Local officials in Burlington say they will not exercise an option authorized by the Legislature and Gov. Mitt Romney to shift some of the town’s tax burden from residential to commercial property owners, such as Simon Property Group, owners of the Burlington Mall (pictured above). Town leaders say keeping local businesses strong is their priority.
In the recurrent tug-of-war between commercial and residential property interests, businesses were dealt a blow recently when the state Legislature and Gov. Mitt Romney agreed to allow communities with split tax rates to shift a greater share of the tax burden to the commercial side of the ledger. Supporters say that the property tax classification bill will provide relief for residents faced with skyrocketing property tax increases. But with the region still facing a shaky economy and deep commercial real estate downturn, there are many who question what effect the move will have on struggling businesses.
While the legislation received strong support from many local leaders, municipal officials in at least a few Bay State cities with split tax rates say they will not adopt the measure.
Some industry watchers say that potential new businesses – and subsequent jobs – will turn away from communities that adopt the increased levy. At a time when Massachusetts needs thousands of jobs for a substantial economic recovery, they argue, municipalities can’t afford to give businesses the cold shoulder.
“Unless there’s a compelling reason to be there, they’ll [businesses] go somewhere else,” said John Regan, vice president of legislative policies for Associated Industries of Massachusetts, a Boston-based business advocacy association. “If you could pay $14 to $15 per $1,000 of assessed value vs. $32, where are you going to go?”
The Hub is likely to adopt the measure, as the tax classification bill was championed by Boston Mayor Thomas Menino.
The bill allows cities and towns to increase the commercial tax levy from 175 percent to 200 percent of assessed value – a move that one industry watcher said would create more than $10 million in additional taxes for some of the large commercial property owners in the Boston area.
Homeowners are the real winners. Without the legislation, owners of an average single-family home in Boston would have seen their property taxes increase by 40 percent. However, now that the city can increase the commercial burden, residents will see only a 12 percent increase, said Ronald W. Rakow, commissioner of Boston’s Assessing Department.
Businesses, on the other hand, would have saved a collective $113 million in property taxes, since commercial valuations in the city have decreased during the recent downturn. But in 2004, that savings will be shifted to the residents, leaving the business side with a 2 percent, or $23 million, savings.
Industry representatives worry about the impact, particularly at a time when the state is looking for job growth and economic recovery.
A study by business consulting firm Ernst & Young for the Associated Industries of Massachusetts Foundation, found that property taxes comprise 44 percent of all business taxes. In the approximately 100 Bay State communities with split rates, business property is valued at 24 percent of all property, while businesses shoulder 41 percent of the total property tax burden. Last year in Boston, businesses subsidized the residential class by $302 million, according to Eileen McAnneny, vice president of government affairs for AIM.
The recent legislation stems from an imbalance in property values due to skyrocketing residential selling prices and a decrease on the commercial side attributed to high vacancy rates and sliding rents. The result, a tax shift that places greater assessed value and tax responsibility onto residents, had left many cities and towns scrambling for some method or means to give taxpayers relief.
Property tax classification stems from a state court ruling in the 1970s that required that all real estate be assessed at full market value – a decision that resulted in a significant shift in property taxes from commercial and industrial to the residential side. The state later modified that, allowing municipalities to adopt separate residential and commercial property tax classification rates. During the first 20 years of that ruling, the commercial and industrial portion of the levy could not exceed 150 percent. That later was raised to 175 percent of assessed value.
The new legislation allows a hike to 200 percent of commercial assessed value in 2004 but stipulates that the percentage allowed be slowly scaled back in subsequent years, ending with a maximum business tax of 170 percent in 2009 and beyond. The Massachusetts Municipal Association, which represents 352 cities and towns in the state, lobbied for the bill’s passage.
“In communities with separate tax rates, residents have faced some staggering bills,” said John Robertson, deputy legislative director of the Boston-based Massachusetts Municipal League. “Our members are very concerned with the rising residential burden and the squeeze it puts on owners, and in turn, renters.”
Saying ‘No’
But not all municipalities are rushing out to adopt the tax classification shift. Officials in Burlington, for one, decided it will not pursue the new allowance and, for now at least, will keep its commercial base at 175 percent of assessed value.
Town Administrator Bob Mercier said that the commercial and industrial side pays 60 percent of the total tax levy, with the big payers being the Burlington Mall, owned by Simon Property Group, and the large business parks. The taxes levied from area businesses allowed the town to keep the residential rate at $8.10 per $1,000 of assessed value.
“It’s a difficult one [decision] for us; we wrestled with it and thought about it long and hard. The average home owners will see a $150 to $200 tax increase in Burlington but after hearing the horror stories of Boston, it’s not bad – except when you tell residents what they have to pay,” he said. “It’s not the appropriate time for an increase [in business taxes] – we see significant vacancies, we’re concerned about that and we don’t think that while businesses are suffering we should hit them hard. They’ve been good to us in the past and they’re carrying the burden.”
Burlington’s total assessed value is about $4 billion. Commercial and industrial properties account for about $1.5 billion.
“The old axiom is that commercial and industrial don’t vote so why do we cut them some slack?” Mercier said. “We want them [businesses] to remain healthy because, if they do, they will continue to offset the residential costs.”
Burlington’s not alone in its desire to appease commercial and industrial taxpayers. While the average single-family property tax bill in Abington increased 54 percent, and commercial tax bills increased overall by 20 percent, the town ultimately decided against shifting additional tax burden onto businesses.
“We didn’t want to send out the message that Abington was anti-business,” said Charles Shea, deputy assessor for Abington. “There are a lot of business incentives by communities trying to get businesses to relocate – it’s really good money. Businesses don’t demand the types of services that residents do; Wal-Mart doesn’t have kids in school. That’s financially desirable.”
Shea said that property taxes for some businesses decreased in 2004. For example, a Super Stop & Shop in town, which also includes a filling station, will pay the city $101,300 this year, $15,000 less than last year. Abington does not have a split tax rate at present, but Shea said that the town will revisit the issue at the end of the year.
The city of Quincy also moved to up its commercial levy to 175 percent last year and at least one influential leader in the community said he will oppose an additional hike to 200 percent allowed by the new legislation.
“We have a problem here on the business end. We’re near Weymouth and Braintree, who have consistently taxed less. My opinion is that we’ve repeatedly lost business because of this,” said Frank McCauley, president of the Quincy City Council and a former mayor of the city. “This year more than $17 million [in taxes] went from residential to commercial. I’ve always felt that you can’t keep sticking it to business because they provide jobs. If you’re hostile, businesses will leave and residents will get handed the bill anyway.”
