Businesses, Wu clash on property tax plan
Word began to circulate around town in February that mayor michelle Wu might try to shift more of Boston’s tax burden onto commercial properties, to avoid a big hike on homeowners and renters.
Would this wonky debate over tax reclassification stir up trouble among developers and office landlords? Of course. But what about the broader business community? That remained an open question.
not anymore. Last week, the greater Boston chamber of commerce sent a sharply worded letter to the city council slamming Wu’s plan, which has
To pull off the tax change, which would sunset after five years, Wu still needs City Council approval.
evolved from backroom discussions into a formal legislative proposal. The bottom line from chamber cEO Jim rooney: Pare back the 8 percent increase in spending Wu has suggested for Boston’s next fiscal year before imposing a rate hike on commercial real estate.
The greater Boston chamber does not typically get entangled with city council deliberations, and rarely, if ever, makes such strong pronouncements about city budgets. normally, the chamber focuses its lobbying on Beacon hill, not city hall. And rooney happens to be one of the few prominent business leaders who have regular, oneon-one talks with Wu. he still has an open line to the fifth floor, unlike all those developers who saw that access diminish once Wu took office.
Taking on Wu in such a bold manner says something about how strongly rooney’s members feel about this arcane matter of municipal tax policy. it also says something about the broader business climate here: despite low unemployment, fears abound among local business leaders that greater Boston is losing its competitive edge in a supermobile, work-from-anywhere, postpandemic world.
in fact, that same threat to Boston’s competitiveness is also prompting Wu’s reclassification push. currently, owners of commercial property in Boston pay a tax rate that’s 2.5 times higher than what owners of residential property pay. Wu’s plan could push that multiple closer to three times. Wu and her advisers worry that a sharp drop in the values of office buildings driven by stubbornly high post-cOVid vacancy rates will cause the tax money collected from commercial buildings to plunge. That in turn would require homeowners and apartment landlords to pay more to make up the difference — making it
even more expensive to live in this pricey city and potentially driving residents away.
City officials say residential tax bills rose 9 percent a year, on average, for the past five years. But if Wu’s effort fails, under one plausible scenario, the average tax bill could rise 16.5 percent in early 2025 — which just happens to be an election year in Boston. Uh, oh.
To pull off the tax change, which would sunset after five years, Wu still needs City Council approval. That’s no sure thing; a second hearing is planned for May 30. Then she needs the House and Senate to go along, not to mention Governor Maura Healey. Reception at the State House so far has been tepid at best.
Wu did line up housing advocates and other supporters when she officially unveiled her tax plan in late March, after previously floating the concept with business leaders.
But critics have been louder. NAIOP Massachusetts, a trade group for office landlords and developers, is steadfastly opposed. No surprise there. The business-backed Boston Municipal Research Bureau launched its own push against Wu’s plan, arguing for options such as trimming the budget and dipping into Boston’s $1.2 billion rainy day fund. Again, no surprise: More than a third of its board members have ties to the real estate industry.
Rooney’s board, meanwhile, has a much more diverse membership, a sign the unrest has spread beyond commercial real estate interests. Rooney doesn’t mention Wu by name in his letter to the council. But he rips apart her proposal by calling for a budget with “modest spending growth” in line with inflation — less than half the 8 percent Wu proposed — and by noting that increasing the commercial property tax burden “will place further strain on our already struggling downtown businesses” as landlords pass on the costs to tenants in the form of higher rents.
No one is calling for massive cuts, Rooney said in an interview. But many chamber members were not happy to see Wu’s tax plan emerge within days of an 8 percent budget increase. That combination, Rooney said, was “frankly head scratching to some people.”
Rooney says he’s not worried about losing access to the mayor. In fact, he says he recently spent a half hour on the phone talking to her about this issue. The mayor, he said, is in a tough spot. Rooney understands the desire to protect residential taxpayers from a sharp increase. The business leaders who are upset, he says, simply want to see more evidence of the discipline that they would apply to their own companies.
Officials in the Wu administration are pushing back. They note that much of the 8 percent budget hike is due to costs that are largely locked in — with roughly one-third, around $100 million, tied to pay raises for city employees, and $60 million more from pension and debt obligations. Another $40 million or so is zero-sum bookkeeping, as money held by the Boston Planning & Development Agency gets shifted into the general budget.
City officials also point to rising revenue from meals and hotel taxes, as well as more interest revenue from the city’s savings. And they say they’re simply trying to live within the bounds of Proposition 2½ — the state law limiting the annual growth of a community’s property tax revenue to 2.5 percent — without sharply driving up residential bills. Even with the proposed shift, they say, most older office buildings would probably see their tax bills go down, as a drop in property value mitigates any rate increase. The mayor could opt to not seek the full 2.5 percent, but her aides say that’s never happened before in Boston, and such a cut may end up baked into the budget for years to come.
Wu’s approach to commercial real estate and development has maddened many in the sector — with new environmental and affordable housing mandates, as well as talk of rent control (unlikely to be approved at the State House) and a new transfer tax on high-dollar property sales (more likely). Reclassification just adds to the pile. All the while, high interest rates keep most new construction on hold.
But it’s about more than real estate, as the chamber’s engagement shows.
Most employers are either tenants, property owners, or both. While their overall property tax bills might still drop, Wu’s plan, to many, feels like a business tax hike.
That perception alone is meaningful, especially in a city that’s still trying to regain its swagger after the pandemic changed office life, perhaps forever.