The outlook isn’t good for Wu’s tax hike plan

Mayor michelle Wu’s plan to increase the tax rate on commercial buildings, which are facing plunging market values, last week drew a string of rebukes, including from the city’s most respected fiscal watchdog. Separately, the head of the greater boston Chamber of Commerce said the proposal would kill the city’s “golden goose.” and now the House speaker is expressing skepticism about the proposal, which would require legislative approval. that’s if it ever even gets to beacon Hill: the City Council has to approve it first, and its members appear to be slow-walking consideration of the plan. maybe it’s time the mayor looked for Plan b. the mayor filed the petition to further shift the city’s property tax burden toward commercial real estate with the City Council more than a month ago. the city’s basic challenge is that with work-from-home and hybrid schedules becoming the norm in many whitecollar fields, downtown office space is no longer worth as much. lower values mean less property tax revenue for the city. So if the city wants to keep spending at its current clip, it’ll need to replace that money somehow, and the most obvious source — homeowners — is politically unpalatable.

Wu’s proposal would let the city raise taxes on commercial real estate above current limits, squeezing a bit more out of businesses just when they’re in trouble. the reviews have been largely negative — including from the business-funded boston municipal research bureau, which last week cast doubts on the proposal’s timing and its ripple effect.

“given the uncertainty of the economy and the recalibrating of the real estate market, and the key role that businesses and business property play in the City’s fiscal stability,” the report said, “now may not be the time to further burden business property owners and, by extension, their tenants, that include restaurants, retail shops, and small family-owned operations.”

business properties already pay about 58.3 percent of boston’s tax bill, while holding only 33.3 percent of the city’s actual property value. the current business tax rate is $25.27 per $1,000 of value, more than double the residential tax rate of $10.90 per $1,000. Wu’s proposed increase, modeled on one filed by mayor tom menino in 2004, is billed as a temporary measure that would sunset after five years.

but as the bureau points out, the new taxes would add to what are already rising burdens. Wu has already hiked inclusionary Zoning requirements, which provide affordable housing units, and linkage payments.

in an interview with WBZ’s Jon Keller, greater boston Chamber of Commerce President and CEO Jim rooney, noting pending proposals to increase real estate transfer taxes and costly new energy efficiency requirements for new construction, said, “building anything new in boston is becoming almost impossible. So you’ve got this situation where the mayor is introducing these financial burdens … and at the same time, increasing spending. … that’s a curious combination.”

and over the weekend House Speaker ron mariano, also in a Keller interview, gave Wu’s proposal a resounding meh.

“She hasn’t had a vote in the City Council on her petition, which i think is kind of telling. if it was that good of an idea, you’d think that [would already be] getting implemented. i don’t think that there’s a real appetite right now from anyone to talk about increased revenues at all,” mariano said.

and the speaker was spot on about the council’s slow-rolling of the petition. a second hearing has been set for may 30, making June 5 the earliest the council could vote — a leisurely pace indeed, given that the legislature is slated to wrap up business by July 31. if Wu has a backup plan, she hasn’t let on yet. in its report, the research bureau shared several possible approaches to ease the burden on residential property owners without increasing the burden on commercial properties. one short-term solution could be to use the excess from the city’s “unassigned fund balance” — a reserve fund that now amounts to some $1.186 billion, or 29 percent of expenditures, significantly more than the city’s 15 percent benchmark.

Sure, it’s a short-term solution, but as the bureau noted, “the intent of this fund is not only to accumulate money, but to put the city’s savings to use for onetime or limited time purposes. government should not be in the business of accumulating excessive reserves.”

and a little budgetary belt tightening wouldn’t hurt, as opposed to the 8 percent increase in proposed spending for the coming fiscal year. if Wu really wants to mirror the actions menino took in 2004 when the city faced a similar problem, she could surely start there. the city slowed its spending growth to 1.5 percent that year. that also signaled to beacon Hill that he was serious about averting a crisis.

one place to look: School spending keeps going up even as enrollment declines. Closing schools could save money, add property back on the tax rolls, and put the sale proceeds in city coffers — and may have educational benefits, too.

and there’s the ultimate long-term solution of diversifying the city’s tax structure to make it less dependent on property tax. Hikes in meals and hotel taxes are never popular, but menino didn’t shy away from them.

What clearly isn’t working right now is an effort to further burden a segment of the city’s economy that is already struggling. there are ways to make the numbers work without doing that and trying to ram through a proposal neither the council nor legislative leaders seem to have an appetite for. Wu can manage the city out of this crisis — if she has the political courage to do so.

Wu’s proposal would let the city raise taxes on commercial real estate above current limits, squeezing a bit more out of businesses just when they’re in trouble.