reporters and local activists on Oct. 28, Wu mentioned encouraging indicators, including a positive absorption rate for office property in Boston, meaning more space becoming occupied than vacated. According to the latest quarterly report from the commercial real estate service firm CBRE, Boston’s central business district had the region’s largest gain for absorption, though most of that was generated by a single lease, for the state’s Executive Office of Health and Human Services.

Other third quarter reports from real estate showed declines in asking rents for office space in Boston – in contrast with increases in the suburbs, and even decreases in absorption. One bright spot, reported by JLL, was that the Boston region “had the largest share of workers return to office of any major market in the United States over the last four quarters.” Adding to that number in 2025 will be Amazon’s requirement for in-person office work five days a week, affecting thousands of employees at the Boston Tech Hub in the Seaport District.

“By many metrics, Boston’s economy is stronger than it has been in a really long time,” Wu said at the briefing. “You think about foot traffic, job growth, tourism numbers, hotel uptake, everything is looking strong and continuing to progress in the right direction.”

“Recent studies have shown that Boston exceeds comparable US cities in its reliance for revenue on property taxes, a point raised locally by fiscal watchdogs. During the briefing, Wu acknowledged that “property taxes are 71 percent of the city’s revenues, and that is just not a sustainable number.” 

Her case for new revenue was expressed as a need for public spending to support private investment by residents and businesses: “Cities are constantly trying to find new ways to just stay on top of what we need to do to maintain our workforce and maintain our service levels at a time when we need to be expanding and increasing our service levels, so we do need to talk about diversifying our revenues and getting your help again up at the State House to advocate for other ways the city could be funding important priorities.”

Revenue diversification was among the alternatives posed by the Boston Municipal Research Bureau in its May report about the tax rate measure, along with slowing growth in spending. At the Oct. 29 hearing on Wu’s revised measure, by the Council’s Committee on Government Operations, the bureau’s interim president, Martha Walz, outlined recommendations on revenue to be issued in a report this month.

“The headlines on it are that, given the scale of the property tax, and that it’s 71 percent of the operating budget, to diversify to lower that 71 percent, is going to require a large amount of other revenue,” Walz told councillors. “And the short version is this is going to be very difficult to do. It’s going to take an extensive period of time. But we lay this out in our report because we think this is an incredibly important conversation to have: Should we rely less on the property tax and what are the consequences of that?”

Wu’s chief financial officer, Ashley Groffenberger, has repeatedly noted that less reliance on property taxes could also pose a disadvantage. She said financial ratings agencies, which determine interest charges for the city’s capital spending budget, consider the property tax to be more stable, less vulnerable to downturns in business earnings and personal income. And she argued that city finances seem even more stable if the maximum property tax levy is consistently imposed, as it has been since the 1980s.

Groffenberger has also cautioned that any benefit from scaling back the tax levy would be distributed according to share of the tax burden, with more savings for owners of commercial property—barring a change of law that could withstand a legal challenge. And any proposals at the State House that could help Boston scale back its property tax levy would also have to win over legislators from other cities and towns, where for some, maximum levies have been exceeded by overrides.

District 2 (South Boston, South End, Chinatown) City Councillor Ed Flynn – the lone vote against the revised home rule petition on Oct. 30 – has repeatedly pressed for spending cuts, especially in the Boston Public Schools. Along with suggesting other possible sources of revenue, Flynn has mentioned potential gains in revenue from Boston’s tax-exempt institutions, through the city’s “PILOT” (payments in lieu of taxes) program, but Wu estimated that any gains would still fall far short of the gap in the tax burden addressed by the home rule measure. If approved, officials estimate a 14 percent annual increase for residential owners – payable in the next two quarters of FY 2025 –could be reduced to as little as 9 percent.

At the Oct. 29 hearing, Assessing Commissioner Nicholas Ariniello described the potential tax spike that the measure aimed to head off as a “thirty-day problem” for homeowners that would not be addressed in the short term by pursuit of revenue diversification. “I would view it as we are giving people time to acclimate,” he explained.

Measures of that value were expressed at the hearing from long-time elderly homeowners and members of the Mass. Senior Action Council. Though they bought homes when prices were low, as early as the 1970s, they said their limited incomes made it hard to keep pace with taxes based on the later increases in property values.

Enid Eckstein, an activist and labor leader serving as the co-chair of the PILOT Action Group, told councillors that tax relief would require more than just increased revenue from institutions.

“Boston has a structural revenue problem, and we keep kicking the can down the road. Full-scale reliance on property tax is a structural problem,” she insisted. “Boston needs to diversify its revenue streams with reliable and predictable sources. It’s incumbent on the mayor to bring a working group, including community leaders, together to determine potential sources of future revenue rather than just rely on property tax faced with a similar budget crunch.”

Though District 4 (Mattapan/Dorchester) Councillor Brian Worrell voted for the new home rule measure—reversing his vote against the earlier version, he cautioned against new revenue sources. “If we are always going to take the full 2.5 percent levy hike, like nearly every other municipality does,” he said just before the vote on Oct. 30, “then I’m wary of adding further revenues.”

District 3 (Dorchester) Councillor John FitzGerald also switched from opposition to the earlier measure, though he repeatedly stressed that tax relief for homeowners would only be temporary. Just before the Oct. 30 vote, he said, “I think, after this vote, let’s not act like we’ve cleared a major hurdle, because there are certainly still hurdles in the future.”

In the last comment before the vote, Council President Ruthzee Louijeune—a supporter of the home rule petition in both versions—closed with a qualification. “I want to acknowledge that there are some longer-term issues that we’re going to be dealing with,” she said. “And we do that through the budget, and we do that through our hearing orders. And I look forward to those continued conversations.”


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