Downtown Boston is seen from the air. Photo by Chris Lisinski | State House News Service
State representatives voted to OK a proposed property tax rebalancing plan for the city of Boston after Mayor Michelle Wu agreed to scale back the changes.
The House voted 132-24 on the city’s home rule petition, which would grant the Wu administration the power to temporarily shift the division of commercial and residential property taxes in response to projected economic upheaval.
Earlier Tuesday, Wu announced that if and when the bill becomes law, she would sign an executive order trimming the duration and scope of the tax shift, plus committing city dollars to offset impacts on small businesses.
The breakthrough in the House boosts the outlook for Wu’s proposal, which has drawn criticism from business and real estate groups, ahead of the July 31 end of formal legislative business for the term. However, it’s still not clear if Senate Democrats are on board with the deal and also plan to advance the bill.
“By mitigating a potential massive increase in residential property taxes, and by providing much needed support for our small businesses, this plan is a balanced approach that will allow the City of Boston to address any potential revenue issues, thus allowing the City to continue to thrive while weathering the imminent financial storms ahead,” House Ways and Means Committee Chair Aaron Michlewitz, who represents Boston’s North End, said in a statement Tuesday prior to the vote.
Wu Agrees to Shrink Increase
Wu said the new plan “incorporates feedback received at the city and state levels.”
House Democrats intend to approve the home rule petition as drafted, which Michlewitz said Monday is “unamendable.” The changes to shorten and reduce the shift will instead come later, via an executive order Wu agreed to issue.
Under state law, cities and towns can tax commercial and residential property at separate rates, and push the commercial rate as high as 175 percent of what a single, unified rate would have been.
The original proposal, which the City Council approved, would have allowed Boston to increase the maximum commercial shift to 200 percent and gradually reduce it back to 175 percent in the fifth year.
Wu said her future executive order will slash the maximum commercial shift to 190 percent and shorten the ramp-down timeline to three years instead of five. She also said it would direct the city’s chief financial officer to seek appropriations of $15 million per year in each of those three years to support small businesses. According to Michlewitz, those “tax protections” will be limited to employers with 50 workers or fewer or an annual revenue of less than $5 million. The city will also move to expand a personal property tax exemption for small businesses.
“As Boston addresses economic shifts impacting cities around the country, it is imperative that residents in this far too expensive housing market are protected from drastic spikes in housing costs,” Wu said in a statement. “And it is also critical for local small businesses to receive support and protection in this time of uncertainty.”
“With these provisions to support small businesses and clarity on the scope and duration of this measure, Boston will effectively protect residents across every neighborhood and support our economy and local businesses,” she added.
Real Estate Interests Not Placated
City officials have argued they need to gain the tax-shift power – which hinges on state approval – now in case a forecast decline in commercial real estate values materializes. If that happens, they say, homeowners could face a sudden, sharp increase in their property tax bills.
But business groups and real estate interests have argued that the changes could unnecessarily saddle employers with higher costs as they try to recover from the COVID-19 pandemic. In addition, they have warned in the past, it could push growth away from transit-rich downtown Boston and towards the city’s car-dependent suburbs.
Tamara Small, CEO of the commercial real estate trade organization NAIOP, continued to criticize the proposal Tuesday after Wu and House Democrats announced their agreement on changes.
“The commercial real estate community is facing unprecedented challenges with vacancies on the rise and an uncertain future,” Small said in a statement Tuesday morning. “NAIOP believes that this measure, if enacted, would be harmful to Boston’s competitiveness. Recognizing the negative ripple effect that this proposal could have on the Commonwealth, NAIOP urges the Senate not to advance this legislation.”
The Boston Municipal Research Bureau has urged Wu to consider smaller increases in spending as an alternative to the new tax structure. In a statement, Interim President Marty Walz said the latest compromise doesn’t go far enough.
“The city of Boston has alternatives it should pursue, including slowing spending growth,” Walz said.
Marty Walz, the interim president at the Boston Municipal Research Bureau who had also expressed concerns about the tax-shift proposal, thanked Wu and Michlewitz “for listening to our concerns.”
“While the Research Bureau is pleased to see changes to the initial proposal, these modest changes do not go as far as they should,” Walz said. “The City of Boston has alternatives it should pursue, including slowing spending growth. If the proposal becomes law, there are numerous details to sort out, and we will work closely with Mayor Wu and the City Council as they craft their next steps.”
Following the House’s vote, Greater Boston Chamber of Commerce President and CEO Jim Rooney issued a statement saying the chamber “remains deeply concerned about the tax increase and the subsequent, long-term harm to the struggling commercial real estate industry, commercial tenants, and our entire downtown. ”
“With this policy, vulnerable businesses – the commercial tenants who will be burdened by the tax increase – will consider difficult relocation and closing choices, entrepreneurs will look elsewhere, the jobs of residents will be jeopardized, the vibrancy of downtown will be harder to recapture, and our competitiveness as a city and a state will suffer,” Rooney said.
After July 31, legislative rules call for the House and Senate to meet in informal sessions only, when a single lawmaker’s objection can stall any bill’s progress, through the remainder of the term.
