When you’re in a hole, it’s best to stop digging.
But as Boston’s swath of unoccupied commercial buildings pose an ominous tax revenue shortfall of $1 billion, Mayor Michelle Wu is grabbing a shovel.
As the Herald reported, Wu rolled out an “emergency law” to allow Boston to begin increasing property taxes on businesses beyond the state limit next year.
The mayor’s home rule petition, if approved by the City Council and state lawmakers, would provide a statewide option allowing municipalities to shift more of the tax burden from residents to businesses, exceeding the state cap of 175% up to 200% in the next fiscal year that begins July 1.
Wu cited the city budget’s heavy reliance on property taxes, which contribute three-quarters of annual revenue, most of which comes from commercial property.
There is a large downside, however. When tax rates are raised on commercial properties, “that further depresses the value of those properties which are already in distress,” Evan Horowitz, executive director of The Center for State Policy Analysis at Tufts University, said Tuesday.
“So over the long term, with approximate values going down, we actually collect less in future property taxes as well,” Horowitz said.
The domino effect would continue. As the state’s website notes in an explanation of Property Assessments, Valuation, & Taxation in Commercial Real Estate, “A tax shift has been moving from residential to commercial/industrial properties. These taxes are passed through to the tenants and can make one town more expensive to operate a business vs. another town. Can place a commercial building at a disadvantage in certain towns.”
Why would a company lease office space in Boston with the specter of higher rents on the horizon because of tax increases? With an added speed bump to attracting lessees, building owners face continued loss of income, while still having to maintain and repair their property.
Consider too the retail stores and other operations that are part of mixed-use office and retail space. A location with a lot of foot traffic is great, but if the rent’s too damn high, it’s a wash.
Wu’s move does nothing to bring office buildings in Boston back to full strength, nor does it create an environment in which businesses flock to the city to set up shop.
The mayor is trying to protect residents from higher taxes, which is laudable. But the revenue stream should not be limited to commercial and residential properties.
There is also the potential cash cow of tax-exempt properties, so designated because they’re characterized as nonprofit charitable organizations. On the heels of reports that costs at Wellesley College, Boston University, Tufts and Yale will hit $90,000 per year this fall, it’s hard to get on board with letting them skip property taxes.
The Payment in Lieu of Taxes program, in which such entities volunteer payments to the city, is being revisited by the City Council, as it should. Boston can’t afford to give some property owners a free pass.
Nor can it afford the economic consequences of upping the tax burden on commercial properties still struggling to come back from the pandemic.
The city needs to unearth a better solution.
