Boston Mayor Advocates Property Tax Shift

Published February 1, 2004

At a December 30 meeting of a special legislative commission on property taxes, Boston Mayor Thomas M. Menino advocated a plan for a temporary shift of the local property tax burden, from residential to commercial property tax payers.

The state legislature in 2003 had ordered the five-member commission to draft a bill by January 12 that would allow communities to raise commercial property tax rates beyond the current limits and phase out the increase in four years.

According to the Boston Globe, Menino’s proposal to make businesses pay a higher property tax rate is “splintering the state’s business community, with real estate heavyweights endorsing the idea and small business owners complaining that they will be disproportionately burdened.” Bill Vernon, state director of the National Federation of Independent Business, said “the property tax proposal will hit neighborhood barber shops, pizza parlors, and convenience stores the hardest and lead to a loss of jobs.

“You can’t increase property taxes on 30,000 to 40,000 businesses in the state of Massachusetts–it won’t work,” said Vernon, whose group represents smaller enterprises.

Homeowners Want Relief

According to the Globe, the proposal would shield homeowners from an average tax increase of 40 percent for single-family houses in 2004. Amalia Barreda of Channel 5 television reported that from the “toniest townhouses on Beacon Hill to the working class three-deckers in South Boston, homeowners are protesting their latest property tax bills.”

City Council member Jim Kelly said his phones are ringing off the hook. “A lot of people that it’s affecting are long-time residents. Many of them are living on a fixed income,” Kelly said.

Channel 5 noted that “while residential property values have skyrocketed, commercial property values have not.” That is why Menino considered his proposal necessary only in the short term.

“We think it’s an anomaly. We don’t think it will ever happen again. All our tax experts and our economists, advisors, on this legislation said it probably won’t happen again,” Menino said.

Drag on the Economy

Reported Barreda, “Commercial property owners do not like the mayor’s solution one bit. Small, neighborhood businesses who say they are already struggling to survive claim that they especially would be taking an unfair hit.”

“It certainly puts a huge drag on the growth and jobs in this state, which are things everybody wants,” Vernon said.

According to the Globe, city officials have noted that even if Menino’s proposal passes, many business owners whose properties are depreciating in value will pay less in property taxes next year than they did this year, though the mayor’s measure would mean their taxes would not fall quite as much. Several of the city’s most prominent business owners say they are willing to accept that deal for the good of the city.

“For us to have a 15 to 20 percent drop with residential properties going up 40 percent is just the wrong message at the wrong time,” said Robert L. Beal of the Beal Companies, which owns residential and commercial properties in Greater Boston. Beal lives on Beacon Hill, one of Boston’s luxury neighborhoods.

But the owners of smaller storefronts will see increases, not decreases, if Menino’s measure passes. “Commercial property is valued on the income–if you have an office tower and 25 percent of the space is vacant, your valuation will go down,” said Eileen McAnneny of Associated Industries of Massachusetts, which has lobbied heavily against Menino’s measure. “That isn’t true for the gas station on the corner, or some of the other commercial properties in neighborhoods.”

Won’t Solve the Problem

Jeff Ciuffreda, vice president of the Affiliated Chambers of Commerce of Greater Springfield, said his group is “sympathetic to the situation that Boston and a few of the other cities find themselves in.” But Ciuffreda said he doubts the proposal will “solve the broader problem of diverging residential and commercial values.”

Menino’s proposal would change the Classification Law, a 1978 amendment to the state constitution that allows cities and towns to set different tax rates for residential and commercial property. The law presumes business owners are “better able to handle” tax increases than homeowners, who may be on fixed incomes. Under the law, the residential rate cannot be less than 50 percent of what it would be if the city did not distinguish between residential and commercial properties, and the commercial rate cannot be higher than 175 percent of what the rate would be without classification.

An unusual divergence between rapidly rising residential property values and stagnant commercial ones has created the problem. Boston and nearly 50 other cities are reaching the 175 percent limit. Menino and other mayors want the limit raised to 200 percent.

“On its face, it purports to be a short-term proposal but in this [government] building when one raises taxes very rarely does one see those taxes go down,” Massachusetts Taxpayers Foundation spokesman Michael Widmer said. “We’re told by the mayor it does end, and it’s only going to be a temporary fix. But what if it’s not?”

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].