Boston City Council Passes Wu's Commercial Property Tax Hike Plan

In an 8-4 vote, Boston City Council members on Wednesday voted in favor of a home rule petition that would allow the city to increase taxes on commercial properties. 

The bill, proposed by Mayor Michelle Wu in March, would authorize the city to increase the share of the property tax burden that falls on commercial and industrial buildings if property values see a significant drop. The cap on commercial property taxes would increase from 175% of residential property taxes to 200%.

The plan still must pass the state legislature before being enacted. 

City council members in favor of the petition said it would protect residents from major increases on home property taxes that would make living in the city less affordable. 

"If we do not act, we run the risk of receding valuations in late fall or early winter that are within or beyond the models that we've seen, and this allows us the ability and the flexibility within specific guardrails to move swiftly, should we need, to protect Bostonians," Councilor Gabriela Coletta Zapata, the chair of the committee that oversaw discussions about the petition, said at Wednesday's meeting.

"I'm hoping that we never have to use this tool in our toolbox," City Councilor Sharon Durkan said. "I have a toolbox that just sits on my shelf and I never use it, but if I need a wrench, I hope it's there. This is our wrench."

The warning signals blared in February when Tufts University's Center for State Policy Analysis released a report that said the city could expect to lose roughly $1.5B in tax revenue in the next five years due to declining office building values.

The committee that oversaw the proposal had two meetings and a community working session to further understand and discuss next steps for the bill. 

Several council members raised concerns about the proposal's effect on businesses and the impact a tax shift could have on the competitiveness of the city.

"In this time of great fiscal uncertainty, with high interest rates, inflation and falling commercial property values, I'm opposed to this proposal," City Councilor Ed Flynn said at the meeting. "During this challenging time, any increase of commercial property taxes will negatively impact the already-struggling downtown office market."

At the May 30 hearing for the proposal, Flynn and other council members urged the committee to look for some middle ground to minimize damage to the city's commercial real estate sector as the office market continues to underperform coming out of the pandemic, the Boston Business Journal reported.

"I don't believe this is the right solution," Flynn said. "I'm already alarmed by exasperating current issues in an already-struggling development in the real estate industry, with the potential to lead to an urban doom loop where cuts to city services would make Boston less desirable and even further drive down property values."

The home rule petition still needs approval from the state legislature, which on Monday scrapped a separate real estate tax plan. It removed part of Gov. Maura Healey's $4.4B housing bill that would have enabled cities and towns to enact real estate transfer fees up to 2% on residential sales of more than $1M. 

Although different from the property tax shift, both bills have received pushback from the real estate community, as many argue that they would do more harm than good.

"Instead of increasing the commercial property tax rate, city and state leaders must focus on boosting the region’s competitiveness and attracting businesses," Greater Boston Real Estate Board CEO Greg Vasil said in a statement Wednesday. "We urge officials on Beacon Hill to reject this deeply flawed policy and focus on reforms that do not punish any one industry." 

Coletta Zapata floated the idea of passing separate legislation that would buffer some of the tax burden for small-business owners through a special tax break.

"I'm just thinking about the real-world impacts and considering how a change would impact our most vulnerable in Boston," she said. "I'm thinking that it's either them or these large commercial tenants, multinational, multimillion-dollar corporations."