99 High St. (center) looks out over Dewy Square in front of Boston's South Station and the Rose Kennedy Greenway. Photo courtesy of Synergy Investments
Boston has a “resilient economy” that’s “among the strongest in the country,” according to two of Wall Street’s biggest credit ratings agencies.
And even though both Moody’s Analytics and S&P Global analysts warned that office tower values could fall further, they estimate city homeowners have the ability to pick up the slack in city property tax collections, leading both firms to give the city its 12th annual AAA rating for its municipal bonds.
“Given its recent operating margins, very high reserves and its above-average household effective buying incomes, we believe the city has flexibility to manage without financial distress,” Moody’s analysts wrote.
Boston Mayor Michelle Wu and other top city officials heralded the AAA ratings in a press conference and an announcement Wednesday.
“Fiscal discipline is not new to Boston, and this rating action from Moody’s and S&P acknowledges the City’s strong financial position and long-standing fiscal management practices,” city CFO Ashley Groffenberger said in a statement “The City has earned these ratings through years of diligent budget management, which has allowed us to manage through challenging economic cycles and will put us in the best position to manage future uncertainty. I want to thank the dedicated staff of the Finance Cabinet for the work they do every single day to preserve this rating.”
The city plans to issue around $500 million in bonds next week to raise money for around 200 capital projects like school renovations and major park repairs. The AAA ratings from Moody’s and S&P means it will be able to borrow at some of the cheapest rates on the market.
The mayor spent much of 2024 embroiled in a battle with business interests over a commercial property tax rate increase intended to cushion the pandemic’s effect on city homeowners. The rate increase would have seen the taxes paid by many downtown buildings fall by less than they would have without the change, given the bludgeoning delivered to office property values by a collapse in demand for office space.
Wu lost the tax rate fight at the State House despite intense lobbying by seniors groups who warned they would be priced out of their homes by property taxes. That prompted the City Council to pass a measure in February using some of the city’s budget surplus to fund rebates for residents struggling to pay their higher bills should the mayor’s second effort to shift the city’s tax burden fail.
According to data from The Warren Group, publisher of Banker & Tradesman, the median single-family home in Suffolk County jumped from $568,875 in 2019 to $750,000 last year, while the median condominium price jumped from $617,250 to $717,000 over the same period. Moody’s analysts stated the mean residential tax bill jumped an average of 9.7 percent each year over the last five years.
Meanwhile the downtown office towers that have historically provided the city’s financial bedrock are falling in value thanks to elevated vacancy rates.
Class B and C properties have sold for roughly 30 percent to 50 percent discounts on their pre-pandemic sale prices in recent years. The city’s One Lincoln tower even sold to its mortgage-holder Divco West at a foreclosure auction this spring for only $400 million, down from the $1 billion refinancing package it received in 2022.
Some office towers have traded hands in the last two years with smaller discounts thanks to recent renovations and high tenant occupancy numbers. But real estate industry observers say big chunks of available space in “A-plus trophy” buildings like MP Boston’s Winthrop Center, BGI’s 10 World Trade and Hines’ forthcoming South Station Tower mean even class A buildings in downtown Boston are at risk of losing tenants, further driving down their values.
Some downtown tower owners are challenging their city tax bills in light of market conditions, the Boston Business Journal reported in February.
Analysts at Moody’s and S&P both flagged falling tower values as a risk that could drive residential tax bills up further. If that happens, Analysts at both firms suggested it could put pressure on the city to keep a lid on tax collections, limiting its ability to grow its revenue and eventually dinging its credit rating.
