Boston City Government’s fiscal budget has been increasing year after year, and it is projected to reach $4.6 billion for the 2025 fiscal year. Recently, the Greater Boston Chamber of Commerce submitted a letter to the City Council, requesting financial restraint from the city government and advocating against raising commercial property tax rates.
Mayor of Boston, Michelle Wu, proposed a budget of around $4.6 billion for the 2025 fiscal year in April. This represents an 8% increase compared to the current fiscal year, amounting to $344 million. Boston’s fiscal budget saw a growth rate of 6.8% last year and 5.9% the year before. The consecutive years of high growth in the fiscal budget have raised concerns for the Greater Boston Chamber of Commerce.
“Despite the increase in fiscal revenue for the city government in recent years, the evolving financial environment may impact the city’s income in the foreseeable future,” stated James Rooney, CEO of the Greater Boston Chamber of Commerce, in the letter submitted to the city council.
Rooney expressed the hope that city council members would consider implementing financial restraint to limit the increase in fiscal expenditure to between 3% and 4%.
“This year’s high interest rates and complex management processes will slow down the growth of commercial real estate. Federal pandemic relief funds can no longer support the city government’s finances. The city government should proceed cautiously, as if there is a need to balance expenditure proposals through taxation, residents and businesses will bear the consequences,” Rooney’s letter stated.
A research report released in February by the Boston Policy Institute, a nonprofit organization, discussed the decreasing value of commercial real estate in the Boston area following the pandemic, with a potential decline of up to 30% by 2029.
The report, authored by researchers from Tufts University, mentioned that Boston’s property tax revenue could decrease by about $500 million annually as a result. Currently, approximately 35% of Boston’s fiscal revenue relies on property taxes. The decline in commercial real estate value could potentially put the city government’s finances in jeopardy.
On April 23, the Boston City Government website announced that Mayor Michelle Wu had submitted a proposal to the Massachusetts Legislature, seeking permission to adjust commercial property tax rates more flexibly to “protect homeowners from increased tax burdens due to the declining value of commercial real estate.”
In essence, Wu aims to maintain fiscal revenue by increasing commercial property tax rates while avoiding raising residential property taxes.
Currently, Boston’s commercial property tax rate is about 2.5 times that of the residential sector. Due to Massachusetts law setting a maximum growth rate for commercial property tax rates, if the value of commercial real estate decreases, the city government would need to correspondingly raise residential property tax rates.
However, should the Massachusetts Legislature approve Wu’s proposal, the Boston City Government would have the authority to adjust tax rates between commercial and residential properties more flexibly within a maximum of five years, making commercial real estate bear a greater tax burden. This power of the city government would only come into effect when there is a significant decrease in commercial property values within the city.
“As we invest in revitalizing our downtown and commercial corridors in Boston to address evolving market trends, we are also working with all stakeholders to protect residents and homeowners from sudden and significant tax burden increases,” stated Mayor Wu.
The Greater Boston Chamber of Commerce opposes Mayor Wu’s tax increase policy in the letter, as the growth in commercial property tax rates would ultimately burden residents and businesses.
“The proposed 8% budget increase, along with the suggestion to increase the tax burden on commercial property owners (which the Chamber strongly opposes), will cause more harm to struggling downtown businesses,” said Rooney in the letter, “This tax burden shift will transfer from commercial property owners to tenants, leading to higher rents for small businesses and ground-floor retail stores.”
Another research institution, the Boston Municipal Research Bureau, recently made recommendations to the city government, urging fiscal restraint. This includes limiting the increase in expenses, expanding the city government’s revenue sources, and allocating contingency funds, among other suggestions.