Wu Continues Push To Hike Boston’s Commercial Property Tax Rate

Staring down the barrel of a potential spike in residential taxes, Mayor Michelle Wu has renewed her fight to stabilize the city's tax base by increasing the rate that commercial property owners pay. 

Wu's proposed tax shift would temporarily increase the cap on commercial and industrial property taxes from 175% of residential property taxes to 200%. 

The proposal failed to pass in the state's last legislative session, but in a Monday media briefing, Wu continued to push her case and provided updated financial projections. She said that without her proposed change, homeowners could face a 28% increase in taxes. 

"If there is no legislation, that is a significant increase for residents to bear," Wu said during a Wednesday morning media briefing. "It affirms that this tool is needed, and this is the direction that we are seeing valuations change."

In June, after passing in the city council and the state's House of Representatives, the home rule petition stalled in the Senate and didn't pass before the close of the formal legislative session. Senate President Karen Spilka argued that Wu's proposal was bad policy, stating it could do "serious damage to Boston’s economy,” the Boston Globe reported.

Since then, Wu has made efforts to reason with Spilka and other state legislatures to get the bill passed before November. Wu also said there have been several meaningful amendments to the tax shift proposal in an effort to get it passed.

On Wednesday's call, Wu and other city officials revealed updated numbers for the city's property valuations and tax predictions, including a revision of the projected residential tax increase from 33% to 27.8%

Wu estimates landlords for commercial properties valued at $5M would owe an average of $117,936 without her proposed tax shift, representing a 6.7% decrease from last year partially due to falling property values. Under her proposal, those landlords would pay an average of $125,671 representing a 0.5% decrease from last year. 

Boston is especially dependent on property taxes, with commercial properties generating one-third of the city's budget, far higher than other major cities across the country. In the next five years, the city is projected to lose roughly $1.5B in revenue due to struggling office valuations.

The city adjusted its numbers for the expected drop in assessed commercial property values from 10% to a 7% drop year-over-year, officials said on Wednesdays call. 

Though state lawmakers, business owners and commercial real estate landlords have all pushed against Wu's tax shift proposal, the mayor has continued to state that it is the only viable option. 

At the media briefing, Boston Commissioner of Assessing Nick Ariniello said other options that have been proposed aren't as impactful or could potentially hinder the city's efforts. 

Ariniello said there were issues with the three biggest proposals: diversifying the tax base, which he argues would take years to do and is not an immediate solution; cutting the budget, which he said wouldn't be fiscally responsible and could potentially lead to layoffs for 2,000 city workers; and rebates for homeowners, which he said could potentially have constitutional and legal hurdles the city isn't prepared to face. 

"We've heard about a number of alternatives that have been proposed, and it feels a little bit important to take a step back and to focus on the fact that our proposal is a tailored solution to a very specific legislative math problem, and the alternatives don't really address that," Ariniello said.

Business owners and landlord advocates have vocally opposed the proposal, arguing that the move would further hinder the struggling office market and local businesses. 

"Increasing Boston's commercial property tax rate could not come at a worse time," Greater Boston Real Estate Board CEO Greg Vasil said in a statement in July after the House approved the proposal. "Though we appreciate the House's efforts to lessen the impact on the small business community, the fact remains that commercial vacancy rates are startlingly high and commercial property values are distressingly low."

Many office landlords have challenged the city's office valuations, with over 200 tax abatement applications sent from landlords in the city's Ward 3, which is home to the Financial District and Downtown Crossing, according to the Boston Business Journal. Only six of the 212 applications were granted, and of those six, only one, Rockpoint, is a for-profit landlord.

When asked if the city is open to any alternative solutions, Wu said her administration has been in "constant conversation" to weigh all options.

"We are open to any conversations about ways to make this proposal better," Wu said. "We've already made significant accommodations after conversations with the joint revenue committee that had senators and representatives on there and with independent members of the Boston delegation at the Senate and the House."