Water Street in downtown Boston. Based on recent distressed office sales, a think tank is warning that Boston’s fiscal picture could get significantly worse in the future. Photo by James Sanna | Banker & Tradesman Staff

Talk about shooting the messenger.

A relative newcomer to Boston’s civic scene, the Boston Policy Institute made headlines last year challenging city Mayor Michelle Wu.

Founded by a pair of Democratic political consultants in 2023, the nonprofit municipal think tank warned in a report that Boston faced a looming fiscal and revenue crisis from the collapse of office tower values thanks to some downtown firms’ shift to remote or partially-remote work.

Wu and her tax chief didn’t take kindly to the warning, deriding it as “false information,” per the Boston Herald.

Wu argued there would be no revenue shortfall, noting that as office building values declined, residential rates would rise to cover the difference.

That is semantics at its best, ignoring or deliberately obscuring the fact that the Wu administration and the Boston City Council have control over the key lever that ultimately determines how much homeowners and commercial property owners pay in taxes, namely the city budget and accepting or rejecting contracts with the unions representing city workers.

Wu then spent the last several months of 2024 campaigning in an ultimately unsuccessful attempt to get state representatives and senators to pass legislation that would enable the city to rein in rising residential tax bills by jacking up rates on commercial properties.

Last week, BPI released a second report on the city’s looming fiscal challenges, warning that the potential revenue gap for city coffers could be much larger than previously estimated.

Wu responded by saying the city is monitoring commercial and residential property values, while taking another swing at BPI, referring to it as a “shadowy organization.”

No Reason to Doubt Warnings

As a 501(c)(4) organization, BPI is not required to disclose its financial backers and has declined to do so when asked.

Is it possible that the backers include some Wu critics – or, heaven forbid, some Republican types as well?

Shocker.

But here’s the rub: The think tank has given no reason for a neutral observer to doubt the findings of its research or the thrust of its warnings.

Namely, that Boston, which is heavily reliant on property taxes like most Massachusetts municipalities, faces a potential fiscal crisis given the plunge in office tower values. Bond-rating firms flagged the same risks last month, even as they gave the city’s current fiscal picture high marks.

BPI has teamed up with the Tufts University’s Center for State Policy Analysis to produce its latest report, as well as the one last year.

And Wu and other city leaders would be well-advised to read BPI’s latest report, for the findings are beyond worrisome.

Predictions of Bigger Drops

The Hub could face a much bigger revenue shortfall than previously estimated, with the collapse in downtown office tower values proving worse than initially projected, BPI warns in its new report, the “Ongoing Fallout From Boston’s Empty Offices.”

Boston’s office towers downtown, in the Back Bay and Seaport District have long been golden geese when it comes to generating tax revenue for city services and progressive priorities.

Yet the value of the city’s office buildings is now likely to fall 35 percent to 45 percent from their 2024 values, according to the report. That’s up from the 20 percent to 30 percent decline that the nonprofit municipal think tank had projected just last year.

The steeper and more precipitous decline is based on both the small number of recent distressed tower sales data and “weak” property tax collections by the city, the report notes.

BPI last year predicted the city could lose $1 billion in revenue as office tower values cratered, with office vacancy rates in Boston at historic highs.

That was bad enough. But with some towers selling at fire sale prices or even, like the former State Street headquarters at One Lincoln, at the once-unthinkable foreclosure auctions, the outlook “has further darkened,” the report says.

The potential revenue shortfall over the next five years now ranges from $1.4 billion in the best-case scenario to more than $2 billion in the worst amid “spillover effects” on retail and even residential properties, according to BPI.

And Hub homeowners are likely to bear the brunt.

Scott Van Voorhis

If the city continues to refuse to lower spending, homeowners could see their taxes rise by 25 percent through 2029, the report finds, as the state’s tax laws force more of Boston’s budget onto the backs of residential property owners benefitting from the steep rise in home values since 2020.

Boston has a serious revenue problem. And no amount of wishful thinking or shooting the messenger will make it go away.

Scott Van Voorhis is Banker & Tradesman’s columnist and publisher of the Contrarian Boston newsletter; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.