Boston City Hall prepped for commercial market crash behind closed doors while downplaying problem publicly
A fiscal watchdog revealed during a Boston City Council hearing on the mayor’s plan to raise business tax rates that the city was preparing for a commercial real estate market crash long before it told residents.
The testimony came before the body Tuesday as it prepares to take up a vote on the mayor’s revised home rule petition — which seeks to shift more of the city’s tax burden onto businesses beyond what’s allowed by state law to fend off an estimated 28% quarterly tax hike for homeowners in January — on Wednesday.
As far back as February, the City of Boston was preparing for a dramatic shift in property values, per testimony from Marty Walz, interim president of the Boston Municipal Research Bureau, a watchdog group that keeps an eye on city finances.
During the same month, another watchdog group issued an attention-grabbing report that predicted the city could be staring down a $1.2-$1.5 billion budget shortfall over the next five years due to falling commercial property values — driven by vacant office building space that is eroding Boston’s commercial tax base.
In response to the report, the city said, “We have not seen any indications from the real estate market that would translate to a loss of revenue for the city,” or that the current market would “lead to budgetary concerns.” That came as a statement released by Commissioner of Assessing Nicholas Ariniello upon the report’s release by its author, the Boston Policy Institute.
In fact, Walz said, the city was considering legislation that was aimed at tackling such a scenario — in terms of what has since been described by the mayor as a projected commercial revenue shortfall that is pushing more of the tax burden onto homeowners — and was having active discussions with stakeholders.
“The mayor started having conversations with stakeholders to broach the idea about property tax classification in mid-February, and she was seeking feedback on the idea,” Walz said. “It ultimately resulted in a proposal being announced on March 28.”
Walz provided a series of other dates that led up to last week’s compromise agreement between her, the mayor and three other business stakeholders and resulted in the mayor’s revised legislation, to dispute complaints she said she’s heard about that agreement being reached through “private or secret negotiations.”
While intended to shed light on what Walz described as the “lengthy and very public process” that led up to the day’s hearing, the timeline was news to Gregory Maynard, executive director of BPI, which published the mid-February report that was downplayed by City Hall.
“Her timeline makes it clear that the administration has been having private conversations about how bad this problem is for months, while denying that there is a problem in public,” Maynard told the Herald Wednesday.
Ashley Groffenberger, the city’s chief financial officer, maintained the Wu administration’s stance that, “We don’t have a revenue problem in the city,” during Tuesday’s hearing, when questioned about the budget’s 8% growth.
The mayor’s legislation seeks to blunt the impact of a commercial revenue shortfall brought on by declining property values by shifting more of the city’s tax burden onto that sector beyond what is allowed by state law over a three-year period, to prevent a 28% quarterly spike and 14% annual tax spike for the average single-family homeowner.
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If it were to pass the City Council and receive approval from the Legislature, where a prior version stalled in the Senate, the quarterly spike would be roughly 18%, and the annual property tax increase for the average homeowner would be about 9%.
Councilors who favor the proposal, the prior version of which passed the Council by an 8-4 margin last June, and seniors from Mass Senior Action Council spoke to what they see as a sense of urgency to fend off a tax increase that the seniors said may drive them out of their long-time homes in Boston.
Councilor Gabriela Coletta Zapata, who chaired the day’s Government Operations committee hearing, said it was “likely” that she would bring the matter to a vote at the full Council meeting on Wednesday.
Speaking to the late November deadline the mayor has set for the Legislature to take action and city tax rates to be set and certified, Coletta Zapata said, “The bottom line for me is that we are on a timeline and if we don’t do anything right now, we help no one.”
“This is an opportunity to provide that soft landing for folks who are economically vulnerable, folks who are house rich and cash poor,” Coletta Zapata said. “This has real-world implications if we don’t do this, if we don’t move forward.”
Still, Councilors Ed Flynn and John FitzGerald, who voted against the prior home rule petition, echoed warnings from fiscal watchdogs like Maynard and Walz, who, while urging the Council to approve the compromise legislation she helped to craft, warned of what may occur three years from now if commercial values continue to fall.
Walz cautioned that “the home rule petition is not a solution to Boston’s complex public finance and economic development challenges.”
“The new market dynamic for commercial real estate is not a temporary or cyclical change, which means the city, all of us,” Walz said, “must grapple with the budget implications over the long term through responsible approaches to budgeting.”
Marty Walz, interim president of the Boston Municipal Research Bureau (Herald file)