Wu, business leaders reach compromise on property tax shift

BOSTON MAYOR Michelle Wu and business groups announced a deal on her property tax shift proposal that includes concessions on both sides. The deal paves the way for a scramble at City Hill and on Beacon Hill to win passage of a law implementing the change.

With commercial property values dropping in response to hybrid work schedules, residential taxpayers could be hit with a sharp increase in their property tax bills to balance the city’s $4.6 billion budget. Wu has sought to shield residential homeowners from the increase by temporarily boosting the tax rate paid by commercial property owners.

Commercial property owners are currently taxed at 175 percent of the rate paid by residential homeowners – the maximum allowed under state law. Wu initially sought a change in state law raising the commercial rate to 200 percent of the residential rate and stepping it down slowly over five years.

On Wednesday, the mayor and business groups agreed to a three-year deal that sets the maximum commercial rate at 181.5 percent of the residential rate the first year, 180 percent the second year, and 178 percent the final year before returning to 175 percent in the fourth year.

The final agreement adopted the lower first-year percentage proposed by business groups and the higher second- and third-year percentages proposed by Wu.

Business groups last week backed off their push for cuts in City Hall spending (the city’s budget went up 8 percent this year), and agreed to the idea of a property tax shift. Wu, who first proposed the shift in April, modified her proposal, shrinking down the size of the shift and reducing it from happening over five years to three.

An earlier version of the tax shift cleared the City Council and, after additional negotiations, cleared the House. But Wu’s proposal was blocked in the Senate, where Senate President Karen Spilka said the final proposal needed the business community’s sign-off.

Over the weekend, the two sides were a half-percent apart. Jim Rooney, the Greater Boston Chamber of Commerce CEO, called 181.5 percent the business groups’ “final” offer, but both sides moved in the final deal.

The deal reached Wednesday also authorizes city officials to appropriate up to $15 million in each year to cushion potential hits to small businesses due to the shift. The personal property tax exemption for small businesses would also be increased to $30,000 from $10,000.

The deal requires a new home rule petition to make its way through the City Council and Beacon Hill. The clock is ticking on getting the new legislation approved, since tax rates must be approved by the City Council in November, and bills go out to taxpayers by January.

Spilka issued a statement lauding the compromise. “On these tough issues, I have long believed it is important to bring people together to get the best result. I’m very pleased that the stakeholders have agreed on a proposal that helps residents and balances concerns about the impact on Boston’s businesses. This was our goal when we started negotiating months ago, and I appreciate all parties for their commitment to reaching compromise,” the statement said.

Greg Maynard of the Boston Policy Institute, a think tank that has sought to draw attention to declining commercial property values and how that will affect Boston, issued a statement saying the tax shift deal is a Band-Aid on a problem that is not going away.

“This year’s 7 percent decline in commercial property value and 28 percent jump in homeowners’ property taxes is not a one-time event which can be ‘smoothed out’ with a temporary, three-year tax shift,” he said. “This year’s sharp decline in commercial real estate values will continue for years to come.”

Like Wu, the business officials involved in the tax shift negotiations said they welcomed the deal. Rooney said he hopes the deal mitigates the impact on Boston residents while avoiding new burdens on the commercial property market. But he said the compromise is a temporary reprieve, and the city needs to bring its spending in line with revenues.

“This does not solve the underlying structural changes to the commercial property market and the property tax burden shift between residents and businesses,” he said. “Those fundamental changes may require new approaches to city revenues and expenditures. Fiscal discipline, forward thinking about spending proposals and city contracts (and their impacts), and constraints on revenue collection must all be considered in the future and not dismissed. “

In addition to Rooney, the leaders of the business groups involved in the negotiations included Tamara Small of NAIOP Massachusetts; Marty Walz, the interim president of the Boston Municipal Research Bureau; and Doug Howgate, the president of the Massachusetts Taxpayers Foundation.

This post has been updated.

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