Report: Boston could look to new taxes to diversify budgetary revenue amid commercial market woes
A fiscal watchdog group released a new report that highlights a number of ways to make Boston’s annual budget less reliant on property tax revenue in light of falling commercial values.
Released Tuesday by the Boston Municipal Research Bureau, the report hones in on ways the city can look to diversify its revenue sources at a time when its eroding commercial tax base has the mayor lobbying the Legislature for a change in state law that would temporarily allow Boston to tax businesses at a higher rate. The effort comes amid projections of a $1 billion-plus budget shortfall over the next five years.
It also tees off a City Council hearing set for Dec. 3 on the same topic, that along with the new report, cites Boston’s increased reliance on property taxes, which accounted for about 52% of total budgetary revenue in 2002 compared to roughly 71% today.
“Boston is the most dependent on property tax to fund its operating budget of any major city in the United States,” the report states. “Revenue diversification is a means to allow the city greater financial flexibility to respond to changes in the financial landscape while maintaining services for the community, and it should be an essential part of Boston’s financial strategy moving forward.”
Boston could look to impose a local sales tax, like other major cities, or a local income tax, in addition to the state and federal income tax, the report states.
Other options, it says, could include taxes and fees on parking, such as by charging residents who have a resident parking sticker, or imposing a commercial parking tax on gross receipts from private off-street parking like garages and lots.
The city could also look to implement a sugary drink tax on soda and other beverages with added sugars, a local tax on alcohol and tobacco products, or a tax on tickets for professional sports games and concerts, the report states.
The Research Bureau further floated the possibility of raising existing excise taxes, such as the meals tax, from 0.75% to 1%, and lodging excise, from 6.5% to 7.5%, as well as adding a 5% surcharge on the existing motor vehicle excise tax, as proposed by Gov. Maura Healey in the Municipal Modernization Act.
Those increases, based on the current budget, would have netted roughly $37.3 million in new revenue. The Research Bureau estimates that every 1% drop in property tax revenue reliance in the budget would require $46.3 million in new revenue to offset it, and that returning to 50% reliance, as seen two decades ago, would require $977 million in new revenues.
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While recommending revenue diversification, the Research Bureau cautioned that any new taxes would likely require a home rule approval process on Beacon Hill, and that the strategy may negatively impact the city’s competitiveness.
“If the city implements certain taxes that no other municipalities have, such as a local sales or income tax, Boston would be at a competitive disadvantage,” the report states. “Understanding who will bear the costs of new revenue sources and the broader effects on individuals, businesses and the local economy is essential.”
Revenue diversification would also rely on the mayor’s “willingness to forgo collecting the maximum amount legally allowed of property taxes,” the report states, while adding that the city should look to control spending, in light of this fiscal year’s 8% budget growth.
Boston Mayor Michelle Wu (Nancy Lane/Boston Herald, File)