Boston Mayor Michelle Wu and key business groups are moving closer to a compromise over her contentious plan to hike commercial property tax rates to help balance the city’s budget, but key differences remain and it’s not yet clear if there’s a deal that can make it through the Legislature.
Amid slumping values of office buildings amid the COVID-era rise of remote work, Wu has said boosting the tax rate on commercial properties is necessary to avoid painful budget cuts or stifling tax hikes on residents. Business leaders counter such a move would only worsen property devaluations, hurt small businesses, and be an unfair blow to the city’s struggling commercial real estate industry.
On Friday morning, leaders of several key business groups laid out their counterproposal in a letter to Senate President Karen Spilka and House Speaker Ronald Mariano that they said “would represent a meaningful compromise to immediate residential property tax concerns.”
Their plan would temporarily increase the rates paid by commercial properties over the next few years, while also calling for a 9 percent year-over-year increase on the average single-family home tax bill in Boston, according to the letter.
Friday afternoon, Wu’s office released its own proposal, seeking a slightly lower cap on that residential tax increase — 8.5 percent, according to a copy of the draft proposal obtained by the Globe.
Wu and Mariano did not immediately respond to requests for comment Sunday.
A Spilka spokesperson said in a brief statement Sunday night, “It is the Senate President’s understanding that a compromise has been offered by Boston’s business leaders and economic experts. She is encouraged by this and hopes productive conversations continue to reach consensus, as it will be difficult to get a final bill through the Senate without the full support of the business community.”
It was unclear Sunday whether the two sides would broker a compromise to close that gap and give the plan a green light on Beacon Hill. But the back-and-forth indicated that there could be an end in sight to months of political infighting about how to pay the city’s bills.
Regardless, business leaders warned lawmakers a deal on property taxes won’t fix a foundational problem facing the city’s financial future due to the decline in commercial property values.
“The outcome of this petition will not solve the underlying structural changes to Boston’s property tax shift burdens, and ongoing vigilance and fiscal discipline — with a clear understanding of spending impacts — must be demonstrated by the City as it approaches future budgets,” said the letter, which was signed by Greater Boston Chamber of Commerce chief executive James E. Rooney; Doug Howgate, president of the Massachusetts Taxpayer Foundation; Tamara Small, chief executive of real estate organization NAIOP Massachusetts; and the Boston Municipal Research Bureau’s interim president, Martha M. Walz..
Local property taxes fund close to three-quarters of Boston’s $4-plus billion annual budget, and two-thirds of that revenue comes from commercial real estate. Commercial properties are already taxed at more than twice the rate of residential properties, and state law limits how much further they can increase commercial rates.
As the value of office space plummets, Wu has warned that residential taxpayers would face a 14 percent hike in the average single-family tax bill if nothing was done. So she has sought authority from the state Legislature and the Boston City Council to boost commercial rates to avoid higher taxes on residents, despite fierce opposition from business groups.
Last summer, the City Council and the state House supported a plan that would limit an increase to the average single-family tax bill to about 5 percent year-over-year increase, and temporarily increase the tax burden on commercial property owners. But the measure has stalled in the state Senate, where by early August, Spilka indicated the measure was dead.
“Blaming the Senate may be politically convenient for the Mayor, but it does nothing to improve a policy proposal that has been widely questioned by fiscal watchdog agencies and could do serious damage to Boston’s economy,” Sarah Blodgett, a spokesperson for Spilka, said in a statement at the time.
Wu, Spilka’s office, and business leaders have all been negotiating in recent weeks, and Friday morning, the business groups offered a compromise.
Currently, taxes on Boston commercial properties are about 175 percent of what they would have been if the city had a single property tax rate, according to the city.
The business group’s new proposal would temporarily increase that to 181.5 percent next year, then lower it gradually over the next few years, returning to its current level in fiscal 2028, according to the letter.
Under the same proposal, the average single-family homeowner’s residential property tax bill would go up about 9 percent, rather than 14 percent. The lower figure is in line with the average increase over the past five years.
Wu’s draft proposal, on the other hand, would increase the burden paid by commercial property to 182 percent, while setting aside up to $15 million for each year of the tax rate increase to help small businesses cover the higher rate.
As a home rule petition, any proposal will need to be approved first by the Boston City Council and then by the state House and Senate and signed Governor Maura Healey.
No matter the final details, business leaders reiterated their concerns about the city’s budget in their Friday letter to lawmakers.
They argued that the city should reduce spending, draw upon reserve funds, and provide direct assistance to vulnerable residents, rather than push more of the tax burden on commercial property owners.
They said the city should limit budget increases to 3 or 4 percent, and noted that the city ”could choose” to have a smaller residential property tax increase by exercising the “spending restraint” recommended by the business community, according to the letter.
“The new market dynamic for commercial properties is not a temporary or cyclical change, and the City will need to grapple with the budget implications over the long-term through responsible approaches to budgeting,” the letter said.
Some experts have warned that the city’s declining commercial real estate property values pose a long-term threat to the city’s budget.
Since the pandemic, the market for the city’s office space has plummeted with the rise of remote work; one estimate from early this year by Tufts University’s Center for State Policy Analysis for the Boston Policy Institute projected that tax revenue from Boston’s commercial property could drop as much as $1.5 billion over the next few years.
Gregory Maynard, the policy institute’s executive director, criticized the proposed temporary tax shift in a statement Sunday afternoon. He said there is little evidence that turbulence caused by declining commercial real estate values can be “smoothed out” with a temporary shift.
“Boston deserves an inclusive, transparent, and data-driven conversation about the unique budget challenges the City is facing with the goal of educating the public and finding consensus. Nothing close to that has occurred so far,” Maynard said.
Niki Griswold and Catherine Carlock of the Globe staff contributed to this report.
John Hilliard can be reached at [email protected].
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