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A sign of things to come? Looming tax crisis in Boston a warning for cities and towns across the region
On Thursday Boston Mayor Michelle Wu unveiled a controversial plan destined to have repercussions for cities and suburbs across the state for months and years to come.
The rise of remote work has decimated a major source of city revenue, slashing the value of now half-empty office buildings and towers. Meanwhile, new development, another major source of city tax revenue, has fallen off a cliff.
The Boston mayor told reporters that cutting hundreds of millions in city services wasn’t an option, nor was raising property taxes.
Instead, Wu chose a third option: Squeeze money out of already beleaguered office building owners by hiking tax rates on commercial properties.
The magnitude of the challenges Boston faces with the rise of remote work and a drop off in new development as interest rates have surged and financing has gone south are somewhat unusual, observers say.
The Hub is more heavily reliant than other major cities on its large collection of office towers and buildings to generate the tax revenue needed to pay teachers, firefighters and police officers.
And adding to the headwinds in Boston is Wu’s counterproductive approach to new development, which is heavy on costly new affordable housing and energy efficiency mandates, critics say.
Yet while Boston’s challenges may be unique in their magnitude, other cities and suburbs across Massachusetts are also likely to feel the pinch from declining commercial property tax revenues.
Cambridge office vacancy rates have hit highs not seen since the dot.com bust in the early 2000s, while in Somerville and Watertown new lab buildings, until recently a major cash cow for local municipalities, have been opening empty amid a glut of research space.
In Quincy, two large office buildings recently sold at deep discounts comparable to some of the fire sales seen in downtown Boston, with 1200 Crown Colony Drive fetching just $6 million, according to Bisnow.
The 236,000 square foot office building had previously garnered $43 million in 2018.
Meanwhile, as they scramble to head off big tax increases on homeowners, local officials in cities and towns across the Boston area are already closely monitoring the progress of Wu’s proposal, which will need state legislative approval.
In fact, Adam Chapdelaine, executive director of the Massachusetts Municipal Association, is holding out Wu’s proposal as a potential template for suburbs and cities looking to head off “crushing property tax increases for homeowners.”
“Already tightly constrained by the limits of Proposition 2½, affected cities and towns may want to pursue thoughtful, measured approaches like Mayor Wu’s proposal to avoid making the region’s housing cost crisis even worse,” Chapdelaine said in a statement.
Of note: The MMA chief was on hand to help brief reporters when Wu unveiled her tax proposal last week.
Not so fast: Wu’s controversial plan to boost tax rates on reeling office buildings not likely to get a quick green light
Boston Mayor Michelle Wu’s proposal to head off a looming fiscal crisis by putting the squeeze on half-empty office buildings has triggered a fierce blowback, and not just by business groups.
The normally Wu-friendly mainstream press has taken the gloves off, with the Globe firing off a tough editorial and Politico’s Massachusetts Playbook doing a deep dive on the mayor’s “woes.”
Now Wu is facing a cool reception from some her fellow Dems and elected leaders, whom she will have to win over in order to push through her plan to raise the city’s already high commercial tax rates even higher.
Boston City Councilor Gabriela Coletta, head of the government operations committee, told Contrarian Boston she is gearing up to hold a hearing on the mayor’s plan.
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